<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------- -------------
1-4462
----------------------
Commission File Number
STEPAN COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 36 1823834
- ------------------------------- ----------------------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
Edens and Winnetka Road, Northfield, Illinois 60093
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (847) 446-7500
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at July 31, 1997
- --------------------------- ----------------------------
<S> <C>
Common Stock, $1 par value 9,808,000 Shares
</TABLE>
<PAGE>
Part I FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
Unaudited
<TABLE>
<CAPTION>
(Dollars in Thousands) 6/30/97 12/31/96
-------- --------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 4,182 $ 4,778
Receivables, net 87,370 85,017
Inventories (Note 2) 43,825 50,242
Deferred income taxes 10,703 10,703
Other current assets 3,192 2,958
-------- --------
Total current assets $149,272 $153,698
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Cost 515,534 497,882
Less accumulated depreciation 305,673 290,723
-------- --------
Property, plant and equipment, net 209,861 207,159
-------- --------
OTHER ASSETS 24,754 20,155
-------- --------
Total assets $383,887 $381,012
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,318 $ 6,973
Accounts payable 44,136 43,417
Accrued liabilities 28,648 32,986
-------- --------
Total current liabilities 77,102 83,376
-------- --------
DEFERRED INCOME TAXES 36,860 35,954
-------- --------
LONG-TERM DEBT, less current maturities 105,671 102,567
-------- --------
OTHER NON-CURRENT LIABILITIES 28,796 27,500
-------- --------
STOCKHOLDERS' EQUITY:
5-1/2% convertible preferred stock, cumulative, voting without par
value; authorized 2,000,000 shares; issued 796,972 shares in
1997 and 796,972 shares in 1996 19,924 19,924
Common stock, $1 par value; authorized 15,000,000 shares; 10,270 10,132
issued 10,269,506 shares in 1997 and 10,131,706 shares in 1996
Additional paid-in capital 6,436 5,066
Cumulative translation adjustments (7,022) (4,820)
Retained earnings (approximately $51,983 unrestricted in 1997 and $46,689 in 1996) 114,315 106,513
-------- --------
143,923 136,815
Less - Treasury stock, at cost 8,465 5,200
-------- --------
Stockholders' equity 135,458 131,615
-------- --------
Total liabilities and stockholders' equity $383,887 $381,012
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these condensed consolidated balance sheets.
<PAGE>
STEPAN COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In Thousands, except per share amounts) June 30 June 30
-----------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $153,650 $137,926 $293,320 $268,569
Cost of Sales 126,366 112,896 241,991 217,664
-------- -------- -------- --------
Gross Profit 27,284 25,030 51,329 50,905
-------- -------- -------- --------
Operating Expenses:
Marketing 5,140 4,788 10,006 9,537
Administrative 5,005 5,040 9,770 10,077
Research, Development and Technical 5,104 4,733 10,013 9,525
Services -------- -------- -------- --------
15,249 14,561 29,789 29,139
-------- -------- -------- --------
Operating Income 12,035 10,469 21,540 21,766
Other Income (Expense):
Interest, Net (1,900) (1,732) (3,770) (3,719)
Income (Loss) from Equity Joint 326 (15) 230 (182)
Ventures -------- -------- -------- --------
(1,574) (1,747) (3,540) (3,901)
-------- -------- -------- --------
Income Before Income Taxes 10,461 8,722 18,000 17,865
Provision for Income Taxes 4,138 3,549 7,200 7,057
-------- -------- -------- --------
NET INCOME $ 6,323 $ 5,173 $ 10,800 $ 10,808
======== ======== ======== ========
Net Income Per Common Share (Note 3)
Primary $ 0.62 $ 0.49 $ 1.04 $ 1.03
======== ======== ======== ========
Fully Diluted $ 0.57 $ 0.46 $ 0.98 $ 0.97
======== ======== ======== ========
Dividends per Common Share $ 0.1250 $ 0.1175 $ 0.2500 $ 0.2350
======== ======== ======== ========
Average Common Shares Outstanding 9,834 10,028 9,837 10,022
======== ======== ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
STEPAN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
(Dollars In Thousands) 6/30/97 6/30/96
-------- --------
<S> <C> <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 10,800 $ 10,808
Depreciation and amortization 17,806 16,854
Deferred revenue recognition (1,448) (1,282)
