UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q/A
Amendment No. 1
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
[_] 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 April 30, 2002
------------------------------------ ------------------------------------
Common Stock, $1 par value 8,859,003
Explanatory Note
This amendment to Form 10-Q is being filed to give effect to the restatement of
Stepan Company's condensed consolidated financial statements for the quarters
ended March 31, 2002 and 2001, and the year ended December 31, 2001, as
discussed in Note 3 to the Condensed Consolidated Financial Statements.
Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Dollars in thousands) Unaudited
ASSETS 2002 2001
------
As Restated* As Restated*
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,735 $ 4,224
Receivables, net 109,383 103,190
Inventories (Note 4) 54,797 59,330
Deferred income taxes 8,696 8,810
Other current assets 7,300 5,233
----------- -----------
Total current assets 182,911 180,787
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Cost 670,978 666,117
Less: accumulated depreciation (464,333) (454,684)
------------ ------------
Property, plant and equipment, net 206,645 211,433
----------- -----------
LONG TERM INVESTMENTS 7,090 7,674
----------- -----------
GOODWILL, NET (Note 9) 6,058 6,100
----------- -----------
OTHER INTANGIBLE ASSETS, NET (Note 9) 12,910 13,293
----------- -----------
OTHER NON-CURRENT ASSETS 20,949 19,468
----------- -----------
Total assets $ 436,563 $ 438,755
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,840 $ 10,745
Accounts payable 55,186 62,410
Accrued liabilities 32,511 35,004
----------- -----------
Total current liabilities 97,537 108,159
----------- -----------
DEFERRED INCOME TAXES 27,827 28,603
----------- -----------
LONG-TERM DEBT, less current maturities 117,180 109,588
----------- -----------
DEFERRED COMPENSATION (Note 2) 17,557 16,653
----------- -----------
OTHER NON-CURRENT LIABILITIES 21,239 21,401
----------- -----------
STOCKHOLDERS' EQUITY:
5-1/2% convertible preferred stock, cumulative, voting without par value;
authorized 2,000,000 shares; issued 583,252 shares in 2002 and 2001 14,581 14,581
Common stock, $1 par value; authorized 30,000,000 shares;
issued 9,690,559 shares in 2002 and 9,604,003 shares in 2001 9,691 9,604
Additional paid-in capital 18,010 16,531
Accumulated other comprehensive loss (Note 7) (16,992) (15,870)
Retained earnings (approximately $50,346 unrestricted in 2002 and $48,987 in 2001) 146,656 144,658
Less: Treasury stock shares of 844,790 in 2002 and 782,232 shares in 2001, at cost (16,723) (15,153)
----------- -----------
Stockholders' equity 155,223 154,351
----------- -----------
Total liabilities and stockholders' equity $ 436,563 $ 438,755
=========== ===========
* See Note 3 for explanation of restatement.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
STEPAN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2002 and 2001
Unaudited
(In thousands, except per share amounts) Three Months
Ended March 31
-----------------------------
2002 2001
As Restated* As Restated*
------------ ------------
NET SALES $ 181,156 $ 176,857
Cost of Sales 152,187 150,956
------------ ------------
Gross Profit 28,969 25,901
------------ ------------
Operating Expenses:
Marketing 6,131 6,241
Administrative 9,403 6,115
Research, development and technical services 5,986 5,631
------------ ------------
21,520 17,987
------------ ------------
Operating Income 7,449 7,914
Other Income (Expense):
Interest, net (1,791) (1,905)
Income from equity joint venture 488 127
------------ ------------
(1,303) (1,778)
------------ ------------
Income Before Income Taxes 6,146 6,136
Provision for Income Taxes 2,336 2,426
------------ ------------
NET INCOME $ 3,810 $ 3,710
============ ============
Net Income Per Common Share (Note 6):
Basic $ 0.41 $ 0.40
============ ============
Diluted $ 0.39 $ 0.38
============ ============
Shares Used to Compute Net Income Per Common Share (Note 6):
Basic 8,835 8,829
============ ============
Diluted 9,740 9,742
============ ============
Dividends per Common Share $ 0.1825 $ 0.1750
============ ============
* See Note 3 for explanation of restatement.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
STEPAN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002 and 2001
Unaudited
(In thousands) 2002 2001
As Restated* As Restated*
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,810 $ 3,710
Depreciation and amortization 10,251 10,099
Deferred revenue (115) (126)
Deferred income taxes (699) (988)
Environmental and legal liabilities (113) 156
Other non-cash items 605 1,677
Changes in working capital:
Receivables, net (6,193) (10,069)
Inventories 4,533 7,157
Accounts payable and accrued liabilities (9,717) (11,506)
Other current assets (2,067) (908)
------------ ------------
Net Cash Provided By (Used For) Operating Activities 295 (798)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (6,490) (5,184)
Other non-current assets 257 763
------------ ------------
Net Cash Used For Investing Activities (6,233) (4,421)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving debt and notes payable to banks, net (3,200) 7,300
Other debt borrowings 9,997 1,241
Other debt repayments (110) -
Purchase of treasury stock, net (1,570) (810)
Dividends paid (1,812) (1,746)
Stock option exercises 1,566 762
Other - (1)
------------ ------------
Net Cash Provided By Financing Activities 4,871 6,746
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (422) (1,161)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,489) 366
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,224 3,536
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,735 $ 3,902
============ ============
CASH PAID DURING THE PERIOD FOR:
Interest $ 800 $ 726
============ ============
Income taxes $ (345) $ (52)
============ ============
* See Note 3 for explanation of restatement.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
STEPAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
Unaudited
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Stepan Company (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America 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. In the opinion of management all normal recurring
adjustments necessary to present fairly the condensed consolidated
financial position of the Company as of March 31, 2002, and the condensed
consolidated results of operations and cash flows for the three months then
ended have been included.
