<PAGE> 1
UNITED STATES
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 JUNE 30, 1996
( ) 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 (847) 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.
Class Outstanding at July 31, 1996
- -------------------------- ----------------------------
Common Stock, $1 par value 10,010,000 Shares
Part I FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
<PAGE> 2
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
Unaudited
<TABLE>
<CAPTION>
(Dollars in Thousands) 6/30/96 12/31/95
-------- --------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 2,317 $ 3,148
Receivables, net 82,971 79,814
Inventories (Note 2) 51,130 54,363
Deferred income taxes 9,444 9,444
Other current assets 2,874 3,385
-------- --------
Total current assets $148,736 $150,154
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Cost 478,017 454,104
Less accumulated depreciation 277,064 261,634
-------- --------
200,953 192,470
-------- --------
OTHER ASSETS 21,227 19,903
-------- --------
Total assets $370,916 $362,527
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,742 $6,946
Accounts payable 40,120 42,530
Accrued liabilities 41,181 37,423
-------- --------
Total current liabilities 88,043 86,899
-------- --------
DEFERRED INCOME TAXES 36,577 36,469
-------- --------
LONG-TERM DEBT, less current maturities 104,869 109,023
-------- --------
DEFERRED REVENUE 11,752 7,659
-------- --------
STOCKHOLDERS' EQUITY:
5-1/2% convertible preferred stock, cumulative, voting without par value;
authorized 2,000,000 shares; issued 797,124 shares in 1996 and 797,172
shares in 1995 19,928 19,929
Common stock, $1 par value; authorized 15,000,000 shares;
issued 10,106,033 shares in 1996 and 10,086,653 shares in 1995 10,106 10,087
Additional paid-in capital 4,796 4,568
Cumulative translation adjustments (4,498) (3,691)
Retained earnings (approximately $44,983 unrestricted in 1996 and $37,904 in 1995) 101,209 93,292
-------- --------
131,541 124,185
Less - Treasury stock, at cost 1,866 1,708
Stockholders' equity -------- --------
129,675 122,477
-------- --------
Total liabilities and stockholders' equity $370,916 $362,527
======== ========
</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 Six Months Ended June 30, 1996 and 1995
Unaudited
<TABLE>
<CAPTION>
(In Thousands, Three Months Ended Six Months Ended
except per share amounts) June 30 June 30
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $137,926 $136,258 $268,569 $271,044
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of Sales 112,911 110,451 217,846 218,582
General and Administrative 5,040 5,919 10,077 11,723
Marketing 4,788 4,670 9,537 9,222
Research, Development
and Technical Services 4,733 4,584 9,525 9,083
Interest, net 1,732 2,128 3,719 3,992
----------- ----------- ----------- -----------
129,204 127,752 250,704 252,602
----------- ----------- ----------- -----------
PRE-TAX INCOME 8,722 8,506 17,865 18,442
PROVISION FOR INCOME TAXES 3,549 3,088 7,057 6,915
----------- ----------- ----------- -----------
NET INCOME $5,173 $5,418 $10,808 $11,527
=========== =========== =========== ===========
NET INCOME PER
COMMON SHARE (Note 3)
Primary $0.49 $0.52 $1.03 $1.10
=========== =========== =========== ===========
Fully Diluted $0.46 $0.49 $0.97 $1.05
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE $0.1175 $0.110 $0.2350 $0.220
=========== =========== =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING 10,028 9,977 10,022 9,965
=========== =========== =========== ===========
</TABLE>
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 Six Months Ended June 30, 1996 and 1995
Unaudited
<TABLE>
<CAPTION>
(Dollars In Thousands) 6/30/96 6/30/95
-------- --------
<S> <C> <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income $10,808 $11,527
Depreciation and amortization 16,854 15,360
Deferred revenue, net 4,093 (1,184)
Deferred income taxes 136 857
Other non-cash items 183 (457)
Changes in Working Capital:
Receivables, net (3,157) (11,594)
Inventories 3,233 658
Accounts payable and accrued liabilities 1,348 (8,728)
Other 511 398
-------- --------
Net Cash Provided by Operating Activities 34,009 6,837
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (23,600) (14,304)
Investment in subsidiaries or joint ventures (3,848) (3,750)
Other non-current assets 173 40
-------- --------
Net Cash Used for Investing Activities (27,275) (18,014)
-------- --------
CASH FLOWS FROM FINANCING AND OTHER RELATED ACTIVITIES
Revolving debt and notes payable to banks, net (600) (18,395)
Other debt borrowings 4,098 40,000
Other debt repayments (7,857) (9,062)
(Purchases) sales of treasury stock, net (158) 314
Dividends paid (2,891) (2,729)
Other non-cash items (157) 299
-------- --------
Net Cash (Used for) Provided by Financing and Other Related Activities (7,565) 10,427
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (831) (750)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 3,148 $ 2,452
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,317 $ 1,702
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 4,793 $ 4,650
Income taxes $ 5,880 $ 8,440
</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
June 30, 1996 and December 31, 1995
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, 1995. In the opinion of management all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the consolidated financial position of Stepan Company
as of June 30, 1996, and the consolidated results of operations for the
three and six months then ended, and cash flows for the six months then
ended, have been included.
