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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON,Washington, D.C. 20549
                               ----------------
                                   FORM 10-K
(MARK
ONE)(Mark
One)

  [X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBERFor the fiscal year ended December 31, 19971999
                                      OR
  [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                FOR THE TRANSITION PERIOD FROM TO
 
                          COMMISSION FILE NO.For the transition period from        to
                         Commission File Number 1-4462
                               ----------------
                                STEPAN COMPANY
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
               Delaware                              36-1823834
- -------------------------------------     -------------------------------------
    (State or other jurisdiction(Exact name of (I.R.S. Employer
    incorporation or organization)             Identification Number)
 
 
       Edens and Winnetka Road,
         Northfield, Illinois                           60093
- -------------------------------------     -------------------------------------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                  (Zip Code) 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 REGISTEREDName 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 New York Stock Exchange par 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(Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 OF REGULATIONof 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 PARTis 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 FORMof this Form 10-K OR ANY AMENDMENT TO THIS FORMor any amendment to this Form 10-K. [_] INDICATE BY CHECK MARK WHETHER THE REGISTRANT[ ]. Indicate by check mark whether the registrant (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTIONhas filed all reports required to be filed by Section 13 ORor 15 (D) OF THE SECURITIES EXCHANGE ACT OF(d) of the Securities Exchange Act of 1934 DURING THE PRECEDINGduring the preceding 12 MONTHS, ANDmonths, and (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PASThas been subject to such filing requirements for the past 90 DAYS. YESdays. Yes X NO AGGREGATE MARKET VALUE AT FEBRUARY 28, 1998, OF VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT: $196,834,000.* NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK AS OF FEBRUARY 28, 1998:No Aggregate market value at February 29, 2000, of voting stock held by nonaffiliates of the registrant: $128,040,000* Number of shares outstanding of each of the issuer's classes of common stock as of February 29, 2000:
CLASS OUTSTANDING AT FEBRUARY 28, 1998Class Outstanding at February 29, 2000 ----- -------------------------------- 9,881,000 Common Stock, $1 par value shares9,516,863
DOCUMENTS INCORPORATED BY REFERENCEDocuments Incorporated by Reference
PART OF FORMPart of Form 10-K DOCUMENT INCORPORATEDDocument Incorporated ----------------- --------------------- Part I, Item 1 19971999 Annual Report to Stockholders Part II, Items 5-8 19971999 Annual Report to Stockholders Part III, Items 10-12 Proxy Statement dated March 27, 199830, 2000
*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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEMItem 1. BUSINESSBusiness 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 sellshas three groups of products: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 refer to intermediate chemicals includingderives its revenue from the sale of phthalic anhydride, polyols and urethanepolyurethane foam systems used in plastics, building materials and refrigeration industries. Specialty products consist of flavorsells chemicals used in food, flavoring and pharmaceutical intermediates, fine chemicals, esters, synthetic lubricants and other specialty products. In 1993, Stepan Company entered into a 50 percent joint venture with Coldequim, S.A. called Stepan Colombiana de Quimicos, Ltda in Colombia, South America. Under the agreement, Stepan Colombiana manufactures selected surfactants and markets the company's complete line of surfactants in the Andean Pact countries of Colombia, Venezuela, Peru, Bolivia and Ecuador. In 1994, Stepan Company entered into a 50 percent joint venture with United Coconut Chemicals, Inc. and United Coconut Planters International in the Philippines. The venture, called Stepan Philippines, Inc., manufactures selected surfactants for sale in the Philippines and Asia/Pacific markets. In 1996, the company acquired a sulfonation plant from Shell Group in Cologne, Germany. This plant, organized as a German subsidiary, allows the company to serve European customers with a wide range of sulfate and sulfonate products used in household, personal care, individual, institutional and agricultural markets. In April 1997, the company acquired the West Coast anionic surfactant business from Lonza, Inc. The acquisition enables the company to significantly strengthen its market share in the personal care market in the West Coast region. Also in 1997, in conjunction with Reichhold Chemicals, Inc., the company expanded the production capacity of its Millsdale, Illinois, phthalic anhydride plant from 180 million pounds to 240 million pounds. The expansion was successfully started up in December of 1997.applications. MARKETING AND COMPETITION Principal markets for all productssurfactants are manufacturers of cleaning or washing compounds (including detergents, shampoos, lotions, toothpastes and household cleaners), paints, cosmetics,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 beverages, agricultural insecticides and herbicides, plastics, furniture, building materials and automotive and refrigeration equipment. Sales of the company tend not to be seasonal.