2. DEFERRED COMPENSATION
The Company maintains deferred compensation plans. These plans allow
management to defer receipt of their bonuses and directors to defer receipt
of director fees until retirement or departure from the Company. The plans
allow the participant to choose to invest in either Stepan common stock or
a limited variety of mutual funds. These assets are owned by the Company
and subject to the claims of general creditors of the Company. These plans
are accounted for under the requirements of the consensus reached by the
Emerging Issues Task Force ("EITF") of the Financial Accounting Standards
Board ("FASB") in issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested".
A description of the Company's deferred compensation accounting policy
follows:
The deferred compensation liability to the participants who elect deferral
is recorded after the underlying compensation is earned, and recorded as
expense. The purchase of Stepan common shares for the plans is recorded as
a regular treasury stock purchase. The purchase of mutual funds is recorded
as long term investments. Fluctuations in the value of these assets are
recorded as adjustments to the deferred compensation liability and
compensation costs included in administrative expense. The dividends,
interest and capital gains from the mutual fund assets are recorded as
investment income and included in "Other Income" as interest expense, net
of investment income. Unrealized gains and losses resulting from market
fluctuations of the mutual funds are recorded as other comprehensive income
or expense in stockholders' equity.
3. RESTATEMENT
Subsequent to the issuance of its financial statements for the three-month
period ended March 31, 2002, management of the Company determined that the
accounting treatment that had previously been afforded to the deferred
compensation arrangements entered into with its managers and directors was
not in accordance with the requirements of the consensus reached by the
EITF of the FASB in issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested".
This consensus requires that assets and liabilities of the deferred
compensation plan be presented separately on the balance sheet; that
fluctuations in asset values should result in compensation expense or
income; and that, based on the categories of assets underlying the plan,
investment income and expense should be recorded in the income statement
and unrealized market appreciation should be reported as a component of
other comprehensive income and included in stockholders' equity.
Historically, the Company had recorded the assets and liabilities related
to the plans on a net basis when the awards were made and did not recognize
changes in asset value in income.
As a result, the condensed consolidated financial statements for the
quarters ended March 31, 2002 and 2001, and the year ended December 31,
2001, have been restated from the amounts previously reported to give
effect to the correction of this accounting error. A summary of the
significant effects of the restatement is as follows:
As of March 31, 2002:
(Dollars in thousands) As
Previously
Reported Adjustments As Restated
-------- ----------- -----------
Assets
Deferred income taxes $ 10,570 $ (1,874) $ 8,696
Long term investments - 7,090 7,090
Liabilities
Deferred income taxes $ 34,734 $ (6,907) $ 27,827
Deferred compensation - current and long-term - 18,519 18,519
Stockholders' Equity
Additional paid-in capital $ 18,375 $ (365) $ 18,010
Accumulated other comprehensive loss (15,971) (1,021) (16,992)
Retained earnings 144,796 1,860 146,656
Treasury stock (9,853) (6,870) (16,723)
As of December 31, 2001:
(Dollars in thousands) As
Previously
Reported Adjustments As Restated
-------- ----------- -----------
Assets
Deferred income taxes $ 10,684 $ (1,874) $ 8,810
Long term investments - 7,674 7,674
Liabilities
Deferred income taxes $ 35,040 $ (6,437) $ 28,603
Deferred compensation - current and long-term - 17,615 17,615
Stockholders' Equity
Additional paid-in capital $ 16,893 $ (362) $ 16,531
Accumulated other comprehensive loss (14,800) (1,070) (15,870)
Retained earnings 142,110 2,548 144,658
Treasury stock (8,659) (6,494) (15,153)
For the three months ended March 31, 2002 and March 31, 2001:
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
---------------------------------------- ------------------------------------------
(Dollars in thousands, except As As
per share amounts) Previously As Previously As
Reported Adjustments Restated Reported Adjustments Restated
-------- ----------- -------- -------- ----------- --------
Net income $ 4,577 $ (767) $ 3,810 $ 3,628 $ 82 $ 3,710
Earnings per share:
Basic $ 0.47 $ (0.06) $ 0.41 $ 0.37 $ 0.03 $ 0.40
Diluted 0.45 (0.06) 0.39 0.36 0.02 0.38
Shares used to compute net
income per common share:
Basic 9,250 (415) 8,835 9,241 (412) 8,829
Diluted 10,153 (413) 9,740 10,154 (412) 9,742
Other comprehensive income (loss) $ (1,171) $ 49 $ (1,122) $ (1,511) $ (406) $ (1,917)
4. INVENTORIES
Inventories include the following amounts:
(Dollars in thousands) March 31, 2002 December 31, 2001
-------------- -----------------
Inventories valued primarily on LIFO basis -
Finished products $ 34,207 $ 33,932
Raw materials 20,590 25,398
------------ -----------
Total inventories $ 54,797 $ 59,330
============ ===========
If the first-in, first-out (FIFO) inventory valuation method had been used
for all inventories, inventory balances would have been approximately $6.5
million and $7.5 million higher than reported at March 31, 2002, and
December 31, 2001, respectively.
