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Change In Method of Accounting for Inventory Valuation | 9 Months Ended
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Sep. 30, 2019
New Accounting Pronouncements And Changes In Accounting Principles [Abstract] |
Change in Method of Accounting for Inventory Valuation |
2. | CHANGE IN METHOD OF ACCOUNTING FOR INVENTORY VALUTION
On January 1, 2019, the Company elected to change its method of accounting for U.S. inventories from the LIFO basis to the FIFO basis. Total U.S. inventories accounted for using the LIFO cost flow assumption, prior to the accounting method change, comprised 68 percent of the Company’s total inventories as of December 31, 2018. Non-U.S. inventories have historically been maintained on the FIFO basis. The Company believes that this change to the FIFO method of inventory valuation is preferable as it provides a better matching of costs with the physical flow of goods, more accurately reflects the current market value of inventory presented on the Company’s consolidated balance sheets, standardizes the Company’s inventory valuation methodology and improves comparability with the Company’s industry peers. In accordance with ASC 250, Accounting Changes and Error Corrections, this change in method of accounting for U.S. inventories has been retrospectively applied to all prior periods presented herein. Prior period financial statements and financial comparables have been adjusted to reflect what results would have been had the Company always used the FIFO method of inventory valuation for U.S. inventories. The cumulative effect on retained earnings for these changes was $23.7 million at December 31, 2018. The following tables present the prior year financial statement line items that have been affected by the retrospective change in accounting principle: Income Statement
(In thousands, except per share amounts) |  | Three Months Ended September 30, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Cost of Sales |  | $ | 423,872 |  |  | $ | 549 |  |  | $ | 424,421 |
Gross Profit |  |  | 84,125 |  |  |  | (549 | ) |  |  | 83,576 |
Operating Income |  |  | 27,694 |  |  |  | (549 | ) |  |  | 27,145 |
Income Before Provision for Income Taxes |  |  | 25,243 |  |  |  | (549 | ) |  |  | 24,694 |
Provision for Income Taxes |  |  | 3,075 |  |  |  | (135 | ) |  |  | 2,940 |
Net Income |  |  | 22,168 |  |  |  | (414 | ) |  |  | 21,754 |
Net Income Attributable to Stepan Company |  |  | 22,168 |  |  |  | (414 | ) |  |  | 21,754 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 0.95 |  |  | $ | (0.02 | ) |  | $ | 0.93 |
(In thousands, except per share amounts) |  | Nine Months Ended September 30, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Cost of Sales |  | $ | 1,264,223 |  |  | $ | (1,780 | ) |  | $ | 1,262,443 |
Gross Profit |  |  | 262,975 |  |  |  | 1,780 |  |  |  | 264,755 |
Operating Income |  |  | 112,034 |  |  |  | 1,780 |  |  |  | 113,814 |
Income Before Provision for Income Taxes |  |  | 105,404 |  |  |  | 1,780 |  |  |  | 107,184 |
Provision for Income Taxes |  |  | 19,597 |  |  |  | 436 |  |  |  | 20,033 |
Net Income |  |  | 85,807 |  |  |  | 1,344 |  |  |  | 87,151 |
Net Income Attributable to Stepan Company |  |  | 85,816 |  |  |  | 1,344 |  |  |  | 87,160 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 3.68 |  |  | $ | 0.06 |  |  | $ | 3.74 |
Balance Sheet
(In thousands) |  | December 31, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Inventories |  | $ | 200,165 |  |  | $ | 31,363 |  |  | $ | 231,528 |