Customer prepayments 2,292 5,375
Deferred income taxes 1,010 136
Non-current environmental and legal liabilities (1,248) --
Other non-cash items 57 183
Changes in Working Capital:
Receivables, net (2,353) (3,157)
Inventories 6,417 3,233
Accounts payable and accrued liabilities (1,919) 1,348
Other (234) 511
-------- --------
Net Cash Provided by Operating
Activities 31,180 34,009
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (21,494) (23,600)
Investment in subsidiaries or joint ventures -- (3,848)
Other non-current assets (4,966) 173
-------- --------
Net Cash Used for Investing
Activities (26,460) (27,275)
-------- --------
CASH FLOWS FROM FINANCING AND OTHER
RELATED ACTIVITIES
Revolving debt and notes payable to banks, net 8,977 (600)
Other debt borrowings -- 4,098
Other debt repayments (8,514) (7,857)
Purchase of treasury stock, net (3,265) (158)
Dividends paid (2,998) (2,891)
Other non-cash items 484 (157)
-------- --------
Net Cash Used for Financing and
Other Related Activities (5,316) (7,565)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (596) (831)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 4,778 $ 3,148
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,182 $ 2,317
CASH PAID DURING THE PERIOD FOR:
Interest $ 4,202 $ 4,793
Income taxes $ 7,917 $ 5,880
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
STEPAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
Unaudited
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The condensed consolidated financial statements included herein have been
prepared by the company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate and make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in the company's latest Annual
Report to Stockholders and the Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1996. In the
opinion of management all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial
position of Stepan Company as of June 30, 1997, and the consolidated
results of operations for the three and six months then ended and cash
flows for the six months then ended, have been included.
2. INVENTORIES
-----------
Inventories include the following amounts:
<TABLE>
<CAPTION>
(Dollars in Thousands) 6/30/97 12/31/96
-------- ---------
<S> <C> <C>
Inventories valued primarily on LIFO
basis -
Finished products $ 26,694 $ 30,689
Raw materials 17,131 19,553
-------- ---------
Total inventories $ 43,825 $ 50,242
======== =========
</TABLE>
If the first-in, first-out (FIFO) inventory valuation method had been used
for all inventories, inventory balances would have been approximately
$13,000,000 and $12,800,000 higher than reported at June 30, 1997, and
December 31, 1996, respectively.
3. NET INCOME PER COMMON SHARE
---------------------------
Primary net income per common share amounts are computed by dividing net
income less the convertible preferred stock dividend requirement by the
weighted average number of common shares outstanding. Fully diluted net
income per share amounts are based on an increased number of common shares
that would be outstanding assuming the
<PAGE>
exercise of certain outstanding stock options and the conversion of the
convertible preferred stock, when such conversion would have the effect of
reducing net income per share. For computation of earnings per share,
reference should be made to Exhibit 11.
4. CONTINGENCIES
-------------
There are a variety of legal proceedings pending or threatened against the
company. Some of these proceedings may result in fines, penalties,
judgments or costs being assessed against the company at some future time.
The company's operations are subject to extensive local, state and federal
regulations, including the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("Superfund") and the Superfund
amendments of 1986. The company, and others, have been named as potentially
responsible parties at affected geographic sites. As discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this filing, the company believes that it has made
adequate provisions for the costs it may incur with respect to these sites.
The company has estimated a range of possible environmental and legal
losses from $4.1 million to $25.8 million at June 30, 1997. At June 30,
1997, the company's reserve was $19.8 million for legal and environmental
matters compared to $21.0 million at December 31, 1996.
