<PAGE>
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- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer Identification
incorporation or organization) Number)
Edens and Winnetka Road, Northfield, 60093
Illinois
- -------------------------------------- --------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number including area code: 847-446-7500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
----------- --------------
Common Stock, $1 par value New York Stock Exchange (Effective
March 14, 1996)
American Stock Exchange (Cancelled
March 13, 1996)
Chicago Stock Exchange
5 1/2% Convertible Preferred Stock, no New York Stock Exchange (Effective
par value March 14, 1996)
Chicago Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
-----------
(Title of Class)
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
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, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
AGGREGATE MARKET VALUE AT FEBRUARY 29, 1996, OF VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT: $141,542,000.*
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK
AS OF FEBRUARY 29, 1996:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT FEBRUARY 29, 1996
----- --------------------------------
<S> <C>
Common Stock, $1 par value 10,039,000 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PART OF FORM 10-K DOCUMENT INCORPORATED
----------------- ---------------------
<S> <C>
Part I, Item 1 1995 Annual Report to Stockholders
Part II, Items 5-8 1995 Annual Report to Stockholders
Part III, Items 10-12 Proxy Statement dated April 5, 1996
</TABLE>
*Based on reported ownership by all directors, officers and beneficial
owners of more than 5% of registrant's voting stock. However, this
determination does not constitute an admission of affiliate status for any of
these holders.
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<PAGE>
PART I
ITEM 1. BUSINESS
Stepan Company and its subsidiaries (the "company") produce specialty and
intermediate chemicals which are sold to other manufacturers and then made
into a variety of end products. The company sells three groups of products:
surfactants, polymers and specialty products. Surfactants refer to chemical
agents which affect the interaction between two surfaces; they can provide
actions such as detergency (i.e., the ability of water to remove soil from
another surface), wetting and foaming, dispersing, emulsification (aiding two
dissimilar liquids to mix), demulsification and viscosity modifications.
Surfactants are the basic cleaning agent in detergents for washing clothes,
dishes, carpets, fine fabrics, floors and walls. Surfactants are also used for
the same purpose in shampoos and conditioners, toothpastes, cosmetics and
other personal care products. Commercial and industrial applications include
emulsifiers for agricultural insecticides and herbicides, emulsion polymers
such as floor polishes and latex foams and coatings, wetting and foaming
agents for wallboard manufacturing and surfactants for enhanced oil recovery.
Polymers refer to intermediate chemicals including phthalic anhydride, polyols
and urethane foam systems used in plastics, building materials and
refrigeration industries. Specialty products consist of flavor and
pharmaceutical intermediates, fine chemicals, esters, synthetic lubricants and
other specialty products.
In 1991, Stepan Company purchased the ACCOSOFT(R) line of fabric softeners
from Karlshamns U.S.A., Inc. The company also purchased from ICI Americas,
Inc. the U.S. portion of the sulfonate and sulfonate blend line used in
agricultural products and industrial coatings.
In 1993, Stepan Company entered into a 50 percent joint venture with
Coldequim, S.A. called Stepan Colombiana de Quimicos, Ltda in Colombia, South
America. Under the agreement, Stepan Colombiana manufactures selected
surfactants and markets the company's complete line of surfactants in the
Andean Pact countries of Colombia, Venezuela, Peru, Bolivia and Ecuador.
In 1994, Stepan Company entered into a 50 percent joint venture with United
Coconut Chemicals, Inc. and United Coconut Planters International in the
Philippines. The venture, called Stepan Philippines, Inc., will manufacture
selected surfactants for sale in the Philippines and Asia/Pacific markets
commencing in 1996.
In January 1996, Stepan Company agreed in principle to acquire a sulfonation
plant and sulfonated products business from Shell Group in Cologne, Germany.
This plant 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.
MARKETING AND COMPETITION
Principal markets for all products are manufacturers of cleaning or washing
compounds (including detergents, shampoos, toothpastes and household
cleaners), paints, cosmetics, food and beverages, agricultural insecticides
and herbicides, plastics, furniture, building materials and automotive and
refrigeration equipment. Sales of the company tend not to be seasonal.
The company does not sell directly to the retail market, but sells to a wide
range of manufacturers in many industries and has many competitors. The
principal methods of competition are product performance, price and
adaptability to the specific needs of individual customers. These factors
allow the company to compete on a basis other than solely price, reducing the
severity of competition as experienced in the sales of commodity chemicals
having identical performance characteristics. The company is one of the
largest merchant producers of surfactants in the United States. In the case of
surfactants, much of the company's competition comes from the internal
divisions of larger companies, as well as several large national and regional
producers. In the manufacture of polymers, the company competes with the
chemical divisions of several large companies, as well as with other small
specialty chemical manufacturers. In recent years, the company has also faced
periodic competition from foreign imports of phthalic anhydride. In specialty
products, the company competes with several large firms plus numerous small
companies. The company does not expect any significant changes in the
competitive environment in the foreseeable future.
<PAGE>
MAJOR CUSTOMER AND BACKLOG
The company does not have any one single customer whose business represents
more than 10% of the company's consolidated revenue. Most of the company's
business is essentially on the "spot delivery basis" and does not involve a
significant backlog. The company does have some contract arrangements with
certain customers, but purchases are generally contingent on purchaser
requirements.
ENERGY SOURCES
Substantially all of the company's manufacturing plants operate on
electricity and interruptable gas purchased from local utilities. During peak
heating demand periods, gas service to all plants may be temporarily
interrupted for varying periods ranging from a few days to several months. The
plants operate on fuel oil during these gas interruption periods. The company
has not experienced any plant shutdowns or adverse effects upon its business
in recent years that were caused by a lack of available energy sources.
RAW MATERIALS
The most important raw materials used by the company are of a petroleum or
vegetable nature. For 1996, the company has commitments from suppliers to
cover its forecasted requirements and is not substantially dependent upon any
one supplier.
RESEARCH AND DEVELOPMENT
The company maintains an active research and development program to assist
in the discovery and commercialization of new knowledge with the intent that
such effort will be useful in developing a new product or in bringing about a
significant improvement to an existing product or process. Total expenses for
research and development during 1995, 1994 and 1993 were $12,425,000,
$12,281,000 and $12,613,000, respectively. During 1995 and 1994, the research
and development staff consisted of 175 and 170 employees, respectively. The
balance of expenses reflected on the Consolidated Statements of Income relates
to technical services which include routine product testing, quality control
and sales support service.
ENVIRONMENTAL COMPLIANCE
Compliance with applicable federal, state and local regulations regarding
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, resulted in capital expenditures by the company
of approximately $6,840,000 during 1995. Such capital expenditures in 1996
should approximate $5.4 million. These expenditures represented approximately
17% of the company's capital expenditures in 1995 and are expected to be 10%
of such expenditures in 1996. These expenditures, when incurred, are
depreciated and charged on a straight-line basis to pre-tax earnings over
their respective useful lives which are typically 10 years. Compliance with
such regulations is not expected to have a material adverse effect on the
company's earnings and competitive position in the foreseeable future.
EMPLOYMENT
At December 31, 1995 and 1994, the company employed worldwide 1,267 and
1,265 persons, respectively.
FOREIGN OPERATIONS
See Note 12, Geographic Data, on page 29 of the company's 1995 Annual Report
to Stockholders.
PRODUCT GROUPS
The manufacture of specialty and intermediate chemicals constitutes the
company's only industry segment. The company's three groups of products and
their contribution to sales for the three years ended December 31, 1995, were:
<TABLE>
<CAPTION>
SPECIALTY
SURFACTANTS POLYMERS PRODUCTS
----------- -------- ---------
<S> <C> <C> <C>
1995....................................... 72% 22% 6%
1994....................................... 74% 18% 8%
1993....................................... 74% 18% 8%
</TABLE>
2
<PAGE>
ITEM 2. PROPERTIES
The company's corporate headquarters and central research laboratories are
located in Northfield, Illinois. The Northfield facilities contain
approximately 70,000 square feet on an 8 acre site. In addition, the company
leases 49,000 square feet of office space in a nearby office complex.
The Canadian sales office is located in Mississagua, Canada and is
approximately 2,300 square feet of leased space. Stepan Mexico maintains a
leased sales office in Mexico City, Mexico.
Surfactants are produced at four plants in the United States and three
wholly owned subsidiaries: one in France, Canada and Mexico. The principal
plant is located on a 626 acre site at Millsdale (Joliet), Illinois. A second
plant is located on a 39 acre tract in Fieldsboro, New Jersey. West Coast
operations are conducted on an 8 acre site in Anaheim, California. A fourth
plant is located on a 162 acre site in Winder, Georgia. The plant, laboratory
and office of Stepan Europe are located on a 20 acre site near Grenoble,
France. Stepan Canada, Inc. is located on a 70 acre leased, with an option to
purchase, site in Longford Mills, Ontario, Canada. Stepan Mexico is located on
a 13 acre site in Matamoros, Mexico. The phthalic anhydride, polyurethane
systems and polyurethane polyols plants are also located at Millsdale.
Specialty products are mainly produced at a plant located on a 19 acre site in
Maywood, New Jersey.
The company owns all of the foregoing facilities except the leased office
space and Canadian plant site mentioned above. The company believes these
properties are adequate for its operations.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to the company's report Form 10-K for the years ended
1991, 1992 and 1994 and reports Form 10-Q for the quarters ended September 30,
1993, and September 30, 1995, regarding the company's Maywood site. No
remediation action has occurred at this site, but the company still
anticipates that the Record of Decision will be issued in the calendar year
1996.
Reference is made to the company's report Form 10-Q for the quarters ended
September 30, 1993, September 30, 1994, and September 30, 1995, regarding the
Ewan and D'Imperio cases and particularly U.S. v. Jerome Lightman (92 cv 4710
(JBS)). The government in this case has indicated a willingness to settle this
case and settlement discussions are underway. However, even if the case with
the government is settled, the case regarding issues of liability and
allocation between the company and other potentially responsible parties will
continue and is still scheduled for trial in the third or fourth quarter of
1996.
Reference is made to the company's report Form 10-K for the year ended 1992
and report Form 10-Q for the quarter ended September 30, 1995, relating to the
insurance recovery case brought by the company against its insurers to recover
the cost of remediation at various sites. On February 23, 1996, the Chancery
Court Cook County, State of Illinois, ruled that the Hartford Insurance
Company is "foreclosed" from contesting coverage under the policies which it
wrote over a period of 14 years. The company has made a demand upon the
Hartford which has not responded. After issuance of a final judgement order,
the Hartford may appeal the decision and the company cannot at this time
estimate what the outcome of such appeal, if any, will be.
