false Q3 STEPAN CO 0000094049 --12-31 Large Accelerated Filer true false 0.3333 P3Y 0.3333 0.0395 0.0386 0.0486 0.0588 0.0395 0.0386 0.0486 0.0588 2021 2019 2019 2019 2027 2025 2023 2022 2019 2021 2019 2019 2019 2027 2025 2023 2022 2019 0000094049 2019-01-01 2019-09-30 xbrli:shares 0000094049 2019-10-22 iso4217:USD 0000094049 2019-07-01 2019-09-30 0000094049 2018-07-01 2018-09-30 0000094049 2018-01-01 2018-09-30 iso4217:USD xbrli:shares 0000094049 2019-09-30 0000094049 2018-12-31 0000094049 2017-12-31 0000094049 2018-09-30 0000094049 scl:TwoThousandAndEighteenAcquisitionMember 2019-01-01 2019-09-30 xbrli:pure 0000094049 us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember 2018-12-31 0000094049 scl:AsOriginallyReportedUnderLIFOMember 2018-07-01 2018-09-30 0000094049 us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember 2018-07-01 2018-09-30 0000094049 scl:AsOriginallyReportedUnderLIFOMember 2018-01-01 2018-09-30 0000094049 us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember 2018-01-01 2018-09-30 0000094049 scl:AsOriginallyReportedUnderLIFOMember 2018-12-31 0000094049 us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember 2019-07-01 2019-09-30 0000094049 scl:AsComputedUnderLIFOMember 2019-07-01 2019-09-30 0000094049 us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember 2019-01-01 2019-09-30 0000094049 scl:AsComputedUnderLIFOMember 2019-01-01 2019-09-30 0000094049 us-gaap:ChangeInAccountingMethodAccountedForAsChangeInEstimateMember 2019-09-30 0000094049 scl:AsComputedUnderLIFOMember 2019-09-30 0000094049 2019-06-30 0000094049 us-gaap:CommonStockMember 2019-06-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000094049 us-gaap:TreasuryStockMember 2019-06-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0000094049 us-gaap:RetainedEarningsMember 2019-06-30 0000094049 us-gaap:NoncontrollingInterestMember 2019-06-30 0000094049 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0000094049 us-gaap:TreasuryStockMember 2019-07-01 2019-09-30 0000094049 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0000094049 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0000094049 us-gaap:CommonStockMember 2019-09-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0000094049 us-gaap:TreasuryStockMember 2019-09-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0000094049 us-gaap:RetainedEarningsMember 2019-09-30 0000094049 us-gaap:NoncontrollingInterestMember 2019-09-30 0000094049 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0000094049 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0000094049 us-gaap:CommonStockMember 2018-01-01 2018-09-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-09-30 0000094049 us-gaap:TreasuryStockMember 2019-01-01 2019-09-30 0000094049 us-gaap:TreasuryStockMember 2018-07-01 2018-09-30 0000094049 us-gaap:TreasuryStockMember 2018-01-01 2018-09-30 0000094049 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0000094049 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0000094049 us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0000094049 us-gaap:CommonStockMember 2018-12-31 0000094049 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000094049 us-gaap:TreasuryStockMember 2018-12-31 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000094049 us-gaap:RetainedEarningsMember 2018-12-31 0000094049 us-gaap:NoncontrollingInterestMember 2018-12-31 0000094049 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0000094049 2018-06-30 0000094049 us-gaap:CommonStockMember 2018-06-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0000094049 us-gaap:TreasuryStockMember 2018-06-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0000094049 us-gaap:RetainedEarningsMember 2018-06-30 0000094049 us-gaap:NoncontrollingInterestMember 2018-06-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0000094049 us-gaap:NoncontrollingInterestMember 2018-07-01 2018-09-30 0000094049 us-gaap:CommonStockMember 2018-09-30 0000094049 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0000094049 us-gaap:TreasuryStockMember 2018-09-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0000094049 us-gaap:RetainedEarningsMember 2018-09-30 0000094049 us-gaap:NoncontrollingInterestMember 2018-09-30 0000094049 us-gaap:CommonStockMember 2017-12-31 0000094049 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000094049 us-gaap:TreasuryStockMember 2017-12-31 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0000094049 us-gaap:RetainedEarningsMember 2017-12-31 0000094049 us-gaap:NoncontrollingInterestMember 2017-12-31 0000094049 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-09-30 0000094049 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0000094049 us-gaap:FairValueInputsLevel2Member 2019-09-30 0000094049 us-gaap:FairValueInputsLevel2Member 2018-12-31 0000094049 us-gaap:FairValueInputsLevel1Member 2019-09-30 0000094049 us-gaap:FairValueInputsLevel1Member 2018-12-31 0000094049 srt:MinimumMember 2019-01-01 2019-09-30 0000094049 srt:MaximumMember 2019-01-01 2019-09-30 0000094049 scl:EmployeeStockOptionAndStockAppreciationRightsSARSGrantedPriorToTwoThousandAndSeventeenMember 2019-01-01 2019-09-30 0000094049 scl:EmployeeStockOptionAndStockAppreciationRightsSARSGrantedInTwoThousandAndSeventeenMember 2019-01-01 2019-09-30 0000094049 us-gaap:EmployeeStockOptionMember 2019-09-30 0000094049 us-gaap:EmployeeStockOptionMember 2018-12-31 0000094049 scl:StockAwardsMember 2019-09-30 0000094049 scl:StockAwardsMember 2018-12-31 0000094049 us-gaap:StockAppreciationRightsSARSMember 2019-09-30 0000094049 us-gaap:StockAppreciationRightsSARSMember 2018-12-31 0000094049 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0000094049 scl:StockAwardsAtTargetMember 2019-01-01 2019-09-30 0000094049 us-gaap:StockAppreciationRightsSARSMember 2019-01-01 2019-09-30 0000094049 scl:StockAwardsMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccountingStandardsUpdate201602Member 2019-09-30 0000094049 scl:RailcarsMember 2019-01-01 2019-09-30 0000094049 us-gaap:RealEstateMember 2019-01-01 2019-09-30 0000094049 srt:MinimumMember 2019-09-30 0000094049 srt:MaximumMember 2019-09-30 0000094049 us-gaap:RealEstateMember srt:MinimumMember 2019-09-30 0000094049 us-gaap:RealEstateMember srt:MaximumMember 2019-09-30 0000094049 scl:RealEstateAndRailcarsMember srt:MinimumMember 2019-09-30 0000094049 scl:RealEstateAndRailcarsMember srt:MaximumMember 2019-09-30 0000094049 scl:RealEstateAndRailcarsMember 2019-09-30 scl:Country 0000094049 scl:WilmingtonSiteMember 2019-01-01 2019-09-30 0000094049 country:US 2019-07-01 2019-09-30 0000094049 country:US 2018-07-01 2018-09-30 0000094049 country:US 2019-01-01 2019-09-30 0000094049 country:US 2018-01-01 2018-09-30 0000094049 country:GB 2019-07-01 2019-09-30 0000094049 country:GB 2018-07-01 2018-09-30 0000094049 country:GB 2019-01-01 2019-09-30 0000094049 country:GB 2018-01-01 2018-09-30 0000094049 us-gaap:UnfundedPlanMember us-gaap:NonqualifiedPlanMember country:US 2019-09-30 0000094049 us-gaap:UnfundedPlanMember us-gaap:NonqualifiedPlanMember country:US 2019-01-01 2019-09-30 0000094049 country:GB 2019-09-30 0000094049 scl:RetirementSavingsContributionsMember 2019-07-01 2019-09-30 0000094049 scl:RetirementSavingsContributionsMember 2018-07-01 2018-09-30 0000094049 scl:RetirementSavingsContributionsMember 2019-01-01 2019-09-30 0000094049 scl:RetirementSavingsContributionsMember 2018-01-01 2018-09-30 0000094049 scl:ProfitSharingContributionsMember 2019-07-01 2019-09-30 0000094049 scl:ProfitSharingContributionsMember 2018-07-01 2018-09-30 0000094049 scl:ProfitSharingContributionsMember 2019-01-01 2019-09-30 0000094049 scl:ProfitSharingContributionsMember 2018-01-01 2018-09-30 0000094049 us-gaap:PensionPlansDefinedBenefitMember 2019-09-30 0000094049 us-gaap:EmployeeStockOptionMember 2019-07-01 2019-09-30 0000094049 us-gaap:EmployeeStockOptionMember 2018-07-01 2018-09-30 0000094049 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-09-30 0000094049 us-gaap:StockAppreciationRightsSARSMember 2019-07-01 2019-09-30 0000094049 us-gaap:StockAppreciationRightsSARSMember 2018-07-01 2018-09-30 0000094049 us-gaap:StockAppreciationRightsSARSMember 2018-01-01 2018-09-30 0000094049 us-gaap:PerformanceSharesMember 2019-07-01 2019-09-30 0000094049 us-gaap:PerformanceSharesMember 2018-07-01 2018-09-30 0000094049 us-gaap:PerformanceSharesMember 2019-01-01 2019-09-30 0000094049 us-gaap:PerformanceSharesMember 2018-01-01 2018-09-30 0000094049 scl:OptionsAndStockAppreciationRightsMember 2019-01-01 2019-09-30 0000094049 scl:OptionsAndStockAppreciationRightsMember 2018-01-01 2018-09-30 0000094049 2019-01-01 2019-01-01 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2018-06-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-06-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-06-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2018-07-01 2018-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-07-01 2018-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-07-01 2018-09-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2018-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-09-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2019-06-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-06-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-06-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2019-07-01 2019-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-07-01 2019-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-07-01 2019-09-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2019-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-09-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2017-12-31 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2017-12-31 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2017-12-31 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 2018-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 2018-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-01-01 2018-09-30 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-12-31 0000094049 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0000094049 us-gaap:ForeignExchangeContractMember us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0000094049 us-gaap:ForeignExchangeContractMember us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0000094049 us-gaap:ForeignExchangeContractMember us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0000094049 us-gaap:ForeignExchangeContractMember us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0000094049 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 scl:Segment 0000094049 scl:SurfactantsMember 2019-07-01 2019-09-30 0000094049 scl:SurfactantsMember 2018-07-01 2018-09-30 0000094049 scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 scl:SurfactantsMember 2018-01-01 2018-09-30 0000094049 scl:PolymersMember 2019-07-01 2019-09-30 0000094049 scl:PolymersMember 2018-07-01 2018-09-30 0000094049 scl:PolymersMember 2019-01-01 2019-09-30 0000094049 scl:PolymersMember 2018-01-01 2018-09-30 0000094049 scl:SpecialtyProductsMember 2019-07-01 2019-09-30 0000094049 scl:SpecialtyProductsMember 2018-07-01 2018-09-30 0000094049 scl:SpecialtyProductsMember 2019-01-01 2019-09-30 0000094049 scl:SpecialtyProductsMember 2018-01-01 2018-09-30 0000094049 scl:SurfactantsMember us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0000094049 scl:SurfactantsMember us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0000094049 scl:SurfactantsMember us-gaap:OperatingSegmentsMember 2019-01-01 2019-09-30 0000094049 scl:SurfactantsMember us-gaap:OperatingSegmentsMember 2018-01-01 2018-09-30 0000094049 scl:PolymersMember us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0000094049 scl:PolymersMember us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0000094049 scl:PolymersMember us-gaap:OperatingSegmentsMember 2019-01-01 2019-09-30 0000094049 scl:PolymersMember us-gaap:OperatingSegmentsMember 2018-01-01 2018-09-30 0000094049 scl:SpecialtyProductsMember us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0000094049 scl:SpecialtyProductsMember us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0000094049 scl:SpecialtyProductsMember us-gaap:OperatingSegmentsMember 2019-01-01 2019-09-30 0000094049 scl:SpecialtyProductsMember us-gaap:OperatingSegmentsMember 2018-01-01 2018-09-30 0000094049 us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0000094049 us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0000094049 us-gaap:OperatingSegmentsMember 2019-01-01 2019-09-30 0000094049 us-gaap:OperatingSegmentsMember 2018-01-01 2018-09-30 0000094049 us-gaap:MaterialReconcilingItemsMember 2019-07-01 2019-09-30 0000094049 us-gaap:MaterialReconcilingItemsMember 2018-07-01 2018-09-30 0000094049 us-gaap:MaterialReconcilingItemsMember 2019-01-01 2019-09-30 0000094049 us-gaap:MaterialReconcilingItemsMember 2018-01-01 2018-09-30 0000094049 srt:NorthAmericaMember scl:SurfactantsMember 2019-07-01 2019-09-30 0000094049 srt:NorthAmericaMember scl:PolymersMember 2019-07-01 2019-09-30 0000094049 srt:NorthAmericaMember scl:SpecialtyProductsMember 2019-07-01 2019-09-30 0000094049 srt:NorthAmericaMember 2019-07-01 2019-09-30 0000094049 srt:EuropeMember scl:SurfactantsMember 2019-07-01 2019-09-30 0000094049 srt:EuropeMember scl:PolymersMember 2019-07-01 2019-09-30 0000094049 srt:EuropeMember scl:SpecialtyProductsMember 2019-07-01 2019-09-30 0000094049 srt:EuropeMember 2019-07-01 2019-09-30 0000094049 srt:LatinAmericaMember scl:SurfactantsMember 2019-07-01 2019-09-30 0000094049 srt:LatinAmericaMember scl:PolymersMember 2019-07-01 2019-09-30 0000094049 srt:LatinAmericaMember scl:SpecialtyProductsMember 2019-07-01 2019-09-30 0000094049 srt:LatinAmericaMember 2019-07-01 2019-09-30 0000094049 srt:AsiaMember scl:SurfactantsMember 2019-07-01 2019-09-30 0000094049 srt:AsiaMember scl:PolymersMember 2019-07-01 2019-09-30 0000094049 srt:AsiaMember scl:SpecialtyProductsMember 2019-07-01 2019-09-30 0000094049 srt:AsiaMember 2019-07-01 2019-09-30 0000094049 srt:NorthAmericaMember scl:SurfactantsMember 2018-07-01 2018-09-30 0000094049 srt:NorthAmericaMember scl:PolymersMember 2018-07-01 2018-09-30 0000094049 srt:NorthAmericaMember scl:SpecialtyProductsMember 2018-07-01 2018-09-30 0000094049 srt:NorthAmericaMember 2018-07-01 2018-09-30 0000094049 srt:EuropeMember scl:SurfactantsMember 2018-07-01 2018-09-30 0000094049 srt:EuropeMember scl:PolymersMember 2018-07-01 2018-09-30 0000094049 srt:EuropeMember scl:SpecialtyProductsMember 2018-07-01 2018-09-30 0000094049 srt:EuropeMember 2018-07-01 2018-09-30 0000094049 srt:LatinAmericaMember scl:SurfactantsMember 2018-07-01 2018-09-30 0000094049 srt:LatinAmericaMember scl:PolymersMember 2018-07-01 2018-09-30 0000094049 srt:LatinAmericaMember scl:SpecialtyProductsMember 2018-07-01 2018-09-30 0000094049 srt:LatinAmericaMember 2018-07-01 2018-09-30 0000094049 srt:AsiaMember scl:SurfactantsMember 2018-07-01 2018-09-30 0000094049 srt:AsiaMember scl:PolymersMember 2018-07-01 2018-09-30 0000094049 srt:AsiaMember scl:SpecialtyProductsMember 2018-07-01 2018-09-30 0000094049 srt:AsiaMember 2018-07-01 2018-09-30 0000094049 srt:NorthAmericaMember scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 srt:NorthAmericaMember scl:PolymersMember 2019-01-01 2019-09-30 0000094049 srt:NorthAmericaMember scl:SpecialtyProductsMember 2019-01-01 2019-09-30 0000094049 srt:NorthAmericaMember 2019-01-01 2019-09-30 0000094049 srt:EuropeMember scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 srt:EuropeMember scl:PolymersMember 2019-01-01 2019-09-30 0000094049 srt:EuropeMember scl:SpecialtyProductsMember 2019-01-01 2019-09-30 0000094049 srt:EuropeMember 2019-01-01 2019-09-30 0000094049 srt:LatinAmericaMember scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 srt:LatinAmericaMember scl:PolymersMember 2019-01-01 2019-09-30 0000094049 srt:LatinAmericaMember scl:SpecialtyProductsMember 2019-01-01 2019-09-30 0000094049 srt:LatinAmericaMember 2019-01-01 2019-09-30 0000094049 srt:AsiaMember scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 srt:AsiaMember scl:PolymersMember 2019-01-01 2019-09-30 0000094049 srt:AsiaMember scl:SpecialtyProductsMember 2019-01-01 2019-09-30 0000094049 srt:AsiaMember 2019-01-01 2019-09-30 0000094049 srt:NorthAmericaMember scl:SurfactantsMember 2018-01-01 2018-09-30 0000094049 srt:NorthAmericaMember scl:PolymersMember 2018-01-01 2018-09-30 0000094049 srt:NorthAmericaMember scl:SpecialtyProductsMember 2018-01-01 2018-09-30 0000094049 srt:NorthAmericaMember 2018-01-01 2018-09-30 0000094049 srt:EuropeMember scl:SurfactantsMember 2018-01-01 2018-09-30 0000094049 srt:EuropeMember scl:PolymersMember 2018-01-01 2018-09-30 0000094049 srt:EuropeMember scl:SpecialtyProductsMember 2018-01-01 2018-09-30 0000094049 srt:EuropeMember 2018-01-01 2018-09-30 0000094049 srt:LatinAmericaMember scl:SurfactantsMember 2018-01-01 2018-09-30 0000094049 srt:LatinAmericaMember scl:PolymersMember 2018-01-01 2018-09-30 0000094049 srt:LatinAmericaMember scl:SpecialtyProductsMember 2018-01-01 2018-09-30 0000094049 srt:LatinAmericaMember 2018-01-01 2018-09-30 0000094049 srt:AsiaMember scl:SurfactantsMember 2018-01-01 2018-09-30 0000094049 srt:AsiaMember scl:PolymersMember 2018-01-01 2018-09-30 0000094049 srt:AsiaMember scl:SpecialtyProductsMember 2018-01-01 2018-09-30 0000094049 srt:AsiaMember 2018-01-01 2018-09-30 0000094049 scl:UnsecuredPrivatePlacementNotesOneMember 2019-09-30 0000094049 scl:UnsecuredPrivatePlacementNotesOneMember 2018-12-31 0000094049 scl:UnsecuredPrivatePlacementNotesTwoMember 2019-09-30 0000094049 scl:UnsecuredPrivatePlacementNotesTwoMember 2018-12-31 0000094049 scl:UnsecuredPrivatePlacementNotesThreeMember 2019-09-30 0000094049 scl:UnsecuredPrivatePlacementNotesThreeMember 2018-12-31 0000094049 scl:UnsecuredPrivatePlacementNotesFourMember 2018-12-31 0000094049 scl:UnsecuredBankDebtInForeignCurrencyMember 2019-09-30 0000094049 scl:UnsecuredBankDebtInForeignCurrencyMember 2018-12-31 0000094049 scl:UnsecuredPrivatePlacementNotesFourMember 2019-09-30 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesOneMember 2019-01-01 2019-09-30 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesTwoMember 2019-01-01 2019-09-30 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesThreeMember 2019-01-01 2019-09-30 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesFourMember 2019-01-01 2019-09-30 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesOneMember 2019-01-01 2019-09-30 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesTwoMember 2019-01-01 2019-09-30 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesThreeMember 2019-01-01 2019-09-30 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesFourMember 2019-01-01 2019-09-30 0000094049 scl:UnsecuredBankDebtInForeignCurrencyMember 2019-01-01 2019-09-30 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesOneMember 2018-01-01 2018-12-31 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesTwoMember 2018-01-01 2018-12-31 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesThreeMember 2018-01-01 2018-12-31 0000094049 srt:MinimumMember scl:UnsecuredPrivatePlacementNotesFourMember 2018-01-01 2018-12-31 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesOneMember 2018-01-01 2018-12-31 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesTwoMember 2018-01-01 2018-12-31 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesThreeMember 2018-01-01 2018-12-31 0000094049 srt:MaximumMember scl:UnsecuredPrivatePlacementNotesFourMember 2018-01-01 2018-12-31 0000094049 scl:UnsecuredBankDebtInForeignCurrencyMember 2018-01-01 2018-12-31 0000094049 scl:MultiCurrencyRevolvingCreditAgreementMember 2019-09-30 0000094049 scl:MultiCurrencyRevolvingCreditAgreementMember 2019-01-01 2019-09-30 0000094049 scl:MultiCurrencyRevolvingCreditAgreementMember 2018-12-31 0000094049 scl:SeriesASeniorNotesMember 2019-06-11 2019-06-12 0000094049 scl:SeriesASeniorNotesMember 2019-06-12 0000094049 scl:SeriesASeniorNotesMember 2019-01-01 2019-09-30 scl:Employees 0000094049 country:NL 2019-01-01 2019-09-30 0000094049 scl:EarlyTerminationOfLeaseExpensesMember country:NL 2019-01-01 2019-09-30 0000094049 country:DE scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 country:DE scl:SurfactantsMember scl:AssetAndSparePartMember 2018-01-01 2018-12-31 0000094049 country:DE scl:SurfactantsMember scl:DecommissioningCostsMember 2019-01-01 2019-09-30 0000094049 scl:FieldsboroNewJerseyMember 2017-10-01 2017-12-31 0000094049 scl:FieldsboroNewJerseyMember 2019-01-01 2019-03-31 0000094049 scl:LongfordMillsMember scl:SurfactantsMember 2019-07-01 2019-09-30 0000094049 scl:LongfordMillsMember scl:SurfactantsMember 2019-01-01 2019-09-30 0000094049 scl:LongfordMillsMember scl:SurfactantsMember us-gaap:OneTimeTerminationBenefitsMember 2019-01-01 2019-09-30 0000094049 scl:LongfordMillsMember scl:SurfactantsMember us-gaap:OtherRestructuringMember 2019-01-01 2019-09-30 utr:T 0000094049 scl:BASFMexicanaSADECVMember scl:SurfactantsMember country:MX scl:TwoThousandAndEighteenAcquisitionMember 2018-03-26 utr:sqft 0000094049 scl:BASFMexicanaSADECVMember scl:SurfactantsMember country:MX scl:TwoThousandAndEighteenAcquisitionMember 2018-03-25 2018-03-26 0000094049 scl:BASFMexicanaSADECVMember scl:TwoThousandAndEighteenAcquisitionMember 2018-03-26