5. 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 (CERCLA) and the Superfund
amendments of 1986 ("Superfund"). 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, 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 $7.2 million to $34.3 million at March 31, 2002. At March 31, 2002,
the Company's reserve was $17.2 million for legal and environmental
matters compared to $17.0 million at December 31, 2001.
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. Following are
summaries of the environmental proceedings related to the Company's
Maywood, New Jersey, and Ewan and D'Imperio environmental sites:
Maywood, New Jersey, Site
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 CERCLA
because of certain alleged chemical 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 USEPA to
the Company for property currently owned by the Company, the Company
completed a Remedial Investigation Feasibility Study (RI/FS) in 1994. The
Company submitted the Draft Final FS for Soil and Source Areas (Operable
Unit 1) in September 2002. In addition, the Company has also submitted
additional information regarding the remediation, most recently in October
2002. Discussions between USEPA and the Company are continuing. The
Company is awaiting the issuance of a Record of Decision (ROD) from USEPA
relating to the currently owned and formerly owned Company property and
the proposed remediation. The final ROD will be issued sometime after the
public comment period.
In 1985, the Company entered into a Cooperative Agreement with the United
States of America represented by the Department of Energy (Agreement).
Pursuant to this Agreement, the Department of Energy (DOE) took title to
radiological contaminated materials and was to remediate, at its expense,
all radiological waste on the Company's property in Maywood, New Jersey.
The Maywood property (and portions of the surrounding area) were
remediated by the DOE 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 a USACE Report to
Congress dated January 1998 in which the USACE expressed their intention
to evaluate, with the USEPA, whether the Company and/or other parties
might be responsible for cost recovery or contribution claims related to
the Maywood site. Subsequent to the issuance of that report, the USACE
advised the Company that it had requested legal advice from the Department
of Justice as to the impact of the Agreement.
By letter dated July 28, 2000, the Department of Justice advised the
Company that the USACE and USEPA had referred to the Justice Department
claims against the Company for response costs incurred or to be incurred
by the USACE, USEPA and the DOE in connection with the Maywood site and
the Justice Department stated that the United States is entitled to
recovery of its response costs from the Company under CERCLA. The letter
referred to both radiological and non-radiological hazardous waste at the
Maywood site and stated that the United States has incurred unreimbursed
response costs to date of $138 million. Costs associated with radiological
waste at the Maywood site, which the Company believes represent all but a
small portion of the amount referred to in the Justice Department letter,
could be expected to aggregate substantially in excess of that amount. In
the letter, the Justice Department invited the Company to discuss
settlement of the matter in order to avoid the need for litigation. The
Company believes that its liability, if any, for such costs has been
resolved by the aforesaid Agreement. Despite the fact that the Company
continues to believe that it has no liability to the United States for
such costs, discussions with the Justice Department are currently ongoing
to attempt to resolve this matter.
The Company believes it has adequate reserves for claims associated with
the Maywood site. However, depending on the results of the ongoing
discussions regarding the Maywood site, the final cost of the remediation
could differ from the current estimates.
Ewan and D'Imperio Site
The Company has been named as a potentially responsible party (PRP) in the
case USEPA v. Jerome Lightman (92 CV 4710 D. N. J.) 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 was completed in March
2000. The Company is awaiting a decision from the court. If the Company is
found liable at either site, a second trial as to the Company's allocated
share of clean-up costs at these sites will likely be held in 2003. The
Company believes it has adequate defenses to the issue of liability. In
the event of an unfavorable outcome related to the issue of liability, the
Company believes it has adequate reserves.
Lightman Drum Site
The Company received a Section 104(e) Request for Information from USEPA
dated March 21, 2000, regarding the Lightman Drum Company Site located in
Winslow Township, New Jersey. The Company responded to this request on May
18, 2000. In addition, the Company received a Notice of Potential
Liability and Request to Perform RI/FS dated June 30, 2000, from USEPA.
The Company has decided that it will participate in the performance of the
RI/FS. However, based on the current information known regarding this
site, the Company is unable to predict what its liability, if any, will be
for this site.
6. EARNINGS PER SHARE
Below is the computation of basic and diluted earnings per share for the
three months ended March 31, 2002 and 2001.
(In thousands, except per share amounts) Three Months
Ended March 31
----------------------
2002 2001
---- ----
Computation of Basic Earnings per Share
---------------------------------------
Net income $ 3,810 $ 3,710
Deduct dividends on preferred stock 200 201
------- -------
Income applicable to common stock $ 3,610 $ 3,509
======= =======
Weighted-average number of shares outstanding 8,835 8,829
Basic earnings per share $ 0.41 $ 0.40
======= =======
Computation of Diluted Earnings per Share
-----------------------------------------
Net income $ 3,810 $ 3,710
Weighted-average number of shares outstanding 8,835 8,829
Add net shares issuable from assumed exercise of options
(under treasury stock method) 239 247
Add weighted-average shares issuable from assumed
conversion of convertible preferred stock 666 666
------- -------
Shares applicable to diluted earnings 9,740 9,742
======= =======
Diluted earnings per share $ 0.39 $ 0.38
======= =======
7. COMPREHENSIVE INCOME
Comprehensive income includes net income and all other non-owner changes in
equity that are not reported in net income. Below is the Company's
comprehensive income for the three months ended March 31, 2002 and 2001.
