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, 2021
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) |
22 West Frontage Road, Northfield,1101 Skokie Boulevard, Suite 500, Northbrook, Illinois 6009360062
(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 |
| ☐ |
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| |||
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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|
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 |
Common Stock, $1 par value |
|
|
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 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net Sales |
| $ | 595,511 |
|
| $ | 460,549 |
|
| $ | 1,133,251 |
|
| $ | 910,536 |
|
| $ | 751,633 |
|
| $ | 595,511 |
|
| $ | 1,426,909 |
|
| $ | 1,133,251 |
|
Cost of Sales |
|
| 483,830 |
|
|
| 362,054 |
|
|
| 912,590 |
|
|
| 732,772 |
|
|
| 620,019 |
|
|
| 483,830 |
|
|
| 1,186,076 |
|
|
| 912,590 |
|
Gross Profit |
|
| 111,681 |
|
|
| 98,495 |
|
|
| 220,661 |
|
|
| 177,764 |
|
|
| 131,614 |
|
|
| 111,681 |
|
|
| 240,833 |
|
|
| 220,661 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Selling |
|
| 14,990 |
|
|
| 12,921 |
|
|
| 29,494 |
|
|
| 26,453 |
|
|
| 15,552 |
|
|
| 14,990 |
|
|
| 30,829 |
|
|
| 29,494 |
|
Administrative |
|
| 23,974 |
|
|
| 20,731 |
|
|
| 46,612 |
|
|
| 39,603 |
|
|
| 24,079 |
|
|
| 23,974 |
|
|
| 45,651 |
|
|
| 46,612 |
|
Research, development and technical services |
|
| 14,988 |
|
|
| 13,531 |
|
|
| 30,137 |
|
|
| 27,358 |
|
|
| 16,690 |
|
|
| 14,988 |
|
|
| 33,163 |
|
|
| 30,137 |
|
Deferred compensation (income) expense |
|
| 958 |
|
|
| 6,464 |
|
|
| 3,652 |
|
|
| (859 | ) |
|
| (3,406 | ) |
|
| 958 |
|
|
| (10,907 | ) |
|
| 3,652 |
|
|
|
| 54,910 |
|
|
| 53,647 |
|
|
| 109,895 |
|
|
| 92,555 |
|
|
| 52,915 |
|
|
| 54,910 |
|
|
| 98,736 |
|
|
| 109,895 |
|
Goodwill impairment (Note 18) |
|
| (978 | ) |
|
| — |
|
|
| (978 | ) |
|
| — |
| ||||||||||||||||
Business restructuring expenses (Note 16) |
|
| (114 | ) |
|
| (225 | ) |
|
| (195 | ) |
|
| (582 | ) |
|
| (81 | ) |
|
| (114 | ) |
|
| (133 | ) |
|
| (195 | ) |
Operating Income |
|
| 56,657 |
|
|
| 44,623 |
|
|
| 110,571 |
|
|
| 84,627 |
|
|
| 77,640 |
|
|
| 56,657 |
|
|
| 140,986 |
|
|
| 110,571 |
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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Interest, net |
|
| (1,567 | ) |
|
| (1,259 | ) |
|
| (3,091 | ) |
|
| (2,489 | ) |
|
| (2,727 | ) |
|
| (1,567 | ) |
|
| (5,033 | ) |
|
| (3,091 | ) |
Other, net (Note 15) |
|
| 2,758 |
|
|
| 4,437 |
|
|
| 3,504 |
|
|
| 1,175 |
|
|
| (5,369 | ) |
|
| 2,758 |
|
|
| (7,019 | ) |
|
| 3,504 |
|
|
|
| 1,191 |
|
|
| 3,178 |
|
|
| 413 |
|
|
| (1,314 | ) |
|
| (8,096 | ) |
|
| 1,191 |
|
|
| (12,052 | ) |
|
| 413 |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Income Before Provision for Income Taxes |
|
| 57,848 |
|
|
| 47,801 |
|
|
| 110,984 |
|
|
| 83,313 |
|
|
| 69,544 |
|
|
| 57,848 |
|
|
| 128,934 |
|
|
| 110,984 |
|
Provision for Income Taxes |
|
| 14,545 |
|
|
| 11,958 |
|
|
| 27,070 |
|
|
| 19,931 |
|
|
| 17,418 |
|
|
| 14,545 |
|
|
| 31,999 |
|
|
| 27,070 |
|
Net Income |
|
| 43,303 |
|
|
| 35,843 |
|
|
| 83,914 |
|
|
| 63,382 |
|
|
| 52,126 |
|
|
| 43,303 |
|
|
| 96,935 |
|
|
| 83,914 |
|
Net Income Attributable to Noncontrolling Interest (Note 2) |
|
| (25 | ) |
|
| (136 | ) |
|
| (25 | ) |
|
| (130 | ) | ||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interest |
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| (25 | ) | ||||||||||||||||
Net Income Attributable to Stepan Company |
| $ | 43,278 |
|
| $ | 35,707 |
|
| $ | 83,889 |
|
| $ | 63,252 |
|
| $ | 52,126 |
|
| $ | 43,278 |
|
| $ | 96,935 |
|
| $ | 83,889 |
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Net Income Per Common Share Attributable to Stepan Company (Note 10): |
|
|
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Basic |
| $ | 1.89 |
|
| $ | 1.56 |
|
| $ | 3.65 |
|
| $ | 2.75 |
|
| $ | 2.29 |
|
| $ | 1.89 |
|
| $ | 4.24 |
|
| $ | 3.65 |
|
Diluted |
| $ | 1.85 |
|
| $ | 1.54 |
|
| $ | 3.59 |
|
| $ | 2.72 |
|
| $ | 2.26 |
|
| $ | 1.85 |
|
| $ | 4.19 |
|
| $ | 3.59 |
|
|
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Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10): |
|
|
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|
|
|
|
|
|
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|
|
|
|
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Basic |
|
| 22,952 |
|
|
| 22,923 |
|
|
| 22,963 |
|
|
| 22,973 |
|
|
| 22,792 |
|
|
| 22,952 |
|
|
| 22,842 |
|
|
| 22,963 |
|
Diluted |
|
| 23,345 |
|
|
| 23,184 |
|
|
| 23,338 |
|
|
| 23,235 |
|
|
| 23,055 |
|
|
| 23,345 |
|
|
| 23,115 |
|
|
| 23,338 |
|
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 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net Income |
| $ | 43,303 |
|
| $ | 35,843 |
|
| $ | 83,914 |
|
| $ | 63,382 |
|
| $ | 52,126 |
|
| $ | 43,303 |
|
| $ | 96,935 |
|
| $ | 83,914 |
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
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|
Foreign currency translation adjustments (1) (Note 11) |
|
| 15,175 |
|
|
| 3,539 |
|
|
| (3,266 | ) |
|
| (37,656 | ) | ||||||||||||||||
Foreign currency translation adjustments (Note 11) (1) |
|
| (36,096 | ) |
|
| 15,175 |
|
|
| (26,267 | ) |
|
| (3,266 | ) | ||||||||||||||||
Defined benefit pension adjustments, net of tax (Note 11) |
|
| 876 |
|
|
| 808 |
|
|
| 1,750 |
|
|
| 1,616 |
|
|
| 434 |
|
|
| 876 |
|
|
| 870 |
|
|
| 1,750 |
|
Derivative instrument activity, net of tax (Note 11) |
|
| (3 | ) |
|
| (2 | ) |
|
| (5 | ) |
|
| (4 | ) |
|
| 2,043 |
|
|
| (3 | ) |
|
| 4,831 |
|
|
| (5 | ) |
Total Other Comprehensive Income |
|
| 16,048 |
|
|
| 4,345 |
|
|
| (1,521 | ) |
|
| (36,044 | ) |
|
| (33,619 | ) |
|
| 16,048 |
|
|
| (20,566 | ) |
|
| (1,521 | ) |
Comprehensive Income |
|
| 59,351 |
|
|
| 40,188 |
|
|
| 82,393 |
|
|
| 27,338 |
|
|
| 18,507 |
|
|
| 59,351 |
|
|
| 76,369 |
|
|
| 82,393 |
|
Comprehensive Income Attributable to Noncontrolling Interest (Note 2) |
|
| (51 | ) |
|
| (138 | ) |
|
| (43 | ) |
|
| (119 | ) |
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (43 | ) |
Comprehensive Income Attributable to Stepan Company |
| $ | 59,300 |
|
| $ | 40,050 |
|
| $ | 82,350 |
|
| $ | 27,219 |
|
| $ | 18,507 |
|
| $ | 59,300 |
|
| $ | 76,369 |
|
| $ | 82,350 |
|
(1)Includes foreign currency translation adjustments related to noncontrolling interest.
(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) |
| June 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 127,053 |
|
| $ | 349,938 |
|
| $ | 194,585 |
|
| $ | 159,186 |
| |
Receivables, net |
|
| 391,730 |
|
|
| 301,318 |
|
|
| 518,750 |
|
|
| 419,542 |
| |
Inventories (Note 6) |
|
| 266,088 |
|
|
| 218,783 |
|
|
| 340,712 |
|
|
| 305,538 |
| |
Other current assets |
|
| 30,984 |
|
|
| 35,612 |
|
|
| 33,320 |
|
|
| 29,102 |
| |
Total current assets |
|
| 815,855 |
|
|
| 905,651 |
|
|
| 1,087,367 |
|
|
| 913,368 |
| |
Property, Plant and Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |
Cost |
|
| 1,991,390 |
|
|
| 1,872,650 |
|
|
| 2,182,693 |
|
|
| 2,090,957 |
| |
Less: Accumulated depreciation |
|
| (1,226,606 | ) |
|
| (1,189,983 | ) |
|
| (1,263,159 | ) |
|
| (1,240,353 | ) | |
Property, plant and equipment, net |
|
| 764,784 |
|
|
| 682,667 |
|
|
| 919,534 |
|
|
| 850,604 |
| |
Goodwill, net (Note 17) |
|
| 97,988 |
|
|
| 27,972 |
|
|
| 93,152 |
|
|
| 97,187 |
| |
Other intangible assets, net (Note 17) |
|
| 65,461 |
|
|
| 24,068 |
|
|
| 54,956 |
|
|
| 60,784 |
| |
Long-term investments (Note 3) |
|
| 32,576 |
|
|
| 30,652 |
|
|
| 24,914 |
|
|
| 34,495 |
| |
Operating lease assets (Note 7) |
|
| 69,942 |
|
|
| 62,421 |
|
|
| 65,525 |
|
|
| 69,612 |
| |
Other non-current assets |
|
| 40,699 |
|
|
| 18,905 |
|
|
| 43,351 |
|
|
| 39,562 |
| |
Total assets |
| $ | 1,887,305 |
|
| $ | 1,752,336 |
|
| $ | 2,288,799 |
|
| $ | 2,065,612 |
| |
Liabilities and Equity |
|
|
|
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|
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|
|
|
|
|
|
|
|
|
| |
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current maturities of long-term debt (Note 14) |
| $ | 42,352 |
|
| $ | 37,857 |
|
| $ | 142,489 |
|
| $ | 40,718 |
| |
Accounts payable |
|
| 286,917 |
|
|
| 236,750 |
|
|
| 366,233 |
|
|
| 323,362 |
| |
Accrued liabilities |
|
| 135,232 |
|
|
| 141,947 |
|
|
| 129,506 |
|
|
| 136,396 |
| |
Total current liabilities |
|
| 464,501 |
|
|
| 416,554 |
|
|
| 638,228 |
|
|
| 500,476 |
| |
Deferred income taxes |
|
| 9,995 |
|
|
| 20,745 |
|
|
| 11,375 |
|
|
| 12,491 |
| |
Long-term debt, less current maturities (Note 14) |
|
| 196,529 |
|
|
| 160,812 |
|
|
| 383,503 |
|
|
| 322,862 |
| |
Non-current operating lease liabilities (Note 7) |
|
| 58,180 |
|
|
| 51,567 |
|
|
| 53,118 |
|
|
| 56,668 |
| |
Other non-current liabilities |
|
| 107,584 |
|
|
| 114,293 |
|
|
| 76,864 |
|
|
| 98,922 |
| |
Commitments and Contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock, $1 par value; authorized 60,000,000 shares; Issued 26,752,093 shares in 2021 and 26,658,032 shares in 2020 |
|
| 26,752 |
|
|
| 26,658 |
| |||||||||
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 |
|
| 213,969 |
|
|
| 206,716 |
|
|
| 229,510 |
|
|
| 220,820 |
| |
Accumulated other comprehensive loss (Note 11) |
|
| (138,420 | ) |
|
| (136,881 | ) |
|
| (173,802 | ) |
|
| (153,236 | ) | |
Retained earnings |
|
| 1,093,994 |
|
|
| 1,023,829 |
|
|
| 1,215,500 |
|
|
| 1,133,550 |
| |
Less: Common treasury stock, at cost, 4,286,578 shares in 2021 and 4,185,242 shares in 2020 |
|
| (147,494 | ) |
|
| (133,629 | ) | |||||||||
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 |
|
| 1,048,801 |
|
|
| 986,693 |
|
|
| 1,125,711 |
|
|
| 1,074,193 |
| |
Noncontrolling interest (Note 2) |
|
| 1,715 |
|
|
| 1,672 |
| |||||||||
Total equity |
|
| 1,050,516 |
|
|
| 988,365 |
|
|
| 1,125,711 |
|
|
| 1,074,193 |
| |
Total liabilities and equity |
| $ | 1,887,305 |
|
| $ | 1,752,336 |
|
| $ | 2,288,799 |
|
| $ | 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) |
| Six Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 83,914 |
|
| $ | 63,382 |
|
| $ | 96,935 |
|
| $ | 83,914 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 45,311 |
|
|
| 40,329 |
|
|
| 46,252 |
|
|
| 45,311 |
|
Deferred compensation |
|
| 3,652 |
|
|
| (859 | ) |
|
| (10,907 | ) |
|
| 3,652 |
|
Realized and unrealized gains on long-term investments |
|
| (2,761 | ) |
|
| (75 | ) | ||||||||
Realized and unrealized (gains) losses on long-term investments |
|
| 6,972 |
|
|
| (2,761 | ) | ||||||||
Stock-based compensation |
|
| 5,346 |
|
|
| 4,191 |
|
|
| 6,955 |
|
|
| 5,346 |
|
Deferred income taxes |
|
| (39,475 | ) |
|
| 1,427 |
|
|
| 2,241 |
|
|
| (39,475 | ) |
Goodwill impairment (Note 18) |
|
| 978 |
|
|
| — |
| ||||||||
Other non-cash items |
|
| 92 |
|
|
| 655 |
|
|
| 1,142 |
|
|
| 92 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
| (68,033 | ) |
|
| (23,253 | ) |
|
| (111,051 | ) |
|
| (68,033 | ) |
Inventories |
|
| (35,747 | ) |
|
| (9,740 | ) |
|
| (38,564 | ) |
|
| (35,747 | ) |
Other current assets |
|
| (63 | ) |
|
| (6,077 | ) |
|
| (4,838 | ) |
|
| (63 | ) |
Accounts payable and accrued liabilities |
|
| 34,027 |
|
|
| (8,284 | ) |
|
| 43,326 |
|
|
| 34,027 |
|
Pension liabilities |
|
| (971 | ) |
|
| (323 | ) |
|
| (1,113 | ) |
|
| (971 | ) |
Environmental and legal liabilities |
|
| (463 | ) |
|
| (3,116 | ) |
|
| (379 | ) |
|
| (463 | ) |
Deferred revenues |
|
| (134 | ) |
|
| 243 |
|
|
| 203 |
|
|
| (134 | ) |
Net Cash Provided By Operating Activities |
|
| 24,695 |
|
|
| 58,500 |
|
|
| 38,152 |
|
|
| 24,695 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
| (74,868 | ) |
|
| (54,671 | ) |
|
| (129,463 | ) |
|
| (74,868 | ) |
Asset acquisition (Note 17) |
|
| (3,503 | ) |
|
| (2,040 | ) |
|
| — |
|
|
| (3,503 | ) |
Business acquisition, net of cash acquired (Note 17) |
|
| (184,560 | ) |
|
| — |
|
|
| — |
|
|
| (184,560 | ) |
Other, net |
|
| 1,430 |
|
|
| 2,331 |
|
|
| 3,156 |
|
|
| 1,430 |
|
Net Cash Used In Investing Activities |
|
| (261,501 | ) |
|
| (54,380 | ) |
|
| (126,307 | ) |
|
| (261,501 | ) |
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving debt and bank overdrafts, net (Note 14) |
|
| 4,495 |
|
|
| — |
|
|
| 101,771 |
|
|
| 4,495 |
|
Other debt borrowings (Note 14) |
|
| 50,000 |
|
|
| — |
|
|
| 75,000 |
|
|
| 50,000 |
|
Other debt repayments |
|
| (14,286 | ) |
|
| (14,286 | ) |
|
| (14,286 | ) |
|
| (14,286 | ) |
Dividends paid |
|
| (13,724 | ) |
|
| (12,371 | ) |
|
| (14,985 | ) |
|
| (13,724 | ) |
Company stock repurchased |
|
| (10,895 | ) |
|
| (13,753 | ) |
|
| (16,976 | ) |
|
| (10,895 | ) |
Stock option exercises |
|
| 1,087 |
|
|
| 392 |
|
|
| 185 |
|
|
| 1,087 |
|
Other, net |
|
| (1,920 | ) |
|
| (415 | ) |
|
| (2,612 | ) |
|
| (1,920 | ) |
Net Cash (Used In) Provided By Financing Activities |
|
| 14,757 |
|
|
| (40,433 | ) | ||||||||
Net Cash Provided By Financing Activities |
|
| 128,097 |
|
|
| 14,757 |
| ||||||||
Effect of Exchange Rate Changes on Cash |
|
| (836 | ) |
|
| (6,193 | ) |
|
| (4,543 | ) |
|
| (836 | ) |
Net Decrease in Cash and Cash Equivalents |
|
| (222,885 | ) |
|
| (42,506 | ) | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 35,399 |
|
|
| (222,885 | ) | ||||||||
Cash and Cash Equivalents at Beginning of Period |
|
| 349,938 |
|
|
| 315,383 |
|
|
| 159,186 |
|
|
| 349,938 |
|
Cash and Cash Equivalents at End of Period |
| $ | 127,053 |
|
| $ | 272,877 |
|
| $ | 194,585 |
|
| $ | 127,053 |
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments of income taxes, net of refunds/payments |
| $ | 43,472 |
|
| $ | 7,501 |
|
| $ | 19,353 |
|
| $ | 43,472 |
|
Cash payments of interest |
| $ | 4,622 |
|
| $ | 4,810 |
|
| $ | 7,184 |
|
| $ | 4,622 |
|
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, 20212022
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, 2021,2022, and its results of operations and cash flows for the three and six months ended June 30, 20212022 and 2020, and cash flows for the six months ended June 30, 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.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 Company equity and equity attributable to noncontrolling interests for the three and six months ended June 30, 20212022 and 2020:2021:
(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 |
|
| Noncontrolling Interest (1) |
|
| Total |
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Common Treasury Stock |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings |
| |||||||||||||
Balance at March 31, 2021 |
|
| 1,003,946 |
|
|
| 26,726 |
|
|
| 209,471 |
|
|
| (137,052 | ) |
|
| (154,442 | ) |
|
| 1,057,579 |
|
|
| 1,664 |
| ||||||||||||||||||||||||
Balance, March 31, 2022 |
| $ | 1,116,738 |
|
| $ | 26,814 |
|
| $ | 224,500 |
|
| $ | (165,239 | ) |
| $ | (140,183 | ) |
| $ | 1,170,846 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 10,779 shares of common stock under stock option plan |
|
| 706 |
|
|
| 11 |
|
|
| 695 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Issuance of 1,133 shares of common stock under stock option plan |
|
| 71 |
|
|
| 1 |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of 73,745 shares of common stock |
|
| (9,906 | ) |
|
| — |
|
|
| — |
|
|
| (9,906 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Purchase of 69,734 shares of common stock |
|
| (7,041 | ) |
|
| — |
|
|
| — |
|
|
| (7,041 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based and deferred compensation |
|
| 3,282 |
|
|
| 15 |
|
|
| 3,803 |
|
|
| (536 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,908 |
|
|
| 10 |
|
|
| 4,940 |
|
|
| (42 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 43,303 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 43,278 |
|
|
| 25 |
|
|
| 52,126 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 52,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| 16,048 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,022 |
|
|
| — |
|
|
| 26 |
|
|
| (33,619 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33,619 | ) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.305 per share) |
|
| (6,863 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,863 | ) |
|
| — |
| ||||||||||||||||||||||||
Balance at June 30, 2021 |
| $ | 1,050,516 |
|
| $ | 26,752 |
|
| $ | 213,969 |
|
| $ | (147,494 | ) |
| $ | (138,420 | ) |
| $ | 1,093,994 |
|
| $ | 1,715 |
| ||||||||||||||||||||||||
Common stock ($0.335 per share) |
|
| (7,472 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,472 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2022 |
| $ | 1,125,711 |
|
| $ | 26,825 |
|
| $ | 229,510 |
|
| $ | (172,322 | ) |
| $ | (173,802 | ) |
| $ | 1,215,500 |
|
(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 2,647 shares of common stock under stock option plan |
|
| 185 |
|
|
| 3 |
|
|
| 182 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of 167,940 shares of common stock |
|
| (16,976 | ) |
|
| — |
|
|
| — |
|
|
| (16,976 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based and deferred compensation |
|
| 6,925 |
|
|
| 61 |
|
|
| 8,508 |
|
|
| (1,644 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 96,935 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 96,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| (20,566 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,566 | ) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.670 per share) |
|
| (14,985 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,985 | ) |
Balance, June 30, 2022 |
| $ | 1,125,711 |
|
| $ | 26,825 |
|
| $ | 229,510 |
|
| $ | (172,322 | ) |
| $ | (173,802 | ) |
| $ | 1,215,500 |
|
(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, March 31, 2021 |
| $ | 1,003,946 |
|
| $ | 26,726 |
|
| $ | 209,471 |
|
| $ | (137,052 | ) |
| $ | (154,442 | ) |
| $ | 1,057,579 |
|
| $ | 1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 10,779 shares of common stock under stock option plan |
|
| 706 |
|
|
| 11 |
|
|
| 695 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of 73,745 shares of common stock |
|
| (9,906 | ) |
|
| — |
|
|
| — |
|
|
| (9,906 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based and deferred compensation |
|
| 3,282 |
|
|
| 15 |
|
|
| 3,803 |
|
|
| (536 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 43,303 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 43,278 |
|
|
| 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
| 16,048 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,022 |
|
|
| — |
|
|
| 26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.305 per share) |
|
| (6,863 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,863 | ) |
|
| — |
|
Balance, June 30, 2021 |
| $ | 1,050,516 |
|
| $ | 26,752 |
|
| $ | 213,969 |
|
| $ | (147,494 | ) |
| $ | (138,420 | ) |
| $ | 1,093,994 |
|
| $ | 1,715 |
|
(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 at December 31, 2020 |
| $ | 988,365 |
|
| $ | 26,658 |
|
| $ | 206,716 |
|
| $ | (133,629 | ) |
| $ | (136,881 | ) |
| $ | 1,023,829 |
|
| $ | 1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 16,565 shares of common stock under stock option plan |
|
| 1,087 |
|
|
| 17 |
|
|
| 1,070 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of 82,045 shares of common stock |
|
| (10,895 | ) |
|
| — |
|
|
| — |
|
|
| (10,895 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based and deferred compensation |
|
| 3,290 |
|
|
| 77 |
|
|
| 6,183 |
|
|
| (2,970 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 83,914 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83,889 |
|
|
| 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| (1,521 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,539 | ) |
|
| — |
|
|
| 18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.610 per share) |
|
| (13,724 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,724 | ) |
|
| — |
|
Balance at June 30, 2021 |
| $ | 1,050,516 |
|
| $ | 26,752 |
|
| $ | 213,969 |
|
| $ | (147,494 | ) |
| $ | (138,420 | ) |
| $ | 1,093,994 |
|
| $ | 1,715 |
|
(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 at March 31, 2020 |
|
| 867,472 |
|
|
| 26,541 |
|
|
| 195,661 |
|
|
| (122,685 | ) |
|
| (176,546 | ) |
|
| 943,807 |
|
|
| 694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 3,933 shares of common stock under stock option plan |
|
| 237 |
|
|
| 4 |
|
|
| 233 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of 71,555 shares of common stock |
|
| (6,510 | ) |
|
| — |
|
|
| — |
|
|
| (6,510 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based and deferred compensation |
|
| 3,043 |
|
|
| 7 |
|
|
| 3,053 |
|
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 35,843 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35,707 |
|
|
| 136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| 4,345 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,343 |
|
|
| — |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.275 per share) |
|
| (6,169 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,169 | ) |
|
| — |
|
Balance at June 30, 2020 |
| $ | 898,261 |
|
| $ | 26,552 |
|
| $ | 198,947 |
|
| $ | (129,212 | ) |
| $ | (172,203 | ) |
| $ | 973,345 |
|
| $ | 832 |
|
(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 6,680 shares of common stock under stock option plan |
|
| 392 |
|
|
| 7 |
|
|
| 385 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of 160,780 shares of common stock |
|
| (13,753 | ) |
|
| — |
|
|
| — |
|
|
| (13,753 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based and deferred compensation |
|
| 4,159 |
|
|
| 52 |
|
|
| 5,427 |
|
|
| (1,320 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 63,382 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,252 |
|
|
| 130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| (36,044 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,033 | ) |
|
| — |
|
|
| (11 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($0.550 per share) |
|
| (12,371 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,371 | ) |
|
| — |
|
Balance at June 30, 2020 |
| $ | 898,261 |
|
| $ | 26,552 |
|
| $ | 198,947 |
|
| $ | (129,212 | ) |
| $ | (172,203 | ) |
| $ | 973,345 |
|
| $ | 832 |
|
| (1) | Reflects the noncontrolling interest in the Company’s China joint venture. |
|
3. | FAIR VALUE MEASUREMENTS |
The following were the financial instruments held by the Company at June 30, 2021, and December 31, 2020, and the methods and assumptions used to estimate the instruments’ fair values:
Cash and cash equivalents
Carrying value approximated fair value because of the short maturity of the instruments. Fair value of cash and cash equivalents is a Level 1 measurement.