Reference is made to the company's report Form 10-Q for the quarter ended
September 30, 1993, relating to the Biddle Sawyer site located in Keyport, New
Jersey. (Biddle Sawyer Corporation v. American Cyanamid Company in the United
States District Court of New Jersey CA-93-1063). As reported previously, the
company was named as a defendant in this action to recover remediation costs
incurred at the site. Trial on the issues will commence the last quarter of
1996 or the first quarter of 1997. The company cannot predict what the outcome
of the trial will be, but the company believes that it has defenses to all of
the plaintiff's allegations.
Reference is made to the company's report Form 10-Q for the quarter ended
March 31, 1995, relating to an action entitled General Electric Company v.
Buzby Brothers Materials Corporation et al. (CA 87-4263 JHR). As reported
previously, the company believed that it settled its liability at this site.
The court recently approved the settlement. However, the company must
cooperate in depositions by the non-settling parties.
3
<PAGE>
Reference is made to the company's report 10-Q for the quarter ended March
31, 1995, referencing an action entitled Millmaster Onyx Group Inc. v. Stepan
Company (CA No. 93-510-LON). Trial is still scheduled to commence on June 4,
1996. The company cannot predict what the outcome of the trial will be, but
the company believes that it has defenses to all of the plaintiff's
allegations.
On March 15, 1996, the company was notified by the Occupational Safety and
Health Administration (OSHA) following an audit of the company's Maywood, New
Jersey facility that the OSHA would be issuing a preliminary fine of
approximately $206,000 for alleged violations at the Maywood site. The company
has 15 days in which to appeal the preliminary findings, and the company plans
to do so. At this time the company cannot anticipate what change, if any, to
the preliminary fine will be made following the appeal.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers are elected annually by the Board of Directors at the
first meeting following the Annual Meeting of Stockholders to serve until the
next annual meeting of the Board and until their respective successors are
duly elected and qualified.
Effective May 22, 1995, Jeffrey W. Bartlett, formerly Vice President,
General Counsel and Corporate Secretary, was appointed Vice President,
Regulatory Affairs, General Counsel and Corporate Secretary. Effective January
1, 1995, James A. Hartlage, who was formerly the Senior Vice President--
Technology as of February, 1992, was appointed Senior Vice President--
Technology and Operations. In addition, during 1995 he assumed Administrative
responsibilities. Effective January 1, 1995, Earl H. Wagener, formerly Vice
President--Product Development, was appointed Vice President--Research and
Development.
Effective April 28, 1992, Charles W. Given, formerly Vice President--
Marketing, was appointed Vice President and General Manager--Surfactants.
Ronald L. Siemon, formerly Vice President--Polyurethanes, was appointed Vice
President and General Manager--Polymers.
Effective January 1, 1992, Walter J. Klein, formerly the Vice President and
Corporate Controller, was appointed Vice President--Finance. Mickey
Mirghanbari, who previously served in the capacity of Vice President for Plant
Operations, assumed the position of Vice President--Manufacturing and
Engineering. All other executive officers have remained in their current
capacity for over five years.
The Executive Officers of the company, their ages as of February 29, 1996,
and certain other information are as follows:
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE TITLE ELECTED OFFICER
---- --- ----- ---------------
<C> <C> <S> <C>
Chairman, President and Chief
F. Quinn Stepan..... 58 Executive Officer 1967
Senior Vice President--Technology
James A. Hartlage... 58 and Operations 1980
Vice President and General
Charles W. Given.... 59 Manager--Surfactants 1992
Vice President and General
Ronald L. Siemon.... 58 Manager--Polymers 1992
Vice President, Regulatory Affairs,
General Counsel
Jeffrey W. Bartlett. 52 and Corporate Secretary 1983
Walter J. Klein..... 49 Vice President--Finance 1985
Vice President--Manufacturing and
Mickey Mirghanbari.. 58 Engineering 1992
Vice President--Research and
Earl H. Wagener..... 55 Development 1995
</TABLE>
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) The company's common stock is listed and traded on both the New York
Stock Exchange (effective March 14, 1996) and the Chicago Stock Exchange. See
page 30 of the company's 1995 Annual Report to Stockholders for market price
information which is incorporated by reference herein.
The company's 5 1/2 percent convertible preferred stock is listed and traded
on the New York Stock Exchange (effective March 14, 1996) and the Chicago
Stock Exchange. See Note 6 on page 27 of the company's 1995 Annual Report to
Stockholders for the description of the preferred stockholders' rights which
is incorporated by reference herein.
From time to time the company purchases shares of its common stock in the
open market and in block transactions from dealers for the purpose of funding
option grants under its stock option plans and deferred compensation plans for
directors and officers. In addition to these funding requirements, on November
6, 1995, the Board of Directors approved an additional open market repurchase
of up to 300,000 shares of common stock.
(b) On February 29, 1996, there were 1,759 holders of record of common stock
of the company.
(c) See page 30 of the company's 1995 Annual Report to Stockholders for
dividend information which is incorporated by reference herein. Also see Note
3 on page 25 of the company's 1995 Annual Report to Stockholders which sets
forth the restrictive covenants covering dividends.
ITEM 6. SELECTED FINANCIAL DATA
See pages 30 and 31 of the company's 1995 Annual Report to Stockholders' for
a ten year summary of selected financial information which is incorporated by
reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See pages 14 through 18 of the company's 1995 Annual Report to Stockholders
which is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 19 through 29 of the company's 1995 Annual Report to Stockholders
for the company's consolidated financial statements, notes to the consolidated
financial statements and auditors' report which are incorporated by reference
herein.
See page 31 of the company's 1995 Annual Report to Stockholders for selected
quarterly financial data which is incorporated by reference herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
See pages 3 through 5 of the company's Proxy Statement dated April 5,
1996, for the Annual Meeting of Stockholders which are incorporated by
reference herein.
5
<PAGE>
(b) Executive Officers
See Executive Officers of the Registrant in Part I above.
ITEM 11. EXECUTIVE COMPENSATION
See page 7 of the company's Proxy Statement dated April 5, 1996, for the
Annual Meeting of the Stockholders which is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Pages 1 through 6 of the company's Proxy Statement dated April 5, 1996,
for the Annual Meeting of Stockholders which are incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) & (d) Financial Statements and Schedules
See the Index to the Consolidated Financial Statements and Supplemental
Schedule filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 12, 1995, regarding quarterly
earnings.
A report on Form 8-K was filed on October 24, 1995, regarding quarterly
earnings.
(c) Exhibits
See Exhibit Index filed herewith.
6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
By: Jeffrey W. Bartlett
Vice President, Regulatory Affairs,
General Counsel and
Corporate Secretary
March 25, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
F. Quinn Stepan Chairman, President, Chief March 25, 1996
____________________________________ Executive Officer and Director
F. Quinn Stepan
Thomas F. Grojean Director March 25, 1996
____________________________________
Thomas F. Grojean
James A. Hartlage Senior Vice President--Technology March 25, 1996
____________________________________ and Operations and Director
James A. Hartlage
Walter J. Klein Vice President--Finance, March 25, 1996
____________________________________ Principal Financial and
Walter J. Klein Accounting Officer
Paul H. Stepan Director March 25, 1996
____________________________________
Paul H. Stepan
Robert D. Cadieux Director March 25, 1996
____________________________________
Robert D. Cadieux
Robert G. Potter Director March 25, 1996
____________________________________
Robert G. Potter
</TABLE>
JEFFREY W. BARTLETT, PURSUANT TO POWERS OF ATTORNEY EXECUTED BY EACH OF THE
DIRECTORS AND OFFICERS LISTED ABOVE, DOES HEREBY EXECUTE THIS REPORT ON BEHALF
OF EACH OF SUCH DIRECTORS AND OFFICERS IN THE CAPACITY IN WHICH THE NAME OF
EACH APPEARS ABOVE.
JEFFREY W. BARTLETT
March 25, 1996
7
<PAGE>
INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS
AND
SUPPLEMENTAL SCHEDULE
A copy of Stepan Company's Annual Report to Stockholders for the year ended
December 31, 1995, has been filed as an exhibit to this Annual Report on Form
10-K. Pages 19 through 29 of such Annual Report to Stockholders contain the
Consolidated Balance Sheets as of December 31, 1995 and 1994, the Consolidated
Statements of Income, Stockholders' Equity and Cash Flows and Notes to
Consolidated Financial Statements for the three years ended December 31, 1995,
and the Auditors' Report covering the aforementioned financial statements.
These consolidated financial statements and the Auditors' Report thereon are
incorporated herein by reference.
Supplemental Schedule II--Allowance for Doubtful Accounts--to Consolidated
Financial Statements, which is required to comply with regulation S-X, and the
Auditors' report on such Supplemental Schedule are included on pages 9 and 10
of this Form 10-K.
Certain supplemental schedules are not submitted because they are not
applicable or not required, or because the required information is included in
the financial statements or notes thereto.
8
<PAGE>
STEPAN COMPANY
SUPPLEMENTAL SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
AS REQUIRED TO COMPLY WITH REGULATIONS S-X
SCHEDULE II--ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Below is an analysis of the allowance for doubtful accounts for the three
years ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, Beginning of Year........................ $1,585 $1,739 $1,444
Provision charged to income..................... 349 291 621
Accounts written off, net of recoveries......... (190) (445) (326)
------ ------ ------
Balance, End of Year.............................. $1,744 $1,585 $1,739
====== ====== ======
</TABLE>
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Stepan Company:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Stepan Company's Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 9, 1996. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
schedule listed in the index of financial statements is the responsibility of
the company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 9, 1996
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(3)a Copy of the Certificate of Incorporation, and the Certificates of
Amendment of Certificate of Incorporation dated May 6, 1968, April
20, 1972, April 16, 1973, December 2, 1983. Filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1983, and
incorporated herein by reference.
(3)b Copy of the Bylaws of the company as amended through May 6, 1987.
