1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO __________
1-4462
----------------------
COMMISSION FILE NUMBER
STEPAN COMPANY
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36 1823834
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Edens and Winnetka Road, Northfield, Illinois 60093
- -----------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (847) 446-7500
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 31, 1996
- ------------------------------ -----------------------------------
Common Stock, $1 par value 9,988,000 Shares
- --------------------------------------------------------------------------------
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Part I FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
Unaudited
(Dollars in Thousands) 9/30/96 12/31/95
-------- --------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 3,920 $ 3,148
Receivables, net 85,104 79,814
Inventories (Note 2) 46,502 54,363
Deferred income taxes 9,444 9,444
Other current assets 3,194 3,385
-------- --------
Total current assets 148,164 150,154
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Cost 489,379 454,104
Less accumulated depreciation 284,313 261,634
-------- --------
205,066 192,470
-------- --------
OTHER ASSETS 20,450 19,903
-------- --------
Total assets $373,680 $362,527
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,722 $ 6,946
Accounts payable 40,424 42,530
Accrued liabilities 40,568 37,423
-------- --------
Total current liabilities 87,714 86,899
-------- --------
DEFERRED INCOME TAXES 36,533 36,469
-------- --------
LONG-TERM DEBT, less current maturities 106,208 109,023
-------- --------
DEFERRED REVENUE 11,211 7,659
-------- --------
STOCKHOLDERS' EQUITY:
5-1/2% convertible preferred stock, cumulative, voting without par value;
authorized 2,000,000 shares; issued 796,972 shares in 1996 and 797,172
shares in 1995 19,924 19,929
Common stock, $1 par value; authorized 15,000,000 shares;
issued 10,117,906 shares in 1996 and 10,086,653 shares in 1995 10,118 10,087
Additional paid-in capital 4,950 4,568
Cumulative translation adjustments (4,437) (3,691)
Retained earnings (approximately $47,258 unrestricted in 1996 and $37,904 in 1995) 103,969 93,292
-------- --------
134,524 124,185
Less - Treasury stock, at cost 2,510 1,708
-------- --------
Stockholders' equity 132,014 122,477
-------- --------
Total liabilities and stockholders' equity $373,680 $362,527
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these condensed consolidated balance sheets.
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STEPAN COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1996 and 1995
Unaudited
(In Thousands, Three Months Ended Nine Months Ended
except per share amounts) September 30 September 30
-------------------------- ------------------------
1996 1995 1996 1995
----------- ------------- ----------- -----------
NET SALES $ 137,922 $ 130,410 $ 406,491 $ 401,454
----------- ------------- ----------- -----------
COSTS AND EXPENSES:
Cost of Sales 116,421 109,763 334,267 328,345
General and Administrative 2,171 10,157 12,248 21,880
Marketing 5,104 4,628 14,641 13,850
Research, Development
and Technical Services 5,043 4,695 14,568 13,778
Interest, net 1,643 2,046 5,362 6,038
----------- ------------- ----------- -----------
130,382 131,289 381,086 383,891
----------- ------------- ----------- -----------
PRE-TAX INCOME (LOSS) 7,540 (879) 25,405 17,563
PROVISION FOR INCOME
TAXES (BENEFIT) 3,338 (329) 10,395 6,586
----------- ------------- ----------- -----------
NET INCOME (LOSS) $ 4,202 $ (550) $ 15,010 $ 10,977
=========== ============= =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE (Note 3)
Primary $0.39 $ (0.08) $1.42 $1.02
=========== ============= =========== ===========
Fully Diluted $0.38 $ - $1.35 $1.00
=========== ============= =========== ===========
DIVIDENDS PER COMMON SHARE $0.1175 $0.110 $0.3525 $0.330
=========== ============= =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING 10,007 9,998 10,017 9,976
=========== ============= =========== ===========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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STEPAN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
Unaudited
(Dollars In Thousands) 9/30/96 9/30/95
-------- --------
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income $15,010 $10,977
Depreciation and amortization 24,716 22,923
Deferred revenue, net 3,552 (1,775)
Deferred income taxes 88 (352)
Other non-cash items 746 (638)
Changes in Working Capital:
Receivables, net (5,290) (7,718)
Inventories 7,861 (2,275)
Accounts payable and accrued liabilities 1,039 2,065
Other 191 218
-------- --------
Net Cash Provided by Operating Activities 47,913 23,425