Derivative assets and liabilities
Derivative assets and liabilities include the foreign currency exchange and interest rate swap contracts discussed in Note 4, Derivate Instruments, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q). Fair value and carrying value were the same because the contracts were recorded at fair value. The fair values of the foreign currency contracts were calculated as the difference between the applicable forward foreign exchange rates at the reporting date and the contracted foreign exchange rates multiplied by the contracted notional amounts. See the table below that describes financial assets and liabilities measured on a recurring basis for the reported fair values of derivative assets and liabilities.
Long-term investments
Long-term investments include the mutual fund assets the Company held to fund a portion of its deferred compensation liabilities and all of its non-qualified supplemental executive defined contribution obligations (see the defined contribution plans section of Note 9, Postretirement Benefit Plans, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q)). Fair value and carrying value were the same because the mutual fund assets were recorded at fair value. Fair values for the mutual funds were calculated using the published market price per unit at the reporting date multiplied by the number of units held at the reporting date. See the table that follows the financial instrument descriptions for the reported fair value of long-term investments.
Debt obligations
The fair value of debt with original maturities greater than one year comprised the combinedinterest rate swaps was calculated as the difference between the contracted swap rate and the floating interest rate multiplied by the present values of scheduled principal and interest payments for eachvalue of the various loans, individually discounted at rates equivalent to those which could be obtained by the Company for new debt issues with durations equal to the average life to maturity of each loan. The fair valuesnotional amount of the remaining Company debt obligations approximated their carrying values due to the short-term nature of the debt. The Company’s fair value measurements for debt fall within Level 2 of the fair value hierarchy.contract.
8
At June 30, 2021,2022, and December 31, 2020,2021, the fair values and related carrying values of debt, including current maturities, were as follows (the fair value and carrying value amounts are presented without regard to unamortized debt issuance costs of $614,000$783,000 and $617,000$710,000 as of June 30, 20212022 and December 31, 2020,2021, respectively):
(In thousands) |
| June 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Fair value |
| $ | 248,832 |
|
| $ | 210,370 |
|
| $ | 485,293 |
|
| $ | 369,456 |
|
Carrying value |
|
| 239,495 |
|
|
| 199,286 |
|
|
| 526,775 |
|
|
| 364,290 |
|
The following tables present financial assets and liabilities, excluding cash and cash equivalents, measured on a recurring basis at fair value as of June 30, 2021,2022, and December 31, 2020,2021, and the level within the fair value hierarchy in which the fair value measurements fall:
(In thousands) |
| June 30, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| June 30, 2022 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Mutual fund assets |
| $ | 32,576 |
|
| $ | 32,576 |
|
| $ | — |
|
| $ | — |
|
| $ | 24,914 |
|
| $ | 24,914 |
|
| $ | — |
|
| $ | — |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
| 4,836 |
|
|
| — |
|
|
| 4,836 |
|
|
| — |
| ||||||||||||||||
Foreign currency contracts |
|
| 256 |
|
|
| — |
|
|
| 256 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
Total assets at fair value |
| $ | 32,832 |
|
| $ | 32,576 |
|
| $ | 256 |
|
| $ | — |
|
| $ | 29,760 |
|
| $ | 24,914 |
|
| $ | 4,846 |
|
| $ | — |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||
Foreign currency contracts |
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
|
| 324 |
|
|
| — |
|
|
| 324 |
|
|
| — |
|
Total liabilities at fair value |
| $ | 324 |
|
| $ | — |
|
| $ | 324 |
|
| $ | — |
|
(In thousands) |
| December 31, 2020 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| December 31, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||||||||
Mutual fund assets |
| $ | 30,652 |
|
| $ | 30,652 |
|
| $ | — |
|
| $ | — |
|
| $ | 34,495 |
|
| $ | 34,495 |
|
| $ | — |
|
| $ | — |
| ||||||||
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency contracts |
|
| 335 |
|
|
| — |
|
|
| 335 |
|
|
| — |
|
|
| 436 |
|
|
| — |
|
|
| 436 |
|
|
| — |
| ||||||||
Total assets at fair value |
| $ | 30,987 |
|
| $ | 30,652 |
|
| $ | 335 |
|
| $ | — |
|
| $ | 34,931 |
|
| $ | 34,495 |
|
| $ | 436 |
|
| $ | — |
| ||||||||
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency contracts |
| $ | 566 |
|
| $ | — |
|
| $ | 566 |
|
| $ | — |
|
| $ | 338 |
|
| $ | - |
|
| $ | 338 |
|
| $ | — |
|
4. | DERIVATIVE INSTRUMENTS |
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by the use of derivative instruments is foreign currency exchange risk. The Company holds forward foreign currency exchange contracts that are not designated as any type of accounting hedge as defined by GAAP. The Company uses these contracts to manage its exposure to exchange rate fluctuations on certain Company subsidiary cash, accounts receivable, accounts payable and other obligation balances that are denominated in currencies other than the entities’ functional currencies. The forward foreign exchange contracts are recognized on the balance sheet as either an asset or a liability measured at fair value. Gains and losses arising from recording the foreign exchange contracts at fair value are reported in earnings as offsets to the losses and gains reported in earnings arising from the re-measurement of the asset and liability balances into the applicable functional currencies. At June 30, 2021,2022, and December 31, 2020,2021, the Company had open forward foreign currency exchange contracts, all with durations of one to three months, to buy or sell foreign currencies with U.S. dollar equivalent amounts of $45,745,000$46,023,000 and $48,336,000,$51,542,000, respectively.
The Company is currently exposed to volatility in short-term interest rates and has mitigated certain portions of that risk by using an interest rate swap. The interest rate swap is recognized on the balance sheet as either an asset or a liability measured at fair value. At June 30, 2022, the Company held an interest rate swap contract with a notional value of $100,000,000 that was designated as a cash flow hedge. Period-to-period changes in the fair value of the interest rate swap are initially recognized as gains or losses in other comprehensive income. As the interest rate swap contract is settled, the corresponding gain or loss is reclassified out of accumulated other comprehensive income (AOCI) into earnings. The maturity date of the current interest swap contract is March 10, 2027.
The fair values of the derivative instruments held by the Company on June 30, 2021,2022, and December 31, 200,2021, are disclosed in Note 3, Fair Value Measurements, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q). Derivative instrument gains and losses for the three-three and six-month periodssix months ended June 30, 20212022 and 2020,2021, were immaterial. For amounts reclassified out of accumulated other comprehensive income (loss) (AOCI)AOCI into earnings for the three-three and six-month periodssix months ended June 30, 20212022 and 2020,2021, see Note 11, Accumulated Other Comprehensive Income (Loss), of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).
5. | STOCK-BASED COMPENSATION |
On June 30, 2021, the Company had stock options, stock awards and stock appreciation rights (SARs) outstanding under its 2011 Incentive Compensation Plan. SARs granted prior to 2015 are cash-settled, and SARs granted in 2015 and later are stock-settled. Stock options and SARs granted prior to 2017 generally cliff vested after two years. Starting in 2017, stock options and
9
SARs have a three-year graded vesting feature, with one-third of the awards vesting each year. The Company has elected the straight-line method of expense attribution for the stock options and SARs with the graded vesting feature.
Compensation expense recorded for all stock options, stock awards and SARsstock appreciation rights (SARs) was as follows:
(In thousands) | (In thousands) |
| (In thousands) |
| ||||||||||||||||||||||||
Three Months Ended June 30 | Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||
2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||
2022 | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||
$ | 2,807 |
|
| $ | 2,989 |
|
| $ | 5,346 |
|
| $ | 4,191 |
| 3,998 |
|
| $ | 2,807 |
|
| $ | 6,955 |
|
| $ | 5,346 |
|
The increase in stock-based compensation expense for the first six monthssecond quarter of 20212022 compared to the first six monthssecond quarter of 20202021 was primarily attributable to performance awards and cash-settled SARs. The increase in performance awards compensation expense reflects management’s assessmentthe accelerated vesting of profitability performance targets. The increase in cash-settled SARS compensation expense reflects an increase incertain equity grants for the market value of Company stock during the first half of 2021 versus a decrease in the market value of Company stock during the first half of 2020.Company’s former Chief Executive Officer, who retired on April 25, 2022.
Unrecognized compensation costs for stock options, stock awards and SARs were as follows:
(In thousands) |
| June 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Stock options |
| $ | 3,255 |
|
| $ | 1,993 |
|
| $ | 1,327 |
|
| $ | 2,229 |
|
Stock awards |
|
| 7,995 |
|
|
| 5,313 |
|
|
| 9,924 |
|
|
| 4,971 |
|
SARs |
|
| 7,055 |
|
|
| 4,341 |
|
|
| 7,606 |
|
|
| 4,828 |
|
The increaseschange in unrecognized compensation costs for stock options, stock awards and SARs reflectedprimarily reflects the 20212022 grants of:
|
| Shares |
| |
Stock options |
|
|
|
|
Stock awards (at target) |
|
|
|
|
SARs |
|
|
|
|
The unrecognized compensation costs at June 30, 2021,2022, are expected to be recognized over weighted-average periods of 1.4 years for stock options, 2.0 years for stock options, SARsawards and stock awards.2.0 years for SARs.
6. | INVENTORIES |
The composition of inventories at June 30, 2021,2022, and December 31, 2020,2021, was as follows:
(In thousands) |
| June 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Finished goods |
| $ | 160,467 |
|
| $ | 148,878 |
|
| $ | 208,516 |
|
| $ | 184,010 |
|
Raw materials |
|
| 105,621 |
|
|
| 69,905 |
|
|
| 132,196 |
|
|
| 121,528 |
|
Total inventories |
| $ | 266,088 |
|
| $ | 218,783 |
|
| $ | 340,712 |
|
| $ | 305,538 |
|
7. | LEASES |
The Company’s operating leases are primarily comprised of railcar, real estate, storage tank, auto, trailer and manufacturing/office equipment leases. Railcars and real estate comprise approximately 23 percent and 63 percent, respectively, of the Company’s consolidated ROU asset balance. Except for real estate, typical lease terms range from one to ten years. Real estate lease terms typically range from one to fifty years. The Company’s four principal real estate leases consist of the office lease for new corporate headquarters in Northbrook, Illinois and land leases in the Philippines, Singapore and Lake Providence, Louisiana. As of June 30, 2021, the Company had railcar leases, valued at approximately $3,154,000, that had not commenced. These leases will commence in the third quarter of 2021 and the first quarter of 2022.
As most of the Company’s leases do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate (IBR) based on the information available at the commencement date in determining the present value of lease payments. IBRs were specifically determined for the United States, Philippines, Singapore, Brazil and China, typically for five-year increments. The U.S. IBR was used for all other countries as the leases in these countries are not material. The total value of
10
leases that reside in the 5 countries identified above represents approximately 98 percent of the Company’s consolidated ROU asset balance. Lease cost is recognized in both the Cost of Sales and Operating Expenses sections of the Condensed Consolidated Statements of Income.
(In thousands) | Three months ended June 30, 2021 |
|
| Six months ended June 30, 2021 |
|
| Three months ended June 30, 2022 |
| Six months ended June 30, 2022 |
| ||||
Lease Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost | $ | 3,844 |
|
| $ | 7,570 |
|
| $ | 3,943 |
| $ | 8,051 |
|
Short-term lease cost |
| 1,284 |
|
|
| 2,553 |
|
|
| 1,362 |
| 2,700 |
| |
Variable lease cost |
| 222 |
|
|
| 505 |
|
|
| 223 |
|
| 425 |
|
Total lease cost | $ | 5,350 |
|
| $ | 10,628 |
|
| $ | 5,528 |
| $ | 11,176 |
|
Other Information |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating cash flow from operating leases | $ | 3,688 |
|
| $ | 6,977 |
|
| $ | 3,930 |
| $ | 8,005 |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
| 1,003 |
|
|
| 13,630 |
| |||||||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
| 743 |
| 3,562 |
|
The following table outlines the maturities of lease liabilities as of June 30, 2021:2022.
|
|
|
|
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
Undiscounted Cash Flows: |
|
|
|
|
|
|
|
|
2021 (excluding the six months ended June 30, 2021) |
| $ | 7,432 |
| ||||
2022 |
|
| 13,516 |
| ||||
2022 (excluding the six months ended June 30, 2022) |
| $ | 7,806 |
| ||||
2023 |
|
| 11,119 |
|
|
| 13,402 |
|
2024 |
|
| 7,032 |
|
|
| 8,663 |
|
2025 |
|
| 5,336 |
|
|
| 6,295 |
|
Subsequent to 2025 |
|
| 39,610 |
| ||||
2026 |
|
| 4,686 |
| ||||
Subsequent to 2026 |
|
| 37,414 |
| ||||
Total Undiscounted Cash Flows |
| $ | 84,045 |
|
| $ | 78,266 |
|
Less: Imputed interest |
|
| (13,301 | ) |
|
| (11,719 | ) |
Present value |
| $ | 70,744 |
|
| $ | 66,547 |
|
Current operating lease liabilities (1) |
|
| 12,564 |
|
|
| 13,429 |
|
Non-current operating lease liabilities |
|
| 58,180 |
|
|
| 53,118 |
|
Total lease liabilities |
| $ | 70,744 |
|
| $ | 66,547 |
|
| (1) | This item is included in the Accrued liabilities line on the Company’s Condensed Consolidated Balance Sheet. |
Weighted-average remaining lease term-operating leases |
| 10 | ||
Weighted-average discount rate-operating leases |
|
| 3.0 | % |
As of June 30, 2022, the Company had 0 leases that have not commenced.
8. | CONTINGENCIES |
There are a variety of legal proceedings pending or threatened against the Company that occur in the normal course of the Company’s business, the majority of which relate to environmental assessment, protection and remediation matters. Some of these proceedings may result in fines, penalties, judgments or costs being assessed against the Company at some future time. The Company’s operations are subject to extensive local, state and federal regulations, including the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund amendments of 1986 (Superfund) as well as comparable regulations applicable to the Company’s foreign locations. Over the years, the Company has received requests for information related to or has been named by government authorities as a potentially responsible party (PRP) at a number of sites where cleanup costs have been or may be incurred by the Company under CERCLA and similar state statutes. In addition, damages are being claimed against the Company in general liability actions for alleged personal injury or property damage in the case of some disposal and plant sites. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these sites and claims.
11
In determining the appropriate level of environmental reserves, the Company considers several factors such as information obtained from investigatory studies; changes in the scope of remediation; the interpretation, application and enforcement of laws and regulations; changes in the costs of remediation programs; the development of alternative cleanup technologies and methods; and the relative level of the Company’s involvement at various sites for which the Company is allegedly associated. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as major components of planned remediation activities are completed and the scope, timing and costs of existing activities are changed. As of June 30, 2021,2022, the Company estimated a range of possible environmental losses and legal losses of $22,459,000$22,953,000 to $40,890,000.$42,647,000. Within the range of possible environmental losses and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range. These accruals totaled $22,459,000$22,953,000 at June 30, 20212022 and $22,884,000$23,127,000 at December 31, 2020.2021. Although the Company believes that its estimated range of possible environmental losses and legal losses and its reserves are adequate for contingencies, it is possible due to the uncertainties noted above, that additional reserves could be required in the future. Cash expenditures related to legal matters and environmental matters approximated $1,267,000$1,080,000 and $3,075,000$1,267,000 for the six-month periodssix months ended June 30, 2022 and 2021, and 2020, respectively.
For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based upon the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the
10
aggregate, will not have a material effect on the Company’s financial position. However, in the event of one or more adverse determinations with respect to such sites in any annual or interim period, the effect on the Company’s cash flows and results of operations for those periods could be material.
Following are summaries of the Company’s major contingencies at June 30, 2021:2022:
Maywood, New Jersey Site
The Company’s property in Maywood, New Jersey and property formerly owned by the Company adjacent to its current site and other nearby properties (collectively, the Maywood site) were listed on the National Priorities List in September 1993 pursuant to the provisions of CERCLA because of alleged chemical contamination. Pursuant to (i) a September 21, 1987 Administrative Order on Consent entered into between the U.S. Environmental Protection Agency (USEPA) and the Company for property formerly owned by the Company at the Maywood site and (ii) the issuance of an order on November 12, 2004 by the USEPA to the Company for property currently owned by the Company at the Maywood site, the Company has completed various Remedial Investigation Feasibility Studies (RI/FS), and on September 24, 2014, USEPA issued its Record of Decision (ROD) for chemically-contaminated soil at the Maywood site, which requires the Company to perform remedial cleanup of the soil and buried waste. The USEPA has not yet issued a ROD for chemically-contaminated groundwater at the Maywood site. Based on the most current information available, the Company believes its recorded liability is reasonable having considered the range of estimated costs of remediation for the Maywood site. The estimate of the cost of remediation for the Maywood site could change as the Company continues to hold discussions with the USEPA, as the design of the remedial action is finalized, if a groundwater ROD is issued or if other PRPs are identified. The ultimate amount for which the Company is liable could differ materially from the Company’s current recorded liability.
In April 2015, the Company entered into an Administrative Settlement Agreement and Administrative Order on Consent with USEPA which requires payment of certain costs and performance of certain investigative and design work for chemically-contaminated soil.
In addition, under the terms of a settlement agreement reached on November 12, 2004, the U.S. Department of Justice and the Company agreed to fulfill the terms of a Cooperative Agreement reached in 1985. Under the Cooperative Agreement, the United States is responsible for the removal of radioactive waste at the Maywood site, including past and future remediation costs at the site. As such, the Company recorded no liability related to this settlement agreement.
D’Imperio Property Site
During the mid-1970’s, Jerome Lightman and the Lightman Drum Company disposed of hazardous substances generated by the Company at several sites in New Jersey, including the D’Imperio site. The Company was named as a PRP in an October 2, 1998, lawsuit in the U.S. District Court for the District of New Jersey that involved the D’Imperio Site. In 2020,2021, the PRPs were provided with updated remediation cost estimates by the PRP group technical consultant and project manager, which the Company considered in its determination of its range of estimated possible losses and liability balance. The changes in range of possible losses and liability balance were immaterial. Remediation work continues at the D’Imperio site. Based on current information, the Company believes that its recorded liability is reasonable having considered the range of estimated cost of
12
remediation for the D’Imperio site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the Company’s current recorded liability.
Wilmington Site
The Company is currently contractually obligated to contribute to the environmental response costs associated with the Company’s formerly-owned site in Wilmington, Massachusetts (the Wilmington site). Remediation at this site is being managed by its current owner to whom the Company sold the property in 1980. Under the Company’s October 1, 1993, agreement with the current owner of the Wilmington site, once total site remediation costs exceed certain levels, the Company is obligated to contribute up to 5 percent of future response costs associated with this site with no limitation on the ultimate amount of contributions. The Company has paid the current owner $3,105,000$3,364,000 for the Company’s portion of environmental response costs at the Wilmington site through June 30, 2021.2022. The Company has recorded a liability for its portion of the estimated remediation costs for the site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current recorded liability.
The Company and other prior owners of the Wilmington site also entered into an agreement in April 2004 waiving certain statute of limitations defenses for claims which may be filed by the Town of Wilmington, Massachusetts, in connection with this site. While the Company has denied any liability for any such claims, the Company agreed to this waiver while the parties continue to discuss the resolution of any potential claim which may be filed.
11
Other U.S. Sites
Through the regular environmental monitoring of its plant production sites, the Company discovered levels of chemical contamination that were above thresholds allowed by law at its Millsdale,Elwood, Illinois (Millsdale) and Fieldsboro, New Jersey plants. The Company voluntarily reported its results to the applicable state environmental agencies. As a result, the Company is required to perform self-remediation of the affected areas. Based on current information, the Company believes that its recorded liability for the remediation of the affected areas is appropriate based on an estimate of expected costs. However, actual costs could differ materially from the current recorded liability.
9. | POSTRETIREMENT BENEFIT PLANS |
Defined Benefit Pension Plans
The Company sponsors various funded qualified and unfunded non-qualified defined benefit pension plans, the most significant of which cover employees in the U.S. and U.K. locations. The U.S. and U.K. defined benefit pension plans are frozen and service benefits are no longer being accrued.
Components of Net Periodic Benefit Cost
|
| UNITED STATES |
|
| UNITED STATES |
| ||||||||||||||||||||||||||
(In thousands) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Interest cost |
| $ | 1,177 |
|
| $ | 1,421 |
|
| $ | 2,354 |
|
| $ | 2,842 |
|
| $ | 1,235 |
|
| $ | 1,177 |
|
| $ | 2,469 |
|
| $ | 2,354 |
|
Expected return on plan assets |
|
| (2,586 | ) |
|
| (2,437 | ) |
|
| (5,171 | ) |
|
| (4,874 | ) |
|
| (2,201 | ) |
|
| (2,586 | ) |
|
| (4,401 | ) |
|
| (5,171 | ) |
Amortization of net actuarial loss |
|
| 1,144 |
|
|
| 1,052 |
|
|
| 2,288 |
|
|
| 2,104 |
|
|
| 577 |
|
|
| 1,144 |
|
|
| 1,154 |
|
|
| 2,288 |
|
Net periodic benefit cost (income) |
| $ | (265 | ) |
| $ | 36 |
|
| $ | (529 | ) |
| $ | 72 |
|
| $ | (389 | ) |
| $ | (265 | ) |
| $ | (778 | ) |
| $ | (529 | ) |
|
| UNITED KINGDOM |
|
| UNITED KINGDOM |
| ||||||||||||||||||||||||||
(In thousands) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Interest cost |
| $ | 91 |
|
| $ | 107 |
|
| $ | 179 |
|
| $ | 216 |
|
| $ | 95 |
|
| $ | 91 |
|
| $ | 196 |
|
| $ | 179 |
|
Expected return on plan assets |
|
| (81 | ) |
|
| (133 | ) |
|
| (162 | ) |
|
| (267 | ) |
|
| (100 | ) |
|
| (81 | ) |
|
| (207 | ) |
|
| (162 | ) |
Amortization of net actuarial loss |
|
| 18 |
|
|
| 19 |
|
|
| 35 |
|
|
| 38 |
|
|
| 2 |
|
|
| 18 |
|
|
| 5 |
|
|
| 35 |
|
Net periodic benefit cost (income) |
| $ | 28 |
|
| $ | (7 | ) |
| $ | 52 |
|
| $ | (13 | ) |
| $ | (3 | ) |
| $ | 28 |
|
| $ | (6 | ) |
| $ | 52 |
|
Employer Contributions
U.S. Plans
As a result of pension funding relief provisions included in the Highway and Transportation Funding Act of 2014, the Company is not required to make contributions to its funded U.S. qualified defined benefit plans. Approximately $274,000$276,000 is expected to
13
be paid related to the unfunded non-qualified plans in 2021.2022. Of such amount, $171,000$171,000 had been paid related to the non-qualified plans as of June 30, 2021.2022.
U.K. Plan
The Company’s U.K. subsidiary expects to contribute approximately $495,000$505,000 to its defined benefit pension plan in 2021.2022. Of such amount, $272,000$253,000 had been contributed to the plan as of June 30, 2021.2022.
Defined Contribution Plans
The Company sponsors retirement defined contribution plans that cover eligible U.S. and U.K. employees. The Company’s U.S. retirement contributions plans include two qualified plans, one of which is a 401(k) plan and one of which is an employee stock ownership plan (profit sharing plan), and one non-qualified supplemental executive plan. In the six months ended June 30, 20212022 and 2020,2021, the Company made contributions into the qualified retirement plans for U.S. employees and for certain non-U.S. employees. Profit sharing contributions were determined using a formula applied to Company earnings. In 20202021 and 2021,2022, profit sharing contributions for U.S. employees were made to the employee stock ownership plan. Profit sharing contributions are allocated to participant accounts based on participant base earnings.