(Dollars in thousands) Three Months Ended
March 31
------------------------------
2002 2001
---- ----
Net income $ 3,810 $ 3,710
Other comprehensive loss:
Foreign currency translation adjustments (1,171) (1,511)
Unrealized gain (loss) on securities 49 (406)
--------- ---------
Comprehensive income $ 2,688 $ 1,793
========= =========
At March 31, 2002, the total accumulated other comprehensive loss of
$16,992,000 was comprised of $14,987,000 of foreign currency translation
adjustments, $1,021,000 of unrealized losses on securities and $984,000 of
minimum pension liability adjustments. At December 31, 2001, the total
accumulated other comprehensive loss of $15,870,000 included $13,816,000 of
foreign currency translation adjustments, $1,070,000 of unrealized losses
on securities and $984,000 of minimum pension liability adjustments.
8. SEGMENT REPORTING
The Company has three reportable segments: surfactants, polymers and
specialty products. There is no intersegment revenue and all intercompany
transactions are eliminated from segments' revenue. Financial results of
the Company's operating segments for the quarters ended March 31, 2002 and
2001, are summarized below:
(Dollars in thousands) Specialty Segment
Surfactants Polymers Products Totals
----------- -------- -------- --------
For the quarter ended March 31, 2002
------------------------------------
Net Sales $146,816 $28,867 $5,473 $181,156
Operating income 12,289 4,153 1,112 17,554
For the quarter ended March 31, 2001
------------------------------------
Net Sales $140,378 $30,833 $5,646 $176,857
Operating income 9,916 3,922 980 14,818
Below are reconciliations of segment operating income to consolidated
income before income taxes:
(Dollars in thousands) Three Months Ended March 31
--------------------------------
2002 2001
---- ----
Operating income segment totals $ 17,554 $ 14,818
Unallocated corporate expenses /(a)/ (10,105) (6,904)
Interest expense (1,791) (1,905)
Equity in earnings of joint venture 488 127
--------- ---------
Consolidated income before income taxes $ 6,146 $ 6,136
========= =========
(a) Includes corporate administrative and corporate manufacturing expenses,
which are not included in segment operating income and not used to
evaluate segment performance.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," effective
for fiscal years beginning after December 15, 2001. In part, SFAS No. 142
requires that acquired goodwill cease being amortized. The following is a
reconciliation of the Company's reported first quarters 2002 and 2001 net
income, basic earnings per share and diluted
earnings per share to the amounts that would have been reported had the new
accounting rules been in effect at January 1, 2001:
Three Months Ended March 31
---------------------------------
(In thousands, except per share data) 2002 2001
---- ----
Reported net income $ 3,810 $ 3,710
Goodwill amortization - 111
--------- --------
Adjusted net income $ 3,810 $ 3,821
========= ========
Basic earnings per share:
Reported basic earnings per share $ 0.41 $ 0.40
Goodwill amortization - 0.01
--------- --------
Adjusted basic earnings per share $ 0.41 $ 0.41
========= ========
Diluted earnings per share:
Reported diluted earnings per share $ 0.39 $ 0.38
Goodwill amortization - 0.01
--------- --------
Adjusted diluted earnings per share $ 0.39 $ 0.39
========= ========
The Company's net carrying values of goodwill were $6,058,000 and
$6,100,000 as of March 31, 2002 and December 31, 2001, respectively. The
entire amount of goodwill relates to the surfactants' reporting unit.
SFAS No. 142 required the Company to complete a transition goodwill
impairment test by comparing the fair value of the reporting unit with its
net carrying value, including goodwill. The Company completed this test in
the second quarter of 2002 and the results of that test indicated that
goodwill was not impaired at January 1, 2002.
SFAS No. 142 also requires that previously recognized intangible assets,
other than goodwill, be evaluated to determine if they have finite or
indefinite useful lives. Intangible assets determined to have finite lives
are amortized over those lives and intangible assets that have indefinite
useful lives are not amortized. In accordance with criteria established in
SFAS No. 142, the Company evaluated its intangible assets and determined
that all such assets had finite lives and that the previously assigned
useful lives remained appropriate for future amortization. The following
table reflects the components of intangible assets as of March 31, 2002 and
December 31, 2001.
(In thousands) Gross Carrying
Amount Accumulated Amortization
---------------------------------- -----------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
Amortized Intangible Assets:
Patents $ 2,000 $ 2,000 $ 500 $ 466
Trademarks, customer lists, know-how 17,095 17,095 5,685 5,386
Non-compete Agreements 1,000 1,000 1,000 950
---------- ---------- ---------- ----------
Total $ 20,095 $ 20,095 $ 7,185 $ 6,802
========== ========== ========== ==========
Aggregate amortization expenses for the quarters ended March 31, 2002 and
March 31, 2001, were $383,000 and $402,000, respectively. Estimated
amortization expense for identifiable intangibles assets, other than
goodwill, for each of the succeeding fiscal years are as follows:
(In thousands)
For year ending 12/31/03 $1,330
For year ending 12/31/04 $1,330
For year ending 12/31/05 $1,330
For year ending 12/31/06 $1,330
For year ending 12/31/07 $1,086
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
effective for fiscal years beginning after December 15, 2001. It requires
the use of the purchase method of accounting for all transactions initiated
after June 30, 2001. The Company applied the provisions of SFAS No. 141 to
the September 2001 acquisition of Manro Performance Chemicals Limited. No
acquisitions took place during the first three months of 2002.