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 |  | (I.R.S. Employer
of incorporation or organization) |  | Identification Number)

22 West Frontage Road, Northfield, Illinois 60093

(Address of principal executive offices)

Registrant’s telephone number (847) 446-7500

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class |  | Trading symbol(s) |  | Name of each exchange on which registered
Common Stock, $1 par value |  | SCL |  | New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☒ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
Emerging growth company |  | ☐ |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class |  | Outstanding at October 22, 2019
Common Stock, $1 par value |  | 22,505,067 Shares

Part I FINANCIAL INFORMATION

Item 1 - Financial Statements

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share amounts) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 As Adjusted |  |  | 2019 |  |  | 2018 As Adjusted |
Net Sales |  | $ | 451,582 |  |  | $ | 507,997 |  |  | $ | 1,413,755 |  |  | $ | 1,527,198 |
Cost of Sales(1) |  |  | 374,180 |  |  |  | 424,421 |  |  |  | 1,158,785 |  |  |  | 1,262,443 |
Gross Profit(1) |  |  | 77,402 |  |  |  | 83,576 |  |  |  | 254,970 |  |  |  | 264,755 |
Operating Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling |  |  | 14,186 |  |  |  | 14,613 |  |  |  | 42,295 |  |  |  | 42,872 |
Administrative |  |  | 19,708 |  |  |  | 21,904 |  |  |  | 60,558 |  |  |  | 59,441 |
Research, development and technical services |  |  | 13,473 |  |  |  | 13,977 |  |  |  | 40,228 |  |  |  | 41,311 |
Deferred compensation expense |  |  | 1,610 |  |  |  | 4,222 |  |  |  | 11,478 |  |  |  | 4,971 |
|  |  | 48,977 |  |  |  | 54,716 |  |  |  | 154,559 |  |  |  | 148,595 |
Business restructuring expenses (Note 17) |  |  | (459 | ) |  |  | (1,715 | ) |  |  | (1,642 | ) |  |  | (2,346 | )
Operating Income(1) |  |  | 27,966 |  |  |  | 27,145 |  |  |  | 98,769 |  |  |  | 113,814 |
Other Income (Expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest, net |  |  | (1,402 | ) |  |  | (2,797 | ) |  |  | (5,021 | ) |  |  | (8,620 | )
Other, net (Note 16) |  |  | 885 |  |  |  | 346 |  |  |  | 4,265 |  |  |  | 1,990 |
|  |  | (517 | ) |  |  | (2,451 | ) |  |  | (756 | ) |  |  | (6,630 | )
Income Before Provision for Income Taxes(1) |  |  | 27,449 |  |  |  | 24,694 |  |  |  | 98,013 |  |  |  | 107,184 |
Provision for Income Taxes(1) |  |  | 1,569 |  |  |  | 2,940 |  |  |  | 16,945 |  |  |  | 20,033 |
Net Income(1) |  |  | 25,880 |  |  |  | 21,754 |  |  |  | 81,068 |  |  |  | 87,151 |
Net Loss Attributable to Noncontrolling Interests (Note 3) |  |  | 9 |  |  |  | - |  |  |  | 23 |  |  |  | 9 |
Net Income Attributable to Stepan Company(1) |  | $ | 25,889 |  |  | $ | 21,754 |  |  | $ | 81,091 |  |  | $ | 87,160 |
Net Income Per Common Share Attributable to Stepan Company (Note 11): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic(1) |  | $ | 1.12 |  |  | $ | 0.95 |  |  | $ | 3.52 |  |  | $ | 3.78 |
Diluted(1) |  | $ | 1.11 |  |  | $ | 0.93 |  |  | $ | 3.48 |  |  | $ | 3.74 |
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 11): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 23,025 |  |  |  | 22,986 |  |  |  | 23,070 |  |  |  | 23,036 |
Diluted |  |  | 23,300 |  |  |  | 23,288 |  |  |  | 23,320 |  |  |  | 23,324 |

(1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from the last in, first out (LIFO) basis to the first in, first out (FIFO) basis. |

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

2

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 As Adjusted |  |  | 2019 |  |  | 2018 As Adjusted |
Net income(1) |  | $ | 25,880 |  |  | $ | 21,754 |  |  | $ | 81,068 |  |  | $ | 87,151 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments(2) (Note 12) |  |  | (19,287 | ) |  |  | (2,534 | ) |  |  | (11,290 | ) |  |  | (28,776 | )
Defined benefit pension adjustments, net of tax (Note 12) |  |  | 473 |  |  |  | 788 |  |  |  | 1,558 |  |  |  | 2,293 |
Derivative instrument activity, net of tax (Note 12) |  |  | (2 | ) |  |  | (2 | ) |  |  | (6 | ) |  |  | (7 | )
Total other comprehensive income |  |  | (18,816 | ) |  |  | (1,748 | ) |  |  | (9,738 | ) |  |  | (26,490 | )
Comprehensive income (1) |  |  | 7,064 |  |  |  | 20,006 |  |  |  | 71,330 |  |  |  | 60,661 |
Comprehensive loss attributable to noncontrolling interests (Note 3) |  |  | 41 |  |  |  | 31 |  |  |  | 62 |  |  |  | 55 |
Comprehensive income attributable to Stepan Company(1) |  | $ | 7,105 |  |  | $ | 20,037 |  |  | $ | 71,392 |  |  | $ | 60,716 |

(1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

(2) | Includes foreign currency translation adjustments related to noncontrolling interest. |

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

3

STEPAN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in thousands) |  | September 30, 2019 |  |  | December 31, 2018 As Adjusted |
Assets |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 285,995 |  |  | $ | 300,194 |
Receivables, net |  |  | 283,016 |  |  |  | 280,025 |
Inventories(1) (Note 2)(Note 7) |  |  | 203,303 |  |  |  | 231,528 |
Other current assets |  |  | 25,714 |  |  |  | 22,146 |
Total current assets(1) |  |  | 798,028 |  |  |  | 833,893 |
Property, Plant and Equipment: |  |  |  |  |  |  |  |
Cost |  |  | 1,713,245 |  |  |  | 1,666,790 |
Less: Accumulated depreciation |  |  | (1,101,966 | ) |  |  | (1,057,898 | )
Property, plant and equipment, net |  |  | 611,279 |  |  |  | 608,892 |
Goodwill, net |  |  | 22,144 |  |  |  | 22,954 |
Other intangible assets, net |  |  | 11,518 |  |  |  | 14,244 |
Long-term investments (Note 4) |  |  | 26,389 |  |  |  | 25,082 |
Operating lease assets |  |  | 38,027 |  |  |  | — |
Other non-current assets(1) |  |  | 10,985 |  |  |  | 9,549 |
Total assets(1) |  | $ | 1,518,370 |  |  | $ | 1,514,614 |
Liabilities and Equity |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Current maturities of long-term debt (Note 15) |  | $ | 24,137 |  |  | $ | 37,058 |
Accounts payable |  |  | 175,808 |  |  |  | 205,954 |
Accrued liabilities |  |  | 93,018 |  |  |  | 95,570 |
Total current liabilities |  |  | 292,963 |  |  |  | 338,582 |
Deferred income taxes(1) |  |  | 25,218 |  |  |  | 24,961 |
Long-term debt, less current maturities (Note 15) |  |  | 207,783 |  |  |  | 239,022 |
Non-current operating lease liabilities |  |  | 29,064 |  |  |  | — |
Other non-current liabilities |  |  | 108,435 |  |  |  | 103,864 |
Commitments and Contingencies (Note 9) |  |  |  |  |  |  |  |
Equity: |  |  |  |  |  |  |  |
Common stock, $1 par value; authorized 60,000,000 shares; Issued 26,481,229 shares in 2019 and 26,286,587 shares in 2018 |  |  | 26,481 |  |  |  | 26,309 |  |
Additional paid-in capital |  |  | 191,404 |  |  |  | 182,881 |
Accumulated other comprehensive loss(2) (Note 12) |  |  | (156,507 | ) |  |  | (141,483 | )
Retained earnings(1)(2) |  |  | 906,612 |  |  |  | 837,107 |
Less: Common treasury stock, at cost, 3,976,162 shares in 2019 and 3,773,946 shares in 2018 |  |  | (113,781 | ) |  |  | (97,389 | )
Total Stepan Company stockholders’ equity(1) |  |  | 854,209 |  |  |  | 807,425 |
Noncontrolling interests (Note 3) |  |  | 698 |  |  |  | 760 |
Total equity(1) |  |  | 854,907 |  |  |  | 808,185 |
Total liabilities and equity(1) |  | $ | 1,518,370 |  |  | $ | 1,514,614 |

(1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO.

(2) | The 2019 amounts for the noted line items include an adjustment related to the Company’s first quarter 2019 adoption of ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

4

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In thousands) |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 As Adjusted |
Cash Flows From Operating Activities |  |  |  |  |  |  |  |
Net income(1) |  | $ | 81,068 |  |  | $ | 87,151 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 58,545 |  |  |  | 60,778 |
Deferred compensation |  |  | 11,478 |  |  |  | 4,971 |
Realized and unrealized gains on long-term investments |  |  | (2,806 | ) |  |  | (1,241 | )
Stock-based compensation |  |  | 7,045 |  |  |  | 6,722 |
Deferred income taxes(1) |  |  | (2,291 | ) |  |  | 6,846 |
Other non-cash items |  |  | 2,192 |  |  |  | 1,370 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Receivables, net |  |  | (8,959 | ) |  |  | (34,807 | )
Inventories(1) |  |  | 25,879 |  |  |  | (23,366 | )
Other current assets |  |  | (3,750 | ) |  |  | 727 |
Accounts payable and accrued liabilities |  |  | (35,330 | ) |  |  | (6,906 | )
Pension liabilities |  |  | (979 | ) |  |  | (5,059 | )
Environmental and legal liabilities |  |  | 800 |  |  |  | (763 | )
Deferred revenues |  |  | (243 | ) |  |  | (243 | )
Net Cash Provided By Operating Activities |  |  | 132,649 |  |  |  | 96,180 |
Cash Flows From Investing Activities |  |  |  |  |  |  |  |
Expenditures for property, plant and equipment |  |  | (70,829 | ) |  |  | (62,895 | )
Business acquisition (Note 18) |  |  | - |  |  |  | (21,475 | )
Other, net |  |  | 2,332 |  |  |  | 1,684 |
Net Cash Used In Investing Activities |  |  | (68,497 | ) |  |  | (82,686 | )
Cash Flows From Financing Activities |  |  |  |  |  |  |  |
Revolving debt and bank overdrafts, net |  |  | (6,929 | ) |  |  | 1,379 |
Other debt repayments |  |  | (37,143 | ) |  |  | (5,714 | )
Dividends paid |  |  | (16,911 | ) |  |  | (15,225 | )
Company stock repurchased |  |  | (13,184 | ) |  |  | (13,500 | )
Stock option exercises |  |  | 2,830 |  |  |  | 3,488 |
Other, net |  |  | (3,101 | ) |  |  | (4,504 | )
Net Cash Used In Financing Activities |  |  | (74,438 | ) |  |  | (34,076 | )
Effect of Exchange Rate Changes on Cash |  |  | (3,913 | ) |  |  | (4,324 | )
Net Decrease in Cash and Cash Equivalents |  |  | (14,199 | ) |  |  | (24,906 | )
Cash and Cash Equivalents at Beginning of Period |  |  | 300,194 |  |  |  | 298,894 |
Cash and Cash Equivalents at End of Period |  | $ | 285,995 |  |  | $ | 273,988 |
Supplemental Cash Flow Information |  |  |  |  |  |  |  |
Cash payments of income taxes, net of refunds/payments |  | $ | 21,698 |  |  | $ | 25,190 |
Cash payments of interest |  | $ | 9,311 |  |  | $ | 8,553 |

(1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

5

STEPAN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

Unaudited

1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements included herein have been prepared by 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 (GAAP) 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 adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company’s financial position as of September 30, 2019, and its results of operations for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 2019 and 2018, have been included. These financial statements and related footnotes should be read in conjunction with the financial statements and related footnotes included in the Company’s 2018 Annual Report on Form 10-K.

2. | CHANGE IN METHOD OF ACCOUNTING FOR INVENTORY VALUTION

On January 1, 2019, the Company elected to change its method of accounting for U.S. inventories from the LIFO basis to the FIFO basis. Total U.S. inventories accounted for using the LIFO cost flow assumption, prior to the accounting method change, comprised 68 percent of the Company’s total inventories as of December 31, 2018. Non-U.S. inventories have historically been maintained on the FIFO basis. The Company believes that this change to the FIFO method of inventory valuation is preferable as it provides a better matching of costs with the physical flow of goods, more accurately reflects the current market value of inventory presented on the Company’s consolidated balance sheets, standardizes the Company’s inventory valuation methodology and improves comparability with the Company’s industry peers.

In accordance with ASC 250, Accounting Changes and Error Corrections, this change in method of accounting for U.S. inventories has been retrospectively applied to all prior periods presented herein. Prior period financial statements and financial comparables have been adjusted to reflect what results would have been had the Company always used the FIFO method of inventory valuation for U.S. inventories. The cumulative effect on retained earnings for these changes was $23.7 million at December 31, 2018.

The following tables present the prior year financial statement line items that have been affected by the retrospective change in accounting principle:

Income Statement

(In thousands, except per share amounts) |  | Three Months Ended September 30, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Cost of Sales |  | $ | 423,872 |  |  | $ | 549 |  |  | $ | 424,421 |
Gross Profit |  |  | 84,125 |  |  |  | (549 | ) |  |  | 83,576 |
Operating Income |  |  | 27,694 |  |  |  | (549 | ) |  |  | 27,145 |
Income Before Provision for Income Taxes |  |  | 25,243 |  |  |  | (549 | ) |  |  | 24,694 |
Provision for Income Taxes |  |  | 3,075 |  |  |  | (135 | ) |  |  | 2,940 |
Net Income |  |  | 22,168 |  |  |  | (414 | ) |  |  | 21,754 |
Net Income Attributable to Stepan Company |  |  | 22,168 |  |  |  | (414 | ) |  |  | 21,754 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 0.95 |  |  | $ | (0.02 | ) |  | $ | 0.93 |

6

(In thousands, except per share amounts) |  | Nine Months Ended September 30, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Cost of Sales |  | $ | 1,264,223 |  |  | $ | (1,780 | ) |  | $ | 1,262,443 |
Gross Profit |  |  | 262,975 |  |  |  | 1,780 |  |  |  | 264,755 |
Operating Income |  |  | 112,034 |  |  |  | 1,780 |  |  |  | 113,814 |
Income Before Provision for Income Taxes |  |  | 105,404 |  |  |  | 1,780 |  |  |  | 107,184 |
Provision for Income Taxes |  |  | 19,597 |  |  |  | 436 |  |  |  | 20,033 |
Net Income |  |  | 85,807 |  |  |  | 1,344 |  |  |  | 87,151 |
Net Income Attributable to Stepan Company |  |  | 85,816 |  |  |  | 1,344 |  |  |  | 87,160 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 3.68 |  |  | $ | 0.06 |  |  | $ | 3.74 |

Balance Sheet

(In thousands) |  | December 31, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Inventories |  | $ | 200,165 |  |  | $ | 31,363 |  |  | $ | 231,528 |
Other Non-Current Assets |  |  | 10,964 |  |  |  | (1,415 | ) |  |  | 9,549 |
Total Assets |  |  | 1,484,666 |  |  |  | 29,948 |  |  |  | 1,514,614 |
Deferred Income Taxes |  | $ | 18,672 |  |  | $ | 6,289 |  |  | $ | 24,961 |
Retained Earnings |  |  | 813,448 |  |  |  | 23,659 |  |  |  | 837,107 |
Total Liabilities and Equity |  |  | 1,484,666 |  |  |  | 29,948 |  |  |  | 1,514,614 |

Statement of Cash Flows

(In thousands) |  | Nine Months Ended September 30, 2018 |
|  | As originally reported under LIFO |  |  | Effect of change |  |  | As adjusted under FIFO |
Net Income |  | $ | 85,807 |  |  | $ | 1,344 |  |  | $ | 87,151 |
Deferred Income Taxes |  |  | 6,410 |  |  |  | 436 |  |  |  | 6,846 |
Change in Assets and Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Inventories |  |  | (21,586 | ) |  |  | (1,780 | ) |  |  | (23,366 | )

The following tables present what current year financial statement line items would have been had the Company not changed its method of accounting for U.S. inventories from the LIFO to FIFO basis:

Income Statement

(In thousands, except per share amounts) |  | Three Months Ended September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Cost of Sales |  | $ | 374,180 |  |  | $ | (1,000 | ) |  | $ | 373,180 |
Gross Profit |  |  | 77,402 |  |  |  | 1,000 |  |  |  | 78,402 |
Operating Income |  |  | 27,966 |  |  |  | 1,000 |  |  |  | 28,966 |
Income Before Provision for Income Taxes |  |  | 27,449 |  |  |  | 1,000 |  |  |  | 28,449 |
Provision for Income Taxes |  |  | 1,569 |  |  |  | 246 |  |  |  | 1,815 |
Net Income |  |  | 25,880 |  |  |  | 754 |  |  |  | 26,634 |
Net Income Attributable to Stepan Company |  |  | 25,889 |  |  |  | 754 |  |  |  | 26,643 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 1.11 |  |  | $ | 0.03 |  |  | $ | 1.14 |