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (35,326) (23,771)
Investment in subsidiaries or joint ventures (3,848) (3,750)
Other non-current assets 243 110
-------- --------
Net Cash Used for Investing Activities (38,931) (27,411)
-------- --------
CASH FLOWS FROM FINANCING AND OTHER RELATED ACTIVITIES
Revolving debt and notes payable to banks, net 2,200 (21,711)
Other debt borrowings 3,947 40,000
Other debt repayments (9,190) (12,048)
(Purchases) sales of treasury stock, net (802) 101
Dividends paid (4,333) (4,098)
Other non-cash items (32) 360
-------- --------
Net Cash (Used for) Provided by Financing and Other Related Activities (8,210) 2,604
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 772 (1,382)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,148 2,452
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,920 $1,070
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest $7,454 $5,694
Income taxes $8,559 $9,244
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
STEPAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and December 31, 1995
Unaudited
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are
adequate and make the information presented not misleading. It is
suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and the notes thereto
included in the company's latest Annual Report to Stockholders and the
Annual Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1995. In the opinion of management all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the consolidated financial position of Stepan Company
as of September 30, 1996, 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:
(Dollars in Thousands) 9/30/96 12/31/95
------- --------
Inventories valued primarily on LIFO basis -
Finished products $27,638 $32,204
Raw materials 18,864 22,159
------- --------
Total inventories $46,502 $54,363
======= ========
If the first-in, first-out (FIFO) inventory valuation method had been
used for all inventories, inventory balances would have been
approximately $12,702,000 and $12,100,000 higher than reported at
September 30, 1996, and December 31, 1995, respectively.
3. NET INCOME PER COMMON SHARE
Primary net income per common share amounts are computed by dividing net
income less the convertible preferred stock dividend requirement by the
weighted average number of common shares outstanding. Fully diluted net
income per share amounts are based on an
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increased number of common shares that would be outstanding assuming the
exercise of certain outstanding stock options and the conversion of the
convertible preferred stock, when such conversion would have the effect
of reducing net income per share. For computation of earnings per share,
reference should be made to Exhibit 11.
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 $31.5 million at
September 30, 1996. At September 30, 1996, the company's reserve was
$13.1 million for legal and environmental matters compared to $8.7
million at December 31, 1995.
At certain of the sites, estimates cannot be made of the total costs of
compliance, or the company's share of such costs; accordingly, the
company is unable to predict the effect thereof on future results of
operations. In the event of one or more adverse determinations in any
annual or interim period, the impact on results of operations for those
periods could be material. However, based upon the company's present
belief as to its relative involvement at these sites, other viable
entities' responsibilities for cleanup and the extended period over which
any costs would be incurred, the company believes that these matters will
not have a material effect on the company's financial position. Certain
of these matters are discussed in Part II, Item 1, Legal Proceedings, of
this filing, in Item 3, Legal Proceedings, in the 1995 Form 10-K Annual
Report and in other filings of the company with the Securities and
Exchange Commission, which filings are available upon request from the
company.
5. ACQUISITION
In April 1996, the company acquired a sulfonation plant from Shell Group
in Cologne, Germany. This plant, being organized as a German subsidiary,
allows the company to serve Northern European customers with a wide range
of sulfate and sulfonate products used in household, personal care,
individual, institutional and agricultural markets. The purchase
consisted of land, sulfonation equipment, and intangible assets. The
acquisition was accounted for as a purchase, and the results of the
subsidiary have been included in the accompanying condensed consolidated
financial statements since the date of acquisition. Had the results of
this subsidiary been included commencing with operations in 1996, the
reported results would not have been materially affected.
