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.

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.

(In thousands, except per share amounts)	Three Months Ended March 31						Three Months Ended September 30						Nine Months Ended September 30
	2019			2018 As Adjusted			2019			2018 As Adjusted			2019			2018 As Adjusted
Net Sales	$	489,170		$	499,335		$	451,582		$	507,997		$	1,413,755		$	1,527,198
Cost of Sales⁽¹⁾		404,561			408,137			374,180			424,421			1,158,785			1,262,443
Gross Profit⁽¹⁾		84,609			91,198			77,402			83,576			254,970			264,755
Operating Expenses:
Selling		13,969			14,890			14,186			14,613			42,295			42,872
Administrative		19,306			19,439			19,708			21,904			60,558			59,441
Research, development and technical services		13,390			13,614			13,473			13,977			40,228			41,311
Deferred compensation expense		7,473			1,614			1,610			4,222			11,478			4,971
		54,138			49,557			48,977			54,716			154,559			148,595
Business restructuring expenses (Note 17)		(733	)		(358	)		(459	)		(1,715	)		(1,642	)		(2,346	)
Operating Income⁽¹⁾		29,738			41,283			27,966			27,145			98,769			113,814
Other Income (Expense):
Interest, net		(1,853	)		(3,151	)		(1,402	)		(2,797	)		(5,021	)		(8,620	)
Other, net (Note 16)		3,145			1,160			885			346			4,265			1,990
		1,292			(1,991	)		(517	)		(2,451	)		(756	)		(6,630	)

Income Before Provision for Income Taxes⁽¹⁾		31,030			39,292			27,449			24,694			98,013			107,184
Provision for Income Taxes⁽¹⁾		6,052			7,347			1,569			2,940			16,945			20,033
Net Income⁽¹⁾		24,978			31,945			25,880			21,754			81,068			87,151
Net Loss Attributable to Noncontrolling Interests (Note 3)		6			7			9			-			23			9
Net Income Attributable to Stepan Company⁽¹⁾	$	24,984		$	31,952		$	25,889		$	21,754		$	81,091		$	87,160

Net Income Per Common Share Attributable to Stepan Company (Note 11):
Basic⁽¹⁾	$	1.08		$	1.38		$	1.12		$	0.95		$	3.52		$	3.78
Diluted⁽¹⁾	$	1.07		$	1.37		$	1.11		$	0.93		$	3.48		$	3.74

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 11):
Basic		23,099			23,082			23,025			22,986			23,070			23,036
Diluted		23,332			23,389			23,300			23,288			23,320			23,324

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

(In thousands)	Three Months Ended March 31						Three Months Ended September 30						Nine Months Ended September 30
	2019			2018 As Adjusted			2019			2018 As Adjusted			2019			2018 As Adjusted
Net income⁽¹⁾	$	24,978		$	31,945		$	25,880		$	21,754		$	81,068		$	87,151
Other comprehensive income :
Other comprehensive income:
Foreign currency translation adjustments⁽²⁾ (Note 12)		3,707			8,817			(19,287	)		(2,534	)		(11,290	)		(28,776	)
Defined benefit pension adjustments, net of tax (Note 12)		543			753			473			788			1,558			2,293
Derivative instrument activity, net of tax (Note 12)		(2	)		(3	)		(2	)		(2	)		(6	)		(7	)
Total other comprehensive income		4,248			9,567			(18,816	)		(1,748	)		(9,738	)		(26,490	)
Comprehensive income⁽¹⁾		29,226			41,512			7,064			20,006			71,330			60,661
Comprehensive income attributable to noncontrolling interests (Note 3)		(14	)		(25	)
Comprehensive loss attributable to noncontrolling interests (Note 3)								41			31			62			55
Comprehensive income attributable to Stepan Company⁽¹⁾	$	29,212		$	41,487		$	7,105		$	20,037		$	71,392		$	60,716

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

(Dollars in thousands)	March 31, 2019			December 31, 2018 As Adjusted			September 30, 2019			December 31, 2018 As Adjusted
Assets
Current Assets:
Cash and cash equivalents	$	269,459		$	300,194		$	285,995		$	300,194
Receivables, net		298,932			280,025			283,016			280,025
Inventories⁽¹⁾ (Note 2)(Note 7)		215,028			231,528			203,303			231,528
Other current assets		24,717			22,146			25,714			22,146
Total current assets⁽¹⁾		808,136			833,893			798,028			833,893
Property, Plant and Equipment:
Cost		1,679,669			1,666,790			1,713,245			1,666,790
Less: Accumulated depreciation		(1,074,309	)		(1,057,898	)		(1,101,966	)		(1,057,898	)
Property, plant and equipment, net		605,360			608,892			611,279			608,892
Goodwill, net		22,808			22,954			22,144			22,954
Other intangible assets, net		13,417			14,244			11,518			14,244
Long-term investments (Note 4)		25,615			25,082			26,389			25,082
Operating lease assets		40,332			—			38,027			—
Other non-current assets⁽¹⁾		10,332			9,549			10,985			9,549
Total assets⁽¹⁾	$	1,526,000		$	1,514,614		$	1,518,370		$	1,514,614
Liabilities and Equity
Current Liabilities:
Current maturities of long-term debt (Note 15)	$	32,799		$	37,058		$	24,137		$	37,058
Accounts payable		175,641			205,954			175,808			205,954
Accrued liabilities		87,008			95,570			93,018			95,570
Total current liabilities		295,448			338,582			292,963			338,582
Deferred income taxes⁽¹⁾		24,158			24,961			25,218			24,961
Long-term debt, less current maturities (Note 15)		239,063			239,022			207,783			239,022
Non-current operating lease liabilities		31,361			—			29,064			—
Other non-current liabilities		103,749			103,864			108,435			103,864
Commitments and Contingencies (Note 9)
Equity:
Common stock, $1 par value; authorized 60,000,000 shares; Issued 26,440,690 shares in 2019 and 26,308,668 shares in 2018		26,441			26,309
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		185,911			182,881			191,404			182,881
Accumulated other comprehensive loss⁽²⁾ (Note 12)		(142,580	)		(141,483	)		(156,507	)		(141,483	)
Retained earnings⁽¹⁾⁽²⁾		861,773			837,107			906,612			837,107
Less: Common treasury stock, at cost, 3,826,739 shares in 2019 and 3,803,043 shares in 2018		(100,098	)		(97,389	)
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⁾		831,447			807,425			854,209			807,425
Noncontrolling interests (Note 3)		774			760			698			760
Total equity⁽¹⁾		832,221			808,185			854,907			808,185
Total liabilities and equity⁽¹⁾	$	1,526,000		$	1,514,614		$	1,518,370		$	1,514,614

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

(In thousands)	Three Months Ended March 31						Nine Months Ended September 30
	2019			2018 As Adjusted			2019			2018 As Adjusted
Cash Flows From Operating Activities
Net income⁽¹⁾	$	24,978		$	31,945		$	81,068		$	87,151
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,403			19,948			58,545			60,778
Deferred compensation		7,473			1,614			11,478			4,971
Realized and unrealized gains on long-term investments		(2,404	)		(97	)		(2,806	)		(1,241	)
Stock-based compensation		2,596			2,232			7,045			6,722
Deferred income taxes⁽¹⁾		(1,857	)		756			(2,291	)		6,846
Other non-cash items		1,443			31			2,192			1,370
Changes in assets and liabilities:
Receivables, net		(17,434	)		(24,225	)		(8,959	)		(34,807	)
Inventories⁽¹⁾		16,231			(10,621	)		25,879			(23,366	)
Other current assets		(3,247	)		(684	)		(3,750	)		727
Accounts payable and accrued liabilities		(42,279	)		(19,518	)		(35,330	)		(6,906	)
Pension liabilities		(392	)		(116	)		(979	)		(5,059	)
Environmental and legal liabilities		6			(225	)		800			(763	)
Deferred revenues		(81	)		(81	)		(243	)		(243	)
Net Cash Provided By Operating Activities		4,436			959			132,649			96,180
Cash Flows From Investing Activities
Expenditures for property, plant and equipment		(25,741	)		(27,358	)		(70,829	)		(62,895	)
Business acquisition (Note 18)		-			(21,475	)		-			(21,475	)
Other, net		2,037			1,781			2,332			1,684
Net Cash Used In Investing Activities		(23,704	)		(47,052	)		(68,497	)		(82,686	)
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net		(4,230	)		79			(6,929	)		1,379
Other debt repayments								(37,143	)		(5,714	)
Dividends paid		(5,643	)		(5,092	)		(16,911	)		(15,225	)
Company stock repurchased		(77	)		(2,500	)		(13,184	)		(13,500	)
Stock option exercises		1,890			3,155			2,830			3,488
Other, net		(2,718	)		(4,395	)		(3,101	)		(4,504	)
Net Cash Used In Financing Activities		(10,778	)		(8,753	)		(74,438	)		(34,076	)
Effect of Exchange Rate Changes on Cash		(689	)		533			(3,913	)		(4,324	)
Net Decrease in Cash and Cash Equivalents		(30,735	)		(54,313	)		(14,199	)		(24,906	)
Cash and Cash Equivalents at Beginning of Period		300,194			298,894			300,194			298,894
Cash and Cash Equivalents at End of Period	$	269,459		$	244,581		$	285,995		$	273,988
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds/payments	$	3,018		$	3,345		$	21,698		$	25,190
Cash payments of interest	$	2,131		$	2,071		$	9,311		$	8,553

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these 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 ~~March 31,~~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 ~~three~~nine months ended ~~March 31,~~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.

