<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 SEPTEMBER 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)
Delaware 36 1823834
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Edens and Winnetka Road, Northfield, Illinois 60093
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (847) 446-7500
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
- -------------------------------- --------------------------------
Common Stock, $1 par value 9,822,00 Shares
<PAGE>
Part I FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
Unaudited
<TABLE>
<CAPTION>
(Dollars in Thousands) 9/30/97 12/31/96
-------- --------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 2,819 $ 4,778
Receivables, net 84,336 85,017
Inventories (Note 2) 47,126 50,242
Deferred income taxes 10,703 10,703
Other current assets 3,444 2,958
-------- --------
Total current assets $148,428 $153,698
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Cost 523,355 497,882
Less accumulated depreciation 313,970 290,723
-------- --------
Property, plant and equipment, net 209,385 207,159
-------- --------
OTHER ASSETS 23,352 20,155
-------- --------
Total assets $381,165 $381,012
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,311 $ 6,973
Accounts payable 40,571 43,417
Accrued liabilities 32,378 32,986
-------- --------
Total current liabilities 77,260 83,376
-------- --------
DEFERRED INCOME TAXES 37,822 35,954
-------- --------
LONG-TERM DEBT, less current maturities 100,870 102,567
-------- --------
OTHER NON-CURRENT LIABILITIES 27,701 27,500
-------- --------
STOCKHOLDERS' EQUITY:
5-1/2% convertible preferred stock, cumulative, voting
without par value; authorized 2,000,000 shares; issued
795,672 shares in 1997 and 796,972 shares in 1996 19,892 19,924
Common stock, $1 par value; authorized 15,000,000 shares;
issued 10,310,690 shares in 1997 and 10,131,706 shares
in 1996 10,311 10,132
Additional paid-in capital 6,979 5,066
Cumulative translation adjustments (6,853) (4,820)
Retained earnings (approximately $53,775 unrestricted in
1997 and $46,689 in 1996) 118,965 106,513
-------- --------
149,294 136,815
Less - Treasury stock, at cost 11,782 5,200
-------- --------
Stockholders' equity 137,512 131,615
-------- --------
Total liabilities and stockholders' equity $381,165 $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 Nine Months Ended September 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
(In Thousands, Three Months Ended Nine Months Ended
except per share amounts) September 30 September 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $146,502 $137,922 $439,822 $406,491
Cost of Sales 118,197 115,680 360,188 333,344
-------- -------- -------- --------
Gross Profit 28,305 22,242 79,634 73,147
-------- -------- -------- --------
Operating Expenses:
Marketing 4,724 5,104 14,730 14,641
Administrative 4,447 2,171 14,217 12,248
Research, Development
and Technical Services 4,889 5,043 14,902 14,568
-------- -------- -------- --------
14,060 12,318 43,849 41,457
-------- -------- -------- --------
Operating Income 14,245 9,924 35,785 31,690
Other Income (Expense):
Interest, Net (1,855) (1,643) (5,625) (5,362)
Loss from Equity Joint Ventures (1,428) (741) (1,198) (923)
-------- -------- -------- --------
(3,283) (2,384) (6,823) (6,285)
-------- -------- -------- --------
Income Before Income Taxes 10,962 7,540 28,962 25,405
Provision for Income Taxes 4,819 3,338 12,019 10,395
-------- -------- -------- --------
NET INCOME $ 6,143 $ 4,202 $ 16,943 $ 15,010
======== ======== ======== ========
Net Income Per Common Share (Note 3)
Primary $ 0.60 $ 0.39 $ 1.64 $ 1.42
======== ======== ======== ========
Fully Diluted $ 0.55 $ 0.38 $ 1.53 $ 1.35
======== ======== ======== ========
Dividends per Common Share $ 0.1250 $ 0.1175 $ 0.3750 $ 0.3525
======== ======== ======== ========
Average Common Shares Outstanding 9,821 10,007 9,832 10,017
======== ======== ======== ========
</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 Nine Months Ended September 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
(Dollars In Thousands) 9/30/97 9/30/96
-------- --------
<S> <C> <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 16,943 $ 15,010
Depreciation and amortization 26,656 24,716
Deferred revenue recognition (2,529) (1,923)
Customer prepayments 2,292 5,475
Deferred income taxes 1,961 88
Non-current environmental and legal liabilities (498) --
Other non-cash items 944 746
Changes in Working Capital:
Receivables, net 681 (5,290)
Inventories 3,116 7,861
Accounts payable and accrued liabilities (2,518) 1,039
Other (486) 191
-------- --------
Net Cash Provided by Operating Activities 46,562 47,913
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (29,570) (35,326)
Investment in subsidiaries or joint ventures -- (3,848)
Other non-current assets (4,938) 243
-------- --------
Net Cash Used for Investing Activities (34,508) (38,931)
-------- --------
CASH FLOWS FROM FINANCING AND OTHER RELATED ACTIVITIES
Revolving debt and notes payable to banks, net 5,326 2,200
Other debt borrowings -- 3,947
Other debt repayments (9,671) (9,190)
Purchase of treasury stock, net (6,582) (802)
Dividends paid (4,491) (4,333)
Other non-cash items 1,405 (32)
-------- --------
Net Cash Used for Financing and Other Related Activities (14,013) (8,210)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,959) 772
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,778 3,148
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,819 $ 3,920
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $ 5,236 $ 7,454
Income taxes $ 12,054 $ 8,559
</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
September 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 September 30, 1997, and the consolidated
results of operations for the three and nine months then ended and cash
flows for the nine months then ended, have been included.
