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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 19981999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the Transitiontransition period from to
Commission File No.Number 1-4462
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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, 60093
Northfield, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: 847-446-7500
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
5 1/2% Convertible Preferred Stock, no par value New York Stock Exchange
value Chicago Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Aggregate market value at February 28, 1999,29, 2000, of voting stock held by
nonaffiliates of the registrant: $161,889,000*$128,040,000*
Number of shares outstanding of each of the issuer's classes of common
stock as of February 28, 1999:29, 2000:
Class Outstanding at February 28, 199929, 2000
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Common Stock, $1 par value 9,678,1769,516,863
Documents Incorporated by Reference
Part of Form 10-K Document Incorporated
----------------- ---------------------
Part I, Item 1 19981999 Annual Report to Stockholders
Part II, Items 5-8 19981999 Annual Report to Stockholders
Part III, Items 10-12 Proxy Statement dated March 30, 19992000
*Based on reported ownership by all directors, officers and beneficial
owners of more than 5% of registrant's voting stock. However, this
determination does not constitute an admission of affiliate status for any of
these holders.
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PART I
Item 1. Business
Stepan Company and its subsidiaries (the "company") produce specialty and
intermediate chemicals which are sold to other manufacturers and then made
into a variety of end products. The company has three reportable segments:
surfactants, polymers and specialty products. Surfactants refer to chemical
agents which affect the interaction between two surfaces; they can provide
actions such as detergency (i.e., the ability of water to remove soil from
another surface), wetting and foaming, dispersing, emulsification (aiding two
dissimilar liquids to mix), demulsification and viscosity modifications.
Surfactants are the basic cleaning agent in detergents for washing clothes,
dishes, carpets, fine fabrics, floors and walls. Surfactants are also used for
the same purpose in shampoos and conditioners, toothpastes, cosmetics and
other personal care products. Commercial and industrial applications include
emulsifiers for agricultural insecticides and herbicides,products, emulsion polymers such as floor
polishes and latex foams and coatings, wetting and foaming agents for
wallboard manufacturing and surfactants for enhanced oil recovery. Polymers
derives its revenue from the sale of phthalic anhydride, polyols and
polyurethane foam systems used in plastics, building materials and
refrigeration industries. Specialty products sells chemicals used in food,
flavoring and pharmaceutical applications.
In mid 1998, the company purchased the remaining 50 percent ownership of
its Colombian joint venture. As a result, Stepan Colombiana de Quimicos
(Stepan Colombia) became a wholly owned subsidiary.
Effective June 30, 1998, the company acquired selected specialty surfactant
product lines from E.I. DuPont De Nemours Company. The acquired business
consists of phosphate esters, specialty ethoxylates and other specialty
quaternaries and polymers sold to the plastic and fiber industries. The
product lines supplement the company's existing surfactants and polymers
businesses and will be produced in current company manufacturing plants.
On November 11, 1998, the company's wholly owned subsidiary, Stepan Canada,
Inc., acquired the Canadian anionic and cationic surfactant business from
Boehme Filatex Canada, Inc. The acquired product lines are sold primarily into
the personal care and the institutional cleaning product markets.
MARKETING AND COMPETITION
Principal markets for surfactants are manufacturers of detergents,
shampoos, lotions, toothpastes and cosmetics. Surfactants are also sold to the
producers of emulsifiers and lubricating products. The company also is a
principal provider of polymers used in construction, refrigeration,
automotive, boating and other consumer product industries. Specialty products
are used primarily by food and pharmaceutical manufacturers.
The company does not sell directly to the retail market, but sells to a
wide range of manufacturers in many industries and has many competitors. The
principal methods of competition are product performance, price and
adaptability to the specific needs of individual customers. These factors
allow the company to compete on a basis other than solely price, reducing the
severity of competition as experienced in the sales of commodity chemicals
having identical performance characteristics. The company is a leading
merchant producer of surfactants in the United States. In the case of
surfactants, much of the company's competition comes from the internal
divisions of larger companies, as well as several large national and regional
producers. In the manufacture of polymers, the company competes with the
chemical divisions of several large companies, as well as with other small
specialty chemical manufacturers. In recent years, the company has also faced
periodic competition from foreign imports of phthalic anhydride. In specialty
products, the company competes with several large firms plus numerous small
companies. The company does not expect any significant changes in the
competitive environment in the foreseeable future.