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:

(In thousands, except per share amounts)	Three Months Ended March 31, 2018							Three Months Ended September 30, 2018
	As originally reported under LIFO		Effect of change			As adjusted under FIFO		As originally reported under LIFO		Effect of change			As adjusted under FIFO
Cost of Sales	$	409,765	$	(1,628	)	$	408,137	$	423,872	$	549		$	424,421
Gross Profit		89,570		1,628			91,198		84,125		(549	)		83,576
Operating Income		39,655		1,628			41,283		27,694		(549	)		27,145
Income Before Provision for Income Taxes		37,664		1,628			39,292		25,243		(549	)		24,694
Provision for Income Taxes		6,948		399			7,347		3,075		(135	)		2,940
Net Income		30,716		1,229			31,945		22,168		(414	)		21,754
Net Income Attributable to Stepan Company		30,723		1,229			31,952		22,168		(414	)		21,754
Net Income Per Diluted Common Share Attributable to Stepan Company	$	1.31	$	0.06		$	1.37	$	0.95	$	(0.02	)	$	0.93

(In thousands)	Three Months Ended March 31, 2018									Nine Months Ended September 30, 2018
	As originally reported under LIFO			Effect of change			As adjusted under FIFO			As originally reported under LIFO			Effect of change			As adjusted under FIFO
Net Income	$	30,716		$	1,229		$	31,945		$	85,807		$	1,344		$	87,151
Deferred Income Taxes		357			399			756			6,410			436			6,846
Change in Assets and Liabilities:
Inventories		(8,993	)		(1,628	)		(10,621	)		(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:

(In thousands, except per share amounts)	Three Months Ended March 31, 2019							Three Months Ended September 30, 2019
	As reported under FIFO		Effect of change			As computed under LIFO		As reported under FIFO		Effect of change			As computed under LIFO
Cost of Sales	$	404,561	$	1,500		$	406,061	$	374,180	$	(1,000	)	$	373,180
Gross Profit		84,609		(1,500	)		83,109		77,402		1,000			78,402
Operating Income		29,738		(1,500	)		28,238		27,966		1,000			28,966
Income Before Provision for Income Taxes		31,030		(1,500	)		29,530		27,449		1,000			28,449
Provision for Income Taxes		6,052		(368	)		5,684		1,569		246			1,815
Net Income		24,978		(1,132	)		23,846		25,880		754			26,634
Net Income Attributable to Stepan Company		24,984		(1,132	)		23,852		25,889		754			26,643
Net Income Per Diluted Common Share Attributable to Stepan Company	$	1.07	$	(0.05	)	$	1.02	$	1.11	$	0.03		$	1.14

(In thousands)	March 31, 2019							September 30, 2019
	As reported under FIFO		Effect of change			As computed under LIFO		As reported under FIFO		Effect of change			As computed under LIFO
Inventories	$	215,028	$	(32,863	)	$	182,165	$	203,303	$	(28,363	)	$	174,940
Other Non-Current Assets		10,332		1,483			11,815		10,985		1,415			12,400
Total Assets		1,526,000		(31,380	)		1,494,620		1,518,370		(26,948	)		1,491,422
Deferred Income Taxes	$	24,158	$	(6,589	)	$	17,569	$	25,218	$	(5,551	)	$	19,667
Retained Earnings		861,773		(24,791	)		836,982		906,612		(21,397	)		885,215
Total Liabilities and Equity		1,526,000		(31,380	)		1,494,620		1,518,370		(26,948	)		1,491,422

(In thousands)	Three Months Ended March 31, 2019									Nine Months Ended September 30, 2019
	As reported under FIFO			Effect of change			As computed under LIFO			As reported under FIFO			Effect of change			As computed under LIFO
Net Income	$	24,978		$	(1,132	)	$	23,846		$	81,068		$	2,262		$	83,330
Deferred Income Taxes		(1,857	)		(368	)		(2,225	)		(2,291	)		738			(1,553	)
Change in Assets and Liabilities:
Inventories		16,231			1,500			17,731			25,879			(3,000	)		22,879

Below are reconciliations of total equity, Company equity and equity attributable to noncontrolling interests for the three and nine months ended ~~March 31,~~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⁾			Total			Common Stock		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Noncontrolling Interest ⁽¹⁾
Balance, December 31, 2018 ⁽²⁾	$	808,185		$	26,309	$	182,881	$	(97,389	)	$	(141,483	)	$	837,107		$	760
Balance at June 30, 2019																					858,397			26,453		188,781		(106,202	)		(137,723	)		886,349			739

Issuance of 38,706 shares of common stock under stock option plan		1,890			39		1,851		—			—			—			—
Issuance of 13,256 shares of common stock under stock option plan																					667			13		654		—			—			—			—

Purchase of 900 shares of common stock		(77	)		—		—		(77	)		—			—			—
Purchase of 73,821 shares of common stock																					(7,003	)		—		—		(7,003	)		—			—			—

Stock-based and deferred compensation		(1,360	)		93		1,179		(2,632	)		—			—			—			1,408			15		1,969		(576	)		—			—			—

Net income		24,978			—		—		—			—			24,984			(6	)		25,880			—		—		—			—			25,889			(9	)

Other comprehensive income		4,248			—		—		—			4,228			—			20			(18,816	)		—		—		—			(18,784	)		—			(32	)

Cash dividends paid:
Common stock ($0.25 per share)		(5,643	)		—		—		—			—			(5,643	)		—			(5,626	)		—		—		—			—			(5,626	)		—

Other⁽³⁾		—			—		—		—			(5,325	)		5,325			—
Balance, March 31, 2019	$	832,221		$	26,441	$	185,911	$	(100,098	)	$	(142,580	)	$	861,773		$	774
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

(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⁾			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		$	766,218		$	26,071	$	170,408	$	(78,561	)	$	(99,563	)	$	747,045		$	818

Issuance of 77,474 shares of common stock under stock option plan		3,155			77		3,078		—			—			—			—
Issuance of 85,394 shares of common stock under stock option plan																					3,488			85		3,403		—			—			—			—

Purchase of 6,107 shares of common stock		(2,500	)		—		—		(2,500	)		—			—			—
Purchase of 156,524 shares of common stock																					(13,500	)		—		—		(13,500	)		—			—			—

Stock-based and deferred compensation		(1,136	)		120		1,725		(2,981	)		—			—			—			3,618			131		6,557		(3,070	)		—			—			—

Net income⁽²⁾		31,945			—		—		—			—			31,952			(7	)		87,151			—		—		—			—			87,160			(9	)

Other comprehensive income		9,567			—		—		—			9,535			—			32			(26,490	)		—		—		—			(26,444	)		—			(46	)

Cash dividends paid:
Common stock ($0.23 per share)		(5,092	)		—		—		—			—			(5,092	)
Common stock ($0.70 per share)																					(15,225	)		—		—		—			—			(15,225	)		—

Other ⁽⁴⁾		(198	)		—		—		—			—			(198	)		—			(198	)		—		—		—			—			(198	)		—
Balance, March 31, 2018	$	801,959		$	26,268	$	175,211	$	(84,042	)	$	(90,028	)	$	773,707		$	843
Balance at September 30, 2018⁽²⁾																				$	805,062		$	26,287	$	180,368	$	(95,131	)	$	(126,007	)	$	818,782		$	763

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

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

Derivative assets and liabilities ~~included~~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 ~~included~~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.