7

(In thousands, except per share amounts) |  | Nine Months Ended September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Cost of Sales |  | $ | 1,158,785 |  |  | $ | (3,000 | ) |  | $ | 1,155,785 |
Gross Profit |  |  | 254,970 |  |  |  | 3,000 |  |  |  | 257,970 |
Operating Income |  |  | 98,769 |  |  |  | 3,000 |  |  |  | 101,769 |
Income Before Provision for Income Taxes |  |  | 98,013 |  |  |  | 3,000 |  |  |  | 101,013 |
Provision for Income Taxes |  |  | 16,945 |  |  |  | 738 |  |  |  | 17,683 |
Net Income |  |  | 81,068 |  |  |  | 2,262 |  |  |  | 83,330 |
Net Income Attributable to Stepan Company |  |  | 81,091 |  |  |  | 2,262 |  |  |  | 83,353 |
Net Income Per Diluted Common Share Attributable to Stepan Company |  | $ | 3.48 |  |  | $ | 0.10 |  |  | $ | 3.58 |

Balance Sheet

(In thousands) |  | September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Inventories |  | $ | 203,303 |  |  | $ | (28,363 | ) |  | $ | 174,940 |
Other Non-Current Assets |  |  | 10,985 |  |  |  | 1,415 |  |  |  | 12,400 |
Total Assets |  |  | 1,518,370 |  |  |  | (26,948 | ) |  |  | 1,491,422 |
Deferred Income Taxes |  | $ | 25,218 |  |  | $ | (5,551 | ) |  | $ | 19,667 |
Retained Earnings |  |  | 906,612 |  |  |  | (21,397 | ) |  |  | 885,215 |
Total Liabilities and Equity |  |  | 1,518,370 |  |  |  | (26,948 | ) |  |  | 1,491,422 |

Statement of Cash Flows

(In thousands) |  | Nine Months Ended September 30, 2019 |
|  | As reported under FIFO |  |  | Effect of change |  |  | As computed under LIFO |
Net Income |  | $ | 81,068 |  |  | $ | 2,262 |  |  | $ | 83,330 |
Deferred Income Taxes |  |  | (2,291 | ) |  |  | 738 |  |  |  | (1,553 | )
Change in Assets and Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Inventories |  |  | 25,879 |  |  |  | (3,000 | ) |  |  | 22,879 |

8

3. | RECONCILIATIONS OF EQUITY

Below are reconciliations of total equity, Company equity and equity attributable to noncontrolling interests for the three and nine months ended September 30, 2019 and 2018:

(In thousands, except share and per share amounts) |  | Total |  |  | Common Stock |  |  | Additional Paid-in Capital |  |  | Treasury Stock |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Noncontrolling Interest (1) |
Balance at June 30, 2019 |  |  | 858,397 |  |  |  | 26,453 |  |  |  | 188,781 |  |  |  | (106,202 | ) |  |  | (137,723 | ) |  |  | 886,349 |  |  |  | 739 |
Issuance of 13,256 shares of common stock under stock option plan |  |  | 667 |  |  |  | 13 |  |  |  | 654 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Purchase of 73,821 shares of common stock |  |  | (7,003 | ) |  |  | — |  |  |  | — |  |  |  | (7,003 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based and deferred compensation |  |  | 1,408 |  |  |  | 15 |  |  |  | 1,969 |  |  |  | (576 | ) |  |  | — |  |  |  | — |  |  |  | — |
Net income |  |  | 25,880 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 25,889 |  |  |  | (9 | )
Other comprehensive income |  |  | (18,816 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (18,784 | ) |  |  | — |  |  |  | (32 | )
Cash dividends paid: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock ($0.25 per share) |  |  | (5,626 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5,626 | ) |  |  | — |
Balance at September 30, 2019 |  | $ | 854,907 |  |  | $ | 26,481 |  |  | $ | 191,404 |  |  | $ | (113,781 | ) |  | $ | (156,507 | ) |  | $ | 906,612 |  |  | $ | 698 |

(In thousands, except share and per share amounts) |  | Total |  |  | Common Stock |  |  | Additional Paid-in Capital |  |  | Treasury Stock |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Noncontrolling Interest (1) |
Balance at December 31, 2018(2) |  | $ | 808,185 |  |  | $ | 26,309 |  |  | $ | 182,881 |  |  | $ | (97,389 | ) |  | $ | (141,483 | ) |  | $ | 837,107 |  |  | $ | 760 |
Issuance of 56,385 shares of common stock under stock option plan |  |  | 2,830 |  |  |  | 56 |  |  |  | 2,774 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Purchase of 144,457 shares of common stock |  |  | (13,184 | ) |  |  | — |  |  |  | — |  |  |  | (13,184 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based and deferred compensation |  |  | 2,657 |  |  |  | 116 |  |  |  | 5,749 |  |  |  | (3,208 | ) |  |  | — |  |  |  | — |  |  |  | — |
Net income |  |  | 81,068 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 81,091 |  |  |  | (23 | )
Other comprehensive income |  |  | (9,738 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (9,699 | ) |  |  | — |  |  |  | (39 | )
Cash dividends paid: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock ($0.75 per share) |  |  | (16,911 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (16,911 | ) |  |  | — |
Other (3) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5,325 | ) |  |  | 5,325 |  |  |  | — |
Balance at September 30, 2019 |  | $ | 854,907 |  |  | $ | 26,481 |  |  | $ | 191,404 |  |  | $ | (113,781 | ) |  | $ | (156,507 | ) |  | $ | 906,612 |  |  | $ | 698 |

9

(In thousands, except share and per share amounts) |  | Total |  |  | Common Stock |  |  | Additional Paid-in Capital |  |  | Treasury Stock |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Noncontrolling Interest (1) |
Balance at June 30, 2018(2) |  |  | 789,096 |  |  |  | 26,279 |  |  |  | 177,779 |  |  |  | (93,559 | ) |  |  | (124,290 | ) |  |  | 802,093 |  |  |  | 794 |
Issuance of 5,032 shares of common stock under stock option plan |  |  | 214 |  |  |  | 5 |  |  |  | 209 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Purchase of 16,833 shares of common stock |  |  | (1,500 | ) |  |  | — |  |  |  | — |  |  |  | (1,500 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based and deferred compensation |  |  | 2,311 |  |  |  | 3 |  |  |  | 2,380 |  |  |  | (72 | ) |  |  | — |  |  |  | — |  |  |  | — |
Net income (2) |  |  | 21,754 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 21,754 |  |  |  | — |
Other comprehensive income |  |  | (1,748 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,717 | ) |  |  | — |  |  |  | (31 | )
Cash dividends paid: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock ($0.23 per share) |  |  | (5,065 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5,065 | ) |  |  | — |
Balance at September 30, 2018(2) |  | $ | 805,062 |  |  | $ | 26,287 |  |  | $ | 180,368 |  |  | $ | (95,131 | ) |  | $ | (126,007 | ) |  | $ | 818,782 |  |  | $ | 763 |

(In thousands, except share and per share amounts) |  | Total |  |  | Common Stock |  |  | Additional Paid-in Capital |  |  | Treasury Stock |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Retained Earnings |  |  | Noncontrolling Interest (1) |
Balance, December 31, 2017(2) |  | $ | 766,218 |  |  | $ | 26,071 |  |  | $ | 170,408 |  |  | $ | (78,561 | ) |  | $ | (99,563 | ) |  | $ | 747,045 |  |  | $ | 818 |
Issuance of 85,394 shares of common stock under stock option plan |  |  | 3,488 |  |  |  | 85 |  |  |  | 3,403 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Purchase of 156,524 shares of common stock |  |  | (13,500 | ) |  |  | — |  |  |  | — |  |  |  | (13,500 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based and deferred compensation |  |  | 3,618 |  |  |  | 131 |  |  |  | 6,557 |  |  |  | (3,070 | ) |  |  | — |  |  |  | — |  |  |  | — |
Net income (2) |  |  | 87,151 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 87,160 |  |  |  | (9 | )
Other comprehensive income |  |  | (26,490 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (26,444 | ) |  |  | — |  |  |  | (46 | )
Cash dividends paid: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock ($0.70 per share) |  |  | (15,225 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (15,225 | ) |  |  | — |
Other (4) |  |  | (198 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (198 | ) |  |  | — |
Balance at September 30, 2018(2) |  | $ | 805,062 |  |  | $ | 26,287 |  |  | $ | 180,368 |  |  | $ | (95,131 | ) |  | $ | (126,007 | ) |  | $ | 818,782 |  |  | $ | 763 |

| (1) | Reflects the noncontrolling interest in the Company’s China joint venture. |

| (2) | The retained earnings and net income amounts for the noted line items have been changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

| (3) | Reflects beginning retained earnings adjustment as a result of the Company’s first quarter 2019 adoption of ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. See Note 19 for more details. |

| (4) | Reflects beginning retained earnings adjustment as a result of the Company’s first quarter 2018 adoption of ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. |

4. | FAIR VALUE MEASUREMENTS

The following were the financial instruments held by the Company at September 30, 2019, and December 31, 2018, and the methods and assumptions used to estimate the instruments’ fair values:

Cash and cash equivalents

Carrying value approximated fair value because of the short maturity of the instruments.

10

Derivative assets and liabilities

Derivative assets and liabilities include the foreign currency exchange contracts discussed in Note 5. Fair value and carrying value were the same because the contracts were recorded at fair value. The fair values of the foreign currency contracts were calculated as the difference between the applicable forward foreign exchange rates at the reporting date and the contracted foreign exchange rates multiplied by the contracted notional amounts. See the table below that describes financial assets and liabilities measured on a recurring basis for the reported fair values of derivative assets and liabilities.

Long-term investments

Long-term investments include the mutual fund assets the Company held to fund a portion of its deferred compensation liabilities and all of its non-qualified supplemental executive defined contribution obligations (see the defined contribution plans section of Note 10). Fair value and carrying value were the same because the mutual fund assets were recorded at fair value. Fair values for the mutual funds were calculated using the published market price per unit at the reporting date multiplied by the number of units held at the reporting date. See the table that follows the financial instrument descriptions for the reported fair value of long-term investments.

Debt obligations

The fair value of debt with original maturities greater than one year comprised the combined present values of scheduled principal and interest payments for each of the various loans, individually discounted at rates equivalent to those which could be obtained by the Company for new debt issues with durations equal to the average life to maturity of each loan. The fair values of the remaining Company debt obligations approximated their carrying values due to the short-term nature of the debt. The Company’s fair value measurements for debt fall within level 2 of the fair value hierarchy.

At September 30, 2019, and December 31, 2018, the fair values and related carrying values of debt, including current maturities, were as follows (the fair value and carrying value amounts are presented without regard to unamortized debt issuance costs of $789,000 and $978,000 as of September 30, 2019 and December 31, 2018, respectively):

(In thousands) |  | September 30, 2019 |  |  | December 31, 2018 |
Fair value |  | $ | 237,766 |  |  | $ | 274,119 |
Carrying value |  |  | 232,709 |  |  |  | 277,058 |

The following tables present financial assets and liabilities measured on a recurring basis at fair value as of September 30, 2019, and December 31, 2018, and the level within the fair value hierarchy in which the fair value measurements fall:

(In thousands) |  | September 30, 2019 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Mutual fund assets |  | $ | 26,389 |  |  | $ | 26,389 |  |  | $ | — |  |  | $ | — |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  |  | 91 |  |  |  | — |  |  |  | 91 |  |  |  | — |
Total assets at fair value |  | $ | 26,480 |  |  | $ | 26,389 |  |  | $ | 91 |  |  | $ | — |
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | 280 |  |  | $ | — |  |  | $ | 280 |  |  | $ | — |

(In thousands) |  | December 31, 2018 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Mutual fund assets |  | $ | 25,082 |  |  | $ | 25,082 |  |  | $ | — |  |  | $ | — |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  |  | 185 |  |  |  | — |  |  |  | 185 |  |  |  | — |
Total assets at fair value |  | $ | 25,267 |  |  | $ | 25,082 |  |  | $ | 185 |  |  | $ | — |
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | 10 |  |  | $ | — |  |  | $ | 10 |  |  | $ | — |

5. | DERIVATIVE INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by the use of derivative instruments is foreign currency exchange risk. The Company holds forward foreign currency exchange contracts that

11

are not designated as any type of accounting hedge as defined by GAAP. The Company uses these contracts to manage its exposure to exchange rate fluctuations on certain Company subsidiary cash, accounts receivable, accounts payable and other obligation balances that are den ominated in currencies other than the entities’ functional currencies. The forward foreign exchange contracts are recognized on the balance sheet as either an asset or a liability measured at fair value. Gains and losses arising from recording the foreign exchange contracts at fair value are reported in earnings as offsets to the losses and gains reported in earnings arising from the re-measurement of the asset and liability balances into the applicable functional currencies. At September 30, 2019, and Dece mber 31, 2018, the Company had open forward foreign currency exchange contracts, all with durations of one to three months, to buy or sell foreign currencies with U.S. dollar equivalent amounts of $35,857,965 and $28,870,081, respectively.

The fair values of the derivative instruments held by the Company on September 30, 2019, and December 31, 2018, are disclosed in Note 4. Derivative instrument gains and losses for the three- and nine- month periods ended September 30, 2019 and 2018, were immaterial. For amounts reclassified out of accumulated other comprehensive income (loss) (AOCI) into earnings for the three- and nine- month periods ended September 30, 2019 and 2018, see Note 12.

6. | STOCK-BASED COMPENSATION

On September 30, 2019, the Company had stock options, stock awards and stock appreciation rights (SARs) outstanding under its 2011 Incentive Compensation Plan. SARs granted prior to 2015 are cash-settled, and SARs granted after 2014 are stock-settled. Stock options and SARs granted prior to 2017 generally cliff vested after two years. Starting in 2017, stock options and SARs have a three-year graded vesting feature, with one-third of the awards vesting each year. The Company has elected the straight-line method of expense attribution for the stock options and SARs with the graded vesting feature.

Compensation expense recorded for all stock options, stock awards and SARs was as follows:

(In thousands) |
Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
$ | 2,273 |  |  | $ | 3,335 |  |  | $ | 7,045 |  |  | $ | 6,722 |

The quarter-over-quarter decrease in stock-based compensation expense was primarily attributable to cash-settled SARs. The cash-settled SARs compensation expense during the third quarter of 2019 was less than a year ago reflecting a smaller increase in the market value of Company stock during the third quarter of 2019 versus the increase during the third quarter of 2018.

Unrecognized compensation costs for stock options, stock awards and SARs were as follows:

(In thousands) |  | September 30, 2019 |  |  | December 31, 2018 |
Stock options |  | $ | 2,270 |  |  | $ | 1,655 |
Stock awards |  |  | 4,114 |  |  |  | 3,180 |
SARs |  |  | 4,964 |  |  |  | 3,566 |

The increases in unrecognized compensation costs for stock options, stock awards and SARs reflected the 2019 grants of:

|  | Shares |
Stock options |  |  | 72,965 |
Stock awards (at target) |  |  | 45,327 |
SARs |  |  | 162,624 |

The unrecognized compensation costs at September 30, 2019, are expected to be recognized over weighted-average periods of 1.9 years, 1.8 years and 1.9 years for stock options, stock awards and SARs, respectively.

12

7. | INVENTORIES

The composition of inventories at September 30, 2019, and December 31, 2018, was as follows:

(In thousands) |  | September 30, 2019 |  |  | December 31, 2018 As Adjusted |
Finished goods |  | $ | 148,320 |  |  | $ | 163,617 |
Raw materials |  |  | 54,983 |  |  |  | 67,911 |
Total inventories |  | $ | 203,303 |  |  | $ | 231,528 |

Effective January 1, 2019, the Company elected to change its method of accounting for U.S. inventories from the LIFO basis to the FIFO basis. Non-U.S. inventories have historically been maintained on the FIFO basis. Prior period financial statements have been adjusted to reflect what results would have been had the Company always used the FIFO method of inventory valuation for U.S. inventories. See Note 2 for additional details.

8. | LEASES

The Company adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019. This new accounting standard requires a dual approach for lessee accounting whereby a lessee accounts for lease arrangements as either finance leases or operating leases. The lease classification affects the pattern of expense recognition in the income statement. The most significant impact of adopting ASU No. 2016-02, Leases (Topic 842) is that a lessee is now required to recognize a “right-of-use” (ROU) asset and corresponding lease liability for operating lease agreements. ROU assets represent a right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating leases are expensed on a straight-line basis over the life of the lease beginning on the date the Company takes possession of the property.

The Company elected to apply the new lease standard at adoption as allowed under ASU No. 2018-11 and, as a result, the Company did not retrospectively adjust prior periods presented. The Company elected the practical expedient to not separate non-lease components from lease components for all asset classes and the practical expedient which permits a Company to not reassess prior conclusions about lease identification, lease classifications and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. In addition, the Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. Upon adoption of ASC 842, the Company recognized $42.4 million of ROU assets and related operating lease liabilities on its balance sheet. There was no cumulative catch-up adjustment made to beginning retained earnings.

Significant judgments used by the Company to determine whether a contract is or contains a lease include: (i) determining whether any explicitly or implicitly identified assets have been identified in the contract and (ii) determining whether the Company obtains substantially all of the economic benefits from the use of an underlying asset and directs how and for what purpose the asset is used during the term of the contract.

The Company’s operating leases are primarily comprised of railcars, real estate, storage tanks, autos, trailers and manufacturing/office equipment. Railcars and real estate comprise approximately 50 percent and 37 percent, respectively, of the Company’s consolidated ROU asset balance. With the exception of real estate, typical lease terms range from one to ten years. Real estate lease terms typically range from one to fifty years. The Company’s two principal real estate leases relate to land leases in the Philippines and Singapore. As of September 30, 2019, the Company had additional leases, primarily for leases of real estate and railcars, that have not commenced of approximately $1.9 million. The majority of these leases will commence in the fourth quarter of 2019 with lease terms ranging from one to five years.

Variability associated with the Company’s lease obligations typically relates to: (i) additional charges based on usage (i.e., railcar mileage in excess of a specified amount) and, (ii) periodic increases associated with Consumer Price Index (CPI) changes (i.e., land rental payments). Appropriate CPI at the inception of a lease is reflected in the Company’s lease liability balances whereas variability based on usage is typically excluded from lease liability amounts. Some of the Company’s leases include options to extend the lease term but these are typically not recognized as part of the ROU asset or lease liability at inception unless it is reasonably certain the renewal option will be exercised. Determining whether a renewal option is reasonably certain to be exercised requires judgment based on the existing facts and circumstances as well as expectations about future business needs. Renewal options are typically re-assessed within one year or less prior to lease termination when the Company is able to more accurately forecast future business needs. Some of the Company’s lease contracts include options to terminate leases early but these are typically not considered unless it is reasonably certain the early termination option will be exercised. The Company’s leases do not typically carry any residual value guarantees and typically payment is not considered probable when such guarantees are included in the contract.

13

Initial implementation of ASU No. 2016-02, Leases (Topic 842) did not impact compliance with any of the Company’s debt covenants, nor is it expected to in the future. The majority of the Company’s debt agreements contain language that excludes the impact of any new GAAP accounting change.

As most of the Company’s leases do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate (IBR) based on the information available at the commencement date in determining the present value of lease payments. IBRs were specifically determined for the United States, the Philippines, Singapore and China, typically for five-year increments. The U.S. IBR was used for all other countries as the leases in these countries are not material. The total value of leases that reside in the four countries identified above represents approximately 94 percent of the Company’s consolidated ROU asset balance.