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 2 numerous small companies. The company does not expect any significant changes in the competitive environment in the foreseeable future. MAJOR CUSTOMER AND BACKLOG The company does not have any one single customer whose business represents more than 10%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 1998,2000, 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 1999, 1998 and 1997 1996were $13,113,000, $12,219,000, and 1995 were $12,404,000, $12,469,000, and $12,425,000, respectively. During 1997 and 1996, the research and development staff consisted of 182 and 179 employees, 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 $4,133,000$2,740,000 during 1997. Such capital expenditures in 19981999 and should approximate $4.0 to $5.0 million.that amount in 2000. These expenditures represented approximately 12%eight percent of the company's capital expenditures in 19971999 and are expected to be 11%approximately seven percent of such expenditures in 1998.2000. 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, 19971999 and 1996,1998, the company employed worldwide 1,2921,365 and 1,2701,372 persons, respectively. FOREIGN OPERATIONS See Note 13, Geographic Data,14, Segment Reporting, on page 33 of the company's 19971999 Annual Report to Stockholders. 3 PRODUCT GROUPS The manufactureSEGMENTS See Note 14, Segment Reporting, on page 33 of specialty and intermediate chemicals constitutes the company's only industry segment. The company's three groups of products and their contribution1999 Annual Report to sales for the three years ended December 31, 1997, were:
SPECIALTY SURFACTANTS POLYMERS PRODUCTS ----------- -------- --------- 1997....................................... 77% 18% 5% 1996....................................... 75% 19% 6% 1995....................................... 72% 22% 6%
ITEMStockholders. Item 2. PROPERTIESProperties 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. The CanadianStepan Canada maintains a leased sales office is located in Mississagua, Canada and is approximately 2,300 square feet of leased space.Canada. Stepan Mexico maintains a leased sales office in Mexico City, Mexico. Surfactants are produced at four plants in the United States and fourfive 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 3944 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 162175 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. ITEMItem 3. LEGAL PROCEEDINGSLegal Proceedings As reported previously, on October 21, 1999, the company reached an agreement in principle 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 action occurred, as scheduled, on December 1, 1999. All terms of the settlement are confidential pursuant to a court order. As previously reported, as a result of this settlement, the company recorded a third quarter $6.3 million after-tax charge to earnings. As reported previously, the company has been named as a potentially responsible party (PRP) in the case USEPA v. Jerome Lightman (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 lose, there would then be a trial as to the company's allocated share of clean-up costs at these sites. This latter trial would occur, if at all, in fiscal 2000. The company believes it has adequate defenses to the issue of liability. In the event of an unfavorable outcome related to the 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. As reported previously, 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 Liabilities Act 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 the USEPA to the company for property currently owned by the company, the company has completed a Remedial Investigation Feasibility Study 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. The company does not know when the ROD will be issued by the USEPA. 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 took title to radiological contaminated materials and was to remediate, at its expense, all radiological (byproduct material and source material) waste on the company's property in Maywood, New Jersey. The Maywood property (and portions of the surrounding 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 contribution claims related to the Maywood site. Since that report has been issued by the USACE, the USACE has requested legal advice from the Department of Justice as to the interpretation of the Cooperative Agreement. There has been no report issued by the Department of Justice as of this date. Based upon the company's agreement with the United States of America, it is the company's belief that its liability, if any, has been resolved with regard to the United States of America. 