(Note 1)
(3)c Copy of Certificate of Amendment, dated April 28, 1993, to Article
IV of Certificate of Incorporation. (Note 7)
(3)d Copy of Certificate of Amendment, dated May 5, 1987, to Article X of
Certificate of Incorporation. (Note 1)
(4)h Copy of Loan Agreement dated June 15, 1995, with Aid Association for
Lutherans, the Northwestern Mutual Life Insurance Company and The
Mutual Life Insurance Company of New York. (Note 9)
(4)i Copy of Revolving Credit and Term Loan Agreement dated February 20,
1990, with The First National Bank of Chicago and the amendment
dated March 21, 1990. (Note 3)
(4)m Copy of Second Amendment dated September 20, 1991, amending
Revolving Credit and Term Loan Agreement dated February 20, 1990
(see (4)i above). (Note 4)
(4)m(1) Copy of Third Amendment dated December 29, 1992, amending Revolving
Credit and Term Loan Agreement dated February 20, 1990 (see (4)i and
(4)m above). (Note 8)
(4)m(2) Copy of Fourth Amendment dated May 31, 1994, amending revolving
credit and Term Loan Agreement dated February 20, 1990 (see (4)i,
(4)m and (4)m(1) above).
(4)n(1) Copy of Certificate of Designation, Preferences and Rights of the 5
1/2% Convertible Preferred Stock, without Par Value and the Amended
Certificate dated August 12, 1992 and April 28, 1993. (Note 7)
(4)n(2) Copy of Issuer Tender Offer Statement on Schedule 13E-4 dated August
13, 1992. (Note 6)
(4)n(3) Copy of Amendment No. 1 to Schedule 13E-4 (see also (4)n(2) above)
dated September 23, 1992. (Note 6)
(4)n(4) Copy of the company's Form 8-A dated August 13, 1992. (Note 6)
In accordance with 601 (b)(4)(iii) of Regulation S-K, certain debt
instruments are omitted, where the amount of securities authorized
under such instruments does not exceed 10% of the total consolidated
assets of the Registrant. Copies of such instruments will be
furnished to the Commission upon request.
(10)a Description of the 1965 Directors Deferred Compensation Plan. (Note
2)
(10)b Copy of the 1969 Management Incentive Compensation Plan as amended
and restated as of January 1, 1992. (Note 5)
(10)d Copy of the 1982 Stock Option Plan. (Note 2)
(10)e Copy of Leveraged Employee Stock Ownership Plan. (Note 3)
(10)f Copy of the company's 1992 Stock Option Plan. (Note 5)
(11) Statement re computation of per share earnings.
(13) Copy of the company's 1995 Annual Report to Stockholders.
(18) Letter re change in accounting principle for the year ended December
31, 1992. (Note 8)
(21) Subsidiaries of Registrant at December 31, 1995.
(23) Consent of Independent Public Accountants.
(24) Power of Attorney.
(27) Financial Data Schedule.
</TABLE>
<PAGE>
- --------
NOTES TO EXHIBIT INDEX
<TABLE>
<CAPTION>
NOTE NO.
--------
<C> <S>
1. Filed with the company's Annual Report on Form 10-K for the year
ended December 31, 1987, and incorporated herein by reference.
2. Filed with the company's Annual Report on Form 10-K for the year
ended December 31, 1988, and incorporated herein by reference.
3. Filed with the company's Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference.
4. Filed with the company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991, and incorporated herein by
reference.
5. Filed with the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992, and incorporated herein by reference.
6. Filed with the company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, and incorporated herein by
reference.
7. Filed with the company's Current Report on Form 8-K filed on April
28, 1993, and incorporated herein by reference.
8. Filed with the company's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by reference.
9. Filed with the company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein by reference.
</TABLE>
<PAGE>
Exhibit (11)
STEPAN COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Computation of Per Share Earnings
- ---------------------------------
Net Income $16,119 $13,845
Deduct dividends on preferred stock 1,069 1,076
------- -------
Income applicable to common stock $15,050 $12,769
======= =======
Weighted average number of shares outstanding 9,984 9,924
Per share earnings* $ 1.507 $ 1.287
======= =======
Computation of Per Share Primary Earnings
- -----------------------------------------
Income applicable to common stock $15,050 $12,769
======= =======
Weighted average number of shares outstanding 9,984 9,924
Add net shares issuable from assumed exercise
of options (under treasury stock method) 166 142
------- -------
Shares applicable to primary earnings 10,150 10,066
======= =======
Per share primary earnings* $ 1.483 $ 1.269
======= =======
Dilutive effect 1.6% 1.4%
======= =======
Computation of Per Share Fully Diluted Earnings
- -----------------------------------------------
Net income $16,119 $13,845
======= =======
Weighted average number of shares outstanding 9,984 9,924
Add net shares issuable from assumed exercise
of options (under treasury stock method) 166 154
Add weighted average shares issuable from assumed
conversion of convertible preferred stock 888 894
------- -------
Shares applicable to fully diluted earnings 11,038 10,972
======= =======
Per share fully diluted earnings* $ 1.460 $ 1.262
======= =======
Dilutive effect 3.1% 1.9%
======= =======
</TABLE>
* Rounded
This calculation is submitted in accordance with Regulation S-K, item
601(b)(11).
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
1995 Compared with 1994
Sales for 1995 grew 19 percent to a record $528.2 million. The increase was the
result of a 12 percent increase in sales volume. Sales by product group were:
<TABLE>
<CAPTION>
Percent
(Dollars in Thousands) 1995 1994 Change
- ----------------------------------------------------
<S> <C> <C> <C>
Surfactants $380,179 $329,186 + 15
Polymers 115,833 78,778 + 47
Specialty products 32,206 35,984 - 10
- ----------------------------------------------------
Total $528,218 $443,948 + 19
====================================================
</TABLE>
Surfactants are a principal ingredient in consumer and industrial cleaning
products such as detergents, shampoos, lotions, toothpastes and cosmetics. Other
applications include lubricating ingredients and emulsifiers for spreading of
insecticides and herbicides. Domestic volume which contributes 85 percent of
total surfactant sales volume grew 17 percent over 1994. Recent capacity
expansions have kept pace with demand growth and ongoing capacity expansions
should meet projected requirements. Higher average selling prices resulting from
raw material cost increases also contributed to higher sales from the broad
commercial customer base. Sales of foreign subsidiaries representing 15 percent
of surfactant sales volume rose by four percent. European sales were up 29
percent due primarily to a 15 percent gain in volume coupled with a stronger
French franc. Partially offsetting the European result was the reported lower
Mexican sales on the significantly devalued Mexican peso that has lost 22
percent against the U.S. dollar since the beginning of 1995. However, Mexican
sales volume only declined two percent. Canadian sales reported an eight percent
increase reflecting mainly higher selling prices to pass through raw material
cost increases.
The polymer product group includes phthalic anhydride, polyurethane systems
and polyurethane polyols. Phthalic anhydride is used in polyester resins, alkyd
resins and plasticizers for applications in construction materials and
components of automotive, boating and other consumer products. Polyurethane
systems provide thermal insulation and are sold to the construction, industrial
and appliance markets. Polyurethane polyols are used in the manufacture of
laminate board for the construction industry. Polymer sales increased due to
higher selling prices reflecting a pass through of higher raw material costs and
a 12 percent increase in volume. Phthalic anhydride, which represents 54 percent
of polymer volume, experienced a 64 percent increase in sales due primarily to a
53 percent increase in average selling prices and a seven percent volume gain.
The sharp rise in selling prices was driven by higher raw material costs and
stronger market demand. Demand should remain steady in 1996 although selling
prices are expected to decline significantly as a result of lower raw material
costs. Polyurethane polyols, which represent 41 percent of total polymer volume,
experienced a 23 percent increase in volume due to strong domestic demand and
significant gains in the export business. Polyurethane systems sales held steady
as efforts continue to commercialize new generation products with more favorable
environmental characteristics.
Specialty products include flavors, lubricant additives, oil field chemicals
and emulsifiers and solubilizers used in the food and pharmaceutical industry.
Specialty products revenues declined 10 percent on reduced volume. Sales of
certain lower margin lubricant additives were discontinued in the current year.
This has led to an improved average selling price between years.
Gross profit in 1995 was $97.4 million, or 18.4 percent of net sales, a 20
percent growth from $81.1 million, or 18.3 percent of net sales in 1994.
Surfactants gross profit was $72.5 million for 1995, an increase of 18 percent
from 1994. Domestic surfactants were up $11.2 million, or 25 percent, as a
result of the higher domestic sales volume. Gross profit of foreign operations
was flat with Europe's modest gain being entirely offset by slight declines
reported by Canada and Mexico. Continued competitive pricing pressure which
affected the foreign subsidiaries' ability to fully pass through raw material
cost increases was the main cause of the lackluster foreign results. Polymers
gross profit jumped $6.3 million to $19.3 million in 1995 representing a 48
percent increase from 1994. Phthalic anhydride accounted for all of the
increased polymer gross profit showing significantly increased gross profit
margins as a result of the higher selling prices mentioned earlier. Polyurethane
polyols gross profit decreased 30 percent despite higher volume due to the
inability to fully pass on raw material cost increases. Polyurethane
14
<PAGE>
systems gross profit declined 40 percent as a result of the unfavorable product
mix and reduced volumes. Specialty products gross profit dropped $1.0 million to
$5.6 million in 1995, a 16 percent decrease from 1994. The decline was due
mainly to the cessation of certain low margin lubricant additives products.
Average raw material costs increased 11 percent during 1995, primarily
reflecting higher polymer raw material costs. Manufacturing labor costs
increased at a modest rate reflecting the recent low levels of inflation which
are expected to continue in the near term. The company currently employs 1,267
people which is relatively unchanged from a year ago, but down 35 people from
1993 due to the voluntary early retirement program offered in 1994. Depreciation
expense increased to $28.8 million in 1995 from $27.0 million in 1994 as a
result of bringing into service significant capacity expansion projects in
recent years, as well as continuing capital spending for plant improvements.
Operating income, pre-tax income before net interest expense, was $32.9
million in 1995, an 11 percent increase from 1994. Operating expenses,
consisting of marketing, administrative and research expenses, rose 25 percent
reflecting higher administrative expenses in 1995. Administrative expenses
climbed 61 percent due to a $9.4 million increase in legal and environmental
expenses which was precipitated by a draft Remedial Investigation Feasibility
Study enumerating possible future costs for remediation of the company's
Maywood, New Jersey plant and adjacent property. See Note 11 of the Notes to the
Consolidated Financial Statements. Prior year's expenses benefited from $3.1
million of insurance recoveries related to previously incurred legal and
environmental costs. Marketing expenses rose 10 percent primarily due to higher
salaries as well as increased marketing effort in the Pacific Rim. Research and
development expenses increased six percent due largely to increased salary
expenses. Operating expenses related to legal and environmental are expected to
decline significantly in 1996. Other cost saving initiatives and current low
inflationary levels are expected to keep 1996 operating expense increases to a
modest level.