1
MAJOR CUSTOMER AND BACKLOG
The company does not have any one single customer whose business represents
more than 10 percent of the company's consolidated revenue. Most of the
company's business is essentially on the "spot delivery basis" and does not
involve a significant backlog. The company does have some contract
arrangements with certain customers, but purchases are generally contingent on
purchaser requirements.
ENERGY SOURCES
Substantially all of the company's manufacturing plants operate on
electricity and interruptable gas purchased from local utilities. During peak
heating demand periods, gas service to all plants may be temporarily
interrupted for varying periods ranging from a few days to several months. The
plants operate on fuel oil during these gas interruption periods. The company
has not experienced any plant shutdowns or adverse effects upon its business
in recent years that were caused by a lack of available energy sources.
1
RAW MATERIALS
The most important raw materials used by the company are of a petroleum or
vegetable nature. For 1999,2000, the company has commitments from suppliers to
cover its forecasted requirements and is not substantially dependent upon any
one supplier.
RESEARCH AND DEVELOPMENT
The company maintains an active research and development program to assist
in the discovery and commercialization of new knowledge with the intent that
such effort will be useful in developing a new product or in bringing about a
significant improvement to an existing product or process. Total expenses for
research and development during 1998, 1997 and 1996 were $12,219,000,
$12,404,000, and $12,469,000, respectively. During1999, 1998 and 1997 the researchwere $13,113,000,
$12,219,000, and development staff consisted of 188 and 182 employees,$12,404,000, respectively. The balance of expenses reflected
on the Consolidated Statements of Income relates to technical services which
include routine product testing, quality control and sales support service.
ENVIRONMENTAL COMPLIANCE
Compliance with applicable federal, state and local regulations regarding
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, resulted in capital expenditures by the company
of approximately $7,136,000$2,740,000 during 1998. Such capital expenditures in 1999 and should approximate $4.0 to $5.0 million.that amount in
2000. These expenditures represented approximately 16eight percent of the
company's capital expenditures in 19981999 and are expected to be approximately
14seven percent of such expenditures in 1999.2000. These expenditures, when incurred,
are depreciated and charged on a straight-line basis to pre-tax earnings over
their respective useful lives which are typically 10 years. Compliance with
such regulations is not expected to have a material adverse effect on the
company's earnings and competitive position in the foreseeable future.
EMPLOYMENT
At December 31, 19981999 and 1997,1998, the company employed worldwide 1,3721,365 and
1,2921,372 persons, respectively.
FOREIGN OPERATIONS
See Note 13,14, Segment Reporting, on page 3533 of the company's 19981999 Annual
Report to Stockholders.
2
SEGMENTS
The company has three reportable segments: surfactants, polymers and
specialty products. Their contribution to sales for the three years ended
December 31, 1998, were:
Specialty
Surfactants Polymers Products
----------- -------- ---------
1998....................................... 78% 18% 4%
1997....................................... 79% 18% 3%
1996....................................... 77% 19% 4%
See Note 13,14, Segment Reporting, on page 3533 of the company's 19981999 Annual
Report to Stockholders.
Item 2. Properties
The company's corporate headquarters and central research laboratories are
located in Northfield, Illinois. The Northfield facilities contain
approximately 70,000 square feet on an eight acre site. In addition, the
company leases 49,000 square feet of office space in a nearby office complex.
Stepan Canada maintains a leased sales office in Mississagua, Canada.
Stepan Mexico maintains a leased sales office in Mexico City, Mexico.
Surfactants are produced at four plants in the United States and five
wholly owned subsidiaries: one in France, Canada, Mexico, Colombia and
Germany. The principal plant is located on a 626 acre site at Millsdale
(Joliet), Illinois. A second plant is located on a 44 acre tract in
Fieldsboro, New Jersey. West Coast operations are conducted on an eight acre
site in Anaheim, California. A fourth plant is located on a 175 acre site in
Winder, Georgia. The plant, laboratory and office of Stepan Europe are located
on a 20 acre site near Grenoble, France. Stepan Canada, Inc. is located on a
70 acre leased, with an option to purchase, site in Longford Mills, Ontario,
Canada. Stepan Mexico is located on a 13 acre site in Matamoros, Mexico.
Stepan Germany is located on a five
2
acre site in Cologne, Germany. Stepan Colombia is located on a five acre site
in Manizales, Colombia. The phthalic anhydride, polyurethane systems and
polyurethane polyols plants are also located at Millsdale. Specialty products
are mainly produced at a plant located on a 19 acre site in Maywood, New
Jersey.
The company owns all of the foregoing facilities except the leased office
space and Canadian plant site mentioned above. The company believes these
properties are adequate for its operations.