For certain sites, estimates cannot be made of the total costs of
compliance, or the company's share of such costs; accordingly, the company
is unable to predict the effect thereof on future results of operations. In
the event of one or more adverse determinations in any annual or interim
period, the impact on results of operations for those periods could be
material. However, based upon the company's present belief as to its
relative involvement at these sites, other viable entities'
responsibilities for cleanup and the extended period over which any costs
would be incurred, the company believes that these matters will not have a
material effect on the company's financial position. Certain of these
matters are discussed in Part II Item 1, of this filing, in Item 3, Legal
Proceedings, in the 1996 Form 10-K Annual Report and in other filings of
the company with the Securities and Exchange Commission, which are
available upon request from the company.
5. ACQUISITION
-----------
In April 1997, the company acquired the west coast anionic surfactant
business from Lonza, Inc. The acquisition consisted of intangible assets,
including customer lists, goodwill, know-how and a non-compete covenant. No
manufacturing facilities were included in the agreement. The acquisition
enables the company to significantly strengthen its market share in the
personal care market on the west coast.
6. RECLASSIFICATIONS
-----------------
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
<PAGE>
STEPAN COMPANY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the company's financial condition and results of
operations during the interim period included in the accompanying condensed
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the first half of 1997, net cash from operations totaled $31.2 million, a
decrease of $2.8 million, or 8 percent, from last year's first half total.
Current period customer prepayments credited to deferred revenue have totaled
$2.3 million for 1997, compared to $5.4 million recorded for the same period in
1996, a $3.1 million decrease from year to year. During 1997, changes in
working capital have resulted in a $1.9 million source of cash, virtually the
same as for the first half of 1996.
Capital expenditures totaled $21.5 million for the current year first half, down
by $2.1 million compared to $23.6 million for the comparable 1996 period.
During 1997, the company purchased certain portions of the anionic surfactant
business of Lonza, Inc., of Fair Lawn, New Jersey. During 1996, investing
activities included purchase of the Shell sulfonation facility in Cologne,
Germany.
Since December 31, 1996, total company debt has increased by $0.4 million, to
$110.0 million. At June 30, 1997, the ratio of long-term debt to long-term debt
plus shareholders' equity stood at 43.8 percent, unchanged from December 31,
1996.
The company maintains contractual relationships with its domestic banks which
provide for $45 million of revolving credit which may be drawn upon as needed
for general corporate purposes. At June 30, 1997, the company had $18.0 million
outstanding under this revolving credit line. The company also meets short-term
liquidity requirements through uncommitted bank lines of credit and bankers'
acceptances. The company's foreign subsidiaries maintain committed and
uncommitted bank lines of credit in their respective countries to meet working
capital requirements as well as to fund capital expenditure programs and
acquisitions.
The company anticipates that cash from operations and from committed credit
facilities will be sufficient to fund anticipated capital expenditures,
dividends, acquisitions, joint venture investments and other planned financial
commitments for the foreseeable future.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended June 30, 1997 and 1996
- -----------------------------------------
Net income for the second quarter ended June 30, 1997, was a record $6.3
million, or $.62 per share, up 21 percent from the $5.2 million, or $.49 per
share reported for the same quarter a year
<PAGE>
earlier. Net sales rose 11 percent to $153.7 million, from $137.9 million
reported last year. Net sales by product group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months
Ended June 30
--------------------------------
1997 1996 % Change
--------- --------- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $116,595 $102,650 +14
Polymers 29,458 27,022 +9
Specialty Products 7,597 8,254 -8
-------- --------
Total $153,650 $137,926 +11
======== ========
</TABLE>
Surfactants net sales increased due to a 24 percent climb in sales volume. A 26
percent improvement in domestic sales volume, principally attributable to the
company's laundry and cleaning and personal care product lines, accounted for
most of the increase. Foreign sales also grew between quarters due to a 14
percent increase in sales volume, somewhat offset by weaker foreign currency
exchange rates.
Surfactants gross profit increased 19 percent from $17.3 million for the second
quarter of 1996 to $20.6 million for the second quarter of 1997. Domestic
operations which reported a 24 percent increase in gross profit accounted for
most of the gain on strong volume increases as noted above. Despite increased
sales volume, foreign gross profit improved only slightly due principally to
decreased margins and to continued losses for the German operation. Germany,
which was acquired during the second quarter of 1996, reported results for a
full quarter in 1997 compared to only two months in 1996.
