<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------- ----------
1-4462
Commission File Number
STEPAN COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36 1823834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Edens and Winnetka Road, Northfield, Illinois 60093
(Address of principal executive offices)
Registrant's telephone number (708) 446-7500
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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at October 31, 1995
-------------------------- -------------------------------
<S> <C>
Common Stock, $1 par value 10,011,000 Shares
</TABLE>
<PAGE> 2
Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
Unaudited
<TABLE>
<CAPTION>
(Dollars in Thousands) 9/30/95 12/31/94
------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,070 $ 2,452
Receivables, net 78,103 70,385
Inventories (Note 2) 47,739 45,464
Other current assets 11,349 11,070
--------- --------
Total current assets 138,261 129,371
--------- -------
PROPERTY, PLANT AND EQUIPMENT:
Cost 441,017 417,654
Less accumulated depreciation 256,071 233,997
--------- --------
184,946 183,657
--------- --------
OTHER ASSETS 16,095 11,920
--------- ---------
Total assets $ 339,302 $ 324,948
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,939 $ 8,043
Accounts payable 36,339 37,904
Accrued liabilities 37,768 34,509
--------- ---------
Total current liabilities 81,046 80,456
--------- ---------
DEFERRED INCOME TAXES 32,653 32,976
--------- ---------
LONG-TERM DEBT, less current maturities (Note 3) 97,237 89,795
--------- ---------
DEFERRED REVENUE (Note 6) 8,644 10,419
--------- ---------
STOCKHOLDERS' EQUITY:
5-1/2% convertible preferred stock, cumulative, voting without par value;
authorized 2,000,000 shares; issued 797,172 shares in 1995 and 799,196
shares in 1994 19,929 19,980
Common stock, $1 par value; authorized 15,000,000 shares;
issued 10,084,653 shares in 1995 and 10,028,544 shares in 1994 10,085 10,029
Additional paid-in capital 4,553 3,983
Cumulative translation adjustments (2,894) (3,491)
Retained earnings (approximately $40,274 unrestricted in 1995 and $36,336 in 1994) 89,592 82,445
--------- ---------
121,265 112,946
Less - Treasury stock, at cost (Note 5) 1,543 1,644
--------- ---------
Stockholders' equity 119,722 111,302
--------- ---------
Total liabilities and stockholders' equity $ 339,302 $ 324,948
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these condensed consolidated balance sheets.
<PAGE> 3
STEPAN COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1995 and 1994
Unaudited
<TABLE>
<CAPTION>
(In Thousands, Three Months Ended Nine Months Ended
except per share amounts) September 30 September 30
--------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 130,410 $ 110,761 $ 401,454 $ 330,345
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of Sales 109,763 89,778 328,345 269,562
General and Administrative 10,157 4,082 21,880 12,320
Marketing 4,628 4,196 13,850 12,535
Research, Development
and Technical Services 4,695 4,127 13,778 13,290
Interest, net (Note 3) 2,046 1,639 6,038 5,360
--------- --------- --------- ---------
131,289 103,822 383,891 313,067
--------- --------- --------- ---------
PRE-TAX INCOME (LOSS) (879) 6,939 17,563 17,278
PROVISION FOR INCOME
TAXES (BENEFIT) (329) 2,827 6,586 7,066
--------- --------- --------- ---------
NET INCOME (LOSS) $ (550) $ 4,112 $ 10,977 $ 10,212
========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE (Note 4)
Primary $(0.08) $0.39 $1.02 $0.95
========= ========= ========= =========
Fully Diluted $ - $0.37 $1.00 $0.93
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE $ 0.110 $0.105 $0.330 $0.315
========= ========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING 9,998 9,938 9,976 9,918
========= ========= ========= =========
</TABLE>
All 1994 share and per share data have been retroactively adjusted for the
stock split effective December 15, 1994.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
<PAGE> 4
STEPAN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
Unaudited
<TABLE>
<CAPTION>
(Dollars In Thousands) 9/30/95 9/30/94
------- -------
<S> <C> <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income $10,977 $10,212
Depreciation and amortization 22,923 22,114
Deferred income taxes (352) 1,218
Prepaid pension cost (544) (156)
Other non-cash items (94) 536
Deferred revenue (Note 6) (1,775) 5,983
Changes in Working Capital:
Receivables, net (7,718) (7,774)
Inventories (2,275) 6,310