(In thousands) | Three months ended September 30, 2019 |  |  | Nine months ended September 30, 2019 |
Lease Cost |  |  |  |  |  |  |
Operating lease cost | $ | 2,698 |  |  | $ | 8,097 |
Short-term lease cost |  | 1,249 |  |  |  | 3,367 |
Variable lease cost |  | 303 |  |  |  | 884 |
Total lease cost | $ | 4,250 |  |  | $ | 12,348 |
Other Information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |
Operating cash flow from operating leases | $ | 2,718 |  |  | $ | 8,139 |
Right-of-use assets obtained in exchange for new operating lease liabilities |  | 1,593 |  |  |  | 2,482 |

(In thousands) |  |  |  |
Undiscounted Cash Flows: |  |  |  |
2019 (excluding the nine months ended September 30, 2019) |  | $ | 2,734 |
2020 |  |  | 9,771 |
2021 |  |  | 6,899 |
2022 |  |  | 5,699 |
2023 |  |  | 4,457 |
Subsequent to 2023 |  |  | 18,376 |
Total Undiscounted Cash Flows |  | $ | 47,936 |
Less: Imputed interest |  |  | (9,899 | )
Present value |  | $ | 38,037 |
Current operating lease liabilities (1) |  |  | 8,973 |
Non-current operating lease liabilities |  |  | 29,064 |
Total lease liabilities |  | $ | 38,037 |

| (1) | This item is included in Accrued liabilities line on the Company’s Condensed Consolidated Balance Sheet.

Weighted-average remaining lease term-operating leases |  | 9 Years
Weighted-average discount rate-operating leases |  | 4.3%

14

ASC 840 Disclosure

As required in transition, the table below summarizes the Company’s future minimum lease payments at December 31, 2018 under ASC 840.

(In thousands) |  |  |  |
Year |  |  |  |
2019 |  | $ | 9,740 |
2020 |  |  | 8,294 |
2021 |  |  | 6,027 |
2022 |  |  | 5,242 |
2023 |  |  | 4,101 |
Subsequent to 2023 |  |  | 16,593 |
Total minimum future rental payments |  | $ | 49,997 |

9. | CONTINGENCIES

There are a variety of legal proceedings pending or threatened against the Company that occur in the normal course of the Company’s business, the majority of which relate to environmental matters. 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 U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund amendments of 1986 (Superfund) as well as comparable regulations applicable to the Company’s foreign locations. Over the years, the Company has received requests for information related to or has been named by the government authorities as a potentially responsible party (PRP) at a number of sites where cleanup costs have been or may be incurred under CERCLA 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 is likely to incur with respect to these sites.

As of September 30, 2019, the Company estimated a range of possible environmental and legal losses of $23.9 million to $45.6 million. Within the range of possible environmental and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the ranges and, thus, has accrued at the lower end of the ranges; that accrual totaled $23.9 million at September 30, 2019 and $23.4 million at December 31, 2018. Cash expenditures related to legal and environmental matters approximated $2.8 million for the nine months ended September 30, 2019, compared to $1.0 million for the same period in 2018.

For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based upon the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position. However, in the event of one or more adverse determinations with respect to such sites in any annual or interim period, the effect on the Company’s cash flows and results of operations for those periods could be material.

Following are summaries of the material contingencies at September 30, 2019:

Maywood, New Jersey Site

The Company’s property in Maywood, New Jersey and property formerly owned by the Company adjacent to its current site and other nearby properties (Maywood site) were listed on the National Priorities List in September 1993 pursuant to the provisions of CERCLA because of certain alleged chemical contamination. Pursuant to an Administrative Order on Consent entered into between the U.S. 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 various remedial investigation feasibility studies, and on September 24, 2014, the USEPA issued its Record of Decision (ROD) for chemically-contaminated soil. The USEPA has not yet issued a ROD for chemically-contaminated groundwater for the Maywood site. Based on the most current information available, the Company believes its recorded liability is reasonable having considered the range of estimated cost of remediation for the Maywood site. The estimate of the cost of remediation for the Maywood site could change as the Company continues to hold discussions with the USEPA, as

15

the design of the remedial action progresses, if a groundwater ROD is issued or if other PRPs are identified. The ultimate amount for which the Comp any is liable could differ materially from the Company’s current recorded liability.

In April 2015, the Company entered into an Administrative Settlement Agreement and Administrative Order on Consent with the USEPA which requires payment of certain costs and performance of certain investigative and design work for chemically-contaminated soil. Based on the Company’s review and analysis of this order, no changes to the Company’s recorded liability for claims associated with soil remediation of chemical contamination were required.

In addition, under the terms of a settlement agreement reached on November 12, 2004, the U.S. Department of Justice and the Company agreed to fulfill the terms of a Cooperative Agreement reached in 1985 under which the United States will take title to and responsibility for radioactive waste removal at the Maywood site, including past and future remediation costs incurred by the United States. As such, the Company recorded no liability related to this settlement agreement.

D’Imperio Site

During the mid-1970’s, Jerome Lightman and the Lightman Drum Company disposed of hazardous substances at several sites in New Jersey. The Company was named as a PRP in a lawsuit in the U.S. District Court for the District of New Jersey that involved the D’Imperio site located in New Jersey. In 2016, the PRPs were provided with updated remediation cost estimates, which were considered in the Company’s determination of its range of estimated possible losses and liability balance. The changes in range of possible losses and liability balance were immaterial. Remediation work is continuing at this site. Based on current information, the Company believes that its recorded liability is reasonable having considered the range of estimated cost of remediation for the D’Imperio site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current estimates.

Wilmington Site

The Company is currently contractually obligated to contribute to the response costs associated with the Company’s formerly-owned site in Wilmington, Massachusetts. Remediation at this site is being managed by its current owner, to whom the Company sold the property in 1980. Under the agreement, once total site remediation costs exceed certain levels, the Company is obligated to contribute up to five percent of future response costs associated with this site with no limitation on the ultimate amount of contributions. The Company has paid the current owner $2.8 million for the Company’s portion of environmental response costs through September 30, 2019. The Company has recorded a liability for its portion of the estimated remediation costs for the site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current estimates.

The Company and other prior owners also entered into an agreement in April 2004 waiving certain statute of limitations defenses for claims which may be filed by the Town of Wilmington, Massachusetts, in connection with this site. While the Company has denied any liability for any such claims, the Company agreed to this waiver while the parties continue to discuss the resolution of any potential claim which may be filed.

Other U.S. Sites

Through the regular environmental monitoring of its plant production sites, the Company discovered levels of chemical contamination that were above thresholds allowed by law at two of its U.S plants. The Company voluntarily reported its results to the applicable state environmental agencies. As a result, the Company is required to perform self-remediation of the affected areas. In the fourth quarter of 2016, the Company recognized a charge for the estimated cost of remediating the sites. Based on current information, the Company believes that its recorded liability for the remediation of the affected areas is appropriate based on estimate of expected costs. However, actual costs could differ materially from current estimates.

10. | POSTRETIREMENT BENEFIT PLANS

Defined Benefit Pension Plans

The Company sponsors various funded qualified and unfunded non-qualified defined benefit pension plans, the most significant of which cover employees in the U.S. and U.K. locations. The U.S. and U.K. defined benefit pension plans are frozen and service benefits are no longer being accrued.

16

Components of Net Periodic Benefit Cost

|  | UNITED STATES |
(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Interest cost |  | $ | 1,640 |  |  | $ | 1,566 |  |  | $ | 4,962 |  |  | $ | 4,645 |
Expected return on plan assets |  |  | (2,365 | ) |  |  | (2,320 | ) |  |  | (7,087 | ) |  |  | (6,962 | )
Amortization of net actuarial loss |  |  | 563 |  |  |  | 987 |  |  |  | 1,867 |  |  |  | 2,860 |
Net periodic benefit cost |  | $ | (162 | ) |  | $ | 233 |  |  | $ | (258 | ) |  | $ | 543 |

|  | UNITED KINGDOM |
(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Interest cost |  | $ | 134 |  |  | $ | 138 |  |  | $ | 416 |  |  | $ | 430 |
Expected return on plan assets |  |  | (190 | ) |  |  | (216 | ) |  |  | (589 | ) |  |  | (673 | )
Amortization of net actuarial loss |  |  | 59 |  |  |  | 53 |  |  |  | 184 |  |  |  | 166 |
Net periodic benefit cost |  | $ | 3 |  |  | $ | (25 | ) |  | $ | 11 |  |  | $ | (77 | )

Employer Contributions

U.S. Plans

As a result of pension funding relief provisions included in the Highway and Transportation Funding Act of 2014, the Company is not required to make contributions to the funded U.S. qualified defined benefit plans. Approximately $312,000 is expected to be paid related to the unfunded non-qualified plans in 2019. Of such amount, $256,000 had been paid related to the non-qualified plans as of September 30, 2019.

U.K. Plan

The Company’s U.K. subsidiary expects to contribute approximately $476,000 to its defined benefit pension plan in 2019. Of such amount, $408,000 had been contributed to the plan as of September 30, 2019.

Defined Contribution Plans

The Company sponsors retirement savings defined contribution plans that cover eligible U.S. and U.K. employees. The Company’s U.S. retirement plans include two qualified plans, one of which is a 401(k) plan and one of which is an employee stock ownership plan, and one non-qualified supplemental executive plan. In the nine months ended September 30, 2019 and 2018, the Company made profit sharing contributions into the qualified retirement plans for U.S. employees and for certain non-U.S. employees. Profit sharing contributions were determined using a formula applied to Company earnings. In 2018, for U.S. employees, who received the majority of profit sharing contributions, profit sharing contributions were made partly to the 401(k) plan and partly to the employee stock ownership plan and in 2019, profit sharing contributions were made to the employee stock ownership plan. Profit sharing contributions are allocated to participant accounts on the basis of participant base earnings.

Defined contribution plan expenses for the Company’s qualified contribution plans were as follows:

(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Retirement savings contributions |  | $ | 1,777 |  |  | $ | 1,738 |  |  | $ | 5,401 |  |  | $ | 5,201 |
Profit sharing contributions |  |  | 567 |  |  |  | 759 |  |  |  | 2,413 |  |  |  | 2,769 |
Total |  | $ | 2,344 |  |  | $ | 2,497 |  |  | $ | 7,814 |  |  | $ | 7,970 |

The Company has a rabbi trust to fund the obligations of its non-qualified supplemental executive defined contribution plans (supplemental plans). The trust comprises various mutual fund investments selected by the participants of the supplemental plans. In accordance with the accounting guidance for rabbi trust arrangements, the assets of the trust and the obligations of the supplemental plans are reported on the Company’s consolidated balance sheets. The Company elected the fair value option for the mutual fund investment assets so that offsetting changes in the mutual fund values and defined contribution

17

plan obligations would be recorded in earnings in the s ame period. Therefore, the mutual funds are reported at fair value with any subsequent changes in fair value recorded in the consolidated statements of income. The liabilities related to the supplemental plans increase (i.e., supplemental plan expense is r ecognized) when the value of the trust assets appreciates and decrease when the value of the trust assets declines (i.e., supplemental plan income is recognized). At September 30, 2019, the balance of the trust assets was $1,670,000, which equaled the balance of the supplemental plan liabilities (see the long-term investments section in Note 4 for further information regarding the Company’s mutual fund assets).

11. | EARNINGS PER SHARE

Below are the computations of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

(In thousands, except per share amounts) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 As Adjusted |  |  | 2019 |  |  | 2018 As Adjusted |
Computation of Basic Earnings per Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income attributable to Stepan Company (1) |  | $ | 25,889 |  |  | $ | 21,754 |  |  | $ | 81,091 |  |  | $ | 87,160 |
Weighted-average number of common shares outstanding |  |  | 23,025 |  |  |  | 22,986 |  |  |  | 23,070 |  |  |  | 23,036 |
Basic earnings per share (1) |  | $ | 1.12 |  |  | $ | 0.95 |  |  | $ | 3.52 |  |  | $ | 3.78 |
Computation of Diluted Earnings per Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income attributable to Stepan Company (1) |  | $ | 25,889 |  |  | $ | 21,754 |  |  | $ | 81,091 |  |  | $ | 87,160 |
Weighted-average number of shares outstanding |  |  | 23,025 |  |  |  | 22,986 |  |  |  | 23,070 |  |  |  | 23,036 |
Add weighted-average net shares from assumed exercise of options (under treasury stock method) (2) |  |  | 102 |  |  |  | 103 |  |  |  | 95 |  |  |  | 103 |
Add weighted-average net shares related to unvested stock awards (under treasury stock method) |  |  | 1 |  |  |  | 3 |  |  |  | 2 |  |  |  | 2 |
Add weighted-average net shares from assumed exercise of SARs (under treasury stock method) (2) |  |  | 135 |  |  |  | 113 |  |  |  | 120 |  |  |  | 111 |
Add weighted-average contingently issuable net shares related to performance stock awards (under treasury stock method) |  |  | 37 |  |  |  | 83 |  |  |  | 33 |  |  |  | 72 |
Weighted-average shares applicable to diluted earnings |  |  | 23,300 |  |  |  | 23,288 |  |  |  | 23,320 |  |  |  | 23,324 |
Diluted earnings per share (1) |  | $ | 1.11 |  |  | $ | 0.93 |  |  | $ | 3.48 |  |  | $ | 3.74 |

| (1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

(2) Options/SARs to acquire 142,833 shares of Company common stock were excluded from the computations of diluted earnings per share for the nine months ended September 30, 2019. Options/SARs to acquire 65,919 shares of Company common stock were excluded from the computations of diluted earnings per share for the nine months ended September 30, 2018. Inclusion of the instruments would have had antidilutive effects on the computations of the earnings per share.

18

12. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

In conjunction with the adoption of ASU 2018-02, the Company reclassified $5,325,000 of other comprehensive loss, associated with retirement plans, from accumulated other comprehensive loss to retained earnings effective January 1, 2019. Below is the change in the Company’s AOCI balance by component (net of income taxes) for the three and nine months ended September 30, 2019 and 2018:

(In thousands) |  | Foreign Currency Translation Adjustments |  |  | Defined Benefit Pension Plan Adjustments |  |  | Cash Flow Hedge Adjustments |  |  | Total |
Balance at June 30, 2018 |  | $ | (96,788 | ) |  | $ | (27,588 | ) |  | $ | 86 |  |  | $ | (124,290 | )
Other comprehensive income before reclassifications |  |  | (2,503 | ) |  |  | — |  |  |  | — |  |  |  | (2,503 | )
Amounts reclassified from AOCI |  |  | — |  |  |  | 788 |  |  |  | (2 | ) |  |  | 786 |
Net current-period other comprehensive income |  |  | (2,503 | ) |  |  | 788 |  |  |  | (2 | ) |  |  | (1,717 | )
Balance at September 30, 2018 |  | $ | (99,291 | ) |  | $ | (26,800 | ) |  | $ | 84 |  |  | $ | (126,007 | )
Balance at June 30, 2019 |  | $ | (100,477 | ) |  | $ | (37,323 | ) |  | $ | 77 |  |  | $ | (137,723 | )
Other comprehensive income before reclassifications |  |  | (19,255 | ) |  |  | — |  |  |  | — |  |  |  | (19,255 | )
Amounts reclassified from AOCI |  |  | — |  |  |  | 473 |  |  |  | (2 | ) |  |  | 471 |
Net current-period other comprehensive income |  |  | (19,255 | ) |  |  | 473 |  |  |  | (2 | ) |  |  | (18,784 | )
Balance at September 30, 2019 |  | $ | (119,732 | ) |  | $ | (36,850 | ) |  | $ | 75 |  |  | $ | (156,507 | )
Balance at December 31, 2017 |  | $ | (70,561 | ) |  | $ | (29,093 | ) |  | $ | 91 |  |  | $ | (99,563 | )
Other comprehensive income before reclassifications |  |  | (28,730 | ) |  |  | — |  |  |  | — |  |  |  | (28,730 | )
Amounts reclassified from AOCI |  |  | — |  |  |  | 2,293 |  |  |  | (7 | ) |  |  | 2,286 |
Net current-period other comprehensive income |  |  | (28,730 | ) |  |  | 2,293 |  |  |  | (7 | ) |  |  | (26,444 | )
Balance at September 30, 2018 |  | $ | (99,291 | ) |  | $ | (26,800 | ) |  | $ | 84 |  |  | $ | (126,007 | )
Balance at December 31, 2018 |  | $ | (108,481 | ) |  | $ | (33,083 | ) |  | $ | 81 |  |  | $ | (141,483 | )
Other comprehensive income before reclassifications |  |  | (11,251 | ) |  |  | — |  |  |  | — |  |  |  | (11,251 | )
Amounts reclassified from AOCI |  |  | — |  |  |  | 1,558 |  |  |  | (6 | ) |  |  | 1,552 |
Remeasurement adjustment related to the Tax Act (1) |  |  | — |  |  |  | (5,325 | ) |  |  | — |  |  |  | (5,325 | )
Net current-period other comprehensive income |  |  | (11,251 | ) |  |  | (3,767 | ) |  |  | (6 | ) |  |  | (15,024 | )
Balance at September 30, 2019 |  | $ | (119,732 | ) |  | $ | (36,850 | ) |  | $ | 75 |  |  | $ | (156,507 | )

| (1) | Represents reclassification of the stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (Tax Act) from accumulated other comprehensive income (loss) to retained earnings in accordance with ASU 2018-02. See Note 19 for more details. |

19

Information regarding the reclassifications out of AOCI for the three and nine month periods ended September 30, 2019 and 2018, is displayed below:

(In thousands) |  | Amount Reclassified from AOCI (a) |  |  |
AOCI Components |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |  |  | Affected Line Item in Consolidated Statements of Income
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |  |  |
Amortization of defined benefit pension actuarial losses |  | $ | (622 | ) |  | $ | (1,040 | ) |  | $ | (2,051 | ) |  | $ | (3,026 | ) |  | (b)
|  |  | 149 |  |  |  | 252 |  |  |  | 493 |  |  |  | 733 |  |  | Tax benefit
|  | $ | (473 | ) |  | $ | (788 | ) |  | $ | (1,558 | ) |  | $ | (2,293 | ) |  | Net of tax
Gains and losses on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  |  | 2 |  |  |  | 2 |  |  |  | 6 |  |  |  | 7 |  |  | Cost of sales
|  |  | 2 |  |  |  | 2 |  |  |  | 6 |  |  |  | 7 |  |  | Total before tax
|  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  | Tax benefit
|  | $ | 2 |  |  | $ | 2 |  |  | $ | 6 |  |  | $ | 7 |  |  | Net of tax
Total reclassifications for the period |  | $ | (471 | ) |  | $ | (786 | ) |  | $ | (1,552 | ) |  | $ | (2,286 | ) |  | Net of tax

| (a) | Amounts in parentheses denote expense to statement of income.

| (b) | This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost (see Note 10 for additional details). |

13. | SEGMENT REPORTING

The Company has three reportable segments: Surfactants, Polymers and Specialty Products. Net sales by segment for the three and nine months ended September 30, 2019 and 2018, were as follows:

(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Segment Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Surfactants |  | $ | 299,719 |  |  | $ | 346,884 |  |  | $ | 962,749 |  |  | $ | 1,062,708 |
Polymers |  |  | 135,089 |  |  |  | 141,646 |  |  |  | 395,904 |  |  |  | 404,446 |
Specialty Products |  |  | 16,774 |  |  |  | 19,467 |  |  |  | 55,102 |  |  |  | 60,044 |
Total |  | $ | 451,582 |  |  | $ | 507,997 |  |  | $ | 1,413,755 |  |  | $ | 1,527,198 |

20

Segment operating income and reconciliations of segment operating income to income before provision for income taxes for the three and nine months ended September 30, 2019 and 2018, are summarized below:

(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 As Adjusted |  |  | 2019 |  |  | 2018 As Adjusted |
Segment Operating Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Surfactants(1) |  | $ | 19,660 |  |  | $ | 28,824 |  |  | $ | 88,913 |  |  | $ | 104,370 |
Polymers(1) |  |  | 23,283 |  |  |  | 19,259 |  |  |  | 58,148 |  |  |  | 56,863 |
Specialty Products |  |  | 2,261 |  |  |  | 2,653 |  |  |  | 11,374 |  |  |  | 6,543 |
Segment operating income(1) |  |  | 45,204 |  |  |  | 50,736 |  |  |  | 158,435 |  |  |  | 167,776 |
Business restructuring |  |  | (459 | ) |  |  | (1,715 | ) |  |  | (1,642 | ) |  |  | (2,346 | )
Unallocated corporate expenses(2) |  |  | (16,779 | ) |  |  | (21,876 | ) |  |  | (58,024 | ) |  |  | (51,616 | )
Consolidated operating income(1) |  |  | 27,966 |  |  |  | 27,145 |  |  |  | 98,769 |  |  |  | 113,814 |
Interest expense, net |  |  | (1,402 | ) |  |  | (2,797 | ) |  |  | (5,021 | ) |  |  | (8,620 | )
Other, net |  |  | 885 |  |  |  | 346 |  |  |  | 4,265 |  |  |  | 1,990 |
Income before provision for income taxes(1) |  | $ | 27,449 |  |  | $ | 24,694 |  |  | $ | 98,013 |  |  | $ | 107,184 |

| (1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

| (2) | Unallocated corporate expenses primarily comprise corporate administrative expenses (e.g., corporate finance, legal, human resources, information systems, deferred compensation and environmental remediation) that are not included in segment operating income and not used to evaluate segment performance. |

14. | REVENUE FROM CONTRACTS WITH CUSTOMERS

In the majority of instances the Company deems a contract with a customer to exist when a purchase order is received from a customer for a specified quantity of product or products and the Company acknowledges receipt of such purchase order. In some instances the Company has entered into manufacturing supply agreements with customers but these agreements typically do not bind a customer to any purchase volume requirements and thus an obligation is not created until the customer submits a purchase order to the Company. The Company’s contracts typically have a single performance obligation that is satisfied at the time a product is shipped and control passes to the customer. For a small portion of the business, performance obligations are deemed satisfied when product is delivered to a customer location.