The effective tax rate was 35.5 percent in 1995 compared to 38.5 percent in
1994 resulting in a modest two percent increase in the income tax provision. The
decrease in the effective tax rate was attributable to the higher research and
development tax credit benefits at the state level as well as tax credit
carryforward benefits realized in Mexico. See Note 5 of the Notes to the
Consolidated Financial Statements for a reconciliation of the statutory to the
effective tax rate.
Net income for 1995 rose to a record $16.1 million, or $1.51 per share,
compared to $13.8 million, or $1.29 per share in 1994. Surfactant and Polymer
earnings are expected to show continued improvement in 1996. Operating expenses
should decline due to lower legal and environmental expenses. Those factors
should lead to further earnings growth in 1996.
1994 Compared with 1993
Sales for 1994 grew one percent to a record $444 million despite a one percent
decline in sales volume. Sales by product group were:
<TABLE>
<CAPTION>
Percent
(Dollars in Thousands) 1994 1993 Change
- ----------------------------------------------------
<S> <C> <C> <C>
Surfactants $329,186 $324,809 + 1
Polymers 78,778 79,071 --
Specialty products 35,984 34,945 + 3
- ----------------------------------------------------
Total $443,948 $438,825 + 1
====================================================
</TABLE>
Surfactant sales rose one percent despite a four percent decline in sales
volume. The moderate growth in sales was primarily contributed by foreign
subsidiaries, as domestic sales were essentially flat between years. Domestic
volume, representing 83 percent of total surfactant sales volume, was down seven
percent from 1993 as a result of product reformulation by large national
customers. Partially offsetting this was a significant volume growth in the
broad commercial customer base. Sales of foreign subsidiaries, representing 17
percent of surfactant sales volume, grew six percent as a result of a strong
volume gain. Mexico contributed a 46 percent year-to-year volume increase,
followed by a 13 percent and a six percent increase from Canada and Europe,
respectively. The weakened Canadian dollar has negatively affected the
subsidiary's reported sales growth. The continued competitive pressure on prices
in Europe has erased the revenue growth fueled by stronger sales volume and the
strengthening French franc.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Polymer sales were essentially unchanged from 1993, although sales volume
rose eight percent. Phthalic anhydride, which represents 57 percent of polymer
volume, reported a 16 percent increase in sales due to a 13 percent increase in
volume and higher selling prices. Higher selling prices were driven by improved
market conditions and higher raw material costs. The increase in phthalic
anhydride volume was the result of strong domestic demand, lower levels of
competing foreign imports and high production levels attributable to
refurbishments made to our manufacturing facility. Polyurethane polyols, which
represent 38 percent of total polymer volume, posted 15 percent sales growth due
entirely to improved volume. Polyurethane systems sales fell 44 percent as
volume dropped 45 percent due to delays in the roll-out of new products with
more favorable environmental characteristics.
Specialty products revenues grew three percent with most of the improvement
coming from higher volume.
Gross profit in 1994 was $81.1 million, or 18.3 percent of net sales, an
increase from $80.0 million, or 18.2 percent of net sales in 1993. Surfactant
gross profit was $61.3 million for 1994, a decrease of three percent from 1993.
Domestic surfactants were down $3.5 million, or seven percent, as a result of
the reduced sales to larger national customers. Foreign operations were up $1.9
million as Mexico and Canada continued to post stronger sales over prior years.
Negatively impacting the result was Stepan Europe which continued to face
increasingly competitive price pressure in a recovering European economy.
Polymer gross profit rose $3.4 million to $13.1 million for 1994 representing a
35 percent increase from 1993. Phthalic anhydride contributed most of the
increased polymer gross profit, as a result of significantly improved margins
and volume. Insurance recoveries of $1.1 million related to 1993 production
outages also contributed to the improved margin. Despite the significant sales
drop in polyurethane systems, gross profit only declined 26 percent due
primarily to the development of lower cost formulations. While polyurethane
polyols posted higher sales and volume, increased manufacturing expenses, raw
material costs and export freight costs more than offset the volume gains.
Specialty products gross profit fell $.7 million to $6.7 million for 1994
representing a nine percent decline from 1993. Despite the increased sales, the
decline in gross profit was largely attributable to reduced royalty income
compared to a year earlier.
Average raw material costs climbed six percent during 1994. Labor costs
increased at a modest rate reflecting the recent low levels of inflation.
Depreciation expense increased to $27.0 million in 1994 from $25.7 million in
1993 as a result of bringing into service capacity expansion projects in recent
years, as well as continuing capital spending for plant improvements.
Operating income, pre-tax income before net interest expense, was $29.6
million in 1994, an 8.4 percent increase from 1993. Operating expenses declined
three percent reflecting lower administrative expenses in 1994. Administrative
expenses decreased $1.3 million, or seven percent due primarily to $3.1 million
of insurance recoveries relating to legal costs previously incurred in defending
environmental cases against the company. See Note 11 of the Notes to
Consolidated Financial Statements. Net of these favorable recoveries, provision
for legal and environmental costs was $.7 million in 1994 compared with $2.2
million recorded in 1993. Marketing expenses increased a modest one percent
which was essentially offset by a decrease in research and product development
expenses. Excluding the insurance recoveries, operating expenses for 1994
increased $1.8 million, or a moderate three percent. Continued insurance
reimbursement of ongoing environmental legal defense costs is expected to
minimize the company's share of future defense costs. Other cost containment
efforts, including a voluntary early retirement program offered in 1994, are
expected to keep 1995 operating expense increases to a modest level.
Net income in 1994 benefited from a substantially lower tax rate than 1993.
The effective tax rate was 38.5 percent in 1994 compared to 45.1 percent in
1993. The 1993 tax rate was unusually high because of a U.S. tax rate hike and
the resulting upward restatement of deferred tax liabilities. A recognition in
the current year of tax benefits on loss carryforwards of foreign subsidiaries
also contributed to the lower tax provision. See Note 5 of the Notes to the
Consolidated Financial Statements for a reconciliation of the statutory to the
effective tax rate.
Net income for 1994 rose 28 percent to $13.8 million, or $1.29 per share,
compared to $10.8 million, or $.98 per share in 1993. As a result of the two-
for-one common
16
<PAGE>
stock split on December 15, 1994, earnings per share for 1993 and prior have
been restated.
Fourth Quarter 1995 Compared with 1994
For the quarter ended December 31, 1995, the company reported net income of $5.1
million, or $.49 per share, compared to $3.6 million, or $.34 per share in the
fourth quarter of 1994. Net sales for the quarter increased 12 percent to $126.8
million from $113.6 million recorded in 1994. Gross profit was $24.3 million, up
20 percent in the fourth quarter compared to the same quarter of 1994.
Surfactants made the largest contribution as a result of considerably higher
sales volume. Polymers recorded higher quarterly gross profit due to improved
phthalic anhydride margins. Specialty products posted lower gross profit due to
lower sales volume. Total operating expenses were 13 percent higher in the
fourth quarter compared with the same quarter of 1994. The lower 1994 expenses
benefited from insurance recoveries of $1.1 million related to previously
incurred legal and environmental costs.
Liquidity and Financial Condition
For 1995, net cash from operations totaled $35.0 million, a decrease of $16.0
million compared to $51.0 million for 1994. During 1994, cash from operations
included $12.9 million in customer prepayments under long-term contracts.
Increased working capital requirements stemming from sales growth were
responsible for substantially all of the remaining difference in operating cash
flows from year to year.
Capital expenditures totaled $39.2 million for 1995, down from $42.9 million
for 1994. The company also invested $7.5 million in capital contributions for a
joint venture operation in the Philippines. Cash requirements for investing
activities are expected to increase during 1996 driven mainly by higher planned
capital spending as well as continued effort in global expansion.
Since December 31, 1994, total company debt has increased by $18.1 million to
close the year at $116.0 million. At December 31, 1995, the ratio of long-term
debt to long-term debt plus shareholders' equity stood at 47.1 percent compared
to 44.7 percent one year earlier. For 1996, the company plans to derive cash
from earnings and from committed credit lines in proportions close to the
present capital structure. As a result, we expect the ratio of long-term debt to
long-term debt plus shareholders' equity to remain relatively steady from year
to year.
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. 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 1996 and for
the foreseeable future.
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 1995, the company
expenditures for capital projects related to the environment were $6.8 million
and should approximate $5.4 million for 1996. These projects are capitalized and
typically depreciated over ten years. Capital spending on such projects is
likely to continue at these levels in future years. 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
17
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
locations were approximately $7.0 million for 1995 compared to $7.1 million for
1994. 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 the sites. The company has estimated a range of possible
environmental and legal losses from $4.3 million to $23.6 million at December
31, 1995, compared to $5.5 million to $21.6 million at December 31, 1994. At
December 31, 1995, the company's reserve was $8.7 million for legal and
environmental matters compared to $6.9 million at December 31, 1994. During
1995, expenditures related to legal and environmental matters approximated $7.8
million compared to $4.3 million expended in 1994. During 1994, the company
recovered $3.1 million from insurers for reimbursement of previously incurred
environmental defense costs which reduced that year's legal and environmental
expense. The company continues to pursue potential recoveries of legal and
environmental costs from insurers and other third parties. The potential benefit
of such recoveries has not been recorded. While it is difficult to forecast the
expenditures for 1996, the company believes that the $8.7 million reserve
balance at December 31, 1995, is more likely to be paid out over many years. See
also Note 11 of the Notes to Consolidated Financial Statements. 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 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.
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 believes this standard will have no impact on the results of operations
upon adoption in the first quarter of 1996.
In addition, reference should be made to the Ten Year Summary on pages 30 and
31.
18
<PAGE>
Report of Management
Management Report on Financial Statements
The financial statements of Stepan Company and subsidiaries were prepared by and
are the responsibility of management. The statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances and include some amounts that are based on management's best
estimates and judgments. The Board of Directors, through its Audit Committee,
assumes an oversight role with respect to the preparation of the financial
statements.
In meeting its responsibility for the reliability of the financial
statements, the company depends on its system of internal accounting control.