Accounts payable and accrued liabilities 2,065 (4,781)
Other 218 (60)
------- -------
Net Cash Provided by Operating Activities 23,425 33,602
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (23,771) (31,856)
Investment in joint venture (3,750) (1,000)
Other non-current assets 110 (578)
------- -------
Net Cash Used for Investing Activities (27,411) (33,434)
------- -------
CASH FLOWS FROM FINANCING AND OTHER RELATED ACTIVITIES
Revolving debt and notes payable to banks, net (21,711) 14,672
Other debt borrowings 40,000 -
Other debt repayments (12,048) (11,268)
Sales (Purchases) of treasury stock, net 101 (164)
Dividends paid (4,098) (3,932)
Other non-cash items 360 808
------- -------
Net Cash Provided by Financing and Other Related Activities 2,604 116
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,382) 284
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 2,452 $ 1,515
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,070 $ 1,799
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ 5,694 $ 5,701
Income taxes $ 9,244 $ 7,166
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
<PAGE> 5
STEPAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 and December 31, 1994
Unaudited
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by the company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles 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. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto included in the company's latest Annual Report to Stockholders
and the Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1994. In the opinion of
management all adjustments necessary to present fairly the
consolidated financial position of Stepan Company as of September 30,
1995, and the consolidated results of operations for the three and
nine months then ended, and cash flows for the nine months then ended,
have been included.
Because the inventory determination under the LIFO method can only be
made at the end of each year based on the inventory levels and costs
at that point, interim LIFO determinations must necessarily be based
upon management's estimates of expected year-end inventory levels and
costs. Since future estimates of inventory levels and prices are
subject to many forces beyond the control of management, interim
financial results are subject to final year-end LIFO inventory
amounts.
2. INVENTORIES
Inventories include the following amounts:
<TABLE>
<CAPTION>
(Dollars in Thousands) 9/30/95 12/31/94
------- --------
<S> <C> <C>
Inventories valued primarily on LIFO basis -
Finished products $ 27,477 $ 27,632
Raw materials 20,262 17,832
-------- --------
Total inventories $ 47,739 $ 45,464
======== ========
</TABLE>
If the first-in, first-out (FIFO) inventory valuation method had been
used for all inventories, inventory balances would have been
approximately $14.1 million and $13.2 million higher than reported at
September 30, 1995, and December 31, 1994, respectively.
<PAGE> 6
3. DEBT
During June, 1995, the company entered into unsecured long-term loan
agreements totaling $40 million with interest rates of 7.69 to 7.77
percent per annum and maturities of 10 to 15 years. The proceeds of
the new loans were used to reduce unsecured bank debt. The terms and
conditions of the new loan agreements are essentially the same as
those of previously existing agreements.
Long-term debt includes unsecured bank debt of $1 million and $21.8
million at September 30, 1995, and December 31, 1994, respectively.
The unsecured bank debt is available to the company under a line of
credit based on rates that fluctuate daily. The average interest rate
on unsecured bank debt for the three month period ended September 30
was 6.55 percent and 5.26 percent for 1995 and 1994, respectively.
For the nine month period ended September 30, 1995 and 1994, the
average interest rate was 6.70 percent and 4.89 percent, respectively.
4. NET INCOME PER COMMON SHARE
Primary net income per common share amounts are computed by dividing
net income less the convertible preferred stock dividend requirement
by the weighted average number of common shares outstanding. Fully
diluted net income per share amounts are based on an increased number
of common shares that would be outstanding assuming the exercise of
certain outstanding stock options and the conversion of the
convertible preferred stock, when such conversion would have the
effect of reducing net income per share. For computation of earnings
per share, reference should be made to Exhibit 11.