Item 3. Legal Proceedings
OnAs reported previously, on October 22, 1998,21, 1999, the company received a general notice letter
indicating that the company might be a potentially responsible party at the
Casmalia Disposal Sitereached an
agreement in Santa Barbara County, California. Following request
for information, the company was apprised that it is considered to be a de
minimis party at this site and that the United States Environmental Protection
Agency (USEPA) has allocated the company an amount of $269,955principle to settle an action entitled Gilberg v. Stepan et al.,
now known as Accurso v. Stepan et al. (L-1064-98-MT; Case Code No. 242)
alleging possible personal injuries related to environmental claims in New
Jersey. Final settlement of this liability with regard to this site. Becauseaction occurred, as scheduled, on December 1,
1999. All terms of the way in which the numbers at
this site were arrived at by the USEPA, the company has joinedsettlement are confidential pursuant to a de minimis
settling parties group to see if this amount can be reduced. Discussions with
the EPA are continuing.
On December 28, 1998, the company received notification that it may be a
potentially responsible party at the Four County Landfill in DeLonge, Indianacourt order.
As previously reported, as a result of the company's Maywood, New Jersey operations utilizing Chem Met
Inc. as a waste hauler. The allegation is that Chem Met reportedly
transshipped wastes from the company's Maywood, New Jersey facility to the
site. Whilethis settlement, the company denies liability at this site, the company has entered
into an Agreed Order for Remedial Design/Remedial Action for Operable Unit 1
and has paid the amount of $400 in settlement of its obligations thereunder.recorded a
third quarter $6.3 million after-tax charge to earnings.
As reported previously, the company was notified pursuant to Section 107A
of the Comprehensive Environmental Response Compensation and Liability Act
(CERCLA)has been named as amended that it may bea potentially
3
responsible for the response costs that have been incurred with respect to a
landfill site known as the Ewan Property Superfund Site located in Shawong
Township, Burlington County, New Jersey. The company's alleged liability at
this site arises out of the alleged illegal disposal of waste at this site by
Lightman Drum Companyparty (PRP) in the early 1970s. The company and other PRPs have
agreed to a non-binding allocation process and have been funding remediation
activities at this site. The company is however, contesting its liability at
this site as more fully described below in U.S.case USEPA v. Jerome Lightman (92CV4710)
(JVS).
As reported previously,(92 CV 4710)
(JBS) which involves the Ewan and D'Imperio Superfund Sites located in New
Jersey. Trial on the issue of the company's liability at these sites is
expected to be completed in March 2000. Should the company was namedlose, there would
then be a third-party defendant in an
action entitled U.S. v. Jerome Lightman (92CV4710) (JVS) which case originally
involved onlytrial as to the Government's claim for pastcompany's allocated share of clean-up costs at the landfill sitethese
sites. This latter trial would occur, if at D'Imperio locatedall, in Hamilton Township, New Jersey. This site is another one
at which Lightman Drum Company allegedly illegally disposed of waste. Cross-
claims were filed by each potentially responsible party against other
potentially responsible parties and the suit as to these cross-claimsfiscal 2000. The company
believes it has been
expanded to include the Ewan Shawong Township site as well. As an
accommodation, the company has agreed previously to make payment, without
admitting its liability,adequate defenses to the Government forissue of liability. In the Government's past costs
with regardevent of
an unfavorable outcome related to this site. The Consent Order with the Government has been
lodged and the company has filed objections to it, becauseliability, the company believes it has
defenses to the past costs. Payment of past costs removed the
Government from the lawsuit but the cross-claims filed by each potentially
responsible party against the other party are left. As to these cross-claims,adequate reserves. On a related matter, the company has filed an appeal to the
United States Third Circuit Court of Appeals objecting to the lodging of a
motion for summary judgment and motionpartial consent decree in favor of the United States Government in this
action. Under the partial consent decree, the government recovered past costs
at the site from all PRPs including the company. The company paid its assessed
share but by objecting to strike other
third-party defendants' expert witnesses. It is anticipated that a ruling from
the Federal District Court in Trenton, New Jersey will appear in May or June
of 1999. If the company's motions are granted,partial consent decree, the company believes that its
liability at bothis seeking
to recover back the Ewan and D'Imperio sites will cease.