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6. SUBSEQUENT EVENT
In October 1996, the company reached an agreement with Reichhold Company,
based in Research Triangle Park, North Carolina, for the expansion of
Stepan's phthalic anhydride plant located at the company's Millsdale,
Illinois, facility. Under terms of the agreement, Reichhold Company will
provide funding for the expansion. The expansion is expected to be
completed by the fourth quarter of 1997. The capacity of the phthalic
anhydride plant will increase from 180 to 240 million pounds annually.
7. RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified
to conform with the 1996 presentation.
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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 1996, net cash from operations totaled $47.9
million, an increase of $24.5 million over the same period last year. The
current year increase was a product of higher earnings, insurance recoveries
and customer prepayments as well as decreased working capital requirements
compared to the prior year. For the current year period, net income and
customer prepayments were up by $4.0 million and $5.5 million, respectively.
Also contributing favorably were inventories which decreased by $7.9 million in
1996 compared to a $2.3 million increase in 1995.
Capital expenditures totaled $35.3 million for the first nine months of 1996,
up from $23.8 million for the same period last year. For all of 1996, cash
used for investing activities is expected to exceed last year's total mainly
due to higher capital spending.
Since December 31, 1995, total company debt has decreased by $3.0 million to
finish the third quarter at $112.9 million. Since year-end, the ratio of
long-term debt to long-term debt plus shareholders' equity (long-term debt
ratio) has decreased from 47.1 percent to 44.6 percent. For the balance of
1996, the company expects total company debt to remain essentially level with a
slight decrease in the long-term debt ratio from quarter to quarter.
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, 1996, the company had $15.2
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, acquisition and joint venture investments and other planned
financial commitments for the foreseeable future.
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RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Net income for the third quarter ended September 30, 1996, was $4.2 million, or
$.39 per share, compared to a $550,000 loss or $.08 per share reported for the
same quarter a year earlier. The loss in the prior year quarter stemmed from a
$5.0 million provision for legal and environmental costs that was prompted by a
remedial feasibility study. Net sales rose six percent to $137.9 million, from
$130.4 million reported last year. Net sales by product group were:
(Dollars in Thousands) Three Months
Ended September 30
-------------------------------
1996 1995 % Change
-------- -------- -----------
Net Sales:
Surfactants $100,611 $91,738 + 10
Polymers 29,851 29,931 -
Specialty Products 7,460 8,741 - 15
-------- --------
Total $137,922 $130,410 + 6
======== ========
Surfactants net sales increased due mainly to a 15 percent increase in sales
volume. Domestic net sales increased due principally to volume gains across
many product lines. Foreign operations reported higher sales due primarily to
the newly acquired German subsidiary and improved sales volumes in Canada and
Mexico.
Surfactants gross profit decreased 12 percent from $14.7 million to $12.9
million for the third quarter of 1996, in spite of the sales growth. Startup
losses incurred by the German subsidiary and the Philippine joint venture have
precipitated the decrease in gross profit. Furthermore, the Canadian and
Mexican gross profit slipped amid rising volumes that reflect heightened
competitive pressure on margins. Excluding large and unplanned maintenance
expenditures, domestic gross profit managed to report a moderate gain on
growing sales volume.
Polymers net sales were flat. Included in the results were higher net sales
for both polyurethane polyols and polyurethane systems which grew 41 and 16
percent, respectively, on much improved sales volumes. Offsetting the results
was a 31 percent drop in sales of phthalic anhydride (PA). The drop in PA
sales was precipitated by significantly lower selling prices due to a sharp
decline in raw material costs between years. PA sales volume actually grew by
nine percent.
Polymers gross profit for the quarter surged 95 percent to $7.4 million from
$3.8 million recorded in the prior year. Margins and sales volumes increased
for all polymers businesses, although polyurethane polyols accounted for most
of the improvement.
Specialty products net sales were down due to a decline in sales volume. Gross
profit slipped by $.9 million to $1.2 million as a result of the decline in
sales.
Operating expenses for the third quarter declined 37 percent from the same
quarter a year ago. The decline was entirely due to lower administrative
expenses which dropped 79 percent as a
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result of significantly lower legal and environmental costs. Last year's
quarter included a $5.0 million provision in response to a Remedial
Investigation Feasibility Study. The current quarter also benefited from a
$3.3 million insurance recovery related to the company's claims for coverage of
environmental risks. Marketing expenses rose 10 percent primarily due to
higher payroll expenses. Research and development expenses increased seven
percent due primarily to higher employee related spending as well as outside
contracting service expenses.