5. TREASURY STOCK
At September 30, 1995, treasury stock consists of 20,208 shares of
preferred stock and 74,710 shares of common stock. At December 31,
1994, treasury stock consisted of 20,208 shares of preferred stock and
84,280 shares of common stock.
6. DEFERRED REVENUE
During 1994, the company received $12.8 million of prepayments on
certain multi-year commitments for future shipments of products. As
the commitments are fulfilled, a proportionate share of the deferred
revenue is taken into income. Deferred revenues of $.6 million
and $1.8 million were recognized as income during the three month and
nine month periods ended September 30, 1995, respectively. Related
deferred revenue at September 30, 1995, is $11.0 million of which $2.4
million is included in the "Accrued liabilities" caption of the
Condensed Consolidated Balance Sheets.
<PAGE> 7
7. CONTINGENCIES
There are a variety of legal proceedings pending or threatened against
the company. 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 federal
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("Superfund") and the Superfund amendments of 1986. The
company and others have been named as potentially responsible parties
at affected geographic sites. As discussed in Management's Discussion
and Analysis of Financial Condition and Results of Operations included
in this filing, the company believes that it has made adequate
provisions for the costs it may incur with respect to these sites.
The company has estimated a range of possible environmental and legal
losses from $5.0 million to $24.5 million at September 30, 1995. At
September 30, 1995, the company's reserve was $9.4 million for legal
and environmental matters compared to $6.9 million at December 31,
1994. While the company has insurance policies that may cover some of
its environmental costs, it does not record those claims until such
time as they become probable. The company has received some insurance
recoveries in the past, primarily related to indemnification of legal
costs. Currently, the company has not recorded any outstanding
insurance claims.
At certain of the sites, estimates cannot be made of the total costs
of compliance, or the company's share of such costs; accordingly, the
company is unable to predict the effect thereof on future results of
operations. In the event of one or more adverse determinations in any
annual or interim period, the impact on results of operations for
those periods could be material. However, based upon the company's
present belief as to its relative involvement at these sites, other
viable entities' responsibilities for cleanup and the extended period
over which any costs would be incurred, the company believes that
these matters will not have a material effect on the company's
financial position. Certain of these matters are discussed in Item 3,
Legal Proceedings, in the 1994 Form 10-K Annual Report and in other
filings of the company with the Securities and Exchange Commission,
which filings are available upon request from the company.
<PAGE> 8
STEPAN COMPANY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the company's financial condition and results of
operations during the interim period included in the accompanying condensed
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months ended September 30, 1995, net cash from operations has
totaled $23.4 million, a decrease of $10.2 million compared to $33.6 million for
the same period last year. Cash from operations in 1994 included $6.0 million
in customer advances. For the first nine months of 1995, income tax payments
have totaled $9.2 million compared to $7.2 million for the same period in 1994.
Increased working capital requirements were responsible for substantially all of
the remaining difference in operating cash flows from year to year.
Capital expenditures have totaled $23.8 million for the first nine months of
1995, down from $31.9 million for the same period last year. Expenditures for
property, plant and equipment are projected to reach a range of $38 million to
$40 million for the current year, compared to $42.9 million during 1994.
Included in current year investing activities is a $3.8 million joint venture
capital contribution.
Since December 31, 1994, total company debt has increased by $6.3 million to
close the third quarter at $104.2 million. Since year-end, the ratio of
long-term debt to long-term debt plus shareholders' equity has increased from
44.7 percent to 44.8 percent. We project that total company debt will increase
modestly for the balance of 1995, due primarily to planned capital expenditures
partially offset by seasonal decreases in working capital requirements.
During June, 1995, the company entered into unsecured long-term loan agreements
totaling $40 million with maturities of 10 to 15 years. The proceeds of the new
loans were used to reduce domestic bank debt, which totaled $1.0 million as
of September 30, 1995. The terms and conditions of the new loan agreements are
essentially the same as those of previously existing agreements.
The company maintains contractual relationships with its domestic banks which
provide for $45 million of revolving credit which may be drawn upon as needed
for general corporate purposes. The company also meets short-term liquidity
requirements through uncommitted bank lines of credit and bankers' acceptances.