The system is designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed as authorized and are properly
recorded. The system is augmented by written policies and procedures and an
internal audit department.
The Audit Committee of the Board of Directors, composed solely of directors
who are not officers or employees of the company, meets regularly with
management, with the company's internal auditors and with its independent
certified public accountants to discuss its evaluation of internal accounting
controls and the quality of financial reporting. The independent auditors and
the internal auditors have free access to the Audit Committee, without
management's presence.
/s/ F. Quinn Stepan
F. Quinn Stepan
Chairman of the Board and Chief Executive Officer
/s/ Walter J. Klein
Walter J. Klein
Vice President-Finance
February 9, 1996
Report of Independent Public Accountants
To the Stockholders of Stepan Company:
We have audited the accompanying consolidated balance sheets of Stepan Company
(a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, cash flows and stockholders'
equity, for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stepan
Company and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Chicago, Illinois,
February 9, 1996
19
<PAGE>
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,148 $ 2,452
Receivables, less allowances of $1,744 in 1995 and $1,585 in 1994 79,814 70,385
Inventories (Note 2) 54,363 45,464
Deferred income taxes (Note 5) 9,444 8,218
Other current assets 3,385 2,852
- ---------------------------------------------------------------------------------------------------------
Total current assets 150,154 129,371
- ---------------------------------------------------------------------------------------------------------
Property, Plant and Equipment:
Land 4,611 4,576
Buildings and improvements 53,701 52,558
Machinery and equipment 379,363 343,629
Construction in progress 16,429 16,891
- ---------------------------------------------------------------------------------------------------------
454,104 417,654
Less accumulated depreciation 261,634 233,997
- ---------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 192,470 183,657
- ---------------------------------------------------------------------------------------------------------
Other Assets 19,903 11,920
- ---------------------------------------------------------------------------------------------------------
Total assets $362,527 $324,948
=========================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt (Note 3) $ 6,946 $ 8,043
Accounts payable 42,530 37,904
Accrued liabilities (Note 9) 37,423 34,509
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 86,899 80,456
- ---------------------------------------------------------------------------------------------------------
Deferred Income Taxes (Note 5) 36,469 32,976
- ---------------------------------------------------------------------------------------------------------
Long-term Debt, less current maturities (Note 3) 109,023 89,795
- ---------------------------------------------------------------------------------------------------------
Deferred Revenue (Note 10) 7,659 10,419
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity (Note 6):
5-1/2 percent 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 10,086,653
shares in 1995 and 10,028,544 shares in 1994 10,087 10,029
Additional paid-in capital 4,568 3,983
Cumulative translation adjustments (3,691) (3,491)
Retained earnings 93,292 82,445
- ---------------------------------------------------------------------------------------------------------
124,185 112,946
Less: Treasury stock, at cost 1,708 1,644
- ---------------------------------------------------------------------------------------------------------
Stockholders' equity 122,477 111,302
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $362,527 $324,948
=========================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated balance sheets.
20
<PAGE>
Consolidated Statements of Income
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(Dollars in Thousands, except per share amounts) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $528,218 $443,948 $438,825
- ---------------------------------------------------------------------------------------
Cost and Expenses:
Cost of sales 430,815 362,848 358,790
Marketing 18,673 16,972 16,738
Administrative 27,412 17,082 18,378
Research, development and technical services (Note 1) 18,462 17,398 17,669
Interest, net (Note 3) 7,865 7,136 7,626
- ---------------------------------------------------------------------------------------
503,227 421,436 419,201
- ---------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 24,991 22,512 19,624
Provision for Income Taxes (Note 5) 8,872 8,667 8,848
- ---------------------------------------------------------------------------------------
Net Income $ 16,119 $ 13,845 $ 10,776
=======================================================================================
Net Income Per Common Share:
Primary $1.51 $1.29 $ .98
=======================================================================================
Fully Diluted $1.46 $1.26 $ .96
=======================================================================================
Average Common Shares Outstanding (Note 1) 9,984 9,924 9,894
=======================================================================================
</TABLE>
All 1993 share and per share data have been restated for the two-for-one common
stock split effective December 15, 1994.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Combined Sales
(Thousands of Dollars)
[GRAPH APPEARS HERE]
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
Surfactants.......... 293,347 317,522 324,809 329,186 380,179
Polymers............. 89,848 87,060 79,071 78,778 115,833
Specialty Products... 30,874 31,182 34,945 35,984 32,206
------- ------- ------- ------- -------
Consolidated Total... 414,069 435,764 438,825 443,948 528,218
======= ======= ======= ======= =======
. Surfactants
. Polymers
. Specialty Products
(Consolidated Totals in bold)
1995 Sales Dollar Distribution
(Dollars in Thousands)
[PIE CHART APPEARS HERE]
. Material
$317,641
60.1%
. Other Expenses
$78,704
14.9%
. Payroll and Fringes
$76,498
14.5%
. Depreciation and Amortization
$30,384
5.7%
. Income Taxes
$8,872
1.7%
. Net Income
$16,119
3.1%
21
<PAGE>
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net Cash Flow from Operating
Activities
Net income $ 16,119 $ 13,845 $ 10,776
Depreciation and amortization 30,384 28,935 27,679
Deferred revenues (Note 10) (2,760) 12,883 --
Deferred income taxes 2,359 410 2,735
Other non-cash items (605) 627 263
Changes in Working Capital:
Receivables, net (9,429) (13,135) (220)
Inventories (8,899) 3,454 (1,140)
Accounts payable and accrued
liabilities 7,911 4,106 (4,788)
Other (74) (96) 1
- -------------------------------------------------------------------
Net Cash Provided by
Operating Activities 35,006 51,029 35,306
- -------------------------------------------------------------------
Cash Flows from Investing Activities
Expenditures for property, plant
and equipment................... (39,247) (42,884) (25,435)
Investment in joint ventures (Note 1) (7,500) (2,314) (1,422)
Other non-current assets (14) (711) (963)
- -------------------------------------------------------------------
Net Cash Used for Investing
Activities (46,761) (45,909) (27,820)
- -------------------------------------------------------------------
Cash Flows from Financing and Other
Related Activities
Revolving debt and notes payable
to banks, net................... (9,711) 13,313 (20,631)
Other debt borrowings 40,000 - 30,000
Other debt repayments (12,053) (11,455) (12,633)
Purchases of treasury stock, net (64) (327) (244)
Dividends paid (5,540) (5,294) (5,105)
Other non-cash items (181) (420) (273)
- -------------------------------------------------------------------
Net Cash Provided by (Used
for) Financing and
Other Related Activities 12,451 (4,183) (8,886)
- -------------------------------------------------------------------
Net Increase (Decrease) in Cash
and Cash Equivalents 696 937 (1,400)
Cash and Cash Equivalents at
Beginning of Year 2,452 1,515 2,915
- -------------------------------------------------------------------
Cash and Cash Equivalents at End
of Year $ 3,148 $ 2,452 $ 1,515
===================================================================
Supplemental Cash Flow Information
Cash payments of income taxes,
net of refunds $ 9,804 $ 8,554 $ 6,327
Cash payments of interest $ 7,761 $ 8,536 $ 8,002
===================================================================
</TABLE>
Capital Expenditures
(Thousands of Dollars)
[CHART APPEARS HERE]
90...... 38,375
91...... 33,728
92...... 34,440
93...... 25,435
94...... 42,884
95...... 39,247
Compound Annual Growth
Five Years 0%
Equity Per Share
(Dollars)
[CHART APPEARS HERE]
90...... 7.57
91...... 8.35
92...... 9.22
93...... 9.65
94...... 10.27
95...... 11.25
Compound Annual Growth
Five Years + 8%
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
22
<PAGE>
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Convertible Additional Cumulative Deferred
Preferred Common Paid-in Treasury Translation ESOP Com- Retained
(Dollars in Thousands) Stock Stock Capital Stock Adjustments pensation Earnings
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $20,000 $ 5,101 $3,688 $(4,619) $(1,023) $ (445) $76,804
Sale of 23,800 shares
under stock option plan -- 12 132 -- -- -- --
Purchase of 44 shares of
common and 8,700 shares of
preferred treasury stock,
net of sales -- -- 93 (244) -- -- --
Issuance cost of preferred
stock -- -- (140) -- -- -- --
Conversion of preferred
stock to common stock (8) -- 8 -- -- -- --
Compensation expense (Note 7) -- -- -- -- -- 222 --
Net income -- -- -- -- -- -- 10,776
Cash dividends paid
Preferred stock ($1.375 per
share) -- -- -- -- -- -- (1,097)
Common stock (40.5c per share) -- -- -- -- -- -- (4,008)
Translation adjustments -- -- -- -- (1,035) -- --
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 19,992 5,113 3,781 (4,863) (2,058) (223) 82,475
Sale of 51,940 shares
under stock option plan -- 27 290 -- -- -- --
Purchase of 4,222 shares
of common and 11,508
shares of preferred treasury
stock, net of sales -- -- 21 (327) -- -- --
Retirement of 250,000
shares of common treasury
stock -- (125) (121) 3,546 -- -- (3,300)
Conversion of preferred
stock to common stock (12) -- 12 -- -- -- --
Compensation expense (Note 7) -- -- -- -- -- 223 --
Net income -- -- -- -- -- -- 13,845
Cash dividends paid
Preferred stock ($1.375 per
share) -- -- -- -- -- -- (1,076)
Common stock (42.5c per share) -- -- -- -- -- -- (4,218)
Preferred stock dividends
declared -- -- -- -- -- -- (267)
Translation adjustments -- -- -- -- (1,433) -- --
Two-for-one common stock
split (Note 6) -- 5,014 -- -- -- -- (5,014)
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 19,980 10,029 3,983 (1,644) (3,491) -- 82,445
Sale of 55,800 shares
under stock option plan -- 56 484 -- -- -- --
Purchase of 536 shares of
common treasury stock,
net of sales -- -- 52 (64) -- -- --
Conversion of preferred
stock to common stock (51) 2 49 -- -- -- --
Net income -- -- -- -- -- -- 16,119
Cash dividends paid
Preferred stock ($1.375 per
share) -- -- -- -- -- -- (801)
Common stock (44.75c per share) -- -- -- -- -- -- (4,471)
Translation adjustments -- -- -- -- (200) -- --
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $19,929 $10,087 $4,568 $(1,708) $(3,691) $ -- $93,292
=================================================================================================================
</TABLE>
All 1993 share and per share data have been restated for the two-for-one common
stock split effective December 15, 1994.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
23
<PAGE>
Notes to Consolidated Financial Statements
For the years ended December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
Nature of Operations
The company's operations consist predominantly of the production and sale of
specialty and intermediate chemicals which are sold to other manufacturers for
use in a variety of end products. Principal markets for all products are
manufacturers of cleaning and washing compounds (including detergents, shampoos,
toothpastes and household cleaners), paints, cosmetics, food and beverages,
agricultural insecticides and herbicides, plastics, furniture, automotive
equipment, insulation and refrigeration.