12
Defined contribution plan expenses for the Company’s qualified contribution plans were as follows:
(In thousands) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Retirement savings contributions |
| $ | 1,978 |
|
| $ | 1,950 |
|
| $ | 4,017 |
|
| $ | 3,708 |
|
| $ | 1,947 |
|
| $ | 1,978 |
|
| $ | 4,145 |
|
| $ | 4,017 |
|
Profit sharing contributions plan |
|
| 1,865 |
|
|
| 1,483 |
|
|
| 3,731 |
|
|
| 2,458 |
| ||||||||||||||||
Profit sharing contributions |
|
| 1,959 |
|
|
| 1,865 |
|
|
| 3,425 |
|
|
| 3,731 |
| ||||||||||||||||
Total defined contribution plan expenses |
| $ | 3,843 |
|
| $ | 3,433 |
|
| $ | 7,748 |
|
| $ | 6,166 |
|
| $ | 3,906 |
|
| $ | 3,843 |
|
| $ | 7,570 |
|
| $ | 7,748 |
|
The Company has a rabbi trust to fund the obligations of its non-qualified supplemental executive defined contribution plans (supplemental plans). The trust comprisesis comprised of various mutual fund investments selected by the participants of the supplemental plans. In accordance with the accounting guidance for rabbi trust arrangements, the assets of the trust and the obligations of the supplemental plans are reported on the Company’s condensed consolidated balance sheets. The Company elected the fair value option for the mutual fund investment assets so that offsetting changes in the mutual fund values and defined contribution plan obligations would be recorded in earnings in the same period. Therefore, the mutual funds are reported at fair value with any subsequent changes in fair value recorded in the condensed consolidated statements of income. The liabilities related to the supplemental plans increase (i.e., supplemental plan expense is recognized) when the value of the trust assets appreciatesappreciate and decrease when the value of the trust assets declinesdecline (i.e., supplemental plan income is recognized). At June 30, 2021,2022, the balance of the trust assets was $2,111,000,$2,114,000, which equaled the balance of the supplemental plan liabilities. See the long-term investments section in Note 3, Fair Value Measurements, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for further information regarding the Company’s mutual fund assets.
10. | EARNINGS PER SHARE |
Below are the computations of basic and diluted earnings per share for the three and six months ended June 30, 20212022 and 2020:
2021:
(In thousands, except per share amounts) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Computation of Basic Earnings per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Stepan Company |
| $ | 43,278 |
|
| $ | 35,707 |
|
| $ | 83,889 |
|
| $ | 63,252 |
|
| $ | 52,126 |
|
| $ | 43,278 |
|
| $ | 96,935 |
|
| $ | 83,889 |
|
Weighted-average number of common shares outstanding |
|
| 22,952 |
|
|
| 22,923 |
|
|
| 22,963 |
|
|
| 22,973 |
|
|
| 22,792 |
|
|
| 22,952 |
|
|
| 22,842 |
|
|
| 22,963 |
|
Basic earnings per share |
| $ | 1.89 |
|
| $ | 1.56 |
|
| $ | 3.65 |
|
| $ | 2.75 |
|
| $ | 2.29 |
|
| $ | 1.89 |
|
| $ | 4.24 |
|
| $ | 3.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computation of Diluted Earnings per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Stepan Company |
| $ | 43,278 |
|
| $ | 35,707 |
|
| $ | 83,889 |
|
| $ | 63,252 |
|
| $ | 52,126 |
|
| $ | 43,278 |
|
| $ | 96,935 |
|
| $ | 83,889 |
|
Weighted-average number of shares outstanding |
|
| 22,952 |
|
|
| 22,923 |
|
|
| 22,963 |
|
|
| 22,973 |
|
|
| 22,792 |
|
|
| 22,952 |
|
|
| 22,842 |
|
|
| 22,963 |
|
Add weighted-average net shares from assumed exercise of options (under treasury stock method) (1) |
|
| 152 |
|
|
| 100 |
|
|
| 146 |
|
|
| 101 |
|
|
| 102 |
|
|
| 152 |
|
|
| 106 |
|
|
| 146 |
|
Add weighted-average net shares related to unvested stock awards (under treasury stock method) |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Add weighted-average net shares from assumed exercise of SARs (under treasury stock method) (1) |
|
| 190 |
|
|
| 125 |
|
|
| 181 |
|
|
| 127 |
|
|
| 106 |
|
|
| 190 |
|
|
| 113 |
|
|
| 181 |
|
Add weighted-average contingently issuable net shares related to performance stock awards (under treasury stock method) |
|
| 50 |
|
|
| 35 |
|
|
| 47 |
|
|
| 33 |
|
|
| 55 |
|
|
| 50 |
|
|
| 54 |
|
|
| 47 |
|
Weighted-average shares applicable to diluted earnings |
|
| 23,345 |
|
|
| 23,184 |
|
|
| 23,338 |
|
|
| 23,235 |
|
|
| 23,055 |
|
|
| 23,345 |
|
|
| 23,115 |
|
|
| 23,338 |
|
Diluted earnings per share |
| $ | 1.85 |
|
| $ | 1.54 |
|
| 3.59 |
|
| $ | 2.72 |
|
| $ | 2.26 |
|
| $ | 1.85 |
|
| $ | 4.19 |
|
| $ | 3.59 |
|
(1) NaN options/SARs to acquire shares of Company common stock were excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2021, respectively. Options/SARs to acquire 253,448 and 254,868 shares of Company common stock were excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2020, respectively. Inclusion of the instruments would have had an antidilutive effect on the computations of the earnings per share.
(1) | 337,056 and 350,703 options/SARs to acquire shares of Company common stock were excluded from the computation of dilutive earnings per share for the three and six months ended June 30, 2022, respectively. Inclusion of the instruments would have had an antidilutive effect on the computations of the earnings per share. NaN options/SARs to acquire shares of Company common stock were excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2021. |
11. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Below is the change in the Company’s AOCIaccumulated other comprehensive income (AOCI) balance by component (net of income taxes) for the three and six months ended June 30, 20212022 and 2020:2021:
(In thousands) |
| Foreign Currency Translation Adjustments |
|
| Defined Benefit Pension Plan Adjustments |
|
| Cash Flow Hedge Adjustments |
|
| Total |
|
| Foreign Currency Translation Adjustments |
|
| Defined Benefit Pension Plan Adjustments |
|
| Cash Flow Hedge Adjustments |
|
| Total |
| ||||||||
Balance at March 31, 2020 |
| $ | (145,219 | ) |
| $ | (31,397 | ) |
| $ | 70 |
|
| $ | (176,546 | ) | ||||||||||||||||
Other comprehensive income before reclassifications |
|
| 3,537 |
|
|
| — |
|
|
| — |
|
|
| 3,537 |
| ||||||||||||||||
Amounts reclassified from AOCI |
|
| — |
|
|
| 808 |
|
|
| (2 | ) |
|
| 806 |
| ||||||||||||||||
Net current-period other comprehensive income |
|
| 3,537 |
|
|
| 808 |
|
|
| (2 | ) |
|
| 4,343 |
| ||||||||||||||||
Balance at June 30, 2020 |
| $ | (141,682 | ) |
| $ | (30,589 | ) |
| $ | 68 |
|
| $ | (172,203 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance at March 31, 2021 |
| $ | (125,516 | ) |
| $ | (28,987 | ) |
| $ | 61 |
|
| $ | (154,442 | ) |
| $ | (125,516 | ) |
| $ | (28,987 | ) |
| $ | 61 |
|
| $ | (154,442 | ) |
Other comprehensive income before reclassifications |
|
| 15,149 |
|
|
| — |
|
|
| — |
|
|
| 15,149 |
|
|
| 15,149 |
|
|
| — |
|
|
| — |
|
|
| 15,149 |
|
Amounts reclassified from AOCI |
|
| — |
|
|
| 876 |
|
|
| (3 | ) |
|
| 873 |
|
|
| — |
|
|
| 876 |
|
|
| (3 | ) |
|
| 873 |
|
Net current-period other comprehensive income |
|
| 15,149 |
|
|
| 876 |
|
|
| (3 | ) |
|
| 16,022 |
|
|
| 15,149 |
|
|
| 876 |
|
|
| (3 | ) |
|
| 16,022 |
|
Balance at June 30, 2021 |
| $ | (110,367 | ) |
| $ | (28,111 | ) |
| $ | 58 |
|
| $ | (138,420 | ) |
| $ | (110,367 | ) |
| $ | (28,111 | ) |
| $ | 58 |
|
| $ | (138,420 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
| $ | (104,037 | ) |
| $ | (32,205 | ) |
| $ | 72 |
|
| $ | (136,170 | ) | ||||||||||||||||
Balance at March 31, 2022 |
| $ | (125,439 | ) |
| $ | (17,586 | ) |
| $ | 2,842 |
|
| $ | (140,183 | ) | ||||||||||||||||
Other comprehensive income before reclassifications |
|
| (37,645 | ) |
|
| — |
|
|
| — |
|
|
| (37,645 | ) |
|
| (36,096 | ) |
|
| — |
|
|
| 2,045 |
|
|
| (34,051 | ) |
Amounts reclassified from AOCI |
|
| — |
|
|
| 1,616 |
|
|
| (4 | ) |
|
| 1,612 |
|
|
| — |
|
|
| 434 |
|
|
| (2 | ) |
|
| 432 |
|
Net current-period other comprehensive income |
|
| (37,645 | ) |
|
| 1,616 |
|
|
| (4 | ) |
|
| (36,033 | ) |
|
| (36,096 | ) |
|
| 434 |
|
|
| 2,043 |
|
|
| (33,619 | ) |
Balance at June 30, 2020 |
| $ | (141,682 | ) |
| $ | (30,589 | ) |
| $ | 68 |
|
| $ | (172,203 | ) | ||||||||||||||||
Balance at June 30, 2022 |
| $ | (161,535 | ) |
| $ | (17,152 | ) |
| $ | 4,885 |
|
| $ | (173,802 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| $ | (107,083 | ) |
| $ | (29,861 | ) |
| $ | 63 |
|
| $ | (136,881 | ) |
| $ | (107,083 | ) |
| $ | (29,861 | ) |
| $ | 63 |
|
| $ | (136,881 | ) |
Other comprehensive income before reclassifications |
|
| (3,284 | ) |
|
| — |
|
|
| — |
|
|
| (3,284 | ) |
|
| (3,284 | ) |
|
| — |
|
|
| — |
|
|
| (3,284 | ) |
Amounts reclassified from AOCI |
|
| — |
|
|
| 1,750 |
|
|
| (5 | ) |
|
| 1,745 |
|
|
| — |
|
|
| 1,750 |
|
|
| (5 | ) |
|
| 1,745 |
|
Net current-period other comprehensive income |
|
| (3,284 | ) |
|
| 1,750 |
|
|
| (5 | ) |
|
| (1,539 | ) |
|
| (3,284 | ) |
|
| 1,750 |
|
|
| (5 | ) |
|
| (1,539 | ) |
Balance at June 30, 2021 |
| $ | (110,367 | ) |
| $ | (28,111 | ) |
| $ | 58 |
|
| $ | (138,420 | ) |
| $ | (110,367 | ) |
| $ | (28,111 | ) |
| $ | 58 |
|
| $ | (138,420 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance at December 31, 2021 |
| $ | (135,268 | ) |
| $ | (18,022 | ) |
| $ | 54 |
|
| $ | (153,236 | ) | ||||||||||||||||
Other comprehensive income before reclassifications |
|
| (26,267 | ) |
|
| — |
|
|
| 4,836 |
|
|
| (21,431 | ) | ||||||||||||||||
Amounts reclassified from AOCI |
|
| — |
|
|
| 870 |
|
|
| (5 | ) |
|
| 865 |
| ||||||||||||||||
Net current-period other comprehensive income |
|
| (26,267 | ) |
|
| 870 |
|
|
| 4,831 |
|
|
| (20,566 | ) | ||||||||||||||||
Balance at June 30, 2022 |
| $ | (161,535 | ) |
| $ | (17,152 | ) |
| $ | 4,885 |
|
| $ | (173,802 | ) |
Information regarding the reclassifications out of AOCI for the three-three and six-month periodssix months ended June 30, 20212022 and 2020,2021, is displayed below:
(In thousands) |
| Amount Reclassified from AOCI (1) |
|
|
|
| Amount Reclassified from AOCI (1) |
|
|
| ||||||||||||||||||||||||||
AOCI Components |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Affected Line Item in Consolidated Statements of Income |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Affected Line Item in Condensed Consolidated Statements of Income | ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
|
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
|
| ||||||||
Amortization of defined benefit pension actuarial losses |
| $ | (1,162 | ) |
| $ | (1,071 | ) |
| $ | (2,323 | ) |
| $ | (2,142 | ) |
| (2) |
| $ | (579 | ) |
| $ | (1,162 | ) |
| $ | (1,159 | ) |
| $ | (2,323 | ) |
| (2) |
|
|
| 286 |
|
|
| 263 |
|
|
| 573 |
|
|
| 526 |
|
| Tax benefit |
|
| 145 |
|
|
| 286 |
|
|
| 289 |
|
|
| 573 |
|
| Tax benefit |
|
| $ | (876 | ) |
| $ | (808 | ) |
| $ | (1,750 | ) |
| $ | (1,616 | ) |
| Net of tax |
| $ | (434 | ) |
| $ | (876 | ) |
| $ | (870 | ) |
| $ | (1,750 | ) |
| Net of tax |
Gains and losses on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
| 3 |
|
|
| 2 |
|
|
| 5 |
|
|
| 4 |
|
| Cost of sales |
|
| 2 |
|
|
| 3 |
|
|
| 5 |
|
|
| 5 |
|
| Cost of sales |
|
|
| 3 |
|
|
| 2 |
|
|
| 5 |
|
|
| 4 |
|
| Total before tax |
|
| 2 |
|
|
| 3 |
|
|
| 5 |
|
|
| 5 |
|
| Total before tax |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| Tax benefit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| Tax benefit |
|
| $ | 3 |
|
| $ | 2 |
|
| $ | 5 |
|
| $ | 4 |
|
| Net of tax |
| $ | 2 |
|
| $ | 3 |
|
| $ | 5 |
|
| $ | 5 |
|
| Net of tax |
Total reclassifications for the period |
| $ | (873 | ) |
| $ | (806 | ) |
| $ | (1,745 | ) |
| $ | (1,612 | ) |
| Net of tax |
| $ | (432 | ) |
| $ | (873 | ) |
| $ | (865 | ) |
| $ | (1,745 | ) |
| Net of tax |
|
|
|
|
| This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost. See Note 9, Postretirement Benefit Plans, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for additional details. |
|
12. | SEGMENT REPORTING |
The Company has 3 reportable segments: Surfactants, Polymers and Specialty Products. Net sales by segment for the three and six months ended June 30, 20212022 and 2020,2021, were as follows:
(In thousands) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Segment Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surfactants |
| $ | 384,002 |
|
| $ | 332,335 |
|
| $ | 754,938 |
|
| $ | 659,406 |
|
| $ | 485,084 |
|
| $ | 384,002 |
|
| $ | 953,350 |
|
| $ | 754,938 |
|
Polymers |
|
| 190,538 |
|
|
| 112,409 |
|
|
| 340,923 |
|
|
| 218,900 |
|
|
| 238,885 |
|
|
| 190,538 |
|
|
| 425,964 |
|
|
| 340,923 |
|
Specialty Products |
|
| 20,971 |
|
|
| 15,805 |
|
|
| 37,390 |
|
|
| 32,230 |
|
|
| 27,664 |
|
|
| 20,971 |
|
|
| 47,595 |
|
|
| 37,390 |
|
Total |
| $ | 595,511 |
|
| $ | 460,549 |
|
| $ | 1,133,251 |
|
| $ | 910,536 |
|
| $ | 751,633 |
|
| $ | 595,511 |
|
| $ | 1,426,909 |
|
| $ | 1,133,251 |
|
Segment operating income and reconciliations of segment operating income to income before provision for income taxes for the three and six months ended June 30, 20212022 and 2020,2021, are summarized below:
(In thousands) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Segment Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surfactants |
| $ | 45,896 |
|
| $ | 48,503 |
|
| $ | 99,106 |
|
| $ | 84,659 |
|
| $ | 48,249 |
|
| $ | 45,896 |
|
| $ | 102,018 |
|
| $ | 99,106 |
|
Polymers |
|
| 23,025 |
|
|
| 15,527 |
|
|
| 40,976 |
|
|
| 23,043 |
|
|
| 33,912 |
|
|
| 23,025 |
|
|
| 48,041 |
|
|
| 40,976 |
|
Specialty Products |
|
| 6,977 |
|
|
| 3,226 |
|
|
| 9,610 |
|
|
| 7,210 |
|
|
| 9,866 |
|
|
| 6,977 |
|
|
| 13,561 |
|
|
| 9,610 |
|
Segment operating income |
|
| 75,898 |
|
|
| 67,256 |
|
|
| 149,692 |
|
|
| 114,912 |
|
|
| 92,027 |
|
|
| 75,898 |
|
|
| 163,620 |
|
|
| 149,692 |
|
Business restructuring |
|
| (114 | ) |
|
| (225 | ) |
|
| (195 | ) |
|
| (582 | ) |
|
| (81 | ) |
|
| (114 | ) |
|
| (133 | ) |
|
| (195 | ) |
Unallocated corporate expenses (1) |
|
| (19,127 | ) |
|
| (22,408 | ) |
|
| (38,926 | ) |
|
| (29,703 | ) |
|
| (14,306 | ) |
|
| (19,127 | ) |
|
| (22,501 | ) |
|
| (38,926 | ) |
Consolidated operating income |
|
| 56,657 |
|
|
| 44,623 |
|
|
| 110,571 |
|
|
| 84,627 |
|
|
| 77,640 |
|
|
| 56,657 |
|
|
| 140,986 |
|
|
| 110,571 |
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net |
|
| (1,567 | ) |
|
| (1,259 | ) |
|
| (3,091 | ) |
|
| (2,489 | ) |
|
| (2,727 | ) |
|
| (1,567 | ) |
|
| (5,033 | ) |
|
| (3,091 | ) |
Other, net |
|
| 2,758 |
|
|
| 4,437 |
|
|
| 3,504 |
|
|
| 1,175 |
|
|
| (5,369 | ) |
|
| 2,758 |
|
|
| (7,019 | ) |
|
| 3,504 |
|
Income before provision for income taxes |
| $ | 57,848 |
|
| $ | 47,801 |
|
| $ | 110,984 |
|
| $ | 83,313 |
|
| $ | 69,544 |
|
| $ | 57,848 |
|
| $ | 128,934 |
|
| $ | 110,984 |
|
| (1) | Unallocated corporate expenses are primarily |
|
13. | REVENUE FROM CONTRACTS WITH CUSTOMERS |
The Company deems a contract with a customer to exist when a purchase order is received from a customer for a specified quantity of product or products and the Company acknowledges receipt of such purchase order. In some instances the Company has entered into manufacturing supply agreements with customers but these agreements typically do not bind a customer to any purchase volume requirements and thus an obligation is not created until the customer submits a purchase order to the Company. The Company’s contracts typically have a single performance obligation that is satisfied at the time a product is shipped and control passes to the customer. For a small portion of the business, performance obligations are deemed satisfied when product is delivered to a customer location.
As of June 30, 2021,2022, the Company had $641,000$1,606,000 of contract liabilities and 0 contract assets. A contract liability would typically arise when an advance or deposit is received from a customer before the Company recognizes revenue. In practice, this is rare as it would require a customer to make a payment prior to a performance obligation being satisfied. When such situations do arise, the Company would maintainmaintains a deferred revenue liability until the time a performance obligation has been satisfied. The Company recognized $773,000$1,376,000 of revenue in the first six months of 20212022 from pre-existing contract liabilities at December 31, 2020.2021. During 2020 the Company recognizedrecorded $10,709,000 of long-term deferred revenue associated with a payment received to defray the cost of capital expenditures necessary to service a customer’s future product needs. On June 30, 2022, $8,762,000 continued to be classified as long-term and $1,947,000 was classified as short-term. This deferred revenue will be recognized over the period of the contract. As of June 30, 2021,contract and 0 revenue has been recognized from this contract.contract as of June 30, 2022.
17
The tables below provide a geographic disaggregation of net sales for the three and six months ended June 30, 20212022 and 2020.2021. The Company’s business segmentation by geographic region most effectively captures the nature and economic characteristics of the Company’s revenue streams impacted by economic factors.