The company's foreign subsidiaries maintain committed and uncommitted bank lines
of credit in their respective countries to meet working capital requirements as
well as to fund capital expenditure programs.
The company anticipates that cash from operations and from committed credit
facilities will be sufficient to meet anticipated capital expenditure programs,
dividend requirements and other planned financial commitments in 1995 and for
the foreseeable future.
<PAGE> 9
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1994
A $5.0 million additional pre-tax provision for future legal and environmental
costs has resulted in a net loss of $550,000 for the third quarter of 1995, or
$.08 per share, compared to a net income of $4.1 million, or $.39 per share
recorded for the same quarter a year earlier. During the quarter, a draft of
the Remedial Investigation Feasibility Study for the remediation of the
company's Maywood, New Jersey plant and adjacent property was filed with the
Environmental Protection Agency containing a wide range of alternatives and
costs. While many of these costs may or may not be incurred, the additional
charge to earnings is based on the company's estimate of costs that may be
incurred considering all the information available. The potential benefit of
insurance and other third party recoveries for these costs has not been
recorded. See further discussion of this matter in the legal proceeding
section of this filing.
Net sales grew 18 percent to $130.4 million, up from $110.8 million reported
last year. Net sales by product group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months
Ended September 30
------------------------------------
1995 1994 % Change
----- ---- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $ 91,738 $ 79,306 +16
Polymers 29,931 21,742 +38
Specialty Products 8,741 9,713 -10
-------- --------
Total $130,410 $110,761 +18
======== ========
</TABLE>
Surfactants increase in net sales was due mainly to a 22 percent increase in
sales volume. Domestic sales were up 15 percent on a 25 percent increase in
volume. A large part of the domestic volume gain stemmed from shipments to
large national customers of new highly concentrated products manufactured
utilizing the recent neutralization capacity expansion. From the broad
commercial customer base, higher selling prices resulting from raw material
cost increases also contributed higher net sales, despite a four percent
decline in volume. Leading the foreign surfactants operation, European sales
were up due primarily to a 35 percent increase in volume, and a stronger french
franc. Partially offsetting the result was the reported lower Mexican net
sales on a 14 percent decline in volume and the effect of a weaker peso.
Surfactants gross profit increased six percent from $13.9 million to $14.7
million for the third quarter of 1995. Gross profit rose primarily on higher
sales from the larger national customers. The broad commercial customer base
reported a lower gross profit between years as a result of reduced volume.
Despite the higher sales volume, European gross profit declined due to
competitive price pressures in the European fabric softener market which
limited our ability to pass along raw material cost increases. Canadian and
Mexican gross profit declined from a year ago due mainly to lower sales volume.
<PAGE> 10
Polymers net sales were up due primarily to higher selling prices despite a
four percent drop in sales volume from the year ago quarter. Higher selling
prices were driven by a series of significant raw material price increases for
phthalic anhydride (PA) and polyurethane polyols. Reduced sales volume was due
entirely to lower shipments of PA as a result of a planned maintenance shutdown
in the current quarter. Sales of polyurethane systems grew 48 percent on a 37
percent volume gain.
Polymers gross profit for the quarter declined 16 percent to $3.8 million from
$4.5 million recorded a year earlier. The major reason for the decline was the
lower margins in polyurethane polyols attributable to increases in raw material
costs that could not be completely passed on to customers. Furthermore, the
unfavorable margin mix in the polyurethane systems sales has offset the gain in
sales volume. Despite the maintenance shutdown resulting in lower sales volume,
PA earnings were up due to increased margins.
Specialty products net sales were down because sales of some lower margin
products were discontinued in the current year. As a result, gross profit for
specialty products decreased by $.4 million to $2.2 million for the quarter.