As of September 30, 2019, the Company did not have any contract assets or contract liabilities. A contract liability would typically arise when an advance or deposit is received from a customer before the Company recognizes revenue. In practice, this is extremely rare as it would require a customer to make a payment prior to a performance obligation being satisfied. If such a situation did arise the Company would maintain a deferred revenue liability until the time a performance obligation has been satisfied. The Company did not recognize any revenue in the current period from any pre-existing contract liability balance.

The tables below provide a geographic disaggregation of net sales for the three and nine months ended September 30, 2019 and 2018. The Company’s business segmentation by geographic region most effectively captures the nature and economic characteristics of the Company’s revenue streams.

|  | For the Three Months Ended September 30, 2019 |
(In thousands) |  |  |  |  |  |  |
|  | Surfactants |  |  | Polymers |  |  | Specialty Products |  |  | Total |
Geographic Market |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 178,799 |  |  | $ | 84,397 |  |  | $ | 14,035 |  |  | $ | 277,231 |
Europe |  |  | 57,190 |  |  |  | 39,852 |  |  |  | 2,739 |  |  |  | 99,781 |
Latin America |  |  | 51,940 |  |  |  | 792 |  |  |  | — |  |  |  | 52,732 |
Asia |  |  | 11,790 |  |  |  | 10,048 |  |  |  | — |  |  |  | 21,838 |
Total |  | $ | 299,719 |  |  | $ | 135,089 |  |  | $ | 16,774 |  |  | $ | 451,582 |

21

|  | For the Three Months Ended September 30, 2018 |
(In thousands) |  |  |  |  |  |  |
|  | Surfactants |  |  | Polymers |  |  | Specialty Products |  |  | Total |
Geographic Market |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 205,032 |  |  | $ | 87,720 |  |  | $ | 16,877 |  |  | $ | 309,629 |
Europe |  |  | 68,120 |  |  |  | 45,780 |  |  |  | 2,590 |  |  |  | 116,490 |
Latin America |  |  | 58,560 |  |  |  | 978 |  |  |  | — |  |  |  | 59,538 |
Asia |  |  | 15,172 |  |  |  | 7,168 |  |  |  | — |  |  |  | 22,340 |
Total |  | $ | 346,884 |  |  | $ | 141,646 |  |  | $ | 19,467 |  |  | $ | 507,997 |

|  | For the Nine Months Ended September 30, 2019 |
(In thousands) |  |  |  |  |  |  |
|  | Surfactants |  |  | Polymers |  |  | Specialty Products |  |  | Total |
Geographic Market |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 584,816 |  |  | $ | 242,154 |  |  | $ | 46,127 |  |  | $ | 873,097 |
Europe |  |  | 183,028 |  |  |  | 126,042 |  |  |  | 8,975 |  |  |  | 318,045 |
Latin America |  |  | 156,709 |  |  |  | 2,439 |  |  |  | — |  |  |  | 159,148 |
Asia |  |  | 38,196 |  |  |  | 25,269 |  |  |  | — |  |  |  | 63,465 |
Total |  | $ | 962,749 |  |  | $ | 395,904 |  |  | $ | 55,102 |  |  | $ | 1,413,755 |

|  | For the Nine Months Ended September 30, 2018 |
(In thousands) |  |  |  |  |  |  |
|  | Surfactants |  |  | Polymers |  |  | Specialty Products |  |  | Total |
Geographic Market |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 643,466 |  |  | $ | 248,160 |  |  | $ | 50,365 |  |  | $ | 941,991 |
Europe |  |  | 212,556 |  |  |  | 132,592 |  |  |  | 9,679 |  |  |  | 354,827 |
Latin America |  |  | 156,827 |  |  |  | 2,438 |  |  |  | — |  |  |  | 159,265 |
Asia |  |  | 49,859 |  |  |  | 21,256 |  |  |  | — |  |  |  | 71,115 |
Total |  | $ | 1,062,708 |  |  | $ | 404,446 |  |  | $ | 60,044 |  |  | $ | 1,527,198 |

15. | DEBT

At September 30, 2019, and December 31, 2018, debt comprised the following:

(In thousands) |  | Maturity Dates |  | September 30, 2019 |  |  | December 31, 2018 |
Unsecured private placement notes |  |  |  |  |  |  |  |  |  |
3.95% (net of unamortized debt issuance cost of $327 and $360 for 2019 and 2018, respectively) |  | 2021-2027 |  | $ | 99,673 |  |  | $ | 99,640 |
3.86% (net of unamortized debt issuance cost of $305 and $347 for 2019 and 2018, respectively) |  | 2019-2025 |  |  | 85,409 |  |  |  | 99,653 |
4.86% (net of unamortized debt issuance cost of $157 and $186 for 2019 and 2018, respectively) |  | 2019-2023 |  |  | 46,271 |  |  |  | 46,243 |
5.88% (net of unamortized debt issuance cost of $0 and $85 for 2019 and 2018, respectively) |  | 2019-2022 |  |  | — |  |  |  | 22,772 |
Debt of foreign subsidiaries |  |  |  |  |  |  |  |  |  |
Unsecured bank debt, foreign currency |  | 2019 |  |  | 567 |  |  |  | 7,772 |
Total debt |  |  |  | $ | 231,920 |  |  | $ | 276,080 |
Less current maturities |  |  |  |  | 24,137 |  |  |  | 37,058 |
Long-term debt |  |  |  | $ | 207,783 |  |  | $ | 239,022 |

22

The Company has a committed $350,000,000 multi-currency revolving credit agreement that expires on January 30, 2023. The Company maintains standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the revolving credit agreement. As of September 30, 2019, the Company had outstanding letters of credit totaling $5,009,000 and no outstanding debt under this agreement. There was $344,991,000 available under the revolving credit agreement as of September 30, 2019.

The Company’s loan agreements contain provisions which, among others, require maintenance of certain financial ratios and place limitations on additional debt, investments and payment of dividends. Based on the loan agreement provisions that place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were $267,903,000 and $214,101,000 at September 30, 2019 and December 31, 2018, respectively.

On June 12, 2019, the Company prepaid the $17,100,000 outstanding principal balance of its 5.88 percent Series 2010-A Senior Notes due June 1, 2022 (Notes) and the related make-whole amount of $1,173,000. The make-whole amount reflected the net present value of the remaining scheduled interest payments on the Notes, calculated in accordance with the applicable note purchase agreement. The prepayment was made with cash on hand. The Company also expensed remaining unamortized debt issuance costs of $74,000.

16. | OTHER, NET

Other, net in the consolidated statements of income included the following:

(In thousands) |  | Three Months Ended September 30 |  |  | Nine Months Ended September 30 |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Foreign exchange gain (loss) |  | $ | 374 |  |  | $ | (274 | ) |  | $ | 333 |  |  | $ | 895 |
Investment income |  |  | 106 |  |  |  | 91 |  |  |  | 309 |  |  |  | 320 |
Realized and unrealized gain (loss) on investments |  |  | (324 | ) |  |  | 737 |  |  |  | 2,806 |  |  |  | 1,241 |
Net periodic pension benefit cost |  |  | 159 |  |  |  | (208 | ) |  |  | 247 |  |  |  | (466 | )
Gain on sale of asset |  |  | 570 |  |  |  | — |  |  |  | 570 |  |  |  | — |
Other, net |  | $ | 885 |  |  | $ | 346 |  |  | $ | 4,265 |  |  | $ | 1,990 |

17. | BUSINESS RESTRUCTURING

In the first quarter of 2019, the Company approved a plan to restructure its Specialty Products office in the Netherlands and eliminate five positions from the site’s supply chain, quality control and research and development areas. This restructuring was designed to better align the number of personnel with current business requirements and reduce costs at the site. As a result, severance and early lease termination expenses of $396,000 and $122,000, respectively, were recognized during the nine months ended September 30, 2019.

During the third quarter of 2018, the Company approved a plan to shut down Surfactant operations at its German plant site. As of September 30, 2019, an aggregate of $1,968,000 shut down related expense had been recognized at the site. This aggregate expense is comprised of $1,404,000 of asset and spare part write downs recognized in 2018 and $564,000 of decommissioning costs recognized in the nine months ended September 30, 2019. Decommissioning costs associated with the shutdown are expected to continue throughout the remainder of 2019.

In the fourth quarter of 2017, the Company approved a plan to restructure a portion of its Fieldsboro, New Jersey production facility. This facility is a part of the Surfactant reportable segment. As a result, the Company recorded $915,000 of restructuring expense which reflected termination benefits for select plant employees. In the first quarter of 2019, the Company recognized a $251,000 favorable adjustment to the amount of termination benefits initially recorded.

In May 2016, the Company announced plans to shut down its Longford Mills, Ontario, Canada (Longford Mills) manufacturing facility, a part of the Surfactant reportable segment, by December 31, 2016. The shutdown plan was implemented to improve the Company’s asset utilization in North America and to reduce the Company’s fixed cost base. Manufacturing operations at the Longford Mills plant ceased by the end of 2016, and production of goods manufactured at the facility was transferred to other Company North American production sites. Decommissioning of the assets is expected to continue throughout 2019. In the third quarter of 2019, the Company recognized $290,000 of decommissioning expenses. As of September 30, 2019, $6,885,000 of aggregate restructuring expense had been recognized, reflecting $1,644,000 of termination benefits for approximately 30 employees and $5,241,000 for other expenses, principally site decommissioning costs.

23

18. | ACQUISITION

2018 Acquisition

On March 26, 2018, the Company through a subsidiary in Mexico closed on a previously announced agreement with BASF Mexicana, S.A.DE C.V. (BASF) to acquire their surfactants production facility in Ecatepec, Mexico and a portion of their associated surfactants business. The facility is located close to Mexico City and has over 50,000 metric tons of capacity, 124,000 square feet of warehouse space, a large laboratory and office space. The acquired assets and business are included in the Company’s Surfactants segment. The purchase price of the acquisition was $22,852,000 and was paid with cash on hand. The primary assets acquired were land, buildings, machinery and equipment and inventory. The acquisition was accounted for as a business combination, and, accordingly, the assets acquired were measured and recorded at their estimated fair values. No intangible assets were identified as part of the acquisition. The following table summarizes the assets acquired as a result of the acquisition:

(In thousands) |  |  |  |
Assets: |  |  |  |
Property, plant and equipment |  | $ | 14,464 |
Inventory |  |  | 5,687 |
Value-added tax receivables |  |  | 2,701 |
Total assets acquired |  | $ | 22,852 |

The acquired business had minimal impact on the Company’s 2018 financial results.

19. | RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-2, Leases (Topic 842). This guidance requires a dual approach for lessee accounting whereby a lessee will account for lease arrangements with terms greater than 12 months as either finance leases or operating leases. Both finance leases and operating leases are recognized on the lessee’s balance sheet as right-of-use assets and corresponding lease liabilities, with differing methodologies for income statement recognition. In addition, the ASU requires expanded qualitative and quantitative disclosures about the Company’s lease arrangements. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018. The most significant impact of ASU No. 2016-2, Leases (Topic 842) is that a lessee is required to recognize a “right-of-use” asset and corresponding lease liability for operating leases agreements. The Company adopted the new lease standard on January 1, 2019 by recognizing lease assets and the corresponding lease liabilities. The adoption of these guidelines did not have an impact on retained earnings, the Company’s results of operations or cash flows, but it did have a material impact on specific balance sheet line items. See Note 8 – Leases for more details.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the update reclassifies the stranded tax effects resulting from the Tax Act and should improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effects of the change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update also require certain disclosures about stranded tax effects. This update is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted this guidance and recorded a $5,325,000 adjustment to the opening balance of retained earnings with the corresponding offset to AOCI. See Note 12 – Accumulated Other Comprehensive Income (Loss) for more details.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the guidance on the measurement of the impairment of financial instruments. The new pronouncement replaces the existing model of measuring credit losses with an expected credit loss model referred to as “the Current Expected Credit Loss (CECL) model.” The new model is based on expected losses that should be measured based not only on historical experience but on the combination of historical data, current conditions and reasonable forecasts. Under this methodology, an entity recognizes as an allowance its estimate of lifetime expected credit losses and is required to apply the new credit loss model to most financial instruments held at amortized cost including trade receivables. The amendments in the update are effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2019. It is not expected that the adoption of the guidance in ASU No. 2016-13 will have a material effect on the Company’s financial position, results of operations or cash flows.

24

In January 2017, the FASB issued ASU No. 2017-4, Intang ibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. When an indication of impairment was identified after performing the first step of the goodwill impairment test, Step 2 required that an entity determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) using the same procedure that would be required in determining the fair value of assets a cquired and liabilities assumed in a business combination. Under the amendments in ASU No. 2017-4, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. An entity w ould recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. In addition, an entity must consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit wh en measuring the goodwill impairment loss, if applicable. The Company is required to adopt the amendments in ASU No. 2017-4 for its annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. It is not expected that the adoption of the guidance in ASU No. 2017-4 will have a material effect on the Company’s financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This update modifies some disclosure requirements related to fair value measurements used for different levels of instruments in fair value hierarchy (Level 1, Level 2 and Level 3). The amendments in the update are effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2019. The adoption of this update is not expected to have an effect on the Company’s financial position, results of operations and cash flows but may impact the disclosures made for fair value measurements used by the Company.

In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). This update removes some disclosures that are no longer considered cost beneficial and adds some disclosures about defined benefit plans that have been identified as relevant. The amendments in this update are effective for fiscal years ending after December 15, 2020. The adoption of this update is not expected to have an effect on the Company’s financial position, results of operations and cash flows but will impact the disclosures made for the Company’s defined benefit retirement plans.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update requires the entity to determine which implementation costs to capitalize as an asset related to the service contact and which costs to expense over the term of the hosting contract. The amendments in this update are effective for fiscal years beginning after December 15, 2019. The adoption of this update is not expected to have an effect on the Company’s financial position, results of operations and cash flows.

25

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis (MD&A) of certain significant factors that have affected the Company’s financial condition and results of operations during the interim periods included in the accompanying condensed consolidated financial statements.

Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements include statements about Stepan Company’s and its subsidiaries’ (the Company) plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, the Company’s actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “guidance,” “predict,” “potential,” “continue,” “likely,” “will,” “would,” “should,” “illustrative” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond the Company’s control, that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Such risks, uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth under “Part I-Item IA. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 inclusive of: (a) the risks and uncertainties related to accidents, unplanned production shutdowns or disruptions in any of the Company’s manufacturing facilities; (b) global competition and the Company’s ability to successfully compete; (c) volatility of raw material, natural gas and electricity costs as well as any disruption in their supply; (d) disruptions in transportation or significant changes in transportation costs; (e) reduced demand for Company products due to customer product reformulations or new technologies; (f) the Company’s ability to make acquisitions of suitable candidates and successfully integrate acquisitions; (g) the Company’s ability to keep and protect its intellectual property rights; (h) international business risks, including fluctuations in currency exchange rates, legal restrictions and taxes; (i) potentially adverse tax consequences due to the international scope of the Company’s operations; (j) compliance with anti-corruption, environmental, health and safety and product registration laws; (k) the Company’s ability to operate within the limitations of its debt covenants; (l) downgrades to the Company’s credit ratings or disruptions to the Company’s ability to access well-functioning capital markets; (m) downturns in certain industries and general economic downturns; (n) conflicts, military actions, terrorist attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations; (o) cost overruns, delays and miscalculations in capacity needs with respect to the Company’s expansion or other capital projects; (p) interruption of, damage to or compromise of the Company’s IT systems and failure to maintain the integrity of customer, colleague or Company data; (q) unfavorable resolution of litigation against the Company; (r) and the Company’s ability to retain its executive management and other key personnel.

These factors are not necessarily all of the important factors that could cause the Company’s actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of its forward-looking statements. Other unknown or unpredictable factors also could harm the Company’s results. All forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company does not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements. The “Company,” “we,” “our” or “us” means Stepan Company and one or more of its subsidiaries only.

Overview

The Company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide. The overall business comprises three reportable segments:

• | Surfactants – Surfactants, which accounted for 68 percent of Company consolidated net sales for the first nine months of 2019, are principal ingredients in consumer and industrial cleaning products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Other applications include fabric softeners, germicidal quaternary compounds, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites. Surfactants are manufactured at five sites in the United States, two European sites (United Kingdom and France), five Latin American sites (one site in Colombia and two sites in each of Brazil and Mexico) and two Asian sites (Philippines and Singapore). Recent significant events include:

26

| o | During January 2019 the Company’s plant in Ecatepec, Mexico experienced a sulfonation equipment failure that contributed to an operating loss at the site for the first nine months of 2019. The Ecatepec facility is now fully operational and the Company’s insurance provider has acknowledged this incident is a covered event. The Company is pursuing insurance recovery. This plant, and a portion of its related surfactant business, was acquired from BASF in March 2018 (see Note 18, Acquisition, for additional details).

| o | During the fourth quarter of 2018, the Company shut down Surfactant operations at its plant site in Germany. The Company ceased Surfactant production at this site to further reduce its fixed cost base, refocus Surfactant resources on higher margin end markets and allow for select assets to be repurposed to support future polyol growth. Decommissioning costs associated with the shutdown are expected to be incurred throughout 2019 (see Note 17, Business Restructuring, for additional details).

| o | In 2016, the Company shut down its production facility in Canada, moving the production of goods previously manufactured in Canada to other Company North American production sites. Manufacturing operations at the facility ceased in the fourth quarter of 2016, but decommissioning activities occurred in 2017 and 2018 and will continue throughout 2019 (see Note 17, Business Restructuring, for additional details).

• | Polymers – Polymers, which accounted for 28 percent of consolidated net sales for the first nine months of 2019, include polyurethane polyols, polyester resins and phthalic anhydride. Polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry and are also a base raw material for coatings, adhesives, sealants and elastomers (collectively, CASE). Powdered polyester resins are used in coating applications. CASE and powdered polyester resins are collectively referred to as specialty polyols. Phthalic anhydride is used in unsaturated polyester resins, alkyd resins and plasticizers for applications in construction materials and components of automotive, boating and other consumer products. In addition, the Company uses phthalic anhydride internally in the production of polyols. In the United States, polyurethane polyols and phthalic anhydride are manufactured at the Company’s Millsdale, Illinois, site and specialty polyols are manufactured at the Company’s Columbus, Georgia, site. In Europe, polyurethane polyols are manufactured by the Company’s subsidiary in Germany, and specialty polyols are manufactured by the Company’s Poland subsidiary. In China, polyurethane polyols and specialty polyols are manufactured at the Company’s Nanjing, China, plant.