|
| For the Three Months Ended June 30, 2021 |
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
| |||||||||
|
| Surfactants |
|
| Polymers |
|
| Specialty Products |
|
| Total |
| ||||
Geographic Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 221,645 |
|
| $ | 95,591 |
|
| $ | 17,818 |
|
| $ | 335,054 |
|
Europe |
|
| 65,339 |
|
|
| 82,453 |
|
|
| 2,436 |
|
|
| 150,228 |
|
Latin America |
|
| 79,968 |
|
|
| 986 |
|
|
| 717 |
|
|
| 81,671 |
|
Asia |
|
| 17,050 |
|
|
| 11,508 |
|
|
| — |
|
|
| 28,558 |
|
Total |
| $ | 384,002 |
|
| $ | 190,538 |
|
| $ | 20,971 |
|
| $ | 595,511 |
|
|
| For the Three Months Ended June 30, 2020 |
| |||||||||||||||||||||||||||||
(In thousands) |
|
|
|
|
|
|
|
| For the Three Months Ended June 30, 2022 |
| ||||||||||||||||||||||
|
| Surfactants |
|
| Polymers |
|
| Specialty Products |
|
| Total |
| ||||||||||||||||||||
Geographic Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Surfactants |
|
| Polymers |
|
| Specialty |
|
| Total |
| ||||
North America |
| $ | 207,571 |
|
| $ | 68,780 |
|
| $ | 13,329 |
|
| $ | 289,680 |
|
| $ | 278,310 |
|
| $ | 133,455 |
|
| $ | 23,004 |
|
| $ | 434,769 |
|
Europe |
|
| 55,812 |
|
|
| 32,692 |
|
|
| 2,476 |
|
|
| 90,980 |
|
|
| 92,591 |
|
|
| 94,424 |
|
|
| 4,121 |
|
|
| 191,136 |
|
Latin America |
|
| 56,194 |
|
|
| 463 |
|
|
| — |
|
|
| 56,657 |
|
|
| 97,987 |
|
|
| 1,149 |
|
|
| 539 |
|
|
| 99,675 |
|
Asia |
|
| 12,758 |
|
|
| 10,474 |
|
|
| — |
|
|
| 23,232 |
|
|
| 16,196 |
|
|
| 9,857 |
|
|
| — |
|
|
| 26,053 |
|
Total |
| $ | 332,335 |
|
| $ | 112,409 |
|
| $ | 15,805 |
|
| $ | 460,549 |
|
| $ | 485,084 |
|
| $ | 238,885 |
|
| $ | 27,664 |
|
| $ | 751,633 |
|
|
| For the Six Months Ended June 30, 2021 |
| |||||||||||||||||||||||||||||
(In thousands) |
|
|
|
|
|
|
|
| For the Three Months Ended June 30, 2021 |
| ||||||||||||||||||||||
|
| Surfactants |
|
| Polymers |
|
| Specialty Products |
|
| Total |
| ||||||||||||||||||||
Geographic Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Surfactants |
|
| Polymers |
|
| Specialty |
|
| Total |
| ||||
North America |
| $ | 442,580 |
|
| $ | 166,469 |
|
| $ | 31,755 |
|
| $ | 640,804 |
|
| $ | 221,645 |
|
| $ | 95,591 |
|
| $ | 17,818 |
|
| $ | 335,054 |
|
Europe |
|
| 136,433 |
|
|
| 150,753 |
|
|
| 4,918 |
|
|
| 292,104 |
|
|
| 65,339 |
|
|
| 82,453 |
|
|
| 2,436 |
|
|
| 150,228 |
|
Latin America |
|
| 140,137 |
|
|
| 1,976 |
|
|
| 717 |
|
|
| 142,830 |
|
|
| 79,968 |
|
|
| 986 |
|
|
| 717 |
|
|
| 81,671 |
|
Asia |
|
| 35,788 |
|
|
| 21,725 |
|
|
| — |
|
|
| 57,513 |
|
|
| 17,050 |
|
|
| 11,508 |
|
|
| — |
|
|
| 28,558 |
|
Total |
| $ | 754,938 |
|
| $ | 340,923 |
|
| $ | 37,390 |
|
| $ | 1,133,251 |
|
| $ | 384,002 |
|
| $ | 190,538 |
|
| $ | 20,971 |
|
| $ | 595,511 |
|
|
| For the Six Months Ended June 30, 2020 |
| |||||||||||||
(In thousands) |
|
|
|
|
|
|
| |||||||||
|
| Surfactants |
|
| Polymers |
|
| Specialty Products |
|
| Total |
| ||||
Geographic Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 415,517 |
|
| $ | 130,621 |
|
| $ | 26,823 |
|
| $ | 572,961 |
|
Europe |
|
| 115,472 |
|
|
| 69,252 |
|
|
| 5,407 |
|
|
| 190,131 |
|
Latin America |
|
| 102,704 |
|
|
| 1,102 |
|
|
| — |
|
|
| 103,806 |
|
Asia |
|
| 25,713 |
|
|
| 17,925 |
|
|
| — |
|
|
| 43,638 |
|
Total |
| $ | 659,406 |
|
| $ | 218,900 |
|
| $ | 32,230 |
|
| $ | 910,536 |
|
(In thousands) |
| For the Six Months Ended June 30, 2022 |
| |||||||||||||
Geographic Market |
| Surfactants |
|
| Polymers |
|
| Specialty |
|
| Total |
| ||||
North America |
| $ | 551,538 |
|
| $ | 228,311 |
|
| $ | 39,680 |
|
| $ | 819,529 |
|
Europe |
|
| 183,608 |
|
|
| 175,207 |
|
|
| 7,253 |
|
|
| 366,068 |
|
Latin America |
|
| 183,421 |
|
|
| 2,369 |
|
|
| 662 |
|
|
| 186,452 |
|
Asia |
|
| 34,783 |
|
|
| 20,077 |
|
|
| — |
|
|
| 54,860 |
|
Total |
| $ | 953,350 |
|
| $ | 425,964 |
|
| $ | 47,595 |
|
| $ | 1,426,909 |
|
(In thousands) |
| For the Six Months Ended June 30, 2021 |
| |||||||||||||
Geographic Market |
| Surfactants |
|
| Polymers |
|
| Specialty |
|
| Total |
| ||||
North America |
| $ | 442,580 |
|
| $ | 166,469 |
|
| $ | 31,755 |
|
| $ | 640,804 |
|
Europe |
|
| 136,433 |
|
|
| 150,753 |
|
|
| 4,918 |
|
|
| 292,104 |
|
Latin America |
|
| 140,137 |
|
|
| 1,976 |
|
|
| 717 |
|
|
| 142,830 |
|
Asia |
|
| 35,788 |
|
|
| 21,725 |
|
|
| — |
|
|
| 57,513 |
|
Total |
| $ | 754,938 |
|
| $ | 340,923 |
|
| $ | 37,390 |
|
| $ | 1,133,251 |
|
14. | DEBT |
At June 30, 2021,2022 and December 31, 2020,2021, debt was comprised of the following:
(In thousands) |
| Maturity Dates |
| June 30, 2021 |
|
| December 31, 2020 |
|
| Maturity Dates |
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Unsecured private placement notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.95% (net of unamortized debt issuance cost of $251 and $273 for 2021 and 2020, respectively) |
| 2021-2027 |
| $ | 99,749 |
|
| $ | 99,727 |
| ||||||||||
3.86% (net of unamortized debt issuance cost of $208 and $236 for 2021 and 2020, respectively) |
| 2021-2025 |
|
| 56,935 |
|
|
| 71,193 |
| ||||||||||
4.86% (net of unamortized debt issuance cost of $89 and $108 for 2021 and 2020, respectively) |
| 2021-2023 |
|
| 27,768 |
|
|
| 27,749 |
| ||||||||||
2.30% (net of unamortized debt issuance cost of $66 and $0 for 2021 and 2020, respectively) |
| 2024-2028 |
|
| 49,934 |
|
|
| — |
| ||||||||||
3.95% (net of unamortized debt issuance cost of $208 and $230 for 2022 and 2021, respectively) |
| 2022-2027 |
| $ | 85,506 |
|
| $ | 85,485 |
| ||||||||||
3.86% (net of unamortized debt issuance cost of $153 and $181 for 2022 and 2021, respectively) |
| 2022-2025 |
|
| 42,704 |
|
|
| 56,962 |
| ||||||||||
4.86% (net of unamortized debt issuance cost of $49 and $69 for 2022 and 2021, respectively) |
| 2022-2023 |
|
| 18,523 |
|
|
| 18,502 |
| ||||||||||
2.30% (net of unamortized debt issuance cost of $133 and $100 for 2022 and 2021, respectively) |
| 2024-2028 |
|
| 49,867 |
|
|
| 49,900 |
| ||||||||||
2.37% (net of unamortized debt issuance cost of $139 and $108 for 2022 and 2021, respectively) |
| 2024-2028 |
|
| 49,861 |
|
|
| 49,892 |
| ||||||||||
2.73% (net of unamortized debt issuance cost of $59 and $22 for 2022 and 2021, respectively) |
| 2025-2031 |
|
| 99,941 |
|
|
| 99,978 |
| ||||||||||
2.83% (net of unamortized debt issuance cost of $42 and $0 for 2022 and 2021, respectively) |
| 2026-2032 |
|
| 74,958 |
|
|
| — |
| ||||||||||
Revolving credit facility borrowing |
| 2022 |
|
| 100,000 |
|
|
| — |
| ||||||||||
Debt of foreign subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured bank debt, foreign currency |
| 2021 |
|
| 4,495 |
|
|
| — |
|
| 2022 |
|
| 4,632 |
|
|
| 2,861 |
|
Total debt |
|
|
| $ | 238,881 |
|
| $ | 198,669 |
|
|
|
| $ | 525,992 |
|
| $ | 363,580 |
|
Less current maturities |
|
|
|
| 42,352 |
|
|
| 37,857 |
|
|
|
|
| 142,489 |
|
|
| 40,718 |
|
Long-term debt |
|
|
| $ | 196,529 |
|
| $ | 160,812 |
|
|
|
| $ | 383,503 |
|
| $ | 322,862 |
|
On March 1, 2022, pursuant to a note purchase and master note agreement dated as of June 10, 2021 (the NYL note purchase agreement), the Company entered intoissued and sold $25,000,000 in aggregate principal amount of its 2.83% Senior Notes, Series 2022-A, due March 1, 2032 (the Series 2022-A Notes). In addition, on March 1, 2022, pursuant to a note purchase and private shelf agreement pursuant to which itdated as of June 10, 2021 (the Prudential note purchase agreement), the Company issued and sold $50,000,000 in aggregate principal amount of 2.30%its 2.83% Senior Notes, Series 2021-A,2022-B, due June 10, 2028March 1, 2032 (the Series 2021-A2022-B Notes). The Series 2021-A2022-A Notes and the Series 2022-B Notes bear interest at a fixed rate of 2.30%2.83%, with interest to be paid semi-annually and with equal annual principal payments beginning on June 10, 2024March 1, 2026 and continuing through final maturity on June 10, 2028.March 1, 2032. The proceeds of the issuance of the Series 2021-A2022-A Notes and the Series 2022-B Notes are being used primarily for capital expenditures, to pay down existing debt and for other corporate purposes. ThisThe NYL note purchase agreement requiresand the Prudential note purchase agreement require the maintenance of certain financial ratios and covenants that are substantially similar to the Company’s existing long-term debt and providesprovide for customary events of default.
On June 24, 2022, the Company entered into a credit agreement with a syndicate of banks. The Company hascredit agreement provides for credit facilities in an initial aggregate principal amount of $450,000,000, consisting of (a) a committed $350,000,000 multi-currency revolving credit facility and (b) a $100,000,000 delayed draw term loan credit facility, each of which matures on June 24, 2027.
17
This credit agreement that expires on January 30, 2023.replaced the Company’s prior $350,000,000 revolving credit agreement. The Company maintains import letters of credit, and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the revolving credit agreement. As of June 30, 2021,2022, the Company had outstanding letters of credit totaling $6,993,000$7,029,000 and 0$100,000,000 outstanding borrowings under the revolving credit agreement. There was $343,007,000$342,971,000 available under the revolving credit agreement as of June 30, 2021.2022.
The Company’s loan agreements contain provisions which, among others, require maintenance of certain financial ratios and place limitations on additional debt, investments and payment of dividends. Based on the loan agreement provisions that place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were $434,265,000$196,935,000 and $373,884,000$468,095,000 at June 30, 20212022 and December 31, 2020,2021, respectively.
15. | OTHER, NET |
Other, net in the condensed consolidated statements of income included the following:
(In thousands) |
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Foreign exchange (losses) gains |
| $ | 106 |
|
| $ | 423 |
|
| $ | (229 | ) |
| $ | 991 |
| ||||||||||||||||
Foreign exchange gains (losses) |
| $ | (1,507 | ) |
| $ | 106 |
|
| $ | (1,225 | ) |
| $ | (229 | ) | ||||||||||||||||
Investment income |
|
| 189 |
|
|
| 93 |
|
|
| 495 |
|
|
| 168 |
|
|
| 231 |
|
|
| 189 |
|
|
| 394 |
|
|
| 495 |
|
Realized and unrealized gains on investments |
|
| 2,227 |
|
|
| 3,950 |
|
|
| 2,761 |
|
|
| 75 |
| ||||||||||||||||
Net periodic pension benefit cost |
|
| 236 |
|
|
| (29 | ) |
|
| 477 |
|
|
| (59 | ) | ||||||||||||||||
Realized and unrealized gains (losses) on investments |
|
| (4,485 | ) |
|
| 2,227 |
|
|
| (6,972 | ) |
|
| 2,761 |
| ||||||||||||||||
Net periodic pension benefit income |
|
| 392 |
|
|
| 236 |
|
|
| 784 |
|
|
| 477 |
| ||||||||||||||||
Other, net |
| $ | 2,758 |
|
| $ | 4,437 |
|
| $ | 3,504 |
|
| $ | 1,175 |
|
| $ | (5,369 | ) |
| $ | 2,758 |
|
| $ | (7,019 | ) |
| $ | 3,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. | BUSINESS RESTRUCTURING |
2018 Restructuring
During the third quarter of 2018, the Company approved a plan to shut down Surfactant operations at its German plant site. As of June 30, 2021, an aggregate of $2,392,000 shut down related expense has been recognized at the site. In the first quarter of 2020, the Company recognized $79,000 of decommissioning expenses at the site. The Company finalized shut down of the plant in 2020 and 0 more expenses associated with the restructuring are expected.
2016 Restructuring
During 2016, the Company shut down its Longford Mills, Ontario, Canada (Longford Mills) manufacturing facility, a part of the Surfactant reportable segment. The shutdown plan was implemented to improve the Company’s asset utilization in North America and to reduce the Company’s fixed cost base. Manufacturing operations of the Longford Mills plant ceased by the end of 2016, and production of goods manufactured at the facility was transferred to other Company North American production sites. Decommissioning of the assets is expected to continue throughout 2021.2022. As of June 30, 2021, $8,812,0002022, $9,383,000 of aggregate restructuring expense has been recognized, reflecting $1,644,000 of termination benefits for approximately 30 employees and $7,168,000$7,739,000 for other expenses, principally site decommissioning costs. The Company recognized $114,000$81,000 and $225,000$114,000 of decommissioning expenses in the second quarter of 20212022 and 2020,2021, respectively. The Company recognized $195,000$133,000 and $503,000$195,000 of decommissioning expenses in the first six months of 2022 and 2021, and 2020, respectively.
17. | ACQUISITIONS |
2021 Acquisitions
INVISTA Acquisition
On January 29, 2021, the Company and its wholly-owned subsidiaries Stepan Holdings Netherlands B.V. and Stepan UK Limited (collectively, “Stepan”) entered into a Stock and Asset Purchase Agreement with Arteva Specialties B.V., INV Performance Surfaces, LLC, INVISTA Textiles (U.K.) Limited, INV Management Services, LLC, and INVISTA Equities, LLC (collectively, “INVISTA”) to acquire INVISTA's aromatic polyester polyol business and associated assets. Included in the transaction were 2 manufacturing sites, one in Wilmington, North Carolina (U.S.) and the other in Vlissingen, Netherlands, along with intellectual property, customer relationships, inventory and working capital. This acquisition expands the Company’s manufacturing capabilities in both the United States and Europe and enhances its business continuity capabilities for the market. The Company believes that INVISTA’s available spare capacity, combined with debottlenecking opportunities for both plants, will allow Stepan to support future market growth in a capital efficient way. The purchase price was $165,000,000, plus $21,560,000 of working capital and $3,000,000 of associated value-added taxes (VAT) and was paid in cash. Immaterial working capital adjustments were finalized and paid during the second quarter of 2021. The working capital acquired included $5,000,000$5,900,000 of cash. The acquisition has been accounted for as a business combination, andCompany finalized the acquired operations are included in the Company’s Polymer segment in the first six months of 2021. The assets acquired and liabilities assumed as part of the acquisition were measured and recorded at estimated fair value. The purchase price allocation remains preliminary asduring the third quarter of June 30, 2021 pending finalization of the fair value of intangibles and property, plant and equipment. The principle valuation techniques employed include cost and market approaches (PP&E), relief from royalty method under the income approach (trade name and technology/know) and multi-period excess earnings method under the income approach (customer relationships).2021. The following table summarizes the preliminary purchase price allocation for the major components of the acquisition:
(In thousands) |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
| $ | 54,400 |
|
| $ | 54,200 |
|
Identifiable intangibles assets |
|
| 45,500 |
| ||||
Identifiable intangible assets |
|
| 46,000 |
| ||||
Goodwill |
|
| 65,100 |
|
|
| 64,800 |
|
Total assets acquired |
| $ | 165,000 |
|
| $ | 165,000 |
|
The acquired goodwill includes proprietary and intellectual property, brand recognition, business continuity benefits and marketing, manufacturing and supply chain synergies of the new business with the Company’s existing Polymer business. The acquired goodwill has been assigned to the Polymers segment and is deductible for tax purposes. Identifiable intangible assets included technology and manufacturing know-how ($13,000,000), trademarks ($8,000,000) and customer relationships ($24,500,000). The amortization periods for know-how and trademarks have initially been estimated to be in the range of 7 to 8 years. The amortization period for customer relationships has initially been estimated to be in the range of 12 to 14 years. As of June 30, 2021, in addition to the purchase price, the Company also paid $3,551,000 of acquisition-related expenses that primarily included legal, consulting, valuation and accounting services. For the three and six months ended June 30, 2021, the
20
Company incurred $319,000 and $1,604,000 of acquisition-related expenses, respectively. These costs were included in the Administrative expenses line in the Company’s condensed consolidated statement of income.
The following table reflects pro forma financial information prepared under the assumption that the acquisition of the INVISTA aromatic polyester polyol business occurred on January 1, 2020.
Pro Forma Financial Information
Unaudited
|
| Three Months Ended June 30 |
|
| Six Months Ended June 30 |
| ||||||||||
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net Sales |
| $ | 595,511 |
|
| $ | 480,949 |
|
| $ | 1,145,690 |
|
| $ | 956,836 |
|
Net Income Attributable to Stepan Company |
| $ | 43,520 |
|
| $ | 34,723 |
|
| $ | 86,632 |
|
| $ | 63,325 |
|
The supplemental pro forma information is presented for illustrative purposes only and may not be indicative of the consolidated results that would have been achieved by the Company had the acquisition occurred on January 1, 2020. Furthermore, future results may vary significantly from the results reflected in the pro forma information. The pro forma results include adjustments primarily related to amortization of acquired intangible assets, depreciation of the fair value adjustment related to acquired plant assets, tax expense and management assumptions related to INVISTA’s legacy carved-out financial statements. In addition, non-recurring adjustments to pro forma net income include $1,604,000 of acquisition-related expenses. Such expenses were excluded from 2021 pro forma net income and included in 2020 pro forma net income.
Fermentation Plant Acquisition
On February 2, 2021, the Company acquired a fermentation plant, located in Lake Providence, Louisiana (U.S.).Louisiana. The Company believes this plant complements the rhamnolipid-based bio-surfactant technology the Company acquired from Logos Technologies in March 2020. Fermentation is a new platform technology for the Company and the Company is focusing efforts to further develop, integrate, produce and commercialize these unique surfactants moving forward. Bio-surfactants, produced via fermentation, are attractive due to their biodegradability, low toxicity, and in some cases, unique antimicrobial properties. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional.institutional cleaning. The acquisition of this industrial scale fermentation plant represents the latest step in the Company’s bio-surfactant commercialization efforts. The purchase price was $3,500,000 and was paid in cash. This acquisition has been accounted for as an asset acquisition.
18. | GOODWILL IMPAIRMENT |
2020 Acquisitions
Clariant (Mexico) Acquisition
On September 17, 2020,The Company typically tests its goodwill balances for impairment in the second quarter of each calendar year. Testing is completed more frequently when triggering events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit to which goodwill relates has declined below its carrying value. During the second quarter of 2022 the Company throughcompleted its subsidiaries in Mexico, acquired Clariant (Mexico) S.A. de C.V.’s (Clariant) anionic business located in Santa Clara, Mexico.annual goodwill impairment testing and concluded that the goodwill related to its Philippines reporting unit was impaired. The acquisition did not include the purchasePhilippines reporting unit is part of a manufacturing site. The business acquired was integrated into the Company’s two existing manufacturing sites in Mexico (Matamoros and Ecatepec). The purchase priceSurfactant segment. Goodwill impairment was recognized as a result of the acquisition was $14,000,000, plus associated value-added taxes (VAT). As of June 30, 2021, $13,519,000, inclusive of $308,000 net VAT, had been paid with cash on hand. The acquisition was accounted for as a business combination and the assets were measured and recorded at their estimatedreporting unit’s fair value declining below its carrying value. The acquired goodwill is not tax deductible. All assets acquired are includedCompany estimates the fair value of each of its reporting units based on the average of market and income-based computations. See the Critical Accounting Policies, Goodwill and Intangible Assets, disclosed in the Company’s Surfactants segment.2021 Annual Report on Form 10-K for further details on how the Company computes market and income-based fair values. The following table summarizesPhilippines impairment primarily resulted from lost market share at one major customer combined with higher unit overhead costs. The Company recorded a non-cash charge of $978,000 in the purchase price allocationCondensed Consolidated Statements of Income for the acquisition:
(In thousands) |
|
|
| |
Assets: |
|
|
|
|
Identifiable intangible assets: |
|
|
|
|
Customer lists |
| $ | 8,000 |
|
Trademarks and know-how |
|
| 1,300 |
|
Non-compete agreement |
|
| 300 |
|
Goodwill |
|
| 4,225 |
|
Property, plant and equipment |
|
| 175 |
|
Total assets acquired |
| $ | 14,000 |
|
Logos Technologies Acquisition
On March 13, 2020,three and six months ended June 30, 2022. The impairment charge equaled the Company acquired certain assets of Logos Technologies LLC's NatSurFact® business, a rhamnolipid-based line of bio-surfactants derived from renewable sources. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional. The acquisition was accounted for as an asset acquisition. The purchase priceentire balance of the acquisitionPhilippines’ goodwill.
The Company concluded that there was $2,040,000 and was paid with cash0 goodwill impairment at any of its other reporting units based on hand. All assets acquired are included inits testing completed during the Company’s Surfactants segment. The assets acquired were primarily intangibles, including trademarks and know-how ($1,392,000) and patents ($464,000). Additionally, $184,000second quarter of laboratory equipment was acquired.
2022.
| NONCASH INVESTING ACTIVITIES |
Noncash investing activities included liabilities (accounts payable) incurred for property, plant and equipment expenditures of approximately $29,032,000 and $12,271,000 that were unpaid at June 30, 2022 and 2021, respectively.
20. | RECENT ACCOUNTING PRONOUNCEMENTS |
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. This update provides guidance to reduce complexity in certain areas of accounting for income taxes. The amendments in this update are effective for fiscal years beginning after December 15, 2020. The Company adopted ASU. No. 2019-12 in the first quarter of 2021 and the adoption of this update did not have a material effect on the Company’s financial position, results of operations and cash flows.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effect of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease the burden of implementing the usage of new reference rates. The amendments apply to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. If elected the optional expedients to contract modifications must be applied consistently for all eligible contracts or eligible transactions. The amendments in this update may be implemented between March 12, 2020 and December 31, 2022. The guidance should be applied prospectively. TheOther than electing select expedients associated with an interest rate swap, the Company has not currently utilized any of the optional expedients of exceptions available under this ASU. The Company will continue to assess whether this ASU is applicable throughout the effective period.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which improves the accounting for acquired revenue contracts with customers in a business combination by addressing current inconsistencies in the recognition of acquired contract liabilities as well as payment terms and their effect on subsequent revenue recognized by the acquirer. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) at fair value on the acquisition date. This amendment requires acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments in this update are effective for fiscal years beginning after December 31, 2022 and should be applied prospectively. The Company is in the process of assessing the impact that adoption of ASU No. 2021-08 may have on its financial position, results of operations and cash flows.
19
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis (MD&A) of certain significant factors that have affected the Company’s financial condition and results of operations during the interim periods included in the accompanying condensed consolidated financial statements.
Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “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 (the Exchange Act). These statements include statements about Stepan Company’s and its subsidiaries’ (the Company) 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, the 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, forward-looking statements can be identified 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 the 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 the Company’s control, that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Such risks, uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth under “Part II-Item IA - Risk Factors” of this Quarterly Report on Form 10-Q and under “Part I-Item IA. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, including the risks and uncertainties related to the following:
| • | the impact of the COVID-19 pandemic; |
| • | accidents, unplanned production shutdowns or disruptions in any of the Company’s manufacturing facilities; |
| • | reduced demand for Company products due to customer product reformulations or new technologies; |
| • | the Company’s inability to successfully develop or introduce new products; |
| • | compliance with environmental, health and safety, product registration and anti-corruption laws; |
| • | the Company’s ability to make acquisitions of suitable candidates and successfully integrate acquisitions; |
| • | global competition and the Company’s ability to successfully compete; |
| • | volatility of raw material, natural gas and electricity costs as well as any disruption in their supply; |
| • | disruptions in transportation or significant changes in transportation costs; |
| • | downturns in certain industries and general economic downturns; |
| • | international business risks, including fluctuations in currency exchange rates, legal restrictions and taxes; |
| • | unfavorable resolution of litigation against the Company; |
| • | the Company’s ability to keep and protect its intellectual property rights; |
| • | potentially adverse tax consequences due to the international scope of the Company’s operations; |
| • | downgrades to the Company’s credit ratings or disruptions to the Company’s ability to access well-functioning capital markets; |
| • | conflicts, military actions, terrorist attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations; |
| • | cost overruns, delays and miscalculations in capacity needs with respect to the Company’s expansion or other capital projects; |
| • | interruption of, damage to or compromise of the Company’s IT systems and failure to maintain the integrity of customer, colleague or Company data; |
| • | the Company’s ability to retain its executive management and other key personnel; |
| • | the Company’s ability to operate within the limitations of debt covenants; and |
| • | the other factors set forth under “Risk Factors.” |
These factors are not necessarily all of the important factors that could cause the Company’s actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of its forward-looking statements. Other unknown or unpredictable factors also could harm the Company’s results. All forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company does not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.
The “Company,” “we,” “our” or “us” means Stepan Company and one or more of its subsidiaries only.
Overview
The Company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide. The overall business is comprised of three reportable segments:
Surfactants – Surfactants, which accounted for 67 percent of Company consolidated net sales for the first six months of 2021,2022, are principal ingredients in consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Other applications include fabric softeners, germicidal quaternary compounds, disinfectants, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites. Surfactants are manufactured at five sites in the United States, two European sites (United Kingdom and France), five Latin American sites (one site in Colombia and two sites in each of Mexico and Brazil) and two Asian sites (Philippines and Singapore). Recent significant events include:
| o |
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| In February 2021, the Company acquired a fermentation plant located in Lake Providence, Louisiana. The Company believes this plant complements the rhamnolipid-based bio-surfactant technology the Company acquired from Logos Technologies in March 2020. Fermentation is a new platform technology for the Company and the Company is focusing efforts to further develop, integrate, produce and commercialize these unique surfactants moving forward. Bio-surfactants, produced via fermentation, are attractive due to their biodegradability, low toxicity, and in some cases, unique antimicrobial properties. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and |
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| o | In January 2021, the Company purchased INVISTA’s aromatic polyester polyol business and associated assets. Included in the transaction were two manufacturing sites, one in Wilmington, North Carolina and the other in Vlissingen, Netherlands, along with intellectual property, customer relationships, inventory and working capital. This acquisition |
Specialty Products – Specialty products, which accounted for three percent of consolidated net sales for the first six months of 2021,2022, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications. Specialty products are primarily manufactured at the Company’s Maywood, New Jersey, site and, in some instances, by third-party contractors.
2021 Acquisitions21
In January 2021, the Company purchased INVISTA’s aromatic polyester polyol business and associated assets. Included in the transaction were two manufacturing sites, one in Wilmington, North Carolina and the other in Vlissingen, Netherlands along with intellectual property, customer relationships, inventory and working capital. This acquisition expands the Company’s manufacturing capabilities in both the United States and Europe and enhances the Company’s business continuity capabilities for the market. The Company believes that INVISTA’s available spare capacity, combined with debottlenecking opportunities in both plants, will allow Stepan to support future market growth in a capital efficient way. This acquisition was accounted for as a business combination, and accordingly, the assets acquired were measured and recorded at their preliminary fair values. The purchase price of the acquisition was $165.0 million, plus $21.5 million of working capital and $3.0 million of associated value-added taxes (VAT). The working capital acquired included $5.0 million of cash. The acquisition was paid with cash on hand. See Note 17, Acquisitions, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for additional details.