2. INVENTORIES
Inventories include the following amounts:
<TABLE>
<CAPTION>
(Dollars in Thousands) 6/30/96 12/31/95
------- --------
<S> <C> <C>
Inventories valued primarily on LIFO basis -
Finished products $30,829 $32,204
Raw materials 20,301 22,159
------- --------
Total inventories $51,130 $54,363
======= ========
</TABLE>
If the first-in, first-out (FIFO) inventory valuation method had been
used for all inventories, inventory balances would have been
approximately $12,506,000 and $12,100,000 higher than reported at June
30, 1996, and December 31, 1995, respectively.
3. 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.
<PAGE> 6
4. 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 $32.4 million at June
30, 1996. At June 30, 1996, the company's reserve was $16.3 million for
legal and environmental matters compared to $8.7 million at December 31,
1995.
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 Part II, Item 1, Legal Proceedings, of
this filing, in Item 3, Legal Proceedings, in the 1995 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.
5. ACQUISITION
In April 1996, the company acquired a sulfonation plant from Shell Group
in Cologne, Germany. This plant, being organized as a German subsidiary,
will allow the company to serve Northern European customers with a wide
range of sulfate and sulfonate products used in household, personal care,
individual, institutional and agricultural markets. The purchase
consisted of land, sulfonation equipment, and intangible assets. The
acquisition has been accounted for as a purchase, and the results of the
subsidiary have been included in the accompanying condensed consolidated
financial statements since the date of acquisition. Had the results of
this subsidiary been included commencing with operations in 1996, the
reported results would not have been materially affected.
6. RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified
to conform with the 1996 presentation.
<PAGE> 7
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 half of 1996, net cash from operations totaled $34.0 million, an
increase of $27.2 million over the same period in 1995. The increase was
driven by decreased working capital requirements as well as higher customer
prepayments compared to the prior year. Current year growth in accounts
receivable has required $3.2 million compared to $11.6 million for the first
half of 1995. In similar fashion, inventories have decreased by $3.2 million
since December 31, 1995, compared to $0.7 million for the same period last
year.
Capital expenditures totaled $23.6 million for the first six months of 1996, up
from $14.3 million for the same period last year. For the balance of 1996,
investing activities are expected to continue to outpace 1995 levels due mainly
to higher capital spending.
Since December 31, 1995, total company debt has decreased $4.4 million to
finish the second quarter at $111.6 million. Since year-end, the ratio of
long-term debt to long-term debt plus shareholders' equity has decreased from
47.1 percent to 44.7 percent. Over the balance of 1996, the company expects
total company debt to remain essentially stable with a modest year-end decrease
in the ratio of long-term debt to long-term debt plus shareholders' equity.
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. At June 30, 1996, there was a $12.4 million
outstanding balance under this revolving credit line. 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
and acquisitions.
The company anticipates that cash from operations and from committed credit
facilities will be sufficient to fund anticipated capital expenditures,
dividends, acquisition and joint venture investments and other planned
financial commitments in 1996.