As to other following sites:
- --ABC Barrel & Drum Co. -- Detroit, Michigan
- --Batavia Landfill -- Batavia, New York
- --Bofors Nobel Site -- Muskegon, Michigan
- --Chemsol, Inc. -- Piscataway, New Jersey
- --Chem-Trol Pollution Services, Inc. -- Hamburg, New York
- --Delilah Road Site -- Atlantic County, New Jersey
- --Gallup's Quarry -- Plainfield, Connecticut
- --Iron Horse Park/Shaffer Landfill -- Billerica, Massachusetts
- --Nyanza Chemical Waste Dump -- Ashland, Massachusetts
- --Memphis Container aka Tri-State Drums -- Memphis, Shelby County, Tennessee
- --Twin Cities -- Arvada, Colorado
- --and Virginia RR Washout,
all of which have been previously reported, there has been no further activity
or inquiry since the first notice.sums it paid.
As reported previously, in November 1992, the company received notification
from Olin Corporation that Olin Corporation had incurred costs in cleaning up
a plant site formerly owned by the company in Wilmington, Massachusetts. The
company entered into a settlement agreement with Olin which resolved its
liability with regard to the company's liability for environmental matters at
this site, if any. Subsequent thereto, Olin Corporation sued three prior
owners of this site who in turn, bought the company and is a third-party
defendant in an action entitled Olin Corporation v. Fisions plc, et al., Civil
Action No. 93-11166-MLW. The company subsequently filed a motion for
contribution protection and was granted that protection with regard to all
matters with the exception of Resource, Conservation and Recovery Act claims
brought by the third party against the company. That motion is still pending
in the Federal District Court in Boston. Discovery continues in the case and
the company cannot estimate what its liability, if any, will be for this
third-party RCRA claim, if any, but believes it is protected from liability
under the laws of contribution of the Commonwealth of Massachusetts.
The company's site in Maywood, New Jersey and
property formerly owned by the company adjacent to its current site, were
listed on the National Priorities List in September 1993 pursuant to the
provisions of the 4
Comprehensive Environmental Response Compensation and
Liabilities Act because of certain alleged chemical contaminations.contamination. Pursuant to
an Administrative Order on Consent entered into between the United States
Environmental Protection Agency (USEPA) and the company for property formerly
owned by the company, and the issuance of an order by the USEPA to the company
for property currently owned by the company, the company has completed a
Remedial Investigation Feasibility studyStudy in 1994. The company has been
awaiting the issuance of a Record of Decision (ROD) from the USEPA which would
relate to both the currently owned and formerly owned company property and
would recommend the type of remediation required on each property. It is now estimated that a
Record of DecisionThe company
does not know when the ROD will be issued by the USEPA in the third quarter of 1999.
As to radiological contamination on the company's property and other
properties in Maywood, Rochelle Park and Lodi, New Jersey,USEPA.
In 1985, the company entered into a Memorandum of UnderstandingCooperative Agreement with the United
States of America represented by the Department of Energy (Agreement) in 1985..
Pursuant to this Agreement, the Department of Energy took title to
radiological contaminated materials and was to remediate, at its expense, all
radiological contamination(byproduct material and source material) waste on the company's
property and other properties in Maywood, New Jersey. The Maywood property (and portions of the
Maywood, Rochelle Park
and Lodi areas. The propertiessurrounding area) were remediated by the Department of Energy under the
Formerly Utilized Sites Remedial Action Program, a federal program under which
the U.S. Government undertook to remediate properties which were used to
process radiological material for the U.S. Government. In 1997, responsibility
for this clean-up was transferred to the United States Army Corps of Engineers
(USACE). On January 29, 1999, the company received a copy of the USACE Report
to Congress dated January 1998 in which the USACE first expressed their
intention to evaluate, with the USEPA, whether the company and/or other
parties might be responsible for cost recovery or contributions for work
performedcontribution claims related
to the Maywood site. Since that report has been issued by the USACE, and to turn over such evaluations at some time in the future, toUSACE
has requested legal advice from the Department of Justice foras to the
Departmentinterpretation of Justice to
determine whether or not cost recovery or contribution claims are appropriate
against the company or other parties who may be potentially responsible for
radiological contamination from commercial operations or for chemically
contaminating the radiological contamination.
As no claim for contribution or cost recoveryCooperative Agreement. There has been madeno report issued
by the Department of Justice as of this date. Based upon the company cannot make any estimate as to its
liability, if any. However, given the fact that the company has the Agreementcompany's
agreement with the United States of America, covering radiological remediation, it is the company's belief that
its liability, if any, has been resolved with regard to the United States of
America asAmerica.