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 ~~March 31,~~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 ~~$938,000~~$789,000 and $978,000 as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively):

(In thousands)

March 31,

2019

December 31,

2018

September 30,

2019

December 31,

2018

Fair value

272,625

274,119

237,766

274,119

Carrying value

272,800

277,058

232,709

277,058

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

(In thousands)	March 2019		Level 1		Level 2		Level 3		September 30, 2019		Level 1		Level 2		Level 3
Mutual fund assets	$	25,615	$	25,615	$	—	$	—	$	26,389	$	26,389	$	—	$	—
Derivative assets:
Foreign currency contracts		31		—		31		—		91		—		91		—
Total assets at fair value	$	25,646	$	25,615	$	31	$	—	$	26,480	$	26,389	$	91	$	—
Derivative liabilities:
Foreign currency contracts	$	61	$	—	$	61	$	—	$	280	$	—	$	280	$	—

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

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

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 denominated 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 ~~March 31,~~September 30, 2019, and December 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 ~~$24,164,006~~$35,857,965 and $28,870,081, respectively.

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

On ~~March 31,~~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)	(In thousands)			(In thousands)
Three Months Ended March 31
Three Months Ended September 30				Three Months Ended September 30			Nine Months Ended September 30
2019	2019	2018		2019	2018		2019		2018
$	2,596	$	2,232	2,273	$	3,335	$	7,045	$	6,722

The quarter-over-quarter ~~increase~~decrease in stock-based compensation expense was primarily attributable to cash-settled SARs. The ~~quarterly increase in~~ cash-settled SARs compensation expense ~~reflects~~during the third quarter of 2019 was less than a ~~larger rise~~year ago reflecting a smaller increase in the market value of Company stock during the ~~first~~third quarter of 2019 versus the ~~first~~increase during the third quarter of 2018. ~~This increase was partially offset by a quarter-over-quarter decrease in stock-based compensation expense related to performance stock awards.~~

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

(In thousands)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Stock options	$	2,935	$	1,655	$	2,270	$	1,655
Stock awards		5,712		3,180		4,114		3,180
SARs		6,260		3,566		4,964		3,566

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

The unrecognized compensation costs at ~~March 31,~~September 30, 2019, are expected to be recognized over weighted-average periods of ~~2.2~~1.9 years, 1.8 years and 1.9 years for stock options, stock awards and ~~SARs.~~SARs, respectively.

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

(In thousands)	March 31, 2019		December 31, 2018 As Adjusted		September 30, 2019		December 31, 2018 As Adjusted
Finished goods	$	154,758	$	163,617	$	148,320	$	163,617
Raw materials		60,270		67,911		54,983		67,911
Total inventories	$	215,028	$	231,528	$	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.

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.

~~As the~~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 ~~the~~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 4950 percent and 3637 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. ~~The~~As of September 30, 2019, the Company ~~is not currently party to any~~had additional leases, primarily for leases of real estate and railcars, that have not commenced ~~but that have created significant rights and obligations for~~of approximately $1.9 million. The majority of these leases will commence in the ~~Company.~~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”)~~(CPI) changes (i.e., land rental payments). Appropriate CPI ~~indexes~~ at the inception of a lease ~~are~~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.

Initial implementation of ASU No. 2016-02, Leases (Topic 842) did not impact compliance with any of the Company’s ~~debt-covenants~~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~~4 countries identified above represents approximately 9394 percent of the Company’s consolidated ROU asset balance.

(In thousands)	March 31, 2019			Three months ended September 30, 2019		Nine months ended September 30, 2019
Lease Cost
Operating lease cost	$	2,688		$	2,698	$	8,097
Short-term lease cost		970			1,249		3,367
Variable lease cost		348			303		884
Total lease cost	$	4,006		$	4,250	$	12,348
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	2,696		$	2,718	$	8,139
Right-of-use assets obtained in exchange for new operating lease liabilities		294			1,593		2,482
Weighted-average remaining lease term-operating leases	9 Years
Weighted-average discount rate-operating leases		3.9	%



(In thousands)
Undiscounted Cash Flows:
2019 (excluding the three months ended March 31, 2019)	$	7,870
2019 (excluding the nine months ended September 30, 2019)				$	2,734
2020		9,192			9,771
2021		6,427			6,899
2022		5,317			5,699
2023		4,145			4,457
Subsequent to 2023		17,231			18,376
Total Undiscounted Cash Flows	$	50,182		$	47,936
Less: Imputed interest		(9,846	)		(9,899	)
Present value	$	40,336		$	38,037
Current operating lease liabilities ⁽¹⁾		8,975			8,973
Non-current operating lease liabilities		31,361			29,064
Total lease liabilities	$	40,336		$	38,037

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

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 ~~March 31,~~September 30, 2019, the Company estimated a range of possible environmental and legal losses of ~~$23.4~~$23.9 million to ~~$44.7~~$45.6 million. Within the range of possible environmental and legal losses, ~~currently~~ management has currently concluded that ~~there are~~ no ~~amounts within the ranges that are~~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 ~~both March 31, 2019 and~~ December 31, 2018. Cash expenditures related to legal and environmental matters approximated ~~$0.2~~$2.8 million for ~~each of~~ the ~~three-month periods~~nine months ended ~~March 31,~~September 30, 2019, ~~and~~compared to $1.0 million for the same period in 2018.

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 ~~March 31,~~September 30, 2019:

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 (RI/FS),~~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

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 Company 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.

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 ~~Property Site~~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.

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~~5 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 ~~$2.7~~$2.8 million for the Company’s portion of environmental response costs through ~~March 31,~~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.

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.

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.

	UNITED STATES						UNITED KINGDOM						UNITED STATES
(In thousands)	Three Months Ended March 31						Three Months Ended March 31						Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018			2019			2018			2019			2018
Interest cost	$	1,661		$	1,539		$	142		$	148		$	1,640		$	1,566		$	4,962		$	4,645
Expected return on plan assets		(2,361	)		(2,321	)		(201	)		(231	)		(2,365	)		(2,320	)		(7,087	)		(6,962	)
Amortization of net actuarial loss		652			937			63			57			563			987			1,867			2,860
Net periodic benefit cost	$	(48	)	$	155		$	4		$	(26	)	$	(162	)	$	233		$	(258	)	$	543

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, ~~$143,000~~$256,000 had been paid related to the non-qualified plans as of ~~March 31,~~September 30, 2019.

The Company’s U.K. subsidiary expects to contribute approximately $476,000 to its defined benefit pension plan in 2019. Of such amount, ~~$173,000~~$408,000 had been contributed to the plan as of ~~March 31,~~September 30, 2019.

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 ~~three~~nine months ended ~~March 31,~~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, ~~profit sharing contributions~~ for U.S. employees, who received the majority of profit sharing contributions, profit sharing contributions were made partly ~~in cash paid~~ to the 401(k) plan and partly to the employee stock ownership plan and in ~~Company common stock. In~~ 2019, profit sharing contributions were made ~~in Company common stock.~~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 March 31				Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018		2019		2018
Retirement savings contributions	$	2,409	$	1,757	$	1,777	$	1,738	$	5,401	$	5,201
Profit sharing contributions		882		942		567		759		2,413		2,769
Total defined contribution plan expenses	$	3,291	$	2,699
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

plan obligations would be recorded in earnings in the same 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 recognized) 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 ~~March 31,~~September 30, 2019, the balance of the trust assets was ~~$1,677,000,~~$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).

Below are the computations of basic and diluted earnings per share for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018:

(In thousands, except per share amounts)	Three Months Ended March 31				Three Months Ended September 30				Nine Months Ended September 30
	2019		2018 As Adjusted		2019		2018 As Adjusted		2019		2018 As Adjusted
Computation of Basic Earnings per Share
Net income attributable to Stepan Company ⁽¹⁾	$	24,984	$	31,952	$	25,889	$	21,754	$	81,091	$	87,160
Weighted-average number of common shares outstanding		23,099		23,082		23,025		22,986		23,070		23,036
Basic earnings per share ⁽¹⁾	$	1.08	$	1.38	$	1.12	$	0.95	$	3.52	$	3.78

Computation of Diluted Earnings per Share
Net income attributable to Stepan Company ⁽¹⁾	$	24,984	$	31,952	$	25,889	$	21,754	$	81,091	$	87,160
Weighted-average number of shares outstanding		23,099		23,082		23,025		22,986		23,070		23,036
Add weighted-average net shares from assumed exercise of options (under treasury stock method) ⁽²⁾		92		119		102		103		95		103
Add weighted-average net shares related to unvested stock awards (under treasury stock method)		3		2		1		3		2		2
Add weighted-average net shares from assumed exercise of SARs (under treasury stock method) ⁽²⁾		108		122		135		113		120		111
Add weighted-average contingently issuable net shares related to performance stock awards (under treasury stock method)		30		64		37		83		33		72
Weighted-average shares applicable to diluted earnings		23,332		23,389		23,300		23,288		23,320		23,324
Diluted earnings per share⁽¹⁾	$	1.07	$	1.37	$	1.11	$	0.93	$	3.48	$	3.74

⁽²⁾ Options/SARs to acquire ~~214,241 and 2,807~~142,833 shares of Company common stock were excluded from the computations of diluted earnings per share for the ~~three~~nine months ended ~~March 31, 2019 and March 31, 2018, because~~September 30, 2019. Options/SARs to acquire 65,919 shares of Company common stock were excluded from the ~~effect~~computations of ~~including~~diluted earnings per share for the nine months ended September 30, 2018. Inclusion of the instruments would have ~~been antidilutive.~~had antidilutive effects on the computations of the earnings per share.