<PAGE> 8
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 and 1995
Net income for the second quarter ended June 30, 1996, was $5.2 million, or
$.49 per share, down four percent from the $5.4 million, or $.52 per share
reported for the same quarter a year earlier. Net sales rose one percent to
$137.9 million, from $136.3 million reported last year. Net sales by product
group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months
Ended June 30
----------------------------
1996 1995 % Change
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $102,650 $95,529 +7
Polymers 27,022 33,458 -19
Specialty Products 8,254 7,271 +14
-------- --------
Total $137,926 $136,258 +1
======== ========
</TABLE>
Surfactants net sales increased due mainly to a five percent increase in sales
volume. Domestic net sales increased due mainly to volume gains in many product
lines. Foreign operations reported higher sales due primarily to the European
results which included net sales of the newly acquired German subsidiary and
an improved sales volume in France.
Surfactants gross profit decreased six percent from $18.5 million to $17.3
million for the second quarter of 1996. Domestic gross profit fell due
primarily to increased manufacturing costs. Mexican gross profit declined 50
percent on unchanged volumes that reflect a shift to lower margin products.
Canadian gross profit was down due to competitive pressure on profit margins.
European gross profit rose as a whole on much improved French results,
partially offset by the startup losses incurred by the German subsidiary.
Polymers net sales decreased primarily due to a 44 percent drop in sales of
phthalic anhydride (PA). The decrease in PA sales was precipitated by
significantly lower selling prices due to a significant decline in raw material
costs between years. Also contributing was a seven percent decrease in sales
volume attributable to the earlier than prior year annual maintenance shutdown.
Offsetting the PA results were increased net sales for both polyurethane
polyols and polyurethane systems which grew 12 and 43 percent, respectively, on
much improved sales volumes.
Polymers gross profit for the quarter fell five percent to $5.9 million from
$6.2 million recorded in the prior year. Reduced PA sales and margin accounted
for a majority of the decrease in gross profit. Increased gross profit for
polyurethane polyols, due to higher sales volumes and margin, and for
polyurethane systems, due to higher sales volumes, partially offset the PA
decline.
Specialty products net sales were up despite a slight decline in sales volume.
Gross profit improved by $.7 million to $1.8 million as a result of an improved
product mix between years.
<PAGE> 9
Operating expenses for the second quarter declined four percent from the same
quarter a year ago. Administrative expenses dropped 15 percent as a result of
lower legal and environmental expenses. Marketing expenses rose three percent
primarily related to the newly acquired operation in Germany. Research and
development expenses increased three percent due primarily to higher patent
related spending.
Interest expense for the quarter was 19 percent lower compared to the same
quarter last year. The decrease was due to a higher amount of interest being
capitalized as part of long term construction projects.
The higher income tax provision and effective tax rate for the quarter,
compared to a year ago, were due primarily to a higher effective Mexican tax
rate, as the prior year included loss carryforward benefits. The inability to
tax benefit losses in Germany also contributed to the higher effective tax
rate.
Six Months Ended June 30, 1996 and 1995
Net income for the first six months ended June 30, 1996, was $10.8 million, or
$1.03 per share, down six percent from $11.5 million, or $1.10 per share
reported for the same period a year earlier. Net sales declined one percent to
$268.6 million, from $271.0 million reported last year. Net sales by product
group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Six Months
Ended June 30
----------------------------
1996 1995 % Change
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $204,920 $194,278 +5
Polymers 47,414 60,814 -22
Specialty Products 16,235 15,952 +2
-------- --------
Total $268,569 $271,044 -1
======== ========
</TABLE>
Surfactants net sales increased due mainly to a seven percent increase in sales
volume. A large part of the volume gain stemmed from increased demand for high
active surfactant in the United States. Foreign operations reported higher
sales which was due primarily to the improved sales volume in France and the
newly acquired German operation.
Surfactants gross profit decreased seven percent from $38.6 million to $36.0
million for the first six months of 1996. Both domestic and foreign operations
posted lower gross profit. Domestic gross profit decreased primarily as a
result of higher manufacturing costs coupled with tightening profit margins.