In April 2001, the EITF released Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's
Products." Issue No. 00-25 provides guidance regarding the reporting of
consideration given by a vendor to a reseller of the vendor's products.
This issue requires certain considerations from vendor to a reseller of the
vendor's products be viewed: (a) as a reduction of the selling prices of
the vendor's products and, therefore, be recorded as a reduction of revenue
when recognized in the vendor's income statement, or (b) as a cost incurred
by the vendor for assets or services received from the reseller and,
therefore, be recorded as a cost or an expense when recognized in the
vendor's income statement. Issue No. 00-25 is effective for fiscal years
beginning after December 15, 2001. The Company's accounting policies are
currently consistent with the guidance provided in this issue. Therefore,
the adoption of Issue No.00-25 did not have an impact on the Company's
financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143, which is effective for fiscal years
beginning after June 15, 2002, supersedes previous guidance for financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
statement applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset. The Company
is evaluating the effect of this standard on its financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 144 was effective January 1, 2002. Adoption of this standard
did not have an impact on the Company's financial position or results of
operations.
11. NEW CREDIT AND BANK TERM LOANS
During March 2002, the Company's Stepan Europe subsidiary completed an
$11.7 million (denominated in euros) bank term loan as long-term financing
for a portion of the Manro acquisition. This loan will mature in seven
years and bears interest at rates set quarterly, based on 90-day EURIBOR
plus 1.825 percent . The U.S. parent company does not guaranty this loan.
In May 2002, the Company replaced its existing U.S. bank revolver with a
new loan agreement. The new revolver will provide up to $60 million of
committed funding for general corporate purposes and may be drawn upon as
needed through May 2, 2007. This arrangement provides for borrowings at
various interest rates based, at the Company's option, on LIBOR plus a
margin or at the bank's prime rate.
12. RECLASSIFICATIONS
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentation.
Item 2 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations
As discussed in Note 3 to the unaudited condensed consolidated financial
statements, the Company has restated its financial statements for the three
months periods ended March 31, 2002 and March 31, 2001, and for the year ended
December 31, 2001. The accompanying Management's Discussion and Analysis gives
effect to the restatement.
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.
CRITICAL ACCOUNTING POLICIES
Estimates
We prepare our financial statements in accordance with accounting principles
generally accepted in the United States of America. Preparing our financial
statements in accordance with generally accepted accounting principles requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Critical areas where estimates are required are
noted below:
Environmental Liabilities:
It is the Company's accounting policy to record environmental liabilities when
environmental assessments and/or remedial efforts are probable and the cost or
range of possible costs can be reasonably estimated. When no amount within the
range is a better estimate than any other amount, the minimum is accrued. Some
of the factors on which the Company bases its estimates include information
provided by feasibility studies, potentially responsible party negotiations and
the development of remedial action plans.
Reserves for Doubtful Accounts:
Accounts receivable are reported net of reserves for doubtful accounts. The
Company determines the reserve requirement based upon the estimated
collectibility of specific delinquent accounts, the Company's historical loss
experience and the level of non-delinquent accounts receivable.
Reserves for Obsolete and Slow Moving Inventories:
The Company provides reserves for obsolete and slow moving inventory items. The
reserve requirement is estimated based upon a review of specific inventory items
that are identified as slow moving and consideration of potential salvage value
and disposal costs.
Because the foregoing liabilities and reserves are recorded based on estimates,
actual amounts could differ from these estimates.
Revenue Recognition
Revenue is recognized upon shipment of goods to customers. The Company records
shipping and handling billed to a customer in a sales transaction as revenue.
Costs incurred for shipping and handling are recorded in cost of sales. Volume
discounts due customers are recognized as earned and reported as reductions of
revenue in the statement of income.
Deferred Compensation
The Company maintains deferred compensation plans. These plans allow management
to defer receipt of their bonuses and directors to defer receipt of director
fees until retirement or departure from the Company. The plans allow the
participant to choose to invest in either Stepan common stock or a limited
variety of mutual funds. These assets are owned by the Company and subject to
the claims of general creditors of the Company. Beginning in 2002, these plans
are accounted for under the requirements of the consensus reached by the
Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board
("FASB") in issue No. 97-14, "Accounting for Deferred Compensation Arrangements
Where Amounts Earned are Held in a Rabbi Trust and Invested". As described in
Note 3, prior period financial statements have been restated to correctly
present the accounting for the Company's deferred compensation plans in
accordance with EITF No. 97-14. A description of the Company's deferred
compensation accounting policy follows:
The deferred compensation liability to the participants who elect deferral is
recorded after the underlying compensation is earned, and recorded as expense.
The purchase of Stepan common shares for the plans is recorded as a regular
treasury stock purchase. The purchase of mutual funds is recorded as long term
investments. Fluctuations in the value of these assets are recorded as
adjustments to the deferred compensation liability and compensation costs
included in administrative expense. The dividends, interest and capital gains
from the mutual fund assets are recorded as investment income and included in
"Other Income" as interest expense, net of investment income. Unrealized gains
and losses resulting from market fluctuations of the mutual funds are recorded
as other comprehensive income or expense in stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities for the first three months of 2002 totaled
$0.3 million, an increase of $1.1 million compared to last year's first quarter
cash use of $0.8 million. For the current year quarter, working capital consumed
$13.4 million compared to a use of $15.3 million for the same quarter in 2001,
reflecting typical seasonality for both years. Working capital changes for the
current year quarter include: accounts receivable up by $6.2 million,
inventories down by $4.5 million, accounts payable and accrued liabilities down
by $9.7 million and other current assets up by $2.1 million.