In February 2021, the Company acquired a fermentation plant located in Lake Providence, Louisiana. The Company believes this plant complements the rhamnolipid-based bio-surfactant technology the Company acquired from Logos Technologies in March 2020. Fermentation is a new platform technology for the Company and the Company is focusing efforts to further develop, integrate, produce and commercialize these unique surfactants moving forward. Bio-surfactants, produced via fermentation, are attractive due to their biodegradability, low toxicity, and in some cases, unique antimicrobial properties. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional. The acquisition of this industrial scale fermentation plant represents the latest step in the Company’s bio-surfactant commercialization efforts. This acquisition was accounted for as an asset acquisition. The purchase price of the acquisition was $3.5 million and was paid with cash on hand. See Note 17, Acquisitions, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for additional details.
Deferred Compensation Plans
The accounting for the Company’s deferred compensation plans can cause period-to-period fluctuations in Company income and expenses. Compensation expense resultsis recognized when the valuesvalue of Company common stock and mutual fund investment assets held for the plans increase, and compensation income resultsis recognized when the valuesvalue of Company common stock and mutual fund investment assets
25
decline. The pretax effect of all deferred compensation-related activities (including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations) and the income statement line items in which the effects of the activities were recorded are displayed in the following tables:table:
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| Income (Expense) |
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| Income (Expense) |
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| ||||||||||
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| For the Three Months Ended June 30 |
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| For the Three Months Ended June 30 |
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(In millions) |
| 2021 |
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| 2020 |
|
| Change |
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| 2022 |
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| 2021 |
|
| Change |
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| ||||||
Deferred Compensation (Administrative expenses) |
| $ | (1.0) |
|
| $ | (6.5) |
|
| $ | 5.5 |
| (1) |
| $ | 3.4 |
|
| $ | (1.0 | ) |
| $ | 4.4 |
| (1) |
Realized/Unrealized Gains on Investments (Other, net) |
|
| 2.2 |
|
|
| 3.8 |
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|
| (1.6) |
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Realized/Unrealized Gains (Losses) on Investments (Other, net) |
|
| (4.3 | ) |
|
| 2.2 |
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|
| (6.5 | ) |
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Investment Income (Other, net) |
|
| 0.2 |
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|
| 0.1 |
|
|
| 0.1 |
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|
| 0.2 |
|
|
| 0.2 |
|
|
| — |
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|
Pretax Income Effect |
| $ | 1.4 |
|
| $ | (2.6) |
|
| $ | 4.0 |
|
|
| $ | (0.7 | ) |
| $ | 1.4 |
|
| $ | (2.1 | ) |
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| Income (Expense) |
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| Income (Expense) |
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| ||||||||||||||||||||||
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| For the Six Months Ended June 30 |
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| For the Six Months Ended June 30 |
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(In millions) |
| 2021 |
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| 2020 |
|
| Change |
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| 2022 |
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| 2021 |
|
| Change |
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| ||||||||||||||||||
Deferred Compensation (Administrative expenses) |
| $ | (3.7) |
|
| $ | 0.8 |
|
| $ | (4.5) |
| (1) | ||||||||||||||||||||||||
Realized/Unrealized Gains on Investments (Other, net) |
|
| 2.6 |
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|
| 0.2 |
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|
| 2.4 |
| |||||||||||||||||||||||||
Deferred Compensation (Administrative expense) |
| $ | 10.9 |
|
| $ | (3.7 | ) |
| $ | 14.6 |
| (1) | ||||||||||||||||||||||||
Realized/Unrealized Gains (Losses) on Investments (Other, net) |
|
| (6.8 | ) |
|
| 2.6 |
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|
| (9.4 | ) |
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Investment Income (Other, net) |
|
| 0.5 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.4 |
|
|
| 0.5 |
|
|
| (0.1 | ) |
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Pretax Income Effect |
| $ | (0.6) |
|
| $ | 1.2 |
|
| $ | (1.8 | ) |
| $ | 4.5 |
|
| $ | (0.6 | ) |
| $ | 5.1 |
|
|
| (1) | See the Segment Results-Corporate Expenses sections of this MD&A for details regarding the period-over-period changes in deferred |
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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 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 following tables presenttable presents the effects that foreign currency translation had on the period-over-period changes in consolidated net sales and various income statement line items for the three and six months ended June 30, 20212022 and 2020:2021:
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| Three Months Ended June 30 |
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| Increase |
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| Three Months Ended June 30 |
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(In millions) |
| 2021 |
|
| 2020 |
|
| Increase |
|
| Due to Foreign Translation |
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| 2022 |
|
| 2021 |
|
| Increase |
|
| (Decrease) Due to Foreign Translation |
| ||||||||
Net Sales |
| $ | 595.5 |
|
| $ | 460.5 |
|
| $ | 135.0 |
|
| $ | 20.3 |
|
| $ | 751.6 |
|
| $ | 595.5 |
|
| $ | 156.1 |
|
| $ | (25.6 | ) |
Gross Profit |
|
| 111.7 |
|
|
| 98.5 |
|
|
| 13.2 |
|
|
| 2.7 |
|
|
| 131.6 |
|
|
| 111.7 |
|
|
| 19.9 |
|
|
| (3.5 | ) |
Operating Income |
|
| 56.7 |
|
|
| 44.6 |
|
|
| 12.1 |
|
|
| 1.7 |
|
|
| 77.6 |
|
|
| 56.7 |
|
|
| 20.9 |
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| (2.5 | ) |
Pretax Income |
|
| 57.8 |
|
|
| 47.8 |
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|
| 10.0 |
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|
| 1.9 |
|
|
| 69.5 |
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|
| 57.8 |
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|
| 11.7 |
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|
| (2.5 | ) |
|
| Six Months Ended June 30 |
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|
| Increase |
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| Six Months Ended June 30 |
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(In millions) |
| 2021 |
|
| 2020 |
|
| Increase |
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| Due to Foreign Translation |
|
| 2022 |
|
| 2021 |
|
| Increase |
|
| (Decrease) Due to Foreign Translation |
| ||||||||
Net Sales |
| $ | 1,133.3 |
|
| $ | 910.5 |
|
| $ | 222.8 |
|
| $ | 24.6 |
|
| $ | 1,426.9 |
|
| $ | 1,133.3 |
|
| $ | 293.6 |
|
| $ | (37.3 | ) |
Gross Profit |
|
| 220.7 |
|
|
| 177.8 |
|
|
| 42.9 |
|
|
| 2.9 |
|
|
| 240.8 |
|
|
| 220.7 |
|
|
| 20.1 |
|
|
| (5.2 | ) |
Operating Income |
|
| 110.6 |
|
|
| 84.6 |
|
|
| 26.0 |
|
|
| 1.6 |
|
|
| 141.0 |
|
|
| 110.6 |
|
|
| 30.4 |
|
|
| (3.6 | ) |
Pretax Income |
|
| 111.0 |
|
|
| 83.3 |
|
|
| 27.7 |
|
|
| 2.0 |
|
|
| 128.9 |
|
|
| 111.0 |
|
|
| 17.9 |
|
|
| (3.7 | ) |
RESULTS OF OPERATIONS
Three Months Ended June 30, 20212022 and 20202021
Summary
Net income attributable to the Company in the second quarter of 20212022 increased 2120 percent to $52.1 million, or $2.26 per diluted share, from $43.3 million, or $1.85 per diluted share, from $35.7 million, or $1.54 per diluted share, in the second quarter of 2020.2021. Adjusted net income increased 1026 percent to $53.0 million, or $2.30 per diluted share, from $42.2 million, or $1.81 per diluted share from $38.3 million, or $1.65 per diluted share, in 2020the second quarter of 2021 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income attributable to the Company and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in the second quarter of 20212022 compared to the second quarter of 2020.2021. A detailed discussion of segment operating performance for the second quarter of 20212022 compared to the second quarter of 20202021 follows the summary.
Consolidated net sales increased $135.0$156.1 million, or 2926 percent, between quarters.from the prior year quarter. Higher average selling prices favorably impacted the quarter-over-quarteryear-over-year change in net sales by $92.0$190.3 million. The increase in average selling prices was mainly dueattributable to the pass-through of higher raw material and logistics costs andas well as more favorable customerproduct and productcustomer mix. Consolidated sales volume increased fivedeclined one percent, which had an $22.7 million favorable impact on the change in net sales. Sales volume in the Polymer and Specialty Products segments increased 44 percent and 17 percent, respectively. The increase in Polymer sales volume was primarily attributable to the first quarter 2021 INVISTA polyester polyol acquisition and the gradual recovery from COVID-19 delays and cancellations of re-roofing and new construction projects. The Specialty Products sales volume growth primarily reflects order timing differences within the food and flavor business. Sales volume in the Surfactant segment decreased six percent quarter-over-quarter mostly due to lower sales volume in the consumer product end markets. The consumer product business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020. Foreign currency translation favorably impacted the change in net sales by $20.3$8.6 million. Sales volume in the Polymer segment increased two percent while sales volume in the Surfactant and Specialty Products segments decreased three and seven percent, respectively. Foreign currency translation negatively impacted the year-over-year change in net sales by $25.6 million due to a weakerstronger U.S. dollar against allmost currencies in foreign locations where the Company has foreign operations.
Operating income forin the second quarter of 20212022 increased $12.0$21.0 million, or 2737 percent, versus operating income forin the second quarter of 2020.2021. Polymer, and Specialty Products and Surfactant operating income increased $7.5$10.9 million, $2.9 million, and $3.8$2.4 million, respectively. Surfactant operating income decreased $2.6 millionrespectively, versus the second quarter of 2020.2021. Corporate expenses, including business restructuring and deferred compensation expenses, decreased $3.4$4.9 million quarter-over-quarter. Deferredyear-over-year. Most of this decrease was attributable to a $4.4 million decrease in deferred compensation and business restructuring expenses decreased $5.5 million and $0.1 million, respectively.expenses. Corporate expenses (excluding deferred compensation and business restructuring expenses) increased $2.2decreased $0.5 million quarter-over-quarter.year-over-year primarily due to lower acquisition-related expenses. Foreign currency translation hashad a $1.7$2.5 million positivenegative impact on operating income in the second quarter of 20212022 versus the prior year quarter.
Operating expenses (including deferred compensation, and business restructuring expenses) increased $1.2and goodwill impairment) decreased $1.1 million, or two percent, between quarters.versus the prior year quarter. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:
| • | Selling expenses increased |
| • | Administrative expenses |
| • | Research, development and technical service (R&D) expenses increased |
| • | Deferred compensation expense decreased |
| • | Business restructuring |
• | Goodwill impairment expenses were $1.0 million in |
2723
Net interest expense for the second quarter of 20212022 increased $0.3$1.2 million, or 2474 percent, versus the second quarter of 2020.2021. This increase was primarily dueattributable to lower interest income resulting from lower interest rates due to global market conditionshigher borrowings in 2022 and higher interest expense related to revolving credit agreement borrowings. Partially offsettingin the above was lower interest expense resulting from scheduled debt repayments.second half of 2021.
Other, net was $5.4 million of expense in the second quarter of 2022 versus $2.8 million of income in the second quarter of 2021 versus $4.4 million of income in the second quarter of 2020.2021. The Company recognized $2.4$4.3 million of investment incomelosses (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the second quarter of 20212022 compared to $4.0$2.4 million of investment income in the second quarter of 2020.2021. In addition, the Company reported $1.5 million of foreign exchange losses in the second quarter of 2022 versus $0.1 million of foreign exchange gains in the second quarter of 2021 versus $0.4 million of foreign exchange gains in the second quarter of 2020.2021. The Company also reported $0.2 million of higher net periodic pension cost benefitsincome in the second quarter of 20212022 versus the prior year second quarter.
The Company’s effective tax rate was 25.125.0 percent forin the second quarter of 20212022 compared to 25.025.1 percent forin the second quarter of 2020. 2021.
Segment Results
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Dollars in thousands) |
| June 30 |
|
| June 30 |
|
| Increase |
|
| Percent |
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Net Sales |
| 2021 |
|
| 2020 |
|
|
|
|
|
| Change |
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase |
|
| Percent Change |
| |||||||
Surfactants |
| $ | 384,002 |
|
| $ | 332,335 |
|
| $ | 51,667 |
|
|
| 16 |
|
| $ | 485,084 |
|
| $ | 384,002 |
|
| $ | 101,082 |
|
|
| 26 |
|
Polymers |
|
| 190,538 |
|
|
| 112,409 |
|
|
| 78,129 |
|
|
| 70 |
|
|
| 238,885 |
|
|
| 190,538 |
|
|
| 48,347 |
|
|
| 25 |
|
Specialty Products |
|
| 20,971 |
|
|
| 15,805 |
|
|
| 5,166 |
|
|
| 33 |
|
|
| 27,664 |
|
|
| 20,971 |
|
|
| 6,693 |
|
|
| 32 |
|
Total Net Sales |
| $ | 595,511 |
|
| $ | 460,549 |
|
| $ | 134,962 |
|
|
| 29 |
|
| $ | 751,633 |
|
| $ | 595,511 |
|
| $ | 156,122 |
|
|
| 26 |
|
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Dollars in thousands) |
| June 30, |
|
| June 30, |
|
| Increase |
|
| Percent |
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Operating Income |
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| Change |
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||||||
Surfactants |
| $ | 45,896 |
|
| $ | 48,503 |
|
| $ | (2,607 | ) |
|
| -5 |
|
| $ | 48,249 |
|
| $ | 45,896 |
|
| $ | 2,353 |
|
|
| 5 |
|
Polymers |
|
| 23,025 |
|
|
| 15,527 |
|
|
| 7,498 |
|
|
| 48 |
|
|
| 33,912 |
|
|
| 23,025 |
|
|
| 10,887 |
|
|
| 47 |
|
Specialty Products |
|
| 6,977 |
|
|
| 3,226 |
|
|
| 3,751 |
|
|
| 116 |
|
|
| 9,866 |
|
|
| 6,977 |
|
|
| 2,889 |
|
|
| 41 |
|
Segment Operating Income |
| $ | 75,898 |
|
| $ | 67,256 |
|
| $ | 8,642 |
|
|
| 13 |
|
| $ | 92,027 |
|
| $ | 75,898 |
|
| $ | 16,129 |
|
|
| 21 |
|
Corporate Expenses, Excluding Deferred Compensation and Restructuring |
|
| 18,169 |
|
|
| 15,944 |
|
|
| 2,225 |
|
|
| 14 |
|
| $ | 17,712 |
|
| $ | 18,169 |
|
| $ | (457 | ) |
|
| -3 |
|
Deferred Compensation Expense |
|
| 958 |
|
|
| 6,464 |
|
|
| (5,506 | ) |
|
| -85 |
| ||||||||||||||||
Deferred Compensation Expense (Income) |
|
| (3,406 | ) |
|
| 958 |
|
|
| (4,364 | ) |
| NM |
| |||||||||||||||||
Business Restructuring |
|
| 114 |
|
|
| 225 |
|
|
| (111 | ) |
|
| -49 |
|
|
| 81 |
|
|
| 114 |
|
|
| (33 | ) |
|
| -29 |
|
Total Operating Income |
| $ | 56,657 |
|
| $ | 44,623 |
|
| $ | 12,034 |
|
|
| 27 |
|
| $ | 77,640 |
|
| $ | 56,657 |
|
| $ | 20,983 |
|
|
| 37 |
|
Surfactants
Surfactant net sales for the second quarter of 20212022 increased $51.7$101.1 million, or 1626 percent, versus net sales for the second quarter of 2020.2021. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the change in net sales by $58.6 million and $14.4 million, respectively. The higher average selling prices were mainly due to more favorable product and customer mix and the pass-through of higher raw material costs. A six percent decrease in sales volume negatively impacted the change in net sales by $21.3 million. Lower sales volume in the consumer product end markets accounted for most of the sales volume decrease. A comparison of net sales by region follows:
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||
(Dollars in thousands) |
| June 30, |
|
| June 30, |
|
| Increase |
|
| Percent |
| ||||
Net Sales |
| 2021 |
|
| 2020 |
|
|
|
|
|
| Change |
| |||
North America |
| $ | 221,645 |
|
| $ | 207,571 |
|
| $ | 14,074 |
|
|
| 7 |
|
Europe |
|
| 65,339 |
|
|
| 55,812 |
|
|
| 9,527 |
|
|
| 17 |
|
Latin America |
|
| 79,968 |
|
|
| 56,194 |
|
|
| 23,774 |
|
|
| 42 |
|
Asia |
|
| 17,050 |
|
|
| 12,758 |
|
|
| 4,292 |
|
|
| 34 |
|
Total Surfactants Segment |
| $ | 384,002 |
|
| $ | 332,335 |
|
| $ | 51,667 |
|
|
| 16 |
|
Net sales for North American operations increased $14.1 million, or seven percent, between quarters. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the change in net sales by $32.4 million and $0.9 million, respectively. The higher average selling prices were mainly due to more favorable product and customer mix and the pass-through of higher raw material costs. Sales volume declined nine percent and negatively impacted the change in net sales by $19.2 million. Lower sales volume in the consumer product end markets accounted for most of the decline. Higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets partially offset the foregoing decline. The consumer products business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020.
Net sales for European operations increased $9.5 million, or 17 percent, between quarters. The favorable impact of foreign currency translation and higher average selling prices positively impacted the change in net sales by $7.3$122.9 million. The higher average selling prices were mainly attributable to the pass-through of higher raw material and logistics costs as well as improved product and customer mix. Foreign currency translation had an $11.3 million unfavorable impact on the year-over-year change in net sales. Sales volume declined three percent and negatively impacted the change in net sales by $10.5 million. A comparison of net sales by region follows:
(Dollars in thousands) |
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||
Net Sales |
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
North America |
| $ | 278,310 |
|
| $ | 221,645 |
|
| $ | 56,665 |
|
|
| 26 |
|
Europe |
|
| 92,591 |
|
|
| 65,339 |
|
|
| 27,252 |
|
|
| 42 |
|
Latin America |
|
| 97,987 |
|
|
| 79,968 |
|
|
| 18,019 |
|
|
| 23 |
|
Asia |
|
| 16,196 |
|
|
| 17,050 |
|
|
| (854 | ) |
|
| -5 |
|
Total Surfactants Segment |
| $ | 485,084 |
|
| $ | 384,002 |
|
| $ | 101,082 |
|
|
| 26 |
|
Net sales for North American operations increased $56.7 million, or 26 percent, year over year. Higher average selling prices positively impacted the change in net sales by $57.4 million. The higher average selling prices were mainly attributable to the pass-through of higher raw material and logistics costs along with more favorable product and customer mix. Sales volume was flat between years as higher demand for products sold into the functional products end markets, along with higher demand within the Tier 2 and Tier 3 customer channel, offset lower demand for commodity laundry products within the consumer products business. Continued raw material and logistics constraints also negatively impacted sales volume. Foreign currency translation negatively impacted the change in net sales by $0.3 million.
Net sales for European operations increased $27.3 million, or 42 percent, versus the prior year quarter. Higher average selling prices and a seven percent increase in sales volume favorably impacted the year-over-year change in net sales by $34.6 million and $5.7$4.3 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and improved product and customer mix. The seven percent increase in sales volume primarily reflects higher demand for products sold into the functional products and institutional cleaning end markets. Foreign currency translation negatively impacted the change in net sales by $11.6 million. A weakerstronger U.S. dollar relative to the European euro and British pound sterling led to the positiveunfavorable foreign currency translation effect. The higher average selling prices were primarily due to more favorable product and customer mix and the pass-through of higher raw material costs. Sales volume declined six percent and negatively impacted the change in net sales by $3.4 million. Most of the sales volume decline reflects lower demand for consumer cleaning products versus the pandemic demand peak in 2020.
Net sales for Latin American operations increased $23.8$18.0 million, or 4223 percent, primarily due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by $18.8$22.1 million and $5.5$2.0 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and $2.1 million of revenue recognition related to a VAT tax recovery.improved product and customer mix. A weaker U.S. dollar relative to the Mexican pesoBrazilian real led to most of the favorable foreign currency translation effect. Sales volume declined oneeight percent and had a $0.5 million unfavorable impact onnegatively impacted the change in net sales.sales by $6.1 million. The sales volume decline was largely attributableprimarily due to lower ether sulfate sales due to feedstock supply constraints in Mexico. demand for commodity laundry products within the consumer products business partially offset by higher demand for products sold into the functional products end markets.
Net sales for Asian operations increased $4.3decreased $0.9 million, or 34five percent, quarter-over-quarter.from the prior year quarter. A 1531 percent increasedecline in sales volume higher average selling prices, and the favorableunfavorable impact of foreign currency translation negatively impacted the change in net sales by $5.2 million and $1.4 million, respectively. The decline in sales volume primarily reflects lower demand for commodity laundry products sold within the consumer products business and lower demand from our distribution partners. Higher average selling prices positively impacted the change in net sales by $1.9 million, $1.6 million and $0.8 million, respectively. The sales volume growth was largely due to higher demand for products sold to our distribution partners and into the agricultural end market.$5.7 million. The higher average selling prices were primarily due toreflect the pass-through of higher raw material costs and more favorable product and customer mix.costs.
Surfactant operating income for the second quarter of 2021 decreased $2.62022 increased $2.4 million, or five percent, versus operating income for the second quarter of 2020.2021. Gross profit increased $1.0$5.0 million, in the second quarter of 2021 versus the second quarter of 2020or seven percent, and operating expenses increased $3.6$2.7 million, or 1510 percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow:
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Dollars in thousands) |
| June 30, 2021 |
|
| June 30, 2020 |
|
| Increase (Decrease) |
|
| Percent Change |
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Gross Profit and Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
North America |
| $ | 44,412 |
|
| $ | 46,221 |
|
| $ | (1,809 | ) |
|
| -4 |
|
| $ | 47,188 |
|
| $ | 44,412 |
|
| $ | 2,776 |
|
|
| 6 |
|
Europe |
|
| 8,478 |
|
|
| 9,387 |
|
|
| (909 | ) |
|
| -10 |
|
|
| 11,620 |
|
|
| 8,478 |
|
|
| 3,142 |
|
|
| 37 |
|
Latin America |
|
| 17,330 |
|
|
| 12,315 |
|
|
| 5,015 |
|
|
| 41 |
|
|
| 15,567 |
|
|
| 17,330 |
|
|
| (1,763 | ) |
|
| -10 |
|
Asia |
|
| 2,837 |
|
|
| 4,118 |
|
|
| (1,281 | ) |
|
| -31 |
|
|
| 3,692 |
|
|
| 2,837 |
|
|
| 855 |
|
|
| 30 |
|
Surfactants Segment Gross Profit |
| $ | 73,057 |
|
| $ | 72,041 |
|
| $ | 1,016 |
|
|
| 1 |
|
| $ | 78,067 |
|
| $ | 73,057 |
|
| $ | 5,010 |
|
|
| 7 |
|
Operating Expenses |
|
| 27,161 |
|
|
| 23,538 |
|
|
| 3,623 |
|
|
| 15 |
|
|
| 29,818 |
|
|
| 27,161 |
|
|
| 2,657 |
|
|
| 10 |
|
Surfactants Segment Operating Income |
| $ | 45,896 |
|
| $ | 48,503 |
|
| $ | (2,607 | ) |
|
| -5 |
|
| $ | 48,249 |
|
| $ | 45,896 |
|
| $ | 2,353 |
|
|
| 5 |
|
Gross profit for North American operations decreased fourincreased $2.8 million, or six percent, or $1.8 million, between quartersfrom the prior year quarter primarily due to higher average unit margins. The higher average unit margins favorably impacted the change in gross profit by $2.9 million and were mostly attributable to more favorable product and customer mix that was partially offset by ongoing supply chain challenges, inclusive of raw material and logistics constraints, and inflationary pressures.
Gross profit for European operations increased $3.1 million, or 37 percent, due to higher average unit margins and a nineseven percent increase in sales volume. These items positively impacted the change in net sales by $4.0 million and $0.5 million, respectively. The higher average unit margins primarily reflect improved customer and product mix. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $1.4 million. A stronger U.S. dollar relative to the European euro and British pound sterling led to the unfavorable foreign currency translation effect.
Gross profit for Latin American operations decreased $1.8 million, or ten percent, due to an eight percent decline in sales volume.volume and lower average unit margins. These items negatively impacted the change in gross profit by $1.3 million and $0.8 million, respectively. The lower average unit margins were primarily due to the non-recurrence of a $2.1 million VAT tax recovery during the second quarter of 2021. Foreign currency translation favorably impacted the year-over-year change in gross profit by $0.3 million.
25
Gross profit for Asia operations increased $0.9 million, or 30 percent, from the prior year quarter primarily due to higher average unit margins. The higher unit margins positively impacted the change in gross profit by $1.7 million. A 31 percent decline in sales volume negatively impacted the change in gross profit by $4.3 million. Lower sales volume in the consumer product end markets accounted for most of the decline. Higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets partially offset the above. Higher average unit margins positively impacted the change in gross profit by $2.5$0.8 million. The higher unit margins reflect a more favorable product and customer mix that was largely offset by higher supply chain costs due to inflationary pressures (inclusive of transportation costs) and higher planned maintenance ($2.2 million).
Gross profit for European operations decreased $0.9 million, or ten percent,lower volume primarily due to lower average unit margins and a six percent decline in sales volume. These items negatively impacted the change in gross profit by $1.1 million and $0.6 million, respectively. Most of the sales volume decline reflects lower demand for consumer cleaning products versus the pandemic peak in
29
2020. The favorable impact of foreign currency translation positively impacted the change in gross profit by $0.8 million and reflects a weaker U.S. dollar relative to the European euro and British pound sterling. lost market share at one major customer.