Interest expense for the quarter was 20 percent lower compared to the same
quarter last year. The decrease was due to a higher amount of interest being
capitalized as part of long term construction projects.
Nine Months Ended September 30, 1996 and 1995
Net income for the nine months ended September 30, 1996, was $15.0 million, or
$1.42 per share, up 36 percent from $11.0 million, or $1.02 per share reported
for the same period a year earlier. Net sales rose one percent to $406.5
million, from $401.5 million reported last year. Net sales by product group
were:
(Dollars in Thousands) Nine Months
Ended September 30
----------------------------
1996 1995 % Change
-------- -------- --------
Net Sales:
Surfactants $305,531 $286,016 +7
Polymers 77,265 90,745 -15
Specialty Products 23,695 24,693 -4
-------- --------
Total $406,491 $401,454 +1
======== ========
Surfactants net sales increased due mainly to a 10 percent increase in sales
volume. A large part of the volume gain stemmed from increased demand for high
active products in the United States. Foreign operations also reported higher
sales which was due primarily to the newly acquired German operation and
increased sales volumes in France and Canada.
Surfactants gross profit decreased eight percent from $53.3 million to $48.9
million for the first nine months of 1996. Both domestic and foreign
operations posted lower gross profit. Domestic gross profit decreased
primarily as a result of higher manufacturing expenses coupled with tightening
profit margins. Mexican gross profit was down 42 percent principally as a
result of a larger sales mix of lower margin products and to a lesser extent
lower sales volume. Canadian gross profit was also down as a result of lower
profit margins. France posted higher gross profit on higher sales volume,
while Germany reported losses. The company expects the German operation to
continue incurring losses in the fourth quarter. Initial losses reported by
the Philippine joint venture have also negatively impacted the Surfactants
earnings. For the full year, the German operation and Philippine joint venture
startup losses are expected to reduce earnings by approximately $.25 per share.
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Despite a five percent increase in sales volume, Polymers net sales decreased
sharply due primarily to a 40 percent drop in sales of phthalic anhydride (PA).
The decrease in PA sales was precipitated by significantly lower selling
prices due to a steep decline in raw material costs between years. Also
contributing to the reduced PA sales was a five percent decrease in sales
volume attributable to sluggish beginning of the year demand. Partially
offsetting the PA results were higher polyurethane polyols and polyurethane
systems sales on stronger sales volume.
Polymers gross profit for the first nine months increased 20 percent to $18.2
million from $15.2 million recorded in the prior year. The increase was
primarily attributable to improved margins. The five percent increase in
Polymers sales volume also contributed.
Specialty products net sales for the first nine months were down moderately
despite a much reduced sales volume. Sales for the same period a year ago
included some lower margin products which had since been discontinued. Gross
profit managed to improve by $.6 million to $5.2 million as a result of the
improved product mix between years.
Operating expenses for the first nine months declined 16 percent from the same
period a year ago. Administrative expenses decreased 44 percent as a result of
lower legal and environmental costs, as discussed in the quarter-to-quarter
analysis. Marketing expenses rose six percent primarily due to higher payroll
related expenses as well as increased advertising and promotional expenses.
Research and development expenses increased six percent due primarily to higher
payroll expenses as well as outside contracting service expenses.
Interest expense for the first nine months decreased 11 percent primarily as a
result of an increased amount of interest being capitalized for long term
construction projects.
The higher income tax provision and effective tax rate for the first nine
months were precipitated by a higher effective Mexican tax rate, as the prior
year included loss carryforward benefits. The inability to tax benefit losses
in Germany and the Philippines also contributed to a higher effective tax rate.