3 Reference is made to the company's Report Form 10-K forCasmalia 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 year endedfinancial condition of the company. On December 31, 1995, and December 31, 1996, and13, 1999, the company's Report Form 10-Q for the quarter ended September 30, 1993, September 30, 1994, September 30, 1995, and September 30, 1996, relating to the matter entitled United States v. Lightman et al. C.A. No. 92 CV4710 (JVS) which iscompany was served in an action filed in the United States District Court for the districtentitled Pennsauken Solid Waste Management Authority v. State of New Jersey, in November 1992et 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 made to the suit Olin Corporation v. Fisons plc et al. (93- 11166-MLW). The company was dismissed from this action by the United Statesfederal court with the right of Nor-Am, one of the defendants, to collect fromfile 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 and other potentially responsible parties past costsbelieves 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 D'Imperio Superfund site. On December 12, 1997, the Court enforced a proposed settlementcompany was served with an Administrative Complaint filed by Region 5 of the United States past cost claimsEnvironmental Protection Agency (FIFRA-5-2000-011) alleging violations of the Federal Insecticide, Fungicide and bound the company to payment of approximately $639,000.Rodenticide Act. The total proposed penalty is $141,000. The company has the rightuntil April 4, 2000, to appealfile a responsive answer in this decision at a later date. For now, thematter. The company is currently investigating these allegations and therefore, cannot predict what its liability, if any, will make the paymentbe in this case. Item 4. Results of approximately $639,000. The allocation action between the company and other PRPs is continuing and discovery at the site is proceeding. ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERSVotes of Security Holders No matters were submitted to stockholders during the fourth quarter of the fiscal year ended December 31, 1997. 4 EXECUTIVE OFFICERS OF THE REGISTRANT1999. 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 January 1, 1997,February 15, 1999, F. Quinn Stepan, Jr., was appointedelected President and Chief Operating Officer. He was previously Vice President and General Manager--Surfactants. He was previouslyManager--Surfactants as of January 1, 1997, Vice President-- GlobalPresident--Global Laundry and Cleaning Products as of May 1996 and Director--Business Management as of May 1992. Charles W. Given, formerlyMr. F. Quinn Stepan, Sr., who has served the company as Chairman and Chief Executive Officer since 1984 and as President since 1973, remains Chairman and Chief Executive Officer. 4 Effective February 16, 1999, John V. Venegoni was appointed Vice President and General Manager--Surfactants since April,Manager--Surfactants. Since May 1992 until May 1996, he served as a Senior Business Manager--Consumer Products. From May 1996, until February 16, 1999, he was appointed Vice President-- Corporate Development.Director--Global Personal Care. 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, 1998,29, 2000, and certain other information are as follows:
YEAR FIRST NAME AGE TITLE ELECTED OFFICERYear First Name Age Title Elected Officer ---- --- ----- --------------- F. Quinn Stepan......... 62 Chairman and Chief Executive 1967 Officer F. Quinn Stepan, 60 Chairman,Jr. ... 39 President and Chief ExecutiveOperating 1997 Officer 1967 James A. Hartlage 60Hartlage....... 62 Senior Vice President--TechnologyPresident-- 1980 Technology and Operations 1980 Charles W. Given 61 Vice President--Corporate Development 1992 Ronald L. Siemon 60Siemon........ 62 Vice President and General 1992 Manager--Polymers 1992 Jeffrey W. Bartlett 54Bartlett*.... 56 Vice President, General 1983 Counsel, Regulatory Affairs 1983 and Corporate Secretary Walter J. Klein 51Klein......... 53 Vice President--Finance 1985 Mickey Mirghanbari 60Mirghanbari...... 62 Vice President--Manufacturing 1992 and Engineering 1992 Earl H. Wagener 57Wagener......... 59 Vice President--Research and 1995 Development 1995 F. Quinn Stepan, Jr. 37John V. Venegoni........ 41 Vice President and General 1999 Manager--Surfactants 1997
*Jeffrey W. Bartlett passed away on March 21, 2000. PART II ITEMItem 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERSMarket 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 35 of the company's 19971999 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 3029 of the company's 19971999 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. 5 (b) On February 28, 1998,29, 2000, there were 1,5741,423 holders of common stock of the company. (c) See page 35 of the company's 19971999 Annual Report to Stockholders for dividend information which is incorporated by reference herein. Also see Note 4 on page 28 of the company's 19971999 Annual Report to Stockholders which sets forth the restrictive covenants covering dividends. ITEMItem 6. SELECTED FINANCIAL DATASelected Financial Data See page 3435 of the company's 19971999 Annual Report to Stockholders for a five year summary of selected financial information which is incorporated by reference herein. ITEM5 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk See pages 1614 through 2019 of the company's 19971999 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. ITEMItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial Statements and Supplementary Data See pages 2120 through 3334 of the company's 19971999 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 35 of the company's 19971999 Annual Report to Stockholders for selected quarterly financial data which is incorporated by reference herein. ITEMItem 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSUREDisagreements on Accounting and Financial Disclosure None PART III ITEMItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTDirectors 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, has filed in bankruptcy for Chapter 11 protection in February, 1998. Mr. Paul Stepan advisesadvised that a refinancing package and successful discharge from Chapter 11 has occurred. For additional information about the company's Directors, see pages 3 through 5 of the company's Proxy Statement dated March 27, 1998,30, 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. 