Operating expenses for the third quarter increased 57 percent over the same
quarter in 1994. Administrative expenses increased $6.1 million, representing a
majority of the operating expense increase, as a result of the higher legal and
environmental expenses discussed above. The prior year's quarter legal and
environmental expenses included the favorable impact of insurance recoveries
related to previously incurred legal and environmental costs. Furthermore, last
year's quarter recorded a one-time favorable group health insurance
reimbursement that did not recur in the current quarter. Marketing expenses
rose ten percent primarily due to higher salaries as well as increased
marketing effort in the Pacific Rim. Research and development expenses
increased 14 percent due largely to increased depreciation and salary expenses.
Interest expense for the quarter increased 25 percent primarily as a result of
lower capitalized interest on capital projects in the current quarter as
compared to last year, coupled with higher short term borrowing rates.
Nine Months Ended September 30, 1995 and 1994
Net income for the nine months ended September 30, 1995, was $11.0 million, or
$1.02 per share, up eight percent from $10.2 million, or $.95 per share
recorded for the same period a year ago. Net sales grew 22 percent to $401.5
million, up from $330.3 million reported last year. Net sales by product group
were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Nine Months
Ended September 30
1995 1994 % Change
----- ---- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $286,016 $246,174 +16
Polymers 90,745 56,656 +60
Specialty Products 24,693 27,515 -10
-------- --------
Total $401,454 $330,345 +22
======== ========
</TABLE>
<PAGE> 11
Surfactants sales increased due in large part to a 16 percent increase in sales
volume. Domestic sales increased 16 percent on an 18 percent increase in
volume. A majority of the domestic volume gain was from shipments of highly
concentrated products to large national customers. Higher average selling
prices resulting from raw material cost increases also contributed to higher
net sales from the broad commercial customer base. The strong domestic sales
volume was also supported by volume increases in Europe, Mexico, and Canada.
Reported sales in Mexico were down despite higher volume due to the negative
impact of the devalued peso.
Surfactants gross profit increased 15 percent from $46.2 million to $53.3
million for the first nine months of 1995. Gross profit rose sharply on higher
domestic sales volume. Mexico's gross profit was up because of higher sales
volume. Canadian and European gross profit was relatively unchanged from a
year ago.
Polymers net sales were up due to higher selling prices reflecting the pass
through of higher raw material costs. PA and polyurethane polyols experienced
an 11 percent and 24 percent volume gain, respectively. Sales of polyurethane
systems declined on lower sales volume.
Polymers gross profit for the first nine months of 1995 rose 62 percent to
$15.2 million from $9.4 million in the prior year. Higher PA sales volume and
margins generated all of the increase. Polyurethane polyols gross profit was
down particularly in the third quarter due to the inability to pass on raw
material cost increases. Polyurethane systems gross profit declined as a result
of unfavorable product mix and lower sales volume.
Specialty products net sales were down on reduced volume. Sales of some lower
margin products were discontinued in the current year. Gross profit reported a
decline of $.5 million to $4.6 million from $5.1 million recorded a year ago.
Operating expenses for the first nine months increased 30 percent over the same
period in 1994. Reflecting the additional $8.4 million legal and environmental
charges, administrative expenses increased 78 percent between years. Prior
year's expenses benefited from the favorable insurance recoveries related to
previously incurred legal and environmental costs. In addition, a one-time
group health insurance reimbursement was recorded in the prior year that did
not recur this year. Marketing expenses rose 11 percent primarily due to higher
salaries. Research and development expenses increased four percent.
Interest expense increased 13 percent primarily as a result of lower
capitalized interest associated with the reduced capital spending, and higher
short term borrowing rates.
<PAGE> 12
ENVIRONMENTAL AND LEGAL MATTERS
The company is subject to extensive federal, state and local environmental laws
and regulations. 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 could 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 nine months of
1995, company expenditures for capital projects related to the environment were
$3.8 million and should approximate $7 million to $8 million for the full year
1995. These projects are capitalized and typically depreciated over 10 years.
Capital spending on such projects is likely to be somewhat lower in future
years as 1995 includes some larger projects. Recurring costs associated with
the operation and maintenance of environmental protection facilities in ongoing
operations were $5.1 million for the first nine months of 1995. While
difficult to project, it is not anticipated that these recurring expenses will
increase significantly in the future.