The company grants credit to its customers who are widely distributed
throughout North America and Europe. There is no material concentration of
credit risk.
Principles of Consolidation
The consolidated financial statements include the accounts of Stepan Company and
its wholly-owned foreign subsidiary companies. All significant intercompany
balances and transactions have been eliminated in consolidation. Investments in
50 percent owned joint ventures in the Philippines and Colombia are accounted
for on the equity method and are included in the "Other Assets" caption on the
Consolidated Balance Sheet. The company's share of the net earnings of the
investments is included in consolidated net income. Differences between the cost
of equity investments and the amount of underlying equity in net assets of the
investees are amortized systematically to income.
Cash and Cash Equivalents
The company considers all highly liquid investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Inventories
Inventories are valued at cost, which is not in excess of market value, and
include material, labor and plant overhead costs. The last-in, first-out (LIFO)
method is used to determine the cost of most company inventories. The first-in,
first-out (FIFO) method is used for all other inventories. Inventories priced at
LIFO as of December 31, 1995 and 1994 amounted to 88 percent and 87 percent of
total inventories, respectively.
Property, Plant and Equipment
Depreciation of physical properties is provided on a straight-line basis over
the estimated useful lives of various assets. Lives used for calculating
depreciation are 30 years for buildings, 15 years for building improvements and
from three to 15 years for machinery and equipment. Major renewals and
betterments are capitalized in the property accounts, while maintenance and
repairs ($16,791,000, $16,468,000 and $16,505,000 in 1995, 1994 and 1993,
respectively), which do not renew or extend the life of the respective assets,
are charged to operations currently. The cost of property retired or sold and
the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
Interest charges on borrowings applicable to major construction projects are
capitalized and subsequently amortized over the lives of the related assets.
Environmental Expenditures
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded 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, at least the minimum is accrued. Some of
the factors on which the company bases its estimates include information
provided by feasibility studies, potentially responsible party negotiations and
the development of remedial action plans. While the company has insurance
policies that may cover some of its liabilities, it does not record those claims
until such time as they become probable. Expenditures that mitigate or prevent
environmental contamination that has yet to occur and that otherwise may result
from future operations are capitalized. Capitalized expenditures are depreciated
generally utilizing a ten-year life.
Intangible Assets
Included in other assets are intangible assets consisting of patents, agreements
not to compete, trademarks, customer lists and goodwill, all of which were
acquired as part of business acquisitions. These assets are presented net of
amortization provided on a straight-line basis over their estimated useful lives
ranging from two to ten years.
Research and Development Costs
The company's research and development costs are expensed as incurred. These
expenses are aimed at discovery and commercialization of new knowledge with the
intent that such effort will be useful in developing a new product or in
bringing about a significant improvement to an existing product or process.
Total expenses were $12,425,000, $12,281,000 and $12,613,000 in 1995, 1994 and
1993, respectively. The balance of expenses reflected on the Consolidated
Statements of Income relates to technical services which include routine product
testing, quality control and sales support service.
Income Taxes
The provision for income taxes includes federal, foreign, state and local income
taxes currently payable and those deferred because of temporary differences
between the financial statement and tax bases of assets and liabilities.
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. Deferred income tax expenses or credits are based on
the changes in the asset or liability from period to period.
24
<PAGE>
Translation of Foreign Currencies
Assets and liabilities of consolidated foreign subsidiaries are translated into
U.S. dollars at exchange rates in effect at year end, while revenues and
expenses are translated at average exchange rates prevailing during the year.
The resulting translation adjustments are included in stockholders' equity.
Gains or losses on foreign currency transactions and the related tax effects are
reflected in net income.
Per Share Data
Primary earnings per share amounts are computed based on the weighted average
number of common shares outstanding, 9,984,000 in 1995, 9,924,000 in 1994 and
9,894,000 in 1993. Common share equivalents resulting from dilutive stock
options have been excluded as the dilutive effect was not material. Net income
used in computing primary earnings per share has been reduced by dividends paid
to preferred shareholders. Fully diluted earnings 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 earnings per share. The number of shares used in the computations of
fully diluted earnings per share were 11,038,000 in 1995, 10,972,000 in 1994 and
10,100,000 in 1993. The 1993 share data has been retroactively adjusted for the
two-for-one common stock split of December 15, 1994.
Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform with the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Inventories
The composition of inventories was as follows:
<TABLE>
<CAPTION>
December 31
----------------
(Dollars in Thousands) 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Finished products $32,204 $27,632
Raw materials 22,159 17,832
- ------------------------------------------------------------------
Total inventories $54,363 $45,464
==================================================================
</TABLE>
If the first-in, first-out (FIFO) inventory valuation method had been used,
inventories would have been approximately $12,100,000 and $13,200,000 higher
than reported at December 31, 1995 and 1994, respectively.
3. Debt
Debt was composed of the following:
<TABLE>
<CAPTION>
December 31
------------------
(Dollars in Thousands) Maturity Dates 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Unsecured promissory notes
7.22% 1999--2008 $ 30,000 $30,000
7.77% 2000--2010 30,000 -
9.52% 1996--2000 10,714 15,000
7.69% 2000--2005 10,000 -
9.70% 1997--2006 10,000 10,000
10.54% 1996--1997 5,951 10,712
9.70% 1996--1999 4,000 6,000
9.40% - - 955
Unsecured bank debt 1998--2001 13,000 21,800
Debt of foreign subsidiaries
payable in foreign currency 1996--2003 2,304 3,371
- -------------------------------------------------------------------
Total debt 115,969 97,838
Less current maturities 6,946 8,043
- -------------------------------------------------------------------
Long-term debt $109,023 $89,795
===================================================================
</TABLE>
Unsecured bank debt at December 31, 1995, consists of borrowings under a
committed $45,000,000 revolving credit agreement which bears interest at varying
rates which averaged 6.69 percent during the year. Borrowings under this
agreement at May 31, 1998, if any, would convert to a term loan payable over
three years. The company must pay a commitment fee of .25 percent per annum on
the unused portion of the commitment. Periodically, the company also availed
itself of other borrowings under notes payable to banks of which there were no
outstanding balances at December 31, 1995 and 1994.
The various loan agreements contain provisions which, among others, require
maintenance of certain financial ratios and place limitations on additional
debt, investments and payment of dividends. Unrestricted retained earnings were
$37,904,000 and $36,336,000 at December 31, 1995 and 1994, respectively. The
company is in compliance with all loan agreements.
Debt at December 31, 1995, matures as follows: $6,946,000 in 1996; $6,729,000
in 1997; $8,056,000 in 1998; $11,501,000 in 1999; $13,225,000 in 2000 and
$69,512,000 after 2000.
Net interest expense for the years ended December 31 was composed of the
following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994 1993
- --------------------------------------------------
<S> <C> <C> <C>
Interest expense $9,043 $8,428 $8,552
Interest income (629) (295) (331)
- --------------------------------------------------
8,414 8,133 8,221
Capitalized interest (549) (997) (595)
- --------------------------------------------------
Interest, net $7,865 $7,136 $7,626
==================================================
</TABLE>
4. Leased Properties
The company leases certain property and equipment (primarily transportation
equipment, buildings and computer equipment) under operating leases. Total
rental expense was $3,398,000, $2,994,000 and $2,932,000 in 1995, 1994 and 1993,
respectively.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1995, 1994 and 1993
Minimum future rental payments under operating leases with terms in excess of
one year as of December 31, 1995, are:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Amount
- -------------------------------------------------------------------
<S> <C> <C>
1996 $2,163
1997 1,395
1998 1,233
1999 886
2000 600
Subsequent to 2000 1,898
- -------------------------------------------------------------------
Total minimum future rental payments $8,175
===================================================================
</TABLE>
5. INCOME TAXES
The provision for taxes on income and the related income before taxes are as
follows:
<TABLE>
<CAPTION>
TAXES ON INCOME
(Dollars in Thousands) 1995 1994 1993
- ----------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 3,698 $ 6,732 $ 3,818
Deferred 2,003 (1,524) 1,365
State
Current 899 2,020 1,076
Deferred 278 (646) 239
Foreign
Current 1,973 2,299 1,426
Deferred 21 (214) 924
- ----------------------------------------------------
Total $ 8,872 $ 8,667 $ 8,848
====================================================
INCOME BEFORE TAXES
(Dollars in Thousands) 1995 1994 1993
- ----------------------------------------------------
Domestic $18,044 $15,429 $14,493
Foreign 6,947 7,083 5,131
- ----------------------------------------------------
Total $24,991 $22,512 $19,624
====================================================
</TABLE>
No federal income taxes have been provided on approximately $20,939,000 of
undistributed earnings of the company's foreign subsidiaries. These earnings are
expected to be reinvested indefinitely. Such earnings would become taxable upon
the sale or liquidation of the foreign subsidiaries or upon the remittance of
dividends. Because of the probable availability of foreign tax credits, it is
not practicable to estimate the amount, if any, of the deferred tax liability on
such earnings.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The net deferred tax
liability at December 31 is comprised of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Current deferred income taxes
Gross assets $ 9,982 $ 8,413
Gross liabilities (538) (195)
- -----------------------------------------------------------------
Total current deferred tax assets 9,444 8,218
Non-current deferred income taxes
Gross assets 4,313 5,684
Valuation allowance (409) (741)
Gross liabilities (40,373) (37,919)
- -----------------------------------------------------------------
Total non-current deferred
tax liabilities (36,469) (32,976)
- -----------------------------------------------------------------
Net deferred tax liability $(27,025) $(24,758)
=================================================================
</TABLE>
At December 31, the tax effect of significant temporary differences
representing deferred tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Tax over book depreciation $(33,947) $(30,748)
Safe Harbor leases (3,914) (4,228)
SFAS No. 87 pension accounting (2,628) (2,346)
State income tax accrual 1,305 1,188
Deferred revenue 3,912 4,837
Book reserves deductible in other periods 8,149 6,941
Valuation allowance (409) (741)
Other, net 507 339
- -----------------------------------------------------------------
Net deferred tax liability $(27,025) $(24,758)
=================================================================
</TABLE>
The variations between the effective and statutory federal income tax rates are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount % Amount % Amount %
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax provision at statutory tax rate $8,747 35.0 $7,879 35.0 $6,731 34.3
State taxes on income less applicable federal tax benefit 765 3.1 893 4.0 864 4.4
Deferred tax adjustment for tax rate change - - - - 558 2.8
Research and development credit (138) (0.6) (244) (1.1) (55) (.3)
Other items (502) (2.0) 139 .6 750 3.9
- ----------------------------------------------------------------------------------------------------------
Total income tax provision $8,872 35.5 $8,667 38.5 $8,848 45.1
==========================================================================================================
</TABLE>
26
<PAGE>
6. STOCKHOLDERS' EQUITY
On November 11, 1994, the Board of Directors declared a two-for-one stock split
on the company's common stock in the form of a 100 percent stock dividend,
payable December 15, 1994, to shareholders of record on December 1, 1994. As a
result of the split, 5,014,272 additional shares were issued, and retained
earnings were reduced by $5,014,272. All share and per share data appearing in
the consolidated financial statements and notes thereto have been retroactively
adjusted for the stock split.