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
1996, company expenditures for capital projects related to the environment were
$4.6 million and should approximate $6.5 million for the full year 1996. These
projects are capitalized and typically depreciated over 10 years. Capital
spending on such projects is likely to be somewhat lower in future years as
1996 includes some larger projects. Recurring costs associated with the
operation and maintenance of facilities for waste treatment and disposal and
managing environmental compliance in ongoing operations at our manufacturing
locations were $5.7 million for the first nine months of 1996. While difficult
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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 $31.5 million at
September 30, 1996. At September 30, 1996, the company's reserve was $13.1
million for legal and environmental matters compared to $8.7 million at
December 31, 1995. During the first nine months of 1996, expenditures related
to legal and environmental matters approximated $6.1 million. At certain of
the sites, estimates cannot be made of the total costs of compliance or the
company's share of such costs; accordingly, the company is unable to predict
the effect thereof on future results of operations. In the event of one or
more adverse determinations in any annual or interim period, the impact on
results of operations for those periods could be material. However, based upon
the company's present belief as to its relative involvement at these sites,
other viable entities' responsibilities for cleanup and the extended period
over which any costs would be incurred, the company believes that these matters
will not have a material effect on the company's financial position. Certain
of these matters are discussed in Part II, Item 1, Legal Proceedings, of this
filing, in Item 3, Legal Proceedings, in the 1995 Form 10-K Annual Report and
in other filings of the company with the Securities and Exchange Commission,
which filings are available upon request from the company.
OTHER
Except for the historical information contained herein, the matters discussed
in this document 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, outcome of environmental
contingencies, availability of raw materials, and the general economic
conditions.
Part II OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Legal Proceedings
Reference is made to the company's Report Form 10-K for the year ended December
31, 1995, and the company's Report Form 10-Q for the quarter ended March 31,
1996, and the discussion relating to an alleged OSHA violation at the company's
Maywood, New Jersey plant. As indicated previously, the
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company contested the findings and after hearings and consultations with the
Department of Labor, the company entered into a stipulated settlement in the
amount of $115,000 for alleged violations.
Reference is made to the company's Report Form 10-K for the year ended December
31, 1992, and the Report Form 10-Q for the quarter ended September 30, 1995,
and Report Form 10-K for the year ended December 31, 1995, and Report Form 10-Q
for the quarter ended June 30, 1996, relating to the insurance recovery case
brought by the company against various insurers to recover the cost of
remediation at various sites (Stepan v. Admiral et.al.). The company has
reached an agreement for settlement of its claim against three additional
insurers in this action. In addition, on August 13th, the date the case was
scheduled to go to trial, the presiding judge in the Chancery Court removed the
case to the Law Division of Cook County. A new trial judge was assigned. The
company cannot at this time estimate the new trial date for this action, if
any. In addition, certain sites were excluded from the case filed in the State
of Illinois. The company has filed an action in New Jersey against the
remaining insurers in this case for sites that were excluded in Illinois but
for which the company believes proper venue and jurisdiction lies in New
Jersey.
Reference is made to the company's Report Form 10-Q for the quarters ended
September 30, 1993, September 30, 1994, September 30, 1995, and Report Form
10-K for the year ended December 31, 1995, regarding the D'Imperio cases and
particularly U.S. v. Jerome Lightman (92 CV 4710)(JBS)). As reported
previously, the Government had indicated a willingness to settle this case and
settlement discussions were underway. In response to an offer made by the
Government, the company has rejected the offer and the government has withdrawn
its offer to settle. Other PRPs involved in this action may or may not wish to
settle with the Government and at this time, the company has no opinion as to
whether or not the other parties will settle. In any event, because of the
company's rejection of the Government's offer, this case is proceeding to
trial. The company cannot predict the outcome of this case but believes it has
defenses to all of the Government's allegations.
Reference is made to the company's Report Form 10-Q for the quarter ended
September 30, 1993, and Report Form 10-K for the year ended December 31, 1995,
relating to the Biddle Sawyer site located in Keyport, New Jersey (Biddle
Sawyer Corporation v. American Cyanamid Company, U.S. District Court of New
Jersey CA-93-1063). Certain defendant parties named in this action, including
two oil companies and the United States Government, have reached settlement
agreements with the plaintiff in this action and have filed motions with the
court to have their settlements approved. As to the company, the court has
recommended non binding mediation which is to take place sometime prior to the
end of 1996, the company believes. Trial on the merits could yet be necessary
after the non binding mediation. If necessary, the trial will occur sometime
in 1997. The company cannot predict what the outcome of the trial will be nor
the outcome of the mediation but the company believes it has defenses to all of
plaintiff's allegations.