Mexican gross profit was down 50 percent as a result of lower sales volume and
a larger sales mix of lower margin products. Canadian gross profit was also
down as a result of lower profit margins. Europe posted a higher gross profit
on the higher French sales volume partially offset by the startup losses
reported in Germany. The company expects the German operation to continue
incurring losses in the third and fourth quarters. For the full year, these
startup losses are expected to reduce earnings by approximately $.11 per share.
<PAGE> 10
Polymers net sales decreased primarily due to a 43 percent drop in sales of
phthalic anhydride (PA). The decrease in PA sales was precipitated by
significantly lower selling prices due to a significant decline in raw material
costs between years. Also contributing to the reduced PA sales was an 11
percent decrease in sales volume due to a sluggish beginning of the year demand
and the earlier than prior year annual maintenance shutdown. Partially
offsetting the PA results were higher polyurethane systems sales on stronger
sales volume, as well as increased polyurethane polyols sales due to improved
selling prices between years. The improved pricing was in response to higher
raw material costs in the latter part of 1995.
Polymers gross profit for the first six months fell six percent to $10.8
million from $11.5 million recorded in the prior year. Reduced PA sales and
margin accounted for a majority of the decrease in gross profit. Partially
offsetting the decline was a higher polyurethane polyols gross profit due to
the improved selling prices noted above and decreased raw material costs.
Polyurethane systems gross profit improved due mainly to the increased sales
volume.
Specialty products net sales for the first six months were up slightly despite
reduced sales volume. Sales for the same period a year ago included some lower
margin products which had since been discontinued. Gross profit actually
improved by $1.5 million to $3.9 million as a result of the improved product
mix between years.
Operating expenses for the first six months declined three percent from the
same period a year ago. Administrative expenses decreased 14 percent as a
result of lower legal and environmental expenses. Marketing expenses rose three
percent primarily due to increased advertising and promotional expenses as well
as higher salaries. Research and development expenses increased five percent
due primarily to higher patent expenses, maintenance, outside contracting
services and salaries related expenses.
Interest expense for the first six months decreased seven percent primarily as
a result of an increased amount of interest being capitalized for long term
construction projects.
The higher income tax provision and effective tax rate for the first six months
were precipitated by a higher effective Mexican tax rate, as the prior year
included loss carryforward benefits. The inability to tax benefit losses in
Germany also contributed to a higher effective tax rate.
1996 OUTLOOK
The outlook for the remainder of 1996 for both surfactants and polymers remains
optimistic. Despite the slower first six months earnings and the startup
losses in Germany, the company believes that the full year results will set an
earnings record. The company has begun production of surfactants in Germany
and has successfully started up the operation in its Philippines joint venture.
The company continues to pursue global opportunities that will broaden its
base of markets on which to build future earnings growth.
<PAGE> 11
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 six months of
1996, company expenditures for capital projects related to the environment were
$3.5 million and should approximate $7.3 million for the full year 1996. 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
1996 includes some larger projects. Recurring costs associated with the
operation and maintenance of facilities for waste treatment and disposal and
managing environmental compliance in ongoing operations at our manufacturing
locations were $3.6 million for the first six months of 1996. 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 $32.4 million at
June 30, 1996. At June 30, 1996, the company's reserve was $16.3 million for
legal and environmental matters compared to $8.7 million at December 31, 1995.
During the first six months of 1996, expenditures related to legal and
environmental matters approximated $2.7 million. 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 Part II, Item 1, Legal Proceedings, of this
filing, in Item 3, Legal Proceedings, in the 1995 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.
OTHER
Except for the historical information contained herein, the matters discussed
in this document, and in particular the information included in the Outlook
section, are forward looking statements that involve risks and uncertainties.
The results achieved this quarter are not necessarily an indication of future
prospects for the company. Actual results in future quarters may differ
materially. Potential risks and uncertainties include, among others,
fluctuations in the volume and timing of product orders, changes in demand for
the company's products, changes in technology, continued competitive pressures
in the marketplace, availability of raw materials, and the general economic
conditions.