Capital spending totaled $6.5 million for the first quarter of 2002 compared to
$5.2 million for the same quarter in 2001.
Consolidated debt increased by $6.7 million during the first three months of
2002, from $120.3 million to $127.0 million. As of March 31, 2002, the ratio of
long-term debt to long-term debt plus shareholders' equity was 43.0 percent
compared to 41.5 percent at December 31, 2001.
The Company maintains contractual relationships with its domestic banks that
provide for revolving credit of up to $60 million, which may be drawn upon as
needed for general corporate purposes through May 2, 2007 under a new revolving
credit agreement dated May 3, 2002. The Company also meets short-term liquidity
requirements through uncommitted domestic bank lines of credit.
On May 3, 2002 the Company signed a new 5-year revolving credit agreement with
three U.S. banks, including Bank One, N.A, Harris Trust and Savings Bank and
Bank of America, N.A. This new facility replaces the previous revolving credit
agreement and provides committed, unsecured funding of up to $60 million for
working capital, capital expenditures, acquisitions and other corporate
purposes. The new agreement contains provisions substantially equivalent to the
previous agreement, including limitations on additional debt, investments and
payment of dividends.
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. During March
2002, the Company's Stepan Europe subsidiary completed an $11.7 million
(denominated in euros) bank term loan as long-term financing for a portion of
the Manro acquisition. This loan will mature in 7 years and bears interest at
rates set quarterly, based on 90-day EURIBOR. The U.S. parent does not guaranty
this loan.
The Company anticipates that cash from operations and from committed credit
facilities will be sufficient to fund anticipated capital expenditures,
dividends and other planned financial commitments for the foreseeable future.
Any substantial acquisitions would require additional funding.
There have been no material changes in the Company's market risks since December
31, 2001.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and 2001
Net income for the quarter ended March 31, 2002, was $3.8 million, or $0.39 per
diluted share, up three percent from $3.7 million, or $0.38 per diluted share,
reported for the same quarter a year ago. Net sales increased two percent to
$181.2 million in the first quarter of 2002 from $176.9 million reported for the
first quarter of 2001. Net sales by segment were:
(Dollars in thousands) Three Months
Ended March 31
----------------------------------------
2002 2001 % Change
---- ---- --------
Net Sales:
Surfactants $ 146,816 $140,378 +5
Polymers 28,867 30,833 -6
Specialty Products 5,473 5,646 -3
--------- --------
Total $ 181,156 $176,857 +2
========= ========
Surfactants net sales increased five percent between years. Foreign operations
accounted for the improvement, reporting a $9.4 million, or 29 percent, increase
in net sales due to a 39 percent rise in sales volume. Approximately $7.9
million of the foreign operations' increase in revenue was attributable to the
fourth quarter 2001 acquisition of Stepan UK. Net sales for Latin America
operations increased $2.1 million between quarters due to improved sales volume
and higher average selling prices. European operations, excluding Stepan UK,
reported a decrease of $0.9 million in net sales, primarily due to a decline in
average selling prices. Domestic operations, which accounted for 71 percent of
total surfactant revenues, reported a $3.0 million, or three percent, decline in
net sales from $107.7 million in the first quarter of 2001 to $104.7 million in
the same period in 2002. The decrease was based on a three percent drop in sales
volume. Volumes to laundry and cleaning, personal care and distribution
customers were all down from quarter to quarter.
Surfactants gross profit increased 13 percent to $21.6 million in 2002 from
$19.2 million a year ago. Domestic operations reported a $1.7 million, or 12
percent, increase due to an improvement in average margins that more than offset
the three percent decline in sales volume. The improvement in average margins
was due to improved sales mix and lower cost of raw materials and utilities.
Gross profit for foreign operations rose $0.7 million, or 17 percent, between
years. The previously noted acquisition of Stepan UK contributed $1.2 million to
the increase, and Latin America operations generated higher gross profit due to
improved sales volume and higher average margins. Canadian and European
operations, excluding Stepan U.K., reported declines in gross profit due to
lower average margins. Weaker sales mix accounted for the decline.
Polymers net sales for the first quarter of 2002 decreased $1.9 million, or six
percent, from $30.8 million in 2001 to $28.9 million in 2002. Global
polyurethane polyols net sales fell 10 percent to $15.6 million for the first
quarter of 2002 from $17.2 million a year ago. A five percent drop in sales
volume coupled with a four percent decrease in average selling prices led to the
decline. Domestic operations accounted for most of the volume and price
declines. Polyurethane systems net sales declined 35 percent to $3.4 million in
the first quarter of 2002 from $5.3 million for the first quarter of 2001. A 31
percent drop in sales volume accounted for most of the decline. Phthalic
anhydride (PA) net sales increased 18 percent from $8.3 million in 2001 to $9.9
million in 2002. A 24 percent rise in sales volume led to the improvement and
more than offset a four percent drop in average selling prices. Lower raw
material costs, which were passed on to customers, led to the average selling
price decline.