In conjunction with the adoption of ASU 2018-02, the Company reclassified $5,325,000 of other comprehensive loss, associated with ~~post~~ 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 ~~March 31,~~September 30, 2019 and 2018:

(In thousands)	Foreign Currency Translation Adjustments			Defined Benefit Pension Plan Adjustments			Cash Flow Hedge Adjustments			Total			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	)	$	(70,561	)	$	(29,093	)	$	91		$	(99,563	)
Other comprehensive income before reclassifications		8,785			—			—			8,785			(28,730	)		—			—			(28,730	)
Amounts reclassified from AOCI		—			753			(3	)		750			—			2,293			(7	)		2,286
Net current-period other comprehensive income		8,785			753			(3	)		9,535			(28,730	)		2,293			(7	)		(26,444	)
Balance at March 31, 2018	$	(61,776	)	$	(28,340	)	$	88		$	(90,028	)
Balance at September 30, 2018													$	(99,291	)	$	(26,800	)	$	84		$	(126,007	)

Balance at December 31, 2018	$	(108,481	)	$	(33,083	)	$	81		$	(141,483	)	$	(108,481	)	$	(33,083	)	$	81		$	(141,483	)
Other comprehensive income before reclassifications		3,687			—			—			3,687			(11,251	)		—			—			(11,251	)
Amounts reclassified from AOCI		—			543			(2	)		541			—			1,558			(6	)		1,552
Reclassification adjustment related to the Tax Act ⁽¹⁾		—			(5,325	)		—			(5,325	)
Remeasurement adjustment related to the Tax Act ⁽¹⁾														—			(5,325	)		—			(5,325	)
Net current-period other comprehensive income		3,687			(4,782	)		(2	)		(1,097	)		(11,251	)		(3,767	)		(6	)		(15,024	)
Balance at March 31, 2019	$	(104,794	)	$	(37,865	)	$	79		$	(142,580	)
Balance at September 30, 2019													$	(119,732	)	$	(36,850	)	$	75		$	(156,507	)

Information regarding the reclassifications out of AOCI for the three and nine month periods ended ~~March 31,~~September 30, 2019 and 2018, is displayed below:

(In thousands)	Amount Reclassified from AOCI (a)							Amount Reclassified from AOCI (a)
AOCI Components	Three Months Ended March 31						Affected Line Item in Consolidated Statements of Income	Three Months Ended September 30						Nine Months Ended September 30						Affected Line Item in Consolidated Statements of Income
	2019			2018				2019			2018			2019			2018
Amortization of defined benefit pension actuarial losses	$	(715	)	$	(994	)	(b)	$	(622	)	$	(1,040	)	$	(2,051	)	$	(3,026	)	(b)
		172			241		Tax benefit		149			252			493			733		Tax benefit
	$	(543	)	$	(753	)	Net of tax	$	(473	)	$	(788	)	$	(1,558	)	$	(2,293	)	Net of tax
Gains and losses on cash flow hedges:
Foreign exchange contracts		2			3		Cost of sales		2			2			6			7		Cost of sales
		2			3		Total before tax		2			2			6			7		Total before tax
		—			—		Tax benefit		—			—			—			—		Tax benefit
	$	2		$	3		Net of tax	$	2		$	2		$	6		$	7		Net of tax
Total reclassifications for the period	$	(541	)	$	(750	)	Net of tax	$	(471	)	$	(786	)	$	(1,552	)	$	(2,286	)	Net of tax

The Company has ~~three~~3 reportable segments: Surfactants, Polymers and Specialty Products. Net sales by segment for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, were as follows:

(In thousands)	Three Months Ended March 31				Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018		2019		2018
Segment Net Sales
Surfactants	$	349,650	$	358,940	$	299,719	$	346,884	$	962,749	$	1,062,708
Polymers		120,179		121,933		135,089		141,646		395,904		404,446
Specialty Products		19,341		18,462		16,774		19,467		55,102		60,044
Total	$	489,170	$	499,335	$	451,582	$	507,997	$	1,413,755	$	1,527,198

Segment operating income and reconciliations of segment operating income to ~~consolidated~~ income before provision for income taxes for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, are summarized below:

(In thousands)	Three Months Ended March 31						Three Months Ended September 30						Nine Months Ended September 30
	2019			2018 As Adjusted			2019			2018 As Adjusted			2019			2018 As Adjusted
Segment Operating Income
Surfactants ⁽¹⁾	$	37,167		$	41,468		$	19,660		$	28,824		$	88,913		$	104,370
Polymers ⁽¹⁾		12,105			17,305			23,283			19,259			58,148			56,863
Specialty Products		3,131			(350	)		2,261			2,653			11,374			6,543
Segment operating income⁽¹⁾		52,403			58,423			45,204			50,736			158,435			167,776
Business restructuring		(733	)		(358	)		(459	)		(1,715	)		(1,642	)		(2,346	)
Unallocated corporate expenses ⁽²⁾		(21,932	)		(16,782	)		(16,779	)		(21,876	)		(58,024	)		(51,616	)
Consolidated operating income ⁽¹⁾		29,738			41,283			27,966			27,145			98,769			113,814
Interest expense, net		(1,853	)		(3,151	)		(1,402	)		(2,797	)		(5,021	)		(8,620	)
Other, net		3,145			1,160			885			346			4,265			1,990
Consolidated income before income taxes⁽¹⁾	$	31,030		$	39,292
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 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.

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 ~~March 31,~~September 30, 2019, the Company did ~~not~~0t 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 ~~provides~~provide a geographic disaggregation of net sales for the three and nine months ended ~~March 31,~~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 impacted by economic factors.~~streams.

	For the Three Months Ended March 31, 2019								For the Three Months Ended September 30, 2019
(In thousands)
	Surfactants		Polymers		Specialty		Total		Surfactants		Polymers		Specialty Products		Total
Geographic Market
North America	$	214,297	$	71,323	$	16,025	$	301,645	$	178,799	$	84,397	$	14,035	$	277,231
Europe		71,478		42,105		3,316		116,899		57,190		39,852		2,739		99,781
Latin America		50,812		197		—		51,009		51,940		792		—		52,732
Asia		13,063		6,554		—		19,617		11,790		10,048		—		21,838
Total	$	349,650	$	120,179	$	19,341	$	489,170	$	299,719	$	135,089	$	16,774	$	451,582

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

(In thousands)	Maturity Dates	March 31, 2019		December 31, 2018		Maturity Dates	September 30, 2019		December 31, 2018
Unsecured private placement notes
3.95% (net of unamortized debt issuance cost of $349 and $360 for 2019 and 2018, respectively)	2021-2027	$	99,651	$	99,640
3.86% (net of unamortized debt issuance cost of $333 and $347 for 2019 and 2018, respectively)	2019-2025		99,667		99,653
4.86% (net of unamortized debt issuance cost of $176 and $186 for 2019 and 2018, respectively)	2019-2023		46,253		46,243
5.88% (net of unamortized debt issuance cost of $80 and $85 for 2019 and 2018, respectively)	2019-2022		22,777		22,772
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		3,514		7,772	2019		567		7,772
Total debt		$	271,862	$	276,080		$	231,920	$	276,080
Less current maturities			32,799		37,058			24,137		37,058
Long-term debt		$	239,063	$	239,022		$	207,783	$	239,022

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 ~~March 31,~~September 30, 2019, the Company had outstanding letters of credit totaling ~~$5,271,000~~$5,009,000 and no0 outstanding debt under this agreement. There was ~~$344,729,000~~$344,991,000 available under the revolving credit agreement as of ~~March 31,~~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 ~~$235,249,000~~$267,903,000 and $214,101,000 at ~~March 31,~~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.