Other Non-Current Assets |  |  | 10,964 |  |  |  | (1,415 | ) |  |  | 9,549 |
Total Assets |  |  | 1,484,666 |  |  |  | 29,948 |  |  |  | 1,514,614 |
Deferred Income Taxes |  | $ | 18,672 |  |  | $ | 6,289 |  |  | $ | 24,961 |
Retained Earnings |  |  | 813,448 |  |  |  | 23,659 |  |  |  | 837,107 |
Total Liabilities and Equity |  |  | 1,484,666 |  |  |  | 29,948 |  |  |  | 1,514,614 |
Statement of Cash Flows
(In thousands) |  | Nine Months Ended September 30, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Net Income |  | $ | 85,807 |  |  | $ | 1,344 |  |  | $ | 87,151 |
Deferred Income Taxes |  |  | 6,410 |  |  |  | 436 |  |  |  | 6,846 |
Change in Assets and Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Inventories |  |  | (21,586 | ) |  |  | (1,780 | ) |  |  | (23,366 | )
The following tables present what current year financial statement line items would have been had the Company not changed its method of accounting for U.S. inventories from the LIFO to FIFO basis: Income Statement
(In thousands, except per share amounts) |  | Three Months Ended September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Cost of Sales |  | $ | 374,180 |  |  | $ | (1,000 | ) |  | $ | 373,180 |
Gross Profit |  |  | 77,402 |  |  |  | 1,000 |  |  |  | 78,402 |
Operating Income |  |  | 27,966 |  |  |  | 1,000 |  |  |  | 28,966 |
Income Before Provision for Income Taxes |  |  | 27,449 |  |  |  | 1,000 |  |  |  | 28,449 |
Provision for Income Taxes |  |  | 1,569 |  |  |  | 246 |  |  |  | 1,815 |
Net Income |  |  | 25,880 |  |  |  | 754 |  |  |  | 26,634 |
Net Income Attributable to Stepan Company |  |  | 25,889 |  |  |  | 754 |  |  |  | 26,643 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 1.11 |  |  | $ | 0.03 |  |  | $ | 1.14 |
(In thousands, except per share amounts) |  | Nine Months Ended September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Cost of Sales |  | $ | 1,158,785 |  |  | $ | (3,000 | ) |  | $ | 1,155,785 |
Gross Profit |  |  | 254,970 |  |  |  | 3,000 |  |  |  | 257,970 |
Operating Income |  |  | 98,769 |  |  |  | 3,000 |  |  |  | 101,769 |
Income Before Provision for Income Taxes |  |  | 98,013 |  |  |  | 3,000 |  |  |  | 101,013 |
Provision for Income Taxes |  |  | 16,945 |  |  |  | 738 |  |  |  | 17,683 |
Net Income |  |  | 81,068 |  |  |  | 2,262 |  |  |  | 83,330 |
Net Income Attributable to Stepan Company |  |  | 81,091 |  |  |  | 2,262 |  |  |  | 83,353 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 3.48 |  |  | $ | 0.10 |  |  | $ | 3.58 |
Balance Sheet
(In thousands) |  | September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Inventories |  | $ | 203,303 |  |  | $ | (28,363 | ) |  | $ | 174,940 |
Other Non-Current Assets |  |  | 10,985 |  |  |  | 1,415 |  |  |  | 12,400 |
Total Assets |  |  | 1,518,370 |  |  |  | (26,948 | ) |  |  | 1,491,422 |
Deferred Income Taxes |  | $ | 25,218 |  |  | $ | (5,551 | ) |  | $ | 19,667 |
Retained Earnings |  |  | 906,612 |  |  |  | (21,397 | ) |  |  | 885,215 |
Total Liabilities and Equity |  |  | 1,518,370 |  |  |  | (26,948 | ) |  |  | 1,491,422 |
Statement of Cash Flows
(In thousands) |  | Nine Months Ended September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Net Income |  | $ | 81,068 |  |  | $ | 2,262 |  |  | $ | 83,330 |
Deferred Income Taxes |  |  | (2,291 | ) |  |  | 738 |  |  |  | (1,553 | )
Change in Assets and Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Inventories |  |  | 25,879 |  |  |  | (3,000 | ) |  |  | 22,879 |

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