The company has been named by the government as a potentially responsible party
at 17 waste disposal sites where cleanup costs have been or may be incurred
under the federal Comprehensive Environmental Response, Compensation and
Liability Act 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 may
incur with respect to these sites. The company has estimated a range of
possible environmental and legal losses from $5.0 million to $24.5 million at
September 30, 1995. At September 30, 1995, the company's reserve was $9.4
million for legal and environmental matters compared to $6.9 million at
December 31, 1994. During the first nine months of 1995, expenditures related
to legal and environmental matters approximated $6.2 million. The company
expects to receive reimbursement of environmental defense costs from insurers.
However, currently the company has no receivable recorded for such claims. At
certain of the sites, estimates cannot be made of the total costs of compliance
or the company's share of such costs; accordingly, the company is unable to
predict the effect thereof on future results of operations. In the event of
one or more adverse determinations in any annual or interim period, the impact
on results of operations for those periods could be material. However, based
upon the company's present belief as to its relative involvement at these
sites, other viable entities' responsibilities for cleanup and the extended
period over which any costs would be incurred, the company believes that these
matters will not have a material effect on the company's financial position.
Certain of these matters are discussed in Item 3, Legal Proceedings, in the
1994 Form 10-K Annual Report and in other filings of the company with the
Securities and Exchange Commission, which filings are available upon request
from the company.
<PAGE> 13
ACCOUNTING STANDARD
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121-Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS No. 121").
This standard must be adopted no later than the 1996 reporting year, but can be
adopted early. SFAS No. 121 requires that operating assets and associated
goodwill be written down to fair value whenever an impairment review indicates
that the carrying value cannot be recovered on an undiscounted cash flow basis.
After any such noncash write-down, results of operations would be favorably
affected by reduced depreciation, depletion and amortization charges. The
company has completed a preliminary review of SFAS No. 121, and currently does
not believe it will have any impact on the results of operations upon adoption
in 1996.
<PAGE> 14
Part II OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to the company's Report Form 10-K for the year ended
1991, 1992, and 1994 and Reports Form 10-Q for the quarters dated September 30,
1993 regarding the company's Maywood site. In August, 1995, the company has
completed and presented to the United States Environmental Protection Agency
(USEPA) the Final Draft of the Remedial Investigation Feasibility Study which
contains alternatives for the remediation of the company's site and the
properties known as the Sears and Adjacent Properties. The company now
anticipates that the remedial action plan will be published by the USEPA for
public comment in the second quarter of 1996. Thereafter, a Record of Decision
and designation of potentially responsible parties (PRPs) to remediate the
company's property and the Sears and Adjacent Properties will be made.
Although not currently a PRP to remediate, the company believes that it will be
named as a PRP, at least with regard to its property.
Reference is made to the company's Report Form 10-Q for the quarters
ended September 30, 1993 and September 30, 1994 regarding the Ewan and
D'Imperio cases, and particularly, U.S. V. Jerome Lightman case. The company
anticipates that a trial on the issues of nexus liability and divisibility of
liability will take place in the third quarter of 1996, pursuant to the terms
of a Case Management Order.
As a result of the preceding items, the company has taken a charge to
more accurately reflect its best estimate of liability as of this date.
Reference is made to the company's Report Form 10-Q for the period
ended September 30, 1994 and March 31, 1995, where in the company had revealed
settlement of its liability at the Buzby site, subject to court approval. On
September 29, 1995, the United States District Court, District of New Jersey,
denied the motion to approve settlement. Consequently, the company cannot, at
this time, ascertain what, if any, liability it may incur with the regard to
this site or whether the funds previously paid by the company for the
settlement will be returned to it.
On September 27, 1995, the company received a 104(e) Request for
Information from the United States Environmental Protection Agency (USEPA) for
a site known as Bofors Nobel site in Muskegon, Michigan. The company has
reported that it has no knowledge of use of this site by the company. Region V
of the USEPA has since sent documents to the company indicating that the
company may be a potentially responsible party. The company cannot, at this
time, estimate what its liability, if any, will be.