2. INVENTORIES
-----------
Inventories include the following amounts:
<TABLE>
<CAPTION>
(Dollars in Thousands) 9/30/97 12/31/96
-------- ---------
<S> <C> <C>
Inventories valued primarily on LIFO basis -
Finished products $29,158 $30,689
Raw materials 17,968 19,553
------- -------
Total inventories $47,126 $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
$12,500,000 and $12,800,000 higher than reported at September 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 September 30, 1997. At
September 30, 1997, the company's reserve was $20.5 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 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 three quarters of 1997, net cash from operations totaled $46.6
million, a decrease of $1.4 million, or three percent, from last year's first
three quarters total. Current period customer prepayments credited to deferred
revenue have totaled $2.3 million for 1997, compared to $5.5 million recorded
for the same period in 1996, a $3.2 million decrease from year to year. During
1997, changes in working capital have resulted in a $0.8 million source of cash
compared to $3.8 million for the same period in 1996.
Capital expenditures totaled $29.6 million for the current year-to-date, down by
$5.7 million, or 16 percent, from $35.3 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 the purchase of the Shell sulfonation facility in Cologne,
Germany.
Since last year-end, total company debt has decreased by $4.4 million, to $105.2
million. At September 30, 1997, the ratio of long-term debt to long-term debt
plus shareholders' equity stood at 42.3 percent, down from 43.8 percent as of
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 September 30, 1997, the company had $15.8
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 September 30, 1997 and 1996
- ----------------------------------------------
Net income for the third quarter ended September 30, 1997, was $6.1 million, or
$.60 per share, up 46 percent from the $4.2 million, or $.39 per share reported
for the same quarter a year earlier.
<PAGE>
The 1997 results included a charge of $2.1 million ($.21 per share) for exchange
losses related to the devaluation of the Philippine peso. Net sales rose six
percent to $146.5 million, from $137.9 million reported last year. Net sales by
product group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months
Ended September 30
-----------------------------------
1997 1996 % Change
---- ---- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $110,397 $100,611 +10
Polymers 28,449 29,851 -5
Specialty Products 7,656 7,460 +3
-------- --------
Total $146,502 $137,922 +6
======== ========
</TABLE>
Surfactants net sales increased due to a 13 percent growth in sales volume. A 16
percent improvement in domestic sales volume, principally attributable to the
company's laundry and cleaning and personal care product lines, accounted for
the increase. Domestic volume benefited from the second quarter acquisition of
Lonza, Inc.'s west coast anionic surfactant business. Weaker currency exchange
rates, particularly for France and Germany, and a one percent fall in sales
volume caused a decline in foreign operations' net sales.
Surfactants gross profit climbed 48 percent to $20.2 million for the third
quarter of 1997 from $13.6 million for the same quarter of 1996. A strong
domestic performance led by improved sales volume and product mix accounted for
the rise in profit. Foreign gross profit slipped between quarters as a result
of decreased margins and sales volume.
Polymers net sales fell five percent due primarily to a nine percent drop in
sales volume. Polyurethane polyols and phthalic anhydride (PA) reported 13
percent and eight percent declines in volume, respectively. The loss of a large
customer caused the polyol decrease. Unusually high 1996 third quarter volume,
due to the extended maintenance shutdown of a competitor, contributed to the PA
difference. Polyurethane systems net sales and volume were up between quarters.
Polymers gross profit of $6.0 million for the third quarter of 1997 decreased 19
percent from third quarter 1996 profits of $7.4 million. Reduced volumes and
margins led to profit declines for both polyols and PA. Polyol margins were
down as a result of higher raw material costs. Price reductions necessitated by
competitive situations led to PA's margin drop. Despite increased volumes,
polyurethane systems earnings slipped due to lower margins.
Specialty products net sales were up three percent on decreased volume. Gross
profit grew to $2.1 million for the third quarter of 1997 from $1.2 million for
last year's third quarter.