On April 28, 1993, the shareholders approved an increase in the authorized
shares of the 5-1/2% convertible preferred stock ("preferred stock") from
200,000 to 2,000,000 and approved an eight-for-one stock split to shareholders
of record on April 30, 1993. All share and per share data appearing in the
consolidated financial statements and notes thereto have been retroactively
adjusted for the stock split and the increased authorized shares.
The preferred stock is convertible at the option of the holder at any time
(unless previously redeemed) into shares of common stock at a conversion rate of
1.14175 shares of common stock for each share of preferred stock. Dividends on
preferred stock accrue at a rate of $1.375 per share per annum which are
cumulative from the date of original issue. The company may not declare and pay
any dividend or make any distribution of assets (other than dividends or other
distribution payable in shares of common stock) on, or redeem, purchase or
otherwise acquire, shares of common stock, unless all accumulated and unpaid
preferred dividends have been paid or are contemporaneously declared and paid.
The preferred stock is subject to optional redemption by the company, in whole
or in part, at any time on or after September 1, 1997, at a redemption price of
$25.69 per share reduced annually by $.14 per share to a minimum of $25 per
share on or after September 1, 2002, plus accrued and unpaid dividends thereon
to the date fixed for redemption. The aggregate liquidation preference is
approximately $20.0 million at December 31, 1995 and 1994. Preferred stock is
entitled to 1.14175 votes per share on all matters submitted to stockholders for
action, and votes together with the common stock as a single class, except as
otherwise provided by law or the Certificate of Incorporation of the company.
There is no mandatory redemption or sinking fund obligation with respect to the
preferred stock.
In 1992, the shareholders approved the Stepan Company 1992 Stock Option Plan
("1992 Plan"). The 1992 Plan replaces the 1982 Plan and extends participation to
directors who are not employees of the company. The 1992 Plan authorizes the
award of up to 1,600,000 shares of the company's common stock for stock options
("options") and stock appreciation rights ("SAR"). SARs entitle the employee to
receive an amount equal to the difference between the fair market value of a
share of stock at the time the SAR is exercised and the exercise price specified
at the time the SAR is granted. Options are granted at the market price on the
date of grant and become exercisable on various dates over a ten-year period.
The purchase price per share of options currently outstanding ranges from
$8.12500 to $19.62500 with option expiration dates ranging from April 28, 1996
to April 30, 2005. The options become exercisable as follows: 589,416 currently
exercisable and 8,000 on April 29, 1996, 446,400 on May 2, 1996, and 994 on May
1, 1997.
A summary of option transactions during the three years ended December 31, 1995,
follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------------------------------
Available Aggregate
(Dollars in Thousands, except per share amounts) for Grant Shares Price per Share Option Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 1,351,696 742,444 $ 3.84375-18.21875 $ 9,240
Exercised - (23,800) 3.84375-12.09375 (144)
Cancelled - (4,400) 18.21875 (80)
- -------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 1,351,696 714,244 3.84375-18.21875 9,016
Granted (464,400) 464,400 14.00000 6,502
Exercised - (51,940) 3.84375-12.09375 (318)
- -------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 887,296 1,126,704 8.12500-18.21875 15,200
Granted (994) 994 19.62500 20
Exercised - (55,800) 8.12500-14.68750 (541)
Cancelled 27,088 (27,088) 14.00000-18.21875 (451)
- -------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 913,390 1,044,810 $ 8.12500-19.62500 $14,228
=============================================================================================================
Became exercisable in 1995 - - -
=============================================================================================================
Became exercisable in 1994 243,904 $ 18.21875 $ 4,444
=============================================================================================================
Became exercisable in 1993 70,000 $ 12.56250 $ 879
=============================================================================================================
</TABLE>
At December 31, 1995, treasury stock consists of 20,208 shares of preferred
stock and 84,816 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.
27
<PAGE>
Notes to Consolidated Financial Statements
For the years ended December 31, 1995, 1994 and 1993
7. Deferred ESOP Compensation
In 1985, the company established an Employee Stock Ownership Plan ("ESOP").
Under the Plan, the company can make discretionary contributions to a trust for
the benefit of eligible employees. The trust originally borrowed $2,000,000 to
purchase 438,356 common shares for the Plan. The company guaranteed the loan and
contributed sufficient cash to the Plan to repay the loan. Compensation expense
was recognized in equal annual amounts through 1994. As of December 31, 1994,
the company had made the last contribution and the loan was repaid. The company
currently has no plan for further ESOP contributions.
8. Pension Plans
The company has non-contributory defined benefit plans covering substantially
all employees. The benefits under these plans are based primarily on years of
service and compensation levels. The company funds the annual provision
deductible for income tax purposes. The plans' assets consist principally of
marketable equity securities and government and corporate debt securities. The
plans' assets at December 31, 1995, include $6,983,000 of the company's common
stock.
Net 1995, 1994 and 1993 periodic pension cost for the plans consists of the
following:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,244 $ 1,639 $ 1,251
Interest cost on projected
benefit obligation 2,383 2,454 2,228
Actual return on plan assets (8,653) 1,190 (3,222)
Net amortization and deferral 4,611 (5,449) (824)
- ------------------------------------------------------------
Net prepaid pension cost $ (415) $ (166) $ (567)
============================================================
</TABLE>
The reconciliation of the funded status of the plans to the amount reported
in the company's consolidated balance sheet is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $(24,909) $(18,583)
- --------------------------------------------------------------
Accumulated benefit obligation (28,030) (21,127)
- --------------------------------------------------------------
Projected benefit obligation (35,329) (27,129)
Plan assets at fair value 46,455 38,830
- --------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 11,126 11,701
Unrecognized net gain (3,173) (3,616)
Unamortized net transitional assets (2,835) (3,402)
Unamortized prior service cost 1,244 1,058
- --------------------------------------------------------------
Prepaid pension asset $ 6,362 $ 5,741
==============================================================
</TABLE>
The prepaid pension asset is included in the "Other Assets" caption on the
Consolidated Balance Sheets.
The projected benefit obligations were determined using a discount rate of
7.5 and 8.5 percent for 1995 and 1994, respectively. The projected benefit
obligations were determined under assumed compensation increases ranging from
five percent to seven percent for different employee groups for 1995 and 1994.
The assumed long-term rate of return on plan assets was 8.5 percent for 1995 and
1994. The plans' net transitional assets are being amortized over a period of 15
years. The prior service costs are being amortized over an average of 12 years.
9. Accrued Liabilities
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
December 31
----------------
(Dollars in Thousands) 1995 1994
- -----------------------------------------------------
<S> <C> <C>
Accrued payroll and benefits $12,121 $10,514
Accrued uninsured risks 10,472 8,741
Other accrued liabilities 14,830 15,254
- -----------------------------------------------------
Total accrued liabilities $37,423 $34,509
=====================================================
</TABLE>
10. Deferred Revenue
During 1994, the company received prepayments on certain multi-year commitments
for future shipments of products. As the commitments are fulfilled, a
proportionate share of the deferred revenue is recognized into income. Related
deferred revenue at December 31, 1995 and 1994 is $10,059,000 and $12,819,000,
respectively, of which the amount recognizable within one year is included in
the "Accrued Liabilities" caption of the Consolidated Balance Sheets.
11. 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
28
<PAGE>
Condition and Results of Operations, 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
$4.3 million to $23.6 million at December 31, 1995, compared to $5.5 million to
$21.6 million at December 31, 1994. At December 31, 1995, the company's reserve
is $8.7 million for legal and environmental matters compared to $6.9 million at
December 31, 1994. The 1995 provision included an additional $5.0 million charge
for costs that may be incurred for the remediation of the company's Maywood, New
Jersey plant and adjacent property based on a draft Remedial Investigation
Feasibility Study prepared for that site. The company made payments of $7.8
million in 1995 and $4.3 million in 1994 related to legal costs, settlements and
costs related to remedial design studies at various sites. 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. During 1994, the
company received $3.1 million from insurers related to legal costs previously
incurred by the company. The recoveries reduced administrative expense in the
Consolidated Statements of Income.
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 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.
12. Geographic Data
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
United States
Net Sales-Unaffiliated $452,013 $377,986 $376,325
Interarea Transfers 13,052 10,701 7,620
------------------------------
Total $465,065 $388,687 $383,945
Operating Income 26,174 22,504 22,122
Identifiable Assets 315,393 279,919 256,398
- -----------------------------------------------------------
Other
Net Sales-Unaffiliated $ 76,205 $ 65,962 $ 62,500
Interarea Transfers 19,971 16,426 15,484
------------------------------
Total $ 96,176 $ 82,388 $ 77,984
Operating Income 6,682 7,144 5,128
Identifiable Assets 47,134 45,029 44,090
- -----------------------------------------------------------
Eliminations
Net Sales $(33,023) $(27,127) $(23,104)
- -----------------------------------------------------------
Consolidated
Net Sales $528,218 $443,948 $438,825
Operating Income 32,856 29,648 27,250
Identifiable Assets 362,527 324,948 300,488
===========================================================
</TABLE>
Interarea transfers consist principally of surfactant intermediates and finished
products. They are generally transferred at cost plus an appropriate mark-up for
profit. Operating income is calculated as income before net interest expense and
provision for income taxes. Marketing and services in the United States, Canada
and Mexico are managed as a single enterprise. However, in compliance with
Statement of Financial Accounting Standards 14, "Financial Reporting for
Segments of a Business Enterprise," the United States is reported as a separate
geographic area. Other includes subsidiaries in Canada, Mexico and Europe. Prior
years' information has been reclassified to conform with current year's
presentation.