Gross profit for Latin American operations increased $5.0 million, or 41 percent, between quarters primarily due to higher average unit margins and the favorable impact of foreign currency translation. These items positively impacted the change in gross profit by $4.1 million and $1.0 million, respectively. The higher unit margins were largely due to $2.1 million of revenue recognition related to a VAT tax recovery during the second quarter of 2021. Slightly lower sales volume negatively impacted the change in gross profit by $0.1 million.
Gross profit for Asia operations decreased $1.3 million or 31 percent, between quarters primarily due to lower average unit margins. The lower unit margins negatively impacted the change in gross profit by $1.9 million and primarily reflect higher raw material costs and higher unit overhead costs in Singapore due to unfavorable production timing differences. Sales volume growth of 15 percent partially offset the above and positively impacted the change in gross profit by $0.6 million.
Operating expenses for the Surfactant segment increased $3.6$2.7 million, or 15ten percent, in the second quarter of 20212022 versus the second quarter of 2020.2021. This increase was mainly dueattributable to higher salaries, corporate headquarter-relatedincentive-based compensation expenses, (inclusive ofa goodwill impairment charge at the non-recurrence of a salesCompany’s Philippines subsidiary and use tax refund received in the second quarter of 2020) and the unfavorable impact of foreign currency translation.higher bad debt provision expense.
Polymers
PolymersPolymer net sales for the second quarter of 20212022 increased $78.1$48.3 million, or 7025 percent, versus net sales for the same period of 2020. A 442021. Higher average selling prices and a two percent increase in sales volume favorably impacted the change in net sales by $48.9 million.$58.4 million and $3.6 million, respectively. The sales volume growth primarily reflects the first quarter 2021 acquisition of INVISTA’s aromatic polyester polyol business and ongoing recovery from COVID-19 related delays and cancellations of re-roofing and new construction projects. Higherhigher average selling prices andwere mainly due to the favorable impactpass through of foreignhigher raw material costs. Foreign currency translation positively impactedhad a $13.7 million unfavorable impact on the year-over-year change in net sales by $23.5 million and $5.7 million, respectively.sales. A comparison of net sales by region follows:
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Dollars in thousands) |
| June 30 |
|
| June 30 |
|
| Increase |
|
| Percent |
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Net Sales |
| 2021 |
|
| 2020 |
|
|
|
|
|
| Change |
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| |||||||
North America |
| $ | 95,591 |
|
| $ | 68,780 |
|
| $ | 26,811 |
|
|
| 39 |
|
| $ | 133,455 |
|
| $ | 95,591 |
|
| $ | 37,864 |
|
|
| 40 |
|
Europe |
|
| 82,453 |
|
|
| 32,692 |
|
|
| 49,761 |
|
|
| 152 |
|
|
| 94,424 |
|
|
| 82,453 |
|
|
| 11,971 |
|
|
| 15 |
|
Asia and Other |
|
| 12,494 |
|
|
| 10,937 |
|
|
| 1,557 |
|
|
| 14 |
|
|
| 11,006 |
|
|
| 12,494 |
|
|
| (1,488 | ) |
|
| -12 |
|
Total Polymers Segment |
| $ | 190,538 |
|
| $ | 112,409 |
|
| $ | 78,129 |
|
|
| 70 |
|
| $ | 238,885 |
|
| $ | 190,538 |
|
| $ | 48,347 |
|
|
| 25 |
|
Net sales for North American operations increased $26.8$37.9 million, or 3940 percent, primarily due to higher average selling prices and a 35three percent increase in sales volume. The increase in sales volumeThese items positively impacted the change in net sales by $24.2 million. Sales volume of polyols used in rigid foam applications increased 23 percent during the quarter primarily due to the first quarter 2021 INVISTA polyester polyol acquisition$34.6 million and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume of polyols used in rigid foam applications, excluding the impact of the INVISTA acquisition, increased 2 percent. Sales volume of phthalic anhydride and specialty polyols increased 71 percent and 85 percent, respectively, due to stronger demand within these markets following the peak of the COVID-19 pandemic. The phthalic anhydride sales volume improvement was also attributable to the non-recurrence of the Millsdale plant power outage in 2020. Higher average selling prices positively impacted the change in net sales by $2.6 million.$3.3 million, respectively. The higher average selling prices were mainly due to the pass-through of higher raw material costs. The higher sales volume reflects rigid polyol growth of eight percent that was partially offset by lower demand within the phthalic anhydride and specialty polyols businesses.
Net sales for European operations increased $49.8$12.0 million, or 15215 percent, quarter-over-quarter. A 79year over year. Higher average selling prices and a three percent increase in sales volume positively impacted the change in net sales by $22.9 million and $2.7 million, respectively. The higher average selling prices were primarily due to pass-through of higher raw material costs. The unfavorable impact of foreign currency translation negatively impacted the change in net sales by $13.6 million. A stronger U.S. dollar relative to the Polish zloty and British pound sterling led to the unfavorable foreign currency translation effect.
Net sales for Asia and Other operations decreased $1.5 million, or 12 percent, primarily due to a 17 percent decline in sales volume which had a $2.1 million negative impact on the year-over-year change in net sales. The decline in sales volume was primarily attributable to recent COVID lockdowns and restrictions in China. Higher average selling prices positively impacted the change in net sales by $25.8 million and $19.6 million, respectively.$0.7 million. The increase in sales volume is primarily due to the first quarter 2021 INVISTA polyester polyol acquisition and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume, excluding the impact of the INVISTA acquisition, increased 23 percent. The higher average selling prices were primarily due to the pass-through of higher raw material costs. The favorableunfavorable impact of foreign currency translation positivelynegatively impacted the change in net sales by $4.4$0.1 million.
Net sales for Asia and Other operations increased $1.6 million, or 14 percent, primarily due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by $1.3 million each. Sales volume declined 10 percent quarter-over-quarter and negatively impacted the change in net by $1.0 million.
30
PolymersPolymer operating income forin the second quarter of 20212022 increased $7.5$10.9 million, or 4847 percent, versus operating income forin the second quarter of 2020.2021. Gross profit increased $8.4$11.7 million, or 38 percent, and operating expenses were up $0.8 million, or 1311 percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow:
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Dollars in thousands) |
| June 30, 2021 |
|
| June 30, 2020 |
|
| Increase (Decrease) |
|
| Percent Change |
|
| For the Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Gross Profit and Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
North America |
| $ | 15,869 |
|
| $ | 12,705 |
|
| $ | 3,164 |
|
|
| 25 |
|
| $ | 25,787 |
|
| $ | 15,869 |
|
| $ | 9,918 |
|
|
| 62 |
|
Europe |
|
| 13,314 |
|
|
| 6,195 |
|
|
| 7,119 |
|
|
| 115 |
|
|
| 15,459 |
|
|
| 13,314 |
|
|
| 2,145 |
|
|
| 16 |
|
Asia and Other |
|
| 1,479 |
|
|
| 3,379 |
|
|
| (1,900 | ) |
|
| -56 |
|
|
| 1,118 |
|
|
| 1,479 |
|
|
| (361 | ) |
|
| -24 |
|
Polymers Segment Gross Profit |
| $ | 30,662 |
|
| $ | 22,279 |
|
| $ | 8,383 |
|
|
| 38 |
|
| $ | 42,364 |
|
| $ | 30,662 |
|
| $ | 11,702 |
|
|
| 38 |
|
Operating Expenses |
|
| 7,637 |
|
|
| 6,752 |
|
|
| 885 |
|
|
| 13 |
|
|
| 8,452 |
|
|
| 7,637 |
|
|
| 815 |
|
|
| 11 |
|
Polymers Segment Operating Income |
| $ | 23,025 |
|
| $ | 15,527 |
|
| $ | 7,498 |
|
|
| 48 |
|
| $ | 33,912 |
|
| $ | 23,025 |
|
| $ | 10,887 |
|
|
| 47 |
|
Gross profit for North American operations increased $3.2$9.9 million, or 2562 percent, primarily due to higher average unit margins and a 35three percent increase in sales volume. The higher sales volumeThese items positively impacted the quarter-over-quarter change in gross profit by $4.5 million. Partially offsetting the$9.4 million and $0.5 million, respectively. The higher volume were lower average unit margins whichprimarily reflect partial margin recovery and more favorable product and customer mix as higher rigid polyols sales volume more than offset lower phthalic anhydride sales volume.
26
Gross profit for European operations increased $2.1 million, or 16 percent, versus the second quarter of 2021. The increase was primarily due to higher average unit margins and a three percent increase in sales volume. These two items favorably impacted the year-over-year change in gross profit by $3.8 million and $0.4 million respectively. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $1.3$2.1 million. The lower unit margins in 2021 primarily reflect higher supply chain costs due to inflationary pressures (inclusive of transportation costs), higher planned maintenance ($0.3 million) and the rapid rise in feedstock costs.
Gross profit for European operations increased $7.1 million, or 115 percent, versus the second quarter of 2021. A 79% increase in sales volume, higher average unit margins and the favorable impact of foreign currency translation positively impacted the quarter-over-quarter change in gross profit by $4.9 million, $1.5 million and $0.7 million, respectively.
Gross profit for Asia and Other operations declined $1.9decreased $0.4 million, or 5624 percent, between quarters. Lower average unit margins anddue to a 1017 percent decline in sales volume and slightly lower average unit margins. These items negatively impacted the quarter-over-quarteryear-over-year change in gross profit by $1.8$0.3 million and $0.3$0.1 million, respectively. The lower unit margins are primarily due to the non-recurrence of a second quarter 2020 partial government reimbursement related to the government-mandated China joint venture (JV) shutdown in 2012 ($1.1 million). The favorable impact of foreign currency translation positively impacted the change in gross profit by $0.2 million.
Operating expenses for the PolymersPolymer segment increased $0.9$0.8 million, or 1311 percent, in the second quarter of 2021 versus the second quarter of 2020.year over year. This increase was mainly attributable to higher incentive-based compensation and travel-related expenses.
Specialty Products
NetSpecialty Products net sales for the second quarter of 20212022 increased $5.2$6.7 million, or 3332 percent, versus net sales for the second quarter of 2020.2021. This increase reflects sales volume growth of 17 percent and higher average selling prices.prices that were partially offset by a seven percent decline in sales volume. Gross profit and operating income both increased $3.7by $2.9 million and $3.8 million, respectively.year-over-year. The year-over-year improvements in gross profit and operating income were primarilymostly attributable to improved margins and customer mix within the medium chain triglycerides (MCTs) product line, partially offset by order timing differences within the food and flavor business and improved margins within the medium chain triglycerides (MCT) product line.business.
Corporate Expenses
Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, decreased $3.4$4.9 million between quarters. Corporate expenses were $14.4 million in the second quarter of 2022 versus $19.2 million in the second quarter of 2021 versus $22.6 million in 2020.2021. This decrease was primarily attributable to lower$3.4 million of deferred compensation expense ($5.5 million) that was partially offset by higher acquisition-related expenses, insurance premiums, cloud application costs and corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund receivedincome recognized in the second quarter of 2020).2022 versus $1.0 million of deferred compensation expense recognized in the second quarter of 2021. In addition, the Company incurred lower acquisition-related expenses year-over-year.
The $5.5$4.4 million decrease in deferred compensation expense was primarily due to a $6.84decrease in the value of mutual fund investment assets held for the plans. This decrease was partially offset by a $2.54 per share decreaseincrease in the market price of Company common stock in the second quarter of 20212022 compared to a $8.64$6.84 per share increasedecrease in the second quarter of 2020.2021. The following table presents the quarter-end Company common stock market prices used in the computation of deferred compensation expenses for the three months ended June 30, 20212022 and 2020:2021:
|
| 2021 |
|
| 2020 |
| ||||||||||
|
| June 30 |
|
| March 31 |
|
| June 30 |
|
| March 31 |
| ||||
Company Common Stock Price |
| $ | 120.27 |
|
| $ | 127.11 |
|
| $ | 97.10 |
|
| $ | 88.46 |
|
|
| 2022 |
|
| 2021 |
| ||||||||||
|
| June 30 |
|
| March 31 |
|
| June 30 |
|
| March 31 |
| ||||
Company Common Stock Price |
| $ | 101.35 |
|
| $ | 98.81 |
|
| $ | 120.27 |
|
| $ | 127.11 |
|
Six Months Ended June 30, 20212022 and 20202021
Summary
Net income attributable to the Company in the first half of 20212022 increased 3316 percent to $96.9 million, or $4.19 per diluted share, from $83.9 million, or $3.59 per diluted share, from $63.3 million, or $2.72 per diluted share, in the first half of 2020.2021. Adjusted net income was $84.6increased 11 percent to $93.7 million, or 3.62$4.05 per diluted share, versus $62.5$84.6 million or $2.69$3.62 per diluted share, in the prior year (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income attributable to the Company and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Below is a summary discussion of the major factors leading to the year-over-year changes in net sales, expenses and income.income in the first half of 2022 compared to the first half of 2021. A detailed discussion of segment operating performance for the first half of 20212022 compared to the first half of 20202021 follows the summary.
Consolidated net sales increased $222.7$293.7 million, or 2426 percent, between years.year-over-year. Higher average selling prices a six percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $146.9 million, $51.3 million, and $24.5 million, respectively.$341.3 million. The increase in average selling prices was primarily duemainly attributable to the pass through of higher raw material and logistics costs as well as more favorable product and customer mixmix. Consolidated sales volume declined one percent and negatively impacted the pass-through of higher raw material costs.year-over-year change in net sales by $10.3 million. Sales volume in the Polymer segment increased two percent while sales volume in the Surfactant and Specialty ProductProducts segments increased 39declined two percent and 11nine percent, respectively. The increaseForeign currency translation negatively impacted the year-over-year change in Polymernet sales volume was primarily attributable to the first quarter 2021 INVISTA aromatic polyester polyol acquisition, the gradual recovery from COVID-19 delays and cancellations of re-roofing and new construction projects, and the non-recurrence of the power outage at the Company’s Millsdale, Illinois facility in the first quarter of 2020. Sales volume for the Surfactant segment declined 3 percent year-over-year mostlyby $37.3 million due to lower volumes in the consumer product end markets. The consumer product business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020. The favorable foreign currency translation reflects a weakerstronger U.S. dollar against the majority of currencies where the Company has foreign operations.
Operating income for the first half of 20212022 increased $25.9$30.4 million, or 3128 percent, versus operating income for the first half of 2020.2021. Polymer, SurfactantSpecialty Products and Specialty ProductsSurfactant operating income increased $17.9$7.1 million, $14.4$4.0 million, and $2.4$2.9 million, respectively. Corporate expenses, including business restructuring and deferred compensation expenses, increased $8.8decreased $16.4 million year-over-year. DeferredMost of this decrease was attributable to a $14.6 million decrease in deferred compensation expense increased $4.5 million while business restructuring expenses decreased $0.4 million between years.expenses. Corporate expenses (excluding deferred compensation and business restructuring expenses) increased $4.7decreased $1.9 million between years largely due to higherlower acquisition-related expenses insurance premiums, cloud application costs and corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund received in the second quarter of 2020).that were partially offset by higher incentive-based compensation expenses. Foreign currency translation hashad a $1.6$3.6 million positivenegative impact on operating income in the second quarterfirst half of 20212022 versus the prior year quarter.first half of 2021.
27
Operating expenses (including deferred compensation, and business restructuring expenses) increased $17.0and goodwill impairment) decreased $10.2 million, or 18nine percent, between years. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:
| • | Selling expenses increased |
| • | Administrative expenses |
| • | R&D expenses increased |
| • | Deferred compensation expense |
| • | Business restructuring expenses were $0.1 million in the first half of 2022 versus $0.2 million in the first half of |
• | Goodwill impairment expenses were |
32
Net interest expense for the first half of 20212022 increased $0.6$1.9 million, or 2463 percent, compared to net interest expense for the first half of 2020.2021. This increase was primarily dueattributable to lower interest income resulting from lower interest rates due to global market conditionshigher borrowings in 2022 and higher interest expense related to revolving credit agreement borrowings. Partially offsettingin the above was lower interest expense resulting from scheduled debt repayments. second half of 2021.
Other, net was $7.0 million of expense for the first half of 2022 compared to $3.5 million of income for the first half of 2021 compared to $1.2 million of income for the first half of 2020.2021. The Company recognized $3.3$6.6 million of investment incomelosses (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the first half of 20212022 compared to $0.2$3.3 million of income in the first half of 2020.2021. In addition, the Company reported foreign exchange losses of $0.2$1.2 million in the first half of 20212022 versus $1.0$0.2 million of foreign exchange gainslosses in the first half of 2020.2021. The Company also reported $0.5$0.3 million higher of lower net periodic pension costsincome in the first half of 20212022 versus the first half of the prior year.
The Company’s effective tax rate was 24.8 percent in the first half of 2022 versus 24.4 percent in the first half of 2021 compared to 23.9 percent in the first half of 2020.2021. The year-over-year increase was primarily attributable to a less favorable geographical mix of income in 2021 that was partially offset by higherand less favorable tax benefits derived from stock-based compensation awards, exercised or distributed, in the first half of 20212022 versus the first half of 2020.2021.
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(In thousands) |
| June 30, |
|
| June 30, |
|
| Increase |
|
| Percent |
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Net Sales |
| 2021 |
|
| 2020 |
|
|
|
|
|
| Change |
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase |
|
| Percent Change |
| |||||||
Surfactants |
| $ | 754,938 |
|
| $ | 659,406 |
|
| $ | 95,532 |
|
|
| 14 |
|
| $ | 953,350 |
|
| $ | 754,938 |
|
| $ | 198,412 |
|
|
| 26 |
|
Polymers |
|
| 340,923 |
|
|
| 218,900 |
|
|
| 122,023 |
|
|
| 56 |
|
|
| 425,964 |
|
|
| 340,923 |
|
|
| 85,041 |
|
|
| 25 |
|
Specialty Products |
|
| 37,390 |
|
|
| 32,230 |
|
|
| 5,160 |
|
|
| 16 |
|
|
| 47,595 |
|
|
| 37,390 |
|
|
| 10,205 |
|
|
| 27 |
|
Total Net Sales |
| $ | 1,133,251 |
|
| $ | 910,536 |
|
| $ | 222,715 |
|
|
| 24 |
|
| $ | 1,426,909 |
|
| $ | 1,133,251 |
|
| $ | 293,658 |
|
|
| 26 |
|
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(In thousands) |
| June 30, |
|
| June 30, |
|
| Increase |
|
| Percent |
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Operating Income |
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| Change |
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||||||
Surfactants |
| $ | 99,106 |
|
| $ | 84,659 |
|
| $ | 14,447 |
|
|
| 17 |
|
| $ | 102,018 |
|
| $ | 99,106 |
|
| $ | 2,912 |
|
|
| 3 |
|
Polymers |
|
| 40,976 |
|
|
| 23,043 |
|
|
| 17,933 |
|
|
| 78 |
|
|
| 48,041 |
|
|
| 40,976 |
|
|
| 7,065 |
|
|
| 17 |
|
Specialty Products |
|
| 9,610 |
|
|
| 7,210 |
|
|
| 2,400 |
|
|
| 33 |
|
|
| 13,561 |
|
|
| 9,610 |
|
|
| 3,951 |
|
|
| 41 |
|
Segment Operating Income |
| $ | 149,692 |
|
| $ | 114,912 |
|
| $ | 34,780 |
|
|
| 30 |
|
| $ | 163,620 |
|
| $ | 149,692 |
|
| $ | 13,928 |
|
|
| 9 |
|
Corporate Expenses, Excluding Deferred Compensation and Restructuring |
| $ | 35,274 |
|
| $ | 30,562 |
|
| $ | 4,712 |
|
|
| 15 |
|
| $ | 33,408 |
|
| $ | 35,274 |
|
| $ | (1,866 | ) |
|
| -5 |
|
Deferred Compensation Expense |
|
| 3,652 |
|
|
| (859 | ) |
|
| 4,511 |
|
|
| NA |
| ||||||||||||||||
Deferred Compensation Expense (Income) |
|
| (10,907 | ) |
|
| 3,652 |
|
|
| (14,559 | ) |
| NM |
| |||||||||||||||||
Business Restructuring |
|
| 195 |
|
|
| 582 |
|
|
| (387 | ) |
|
| -66 |
|
|
| 133 |
|
|
| 195 |
|
|
| (62 | ) |
|
|
|
|
Total Operating Income |
| $ | 110,571 |
|
| $ | 84,627 |
|
| $ | 25,944 |
|
|
| 31 |
|
| $ | 140,986 |
|
| $ | 110,571 |
|
| $ | 30,415 |
|
|
| 28 |
|
Segment Results
Surfactants
Surfactants net sales for the first half of 20212022 increased $95.5$198.4 million, or 1426 percent, versus net sales for the first half of 2020.2021. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the change in net sales by $104.1 and $15.9 million, respectively.$230.4 million. The higher average selling prices were mainly dueattributable to more favorable product and customer mix and the pass-through of higher raw material costs. A three percent decrease in sales volume negatively impactedand logistics costs as well as improved product and customer mix. Foreign currency translation had a $17.4 million unfavorable impact on the year-over-year change in net sales. Sales volume declined two percent and negatively impacted the change in net sales by $24.5$14.6 million. Lower sales volume in the consumer product end markets accounted for most of the sales volume decrease. A year-over-year comparison of net sales by region follows:
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(In thousands) |
| June 30, 2021 |
|
| June 30, 2020 |
|
| Increase |
|
| Percent Change |
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Net Sales |
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||||||||||||||||||
North America |
| $ | 442,580 |
|
| $ | 415,517 |
|
| $ | 27,063 |
|
|
| 7 |
|
| $ | 551,538 |
|
| $ | 442,580 |
|
| $ | 108,958 |
|
|
| 25 |
|
Europe |
|
| 136,433 |
|
|
| 115,472 |
|
|
| 20,961 |
|
|
| 18 |
|
|
| 183,608 |
|
|
| 136,433 |
|
|
| 47,175 |
|
|
| 35 |
|
Latin America |
|
| 140,137 |
|
|
| 102,704 |
|
|
| 37,433 |
|
|
| 36 |
|
|
| 183,421 |
|
|
| 140,137 |
|
|
| 43,284 |
|
|
| 31 |
|
Asia |
|
| 35,788 |
|
|
| 25,713 |
|
|
| 10,075 |
|
|
| 39 |
|
|
| 34,783 |
|
|
| 35,788 |
|
|
| (1,005 | ) |
|
| -3 |
|
Total Surfactants Segment |
| $ | 754,938 |
|
| $ | 659,406 |
|
| $ | 95,532 |
|
|
| 14 |
|
| $ | 953,350 |
|
| $ | 754,938 |
|
| $ | 198,412 |
|
|
| 26 |
|
Net sales for North American operations increased $27.1$109.0 million, or seven25 percent, year-over-year. Higher average selling prices and the favorable impact of foreign currency translation positivelyslightly higher sales volume favorably impacted the change in net sales by $54.8$107.3 million and $1.3$2.1 million, respectively. The higher average selling prices were primarily duemainly attributable to more favorable product and customer mix and the pass-through of higher raw material costs. Salesand logistics costs along with more favorable product and customer mix. The slight increase in sales volume declined sevenprimarily reflects higher demand for products sold into the functional products end markets, along with higher demand within the Tier 2 and Tier 3 customer channel, that was mostly offset by lower demand for commodity laundry products within the consumer products business. Continued raw material supply and logistics constraints also negatively impacted sales volume. Foreign currency translation negatively impacted the change in net sales by $0.4 million year-over-year.
Net sales for European operations increased $47.2 million, or 35 percent, year-over-year. Higher average selling prices and negativelya two percent increase in sales volume positively impacted the year-over-year change in net sales by $29.0 million. Lower sales volume in the consumer product end markets accounted for most of the decline. Higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets partially offset the above. The consumer products business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020.
Net sales for European operations increased $21.0 million, or 18 percent, year-over-year. The favorable impact of foreign currency translation and higher average selling prices positively impacted the change in net sales by $13.0$61.5 million and $10.9$2.6 million, respectively. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect. The higher average selling prices were primarily due to the pass-through of higher raw material costs. Salescosts and improved product and customer mix. The two percent increase in sales volume decreased three percentprimarily reflects higher demand for products sold into the functional products and institutional cleaning end markets, partially offset by lower demand for consumer cleaning products. Foreign currency translation negatively impacted the change in net sales by $2.9 million year-over-year. Most of$16.9 million. A stronger U.S. dollar relative to the sales volume decline reflects lower demand for consumer cleaning products versusEuropean euro and British pound sterling led to the pandemic peak in 2020. unfavorable foreign currency translation effect.
Net sales for Latin American operations increased $37.4$43.3 million, or 3631 percent, primarily due to higher average selling prices and a three percent increase in sales volume. These items positively impacted the year-over-year change in net sales by $34.2 million and $3.3 million, respectively. The higher average selling prices reflect more favorable product and customer mix, the pass-through of higher raw material costs, and $2.1 million of revenue recognition in the second quarter of 2021 related to a VAT tax recovery. The year-over-year increase in sales volume was mainly due to higher demand for products sold into the functional product end markets. The unfavorable impact of foreign currency translation negatively impacted the year-over-year change in net sales by $0.1 million.