(In thousands)	Three Months Ended March 31					Three Months Ended September 30						Nine Months Ended September 30
	2019		2018			2019			2018			2019		2018
Foreign exchange gains	$	600	$	1,053
Foreign exchange gain (loss)						$	374		$	(274	)	$	333	$	895
Investment income		97		139			106			91			309		320
Realized and unrealized gains on investments		2,404		97
Net periodic benefit cost		44		(129	)
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	$	3,145	$	1,160		$	885		$	346		$	4,265	$	1,990

In the first quarter of 2019, the Company approved a plan to ~~close~~restructure its Specialty Products office in the Netherlands and eliminate ~~five~~5 positions from the site’s supply chain, quality control and research and development areas. This ~~planned reduction in positions~~restructuring was ~~made~~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 ~~$79,000,~~$122,000, respectively, were recognized during the ~~first quarter of~~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 ~~March 31,~~September 30, 2019, an aggregate of ~~$1,591,000~~$1,968,000 shut down related expense ~~has~~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 ~~$187,000~~$564,000 of decommissioning costs recognized in the ~~first quarter of~~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 ofat 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 ~~March 31,~~September 30, 2019, ~~$6,346,000~~$6,885,000 of aggregate restructuring expense ~~has~~had been recognized, reflecting ~~$1,594,000~~$1,644,000 of termination benefits for approximately 30 employees and ~~$4,752,000~~$5,241,000 for other expenses, principally site decommissioning costs.

~~Below is a reconciliation of the December 31, 2018 and the March 31, 2019 restructuring liabilities:~~

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 ~~footage~~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. NoNaN intangible assets were identified as part of the acquisition. The following table summarizes the assets acquired as a result of the acquisition:

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

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.

In January 2017, the FASB issued ASU No. 2017-4, Intangibles – 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 acquired 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 would 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 when 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 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 eliminates 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 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 ~~Company is assessing the impact that~~ adoption of ~~ASU No. 2018-15 will~~this update is not expected to have an effect on ~~its~~the Company’s financial position, results of operations and cash flows.

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.

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

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.

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 ~~table:~~tables:

	Income (Expense)									Income (Expense)
	For the Three Months Ended March 31									For the Three Months Ended September 30
(In millions)	2019			2018			Change			2019			2018			Change
Deferred Compensation (Operating expenses)	$	(7.5	)	$	(1.6	)	$	(5.9)	⁽¹⁾	$	(1.6	)	$	(4.2	)	$	2.6		⁽¹⁾
Realized/Unrealized Gains on Investments (Other, net)		2.3			0.1			2.2			(0.3	)		0.7		$	(1.0	)
Investment Income (Other, net)		0.1			0.1			—			0.1			0.1		$	-
Pretax Income Effect	$	(5.1	)	$	(1.4	)	$	(3.7)		$	(1.8	)	$	(3.4	)	$	1.6

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 ~~table presents~~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 ~~March 31,~~September 30, 2019 and 2018:

	Three Months Ended March 31										Three Months Ended September 30
								(Decrease)										(Decrease)
(In millions)	2019		2018		(Decrease)			Due to Foreign Translation			2019		2018⁽¹⁾		Increase (Decrease)			Due to Foreign Translation
Net Sales	$	489.2	$	499.3	$	(10.1	)	$	(16.2	)	$	451.6	$	508.0	$	(56.4	)	$	(7.2	)
Gross Profit		84.6		91.2		(6.6	)		(2.2	)		77.4		83.6		(6.2	)		(1.0	)
Operating Income		29.7		41.3		(11.6	)		(1.1	)		28.0		27.1		0.9			(0.5	)
Pretax Income		31.0		39.3		(8.3	)		(1.1	)		27.4		24.7		2.7			(0.5	)

Net income attributable to the Company for the ~~first~~third quarter of 2019 ~~decreased 22~~increased 19 percent to ~~$25.0~~$25.9 million, or ~~$1.07~~$1.11 per diluted share, from ~~$39~~$21.8 million, or ~~$1.44~~$0.93 per diluted share, for the ~~first~~third quarter of 2018. Adjusted net income ~~decreased nine~~increased six percent to ~~$30.6~~$27.9 million, or ~~$1.31~~$1.20 per diluted share, from ~~$33.6~~$26.4 million, or ~~$1.44~~$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 ~~a reconciliation~~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 ~~first~~third quarter of 2019 compared to the ~~first~~third quarter of 2018 follows the summary.

Consolidated net sales decreased ~~$10.2~~$56.4 million, or ~~two~~11 percent, between quarters. Consolidated sales volume ~~increased three~~declined six percent, which had a ~~$15.8~~$29.1 million ~~favorable~~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 ~~for each~~three percent. Approximately 27 percent of the ~~three segments. Foreign currency translation~~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 ~~$16.2 million.~~

The unfavorable foreign currency translation impact reflected a stronger U.S. dollar against all currencies for countries where the Company has foreign operations. Lower average selling prices unfavorably impacted the quarter-over-quarter change in net sales by $9.8$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 ~~first~~third quarter of 2019 ~~decreased $11.5~~increased $0.8 million, or 28three percent, ~~compared to~~versus operating income for the ~~first~~third quarter of 2018. ~~Most of this~~A $6.2 million decline in gross profit was related to higher deferred compensation expense which increased $5.9 million quarter-over-quarter. Operating income for the Polymer and Surfactant segments declined $5.2 million and $4.3 million, respectively. Specialty Product operating income improved $3.5 million. Business restructuring expenses were $0.4 million higher in the current year quarter andmore than offset by lower corporate, ~~expenses (excluding~~ deferred compensation and business restructuring ~~expense)~~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 ~~$0.7 million.~~$9.2 and $0.4 million, respectively. Foreign currency translation had a ~~$1.1~~$0.5 million unfavorable effect on quarter-over-quarter consolidated operating ~~income.~~ income.

Operating expenses (including deferred compensation and business restructuring expense) ~~increased $5.0~~decreased $7.0 million, or ~~ten~~12 percent, between quarters. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

Net interest expense for the ~~first~~third quarter of 2019 decreased ~~$1.3~~$1.4 million ~~or 41 percent, from net interest expense for~~versus the ~~same quarter of last~~prior year quarter. This decrease was primarily due to ~~debt principal repayments and~~ higher U.S. interest ~~income.~~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 ~~$3.1~~$0.9 million of income for the ~~first~~third quarter of 2019 compared to ~~$1.2~~$0.3 million of income for the same period of 2018. The Company ~~recognized $2.5~~incurred $0.2 million of investment ~~income~~losses (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the ~~first~~third quarter of 2019 compared to ~~$0.2~~$0.8 million of income in last year’s ~~first~~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 ~~foreign exchange gains of~~a $0.6 million gain on the sale of an asset in the ~~first~~third quarter of 2019 versus $1.1 million of foreign exchange gains in the first quarter of 2018. The Company also reported $0.2 million of lower net periodic pension cost expense in the first quarter of 2019 versus the prior year.2019.

The Company’s effective tax rate was ~~19.5~~5.7 percent for the ~~first~~third quarter of 2019 compared to ~~18.7~~11.9 percent for the ~~first~~third quarter of 2018. The quarter-over-quarter ~~increase~~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 aunfavorable 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 ~~2018~~ tax ~~benefit from nontaxable foreign interest income, and; (ii) a less favorable geographic mix of income~~benefits recognized in the ~~first~~third quarter of ~~2019 versus the first quarter of~~ 2018.