<PAGE> 12
Part II OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1 - Legal Proceedings
Reference is made to the company's report Form 10-K for the year ended December
31, 1995 and report Form 10-Q for the quarter ended September 30, 1995 and the
case entitled Stepan vs. Admiral Insurance etal. which is an action against the
company's insurers to recover the cost of remediation expenses at various
sites. The company has reached a settlement agreement with the sole remaining
primary insurance company defendant in this lawsuit. The terms of the
settlement are confidential, but as a result of this and earlier settlements,
the company has now exhausted all of its primary coverage. As a result, the
company will call upon its excess insurance companies to pay its defense and
indemnity costs. Certain of the excess insurance policies at issue in the
action contain provisions regarding the payment of defense costs which differ
from those of the primary policies. The trial in this matter is scheduled for
August 12, 1996.
Reference made to the company's report Form 10-K for the year ended December
31, 1995 and report Form 8-K dated June 6, 1996 and in particular, with
reference to an action entitled Millmaster/Onyx Group vs. Stepan Company (CA
No. 93-510-LON). The company has previously notified on report Form 8-K dated
June 6, 1996 that it has settled this matter for an undisclosed amount. The
amount of the settlement is not deemed to be material.
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 June 6, 1996 regarding settlement of
a lawsuit.
<PAGE> 13
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: 8/12/96
---------------
<PAGE> 1
Exhibit (11)
STEPAN COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the Three and Six Months Ended June 30, 1996 and 1995
Unaudited
<TABLE>
<CAPTION>
(In Thousands, except per share amounts) Three Months Ended Six Months Ended
June 30 June 30
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation of per Share Earnings
- ---------------------------------
Net income $5,173 $5,418 $10,808 $11,527
Deduct dividends on preferred stock 267 267 534 535
--------- --------- -------- --------
Income applicable to common stock $4,906 $5,151 $10,274 $10,992
========= ========= ======== ========
Weighted average number of shares outstanding 10,028 9,977 10,022 9,965
Per share earnings* $0.489 $0.516 $1.025 $1.103
========= ========= ======== ========
Computation of Per Share Primary Earnings
- -----------------------------------------
Income applicable to common stock $4,906 $5,151 $10,274 $10,992
========= ========= ======== ========
Weighted average number of shares outstanding 10,028 9,977 10,022 9,965
Add net shares issuable from assumed exercise
of options (under treasury stock method) 283 177 220 177
--------- --------- -------- --------
Shares applicable to primary earnings 10,311 10,154 10,242 10,142
========= ========= ======== ========
Per share primary earnings* $0.476 $0.507 $1.003 $1.084
========= ========= ======== ========
Dilutive effect 2.7% 1.7% 2.1% 1.7%
Computation of Per Share Fully Diluted Earnings
- -----------------------------------------------
Net income $5,173 $5,418 $10,808 $11,527
========= ========= ======== ========
Weighted average number of shares outstanding 10,028 9,977 10,022 9,965
Add net shares issuable from assumed exercise
of options (under treasury stock method) 283 177 232 177
Add weighted average shares issuable from
assumed conversion of convertible preferred
stock 887 889 887 889
--------- --------- -------- --------
Shares applicable to fully diluted earnings 11,198 11,043 11,141 11,031
========= ========= ======== ========
Per share fully diluted earnings* $0.462 $0.491 $0.970 $1.045
========= ========= ======== ========
Dilutive effect 5.5% 4.8% 5.4% 5.3%
</TABLE>
- ------------
* 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 JUNE 30, 1996 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,317
<SECURITIES> 0
<RECEIVABLES> 82,971
<ALLOWANCES> 0
<INVENTORY> 51,130
<CURRENT-ASSETS> 148,736
<PP&E> 478,017
<DEPRECIATION> 277,064
<TOTAL-ASSETS> 370,916
<CURRENT-LIABILITIES> 88,043
<BONDS> 104,869
<COMMON> 10,106
0
19,928
<OTHER-SE> 99,641
<TOTAL-LIABILITY-AND-EQUITY> 370,916
<SALES> 268,569
<TOTAL-REVENUES> 268,569
<CGS> 217,846
<TOTAL-COSTS> 246,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,719
<INCOME-PRETAX> 17,865
<INCOME-TAX> 7,057
<INCOME-CONTINUING> 10,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,808
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 0.97
</TABLE>