Net sales for Asian operations increased $10.1 million, or 39 percent, year-over-year. Higher average selling prices, a 16 percent increase in sales volume and the favorable impact of foreign exchange translationcurrency translation. These items positively impacted the change in net sales by $4.3 million, $4.1$48.1 million and $1.7$2.3 million, respectively. The higher average selling prices were primarily due to the pass throughpass-through of higher raw material costs and more favorableimproved product and customer mix. A weaker U.S. dollar relative to the Brazilian real led to the favorable foreign currency translation effect. Sales volume declined five percent and negatively impacted the change in net sales by $7.1 million. The sales volume growthdecline was largelyprimarily due to lower demand for commodity laundry products within the consumer products business partially offset by higher demand for products sold tointo the functional products end markets.
Net sales for Asian operations decreased $1.0 million, or three percent, year-over-year. A 22 percent decline in sales volume and the unfavorable impact of foreign currency translation negatively impacted the change in net sales by $7.9 million and $2.5 million, respectively. The decline in sales volume primarily reflects lower demand for commodity laundry products sold within the consumer products business and lower demand from our distribution partners and intopartners. Higher average selling prices positively impacted the agricultural end market.change in net sales by $9.4 million. The higher average selling prices primarily reflect the pass-through of higher raw material costs.
3429
Surfactant operating income for the first half of 20212022 increased $14.4$2.9 million, or 17three percent, versus operating income for the first half of 2020.2021. Gross profit increased $21.0$7.2 million, or 16five percent, year-over-year and operating expenses increased $6.7$4.3 million, or 14eight percent. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(In thousands) |
| June 30, 2021 |
|
| June 30, 2020 |
|
| Increase (Decrease) |
|
| Percent Change |
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
Gross Profit and Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
North America |
| $ | 98,468 |
|
| $ | 87,384 |
|
| $ | 11,084 |
|
|
| 13 |
|
| $ | 100,356 |
|
| $ | 98,468 |
|
| $ | 1,888 |
|
|
| 2 |
|
Europe |
|
| 19,741 |
|
|
| 18,885 |
|
|
| 856 |
|
|
| 5 |
|
|
| 24,779 |
|
|
| 19,741 |
|
|
| 5,038 |
|
|
| 26 |
|
Latin America |
|
| 29,627 |
|
|
| 19,351 |
|
|
| 10,276 |
|
|
| 53 |
|
|
| 28,706 |
|
|
| 29,627 |
|
|
| (921 | ) |
|
| -3 |
|
Asia |
|
| 5,104 |
|
|
| 6,275 |
|
|
| (1,171 | ) |
|
| -19 |
|
|
| 6,333 |
|
|
| 5,104 |
|
|
| 1,229 |
|
|
| 24 |
|
Surfactants Segment Gross Profit |
| $ | 152,940 |
|
| $ | 131,895 |
|
| $ | 21,045 |
|
|
| 16 |
|
| $ | 160,174 |
|
| $ | 152,940 |
|
| $ | 7,234 |
|
|
| 5 |
|
Operating Expenses |
|
| 53,834 |
|
|
| 47,236 |
|
|
| 6,598 |
|
|
| 14 |
|
|
| 58,156 |
|
|
| 53,834 |
|
|
| 4,322 |
|
|
| 8 |
|
Surfactants Segment Operating Income |
| $ | 99,106 |
|
| $ | 84,659 |
|
| $ | 14,447 |
|
|
| 17 |
|
| $ | 102,018 |
|
| $ | 99,106 |
|
| $ | 2,912 |
|
|
| 3 |
|
Gross profit for North American operations increased $11.1$1.9 million, or 13two percent, year-over-year primarily due to higher average unit margins. Themargins and slightly higher average unit margins positivelysales volume. These items favorably impacted the change in gross profit by $17.2$1.4 million and are primarily due$0.5 million, respectively. The higher average unit margins were mostly attributable to a more favorable product and customer mix. Lower supply chain expenses, due to the non-recurrence of the Millsdale, Illinois plant power outage in the first quarter of 2020,mix that was partially offset by ongoing supply chain challenges and inflationary pressures (inclusive of transportation costs) and higher planned maintenance in the first half of 2021, also contributed to the higher unit margins. A seven percent decline in sales volume negatively impacted the change in gross profit by $6.1 million. Lower sales volume in the consumer product end markets, partially offset by higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets, accounted for most of the sales volume decline. pressures.
Gross profit for European operations increased $0.9$5.0 million, or five26 percent year-over-year. The favorable impact of foreign currency translation positivelyHigher average unit margins and a two percent increase in sales volume favorably impacted the year-over-year change in gross profit by $1.7 million. A three percent decrease in sales volume$6.8 million and lower average unit margins negatively impacted the year-over-year change in gross profit bya $0.4 million, each.
Gross profit for Latin American operations increased $10.3 million, or 53 percent, primarily due torespectively. The higher average unit margins and a three percent increase in sales volume. These items positively impacted the change in gross profit by $10.0 million and $0.6 million, respectively. The higher unit margins primarily reflect a more favorable product and customer and product mix and $2.1 million of revenue recognition in the second quarter of 2021 related to a VAT tax recovery. The sales volume growth was primarily driven by higher demand for products sold into the functional product end markets.mix. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $0.3$2.2 million. A stronger U.S. dollar relative to the European euro and British pound sterling led to the unfavorable foreign currency translation effect.
Gross profit for AsianLatin American operations decreased $1.2$0.9 million, or 19three percent, primarily due to lower average unit margins. The lower unit marginsa five percent decrease in sales volume that negatively impacted the year-over-year change in gross profit by $2.3$1.5 million. Sales volume growth of 16 percent and the favorable impact of foreign currency translation positively impacted the change in gross profit by $1.0 million and $0.1 million, respectively.
Operating expenses for the Surfactant segment increased $6.6 million, or 14 percent, year-over-year. Most of the increase was due toSlightly higher salaries and incentive-based compensation expenses, corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund received in the second quarter of 2020) and the unfavorable impact of foreign currency translation.
35
Polymers
Polymers net sales for the first half of 2021 increased $122.0 million, or 56 percent, versus net sales for the same period of 2020. A 39 percent increase in sales volume favorably impacted the year-over-year change in net sales by $84.3 million. The higher sales volume primarily reflects the first quarter 2021 acquisition of INVISTA’s polyester polyol business as well as organic market growth driven by the ongoing recovery from COVID-19 related delays and cancellations of re-roofing and new construction projects. Higher average selling prices and the favorable impact of foreign currency translation positively affected the year-over-year change in net sales by $29.4 million and $8.3 million, respectively. A year-over-year comparison of net sales by region follows:
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||
(Dollars in thousands) |
| June 30 |
|
| June 30 |
|
| Increase |
|
| Percent |
| ||||
Net Sales |
| 2021 |
|
| 2020 |
|
|
|
|
|
| Change |
| |||
North America |
| $ | 166,469 |
|
| $ | 130,621 |
|
| $ | 35,848 |
|
|
| 27 |
|
Europe |
|
| 150,753 |
|
|
| 69,252 |
|
|
| 81,501 |
|
|
| 118 |
|
Asia and Other |
|
| 23,701 |
|
|
| 19,027 |
|
|
| 4,674 |
|
|
| 25 |
|
Total Polymers Segment |
| $ | 340,923 |
|
| $ | 218,900 |
|
| $ | 122,023 |
|
|
| 56 |
|
Net sales for North American operations increased $35.8 million, or 27 percent, primarily due to a 32 percent increase in sales volume. The increase in sales volume positively impacted the change in net sales by $42.0 million. Sales volume of polyols used in rigid foam applications increased 23 percent during the first half of 2021 primarily due to the first quarter 2021 INVISTA polyester polyol acquisition and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume of polyols used in rigid foam applications, excluding the impact of the INVISTA acquisition, increased four percent. Sales volume of phthalic anhydride and specialty polyols increased 74 percent and 40 percent, respectively, due to stronger demand within these markets following the peak of the COVID-19 pandemic. The phthalic anhydride sales volume improvement was also attributable to the non-recurrence of the Millsdale plant power outage in 2020. Lower average selling prices negatively impacted the change in net sales by $6.2 million.
Net sales for European operations increased $81.5 million, or 118 percent, year-over-year. A 57 percent increase in sales volume and higher average selling prices positively impacted the change in net sales by $39.6 million and $35.5 million, respectively. The increase in sales volume is primarily due to the first quarter 2021 INVISTA polyester polyol business acquisition and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume, excluding the impact of the INVISTA acquisition, increased 14 percent. The higher average selling prices were primarily due to the pass-through of higher raw material costs. The favorable impact of foreign currency translation positively impacted the change in net sales by $6.4 million.
Net sales for Asia and Other operations increased $4.7 million, or 25 percent, due to the favorable impact of foreign currency translation, higher average selling prices and a seven percent increase in sales volume. These items positively impacted the change in net sales by $1.8 million, $1.6 million, and $1.3 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs.
Polymer operating income for the first half of 2021 increased $17.9 million, or 78 percent, versus operating income for the first half of 2020. Gross profit increased $19.4 million, or 53 percent, and operating expenses were up $1.5 million, or 11 percent, year-over-year. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:
|
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||
(In thousands) |
| June 30, 2021 |
|
| June 30, 2020 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
Gross Profit and Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 29,140 |
|
| $ | 20,437 |
|
| $ | 8,703 |
|
|
| 43 |
|
Europe |
|
| 24,310 |
|
|
| 11,847 |
|
|
| 12,463 |
|
|
| 105 |
|
Asia and Other |
|
| 2,742 |
|
|
| 4,510 |
|
|
| (1,768 | ) |
|
| -39 |
|
Polymers Segment Gross Profit |
| $ | 56,192 |
|
| $ | 36,794 |
|
| $ | 19,398 |
|
|
| 53 |
|
Operating Expenses |
|
| 15,216 |
|
|
| 13,751 |
|
|
| 1,465 |
|
|
| 11 |
|
Polymers Segment Operating Income |
| $ | 40,976 |
|
| $ | 23,043 |
|
| $ | 17,933 |
|
|
| 78 |
|
Gross profit for North American operations increased $8.7 million, or 43 percent, primarily due to a 32 percent increase in sales volume. The higher sales volume positively impacted the year-over-year change in gross profit by $6.6 million. Higher average unit margins also positively impacted the change in gross profit by $2.1 million. A rapid rise in feedstock costs during the first half of 2021 resulted in lower average unit margins but this decline was more than offset by the non-recurrence of the of the first quarter 2020 power outage at the Company’s Millsdale, Illinois facility (which caused a temporary production shutdown and resulted in higher maintenance, supply chain costs and unit overhead rates).
36
Gross profit for European operations increased $12.5 million, or 105 percent, due to a 57 percent increase in sales volume, higher average unit margins and the favorable impact of foreign currency translation. These items positively impacted the year-over-year change in gross profit by $6.8 million, $4.6 million and $1.1 million, respectively.
Gross profit for Asia and Other operations declined $1.8 million, or 39 percent, primarily due to lower average unit margins that negatively impacted the change in gross profit by $2.3 million. The lower unit margins were partially due to the non-recurrence of a second quarter 2020 partial government reimbursement related to the government-mandated China JV shutdown in 2012 ($1.1 million). A seven percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the year-over-year change in gross profit by $0.3 million each.
Gross profit for Asian operations increased $1.2 million, or 24 percent, primarily due to higher average unit margins. The higher unit margins positively impacted the year-over-year change in gross profit by $2.3 million. A 22 percent decline in sales volume negatively impacted the change in gross profit by $1.1 million. The lower volume primarily reflects lost market share at one major customer.
Operating expenses for the Surfactant segment increased $4.3 million, or eight percent, year-over-year. This increase was mainly attributable to higher salaries and $0.2incentive-based compensation expenses, a goodwill impairment charge at the Company’s Philippines subsidiary and higher bad debt provision expense.
Polymers
Polymers net sales for the first half of 2022 increased $85.0 million, or 25 percent, versus net sales for the same period of 2021. Higher average selling prices and a two percent increase in sales volume favorably impacted the year-over-year change in net sales by $96.9 million and a $7.2 million, respectively. The higher average selling prices were mainly due to the pass through of higher raw material costs. The increase in sales volume was partially due to the 2021 INVISTA polyester polyol acquisition, which closed at the end of January 2021. Foreign currency translation had a $19.1 million unfavorable impact on the year-over-year change in net sales. A year-over-year comparison of net sales by region follows:
(In thousands) |
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||
Net Sales |
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
North America |
| $ | 228,311 |
|
| $ | 166,469 |
|
| $ | 61,842 |
|
|
| 37 |
|
Europe |
|
| 175,207 |
|
|
| 150,753 |
|
|
| 24,454 |
|
|
| 16 |
|
Asia and Other |
|
| 22,446 |
|
|
| 23,701 |
|
|
| (1,255 | ) |
|
| -5 |
|
Total Polymers Segment |
| $ | 425,964 |
|
| $ | 340,923 |
|
| $ | 85,041 |
|
|
| 25 |
|
Net sales for North American operations increased $61.8 million, or 37 percent, primarily due to higher average selling prices and a one percent increase in sales volume. These items positively impacted the change in net sales by $59.8 million and $2.0 million, respectively. The higher average selling prices were mainly due to the pass-through of higher raw material costs. The sales volume growth reflects rigid polyol growth of five percent that was partially offset by lower sales volume within the phthalic anhydride business. Sales volume during the first half of 2022 was also impacted by a January 2022 power outage at the Company’s Elwood, Illinois (Millsdale) plant site that negatively impacted Polymer production. The production disruption resulted in the declaration of force majeure for select products. Production resumed in February 2022 and the force majeure was lifted in April 2022.
30
Net sales for European operations increased $24.5 million, or 16 percent, year-over-year. Higher average selling prices and a seven percent increase in sales volume favorably impacted the change in net sales by $33.9 million and $9.8 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs. The increase in sales volume was partially due to the 2021 INVISTA polyester polyol acquisition, which closed at the end of January 2021. The unfavorable impact of foreign currency translation negatively impacted the change in net sales by $19.2 million. A stronger U.S. dollar relative to the Polish zloty and British pound sterling led to the unfavorable foreign currency translation effect.
Net sales for Asia and Other operations decreased $1.3 million, or five percent, largely due to a 15 percent decline in sales volume which had a $3.5 million negative impact on the year-over-year change in net sales. The decline in sales volume was primarily attributable to recent COVID lockdowns and restrictions in China. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the year-over-year change in net sales by $2.1 million and $0.1 million, respectively.
Polymer operating income for the first half of 2022 increased $7.1 million, or 17 percent, versus operating income for the first half of 2021. Gross profit increased $8.5 million, or 15 percent, and operating expenses were up $1.4 million, or nine percent. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:
(In thousands) |
| For the Six Months Ended |
|
|
|
|
|
|
|
|
| |||||
Gross Profit and Operating Income |
| June 30, 2022 |
|
| June 30, 2021 |
|
| Increase (Decrease) |
|
| Percent Change |
| ||||
North America |
| $ | 34,067 |
|
| $ | 29,140 |
|
| $ | 4,927 |
|
|
| 17 |
|
Europe |
|
| 28,320 |
|
|
| 24,310 |
|
|
| 4,010 |
|
|
| 16 |
|
Asia and Other |
|
| 2,289 |
|
|
| 2,742 |
|
|
| (453 | ) |
|
| -17 |
|
Polymers Segment Gross Profit |
| $ | 64,676 |
|
| $ | 56,192 |
|
| $ | 8,484 |
|
|
| 15 |
|
Operating Expenses |
|
| 16,635 |
|
|
| 15,216 |
|
|
| 1,419 |
|
|
| 9 |
|
Polymers Segment Operating Income |
| $ | 48,041 |
|
| $ | 40,976 |
|
| $ | 7,065 |
|
|
| 17 |
|
Gross profit for North American operations increased $4.9 million, or 17 percent, due to higher average unit margins and a one percent increase in sales volume. These items positively impacted the change in gross profit by $4.6 million and $0.3 million, respectively. The higher average unit margins reflect partial margin recovery and more favorable product and customer mix as higher rigid polyol sales volume more than offset lower phthalic anhydride sales volume.
Gross profit for European operations increased $4.0 million, or 16 percent, primarily due to higher average unit margins and a seven percent increase in sales volume. These items positively impacted the change in gross profit by $5.3 million and $1.6 million, respectively. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $2.9 million.
Gross profit for Asia and Other operations declined $0.5 million, or 17 percent, primarily due to a 15 percent decline in sales volume and slightly lower average unit margins. These items negatively impacted the year-over-year changes in gross profit by $0.4 million and a $0.1 million, respectively.
Operating expenses for the Polymers segment increased $1.5$1.4 million, or 11nine percent, year-over-year.year-over-year mainly due to higher incentive-based compensation and travel-related expenses.
Specialty Products
NetSpecialty Products net sales for the first half of 20212022 increased $5.2$10.2 million, or 1627 percent, versus net sales for the first half of 2020.2021. This increase reflects higher average selling prices that were partially offset by a nine percent decline in sales volume growth of 11 percent and higher selling prices.volume. Gross profit and operating income increased $2.3by $3.9 and $4.0 million, and $2.4 million, respectively, year-over-year.respectively. The year-over-year improvements in gross profit and operating income were primarily duemostly attributable to improved margins and customer mix within the medium chain triglycerides (MCTs) product line, partially offset by order timing differences within the food and flavor business and improved margins within the medium chain triglycerides (MCT) product line. business.
Corporate Expenses
Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, increased $8.8decreased $16.5 million between years. Corporate expenses were $22.6 million in the first half of 2022 versus $39.1 million in the first half of 2021 versus $30.32021. This decrease was primarily attributable to $10.9 million of deferred compensation income recognized in the first half of 2020. This increase was primarily attributable to higher2022 versus $3.7 million of deferred compensation expense ($4.5 million), acquisition-related expenses, insurance premiums, salaries and incentive-based compensation expenses, cloud application costs and corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund receivedrecognized in the second quarter of 2020) during the first half of 2021. In addition, the Company also incurred lower acquisition-related expenses year-over-year that were partially offset by higher incentive-based compensation expenses.
The $4.5$14.6 million increasedecrease in deferred compensation expense was primarily due to a $0.95 per share increasedecrease in the value of mutual fund investment assets held for the plans. In addition, during the first half of 2022 the market price of the Company’s common stock indecreased $22.94 per share versus a $0.95 per share increase during the first half of 2021 compared to a $5.34 per share decrease in the first half of 2020.2021. The following table presents the period-end Company common stock market prices used in the computation of deferred compensation expense/income for the six months ended June 30, 20212022 and 2020:2021:
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||||
|
| June 30 |
|
| December 31 |
|
| June 30 |
|
| December 31 |
| ||||
Company Common Stock Price |
| $ | 120.27 |
|
| $ | 119.32 |
|
| $ | 97.10 |
|
| $ | 102.44 |
|
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||||
|
| June 30 |
|
| December 31 |
|
| June 30 |
|
| December 31 |
| ||||
Company Common Stock Price |
| $ | 101.35 |
|
| $ | 124.29 |
|
| $ | 120.27 |
|
| $ | 119.32 |
|
LIQUIDITY AND CAPITAL RESOURCES
Overview
For the six months ended June 30, 2021,2022, operating activities were a cash source of $24.7$38.2 million versus a source of $58.5$24.7 million for the comparable period in 2020.2021. For the current year period, investing cash outflows totaled $261.5$126.3 million versus a cash outflow of $54.4$261.5 million in the prior year period. Financing activities were a source of $14.8$128.1 million versus a usesource of $40.4$14.8 million in the prior year period. Cash and cash equivalents decreased by $222.9increased $35.4 million compared to December 31, 2020,2021, inclusive of a $0.8$4.5 million unfavorable foreign exchange rate impact.
On June 30, 2021,2022, the Company’s cash and cash equivalents totaled $127.1$194.6 million. Cash in U.S. demand deposit accounts and money market funds totaled $15.6$59.7 million and $3.0$40.3 million, respectively. The Company’s non-U.S. subsidiaries held $108.5$94.6 million of cash outside the United States as of June 30, 2021.2022.
Operating Activity
Net income during the first six months of 2022 increased by $20.5$13.0 million versus the comparable period in 2020.2021. Working capital was a cash use of $69.8$111.1 million during the first halfsix months of 20212022 versus a use of $47.4$69.8 million forin the comparable period in 2020.2021.
Accounts receivable were a use of $68.0$111.1 million during the first halfsix months of 20212022 compared to a use of $23.3$68.0 million for the comparable period in 2020.of 2021. Inventories were a use of $38.6 million in 2022 versus a use of $35.7 million in 2021 versus a use of $9.7 million in 2020.2021. Accounts payable and accrued liabilities were a source of $34.0$43.3 million in 20212022 compared to a usesource of $8.3$34.0 million for the same period in 2020.2021.
37
Working capital requirements were higher in the first halfsix months of 20212022 compared to 20202021 primarily due to the changes noted above. The two major factors impacting all the working capital components were significantly higher raw material costs in 2021 versus 2020 and the impact of the first quarter 2021 acquisition of INVISTA’s polyester polyols business. It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during 2021.2022.
Investing Activity
Cash used for investing activities increased by $207.1decreased $135.2 million year-over-year. InMost of this decrease reflects the first halfCompany’s acquisition of 2021, the Company acquired INVISTA’s aromatic polyester polyol business and associated assetassets for $184.6 million, net of cash received. Duringreceived, during the first half of 2021, the Company also acquired a fermentation plant located in Lake Providence, Louisiana for $3.5 million. 2021. Cash used for capital expenditures was $74.9$129.5 million in the first half of 20212022 versus $54.7$74.9 million forin 2021. This capital expenditure increase is largely attributable to the comparable periodalkoxylation plant the Company is building at its Pasadena, Texas site and equipment upgrades to meet future regulatory limits on 1,4 Dioxane in 2020.the United States.
For 2021,2022, the Company estimates that total capital expenditures will be in the range from $150of $350.0 million to $170 million including$375.0 million. This projected spending includes the new alkoxylation plant that is being built in Pasadena, Texas, equipment upgrades to meet future regulatory limits on 1,4 Dioxane in the United States, growth initiatives, infrastructure and optimization spending in the United States, Germany and Mexico.
Financing Activity
Cash flow from financing activities was a source of $128.1 million in 2022 versus a source of $14.8 million in 2021 versus a use of $40.4 million in 2020.2021. The year-over-year change is primarily due to $50.0$75.0 million of cash received from an unsecuredthe issuance of private placement loan on June 10,notes and a higher level of borrowing from the Company’s revolving credit facility during the first six months of 2022 versus the same period in 2021.
The Company purchases shares of its common stock in the open market or from its benefit plans from time to time to fund its own benefit plans and to mitigate the dilutive effect of new shares issued under its compensation plans. The Company may, from time to time, seek to retire or purchase additional amounts of its outstanding equity and/or retire debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. InFor the six months ended June 30, 2021,2022, the Company purchased 82,045167,940 shares of its common stock on the open market at a total cost of $10.9$17.0 million. As ofAt June 30, 2021, there were 93,829 shares2022, the Company had $133.0 million remaining under the current share repurchase authorization.program authorized by its Board of Directors.
Debt and Credit Facilities
Consolidated balance sheet debt increased from $198.7$363.6 million on December 31, 20202021 to $238.9$526.0 million on June 30, 2021, a $40.2 million increase,2022, primarily due to higher domestic debt.debt, which includes borrowings from the Company’s revolving credit agreement and new private placement notes issued during the first quarter of 2022. Net debt (which is defined as total debt minus cash – see the “Reconciliation of Non-GAAPNon-
32
GAAP Net Debt” section of this MD&A) increased by $263.0$127.0 million, in the first half offrom $204.4 million at December 31, 2021 from a negative $151.2to $331.4 million to $111.8 million.at June 30, 2022. This net debt change was due to a cash reduction of $222.9 million and a debt increase of $40.2$162.4 partially offset by a cash increase of $35.4 million. The cash reduction primarilyincrease reflects the first quarter 2021 acquisition of INVISTA’s aromatic polyester polyol business combined withnew debt borrowings partially offset by scheduled debt repayments, higher capital expenditures and working capital requirements in the first half of 2021.and capital expenditures.
As of June 30, 2021, the ratio of total debt to total debt plus shareholders’ equity was 18.6 percent compared to 16.8 percent on December 31, 2020. As of June 30, 2021,2022, the ratio of net debt to net debt plus shareholders’ equity was 9.622.7 percent versus a negative 18.116.0 percent as ofat December 31, 20202021 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details). On June 30, 2021,2022, the Company’s debt included $234.4$421.4 million of unsecured notes, with maturities ranging from 20212022 through 2028, which2032, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements (the Note Purchase Agreements), a $100.0 million short term loan borrowed under its revolving credit facility, and $4.5$4.6 million of foreign credit line borrowings. The proceeds from thesethe note issuances have been the Company’s primary source of long-term debt financing and are supplemented by borrowings under bank credit facilities to meet short and medium-term liquidity needs.