	For the Three Months Ended									For the Three Months Ended
(Dollars in thousands)	March 31,		March 31,		Increase			Percent		September 30,		September 30,		(Decrease)			Percent
Net Sales	2019		2018		(Decrease)			Change		2019		2018					Change
Surfactants	$	349,650	$	358,940	$	(9,290	)		-3	$	299,719	$	346,884	$	(47,165	)		-14
Polymers		120,179		121,933		(1,754	)		-1		135,089		141,646		(6,557	)		-5
Specialty Products		19,341		18,462		879			5		16,774		19,467		(2,693	)		-14
Total Net Sales	$	489,170	$	499,335	$	(10,165	)		-2	$	451,582	$	507,997	$	(56,415	)		-11

	For the Three Months Ended										For the Three Months Ended
(Dollars in thousands)	March 31,		March 31,			Increase			Percent		September 30,		September 30,		Increase			Percent
Operating Income	2019		2018⁽¹⁾			(Decrease)			Change		2019		2018⁽¹⁾		(Decrease)			Change
Surfactants	$	37,167	$	41,468		$	(4,301	)		-10	$	19,660	$	28,824	$	(9,164	)		-32
Polymers		12,105		17,305			(5,200	)		-30		23,283		19,259		4,024			21
Specialty Products		3,131		(350	)		3,481		NM			2,261		2,653		(392	)		-15
Segment Operating Income	$	52,403	$	58,423		$	(6,020	)		-10	$	45,204	$	50,736	$	(5,532	)		-11
Corporate Expenses, Excluding Deferred Compensation and Restructuring		14,459		15,168			(709	)		-5		15,169		17,654		(2,485	)		-14
Deferred Compensation Expense		7,473		1,614			5,859			363		1,610		4,222		(2,612	)		-62
Business Restructuring		733		358			375			105		459		1,715		(1,256	)		-73
Total Operating Income	$	29,738	$	41,283		$	(11,545	)		-28	$	27,966	$	27,145	$	821			3

~~Surfactants~~Surfactant net sales for the ~~first~~third quarter of 2019 decreased ~~$9.3~~$47.2 million, or ~~three~~14 percent, ~~over~~versus net sales for the ~~first~~third quarter of 2018. The unfavorable impact of ~~foreign currency translation and~~ lower sales volume, lower average selling prices ~~negatively impacted the quarter-over-quarter change in net sales by $10.6 million~~ and ~~$9.5 million, respectively. A three percent increase in sales volume favorably impacted the change in net sales by $10.8 million. A quarter-over-quarter comparison of net sales by region follows:~~

~~Net sales for North American operations decreased three percent between quarters. Lower selling prices and the unfavorable effect of~~ foreign currency translation negatively impacted the quarter-over-quarter change in net sales by ~~$7.3~~$29.2 million, $13.2 million and ~~$0.3~~$4.8 million, respectively. A quarter-over-quarter comparison of net sales by region follows:

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 ~~three~~five percent mostly due to the pass through of lower raw material costs to customers. ~~The foreign~~Foreign currency impact reflected a stronger U.S. dollar relative to the Canadian dollar. Sales volume growth of one percent positively impacted net sales by $1.5 million. This sales volume increase reflected higher demand within the functional product end markets partially offset by lower demand for products sold to our distribution partners.

~~Net sales for European operations decreased nine percent between quarters. The unfavorable impact of foreign currency~~ translation ~~and a two percent decline in sales volume~~ negatively impacted the quarter-over-quarter change in net sales by ~~$5.5~~$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 ~~$1.7~~$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 ~~against~~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 ~~resulted from~~mostly reflects the residual impact of a sulfonation equipment failure at the Company’s ~~decision to cease Surfactant production at its German plant~~Ecatepec, Mexico site during the ~~fourth~~first quarter of ~~2018. Lower sales of products used in laundry and cleaning and personal care applications were~~2019 partially offset by higher agricultural demand in the region.

Net sales for ~~products used~~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 ~~agricultural~~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. ~~Selling prices increased slightly and~~Foreign currency translation favorably impacted the quarter-over-quarter change in net sales by $0.3 million.

Net sales for Latin American operations increased 22 percent, primarily due to a 24 percent increase in sales volume and higher selling prices. These two items accounted for $9.8 million and $3.8 million, respectively, of the quarter-over-quarter change in net sales. The higher volume was mostly related to the Company’s 2018 first quarter acquisition in Ecatepec, Mexico. Foreign currency translation negatively impacted the quarter-over-quarter change in net sales by $4.5 million. The quarter-over-quarter strengthening of the U.S. dollar against the Brazilian real, Mexican peso and the Colombian peso generated the unfavorable foreign currency effect.

Net sales for Asian operations declined 29 percent primarily due to lower average selling prices, lower sales volume and the unfavorable impact of foreign currency translation. These items unfavorably impacted the quarter-over-quarter change in net sales by $3.0 million, $2.2 million and $0.2 million, respectively. The lower selling prices primarily reflect less favorable product mix. Sales

~~volume declined 12 percent mostly due to lower sales of products used in laundry and cleaning applications and lower demand for products sold to our distribution partners.~~

~~Surfactants~~Surfactant operating income for the ~~first~~third quarter of 2019 decreased ~~$4.3~~$9.2 million, or 1032 percent, ~~over~~versus operating income for the ~~first~~third quarter of 2018. Gross profit declined ~~$4.8~~$9.5 million ~~quarter-over-quarter. Operating~~and operating expenses ~~decreased $0.5 million, or two percent.~~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									For the Three Months Ended
(Dollars in thousands)	March 31, 2019		March 31, 2018⁽¹⁾		Increase (Decrease)			Percent Change		September 30, 2019		September 30, 2018⁽¹⁾		Increase (Decrease)			Percent Change
Gross Profit and Operating Income
North America	$	43,084	$	45,354	$	(2,270	)		-5	$	25,946	$	35,882	$	(9,936	)		-28
Europe		10,438		9,376		1,062			11		8,432		7,575		857			11
Latin America		3,514		5,420		(1,906	)		-35		4,907		7,345		(2,438	)		-33
Asia		3,942		5,591		(1,649	)		-29		4,665		2,613		2,052			79
Surfactants Segment Gross Profit	$	60,978	$	65,741	$	(4,763	)		-7	$	43,950	$	53,415	$	(9,465	)		-18
Operating Expenses		23,811		24,273		(462	)		-2		24,290		24,591		(301	)		-1
Surfactants Segment Operating Income	$	37,167	$	41,468	$	(4,301	)		-10	$	19,660	$	28,824	$	(9,164	)		-32

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 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:

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.

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:

Gross profit for North American operations ~~decreased~~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 ~~or $2.3 million, quarter-over-quarter primarily due to~~sales volume growth of polyols used in rigid foam applications, partially offset by lower ~~unit margins. Lower unit margins negatively impacted the quarter-over-quarter change in gross profit by $2.6 million. Sales volume grew one percent~~phthalic anhydride and ~~positively impacted the change in gross profit by $0.3 million. Higher sales of products into our functional product end markets offset lower sales to our distribution partners.~~specialty polyols volumes.

Gross profit for European operations ~~increased 11~~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.

Net sales for the third quarter of 2019 decreased $2.7 million, or 14 percent, ~~or $1.1~~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 ~~between quarters~~and operating income decreased $0.4 million quarter-over-quarter primarily due to lower ~~overhead costs~~sales volume and ~~improved product mix resulting from~~unfavorable order timing differences within the Company’s ~~decision~~pharmaceutical business. These items were partially offset by improved margins within the food and nutritional business.

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to ~~cease~~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:

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 ~~production at~~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 ~~German plant site~~sulfonation business in Germany during the fourth quarter of 2018. ~~Higher unit margins favorably impacted the quarter-over-quarter change in gross profit by $2.1 million.~~ The unfavorable ~~impact of~~ 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 ahigher deferred compensation expense. These two ~~percent decline in sales volume~~items negatively impacted the ~~current year quarter~~year-over-year change in operating income by ~~$0.8~~$9.8 million and ~~$0.2~~$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.

~~Gross profit~~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:

Net interest expense for ~~Latin American operations decreased 35 percent, or $1.9~~the first nine months of 2019 declined $3.6 million ~~quarter-over-quarter.~~versus the first nine months of 2018. This decrease was primarily due to ~~a sulfonation equipment failure at~~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 ~~Ecatepec, Mexico facility~~voluntary prepayment of its 5.88% Senior Notes in ~~January~~the second quarter of 2019. ~~Higher freight costs~~

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

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 months 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 ~~incurred to supply product from~~substantially offset by other ~~Company locations resulting~~non-recurring favorable tax benefits recognized in the first nine months of 2018.

	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

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 ~~unit margins. Lower unit margins~~sales volume, lower average selling prices and foreign currency translation negatively impacted the ~~quarter-over-quarter~~year-over-year change in ~~gross profit~~net sales by ~~$2.5 million. The~~$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:

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 current year quarter by $0.7 million. A 24 percent increase in sales volume, principally driven by the first quarter 2018 acquisition in Ecatepec, Mexico favorably impacted the quarter-over-quarter change in gross profit by $1.3 million.

Gross profit for Asia operations decreased 29 percent, or $1.6 million, between quarters largely due to lower unit margins and lower sales volumes. These items negatively impacted 2019 gross profit by $1.0 million and $0.6 million, respectively. The lower unit margins primarily resulted from lower production throughput which led to higher unit overhead costs.