<PAGE>
Losses for the company's equity joint ventures grew between quarters to $1.4
million in 1997 from $.7 million in 1996. Exchange losses in the amount of $2.1
million for the Philippine joint venture led to the increased loss. Excluding
the exchange loss, the venture posted positive earnings from operations.
Operating expenses for the third quarter rose $1.7 million or 14 percent from
the same quarter a year ago. Administrative expenses increased by $2.3 million
between quarters. The prior year quarter included the recovery of $3.3 million
of insurance costs related to environmental risks. Marketing and research
expenses were both down from the third quarter of 1996.
Interest expense grew by 13 percent due to a decline in interest capitalized as
part of long-term construction projects.
Nine Months Ended September 30, 1997 and 1996
- ---------------------------------------------
Net income for the nine months ended September 30, 1997, was $16.9 million, or
$1.64 per share, compared to $15.0 million, or $1.42 per share reported for the
same period a year earlier. The 1997 results included a third quarter charge of
$2.1 million ($.21 per share) for exchange losses related to the devaluation of
the Philippine peso. Net sales increased eight percent to $439.8 million from
$406.5 million reported last year. Net sales by product group were:
<TABLE>
<CAPTION>
(Dollars in Thousands) Nine Months
Ended September 30
----------------------------------
1997 1996 % Change
---- ---- --------
<S> <C> <C> <C>
Net Sales:
Surfactants $334,710 $305,531 +10
Polymers 82,835 77,265 +7
Specialty Products 22,277 23,695 -6
-------- --------
Total $439,822 $406,491 +8
======== ========
</TABLE>
Surfactants net sales increased $29.2 million or 10 percent for the first nine
months of 1997 compared to a year earlier. A 15 percent climb in sales volume
led to higher net sales. Domestic operations accounted for most of the dollar
and volume increases, reporting improvements of 12 percent and 17 percent,
respectively. Domestically, the company benefited from the second quarter
acquisition of Lonza, Inc.'s west coast anionic surfactant business. The
benefits were seen most prominently in strong demand for laundry and cleaning
and personal care products. Despite a seven percent rise in sales volume,
foreign net sales declined one percent due primarily to weaker foreign currency
exchange rates, particularly for the French franc.
Surfactants gross profit increased 17 percent to $58.2 million for the first
nine months of 1997 from $49.8 million for the same period of 1996. A 25 percent
increase in domestic operations gross profit accounted for the improved overall
surfactants result. Increased volumes coupled with improved product mix drove
the rise in domestic profits. Weaker margins due to tough foreign competition,
particularly in Europe, led to lower foreign earnings.
<PAGE>
Polymers net sales rose seven percent between years. Increased average selling
prices, due largely to the passing on of raw material price increases, and a two
percent sales volume increase caused the rise in sales. Polyurethane systems and
polyurethane polyols posted volume improvements of 26 percent and five percent,
respectively. Phthalic anhydride (PA) sales volume fell five percent due
principally to increased internal requirements for the first half of 1997 and to
unusually high 1996 third quarter volume resulting from the extended maintenance
shutdown of a competitor.
Polymers gross profit decreased $.6 million or three percent to $17.6 million
compared to $18.2 million recorded a year ago. Reduced margins, notably for PA
and polyols, more than offset the polymer sales volume gain. PA's margin drop
resulted from pricing cuts made to meet competitive situations. Higher raw
material costs, which could only be partially passed along to customers, caused
the decrease in polyols margins. Polyurethane systems posted higher margins on a
shift to a more profitable sales mix.
Specialty products net sales decreased six percent on a 12 percent drop in sales
volume. Gross profit fell 25 percent to $3.8 million in 1997 from $5.2 million
in 1996. Lower sales volume and reduced margins generated the decline in
profits.
Losses for the company's equity joint ventures grew between years to $1.2
million in 1997 from $.9 million in 1996. Third quarter exchange losses in the
amount of $2.1 million for the Philippine joint venture led to the increased
loss. Excluding the reported exchange loss, the venture posted positive
earnings from operations.
Operating expenses for the first nine months increased $2.4 million or six
percent. Administrative expenses climbed $2.0 million between years. The prior
year results included the third quarter recovery of $3.3 million of insurance
costs related to environmental risks. Lower 1997 travel expenses and consulting
fees partially offset the impact of the 1996 insurance recoveries. Research and
development and marketing expenses were up two percent and one percent,
respectively, from those reported a year earlier.
Interest expense for the first nine months was up five percent from year to year
due primarily to a decrease in interest capitalized on long-term construction
projects.