Reference is made to the company's Report Form 10-K for the year ended
1992 relating to its insurance recovery case. On October 11, 1995, the Circuit
Court of Cook County, Illinois, Chancery Division, ruled that the company's
primary insurance company, The Hartford, has a duty to defend the company at
environmental sites at which a lawsuit has been filed.
Reference is made to the company's Report Form 10-Q for the period
dated June 30, 1993, describing a case entitled Carl Patterman and Noreen
Patterman v. Stepan Company. The company settled this case for a non-material
court-sealed amount.
<PAGE> 15
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
(11) Statement re computation of Per Share Earnings
(27) Financial Data Schedule
(B) Reports on Form 8-K
A report on Form 8-K was filed on October 24, 1995, regarding
the company reported loss for the third quarter.
<PAGE> 16
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
/s/ Walter J. Klein
Walter J. Klein
Vice President - Finance
Principal Financial and Accounting Officer
Date: November 14, 1995
<PAGE> 1
Exhibit (11)
STEPAN COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the Three and Nine Months Ended September 30, 1995 and 1994
Unaudited
<TABLE>
<CAPTION>
(In Thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30 September 30
------------------------ --------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation of per Share Earnings
Net income (loss) $ (550) $ 4,112 $ 10,977 $ 10,212
Deduct dividends on preferred stock 267 269 802 808
--------- -------- -------- --------
Income applicable to common stock $ (817) $ 3,843 $ 10,175 $ 9,404
======== ======== ======== ========
Weighted average number of shares outstanding 9,998 9,938 9,976 9,918
Per share earnings* $ (0.082) $ 0.387 $ 1.020 $ 0.948
======== ======== ======== ========
Computation of Per Share Primary Earnings
Income applicable to common stock(A) N/A $ 3,843 $ 10,175 $ 9,404
======== ======== ========
Weighted average number of shares outstanding 9,938 9,976 9,918
Add net shares issuable from assumed exercise
of options (under treasury stock method) 134 171 144
Shares applicable to primary earnings 10,072 10,147 10,062
======== ======== ========
Per share primary earnings* $ 0.382 $ 1.003 $ 0.935
======== ======== ========
Dilutive effect 1.3% 1.7% 1.4%
Computation of Per Share Fully Diluted Earnings
Net income(A) N/A $ 4,112 $ 10,977 $ 10,212
======== ======== ========
Weighted average number of shares outstanding 9,938 9,976 9,918
Add net shares issuable from assumed exercise
of options (under treasury stock method) 180 171 180
Add weighted average shares issuable from
assumed conversion of convertible preferred
stock 890 888 896
-------- -------- --------
Shares applicable to fully diluted earnings 11,008 11,035 10,994
======== ======== ========
Per share fully diluted earnings* $ 0.374 $ 0.995 $ 0.929
======== ======== ========
Dilutive effect 3.4% 2.5% 2.0%
</TABLE>
(A) Due to the net loss for the three months ended September 30, 1995, any
assumed conversion of common stock equivalents and convertible
preferred stock would have been antidilutive. Accordingly, dilutive
calculations of per share earnings were not applicable pursuant to APB
No. 15.
__________
* Rounded
This calculation is submitted in accordance with Regulation S-K, item
601(b)(11).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND CONSOLIDATED STATEMENTS
OF INCOME FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,070
<SECURITIES> 0
<RECEIVABLES> 78,103
<ALLOWANCES> 0
<INVENTORY> 47,739
<CURRENT-ASSETS> 138,261
<PP&E> 441,017
<DEPRECIATION> 256,071
<TOTAL-ASSETS> 339,302
<CURRENT-LIABILITIES> 81,046
<BONDS> 97,237
<COMMON> 10,085
0
19,929
<OTHER-SE> 89,708
<TOTAL-LIABILITY-AND-EQUITY> 339,302
<SALES> 401,454
<TOTAL-REVENUES> 401,454
<CGS> 328,345
<TOTAL-COSTS> 377,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,038
<INCOME-PRETAX> 17,563
<INCOME-TAX> 6,586
<INCOME-CONTINUING> 10,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,977
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.00
</TABLE>