~~Operating expenses for the Surfactants segment decreased $0.5 million, or two percent, quarter-over-quarter.~~

Polymers net sales for the first quarter of 2019 decreased $1.8 million, or one percent, versus net sales for the same period of 2018. The unfavorable impact of foreign currency translation and lower selling prices negatively impacted the quarter-over-quarteryear-over-year change in net sales by ~~$5.3~~$30.3 million, $27.7 million and ~~$0.6~~$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 ~~quarter-over-quarter~~year-over-year change in net sales by $5.2 million and $4.1 ~~million. A quarter-over-quarter comparison of net sales~~million, respectively. These items were offset by ~~region follows:~~

~~Net sales for North American operations declined three percent due to lower selling prices and a one percent decline in sales volume. These two items~~foreign currency translation which negatively impacted the ~~quarter-over-quarter~~year-over-year change in net sales by ~~$1.3~~$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 ~~$0.9~~$5.6 million, ~~respectively.~~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 ~~contributed~~ to ~~the lower selling prices.~~customers. The ~~slight decline in total sales volume reflects lower phthalic anhydride and specialty polyols volume that were mostly offset by ten percent growth of polyols used in rigid foam applications.~~

Net sales for European operations increased one percent. A nine percent increase in sales volume and higher selling prices positively impacted the quarter-over-quarter change in net sales by $3.9 million and $1.2 million, respectively. The unfavorable impactfavorable effects of foreign currency translation ~~negatively impacted the quarter-over-quarter change in net sales by $4.8 million.~~

~~Net sales for Asia and Other operations increased one percent quarter over quarter primarily due to a 14 percent increase in sales volume. This sales volume growth~~ positively impacted the ~~quarter-over-quarter change in~~ net sales change by ~~$0.9~~$0.2 million. ~~The unfavorable impact of foreign currency translation and lower selling prices negatively impacted the quarter-over-quarter change in net sales by $0.5 million and $0.3 million, respectively.~~

~~Polymers~~Surfactant operating income for the first ~~quarter~~nine months of 2019 ~~declined $5.2~~decreased $15.5 million, or 3015 percent, ~~from~~versus operating income for the first ~~quarter~~nine months of 2018. Gross profit ~~decreased $5.2~~declined $15.4 million, or 21nine percent, ~~primarily due to reduced margins, the negative impact of foreign currency translation~~versus prior year and ~~the non-recurrence of a $2.1 million class action settlement received in the first quarter of 2018. Operating~~operating expenses were ~~flat quarter-over-quarter. Quarter-over-quarter~~essentially flat. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

For the Three Months Ended

(Dollars in thousands)

March 31, 2019

March 31, 2018⁽¹⁾

Increase
(Decrease)

Percent
Change

Gross Profit and Operating Income

North America

$
12,966

$
18,567

$
(5,601
)

-30

Europe

5,609

5,964

(355
)

-6

Asia and Other

648

(145
)

793

-547

Polymers Segment Gross Profit

$
19,223

$
24,386

$
(5,163
)

-21

Operating Expenses

7,118

7,081

37

1

Polymers Segment Operating Income

$
12,105

$
17,305

$
(5,200
)

-30

	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

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.

Higher unit margins favorably 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.

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:

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.

Polymer operating 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. Operating 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:

Gross profit for North American operations declined 30$2.1 million, or four percent, ~~quarter-over-quarter~~year-over-year due to slightly lower unit margins that were primarily ~~due~~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~~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 ~~lower unit margins. The decline in margins reflected the consumption of higher priced year-end inventories carried to guard against potential winter supply disruptions~~

Gross profit for European operations ~~decreased~~declined $0.9 million, or five percent, year-over-year. Sales volume growth of six percent ~~primarily due to~~positively impacted the ~~negative~~year-over-year change in gross profit by $1.1 million. The unfavorable impact of foreign currency translation and ~~slightly reduced margins. These items~~lower unit margins negatively impacted ~~the quarter-over-quarter change in~~year-over-year gross profit by ~~$0.6~~$1.3 million and ~~$0.4~~$0.7 million, respectively. The lower unit margins were primarily related to higher unit overhead costs resulting from a planned first quarter 2019 maintenance shutdown in Germany. Sales volume growth of nine percent positively impacted the quarter-over-quarter change in gross profit by $0.6 million.

Gross profit for Asia and Other operations improved ~~$0.8~~$3.5 million ~~primarily~~ due to higher unit margins and 27 percent sales volume growth during the first nine months of ~~14 percent quarter-over-quarter.~~ 2019.

Net sales for the first ~~quarter~~nine months of 2019 ~~increased $0.9~~declined $4.9 million, or ~~five~~eight percent, ~~from~~versus net sales for the ~~first quarter~~same period of 2018. Sales volume increased four percent but the increase was ~~up 15 percent versus the prior year. Operating~~offset by a decrease in average selling prices. Gross profit increased $4.1 million and operating income increased ~~$3.5~~$4.8 million ~~quarter-over-quarter primarily~~year-over-year due to ~~the higher~~improved sales volume ~~which was mostly attributable to favorable~~and margins within the food and nutritional business and order timing differences within the Company’s pharmaceutical and flavor ~~business.~~ businesses.

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, increased ~~$5.5~~$5.7 million between ~~quarters.~~years. Corporate expenses were ~~$22.7~~$59.7 million in the first ~~quarter~~nine months of 2019 versus ~~$17.1~~$54.0 million in the first nine months of 2018. This increase was primarily attributable to higher deferred compensation expense ($~~5.9~~6.5 million) and ~~business restructuring~~environmental remediation expense ($~~0.4~~3.3 million) ~~in 2019.~~. 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.

~~The $5.9~~Deferred compensation expense increased $6.5 million between years. This increase ~~in quarter-over-quarter deferred compensation expense~~ was primarily due to a ~~$13.52~~$23.06 per share increase in the market price of ~~Company~~the Company’s common stock in the first ~~quarter~~nine months of 2019 compared to ~~a $4.21~~an $8.04 per share increase ~~for~~in the first ~~quarter~~nine months of 2018. The following table presents the ~~quarter-end~~period-end Company common stock market prices used in the computation of deferred compensation expenses for the ~~three~~nine months ended ~~March 31,~~September, 2019 and 2018:

For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, operating activities were a cash source of ~~$4.4~~$132.7 million versus a ~~cash~~ source of ~~$1.0~~$96.2 million for the comparable period in 2018. For the current year period, investing cash outflows totaled ~~$23.7~~$68.5 million, ~~versus a cash~~as compared to an outflow of ~~$47.1~~$82.7 million in the prior year ~~period. Financing~~period, and financing activities were a use of ~~$10.8~~$74.4 million, ~~versus~~as compared to a use of ~~$8.8~~$34.1 million in the prior ~~year period.~~year. Cash and cash equivalents decreased by ~~$30.8~~$14.2 million compared to December 31, 2018, inclusive of ana $3.9 million unfavorable exchange rate ~~impact of $0.7 million.~~impact.

At ~~March 31,~~September 30, 2019, the Company’s cash and cash equivalents totaled ~~$269.5 million. Cash~~$286.0 million, of which $162.6 million was held within the United States. The U.S. cash was held in ~~U.S.~~ money market funds, deposit accounts and a certificate of deposit ~~totaled $82.0~~totaling $74.0 million, ~~$53.0~~$73.6 million and ~~$40.0~~$15.0 million, respectively. The Company’s non-U.S. subsidiaries held ~~$94.5~~$123.4 million of cash outside the ~~U.S.~~United States as of ~~March 31,~~September 30, 2019.

Net income decreased by ~~$7.0~~$6.1 million versus the comparable period in 2018. Working capital was a ~~cash~~ use of ~~$46.8~~$22.2 million versus a use of ~~$55.1~~$64.4 million for the comparable ~~year-ago~~to prior year period.

Year-to-date accounts receivable were a use of ~~$17.4~~$9.0 million compared to a use of ~~$24.2~~$34.8 million for the comparable period in 2018. Inventories were a source of ~~$16.2~~$25.9 million in 2019 versus a use of ~~$10.6~~$23.4 million in 2018. Accounts payable and accrued liabilities were a use of ~~$42.3~~$35.3 million in 2019 compared to a use of ~~$19.5~~$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 ~~receivables~~receivable lower cash usage primarily reflects ~~higher~~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.

Cash used for investing activities decreased by ~~$23.3~~$14.2 million year-over-year. In the first ~~quarter~~nine months of 2018, the Company ~~acquired~~paid $21.5 million in cash to acquire BASF’s production facility in Ecatepec, Mexico ~~that consumed $21.5 million~~and a portion of ~~cash.~~the related surfactants business. Cash used for capital expenditures was ~~$25.7~~$70.8 million in the first ~~quarter~~nine months of 2019 versus ~~$27.4~~$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.