Reference is made to the company's Report Form 10-K for the years ended
December 31, 1991, 1992, 1994 and 1995, and Report Form 10-Q for the quarters
ended September 30, 1993, and September 30, 1995, regarding the company's
Maywood site. No remediation has occurred at this site and the company
anticipates now that the Record of Decision will be issued sometime in 1997.
The company has undertaken to remove drums from adjacent property which drums
were accumulated in the process
14
of the remedial investigation feasibility stage pursuant to the terms and
conditions of an Administrative Order on Consent.
In 1991, pursuant to the United States Environmental Protection Agency TSCA
Section 8(e) Compliance Audit Program (CAP) relating to the necessity of
reporting of toxicological studies concerning various chemicals, the
Environmental Protection Agency started a program known as CAP, the purpose of
which was to grant amnesty to companies who thought they should have filed
toxicological reports under TSCA 8(e) but which did not for whatever reason. By
joining the CAP program, a company was granted amnesty for filing reports in
exchange for the imposition of a fine of $6,000 per report up to a maximum of
$1,000,000. The company took advantage of this program in 1991 and in the
third quarter of 1996, was assessed an administrative penalty of $108,000
pursuant to this CAP program.
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
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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 8, 1996
1
Exhibit (11)
STEPAN COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the Three and Nine Months Ended September 30, 1996 and 1995
Unaudited
(In Thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Computation of per Share Earnings
- ---------------------------------
Net income $ 4,202 $ (550) $ 15,010 $ 10,977
Deduct dividends on preferred stock 267 267 801 802
--------- --------- --------- ---------
Income applicable to common stock $ 3,935 $ (817) $ 14,209 $ 10,175
========= ========= ========= =========
Weighted average number of shares outstanding 10,007 9,998 10,017 9,976
Per share earnings* $ 0.393 $ (0.082) $ 1.418 $ 1.020
========= ========= ========= =========
Computation of Per Share Primary Earnings
- -----------------------------------------
Income applicable to common stock (A) $ 3,935 N/A $ 14,209 $ 10,175
========= ========= ========= =========
Weighted average number of shares outstanding 10,007 10,017 9,976
Add net shares issuable from assumed exercise
of options (under treasury stock method) 265 235 171
--------- --------- ---------
Shares applicable to primary earnings 10,272 10,252 10,147
========= ========= =========
Per share primary earnings* $ 0.383 $ 1.386 $ 1.003
========= ========= =========
Dilutive effect 2.5% 2.3% 1.7%
Computation of Per Share Fully Diluted Earnings
- -----------------------------------------------
Net income (A) $ 4,202 N/A $ 15,010 $ 10,977
========= ========= ========= =========
Weighted average number of shares outstanding 10,007 10,017 9,976
Add net shares issuable from assumed exercise
of options (under treasury stock method) 265 243 171
Add weighted average shares issuable from
assumed conversion of convertible preferred stock 887 887 888
--------- --------- ---------
Shares applicable to fully diluted earnings 11,159 11,147 11,035
========= ========= =========
Per share fully diluted earnings* $ 0.377 $ 1.347 $ 0.995
========= ========= =========
Dilutive effect 4.1% 5.0% 2.5%
(A) Due to the net loss for the three months ended September 30, 1995, any
assumed conversion of common stock equivalents and convertible preferred
stock would have been antidilutive. Accordingly, dilutive calculations of
per share earnings were not applicable pursuant to APB No. 15.
__________
* Rounded
This calculation is submitted in accordance with Regulation S-K, item
601(b)(11).
5
1,000
9-MOS
DEC-31-1996
SEP-30-1996
3,920
0
85,104
0
46,502
148,164
489,379
284,313
373,680
87,714
106,208
10,118
0
19,924
101,972
373,680
406,491
406,491
334,267
375,724
0
0
5,362
25,405
10,395
15,010
0
0
0
15,010
1.42
1.35