1997 OUTLOOK
- ------------
The company expects strong fourth quarter earnings to lead to a third
consecutive record year. The core surfactant business is operating at high
utilization levels with an improved product mix, and any further devaluation of
the Philippine peso will hopefully not be of the magnitude already recorded. The
favorable surfactant performance is expected to be tempered by lower polymer
earnings.
<PAGE>
ENVIRONMENTAL AND LEGAL MATTERS
- -------------------------------
The company is subject to extensive federal, state and local environmental laws
and regulations. Although the company's environmental policies and practices are
designed to ensure compliance with these laws and regulations, future
developments and increasingly stringent environmental regulation could require
the company to make additional unforeseen environmental expenditures. The
company will continue to invest in the equipment and facilities necessary to
comply with existing and future regulations. During the first nine months of
1997, company expenditures for capital projects related to the environment were
$4.7 million and should approximate $6.5 million to $7.5 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 $5.3
million for the first nine 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 17 waste disposal sites where cleanup costs have been or may be incurred
under the federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes. In addition, damages are being claimed
against the company in general liability actions for alleged personal injury or
property damage in the case of some disposal and plant sites. The company
believes that it has made adequate provisions for the costs it may incur with
respect to these sites. The company has estimated a range of possible
environmental and legal losses from $4.1 million to $25.8 million at September
30, 1997. At September 30, 1997, the company's reserve was $20.5 million for
legal and environmental matters compared to $21.0 million at December 31, 1996.
During the first nine months of 1997, expenditures related to legal and
environmental matters approximated $2.3 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 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.
ACCOUNTING STANDARD
- -------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 - Earnings Per Share (SFAS 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
<PAGE>
share is still required but will be titled diluted earnings per share. Had SFAS
128 been adopted in the third 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.
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 general economic
conditions.
<PAGE>
Part II OTHER INFORMATION
- -------------------------------------------------------------
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: November 11, 1997
<PAGE>
Exhibit (11)
STEPAN COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the Three and Nine Months Ended September 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
(In Thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Computation of per Share Earnings
- ---------------------------------
Net income $ 6,143 $ 4,202 $16,943 $15,010
Deduct dividends on preferred stock 267 267 801 801
------- ------- ------- -------
Income applicable to common stock $ 5,876 $ 3,935 $16,142 $14,209
======= ======= ======= =======
Weighted average number of shares outstanding 9,821 10,007 9,832 10,017
Per share earnings* $ 0.598 $ 0.393 $ 1.642 $ 1.418
======= ======= ======= =======
Computation of Per Share Primary Earnings
- -----------------------------------------
Income applicable to common stock $ 5,876 $ 3,935 $16,142 $14,209
======= ======= ======= =======
Weighted average number of shares outstanding 9,821 10,007 9,832 10,017
Add net shares issuable from assumed exercise
of options (under treasury stock method) 274 265 266 235
------- ------- ------- -------
Shares applicable to primary earnings 10,095 10,272 10,098 10,252
======= ======= ======= =======
Per share primary earnings* $ 0.582 $ 0.383 $ 1.599 $ 1.386
======= ======= ======= =======
Dilutive effect 2.7% 2.5% 2.6% 2.3%
Computation of Per Share Fully Diluted Earnings
- -----------------------------------------------
Net income $ 6,143 $ 4,202 $16,943 $15,010
======= ======= ======= =======
Weighted average number of shares outstanding 9,821 10,007 9,832 10,017
Add net shares issuable from assumed exercise
of options (under treasury stock method) 383 265 349 243
Add weighted average shares issuable from
assumed conversion of convertible preferred
stock 885 887 886 887
------- ------- ------- -------
Shares applicable to fully diluted earnings 11,089 11,159 11,067 11,147
======= ======= ======= =======
Per share fully diluted earnings* $ 0.554 $ 0.377 $ 1.531 $ 1.347
======= ======= ======= =======
Dilutive effect 7.4% 4.1% 6.8% 5.0%
</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 SEPTEMBER 30, 1997 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,819
<SECURITIES> 0
<RECEIVABLES> 84,336
<ALLOWANCES> 0
<INVENTORY> 47,126
<CURRENT-ASSETS> 148,428
<PP&E> 523,355
<DEPRECIATION> 313,970
<TOTAL-ASSETS> 381,165
<CURRENT-LIABILITIES> 77,260
<BONDS> 100,870
0
19,892
<COMMON> 10,311
<OTHER-SE> 107,309
<TOTAL-LIABILITY-AND-EQUITY> 381,165
<SALES> 439,822
<TOTAL-REVENUES> 439,822
<CGS> 360,188
<TOTAL-COSTS> 404,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,625
<INCOME-PRETAX> 28,962
<INCOME-TAX> 12,019
<INCOME-CONTINUING> 16,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,943
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.53
</TABLE>