On March 1, 2022, pursuant to a note purchase and master note agreement dated as of June 10, 2021 the Company entered into a(the NYL note purchase agreement pursuant to which itagreement), the Company issued and sold $50$25.0 million in aggregate principal amount of its 2.83% Senior Notes, Series 2021-A Notes.2022-A, due March 1, 2032 (the Series 2022-A Notes). In addition, on March 1, 2022, pursuant to a note purchase and private shelf agreement dated as of June 10, 2021 (the Prudential note purchase agreement), the Company issued and sold $50.0 million in aggregate principal amount of its 2.83% Senior Notes, Series 2022-B, due March 1, 2032 (the Series 2022-B Notes). The Series 2021-A2022-A Notes and the Series 2022-B Notes bear interest at a fixed rate of 2.30 percent,2.83%, with interest to be paid semi-annually and with equal annual principal payments beginning on June 10, 2024March 1, 2026 and continuing through final maturity on June 10, 2028.March 1, 2032. The proceeds of the issuance of the Series 2021-A2022-A Notes and the Series 2022-B Notes are being used primarily for capital expenditures, to pay down existing debt and for other corporate purposes. ThisThe NYL note purchase agreement requiresand the Prudential note purchase agreement require the maintenance of certain financial ratios and covenants that are substantially similar to the Company’s existing long-term debt and providesprovide for customary events of default.
On January 30, 2018,June 24, 2022, the Company entered into a five-year committed $350credit agreement with a syndicate of banks. The credit agreement provides for credit facilities in an initial aggregate principal amount of $450.0 million, consisting of (a) a $350.0 million multi-currency revolving credit facility withand (b) a syndicate$100.0 million delayed draw term loan credit facility, each of banks thatwhich matures on January 30, 2023.June 24, 2027. This credit agreement replaced the Company’s prior $350.0 million revolving credit agreement. This credit agreement allows the Company to make unsecured borrowings, as requested from time to time, to finance working capital needs, permitted acquisitions, capital expenditures and for general corporate purposes. This unsecured facility is the Company’s primary source of short-term borrowings. As of June 30, 2021,2022, the Company had
38
outstanding loans totaling $100.0 million and letters of credit totaling $7.0 million under the revolving credit agreement, and no borrowings, with $343.0 million remaining available.available.
The Company anticipates that cash from operations, committed credit facilities and cash on hand will be sufficient to fund anticipated capital expenditures, working capital, dividends and other planned financial commitments for the foreseeable future.
Certain foreign subsidiaries of the Company maintain short-term bank lines of credit in their respective local currencies to meet working capital requirements as well as to fund capital expenditure programsexpenditures and acquisitions. OnAt June 30, 2021,2022, the Company’s foreign subsidiaries had $4.6 million of outstanding debt of $4.5 million.debt.
The Company is subject to covenants under its material debt agreements that require the maintenance of minimum interest coverage and minimum net worth. These agreements also limit the incurrence of additional debt as well as the payment of dividends and repurchase of shares. Under the most restrictive of these debt covenants:
| 1. | The Company is required to maintain a minimum interest coverage ratio, as defined within the agreements, of 3.50 to 1.00, for the preceding four calendar quarters. |
| 2. | The Company is required to maintain a maximum net leverage ratio, as defined within the agreements, not to exceed 3.50 to 1.00. |
| 3. | The Company is required to maintain net worth of at least $750.0 million. |
| 4. | The Company is permitted to pay dividends and purchase treasury shares after |
The Company believes it was in compliance with all of its debt covenants as of June 30, 2021.2022.
33
ENVIRONMENTAL AND LEGAL MATTERS
The Company’s operations are subject to extensive federal, state and local environmental laws and regulations and similar laws in the other countries in which the Company does business. Although the Company's environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent environmental regulation may require the Company to make additional unforeseen environmental expenditures. The Company will continue to invest in the equipment and facilities necessary to comply with existing and future regulations. During the first six months of 20212022 and 2020,2021, the Company’s expenditures for capital projects related to the environment were $5.5$5.8 million and $2.1$5.5 million, respectively. These projects are capitalized and depreciated over their estimated useful lives, which are typically 10 years. Recurring costs associated with the operation and maintenance of facilities for waste treatment and disposal and managing environmental compliance in ongoing operations at the Company’s manufacturing locations were $17.1$17.0 million and $17.6$17.1 million for the six months ended June 30, 2022 and 2021, and 2020, respectively.
Over the years, the Company has received requests for information related to or has been named by the government as a potentially responsible party at a number of waste disposal sites where cleanup costs have been or may be incurred under CERCLA and similar state or foreign statutes. In addition, damages are being claimed against the Company in general liability actions for alleged personal injury or property damage in the case of some disposal and plant sites. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to thethese sites. It is the Company’s accounting policy to record liabilities when environmental assessments and/or remedial efforts are probable, and the cost or range of possible costs can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the minimum is accrued. Estimating the possible costs of remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Some of the factors on which the Company bases its estimates include information provided by decisions rendered by State and Federal environmental regulatory agencies, information provided by feasibility studies, and remedial action plans developed. After partial remediation payments at certain sites, the Company has estimated a range of possible environmental losses and legal losses of $22.5$23.0 million to $40.9$42.6 million at June 30, 2021, compared to $22.92022 and $23.1 million to $41.1$41.7 million at December 31, 2020.2021. Within the range of possible environmental losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range; these accruals totaled $22.5$23.0 million at June 30, 20212022 and $22.9$23.1 million at December 31, 2020.2021. Because the liabilities accrued are estimates, actual amounts could differ materially from the amounts recorded.reported. Cash expenditures related to legal and environmental matters were $1.3$1.1 million for the six months ended June 30, 2021,2022, compared to $3.1$1.3 million for the same period in 2020.2021.
39
For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based upon the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position. Certain of these matters are discussed in Item 1, Part 2, of the Company’s Annual Report on Form 10-K, Legal Proceedings, in this report and in other filings of the Company with the SEC, which are available upon request from the Company. See also Note 8, Contingencies, in the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for a summary of the significant environmental proceedings related to certain environmental sites.
4034
OUTLOOK
Management believes that demand for Surfactant products sold into the Company’s institutional cleaning, functional product end-markets, inclusive of agricultural and oilfield, markets should improve versus 2020. However, management does not believe this higher demand will compensate for lower consumer consumption of cleaning, disinfection and personal wash products versus2021. Management believes the pandemic peak in 2020. Global demand for rigid polyols continues to recover from pandemic-related delays and cancellations of re-roofing and new construction projects. This recovery, combined with the first quarter 2021 acquisition of INVISTA’s aromatic polyester polyol business, should position the Company’s Polymer segment towill deliver growth versus prior year. Management believes the long-term prospects for the Polymer segment remain attractive2021 as energy conservation efforts and more stringent building codes are expected to continue.should have a continued positive impact on demand for rigid polyols. Management believes its Specialty Product segment results should improve versus 2021. Despite optimism that demand for the Company’s products will improve slightly year-over-year. Management remains cautiously optimistic aboutremain healthy, management also believes the remainderCompany will continue to be challenged by the current inflationary environment and ongoing supply chain challenges, inclusive of the year despite continued raw material price increases, supply chain inflationary pressuresavailability and planned second half maintenance expenses. transportation constraints.
CRITICAL ACCOUNTING POLICIES
ThereThe Company no longer considers the prior year (a) Business Combinations and (b) Goodwill and Intangible Assets accounting policies as continuing to be critical during the first six months of 2022 because the Company has made no acquisitions in 2022. Other than these items there have been no material changes to the critical accounting policies disclosed in the Company’s 20202021 Annual Report on Form 10-K, except for the addition of the following:
Business Combinations
The Company makes acquisitions from time to time. When such acquisitions occur, the Company applies the accounting guidance per FASB ASC Topic 805, Business Combinations (ASC 805), to determine whether the acquisition should be treated as an asset acquisition or a business combination. When the acquisition meets the criteria of a business combination the Company recognizes the identifiable assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The Company recognizes goodwill for any portion of the purchase price that exceeds the sum of the net fair value of all the assets purchased in the acquisition and the liabilities assumed. Considerable estimates, complex judgments and assumptions are typically required to arrive at the fair value of elements acquired in a business combination, inclusive of discount rates, customer attrition rates, royalty rates, economic lives, and estimated future cash flows expected to be generated from the assets acquired. These items are typically most relevant to the fair valuation of identifiable intangible assets and property, plant and equipment.
In some instances, the purchase price allocation of an acquisition is not complete by the end of a reporting period. This situation most typically arises when an acquisition is complex and/or completed very close to the end of a reporting period and all necessary information is not available by the end of the reporting period in which the acquisition occurs. In these instances, the Company reports provisional amounts for any incomplete items and makes subsequent adjustments as necessary information becomes available or determines that additional information is not obtainable. Any subsequent adjustments could have a material impact on the Company’s financial condition or results of operations as they could impact the initial fair values assigned to intangible assets and property, plant and equipment and/or their estimated economic lives. ASC 805 requires purchase price allocations to be finalized within one year from the acquisition date.
Goodwill and Intangible Assets
The Company’s intangible assets include patents, agreements not to compete, trademarks, customer lists and relationships, technological and manufacturing know-how and goodwill, all of which were acquired as part of business combinations or asset acquisitions. Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Intangible assets, other than goodwill, are determined to have either finite or indefinite useful lives. The Company currently has no indefinite-life intangible assets other than goodwill. Intangible assets with finite lives are amortized over the useful lives of the assets. Currently, the useful lives for the Company’s finite-life intangible assets are as follows: patents – 10 to15 years; non-compete agreements – three to five years; trademarks – five to 11 years; customer relationships – five to 20 years and know-how – five to 20 years. Finite-life intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable.
Goodwill is not amortized but is tested for impairment on a reporting unit level. The Company’s reporting units are typically defined as one level below operating segments and highly correlated to geographic regions. The Company tests goodwill for impairment annually (the Company conducts its goodwill impairment testing during the second quarter of each calendar year), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of the reporting unit to which goodwill relates has declined below its carrying value. In this case, the Company would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures. The Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company chooses not to complete a qualitative assessment for a given reporting unit, or if the initial assessment indicates that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying value, additional quantitative testing is performed.
41
When estimating a reporting unit’s fair value as part of the quantitative assessment, the Company uses a combination of market and income-based methodologies. The market approach uses a combination of earnings before interest, taxes, depreciation and amortization (EBITDA) and EBITDA multiples to estimate a reporting unit’s fair value. EBITDA multiples typically mirror similar businesses or comparative companies whose securities are actively traded in public markets. Significant degradation of either EBITDA or EBITDA multiples could result in a triggering event, requiring goodwill to be tested for impairment during an interim period. The income approach takes into consideration multiple variables, including forecasted sales volume and operating income, current industry and economic conditions, historical results and other elements to calculate the present value of future cash flows. The income approach fair value calculations include estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units. The Company reported no goodwill or intangible asset impairments in any of the periods presented in these condensed consolidated financial statements. 10-K.
NON-GAAP RECONCILIATIONS
The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s performance and financial condition. 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, not a substituteas substitutes for or superior to, measures of financial performance prepared in accordance with GAAP. The Company’s definitions of these adjusted measures may differ from similarly titled measures used by other entities.
Reconciliation of Non-GAAP Adjusted Net Income and Earnings Per Share
Management uses the non-GAAP adjustingadjusted net income metric to evaluate the Company’s operating performance. Management excludes the items listed in the table abovebelow because they are non-operational items. The cumulative tax effect was calculated using the statutory tax rates for the jurisdictions in which the noted transactions occurred.
|
| Three Months Ended June 30 |
|
| Three Months Ended June 30 |
| |||||||||||||||||||||||||||||||||
(In millions, except per share amounts) |
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||||||||||||
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
| |||||||||||||||
Net Income Attributable to the Company as Reported |
| $ | 43.3 |
|
| $ | 1.85 |
|
| $ | 35.7 |
|
| $ | 1.54 |
|
| $ | 52.1 |
|
| $ | 2.26 |
|
| $ | 43.3 |
|
| $ | 1.85 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
|
|
|
|
|
|
|
|
| |||||||
Deferred Compensation Expense (including related investment activity) |
|
| (1.4) |
|
|
| (0.06 | ) |
|
| 2.5 |
|
|
| 0.10 |
| |||||||||||||||||||||||
Business Restructuring Expense |
|
| 0.1 |
|
|
| — |
|
|
| 0.2 |
|
|
| 0.01 |
| |||||||||||||||||||||||
Cash-settled SARs Expense |
|
| (0.1) |
|
|
| — |
|
|
| 0.7 |
|
|
| 0.03 |
| |||||||||||||||||||||||
Deferred Compensation Expense (Income) Expense (including related investment activity) |
|
| 0.7 |
|
|
| 0.03 |
|
|
| (1.4 | ) |
|
| (0.06 | ) | |||||||||||||||||||||||
Business Restructuring |
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
| |||||||||||||||||||||||
Cash Settled Stock Appreciation Rights |
|
| 0.1 |
|
|
| — |
|
|
| (0.1 | ) |
|
| — |
| |||||||||||||||||||||||
Environmental Remediation |
|
| 0.3 |
|
|
| 0.02 |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||
Cumulative Tax Effect on Above Adjustment Items |
|
| 0.3 |
|
|
| 0.02 |
|
|
| (0.8 | ) |
|
| (0.03 | ) |
|
| (0.3 | ) |
|
| (0.01 | ) |
|
| 0.3 |
|
|
| 0.02 |
| |||||||
Adjusted Net Income |
| $ | 42.2 |
|
| $ | 1.81 |
|
| $ | 38.3 |
|
| $ | 1.65 |
|
| $ | 53.0 |
|
| $ | 2.30 |
|
| $ | 42.2 |
|
| $ | 1.81 |
| |||||||
|
|
Six Months Ended June 30 |
| ||||||||||||||||||||||||||||||||||||
(In millions, except per share amounts) |
| 2021 |
|
| 2020 |
| |||||||||||||||||||||||||||||||||
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
| |||||||||||||||||||||||||||
Net Income Attributable to the Company as Reported |
| $ | 83.9 |
|
| $ | 3.59 |
|
| $ | 63.3 |
|
| $ | 2.72 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Deferred Compensation (Income) Expense (including related investment activity) |
|
| 0.6 |
|
|
| 0.03 |
|
|
| (1.2) |
|
|
| (0.05) |
| |||||||||||||||||||||||
Business Restructuring Expense |
|
| 0.2 |
|
|
| 0.01 |
|
|
| 0.6 |
|
|
| 0.03 |
| |||||||||||||||||||||||
Cash-settled SARs (Income) Expense |
|
| 0.1 |
|
|
| — |
|
|
| (0.4) |
|
|
| (0.02) |
| |||||||||||||||||||||||
Cumulative Tax Effect on Above Adjustment Items |
|
| (0.2) |
|
|
| (0.01) |
|
|
| 0.2 |
|
|
| 0.01 |
| |||||||||||||||||||||||
Adjusted Net Income |
| $ | 84.6 |
|
| $ | 3.62 |
|
| $ | 62.5 |
|
| $ | 2.69 |
|
|
| Six Months Ended June 30 |
| |||||||||||||
(In millions, except per share amounts) |
| 2022 |
|
| 2021 |
| ||||||||||
|
| Net Income |
|
| Diluted EPS |
|
| Net Income |
|
| Diluted EPS |
| ||||
Net Income Attributable to the Company as Reported |
| $ | 96.9 |
|
| $ | 4.19 |
|
| $ | 83.9 |
|
| $ | 3.59 |
|
|
|
|
|
|
| $ | - |
|
|
|
|
|
|
|
|
|
Deferred Compensation Expense (Income) Expense (including related investment activity) |
|
| (4.5 | ) |
|
| (0.20 | ) |
|
| 0.6 |
|
|
| 0.03 |
|
Business Restructuring |
|
| 0.1 |
|
|
| 0.01 |
|
|
| 0.2 |
|
|
| 0.01 |
|
Cash Settled Stock Appreciation Rights |
|
| (0.4 | ) |
|
| (0.02 | ) |
|
| 0.1 |
|
|
| — |
|
Environmental Remediation |
|
| 0.6 |
|
|
| 0.03 |
|
|
| — |
|
|
| — |
|
Cumulative Tax Effect on Above Adjustment Items |
|
| 1.0 |
|
|
| 0.04 |
|
|
| (0.2 | ) |
|
| (0.01 | ) |
Adjusted Net Income |
| $ | 93.7 |
|
| $ | 4.05 |
|
| $ | 84.6 |
|
| $ | 3.62 |
|
RECONCILIATION OF NON-GAAP NET DEBTReconciliation of Non-GAAP Net Debt
Management uses the non-GAAP net debt metric to gain a more complete picture of the Company’s overall liquidity, financial flexibility and leverage level.
(In millions) |
| June 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||
Current Maturities of Long-Term Debt as Reported |
| $ | 42.4 |
|
| $ | 37.9 |
|
| $ | 142.5 |
|
| $ | 40.7 |
|
Long-Term Debt as Reported |
|
| 196.5 |
|
|
| 160.8 |
|
|
| 383.5 |
|
|
| 322.9 |
|
Total Debt as Reported |
|
| 238.9 |
|
|
| 198.7 |
|
|
| 526.0 |
|
|
| 363.6 |
|
Less Cash and Cash Equivalents as Reported |
|
| (127.1 | ) |
|
| (349.9 | ) |
|
| (194.6 | ) |
|
| (159.2 | ) |
Net Debt |
| $ | 111.8 |
|
| $ | (151.2 | ) |
| $ | 331.4 |
|
| $ | 204.4 |
|
Equity |
| $ | 1,048.8 |
|
| $ | 986.7 |
|
| $ | 1,125.7 |
|
| $ | 1,074.2 |
|
Net Debt plus Equity |
| $ | 1,160.6 |
|
| $ | 835.5 |
|
| $ | 1,457.1 |
|
| $ | 1,278.6 |
|
Net Debt/Net Debt plus Equity |
|
| 10 | % |
|
| -18 | % | ||||||||
Net Debt/(Net Debt plus Equity) |
|
| 23 | % |
|
| 16 | % |
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the market risks described in the Company’s 20202021 Annual Report on Form 10-K.
Item 4 – Controls and Procedures
| a. | Evaluation of Disclosure Controls and Procedures |
We have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2021.2022. Based on this evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2021,2022, such that the information required to be disclosed in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
| b. | Changes in Internal Control Over Financial Reporting |
There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2021,2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II OTHER INFORMATION
Item 1 – Legal Proceedings
SEC regulations require the Company to disclose certain information about administrative or judicial proceedings involving certain environmental matters to which a governmental authority is a party if the Company reasonably believes that such proceedings may result in monetary sanctions above a specified threshold. Pursuant to SEC regulations, the Company has adopted a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required. The Company believes that this threshold is reasonably designed to result in disclosure of any such proceedings that are material to its business or financial condition.
Material developments in the Company’s legal proceedings are described below:
Millsdale Site
On June 24, 2022, the Attorney General of the State of Illinois filed a complaint in the Twelfth Judicial Circuit Court of Illinois alleging violations of the Illinois Environmental Protection Act and certain related regulations. The claims allege permit and statutory violations related to air emission requirements and reporting obligations. The lawsuit seeks to impose financial penalties and operational obligations. The alleged violations may result in a range of possible penalties; however, at this stage of the matter, the Company is unable to predict the ultimate outcome or what impact, if any, the outcome might have on the Company’s results of operations or cash flows.
Wilmington Site
The Company is currently contractually obligated to contribute to the environmental response costs associated with the Company’s formerly-owned site in Wilmington, Massachusetts (the Wilmington site). Remediation at this site is being managed by its current owner, to whom the Company sold the property in 1980. Under the Company’s October 1, 1993, agreement with the current owner of the Wilmington site, once total site remediation costs exceed certain levels, the Company is obligated to contribute up to five percent of future response costs associated with this site with no limitation on the ultimate amount of contributions. The Company has paid the current owner $3,364,000 for the Company’s portion of environmental response costs at the Wilmington site through June 30, 2022. The Company has recorded a liability for its portion of the estimated remediation costs for the site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current recorded liability. On July 29, 2022, the Company and other potentially responsible parties were notified of a possible joint claim by federal and state trustees for alleged natural resource damages related to the Wilmington site. The alleged damages may result in a range of possible penalties; however, at this stage, the Company is unable to predict the ultimate outcome of this claim, the allocation of costs among the potentially responsible parties or what impact, if any, the outcome might have on the Company’s results of operations or cash flows.
The Company and other prior owners of the Wilmington site also entered into an agreement in April 2004 waiving certain statute of limitations defenses for claims which may be filed by the Town of Wilmington, Massachusetts, in connection with this site. While the Company has denied any liability for any such claims, the Company agreed to this waiver while the parties continue to discuss the resolution of any potential claim which may be filed.
37
There have been no other material changes to the legal proceedings disclosed in the Company’s 20202021 Annual Report on Form 10-K.
Item 1A – Risk Factors
There have been no material changes to the risk factors disclosed in the Company’s 20202021 Annual Report on Form 10-K.10-K, except for the modification of the risk factor set forth below:
Conflicts, military actions, terrorist attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations related to our industry, could adversely affect the Company’s business.
Conflicts, military actions and terrorist attacks have precipitated economic instability, turmoil in financial markets and disruptions in the price and supply of raw materials and energy. The uncertainty and economic or operational disruptions resulting from hostilities, military action or acts of terrorism may impact the Company’s facilities and operations or those of its suppliers or customers. Accordingly, any conflict, military action or terrorist attack that impacts the Company or any of its suppliers or customers, or any resulting economic or operational instability resulting from such conflict, military action or terrorist attack, could have a material adverse effect on the Company’s business, results of operations, financial position and cash flows. For example, Russia’s invasion of Ukraine in February 2022 has resulted in higher energy prices and concerns regarding the supply of natural gas to countries in Europe. Higher energy costs and reduced availability of natural gas in European countries could materially adversely affect the operations and results of operations of the Company or its suppliers and customers.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Below is a summary by month of share purchasespurchase by the Company during the second quarter of 2021:2022:
Month |
| Total Number of Shares Purchased |
|
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
April 2021 |
|
| 291 |
| (2) |
| $ | 131.63 |
|
|
| — |
|
|
| 167,574 |
|
May 2021 |
|
| 36,482 |
| (3) |
| $ | 135.80 |
|
|
| 32,952 |
| (5) |
| 134,622 |
|
June 2021 |
|
| 40,938 |
| (4) |
| $ | 133.12 |
|
|
| 40,793 |
| (5) |
| 93,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 77,711 |
|
|
| $ | 134.38 |
|
|
| 73,745 |
|
|
| 93,829 |
|
Month |
| Total Number of Shares Purchased |
|
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
| Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (1) |
| ||||
April 2022 |
|
| 410 |
| (2) |
| $ | 102.49 |
|
|
| — |
|
| $ | 140,065,014 |
|
May 2022 |
|
| 49,064 |
| (3) |
| $ | 102.94 |
|
|
| 49,064 |
| (3) | $ | 135,014,131 |
|
June 2022 |
|
| 20,670 |
| (3) |
| $ | 96.30 |
|
|
| 20,670 |
| (3) | $ | 133,023,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 70,144 |
|
|
| $ | 100.98 |
|
|
| 69,734 |
|
| $ | 133,023,666 |
|
| (1) | On |
|
| (2) | Represents shares of Company common stock tendered by employees to settle statutory withholding taxes related to the |
|
| (3) |
|
|
|
| Represents shares of Company common stock purchased on the open market. |
|
Item 3 – Defaults Upon Senior Securities
None
44
Item 4 – Mine Safety Disclosures
Not applicable
Item 5 – Other Information
None
38
Item 6 – Exhibits
Exhibit No. |
| Description |
| Description | ||||
|
|
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|
| ||||
10.1 | – | |||||||
10.1+ | – | |||||||
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| ||||
10.2 | – | – | ||||||
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| ||||||
10.3 | – | |||||||
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| ||||||
10.4 | – | |||||||
|
|
| ||||||
10.5* | – | |||||||
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| ||||
31.1 | – | – | ||||||
|
|
|
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| ||||
31.2 | – | – | ||||||
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| ||||
32 | – | – | ||||||
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| ||||
101.INS | – | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document | – | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document | ||||
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101.SCH | – | Inline XBRL Taxonomy Extension Schema Document | – | Inline XBRL Taxonomy Extension Schema Document | ||||
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101.CAL | – | Inline XBRL Taxonomy Extension Calculation Linkbase Document | – | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
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| ||||
101.DEF | – | Inline XBRL Taxonomy Extension Definition Document | – | Inline XBRL Taxonomy Extension Definition Document | ||||
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101.LAB | – | Inline XBRL Taxonomy Extension Label Linkbase Document | – | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||
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101.PRE | – | Inline XBRL Taxonomy Extension Presentation Linkbase Document | – | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
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| ||||
104 | – | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | – | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
+Management contract or compensatory plan
|
+Management contract or compensatory plan
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STEPAN COMPANY |
Date: August 5, 20214, 2022
/s/ Luis E. Rojo |
Luis E. Rojo |
Vice President and Chief Financial Officer |
4640