• | Specialty Products – Specialty Products, which accounted for four percent of consolidated net sales for the first nine months of 2019, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications. Specialty products are primarily manufactured at the Company’s Maywood, New Jersey, site and, in some instances, at outside contractors.

| o | During the first quarter of 2019 the Company approved a plan to restructure its Specialty Product office in the Netherlands and eliminate positions from the site’s supply chain, quality control and research and development areas. This restructuring was designed to better align the number of personnel with current business requirements and reduce costs at the site (see Note 17, Business Restructuring, for additional details).

Change in Accounting Principle

During the first quarter of 2019 the Company elected to change its method of accounting for U.S. inventory valuation from the LIFO basis to the FIFO basis. Non-U.S. inventories have historically been maintained on the FIFO basis. The Company believes that this change to the FIFO method of inventory valuation is preferable as it provides a better matching of costs with the physical flow of goods, more accurately reflects the current market value of inventory presented on the Company’s consolidated balance sheet, standardizes the Company’s inventory valuation methodology and improves comparability with the Company’s industry peers. The Company has retrospectively applied this change to its prior year financial statement comparables. See Note 2, Change in Method of Accounting for Inventory Valuation, for additional details.

27

Deferred Compensation Plans

The accounting for the Company’s deferred compensation plans can cause period-to-period fluctuations in Company expenses and profits. Compensation expense results when the values of Company common stock and mutual fund investment assets held for the plans increase, and compensation income results when the values of Company common stock and mutual fund investment assets decline. The pretax effect of all deferred compensation-related activities (including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations) and the income statement line items in which the effects of the activities were recorded are displayed in the following tables:

|  | Income (Expense) |  |  |  |  |  |
|  | For the Three Months Ended September 30 |  |  |  |  |  |
(In millions) |  | 2019 |  |  | 2018 |  |  | Change |  |
Deferred Compensation (Operating expenses) |  | $ | (1.6 | ) |  | $ | (4.2 | ) |  | $ | 2.6 |  | (1)
Realized/Unrealized Gains on Investments (Other, net) |  |  | (0.3 | ) |  |  | 0.7 |  |  | $ | (1.0 | ) |
Investment Income (Other, net) |  |  | 0.1 |  |  |  | 0.1 |  |  | $ | - |  |
Pretax Income Effect |  | $ | (1.8 | ) |  | $ | (3.4 | ) |  | $ | 1.6 |  |

|  | Income (Expense) |  |  |  |  |  |
|  | For the Nine Months Ended September 30 |  |  |  |  |  |
(In millions) |  | 2019 |  |  | 2018 |  |  | Change |  |
Deferred Compensation (Administrative expense) |  | $ | (11.5 | ) |  | $ | (5.0 | ) |  | $ | (6.5 | ) | (1)
Realized/Unrealized Gains on Investments (Other, net) |  |  | 2.7 |  |  |  | 1.2 |  |  |  | 1.5 |  |
Investment Income (Other, net) |  |  | 0.3 |  |  |  | 0.3 |  |  |  | - |  |
Pretax Income Effect |  | $ | (8.5 | ) |  | $ | (3.5 | ) |  | $ | (5.0 | ) |

| (1) | See the Segment Results-Corporate Expenses sections of this MD&A for details regarding the period-over-period changes in deferred compensation expense. |

Effects of Foreign Currency Translation

The Company’s foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results). The following tables present the effects that foreign currency translation had on the period-over-period changes in consolidated net sales and various income statement line items for the three and nine months ended September 30, 2019 and 2018:

|  | Three Months Ended September 30 |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | (Decrease) |
(In millions) |  | 2019 |  |  | 2018(1) |  |  | Increase (Decrease) |  |  | Due to Foreign Translation |
Net Sales |  | $ | 451.6 |  |  | $ | 508.0 |  |  | $ | (56.4 | ) |  | $ | (7.2 | )
Gross Profit |  |  | 77.4 |  |  |  | 83.6 |  |  |  | (6.2 | ) |  |  | (1.0 | )
Operating Income |  |  | 28.0 |  |  |  | 27.1 |  |  |  | 0.9 |  |  |  | (0.5 | )
Pretax Income |  |  | 27.4 |  |  |  | 24.7 |  |  |  | 2.7 |  |  |  | (0.5 | )

28

|  | Nine Months Ended September 30 |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | (Decrease) |
(In millions) |  | 2019 |  |  | 2018(1) |  |  | (Decrease) |  |  | Due to Foreign Translation |
Net Sales |  | $ | 1,413.8 |  |  | $ | 1,527.2 |  |  | $ | (113.4 | ) |  | $ | (33.2 | )
Gross Profit |  |  | 255.0 |  |  |  | 264.8 |  |  |  | (9.8 | ) |  |  | (4.6 | )
Operating Income |  |  | 98.8 |  |  |  | 113.8 |  |  |  | (15.0 | ) |  |  | (2.5 | )
Pretax Income |  |  | 98.0 |  |  |  | 107.2 |  |  |  | (9.2 | ) |  |  | (2.4 | )

| (1) | The 2018 gross profit, operating income and pretax income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

RESULTS OF OPERATIONS

Three Months Ended September 30, 2019 and 2018

Summary

Net income attributable to the Company for the third quarter of 2019 increased 19 percent to $25.9 million, or $1.11 per diluted share, from $21.8 million, or $0.93 per diluted share, for the third quarter of 2018. Adjusted net income increased six percent to $27.9 million, or $1.20 per diluted share, from $26.4 million, or $1.13 per diluted share, in 2018 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for reconciliations between reported net income attributable to the Company and related earnings per diluted share and non-GAAP adjusted net income and related earnings per diluted share). Below is a summary discussion of the major factors leading to the quarter-over-quarter changes in net sales, profits and expenses. A detailed discussion of segment operating performance for the third quarter of 2019 compared to the third quarter of 2018 follows the summary.

Consolidated net sales decreased $56.4 million, or 11 percent, between quarters. Consolidated sales volume declined six percent, which had a $29.1 million unfavorable impact on the quarter-over-quarter change in net sales. Sales volume in the Surfactant and Specialty Product segments decreased eight percent and two percent, respectively, while sales volume in the Polymer segment increased three percent. Approximately 27 percent of the decline in Surfactant volume was due to the Company’s exit from its sulfonation business in Germany during the fourth quarter of 2018. Lower average selling prices negatively impacted the quarter-over-quarter change in net sales by $20.1 million. The decrease in average selling prices was primarily due to the pass through of lower raw material costs. Foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $7.2 million due to a stronger U.S. dollar against the majority of currencies where the Company has foreign operations.

Operating income for the third quarter of 2019 increased $0.8 million, or three percent, versus operating income for the third quarter of 2018. A $6.2 million decline in gross profit was more than offset by lower corporate, deferred compensation and business restructuring expenses. These expenses decreased by $2.5 million, $2.6 million and $1.3 million quarter-over-quarter, respectively. From a segment perspective, Polymer operating income improved by $4.0 million, whereas Surfactant and Specialty Product operating income declined by $9.2 and $0.4 million, respectively. Foreign currency translation had a $0.5 million unfavorable effect on quarter-over-quarter consolidated operating income.

Operating expenses (including deferred compensation and business restructuring expense) decreased $7.0 million, or 12 percent, between quarters. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

| • | Selling expenses decreased $0.4 million, or three percent, quarter-over-quarter.

| • | Administrative expenses decreased $2.2 million, or 10 percent, quarter-over-quarter. This decrease was primarily due to non-recurring employee separation costs ($2.1 million) incurred during the third quarter of 2018.

| • | Research, development and technical service (R&D) expenses decreased $0.5 million, or four percent, quarter-over-quarter, primarily due to lower incentive-based compensation expense.

| • | Deferred compensation expense declined $2.6 million, quarter-over-quarter, primarily due to a $5.15 per share increase in the market price of Company common stock in the third quarter of 2019 compared to a $9.00 per share increase in the third quarter of 2018. See the Overview and Segment Results-Corporate Expenses sections of this MD&A for further details.

29

| • | Business restructuring charges totaled $0.5 million in the third quarter of 2019 versus $1.7 million in the third quarter of 2018. The 2019 restructuring charges were comprised of ongoing decommissioning costs associated with the Company’s manufacturing facility in Canada ($0.3 million) and decommissioning expenses associated with the Company’s 2018 sulfonation shutdown in Germany ($0.2 million). The 2018 restructuring charges were comprised of asset and spare part write-downs related to the Company ceas ing Surfactant operations in Germany ($1.4 million) and Canadian decommissioning costs ($0.3 million). See Note 17, Business Restructuring, for additional details.

Net interest expense for the third quarter of 2019 decreased $1.4 million versus the prior year quarter. This decrease was primarily due to higher U.S. interest income earned on U.S. cash balances, resulting from the repatriation of $100.0 million to the United States in 2018, and lower interest expense resulting from scheduled debt repayments and the Company’s voluntary prepayment of its 5.88% Senior Notes in the second quarter of 2019.

Other, net was $0.9 million of income for the third quarter of 2019 compared to $0.3 million of income for the same period of 2018. The Company incurred $0.2 million of investment losses (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the third quarter of 2019 compared to $0.8 million of income in last year’s third quarter. The Company also reported foreign exchange gains of $0.4 million in the third quarter of 2019 versus $0.3 million of foreign exchange losses in the third quarter of 2018. Net periodic pension costs were $0.4 million lower in the third quarter of 2019 versus the prior year quarter. In addition, the Company reported a $0.6 million gain on the sale of an asset in the third quarter of 2019.

The Company’s effective tax rate was 5.7 percent for the third quarter of 2019 compared to 11.9 percent for the third quarter of 2018. The quarter-over-quarter decrease was primarily attributable to: (i) current quarter incremental U.S. tax credits identified as part of a research and development tax credit study, and (ii) the non-recurrence of unfavorable tax consequences resulting from the repatriation of $100.0 million to the United States in 2018. These items were substantially offset by other non-recurring favorable tax benefits recognized in the third quarter of 2018.

Segment Results

|  | For the Three Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30, |  |  | September 30, |  |  | (Decrease) |  |  | Percent |
Net Sales |  | 2019 |  |  | 2018 |  |  |  |  |  | Change |
Surfactants |  | $ | 299,719 |  |  | $ | 346,884 |  |  | $ | (47,165 | ) |  |  | -14 |
Polymers |  |  | 135,089 |  |  |  | 141,646 |  |  |  | (6,557 | ) |  |  | -5 |
Specialty Products |  |  | 16,774 |  |  |  | 19,467 |  |  |  | (2,693 | ) |  |  | -14 |
Total Net Sales |  | $ | 451,582 |  |  | $ | 507,997 |  |  | $ | (56,415 | ) |  |  | -11 |

|  | For the Three Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30, |  |  | September 30, |  |  | Increase |  |  | Percent |
Operating Income |  | 2019 |  |  | 2018(1) |  |  | (Decrease) |  |  | Change |
Surfactants |  | $ | 19,660 |  |  | $ | 28,824 |  |  | $ | (9,164 | ) |  |  | -32 |
Polymers |  |  | 23,283 |  |  |  | 19,259 |  |  |  | 4,024 |  |  |  | 21 |
Specialty Products |  |  | 2,261 |  |  |  | 2,653 |  |  |  | (392 | ) |  |  | -15 |
Segment Operating Income |  | $ | 45,204 |  |  | $ | 50,736 |  |  | $ | (5,532 | ) |  |  | -11 |
Corporate Expenses, Excluding Deferred Compensation and Restructuring |  |  | 15,169 |  |  |  | 17,654 |  |  |  | (2,485 | ) |  |  | -14 |
Deferred Compensation Expense |  |  | 1,610 |  |  |  | 4,222 |  |  |  | (2,612 | ) |  |  | -62 |
Business Restructuring |  |  | 459 |  |  |  | 1,715 |  |  |  | (1,256 | ) |  |  | -73 |
Total Operating Income |  | $ | 27,966 |  |  | $ | 27,145 |  |  | $ | 821 |  |  |  | 3 |

| (1) | The 2018 segment and total operating income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

30

Surfactants

Surfactant net sales for the third quarter of 2019 decreased $47.2 million, or 14 percent, versus net sales for the third quarter of 2018. The unfavorable impact of lower sales volume, lower average selling prices and foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $29.2 million, $13.2 million and $4.8 million, respectively. A quarter-over-quarter comparison of net sales by region follows:

|  | For the Three Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30, |  |  | September 30, |  |  | (Decrease) |  |  | Percent |
Net Sales |  | 2019 |  |  | 2018 |  |  |  |  |  | Change |
North America |  | $ | 178,799 |  |  | $ | 205,032 |  |  | $ | (26,233 | ) |  |  | -13 |
Europe |  |  | 57,190 |  |  |  | 68,120 |  |  |  | (10,930 | ) |  |  | -16 |
Latin America |  |  | 51,940 |  |  |  | 58,560 |  |  |  | (6,620 | ) |  |  | -11 |
Asia |  |  | 11,790 |  |  |  | 15,172 |  |  |  | (3,382 | ) |  |  | -22 |
Total Surfactants Segment |  | $ | 299,719 |  |  | $ | 346,884 |  |  | $ | (47,165 | ) |  |  | -14 |

Net sales for North American operations decreased $26.3 million, or 13 percent, between quarters. An eight percent decline in sales volume and lower average selling prices negatively impacted the quarter-over-quarter change in net sales by $16.9 million and $9.3 million, respectively. The decline in sales volume was mostly due to lower commodity demand in the personal care and laundry and cleaning end markets and lower demand in the functional products end market. The lower functional products demand reflects wet weather in the U.S. farm belt that negatively impacted the Company’s agricultural business. Selling prices decreased five percent mostly due to the pass through of lower raw material costs to customers. Foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $0.1 million.

Net sales for European operations decreased $10.9 million, or 16 percent, between quarters. A 14 percent decline in sales volume and unfavorable foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $9.4 million and $2.8 million, respectively. The lower sales volume was principally due to the Company ceasing Surfactant production at its German plant site during the fourth quarter of 2018. A stronger U.S. dollar relative to the European euro and British pound sterling led to the foreign currency translation effect. Slightly higher average selling prices favorably impacted the change in net sales by $1.3 million.

Net sales for Latin American operations decreased $6.6 million, or 11 percent, primarily due to lower average selling prices, the negative impact of foreign currency translation and a two percent decline in sales volume. These items accounted for $3.2 million, $2.2 million and $1.2 million, respectively, of the quarter-over-quarter change in net sales. The lower average selling prices reflect the pass through of lower raw material costs to customers and slightly less favorable product mix. The quarter-over-quarter strengthening of the U.S. dollar against the Columbian and Mexican pesos and the Brazilian real generated the unfavorable foreign currency effect. The lower sales volume mostly reflects the residual impact of a sulfonation equipment failure at the Company’s Ecatepec, Mexico site during the first quarter of 2019 partially offset by higher agricultural demand in the region.

Net sales for Asian operations declined $3.4 million, or 22 percent, primarily due to lower sales volume and lower average selling prices. These items unfavorably impacted the quarter-over-quarter change in net sales by $2.3 million and $1.4 million, respectively. Sales volume declined 15 percent mostly due to lower demand in the commodity laundry and cleaning end markets. Foreign currency translation favorably impacted the quarter-over-quarter change in net sales by $0.3 million.

Surfactant operating income for the third quarter of 2019 decreased $9.2 million, or 32 percent, versus operating income for the third quarter of 2018. Gross profit declined $9.5 million and operating expenses were down slightly quarter-over-quarter. Quarter-over-quarter comparisons of gross profit by region and total segment operating expenses and operating income follow:

|  | For the Three Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30, 2019 |  |  | September 30, 2018(1) |  |  | Increase (Decrease) |  |  | Percent Change |
Gross Profit and Operating Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 25,946 |  |  | $ | 35,882 |  |  | $ | (9,936 | ) |  |  | -28 |
Europe |  |  | 8,432 |  |  |  | 7,575 |  |  |  | 857 |  |  |  | 11 |
Latin America |  |  | 4,907 |  |  |  | 7,345 |  |  |  | (2,438 | ) |  |  | -33 |
Asia |  |  | 4,665 |  |  |  | 2,613 |  |  |  | 2,052 |  |  |  | 79 |
Surfactants Segment Gross Profit |  | $ | 43,950 |  |  | $ | 53,415 |  |  | $ | (9,465 | ) |  |  | -18 |
Operating Expenses |  |  | 24,290 |  |  |  | 24,591 |  |  |  | (301 | ) |  |  | -1 |
Surfactants Segment Operating Income |  | $ | 19,660 |  |  | $ | 28,824 |  |  | $ | (9,164 | ) |  |  | -32 |

31

| (1) | The 2018 North America gross profit and the total surfactants segment operating income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation fr om LIFO to FIFO. |

Gross profit for North American operations decreased 28 percent, or $9.9 million, quarter-over-quarter primarily due to lower unit margins and an eight percent decline in sales volume. These two items negatively impacted the quarter-over-quarter change in gross profit by $6.9 million and $3.0 million, respectively. The lower unit margins were primarily attributable to higher inventory costs associated with the Company’s internal Asia-U.S. supply chain. Most of the sales volume decrease was attributable to lower demand for commodity products sold into the personal care and laundry and cleaning end markets and lower demand in the functional products end market.

Gross profit for European operations increased 11 percent, or $0.9 million, between quarters primarily due to lower overhead costs and higher unit margins resulting from the Company ceasing Surfactant production at its German plant site during the fourth quarter of 2018. Higher unit margins favorably impacted gross profit quarter over quarter by $2.3 million. A 14 percent decline in sales volume, mostly attributable to the exit from sulfonation in Germany, and the unfavorable impact of foreign currency translation negatively impacted the current year quarter by $1.0 million and $0.4 million, respectively.

Gross profit for Latin American operations decreased $2.4 million, or 33 percent, quarter-over-quarter. Lower unit margins, the unfavorable impact of foreign currency translation and a two percent decline in sales volume negatively impacted gross profit quarter-over-quarter by $2.1 million, $0.2 million and $0.1 million, respectively. The lower unit margins primarily reflect competitive market pressures, the non-recurrence of a 2018 favorable $0.6 million equipment reimbursement in Brazil and the residual impact of the equipment failure in Ecatepec, Mexico.

Gross profit for Asia operations increased 79 percent, or $2.1 million, between quarters largely due to higher unit margins that were partially offset by lower sales volume. The higher unit margins reflect a more favorable product mix and higher margins on products supplied to the United States. Sales volume decreased 15 percent primarily due to lower demand in the commodity laundry and cleaning end markets.

Operating expenses for the Surfactants segment decreased $0.3 million, or one percent, quarter-over-quarter.

Polymers

Polymers net sales for the third quarter of 2019 decreased $6.6 million, or five percent, versus net sales for the same period of 2018. A three percent increase in sales volume positively impacted the quarter-over-quarter change in net sales by $4.5 million. The unfavorable impact of lower average selling prices and foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $8.8 million and $2.3 million, respectively. A quarter-over-quarter comparison of net sales by region follows:

|  | For the Three Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30 |  |  | September 30 |  |  | Increase |  |  | Percent |
Net Sales |  | 2019 |  |  | 2018 |  |  | (decrease) |  |  | change |
North America |  | $ | 84,397 |  |  | $ | 87,720 |  |  | $ | (3,323 | ) |  |  | -4 |
Europe |  |  | 39,852 |  |  |  | 45,780 |  |  |  | (5,928 | ) |  |  | -13 |
Asia and Other |  |  | 10,840 |  |  |  | 8,146 |  |  |  | 2,694 |  |  |  | 33 |
Total Polymers Segment |  | $ | 135,089 |  |  | $ | 141,646 |  |  | $ | (6,557 | ) |  |  | -5 |

Net sales for North American operations declined $3.3 million, or four percent, primarily due to lower average selling prices partially offset by slightly favorable volume growth. The lower selling prices negatively impacted net sales quarter-over-quarter by $3.7 million while sales volume growth positively impacted the quarter by $0.4 million. The lower selling prices are largely a reflection of lower raw material costs. Sales volume of polyols used in rigid foam applications increased five percent during the third quarter of 2019 but was mostly offset by lower phthalic anhydride and specialty polyols sales volume.