3
Reference is made to the radiological contamination, including
radiological contaminationCasmalia Disposal Site located in Santa Barbara
County, California. The company has settled its de minimis liability at this
site with no material impact on the financial condition of the company.
On December 13, 1999, the company was served in an action entitled
Pennsauken Solid Waste Management Authority v. State of New Jersey, et al. The
company filed its answer to this action. It appears that although the company
was named as a party, there are no allegations regarding dates of hauling or
amounts. The company does not believe its liability, if any, will have a
material impact on the financial condition of the company.
As to the following sites:
- --ABC Barrel & Drum Co. -- Detroit, Michigan
- --Batavia Landfill -- Batavia, New York
- --Bofors Nobel Site -- Muskegon, Michigan
- --Chemsol, Inc. -- Piscataway, New Jersey
- --Chem-Trol Pollution Services, Inc. -- Hamburg, New York
- --Delilah Road Site -- Atlantic County, New Jersey
- --Gallup's Quarry -- Plainfield, Connecticut
- --Iron Horse Park/Shaffer Landfill -- Billerica, Massachusetts
- --Memphis Container aka Tri-State Drums -- Memphis, Shelby County, Tennessee
- --Nyanza Chemical Waste Dump -- Ashland, Massachusetts
- --Twin Cities -- Arvada, Colorado
- --Virginia RR Washout,
all of which have been previously reported, there has been no further activity
or inquiry since the first notice.
Reference is co-mingledmade to the suit Olin Corporation v. Fisons plc et al. (93-
11166-MLW). The company was dismissed from this action by the federal court
with other chemicals.the right of Nor-Am, one of the defendants, to file a Motion for
Reconsideration. Nor-Am filed a Motion for Reconsideration of the company's
dismissal on June 28, 1999. Based on a notation on the federal court's docket
sheet, the company believes that the court denied Nor-Am's Motion for
Reconsideration on February 9, 2000. The company believes its liability at
this site has been fully resolved.
On February 10, 2000, the company was served with an Administrative
Complaint filed by Region 5 of the United States Environmental Protection
Agency (FIFRA-5-2000-011) alleging violations of the Federal Insecticide,
Fungicide and Rodenticide Act. The total proposed penalty is $141,000. The
company has until April 4, 2000, to file a responsive answer in this matter.
The company is currently investigating these allegations and therefore, cannot
predict what its liability, if any, will be in this case.
Item 4. Results of Votes of Security Holders
No matters were submitted to stockholders during the fourth quarter of the
fiscal year ended December 31, 1998.1999.
Executive Officers of the Registrant
Executive Officers are elected annually by the Board of Directors at the
first meeting following the Annual Meeting of Stockholders to serve until the
next annual meeting of the Board and until their respective successors are
duly elected and qualified.
Effective February 15, 1999, the company announced that F. Quinn Stepan, Jr., has beenwas elected President
and Chief Operating Officer. He was previously Vice President and General
Manager--Surfactants as of January 1, 1997, Vice President--Global Laundry and
Cleaning Products as of May 1996 and Director--
BusinessDirector--Business Management as of May
1992. Mr. F. Quinn Stepan, Sr., who has served the company as Chairman and
Chief Executive Officer since 1984 and as President since 1973, will remainremains
Chairman and Chief Executive Officer.
4
Effective February 16, 1999, John V. Venegoni was appointed Corporate Vice President
and General Manager--Surfactants. Since May 1992 until May 1996, he served as
a Senior Business Manager--Consumer Products. From May 1996, until present,February
16, 1999, he was Director--Global Personal Care.
5
Charles W. Given retired in 1998. He held a number of positions in the
company, most recently as Vice President--Corporate Development.
Effective May 22, 1995, Jeffrey W. Bartlett, formerly Vice President,
General Counsel and Corporate Secretary, was appointed Vice President, General
Counsel, Regulatory Affairs and Corporate Secretary.Secretary* (see below). Effective
January 1, 1995, James A. Hartlage, who was formerly the Senior Vice
President--
Technology,President--Technology, was appointed Senior Vice President--Technology and
Operations. In addition, during 1995 he assumed Administrative
responsibilities. Effective January 1, 1995, Earl H. Wagener, formerly Vice
President--Product Development, was appointed Vice President--Research and
Development. All other executive officers have remained in their current
capacity for over five years.