6 ITEMItem 11. EXECUTIVE COMPENSATIONExecutive Compensation See pages 67 and 78 of the company's Proxy Statement dated March 27, 1998,30, 2000, for the Annual Meeting of the Stockholders which are incorporated by reference herein. ITEMItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTSecurity Ownership of Certain Beneficial Owners and Management See pages 1 through 56 of the company's Proxy Statement dated March 27, 1998,30, 2000, for the Annual Meeting of Stockholders which are incorporated by reference herein. ITEM6 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSCertain Relationships and Related Transactions None PART IV ITEMItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORMExhibits, Financial Statement Schedules and Reports on Form 8-K (a) & (d) FINANCIAL STATEMENTS AND SCHEDULESFinancial Statements and Schedules See the Index to the Consolidated Financial Statements and Supplemental Schedule filed herewith. (b) REPORTS ON FORMReports on Form 8-K NoneA report on Form 8-K was filed on October 22, 1999, regarding quarterly earnings. (c) EXHIBITSExhibits See Exhibit Index filed herewith. 7 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTIONPursuant to the requirements of Section 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OFor 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.the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Stepan Company /s/ Walter J. Klein By: Jeffrey W. Bartlett_________________________________ Vice President, General Counsel, Regulatory AffairsPresident--Finance March 30, 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 Corporate Secretary March 27, 1998 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.in the capacities and on the dates indicated. /s/ F. Quinn Stepan Chairman, President, Chief Executive March 27, 1998 ____________________________________30, 2000 ______________________________________ Officer and Director F. Quinn Stepan Name /s/ F. Quinn Stepan, Jr. President, Chief Operating March 30, 2000 ______________________________________ Officer and Director F. Quinn Stepan, Jr. /s/ Walter J. Klein Vice President--Finance, March 30, 2000 ______________________________________ Principal Financial and Walter J. Klein Accounting Officer /s/ James A. Hartlage Senior Vice President-- March 30, 2000 ______________________________________ Technology and Operations James A. Hartlage and Director /s/ Thomas F. Grojean Director March 27, 1998 ____________________________________30, 2000 ______________________________________ Thomas F. Grojean James A. Hartlage Senior Vice President--Technology March 27, 1998 ____________________________________ and Operations and Director James A. Hartlage Walter J. Klein Vice President--Finance, Principal March 27, 1998 ____________________________________ Financial and Accounting Officer Walter J. Klein/s/ Paul H. Stepan Director March 27, 1998 ____________________________________30, 2000 ______________________________________ Paul H. Stepan /s/ Robert D. Cadieux Director March 27, 1998 ____________________________________30, 2000 ______________________________________ Robert D. Cadieux /s/ Robert G. Potter Director March 27, 1998 ____________________________________30, 2000 ______________________________________ Robert G. Potter
JEFFREY W. BARTLETT, 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, 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. Walter J. Klein March 27, 199830, 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, 1997,1999, has been filed as an exhibit to this Annual Report on Form 10-K. Pages 2120 through 3334 of such Annual Report to Stockholders contain the Consolidated Balance Sheets as of December 31, 19971999 and 1996,1998, the Consolidated Statements of Income, Stockholders' Equity and Cash Flows and Notes to Consolidated Financial Statements for the three years ended December 31, 1997, 19961999, 1998 and 1995,1997, 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 10 and 11 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. 9 STEPAN COMPANY SUPPLEMENTAL SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 19971999 AS REQUIRED TO COMPLY WITH REGULATION S-X SCHEDULE II--ALLOWANCE FOR DOUBTFUL ACCOUNTS: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 1995 ------ ------ ------ (IN THOUSANDS)(In Thousands) Balance, Beginning of Year........................Year.............................. $2,263 $2,121 $2,074 $1,744 $1,585 Provision charged to income.....................income........................... 222 339 548 442 349 Accounts written off, net of recoveries.........recoveries............... (96) (197) (501) (112) (190) ------ ------ ------ Balance, End of Year..............................Year.................................... $2,389 $2,263 $2,121 $2,074 $1,744 ====== ====== ======
10 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, 1998.10, 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 11, 199810, 2000 11 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTIONExhibit 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'sCompany'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 May 6, 1987.February 15, 1999. (Note 1)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. DESCRIPTIONExhibit No. Description ------- ----------- (10)f Copy of the company's 1992 Stock Option Plan. (Note 5) (13) Copy of the company's 19971999 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, 1997.1999. (23) Consent of Independent Public Accountants. (24) Power of Attorney. (27) Financial Data Schedule.
NOTES TO EXHIBIT INDEXNotes To Exhibit Index
NOTE NO.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, 1995,1998, and incorporated herein by reference.