Cash used for financing activities was ~~$10.8~~$74.4 million in 2019 versus ~~$8.8~~$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 ~~also~~ 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 ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company purchased ~~900~~144,457 shares ~~on the open market (at~~of its common stock at a total cost of ~~$77,000). At March 31,~~$13.2 million, on the open market. As of September 30, 2019, there were ~~493,387~~349,830 shares remaining under the current share repurchase authorization.

Consolidated balance sheet debt decreased ~~by $4.2~~to $231.9 million ~~during the first quarter~~as of September 30, 2019 ~~compared to December 31, 2018. Consolidated balance sheet debt was $271.9 million at March 31, 2019 versus~~from $276.1 million at December 31, 2018. Net debt (which is defined as total debt minus cash – see the ~~“Reconciliation~~Reconciliation of Non-GAAP Net ~~Debt”~~Debt section of this MD&A) ~~increased~~decreased by ~~$26.5~~$30.0 million infor the first ~~quarter~~nine months of 2019, from a negative $24.1 million to a ~~positive $2.4~~negative $54.1 million, primarily due to ~~a $30.7 million cash reduction resulting from higher working capital requirements.~~current year debt repayments.

As of ~~March 31,~~September 30, 2019, the ratio of total debt to total debt plus shareholders’ equity was 3221 percent compared to 3425 percent at December 31, 2018. As of ~~March 31,~~September 30, 2019, the ratio of net debt to net debt plus shareholders’ equity was ~~zero~~a negative 7 percent, compared to a negative ~~three~~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 with a syndicate of banks.~~2023. This revolving credit facility replaced the Company’s prior $125 million credit agreement. ~~The~~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~~. borrowings. As of ~~March 31, 2018,~~September 30, 2019, the Company had outstanding letters of credit totaling ~~$5.3~~$5.0 million under the revolving credit agreement and no borrowings, with ~~$344.7~~$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 ~~expenditures~~expenditure programs and acquisitions. At ~~March 31,~~September 30, 2019, the Company’s foreign subsidiaries had outstanding debt of ~~$3.5~~$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 ~~March 31,~~September 30, 2019, testing for these agreements was based on the Company’s consolidated financial statements. Under the most restrictive of these debt covenants:

The Company believes it was in compliance with all of its loan agreements as of ~~March 31,~~September 30, 2019.

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. ~~During~~For the ~~first three~~nine months ofended September 30, 2019 and 2018, the Company’s expenditures for capital projects related to the environment were ~~$0.3~~$1.3 million and ~~$0.9~~$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 ~~$7.4~~$22.8 million and ~~$6.9~~$21.1 million for the ~~three~~nine months ended ~~March 31,~~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 ~~potentially responsible party~~PRP at a number of waste disposal sites where cleanup costs have been or may be incurred under CERCLA and similar state or foreign

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 the sites. It is the Company’s accounting 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 minimum is accrued. Some of the factors on which the Company bases its estimates include information provided by feasibility studies, ~~potentially responsible party~~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 ~~March 31, 2019 which is the same as~~ December 31, ~~2018 range.~~2018. Within the range of possible environmental losses, ~~currently~~ management ~~has~~currently concluded that ~~there are~~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 ~~both March 31, 2019 and~~ December 31, 2018. Because the liabilities accrued are estimates, actual amounts could differ materially from the amounts reported. Cash expenditures related to legal and environmental matters ~~approximated $0.2~~were $2.8 million for ~~each~~the nine months ended September 30, 2019, compared to $1.0 million for the same period in 2018. The majority of the ~~three-month periods ended March 31,~~ 2019 ~~and 2018.~~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.

~~The Company~~Management believes ~~Surfactants~~its Surfactant strategy, inclusive of its focus on end market diversification, Tier 2 and Tier 3 customers and cost out activities will continue to ~~benefit from its diversification efforts into functional products, new technologies, improved internal efficiencies and expanded sales into a broad customer base globally. The Company~~contribute to margin improvement despite the challenging current environment. Management believes Polymers will continue to benefit from the growing market for insulation ~~materials~~material and isremains optimistic the business will deliver ~~both~~ full year volume growth and incremental margin improvement versus the prior year. ~~The Company~~Management believes full year Specialty Products results will ~~deliver better margins, and combined with restructuring efforts, should provide second half benefits.~~improve versus the prior year.

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

Three Months Ended March 31

(In millions, except per share amounts)

2019

2018 As Adjusted

Net Income

Diluted EPS

Net Income

Diluted EPS

Net Income Attributable to the Company as Reported ⁽¹⁾

$
25.0

$
1.07

$
32.0

$
1.37

Deferred Compensation Expense (including related investment activity)

5.1

0.22

1.4

0.06

Business Restructuring

0.7

0.03

0.3

0.02

Cash Settled Stock Appreciation Rights

1.6

0.07

0.4

0.01

Cumulative Tax Effect on Above Adjustment Items

(1.8
)

(0.08
)

(0.5
)

(0.02
)
Adjusted Net Income ⁽¹⁾

$
30.6

$
1.31

$
33.6

$
1.44

	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

~~The Company~~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.

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

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)	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Current Maturities of Long-Term Debt as Reported	$	32.8		$	37.1		$	24.1		$	37.1
Long-Term Debt as Reported		239.1			239.0			207.8			239.0
Total Debt as Reported		271.9			276.1			231.9			276.1
Less Cash and Cash Equivalents as Reported		(269.5	)		(300.2	)		(286.0	)		(300.2	)
Net Debt	$	2.4		$	(24.1	)	$	(54.1	)	$	(24.1	)

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

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 ~~March 31,~~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 ~~March 31,~~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.

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 ~~March 31,~~September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

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

Below is a summary by month of share ~~purchase~~purchases by the Company during the ~~first~~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⁾

January 2019

14

⁽²⁾
$
85.80

—

494,287

February 2019

7,277

⁽³⁾
$
89.22

—

494,287

March 2019

24,289

⁽³⁾
⁽⁴⁾
$
93.07

900

⁽⁴⁾

493,387

Total

31,580

$
92.18

900

493,387

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

Exhibit No.		Description		Description

10+	–	Second Amendment to the Stepan Company 2011 Incentive Compensation Plan (filed with the Company’s Current Report on Form 8-K filed on May 6, 2019 (File No. 001-4462), and incorporated herein by reference)
3.2			–	Amended and Restated By-laws of Stepan Company (Amended as of October 22, 2019)

18	–	Letter Regarding Change in Accounting Principles
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)	–	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)	–	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	–	Certification pursuant to 18 U.S.C. Section 1350

101.INS	–	XBRL Instance Document	–	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	–	XBRL Taxonomy Extension Schema Document	–	Inline XBRL Taxonomy Extension Schema Document

101.CAL	–	XBRL Taxonomy Extension Calculation Linkbase Document	–	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	–	XBRL Taxonomy Extension Definition Document	–	Inline XBRL Taxonomy Extension Definition Document

101.LAB	–	XBRL Taxonomy Extension Label Linkbase Document	–	Inline XBRL Taxonomy Extension Label Linkbase Document

+		Management contract or compensatory plan
104			–	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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.

Delaware		36-1823834
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification Number)

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

Class		Outstanding at ~~April 24,~~October 22, 2019
Common Stock, $1 par value		~~22,613,951~~22,505,067 Shares

	Shares
Stock options		~~67,628~~72,965
Stock awards (at target)		~~41,528~~45,327
SARs		~~146,613~~162,624

(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

	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

(In thousands)	Termination Benefits			Other Expense			Total
Restructuring liability at December 31, 2018	$	260		$	83		$	343
Expense recognized		—			322			322
Amounts paid		(79	)		(322	)		(401	)
Foreign currency translation		6			2			8
Restructuring liability at March 31, 2019	$	187		$	85		$	272

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

	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	)

	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

	For the Three Months Ended
(Dollars in thousands)	March 31		March 31		Increase			Percent
Net Sales	2019		2018		(decrease)			change
North America	$	71,323	$	73,474	$	(2,151	)		-3
Europe		42,105		41,784		321			1
Asia and Other		6,751		6,675		76			1
Total Polymers Segment	$	120,179	$	121,933	$	(1,754	)		-1

	2019		2018				2017
	March 31		December 31		March 31		December 31
Company Common Stock Price	$	87.52	$	74.00	$	83.18	$	78.97


	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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company