Net sales for European operations declined $5.9 million or 13 percent. The unfavorable impact of lower average selling prices and foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $3.6 million and $1.9 million, respectively. A one percent decline in sales volume negatively impacted net sales quarter-over-quarter by $0.4 million. A stronger U.S. dollar relative to the Polish zloty led to the foreign currency translation effect.

Net sales for Asia and Other operations increased $2.7 million, or 33 percent, quarter-over-quarter primarily due to a 50 percent increase in sales volume. The increase in sales volume positively impacted the quarter-over-quarter change in net sales by $4.1 million. The unfavorable impact of lower average selling prices and foreign currency translation negatively impacted the quarter by $1.1 million and $0.3 million, respectively.

32

Polymer operating income for the third quarter of 2019 increased $4.0 million, or 21 percent, from operating income for the third quarter of 2018. Gross profit increased $3.4 million, or 13 percent, quarter-over-quarter. Operating expenses declined $0.6 million quarter-over-quarter. Quarter-over-quarter comparisons of gross profit by region and total segment operating expenses and operating income follow:

|  | For the Three Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30, 2019 |  |  | September 30, 2018(1) |  |  | Increase (Decrease) |  |  | Percent Change |
Gross Profit and Operating Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 21,334 |  |  | $ | 19,780 |  |  | $ | 1,554 |  |  |  | 8 |
Europe |  |  | 6,620 |  |  |  | 6,606 |  |  |  | 14 |  |  |  | 0 |
Asia and Other |  |  | 2,015 |  |  |  | 199 |  |  |  | 1,816 |  |  | NM |
Polymers Segment Gross Profit |  | $ | 29,969 |  |  | $ | 26,585 |  |  | $ | 3,384 |  |  |  | 13 |
Operating Expenses |  |  | 6,686 |  |  |  | 7,326 |  |  |  | (640 | ) |  |  | -9 |
Polymers Segment Operating Income |  | $ | 23,283 |  |  | $ | 19,259 |  |  | $ | 4,024 |  |  |  | 21 |

| (1) | The 2018 North America gross profit and total operating income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

Gross profit for North American operations increased $1.6 million, or eight percent, quarter-over-quarter due to improved unit margins and slightly higher sales volume. The margin improvement reflects favorable product mix, which benefited from five percent sales volume growth of polyols used in rigid foam applications, partially offset by lower phthalic anhydride and specialty polyols volumes.

Gross profit for European operations was flat between quarters. Higher average unit margins positively impacted quarter-over-quarter gross profit by $0.4 million but were largely offset by the unfavorable impact of foreign currency translation.

Gross profit for Asia and Other operations improved $1.8 million quarter-over-quarter primarily due to improved unit margins and sales volume growth of 50 percent.

Specialty Products

Net sales for the third quarter of 2019 decreased $2.7 million, or 14 percent, versus net sales for the third quarter of 2018. This decrease was primarily related to lower volume and lower average selling prices. Gross profit decreased $0.5 million and operating income decreased $0.4 million quarter-over-quarter primarily due to lower sales volume and unfavorable order timing differences within the Company’s pharmaceutical business. These items were partially offset by improved margins within the food and nutritional business.

Corporate Expenses

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, decreased $6.4 million between quarters. Corporate expenses were $17.2 million in the third quarter of 2019 versus $23.6 million in 2018. The decrease was primarily attributable to lower deferred compensation expense ($2.6 million), business restructuring expense ($1.3 million) and non-recurring 2018 employee separation costs.

The $2.6 million decrease in quarter-over-quarter deferred compensation expense was primarily due to a $5.15 per share increase in the market price of Company common stock in the third quarter of 2019 compared to a $9.00 per share increase for the third quarter of 2018. The following table presents the quarter-end Company common stock market prices used in the computation of deferred compensation expenses for the three months ended September 30, 2019 and 2018:

|  | 2019 |  |  | 2018 |
|  | September 30 |  |  | June 30 |  |  | September 30 |  |  | June 30 |
Company Common Stock Price |  | $ | 97.06 |  |  | $ | 91.91 |  |  | $ | 87.01 |  |  | $ | 78.01 |

33

Nine Months Ended September 30, 2019 and 2018

Summary

Net income attributable to the Company for the first nine months of 2019 decreased seven percent to $81.1 million, or $3.48 per diluted share, from $87.2 million, or $3.74 per diluted share, for the first nine months of 2018. Adjusted net income increased two percent to $93.7 million, or $4.02 per diluted share, from $92.2 million, or $3.95 per diluted share, in 2018 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for reconciliations between reported net income attributable to the Company and related earnings per diluted share and non-GAAP adjusted net income and related earnings per diluted share). Below is a summary discussion of the major factors leading to the year-over-year changes in net sales, profits and expenses. A detailed discussion of segment operating performance for the first nine months of 2019 compared to the first nine months of 2018 follows the summary.

Consolidated net sales decreased $113.4 million, or seven percent, between years. The unfavorable impact of lower average selling prices, lower sales volume and foreign currency translation negatively impacted net sales by $41.5 million, $38.7 million and $33.2 million, respectively. The decrease in average selling prices was primarily due to the pass through of lower raw material costs. Consolidated sales volume decreased three percent year-over-year. Sales volume in the Surfactant segment decreased four percent while sales volume in the Polymer and Specialty Product segments increased four percent each. Approximately 45 percent of the decline in Surfactant volume was due to the Company’s exit from its sulfonation business in Germany during the fourth quarter of 2018. The unfavorable foreign currency translation effect reflected a stronger U.S. dollar against the majority of currencies where the Company has foreign operations

Operating income for the first nine months of 2019 declined $15.0 million, or 13 percent, from operating income reported for the first nine months of 2018. Most of this decline was related to lower year-over-year gross profit and higher deferred compensation expense. These two items negatively impacted the year-over-year change in operating income by $9.8 million and $6.5 million, respectively. Foreign currency translation had a $2.5 million unfavorable effect on year-over-year consolidated operating income. From a segment perspective, Polymer and Specialty Product operating income increased $1.3 million and $4.8 million, respectively. Surfactant operating income declined by $15.5 million.

Operating expenses (including deferred compensation and business restructuring expenses) increased $5.3 million, or three percent, between years. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

| • | Selling expenses decreased $0.6 million, or one percent, year-over-year.

| • | Administrative expenses increased $1.1 million, or two percent, year-over-year primarily due to $3.3 million of environmental remediation expenses incurred in 2019. The majority of these costs relate to the Company’s Maywood, New Jersey site. Non-recurring employee separation costs incurred in 2018 partially offset the above.

| • | R&D expenses declined $1.1 million, or three percent, year-over-year.

| • | Deferred compensation expense increased $6.5 million year-over-year primarily due to a $23.06 per share increase in the market price of Company common stock during the first nine months of 2019 compared to an $8.04 share increase in the first nine months of 2018. See the Overview and Segment Results-Corporate Expenses sections of this MD&A for further details.

| • | Business restructuring expenses were $1.6 million in the first nine months of 2019 compared to $2.3 million in the first nine months of 2018. The 2019 restructuring charges were primarily comprised of severance and office shutdown expenses related to the Specialty Product segment restructuring ($0.5 million), ongoing decommissioning costs associated with the Company’s manufacturing facility in Canada that ceased operations in the fourth quarter of 2016 ($0.8 million), and decommissioning expenses associated with the Company’s 2018 sulfonation shutdown in Germany ($0.6 million). The 2018 restructuring charges were comprised of asset and spare part write-downs related to the Company ceasing Surfactant operations in Germany ($1.4 million) and decommissioning costs associated with the Canadian plant closure ($0.9 million). See Note 17, Business Restructuring, for additional details.

Net interest expense for the first nine months of 2019 declined $3.6 million versus the first nine months of 2018. This decrease was primarily due to higher U.S. interest income earned on U.S. cash balances, resulting from the repatriation of $100.0 million to the United States in 2018, and lower interest expense resulting from scheduled debt repayments and the Company’s voluntary prepayment of its 5.88% Senior Notes in the second quarter of 2019.

Other, net was $4.3 million of income for the first nine months of 2019 compared to $2.0 million of income for the first nine months of 2018. The Company recognized $3.1 million of investment income (including realized and unrealized gains and losses) for

34

the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the first nine months of 2019 compared to $1.6 million of income in the first nine months of 2018. In addition, the Company reported foreign exchange gains of $0.3 million in 2019 versus $0.9 million of gains in the first nine month s of 2018. The Company also reported $0.7 million of lower net periodic pension cost expense in the first nine months of 2019 versus the prior year. The Company also reported a $0.6 million gain on the sale of an asset in 2019.

The Company’s effective tax rate was 17.3 percent for the first nine months of 2019 compared to 18.7 percent for the first nine months of 2018. The year-over-year decrease was primarily attributable to: (i) current year incremental U.S. tax credits identified as part of a research and development tax credit study, and; (ii) the non-recurrence of unfavorable tax consequences resulting from the repatriation of $100.0 million to the United States in 2018. These items were substantially offset by other non-recurring favorable tax benefits recognized in the first nine months of 2018.

|  | For the Nine Months Ended |  |  |  |  |  |  |  |  |
(In thousands) |  | September 30, |  |  | September 30, |  |  |  |  |  |  | Percent |
Net Sales |  | 2019 |  |  | 2018 |  |  | (Decrease) |  |  | Change |
Surfactants |  | $ | 962,749 |  |  | $ | 1,062,708 |  |  | $ | (99,959 | ) |  |  | -9 |
Polymers |  |  | 395,904 |  |  |  | 404,446 |  |  |  | (8,542 | ) |  |  | -2 |
Specialty Products |  |  | 55,102 |  |  |  | 60,044 |  |  |  | (4,942 | ) |  |  | -8 |
Total Net Sales |  | $ | 1,413,755 |  |  | $ | 1,527,198 |  |  | $ | (113,443 | ) |  |  | -7 |

|  | For the Nine Months Ended |  |  |  |  |  |  |  |  |
(In thousands) |  | September 30, |  |  | September 30, |  |  | Increase |  |  | Percent |
Operating Income |  | 2019 |  |  | 2018(1) |  |  | (Decrease) |  |  | Change |
Surfactants |  | $ | 88,913 |  |  | $ | 104,370 |  |  | $ | (15,457 | ) |  |  | -15 |
Polymers |  |  | 58,148 |  |  |  | 56,863 |  |  |  | 1,285 |  |  |  | 2 |
Specialty Products |  |  | 11,374 |  |  |  | 6,543 |  |  |  | 4,831 |  |  |  | 74 |
Segment Operating Income |  | $ | 158,435 |  |  | $ | 167,776 |  |  | $ | (9,341 | ) |  |  | -6 |
Corporate Expenses, Excluding Deferred Compensation and Restructuring |  | $ | 46,546 |  |  | $ | 46,645 |  |  | $ | (99 | ) |  |  | 0 |
Deferred Compensation Expense (Income) |  |  | 11,478 |  |  |  | 4,971 |  |  |  | 6,507 |  |  |  | 131 |
Business Restructuring |  |  | 1,642 |  |  |  | 2,346 |  |  |  | (704 | ) |  |  | -30 |
Total Corporate Expenses |  | $ | 59,666 |  |  | $ | 53,962 |  |  | $ | 5,704 |  |  |  | 11 |
Total Operating Income |  | $ | 98,769 |  |  | $ | 113,814 |  |  | $ | (15,045 | ) |  |  | -13 |

| (1) | The 2018 segment and total operating income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

Segment Results

Surfactants

Surfactant net sales for the first nine months of 2019 decreased $100.0 million, or nine percent, versus net sales for the first nine months of 2018. The unfavorable impact of lower sales volume, lower average selling prices and foreign currency translation negatively impacted the year-over-year change in net sales by $47.6 million, $30.8 million and $21.6 million, respectively. Sales volume declined four percent versus prior year. A year-over-year comparison of net sales by region follows:

|  | For the Nine Months Ended |  |  |  |  |  |  |  |  |
(In thousands) |  | September 30, 2019 |  |  | September 30, 2018 |  |  | (Decrease) |  |  | Percent Change |
North America |  | $ | 584,816 |  |  | $ | 643,466 |  |  | $ | (58,650 | ) |  |  | -9 |
Europe |  |  | 183,028 |  |  |  | 212,556 |  |  |  | (29,528 | ) |  |  | -14 |
Latin America |  |  | 156,709 |  |  |  | 156,827 |  |  |  | (118 | ) |  |  | 0 |
Asia |  |  | 38,196 |  |  |  | 49,859 |  |  |  | (11,663 | ) |  |  | -23 |
Total Surfactants Segment |  | $ | 962,749 |  |  | $ | 1,062,708 |  |  | $ | (99,959 | ) |  |  | -9 |

35

Net sales for North American operations decreased $58.7 million, or nine percent, year-over-year. A five percent decline in sales volume, lower average selling prices and the unfavorable impact of foreign currency translation negatively impacted the year-over-year change in net sales by $30.3 million, $27.7 million and $0.7 million, respectively. The decline in sales volume was mostly due to lower commodity demand in the personal care end market, lower demand in the functional products end market and lower sales volume to our distribution partners. Selling prices decreased five percent mostly due to the pass through of lower raw material costs to customers. The foreign currency impact reflected a stronger U.S. dollar relative to the Canadian dollar.

Net sales for European operations decreased $29.5 million, or 14 percent, primarily due to a nine percent decrease in sales volume and the unfavorable effects of foreign currency translation. These items negatively impacted the year-over-year change in net sales by $19.4 million and $11.6 million, respectively. The lower sales volume was principally due to the Company ceasing Surfactant production at its German site during the fourth quarter of 2018. A stronger U.S. dollar relative to the British pound sterling and European euro led to the foreign currency translation effect. Slightly higher average selling prices favorably impacted the year-over-year change in net sales by $1.5 million.

Net sales for Latin American operations were essentially flat year-over-year. A three percent increase in sales volume and higher average selling prices positively impacted the year-over-year change in net sales by $5.2 million and $4.1 million, respectively. These items were offset by foreign currency translation which negatively impacted the year-over-year change in net sales by $9.4 million. The higher sales volume was mostly attributable to higher demand in the laundry and cleaning and agricultural end markets. The higher average selling prices were partially due to one-time benefits related to a VAT tax recovery in Brazil. The year-over-year strengthening of the U.S. dollar against the Columbian and Mexican pesos and Brazilian real generated the unfavorable foreign currency effect.

Net sales for Asian operations decreased $11.7 million, or 23 percent, primarily due to a 13 percent decline in sales volume and lower average selling prices. These items accounted for $6.3 million and $5.6 million, respectively, of the year-over-year change in net sales. The decline in sales volume was largely due to lower commodity demand in the laundry and cleaning end markets and lower sales volume to our distribution partners. The lower selling prices were mostly due to the pass through of lower raw material costs to customers. The favorable effects of foreign currency translation positively impacted the net sales change by $0.2 million.

Surfactant operating income for the first nine months of 2019 decreased $15.5 million, or 15 percent, versus operating income for the first nine months of 2018. Gross profit declined $15.4 million, or nine percent, versus prior year and operating expenses were essentially flat. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

|  | For the Nine Months Ended |  |  |  |  |  |  |  |  |
(In thousands) |  | September 30, 2019 |  |  | September 30, 2018(1) |  |  | Increase (Decrease) |  |  | Percent Change |
Gross Profit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 108,175 |  |  | $ | 121,237 |  |  | $ | (13,062 | ) |  |  | -11 |
Europe |  |  | 26,276 |  |  |  | 24,060 |  |  |  | 2,216 |  |  |  | 9 |
Latin America |  |  | 14,710 |  |  |  | 18,206 |  |  |  | (3,496 | ) |  |  | -19 |
Asia |  |  | 12,011 |  |  |  | 13,031 |  |  |  | (1,020 | ) |  |  | -8 |
Surfactants Segment Gross Profit |  | $ | 161,172 |  |  | $ | 176,534 |  |  | $ | (15,362 | ) |  |  | -9 |
Operating Expenses |  |  | 72,259 |  |  |  | 72,164 |  |  |  | 95 |  |  |  | 0 |
Operating Income |  | $ | 88,913 |  |  | $ | 104,370 |  |  | $ | (15,457 | ) |  |  | -15 |

| (1) | The 2018 North America gross profit and total operating income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

Gross profit for North American operations decreased $13.1 million, or 11 percent, year-over-year primarily due to lower unit margins and a five percent decline in sales volume. These items negatively impacted the change in gross profit by $7.3 million and $5.7 million, respectively. The lower unit margins were mostly attributable to higher one-time inventory costs associated with the Company’s internal Asia-U.S. supply chain. The decline in sales volume was mostly due to lower commodity demand in the personal care end markets, lower demand in the functional products end market and lower sales volume to our distribution partners.

Gross profit for European operations increased $2.2 million, or nine percent, primarily due to lower overhead costs and higher unit margins resulting from the Company ceasing Surfactant production at its German plant site during the fourth quarter of 2018.

36

Higher unit margins favo rably impacted the year-over-year change in gross profit by $6.0 million. A nine percent decline in sales volume and the unfavorable effect of foreign currency translation negatively impacted the current year by $2.2 million and $1.6 million, respectively. The lower sales volume is primarily attributable to the Company’s exit from sulfonation in Germany during the fourth quarter of 2018.

Gross profit for Latin American operations decreased $3.5 million, or 19 percent, primarily due to lower unit margins and the unfavorable impact of foreign currency translation. These items negatively impacted the change in year-over-year gross profit by $2.7 million and $1.4 million, respectively. The lower unit margins primarily reflect competitive market pressures and the residual impact of the Ecatepec equipment failure in Mexico. Sales volume growth of three percent positively impacted current year gross profit by $0.6 million.

Gross profit for Asian operations decreased $1.0 million, or eight percent, largely due to a 13 percent decline in sales volume that negatively impacted the year-over-year change in gross profit by $1.6 million. The decline in sales volume was largely due to lower commodity demand in the laundry & cleaning end markets and lower sales volume to our distribution partners. Higher unit margins positively impacted the year-over-year change in gross profit by $0.6 million.

Operating expenses for the Surfactant segment were flat year-over-year.

Polymers

Polymer net sales for the first nine months of 2019 decreased $8.5 million, or two percent, versus net sales for the same period of 2018. A four percent increase in sales volume positively impacted the year-over-year change in net sales by $16.3 million. The unfavorable impact of lower average selling prices and foreign currency translation negatively impacted the year-over-year change in net sales by $13.7 million and $11.1 million, respectively. A year-over-year comparison of net sales by region follows:

|  | For the Nine Months Ended |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | September 30 |  |  | September 30 |  |  | Increase |  |  | Percent |
Net Sales |  |  | 2019 |  |  |  | 2018 |  |  | (decrease) |  |  | change |
North America |  | $ | 242,154 |  |  | $ | 248,160 |  |  | $ | (6,006 | ) |  |  | -2 |
Europe |  |  | 126,042 |  |  |  | 132,592 |  |  |  | (6,550 | ) |  |  | -5 |
Asia and Other |  |  | 27,708 |  |  |  | 23,694 |  |  |  | 4,014 |  |  |  | 17 |
Total Polymers Segment |  | $ | 395,904 |  |  | $ | 404,446 |  |  | $ | (8,542 | ) |  |  | -2 |

Net sales for North American operations declined $6.0 million, or two percent, primarily due to lower average selling prices partially offset by slightly favorable volume growth. The lower average selling prices negatively impacted the change in net sales by $7.1 million. Slightly higher sales volume increased net sales year-over-year by $1.1 million. Sales volume of polyols used in rigid foam applications increased 11 percent during the first nine months of 2019 but was mostly offset by lower phthalic anhydride and specialty polyols sales volume.