The Executive Officers of the company, their ages as of February 28, 1999,29, 2000,
and certain other information are as follows:
Year First
Name Age Title Elected Officer
---- --- ----- ---------------
F. Quinn Stepan...... 61Stepan......... 62 Chairman and Chief Executive 1967
Officer
1967F. Quinn Stepan, Jr. ... 39 President and Chief Operating 1997
Officer
James A. Hartlage.... 61Hartlage....... 62 Senior Vice President--TechnologyPresident-- 1980
Technology and Operations
1980
Ronald L. Siemon...... 61Siemon........ 62 Vice President and General 1992
Manager--Polymers 1992
Jeffrey W. 55Bartlett*.... 56 Vice President, General 1983
Counsel, Regulatory Affairs 1983
Bartlett.... and
Corporate Secretary
Walter J. Klein....... 52Klein......... 53 Vice President--Finance 1985
Mickey Mirghanbari. 61Mirghanbari...... 62 Vice President--Manufacturing 1992
and Engineering
1992
Earl H. Wagener..... 58Wagener......... 59 Vice President--Research and Development 1995
F. Quinn
Stepan, Jr.. 38 President and Chief Operating Officer 1997Development
John V. Venegoni.... 40Venegoni........ 41 Vice President and General 1999
Manager--Surfactants 1999
*Jeffrey W. Bartlett passed away on March 21, 2000.
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
(a) The company's common stock is listed and traded on both the New York
Stock Exchange and the Chicago Stock Exchange. See page 3735 of the company's
19981999 Annual Report to Stockholders for market price information which is
incorporated by reference herein.
The company's 5 1/2 percent convertible preferred stock is listed and
traded on the New York Stock Exchange and the Chicago Stock Exchange. See Note
7 on page 3129 of the company's 19981999 Annual Report to Stockholders for the
description of the preferred stockholders' rights which is incorporated by
reference herein.
From time to time the company purchases shares of its common stock in the
open market and in block transactions from dealers for the purpose of funding
option grants under its stock option plans and deferred compensation plans for
directors and officers.
(b) On February 28, 1999,29, 2000, there were 1,5221,423 holders of common stock of the
company.
(c) See page 3735 of the company's 19981999 Annual Report to Stockholders for
dividend information which is incorporated by reference herein. Also see Note
4 on page 2928 of the company's 19981999 Annual Report to Stockholders which sets
forth the restrictive covenants covering dividends.
Item 6. Selected Financial Data
See page 3735 of the company's 19981999 Annual Report to Stockholders for a five
year summary of selected financial information which is incorporated by
reference herein.
65
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Quantitative and Qualitative Disclosures about
Market Risk
See pages 14 through 2019 of the company's 19981999 Annual Report to Stockholders
which is incorporated by reference herein.
Some information contained in the Management's Discussion and Analysis is
forward looking and involves risks and uncertainties. The results achieved
this year are not necessarily an indication of future prospects for the
company. Actual results in future years 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, foreign currency fluctuations and general economic
conditions.
Item 8. Financial Statements and Supplementary Data
See pages 2120 through 3634 of the company's 19981999 Annual Report to Stockholders
for the company's consolidated financial statements, notes to the consolidated
financial statements and auditors' report which are incorporated by reference
herein.
See page 3735 of the company's 19981999 Annual Report to Stockholders for
selected quarterly financial data which is incorporated by reference herein.
Item 9. Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
Mr. Paul Stepan is a general partner of a partnership having an interest in
certain real estate which is unrelated to the business of the company. The
partnership of which Mr. Paul Stepan is a general partner, filed in bankruptcy
for Chapter 11 protection in February, 1998. Mr. Paul Stepan advised that a
refinancing package and successful discharge from Chapter 11 occurred.
For additional information about the company's Directors, see pages 3
through 5 of the company's Proxy Statement dated March 30, 1999,2000, for the
Annual Meeting of Stockholders which are incorporated by reference herein.
(b) Executive Officers
See Executive Officers of the Registrant in Part I above.
Item 11. Executive Compensation
See pages 7 and 8 of the company's Proxy Statement dated March 30, 1999,2000,
for the Annual Meeting of the Stockholders which are incorporated by reference
herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See pages 1 through 6 of the company's Proxy Statement dated March 30,
1999,2000, for the Annual Meeting of Stockholders which are incorporated by
reference herein.
76
Item 13. Certain Relationships and Related Transactions
None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) & (d) Financial Statements and Schedules
See the Index to the Consolidated Financial Statements and Supplemental
Schedule filed herewith.
(b) Reports on Form 8-K
NoneA report on Form 8-K was filed on October 22, 1999, regarding quarterly
earnings.
(c) Exhibits
See Exhibit Index filed herewith.