Polymers net sales rose nine percent due primarily to a 23 percent increase in
polyurethane systems sales volume and a 14 percent increase in polyurethane
polyols sales volume. Phthalic anhydride (PA) sales volume fell nine percent
due to greater internal use in the manufacture of polyols.
Polymers gross profit of $5.9 million remained flat from that of the prior
year's quarter. Improved gross profit from polyurethane systems and polyurethane
polyols was offset by a 28 percent decrease in P.A. earnings. Gross profit for
polyurethane systems improved on higher sales volume and margins. A shift to a
more profitable mix of products caused the growth in systems' margins. Polyols
gross profit grew by 10 percent on higher sales volume partially offset by
increased raw material costs. PA's gross profit decline resulted from lower
sales volume and margins. A drop in selling prices, necessitated by competitive
situations, led to PA's margin decline.
Specialty products net sales were down on decreased volume. Gross profit also
decreased from $1.8 million to $.8 million on lower volume and decreased
margins.
<PAGE>
Operating expenses for the second quarter rose five percent from the same
quarter a year ago. Marketing expenses rose seven percent due to higher
salaries, fringe benefits and bad debt expenses, while research and development
expenses increased eight percent on increased salaries and fringe benefits.
Administrative expenses were relatively unchanged from the same quarter a year
ago.
Interest expense for the quarter increased 10 percent compared to the same
quarter last year. The increase in interest expense was precipitated by a
decrease in the amount of interest capitalized as part of long term construction
projects. Average debt levels for the quarter have declined.
Six Months Ended June 30, 1997 and 1996
- ---------------------------------------
Net income for the first six months ended June 30, 1997, was $10.8 million, or
$1.04 per share, compared to $10.8 million, or $1.03 per share reported for the
same period a year earlier. Net sales increased nine percent to $293.3 million
from $268.6 million reported last year. Net sales by product group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Six Months
Ended June 30
--------------------------------
1997 1996 % Change
--------- --------- ----------
<S> <C> <C> <C>
Net Sales:
Surfactants $224,313 $204,920 +9
Polymers 54,386 47,414 +15
Specialty Products 14,621 16,235 -10
-------- --------
Total $293,320 $268,569 +9
======== ========
</TABLE>
Surfactants net sales increased $19.4 million or nine percent for the first six
months of 1997 compared to a year earlier. Domestic operations accounted for
most of the increase, posting 11 percent and 17 percent rises in net sales and
volume, respectively. Greater demand for the company's laundry and cleaning and
personal care products caused most of the sales volume improvement. Foreign
operations reported slightly higher sales on an 11 percent increase in sales
volume. Despite the foreign volume increases, overall sales results were
dampened due to the impact of weaker foreign currency exchange rates,
particularly in France.
Surfactants gross profit increased five percent from $36.2 million to $38.0
million for the first six months of 1997. The increase was attributable to
domestic operations which reported a 10 percent rise in gross profit. The
domestic increase was driven principally from increased sales volumes, partly
dampened by lower profit margins as a result of a change in sales mix between
years. Offsetting a portion of the domestic increase was a decrease in foreign
gross profit mainly attributable to weaker margins amongst all subsidiaries and
to the recording of six months of German operations losses in 1997 compared to
two months of post acquisition losses in 1996.
<PAGE>
Polymers net sales increased $7.0 million or 15 percent from the same period a
year earlier. Sales of polyurethane polyols increased on 17 percent stronger
volume. Polyurethane systems sales improved as a result of a 37 percent
increase in volume coupled with a slight increase in average selling price. The
improved pricing was mainly due to a shift in sales mix to higher margin
products. Despite a four percent decrease in sales volume, sales of phthalic
anhydride (PA) were relatively unchanged from a year ago due to a five percent
increase in average selling price. Higher selling prices were precipitated by
the pass through of increased raw material costs.
Polymers gross profit rose $.8 million or seven percent to $11.6 million
compared to $10.8 million recorded a year ago. The gross profit increase was
mainly due to improved results for polyurethane systems attributable to
increased sales volume and margins. Consistent with the increase in selling
price, a shift in product mix drove the increase in margins. Despite the sales
and volume increases for polyurethane polyols noted above, gross profit
increased modestly due to higher raw material costs. Reduced PA gross profit
resulted from decreased volumes and margins.