Polymers gross profit was $5.8 million, which was $0.3 million, or five percent,
higher than the $5.5 million reported in the first quarter of 2001. PA's gross
profit increased $0.6 million to $1.0 million in 2002 from $0.4 million in 2001.
Higher average margins and increased sales volume led to the improvement. Global
polyols gross profit rose $0.4 million, or eight percent, to $4.9 million in the
first quarter of 2002 from $4.5 million for the same period a year ago. Domestic
operations gross profit increased $0.2 million on higher average margins, which
more than offset the effect of lower sales volume. European gross profit rose
$0.2 million due to improved average margins and higher sales volume.
Polyurethane systems gross profit declined $0.6 million, or 45 percent, from
quarter to quarter. Lower sales volume and average margins led to
the decrease. Higher unit overhead costs resulting from lower production volumes
contributed to the decreased average margins.
Specialty products net sales dropped $0.2 million, or three percent, from year
to year. The decrease was primarily due to lower sales volume. Gross profit
increased $0.4 million, or 30 percent, from $1.2 million in the first quarter of
2001 to $1.6 million in the same period of 2002. The rise was primarily due to
higher sales volume into the pharmaceutical industry.
Operating expenses increased $3.5 million, or 20 percent, from $18.0 million in
the first quarter of 2001 to $21.5 million in the same period of 2002.
Administrative expenses rose $3.3 million, or 54 percent, between quarters. The
$1.4 million increase in deferred compensation expense coupled with $1.9 million
of expense related to the implementation of an enterprise resource planning
system contributed to the higher domestic expense. The increase also reflected
$0.4 million of expense for Stepan U.K., which was first consolidated in the
fourth quarter of 2001, and higher general legal expenses of $0.2 million.
Salaries and related payroll costs fell $0.7 million from quarter to quarter.
Research and development expenses increased six percent from $5.6 million in the
first quarter of 2001 to $6.0 million in the first quarter of 2002. Higher
payroll expenses caused the increase. Marketing expenses declined two percent
between years.
Interest expense decreased six percent from year to year due to lower overall
borrowing rates, partially offset by higher average debt levels.
Income from the Philippines equity joint venture increased to $0.5 million in
2002 from $0.1 million a year ago. Higher sales volume and a more favorable
sales mix led to the improvement.
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 quarter of 2002,
Company expenditures for capital projects related to the environment were $0.4
million and should approximate $1.3 million for the full year 2002. 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 $1.8 million for the first three
months of 2002. While difficult to project, it is not anticipated that these
recurring expenses will increase significantly in the future.
The Company has been named by the government as a potentially responsible party
at 16 waste disposal sites where cleanup costs have been or may be incurred
under the federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes. In addition, damages are being claimed
against the Company in general liability actions
for alleged personal injury or property damage in the case of some disposal and
plant sites. The Company believes that it has made adequate provisions for the
costs it may incur with respect to these sites. The Company has estimated a
range of possible environmental and legal losses from $7.2 million to $34.3
million at March 31, 2002. The Company's reserve at March 31, 2002 and December
31, 2001 were $17.2 and $17.0 million, respectively. During the first three
months of 2002, expenditures related to legal and environmental matters
approximated $0.6 million. For certain sites, estimates cannot be made of the
total costs of compliance or the Company's share of such costs; accordingly, the
Company is unable to predict the effect thereof on future results of operations.
In the event of one or more adverse determinations in any annual or interim
period, the impact on results of operations for those periods could be material.
However, based upon the Company's present belief as to its relative involvement
at these sites, other viable entities' responsibilities for cleanup and the
extended period over which any costs would be incurred, the Company believes
that these matters will not have a material effect on the Company's financial
position.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," effective
for fiscal years beginning after December 15, 2001. It requires the use of the
purchase method of accounting for all transactions initiated after June 30,
2001. The Company applied the provisions of SFAS No. 141 to the September 2001
acquisition of Manro Performance Chemicals Limited. No acquisitions took place
during the first three months of 2002.
In April 2001, the EITF released Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products."
Issue No. 00-25 provides guidance regarding the reporting of consideration given
by a vendor to a reseller of the vendor's products. This issue requires certain
considerations from vendor to a reseller of the vendor's products be viewed: (a)
as a reduction of the selling prices of the vendor's products and, therefore, be
recorded as a reduction of revenue when recognized in the vendor's income
statement, or (b) as a cost incurred by the vendor for assets or services
received from the reseller and, therefore, be recorded as a cost or an expense
when recognized in the vendor's income statement. Issue No. 00-25 is effective
for fiscal years beginning after December 15, 2001. The Company's accounting
policies were consistent with the guidance provided in this issue. Therefore,
the adoption of Issue No.00-25 did not have an impact on the Company's financial
position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143, which is effective for fiscal years beginning after
June 15, 2002, supersedes previous guidance for financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The statement applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset. The Company is evaluating the effect of this standard on its
financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 was effective January 1,
2002. Adoption of this standard did not have an impact on the Company's
financial position or results of operations.
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, foreign currency fluctuations and the general
economic conditions.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
For information regarding our exposure to market risk, see the caption entitled
"Liquidity and Capital Resources" in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations," which is
incorporated herein by reference.