87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Stepan Company
By Jeffrey W. Bartlett/s/ Walter J. Klein
By: _________________________________
Vice President, General Counsel,
Regulatory Affairs and Corporate
SecretaryPresident--Finance
March 29, 199930, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ F. Quinn Stepan Chairman, Chief Executive March 29, 1999
____________________________________ Officer and Director
F. Quinn Stepan
30, 2000
______________________________________ Officer and Director
F. Quinn Stepan Name
/s/ F. Quinn Stepan, Jr. President, Chief Operating March 29, 1999
____________________________________30, 2000
______________________________________ Officer and InterimDirector
F. Quinn Stepan, Jr.
Director/s/ Walter J. Klein Vice President--Finance, March 29, 1999
____________________________________30, 2000
______________________________________ Principal Financial and
Walter J. Klein Accounting Officer
/s/ James A. Hartlage Senior Vice President-- March 29, 1999
____________________________________30, 2000
______________________________________ Technology and Operations
James A. Hartlage and Director
/s/ Thomas F. Grojean Director March 29, 1999
____________________________________30, 2000
______________________________________
Thomas F. Grojean
/s/ Paul H. Stepan Director March 29, 1999
____________________________________30, 2000
______________________________________
Paul H. Stepan
/s/ Robert D. Cadieux Director March 29, 1999
____________________________________30, 2000
______________________________________
Robert D. Cadieux
/s/ Robert G. Potter Director March 29, 1999
____________________________________30, 2000
______________________________________
Robert G. Potter
Jeffrey W. Bartlett,Walter J. Klein, pursuant to powers of attorney executed by each of the
directors and officers listed above, does hereby execute this report on behalf
of each of such directors and officers in the capacity in which the name of
each appears above.
Jeffrey W. BartlettWalter J. Klein
March 29, 1999
930, 2000
8
INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS
AND
SUPPLEMENTAL SCHEDULE
A copy of Stepan Company's Annual Report to Stockholders for the year ended
December 31, 1998,1999, has been filed as an exhibit to this Annual Report on Form
10-K. Pages 2120 through 3634 of such Annual Report to Stockholders contain the
Consolidated Balance Sheets as of December 31, 19981999 and 1997,1998, the Consolidated
Statements of Income, Stockholders' Equity and Cash Flows and Notes to
Consolidated Financial Statements for the three years ended December 31, 1999,
1998 1997 and 1996,1997, and the Auditors' Report covering the aforementioned financial
statements. These consolidated financial statements and the Auditors' Report
thereon are incorporated herein by reference.
Supplemental Schedule II--Allowance for Doubtful Accounts--to Consolidated
Financial Statements, which is required to comply with regulation S-X, and the
Auditors' report on such Supplemental Schedule are included on pages 1110 and 1211
of this Form 10-K.
Certain supplemental schedules are not submitted because they are not
applicable or not required, or because the required information is included in
the financial statements or notes thereto.
109
STEPAN COMPANY
SUPPLEMENTAL SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 19981999
AS REQUIRED TO COMPLY WITH REGULATION S-X
Schedule II--Allowance for Doubtful Accounts:
Below is an analysis of the allowance for doubtful accounts for the three
years ended December 31:
1999 1998 1997 1996
------ ------ ------
(In Thousands)
Balance, Beginning of Year.............................. $2,263 $2,121 $2,074 $1,744
Provision charged to income........................... 222 339 548 442
Accounts written off, net of recoveries............... (96) (197) (501) (112)
------ ------ ------
Balance, End of Year.................................... $2,389 $2,263 $2,121 $2,074
====== ====== ======
1110
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Stepan Company:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Stepan Company's Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 11, 1999.10, 2000. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
schedule listed in the index of financial statements is the responsibility of
the company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois,
February 10, 2000
11 1999
12
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
(3)a Copy of the Certificate of Incorporation, and the Certificates of
Amendment of Certificate of Incorporation, dated May 6, 1968, April
20, 1972, April 16, 1973, December 2, 1983. Filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1983, and
incorporated herein by reference.