Specialty products net sales for the first six months were down on reduced sales
volume. Gross profit declined $2.1 million to $1.8 million as a result of the
lower sales volumes.
Operating expenses for the first six months increased a moderate $.7 million or
two percent, reflecting increases in marketing and research and development
expenses. Consistent with the quarter increase, marketing expenses were up five
percent primarily due to increased salaries, fringe benefits and bad debt
expenses, while research and development expenses were up five percent on higher
salaries and fringe benefits. Administrative expenses decreased three percent
due to lower travel and entertainment expenses.
Interest expense for the first six months remained relatively consistent with
that of a year ago as a result of a decrease in capitalized interest on long
term construction projects being offset by a decrease in interest expense on
debt.
1997 OUTLOOK
- ------------
The company, led by the continued strength of its core surfactant business,
remains on target for another record year. Increases in surfactant sales
volume, which drove second quarter record earnings, are anticipated to continue.
Margins, which eroded in 1996, also appear to be on the upswing. The Philippine
joint venture has reported profits for the first half of 1997 and should
continue to do so for the remainder of the year.
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
<PAGE>
existing and future regulations. During the first six months of 1997, company
expenditures for capital projects related to the environment were $3.8 million
and should approximate $6.0 million to $7.0 million for the full year 1997.
These projects are capitalized and typically depreciated over 10 years.
Recurring costs associated with the operation and maintenance of facilities for
waste treatment and disposal and managing environmental compliance in ongoing
operations at our manufacturing locations were $3.6 million for the first six
months of 1997. 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 16 waste disposal sites where cleanup costs have been or may be incurred
under the federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes. In addition, damages are being
claimed against the company in general liability actions for alleged personal
injury or property damage in the case of some disposal and plant sites. The
company believes that it has made adequate provisions for the costs it may incur
with respect to these sites. The company has estimated a range of possible
environmental and legal losses from $4.1 million to $25.8 million at June 30,
1997. At June 30, 1997, the company's reserve was $19.8 million for legal and
environmental matters compared to $21.0 million at December 31, 1996. During
the first six months of 1997, expenditures related to legal and environmental
matters approximated $1.6 million. For certain sites, estimates cannot be made
of the total costs of compliance or the company's share of such costs;
accordingly, the company is unable to predict the effect thereof on future
results of operations. In the event of one or more adverse determinations in
any annual or interim period, the impact on results of operations for those
periods could be material. However, based upon the company's present belief as
to its relative involvement at these sites, other viable entities'
responsibilities for cleanup and the extended period over which any costs would
be incurred, the company believes that these matters will not have a material
effect on the company's financial position. Certain of these matters are
discussed in Part II, Item 1, Legal Proceedings, of this filing, in Item 3,
Legal Proceedings, in the 1996 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 February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 - Earnings Per Share ("SFAS No. 128").
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
SFAS 128 supersedes APB Opinion 15 - Earnings Per Share and replaces primary
earnings per share with basic earnings per share. Fully diluted earnings per
share is still required but will be titled diluted earnings per share. Had
SFAS 128 been adopted in the second quarter of 1997, there would have been an
immaterial impact on current year and no impact on prior year quarterly earnings
per share. At this time, the company is not able to determine whether SFAS 128
will have a material impact on earnings per share upon adoption in the fourth
quarter of 1997.
<PAGE>
OTHER
- -----
Except for the historical information contained herein, the matters discussed in
this document, and in particular the information included in the Outlook
section, are forward looking statements that involve risks and uncertainties.
The results achieved this quarter are not necessarily an indication of future
prospects for the company. Actual results in future quarters may differ
materially. Potential risks and uncertainties include, among others,
fluctuations in the volume and timing of product orders, changes in demand for
the company's products, changes in technology, continued competitive pressures
in the marketplace, availability of raw materials, and the general economic
conditions.