29
<PAGE>
TEN YEAR SUMMARY
(In Thousands, except per share and employee data)
<TABLE>
<CAPTION>
FOR THE YEAR 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $528,218 $443,948 $438,825
- -------------------------------------------------------------------------
Income from Operations(f) 24,991 22,512 19,624
Percent of net sales 4.7% 5.1% 4.5%
- -------------------------------------------------------------------------
Gain on Sale of Assets - - -
Environmental and Restructuring Charges - - -
Pre-tax Income 24,991 22,512 19,624
Percent of net sales 4.7% 5.1% 4.5%
- -------------------------------------------------------------------------
Provision for Income Taxes 8,872 8,667 8,848
- -------------------------------------------------------------------------
Net Income 16,119 13,845 10,776
Per share (a) (b) 1.51 1.29 .98
Percent of net sales 3.1% 3.1% 2.5%
Percent to stockholders' equity (c) 14.5% 13.3% 10.8%
- -------------------------------------------------------------------------
Cash Dividends Paid 5,540 5,294 5,105
Per common share (a) .4475 .4250 .4050
- -------------------------------------------------------------------------
Depreciation and Amortization 30,384 28,935 27,679
Capital Expenditures 39,247 42,884 25,435
Average Common Shares Outstanding (a) 9,984 9,924 9,894
- -------------------------------------------------------------------------
AS OF YEAR END
- -------------------------------------------------------------------------
Working Capital $ 63,255 $ 48,915 $ 48,569
Current Ratio 1.7 1.6 1.7
- -------------------------------------------------------------------------
Property, Plant and Equipment, net 192,470 183,657 170,270
Total Assets 362,527 324,948 300,488
Long-term Debt, less current maturities 109,023 89,795 89,660
- -------------------------------------------------------------------------
Stockholders' Equity 122,477 111,302 104,217
Per share (a) (d) 11.25 10.27 9.65
Number of Employees 1,267 1,265 1,302
=========================================================================
</TABLE>
(a) Adjusted for two-for-one common stock splits in 1988 and 1994.
(b) Based on average number of common shares outstanding during the year.
(c) Based on equity at beginning of year.
(d) Based on common shares and the assumed conversion of the convertible
preferred shares outstanding at year end.
(e) Change in method of accounting for pensions increased net income in 1986 by
$467 or $.04 per share.
(f) Pre-tax income before applicable gain on sale of assets, environmental and
restructuring charges, and cumulative effect of accounting changes.
(g) Reflected cumulative effect of accounting changes for income taxes and
investment tax credits of $5.4 million, or $.51 per primary share and
$.49 per fully diluted share.
<TABLE>
<CAPTION>
QUARTERLY STOCK DATA (UNAUDITED) Dividends Paid
Stock Price Range Per Common Share
---------------------------------------------------------------
1995 1994 1995 1994
---------------------------------------------------------------
Quarter High Low High Low
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $19-1/2 $14-3/4 $16 $13-5/16 11.00c 10.50c
Second 20-7/8 17 14-5/16 13 11.00c 10.50c
Third 17-3/4 15-5/8 17-5/8 12-3/8 11.00c 10.50c
Fourth 17-1/2 15 17-11/16 14-1/2 11.75c 11.00c
-----------------
Year 20-7/8 14-3/4 17-11/16 12-3/8 44.75c 42.50c
====================================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1992 1991 1990 1989 1988 1987 1986
- ---------------------------------------------------------------------------
$435,764 $414,069 $389,612 $346,350 $333,033 $288,935 $259,787
- ---------------------------------------------------------------------------
23,865 18,866 21,420 11,701 20,554 19,230 14,037
5.5% 4.6% 5.5% 3.4% 6.2% 6.7% 5.4%
- ---------------------------------------------------------------------------
- - 874 - - - -
6,500 - - - - - -
17,365 18,866 22,294 11,701 20,554 19,230 14,037
4.0% 4.6% 5.7% 3.4% 6.2% 6.7% 5.4%
- ---------------------------------------------------------------------------
6,942 6,319 7,803 3,861 7,126 8,271 6,524
- ---------------------------------------------------------------------------
15,829(g) 12,547 14,491 7,840 13,428 10,959 7,513(e)
1.46 1.15 1.32 .71 1.19 .91 .63(e)
3.6% 3.0% 3.7% 2.3% 4.0% 3.8% 2.9%
17.4% 15.2% 20.5% 11.7% 22.4% 19.9% 15.2%
- ---------------------------------------------------------------------------
4,172 3,603 3,190 2,919 2,658 2,386 2,145
.3700 .3300 .2900 .2650 .2375 .2075 .1850
- ---------------------------------------------------------------------------
23,914 21,108 19,391 17,061 15,393 13,815 11,630
34,440 33,728 38,375 34,090 20,442 25,705 14,322
10,572 10,916 10,992 11,034 11,216 11,954 11,888
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
$44,265 $ 41,972 $ 38,943 $ 36,952 $ 28,498 $ 26,637 $ 23,386
1.6 1.7 1.7 1.8 1.6 1.7 1.6
- ---------------------------------------------------------------------------
167,930 157,063 143,342 122,509 104,697 98,994 85,607
297,080 271,442 246,992 215,351 185,601 172,726 152,794
90,505 89,759 77,326 68,568 45,369 44,399 34,868
- ---------------------------------------------------------------------------
99,506 90,866 82,698 70,741 66,790 59,936 55,029
9.22 8.35 7.57 6.45 6.06 5.32 4.76
1,317 1,317 1,311 1,152 1,028 1,002 948
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Thousands, except per share data)
1995
-----------------------------------------------------
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Net Sales $134,786 $136,258 $130,410 $126,764 $528,218
- ---------------------------------------------------------------------------------------------
Gross Profit 26,655 25,807 20,647 24,294 97,403
- ---------------------------------------------------------------------------------------------
Interest, net (1,864) (2,128) (2,046) (1,827) (7,865)
- ---------------------------------------------------------------------------------------------
Pre-tax Income (Loss) 9,936 8,506 (879) 7,428 24,991
- ---------------------------------------------------------------------------------------------
Net Income (Loss) 6,109 5,418 (550) 5,142 16,119
- ---------------------------------------------------------------------------------------------
Net Income (Loss) per Share .59 .52 (.08) .49 1.51
=============================================================================================
1994
-----------------------------------------------------
Quarter First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------
Net Sales $107,279 $112,305 $110,761 $113,603 $443,948
- ---------------------------------------------------------------------------------------------
Gross Profit 19,143 20,657 20,983 20,317 81,100
- ---------------------------------------------------------------------------------------------
Interest, net (1,918) (1,803) (1,639) (1,776) (7,136)
- ---------------------------------------------------------------------------------------------
Pre-tax Income 3,427 6,912 6,939 5,234 22,512
- ---------------------------------------------------------------------------------------------
Net Income 2,022 4,078 4,112 3,633 13,845
- ---------------------------------------------------------------------------------------------
Net Income per Share .18 .38 .39 .34 1.29
=============================================================================================
</TABLE>
31
<PAGE>
Exhibit (21)
STEPAN COMPANY
SUBSIDIARIES OF REGISTRANT
Subsidiary Organized under the Laws of:
---------- ----------------------------
Stepan Europe S.A. France
Stepan Canada, Inc. Canada
Stepan Mexico, S.A. de C.V. Mexico
<PAGE>
Exhibit (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 9, 1996, included or incorporated by reference in
Stepan Company's Annual Report in this Form 10-K for the year ended December 31,
1995, into the company's previously filed Registration Statements on Form S-8,
File Nos. 2-64668, 2-40183, 2-80336 and 33-57189.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 25, 1996
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
-----------------
The undersigned hereby appoints F. Quinn Stepan, Walter J. Klein and
Jeffrey W. Bartlett, and each of them individually, the true and lawful
attorney or attorneys of the undersigned, with substitution and
resubstitution, to execute in his name, place and stead in his capacity as
an officer or director or both of Stepan Company, a Delaware corporation,
the Annual Report of Form 10-K under the Securities Exchange Act of 1934,
and any amendments or supplements thereto, and all instruments necessary or
incidental in connection therewith, and to file or cause to be filed such
Annual Report and related documents with the Securities and Exchange
Commission. Each of said attorneys shall have full power and authority to
do and perform, in the name and on behalf of the undersigned, every act
whatsoever necessary or desirable to be done in the premises, as fully as
all intents and purposes of the undersigned could do in person. The
undersigned hereby ratifies and approves the actions of said attorneys and
each of them.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 25th day of March 1996.
/s/ F. Quinn Stepan
____________________________________
F. Quinn Stepan
/s/ Thomas F. Grojean
____________________________________
Thomas F. Grojean
/s/ James A. Hartlage
____________________________________
James A. Hartlage
/s/ Walter J. Klein
____________________________________
Walter J. Klein
/s/ Paul H. Stepan
____________________________________
Paul H. Stepan
/s/ Robert D. Cadieux
____________________________________
Robert D. Cadieux
/s/ Robert G. Potter
____________________________________
Robert G. Potter
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,148
<SECURITIES> 0
<RECEIVABLES> 81,558
<ALLOWANCES> 1,744
<INVENTORY> 54,363
<CURRENT-ASSETS> 150,154
<PP&E> 454,104
<DEPRECIATION> 261,634
<TOTAL-ASSETS> 362,527
<CURRENT-LIABILITIES> 86,899
<BONDS> 109,023
<COMMON> 10,087
0
19,929
<OTHER-SE> 92,461
<TOTAL-LIABILITY-AND-EQUITY> 362,527
<SALES> 528,218
<TOTAL-REVENUES> 528,218
<CGS> 430,815
<TOTAL-COSTS> 503,227
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,865
<INCOME-PRETAX> 24,991
<INCOME-TAX> 8,872
<INCOME-CONTINUING> 16,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,119
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.46
</TABLE>