(3)a(1) Copy of Certificate of Amendment of Certificate of Incorporation,
dated May 24, 1999. (Note 13)
(3)b Copy of the Bylaws of the company as amended through February 15,
1999. (Note 14)
(3)c Copy of Certificate of Amendment, dated April 28, 1993, to Article
IV of Certificate of Incorporation. (Note 7)
(3)d Copy of Certificate of Amendment, dated May 5, 1987, to Article X of
Certificate of Incorporation. (Note 1)
(4)h Copy of Loan Agreement, dated June 15, 1995, with Aid Association
for Lutherans, the Northwestern Mutual Life Insurance Company and
The Mutual Life Insurance Company of New York. (Note 10)
(4)i Copy of Revolving Credit and Term Loan Agreement, dated February 20,
1990, with The First National Bank of Chicago and the amendment,
dated March 21, 1990. (Note 3)
(4)m Copy of Second Amendment, dated September 20, 1991, amending
Revolving Credit and Term Loan Agreement, dated February 20, 1990
(see (4)i above). (Note 4)
(4)m(1) Copy of Third Amendment, dated December 29, 1992, amending Revolving
Credit and Term Loan Agreement, dated February 20, 1990 (see (4)i
and (4)m above). (Note 8)
(4)m(2) Copy of Fourth Amendment, dated May 31, 1994, amending Revolving
Credit and Term Loan Agreement, dated February 20, 1990 (see (4)i,
(4)m and (4)m(1) above). (Note 9)
(4)n(1) Copy of Certificate of Designation, Preferences and Rights of the 5
1/2% Convertible Preferred Stock, without Par Value and the Amended
Certificate, dated August 12, 1992 and April 28, 1993. (Note 7)
(4)n(2) Copy of Issuer Tender Offer Statement on Schedule 13E-4, dated
August 13, 1992. (Note 6)
(4)n(3) Copy of Amendment No. 1 to Schedule 13E-4 (see also (4)n(2) above),
dated September 23, 1992. (Note 6)
(4)n(4) Copy of the company's Form 8-A, dated August 13, 1992. (Note 6)
(4)o Copy of Revolving Credit and Term Loan Agreement, dated January 9,
1998, with The First National Bank of Chicago. (Note 11)
(4)o(1) Copy of Certificate of Amendment, dated March 12, 1999, amending
Revolving Credit and Term Loan Agreement, dated January 9, 1998.
(Note 12)
(4)p Copy of Term Loan Agreement, dated October 1, 1998, with The
Northwestern Mutual Life Insurance Company and Connecticut General
Life Insurance Company. (Note 14)
In accordance with 601(b)(4) (iii) of Regulation S-K, certain debt
instruments are omitted, where the amount of securities authorized
under such instruments does not exceed 10% of the total consolidated
assets of the Registrant. Copies of such instruments will be
furnished to the Commission upon request.
(10)a Description of the 1965 Directors Deferred Compensation Plan. (Note
2)
(10)b Copy of the 1969 Management Incentive Compensation Plan as amended
and restated as of January 1, 1992. (Note 5)
(10)d Copy of the 1982 Stock Option Plan. (Note 2)
(10)e Copy of Leveraged Employee Stock Ownership Plan. (Note 3)
Exhibit
No. Description
------- -----------
(10)e Copy of Leveraged Employee Stock Ownership Plan. (Note 3)
(10)f Copy of the company's 1992 Stock Option Plan. (Note 5)
(13) Copy of the company's 19981999 Annual Report to Stockholders.
(18) Letter re change in accounting principle for the year ended December
31, 1992. (Note 8)
(21) Subsidiaries of Registrant at December 31, 1998.1999.
(23) Consent of Independent Public Accountants.
(24) Power of Attorney.
(27) Financial Data Schedule.
Notes To Exhibit Index
Note
No.
----
1. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1987, and incorporated herein by reference.
2. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1987,1988, and incorporated herein by reference.
2.3. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1988,1989, and incorporated herein by reference.
3.4. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991, and incorporated herein by reference.
5. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992, and incorporated herein by reference.
6. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992, and incorporated herein by reference.
7. Filed with the company's Current Report on Form 8-K filed on April 28,
1993, and incorporated herein by reference.
8. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1989,1992, and incorporated herein by reference.
4.9. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference.
10. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended SeptemberJune 30, 1991,1995, and incorporated herein by reference.
5.11. Filed with the company's Annual report on Form 10-K for the year ended
December 31, 1997, and incorporated herein by reference.
12. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992,1999, and incorporated herein by reference.
6.13. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended SeptemberJune 30, 1992,1999, and incorporated herein by reference.
7. Filed with the company's Current Report on Form 8-K filed on April 28,
1993, and incorporated herein by reference.
8.14. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by reference.
9. Filed with the company's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference.
10. Filed with the company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference.
11. Filed with the company's Annual report on Form 10-K for the year ended
December 31, 1997,1998, and incorporated herein by reference.