<PAGE>
Part II OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Legal Proceedings
On June 15, 1997 the company received a Section 107(e) letter from the United
States Environmental Protection Agency, Atlanta, Georgia, (USEPA) requesting
information about the company's use of a site entitled, Memphis Container Drum
Site (Tri-State Drums), located in Memphis, Shelby County, Tennessee, to dispose
of waste. The company has no record of using this particular site and so
informed the USEPA. At this time, the company can not estimate what its
liabilities of this site will be, if any.
Reference is made to the company's report Form 10-K for the year ended December
31, 1996, and the reference to the insurance recovery action entitled Stepan v.
Admiral. The company has settled with the last remaining defendant in this case,
and as such, this action has now been dismissed. The company's insurance
recovery action in New Jersey continues to be prosecuted.
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
(11) Statement re computation of Per Share Earnings
(27) Financial Data Schedule
(B) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STEPAN COMPANY
/s/ Walter J. Klein
Walter J. Klein
Vice President - Finance
Principal Financial and Accounting Officer
Date: August 6, 1997
<PAGE>
Exhibit (11)
STEPAN COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the Three and Six Months Ended June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
(In Thousands, except per share amounts) Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Computation of per Share Earnings
- ---------------------------------
Net income $ 6,323 $ 5,173 $10,800 $10,808
Deduct dividends on preferred stock 267 267 534 534
------- ------- ------- -------
Income applicable to common stock $ 6,056 $ 4,906 $10,266 $10,274
======= ======= ======= =======
Weighted average number of shares outstanding 9,834 10,028 9,837 10,022
Per share earnings* $ 0.616 $ 0.489 $ 1.044 $ 1.025
======= ======= ======= =======
Computation of Per Share Primary Earnings
- -----------------------------------------
Income applicable to common stock $ 6,056 $ 4,906 $10,266 $10,274
======= ======= ======= =======
Weighted average number of shares outstanding 9,834 10,028 9,837 10,022
Add net shares issuable from assumed exercise
of options (under treasury stock method) 246 283 261 220
------- ------- ------- -------
Shares applicable to primary earnings 10,080 10,311 10,098 10,242
======= ======= ======= =======
Per share primary earnings* $ 0.601 $ 0.476 $ 1.017 $ 1.003
======= ======= ======= =======
Dilutive effect 2.4% 2.7% 2.6% 2.1%
Computation of Per Share Fully Diluted Earnings
- -----------------------------------------------
Net income $ 6,323 $ 5,173 $10,800 $10,808
======= ======= ======= =======
Weighted average number of shares outstanding 9,834 10,028 9,837 10,022
Add net shares issuable from assumed exercise
of options (under treasury stock method) 387 283 332 232
Add weighted average shares issuable from assumed
conversion of convertible preferred stock 887 887 887 887
------- ------- ------- -------
Shares applicable to fully diluted earnings 11,108 11,198 11,056 11,141
======= ======= ======= =======
Per share fully diluted earnings* $ 0.569 $ 0.462 $ 0.977 $ 0.970
======= ======= ======= =======
Dilutive effect 7.6% 5.5% 6.4% 5.4%
</TABLE>
- -----------
* Rounded
This calculation is submitted in accordance with Regulation S-K, item
601(b)(11).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,182
<SECURITIES> 0
<RECEIVABLES> 87,370
<ALLOWANCES> 0
<INVENTORY> 43,825
<CURRENT-ASSETS> 149,272
<PP&E> 515,534
<DEPRECIATION> 305,673
<TOTAL-ASSETS> 383,887
<CURRENT-LIABILITIES> 77,102
<BONDS> 105,671
0
19,924
<COMMON> 10,270
<OTHER-SE> 105,264
<TOTAL-LIABILITY-AND-EQUITY> 383,887
<SALES> 293,320
<TOTAL-REVENUES> 293,320
<CGS> 241,991
<TOTAL-COSTS> 271,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,770
<INCOME-PRETAX> 18,000
<INCOME-TAX> 7,200
<INCOME-CONTINUING> 10,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,800
<EPS-PRIMARY> 1.04
<EPS-DILUTED> .98
</TABLE>