Part II OTHER INFORMATION
Item 1 - Legal Proceedings
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 Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) because of
certain alleged chemical 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 USEPA to the Company for property currently owned by the
Company, the Company completed a Remedial Investigation Feasibility Study
(RI/FS) in 1994. The Company submitted the Draft Final FS for Soil and Source
Areas (Operable Unit 1) in September 2002. In addition, the Company has also
submitted additional information regarding the remediation, most recently in
October 2002. Discussions between USEPA and the Company are continuing. The
Company is awaiting the issuance of a Record of Decision (ROD) from USEPA
relating to the currently owned and formerly owned Company property and the
proposed remediation. The final ROD will be issued sometime after the public
comment period.
In 1985, the Company entered into a Cooperative Agreement with the United States
of America represented by the Department of Energy (Agreement). Pursuant to this
Agreement, the Department of Energy (DOE) took title to radiological
contaminated materials and was to remediate, at its expense, all radiological
waste on the Company's property in Maywood, New Jersey. The Maywood property
(and portions of the surrounding area) were remediated by the DOE 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 a USACE Report to Congress
dated January 1998 in which the USACE expressed their intention to evaluate,
with the USEPA, whether the Company and/or other parties might be responsible
for cost recovery or contribution claims related to the Maywood site. Subsequent
to the issuance of that report, the USACE advised the Company that it had
requested legal advice from the Department of Justice as to the impact of the
Agreement.
By letter dated July 28, 2000, the Department of Justice advised the Company
that the USACE and USEPA had referred to the Justice Department claims against
the Company for response costs incurred or to be incurred by the USACE, USEPA
and the DOE in connection with the Maywood site and the Justice Department
stated that the United States is entitled to recovery of its response costs from
the Company under CERCLA. The letter referred to both radiological and
non-radiological hazardous waste at the Maywood site and stated that the United
States has incurred unreimbursed response costs to date of $138 million. Costs
associated with radiological waste at the Maywood site, which the Company
believes represent all but a small portion of the amount referred to in the
Justice Department letter, could be expected to aggregate substantially in
excess of that amount. In the letter, the Justice Department invited the Company
to discuss settlement of the matter in order to avoid the need for litigation.
The Company believes that its liability, if any, for such costs has been
resolved by the aforesaid Agreement. Despite the fact
that the Company continues to believe that it has no liability to the United
States for such costs, discussions with the Justice Department are currently
ongoing to attempt to resolve this matter.
The Company believes it has adequate reserves for claims associated with the
Maywood site. However, depending on the results of the ongoing discussions
regarding the Maywood site, the final cost of the remediation could differ from
the current estimates.
The Company has been named as a potentially responsible party (PRP) in the case
USEPA v. Jerome Lightman (92 CV 4710 D. N. J.) 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 was completed in March 2000. The Company is
awaiting a decision from the court. If the Company is found liable at either
site, a second trial as to the Company's allocated share of clean-up costs at
these sites will likely be held in 2003. The Company believes it has adequate
defenses to the issue of liability. In the event of an unfavorable outcome
related to the issue of liability, the Company believes it has 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 partial
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 the partial consent decree, the Company is seeking to recover back
the sums it paid.
Regarding the D'Imperio Superfund Site, USEPA has indicated it will seek penalty
claims against the Company based on the Company's alleged noncompliance with the
modified Unilateral Administrative Order. The Company is currently negotiating
with USEPA to settle its proposed penalty against the Company but does not
believe that a settlement, if any, will have a material impact on the financial
condition of the Company. In addition, the Company also received notice from the
New Jersey Department of Environmental Protection (NJDEP) dated March 21, 2001,
that NJDEP has indicated it will pursue cost recovery against the alleged
responsible parties, including the Company. The NJDEP's claims include costs
related to remediation of the D'Imperio Superfund Site in the amount of $434,406
and alleged natural resource damages in the amount of $529,584 (as of November
3, 2000).
The Company received a Section 104(e) Request for Information from USEPA dated
March 21, 2000, regarding the Lightman Drum Company Site located in Winslow
Township, New Jersey. The Company responded to this request on May 18, 2000. In
addition, the Company received a Notice of Potential Liability and Request to
Perform RI/FS dated June 30, 2000, from USEPA. The Company has decided that it
will participate in the performance of the RI/FS. However, based on the current
information known regarding this site, the Company is unable to predict what its
liability, if any, will be for this site.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Company's 2002 Annual Meeting of Stockholders was held on April
30, 2002.
(b) At the annual meeting of the Company's shareholders on April 30,
2002, shareholders elected Thomas F. Grojean, James A. Hartlage and
F. Quinn Stepan, Jr. as Directors of the Company, all for three-year
terms.
For Withheld
--------- --------
Thomas F. Grojean 8,429,839 89,612
James A. Hartlage 8,299,442 22,009
F. Quinn Stepan, Jr. 8,302,024 217,427
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit (4)R - Revolving Credit Agreement dated as of May 3, 2002
Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
Form 8-K regarding "Changes in Registrant's Certifying Accountant" has
been filed on April 30, 2002
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/ James E. Hurlbutt
James E. Hurlbutt
Vice President & Corporate Controller
Date: December 23, 2002
CERTIFICATIONS
I, F. Quinn Stepan, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Stepan Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: December 23, 2002 /s/ F. Quinn Stepan
--------------------------------------
F. Quinn Stepan
Chairman, Chief Executive Officer
CERTIFICATIONS
I, James E. Hurlbutt, certify that:
1. I have reviewed this quarterly report on Form 10-QA of Stepan Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: December 23, 2002 /s/ James E. Hurlbutt
--------------------------------------
James E. Hurlbutt
Vice President & Corporate Controller