Net sales for European operations decreased $6.6 million, or five percent. Sales volume growth of six percent increased net sales year-over-year by $7.7 million. The unfavorable impact of foreign currency translation and lower average selling prices decreased net sales year-over-year by $9.6 million and $4.7 million, respectively. A stronger U.S. dollar relative to the Polish zloty led to the foreign currency translation effect.

Net sales for Asia and Other operations increased $4.0 million, or 17 percent, year-over-year primarily due to a 27 percent increase in sales volume. The increase in sales volume positively impacted the year-over-year change in net sales by $6.5 million. The unfavorable impact of foreign currency translation and lower average selling prices negatively impacted the change in net sales by $1.6 million and $0.9 million, respectively.

37

Polymer opera ting income for the first nine months of 2019 increased $1.3 million, or two percent, from operating income for the first nine months of 2018. Gross profit increased $0.5 million, or one percent during the first nine months of 2019 versus prior year. Ope rating expenses declined $0.8 million, or four percent, year-over-year. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

|  | For the Nine Months Ended |  |  |  |  |  |  |  |  |
(In thousands) |  | September 30, 2019 |  |  | September 30, 2018(1) |  |  | Increase (Decrease) |  |  | Percent Change |
Gross Profit and Operating Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 55,978 |  |  | $ | 58,068 |  |  | $ | (2,090 | ) |  |  | -4 |
Europe |  |  | 18,606 |  |  |  | 19,520 |  |  |  | (914 | ) |  |  | -5 |
Asia and Other |  |  | 4,325 |  |  |  | 845 |  |  |  | 3,480 |  |  | NM |
Polymers Segment Gross Profit |  | $ | 78,909 |  |  | $ | 78,433 |  |  | $ | 476 |  |  |  | 1 |
Operating Expenses |  |  | 20,761 |  |  |  | 21,570 |  |  |  | (809 | ) |  |  | -4 |
Polymers Segment Operating Income |  | $ | 58,148 |  |  | $ | 56,863 |  |  | $ | 1,285 |  |  |  | 2 |

| (1) | The 2018 North America gross profit and total operating income line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

Gross profit for North American operations declined $2.1 million, or four percent, year-over-year due to slightly lower unit margins that were primarily driven by the consumption of higher priced 2018 year-end inventories carried to guard against winter supply disruptions and the non-recurrence of a $2.1 million class action settlement received in the first quarter of 2018. Slightly higher sales volume positively impacted year-over-year gross profit by $0.3 million. Sales volume of polyols used in rigid foam applications increased 11 percent during the first nine months of 2019 but was mostly offset by lower phthalic anhydride and specialty polyols sales volume.

Gross profit for European operations declined $0.9 million, or five percent, year-over-year. Sales volume growth of six percent positively impacted the year-over-year change in gross profit by $1.1 million. The unfavorable impact of foreign currency translation and lower unit margins negatively impacted year-over-year gross profit by $1.3 million and $0.7 million, respectively.

Gross profit for Asia and Other operations improved $3.5 million due to higher unit margins and 27 percent sales volume growth during the first nine months of 2019.

Specialty Products

Net sales for the first nine months of 2019 declined $4.9 million, or eight percent, versus net sales for the same period of 2018. Sales volume increased four percent but the increase was offset by a decrease in average selling prices. Gross profit increased $4.1 million and operating income increased $4.8 million year-over-year due to improved sales volume and margins within the food and nutritional business and order timing differences within the Company’s pharmaceutical and flavor businesses.

Corporate Expenses

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, increased $5.7 million between years. Corporate expenses were $59.7 million in the first nine months of 2019 versus $54.0 million in the first nine months of 2018. This increase was primarily attributable to higher deferred compensation expense ($6.5 million) and environmental remediation expense ($3.3 million). These items were partially offset by a decrease in business restructuring expenses ($0.7 million), the non-recurrence of 2018 employee separation costs ($2.1 million) and the non-recurrence of prior year costs associated with the Company’s 2018 first quarter acquisition in Mexico.

Deferred compensation expense increased $6.5 million between years. This increase was primarily due to a $23.06 per share increase in the market price of the Company’s common stock in the first nine months of 2019 compared to an $8.04 per share increase in the first nine months of 2018. The following table presents the period-end Company common stock market prices used in the computation of deferred compensation expenses for the nine months ended September, 2019 and 2018:

|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | September 30 |  |  | December 31 |  |  | September 30 |  |  | December 31 |
Company Common Stock Price |  | $ | 97.06 |  |  | $ | 74.00 |  |  | $ | 87.01 |  |  | $ | 78.97 |

38

LIQUIDITY AND CAPITAL RESOURCES

Overview

For the nine months ended September 30, 2019, operating activities were a cash source of $132.7 million versus a source of $96.2 million for the comparable period in 2018. For the current year period, investing cash outflows totaled $68.5 million, as compared to an outflow of $82.7 million in the prior year period, and financing activities were a use of $74.4 million, as compared to a use of $34.1 million in the prior year. Cash and cash equivalents decreased by $14.2 million compared to December 31, 2018, inclusive of a $3.9 million unfavorable exchange rate impact.

At September 30, 2019, the Company’s cash and cash equivalents totaled $286.0 million, of which $162.6 million was held within the United States. The U.S. cash was held in money market funds, deposit accounts and a certificate of deposit totaling $74.0 million, $73.6 million and $15.0 million, respectively. The Company’s non-U.S. subsidiaries held $123.4 million of cash outside the United States as of September 30, 2019.

Operating Activity

Net income decreased by $6.1 million versus the comparable period in 2018. Working capital was a use of $22.2 million versus a use of $64.4 million for the comparable to prior year period.

Year-to-date accounts receivable were a use of $9.0 million compared to a use of $34.8 million for the comparable period in 2018. Inventories were a source of $25.9 million in 2019 versus a use of $23.4 million in 2018. Accounts payable and accrued liabilities were a use of $35.3 million in 2019 compared to a use of $6.9 million for the same period in 2018.

Working capital requirements were lower year-to-date, compared to the same period in 2018, due to the changes noted above. The 2019 accounts receivable lower cash usage primarily reflects lower sales quantities. The current year inventory source of cash reflects lower quantities and prices. The current year accounts payable and accrued liabilities cash usage reflects lower quantities purchased and prices. It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during 2019.

Investing Activity

Cash used for investing activities decreased by $14.2 million year-over-year. In the first nine months of 2018, the Company paid $21.5 million in cash to acquire BASF’s production facility in Ecatepec, Mexico and a portion of the related surfactants business. Cash used for capital expenditures was $70.8 million in the first nine months of 2019 versus $62.9 million in the comparable prior year period.

For 2019, the Company estimates that total capital expenditures will range from $110 million to $130 million, inclusive of infrastructure and optimization spending in the United States, Germany and Mexico.

Financing Activity

Cash used for financing activities was $74.4 million in 2019 versus $34.1 million in 2018. The majority of this increase in cash usage relates to the voluntary prepayment of the outstanding principal balance of the Company’s 5.88 percent Senior Notes in the second quarter of 2019 and scheduled principal payments on the Company’s 3.86 percent Notes that were incurred for the first time in 2019.

The Company purchases shares of its common stock in the open market or from its benefit plans from time to time to fund its own benefit plans and to mitigate the dilutive effect of new shares issued under its benefit plans. The Company may, from time to time, seek to retire or purchase additional amounts of its outstanding equity and/or debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In the nine months ended September 30, 2019, the Company purchased 144,457 shares of its common stock at a total cost of $13.2 million, on the open market. As of September 30, 2019, there were 349,830 shares remaining under the current share repurchase authorization.

39

Debt and Credit Facilities

Consolidated balance sheet debt decreased to $231.9 million as of September 30, 2019 from $276.1 million at December 31, 2018. Net debt (which is defined as total debt minus cash – see the Reconciliation of Non-GAAP Net Debt section of this MD&A) decreased by $30.0 million for the first nine months of 2019, from a negative $24.1 million to a negative $54.1 million, primarily due to current year debt repayments.

As of September 30, 2019, the ratio of total debt to total debt plus shareholders’ equity was 21 percent compared to 25 percent at December 31, 2018. As of September 30, 2019, the ratio of net debt to net debt plus shareholders’ equity was a negative 7 percent, compared to a negative 3 percent at December 31, 2018.

On January 30, 2018, the Company entered into a five year committed $350 million multi-currency revolving credit facility with a syndicate of banks that matures on January 30, 2023. This revolving credit facility replaced the Company’s prior $125 million credit agreement. This credit agreement allows the Company to make unsecured borrowings, as requested from time to time, to finance working capital needs, permitted acquisitions, capital expenditures and for general corporate purposes. This unsecured facility is the Company’s primary source of short-term borrowings. As of September 30, 2019, the Company had outstanding letters of credit totaling $5.0 million under the revolving credit agreement and no borrowings, with $345.0 million remaining available.

The Company anticipates that cash from operations, committed credit facilities and cash on hand will be sufficient to fund anticipated capital expenditures, working capital, dividends and other planned financial commitments for the foreseeable future.

Certain foreign subsidiaries of the Company maintain short-term bank lines of credit in their respective local currencies to meet working capital requirements as well as to fund capital expenditure programs and acquisitions. At September 30, 2019, the Company’s foreign subsidiaries had outstanding debt of $0.6 million.

The Company has material debt agreements that require the maintenance of minimum interest coverage and minimum net worth. These agreements also limit the incurrence of additional debt as well as the payment of dividends and repurchase of treasury shares. As of September 30, 2019, testing for these agreements was based on the Company’s consolidated financial statements. Under the most restrictive of these debt covenants:

| 1. | The Company is required to maintain a minimum interest coverage ratio, as defined within the agreements, of 3.50 to 1.00, for the preceding four calendar quarters.

| 2. | The Company is required to maintain a maximum net leverage ratio, as defined within the agreements, not to exceed 3.50 to 1.00.

| 3. | The Company is required to maintain net worth of at least $325.0 million.
| 4. | The Company is permitted to pay dividends and purchase treasury shares after December 31, 2017, in amounts of up to $100.0 million plus 100 percent of net income and cash proceeds of stock option exercises, measured cumulatively beginning December 31, 2017. The maximum amount of dividends that could have been paid within this limitation is disclosed as unrestricted retained earnings in Note 15 to the condensed consolidated financial statements.

The Company believes it was in compliance with all of its loan agreements as of September 30, 2019.

ENVIRONMENTAL AND LEGAL MATTERS

The Company’s operations are subject to extensive federal, state and local environmental laws and regulations and similar laws in the other countries in which the Company does business. 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 may 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. For the nine months ended September 30, 2019 and 2018, the Company’s expenditures for capital projects related to the environment were $1.3 million and $3.1 million, respectively. These projects are capitalized and depreciated over their estimated useful lives, which are typically 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 the Company’s manufacturing locations were $22.8 million and $21.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Over the years, the Company has received requests for information related to or has been named by the government as a PRP at a number of waste disposal sites where cleanup costs have been or may be incurred under CERCLA and similar state or foreign

40

statutes. In addition, damages are being claimed against the Company in general li ability 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 is likely to incur with respect to the sites. It is the Company’s accoun ting policy to record 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 minim um is accrued. Some of the factors on which the Company bases its estimates include information provided by feasibility studies, PRP negotiations and the development of remedial action plans. After partial remediation payments at certain sites, the Company has estimated a range of possible environmental and legal losses of $23.9 million to $45.6 million at September 30, 2019, compared to $23.4 million to $44.7 million at December 31, 2018. Within the range of possible environmental losses, management curren tly concluded that no single amount is more likely to occur than any other amounts in the ranges and, thus, has accrued at the lower end of the ranges; that accrual totaled $23.9 million at September 30, 2019 and $23.4 million at December 31, 2018. Becaus e the liabilities accrued are estimates, actual amounts could differ materially from the amounts reported. Cash expenditures related to legal and environmental matters were $2.8 million for the nine months ended September 30, 2019, compared to $1.0 million for the same period in 2018. The majority of the 2019 cash expenditures relate to environmental remediation costs at the Company’s Maywood, New Jersey site.

For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based upon the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position. Certain of these matters are discussed in Item 1, Part 2, of the Company’s Annual Report on Form 10-K, Legal Proceedings, in this report and in other filings of the Company with the SEC, which are available upon request from the Company. See also Note 9, Contingencies, to the condensed consolidated financial statements for a summary of the environmental proceedings related to certain environmental sites.

41

OUTL OOK

Management believes its Surfactant strategy, inclusive of its focus on end market diversification, Tier 2 and Tier 3 customers and cost out activities will continue to contribute to margin improvement despite the challenging current environment. Management believes Polymers will continue to benefit from the growing market for insulation material and remains optimistic the business will deliver full year volume growth and incremental margin improvement versus the prior year. Management believes full year Specialty Products results will improve versus the prior year.

CRITICAL ACCOUNTING POLICIES

There have been no changes to the critical accounting policies disclosed in the Company’s 2018 Annual Report on Form 10-K.

RECONCILIATION OF NON-GAAP ADJUSTED NET INCOME AND EARNINGS PER SHARE

|  | Three Months Ended September 30 |
(In millions, except per share amounts) |  | 2019 |  |  | 2018 |
|  | Net Income |  |  | Diluted EPS |  |  | Net Income |  |  | Diluted EPS |
Net Income Attributable to the Company as Reported(1) |  | $ | 25.9 |  |  | $ | 1.11 |  |  | $ | 21.8 |  |  | $ | 0.93 |
Deferred Compensation Expense (including related investment activity) |  |  | 1.8 |  |  |  | 0.08 |  |  |  | 3.4 |  |  |  | 0.15 |
Business Restructuring |  |  | 0.5 |  |  |  | 0.02 |  |  |  | 1.7 |  |  |  | 0.07 |
Cash-settled SARs |  |  | 0.4 |  |  |  | 0.02 |  |  |  | 1.1 |  |  |  | 0.05 |
Cumulative Tax Effect on Above Adjustment Items |  |  | (0.7 | ) |  |  | (0.03 | ) |  |  | (1.6 | ) |  |  | (0.07) |
Adjusted Net Income(1) |  | $ | 27.9 |  |  | $ | 1.20 |  |  | $ | 26.4 |  |  | $ | 1.13 |
|  | Nine Months Ended September 30 |
(In millions, except per share amounts) |  | 2019 |  |  | 2018 |
|  | Net Income |  |  | Diluted EPS |  |  | Net Income |  |  | Diluted EPS |
Net Income Attributable to the Company as Reported(1) |  | $ | 81.1 |  |  | $ | 3.48 |  |  | $ | 87.2 |  |  | $ | 3.74 |
Deferred Compensation Expense (including related investment activity) |  |  | 8.5 |  |  |  | 0.37 |  |  |  | 3.5 |  |  |  | 0.15 |
Business Restructuring |  |  | 1.7 |  |  |  | 0.07 |  |  |  | 2.3 |  |  |  | 0.10 |
Cash-settled SARs |  |  | 2.3 |  |  |  | 0.10 |  |  |  | 0.9 |  |  |  | 0.04 |
Environmental Remediation |  |  | 2.9 |  |  |  | 0.12 |  |  |  | 0.0 |  |  |  | 0.00 |
Early Debt Repayment |  |  | 1.2 |  |  |  | 0.05 |  |  |  | 0.0 |  |  |  | 0.00 |
Cumulative Tax Effect on Above Adjustment Items |  |  | (4.0 | ) |  |  | (0.17 | ) |  |  | (1.7 | ) |  |  | (0.08 | )
Adjusted Net Income(1) |  | $ | 93.7 |  |  | $ | 4.02 |  |  | $ | 92.2 |  |  | $ | 3.95 |

| (1) | The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO. |

Management believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s operating performance and provide better clarity on the impact of non-operational items. Internally, the Company uses this non-GAAP information as an indicator of business performance and evaluates management’s effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. The cumulative tax effect was calculated using the statutory tax rates for the jurisdictions in which the noted transactions occurred.

RECONCILIATION OF NON-GAAP NET DEBT

Management uses the non-GAAP net debt metric to gain a more complete picture of the Company’s overall liquidity, financial flexibility and leverage level. This adjusted measure should be considered supplemental to and not a substitute for financial

42

information prepared in accordance with GAAP. The Company's definition of this adjusted measure may differ from similarly titled measures used by other entities.

(In millions) |  | September 30, 2019 |  |  | December 31, 2018 |
Current Maturities of Long-Term Debt as Reported |  | $ | 24.1 |  |  | $ | 37.1 |
Long-Term Debt as Reported |  |  | 207.8 |  |  |  | 239.0 |
Total Debt as Reported |  |  | 231.9 |  |  |  | 276.1 |
Less Cash and Cash Equivalents as Reported |  |  | (286.0 | ) |  |  | (300.2 | )
Net Debt |  | $ | (54.1 | ) |  | $ | (24.1 | )

43

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the market risks described in the Company’s 2018 Annual Report on Form 10-K.

Item 4 – Controls and Procedures

| a. | Evaluation of Disclosure Controls and Procedures

We have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2019. Based on this evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2019, such that the information required to be disclosed in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

| b. | Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II OTHER INFORMATION

Item 1 – Legal Proceedings

There have been no material changes to the legal proceedings disclosed in the Company’s 2018 Annual Report on Form 10-K and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.

Item 1A – Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s 2018 Annual Report on Form 10-K.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

Below is a summary by month of share purchases by the Company during the third quarter of 2019:

Month |  | Total Number of Shares Purchased |  |  |  | Average Price Paid per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |  |  | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 2019 |  |  | 4,495 |  | (2) |  | $ | 97.95 |  |  |  | 46 |  |  |  | 423,605 |
August 2019 |  |  | 73,869 |  | (3) |  | $ | 94.88 |  |  |  | 73,775 |  |  |  | 349,830 |
September 2019 |  |  | 1,323 |  | (4) |  | $ | 98.29 |  |  |  | — |  |  |  | 349,830 |
Total |  |  | 79,687 |  |  |  | $ | 95.11 |  |  |  | 73,821 |  |  |  | 349,830 |

(1) | On February 19, 2013, the Company’s Board of Directors authorized the Company to repurchase up to 1,000,000 shares of its outstanding common stock.

(2) | Represents 46 shares of Company common stock purchased on the open market and 4,449 shares tendered by employees to settle statutory withholding taxes related to a distribution of restricted stock awards and to the exercise of SARs.

(3) | Represents 73,775 shares of Company common stock purchased on the open market and 94 shares tendered by employees to settle statutory withholding taxes related to the exercise of SARs.

(4) | Represents shares of Company common stock tendered by employees to settle statutory withholding taxes related to the exercise of SARs.

Item 3 – Defaults Upon Senior Securities

None

44

Item 4 – Mine Safety Disclosures

Not applicable

Item 5 – Other Information

None

Item 6 – Exhibits

Exhibit No. |  | Description
3.2 | – | Amended and Restated By-laws of Stepan Company (Amended as of October 22, 2019)
10.1 | – | Stepan Company Supplemental Savings and Investment Retirement Plan (Amended and Restated Effective as of January 1, 2019)
31.1 | – | Certification of President and Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)
31.2 | – | Certification of Vice President and Chief Financial Officer pursuant to Exchange Act Rule 13a- 14(a)/15d-14(a)
32 | – | Certification pursuant to 18 U.S.C. Section 1350
101.INS | – | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document
101.SCH | – | Inline XBRL Taxonomy Extension Schema Document
101.CAL | – | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF | – | Inline XBRL Taxonomy Extension Definition Document
101.LAB | – | Inline XBRL Taxonomy Extension Label Linkbase Document
104 | – | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

45

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

Date: October 30, 2019

/s/ Luis E. Rojo
Luis E. Rojo
Vice President and Chief Financial Officer

46