Beverly Machtinger – Grace and White Aaron Weitman – Appaloosa

Good afternoon and thank you for joining us. Before I begin, please note that information in this conference call contains forward-looking statements, which are not historical facts.

These statements involve risks and uncertainties that could cause actual results to differ materially including, but not limited to, prospects for our foreign operations, global and regional economic conditions and other factors detailed in the company's Securities and Exchange Commission filings. As I report to you today on Stepan's first quarter 2008 [ph] results, I am pleased to say that Stepan has started off 2008 on a very strong footing.

Our ability to successfully execute on our strategy across our global operations during the first quarter resulted in significant improvement in earnings. Sales grew in each of three core business segments, surfactants, polymers and specialty products.

One of the key factors in this performance has been our ability to fairly pass along the impact of rapidly rising raw material prices to our customers during the quarter. Overall, our ongoing focus on improved profitability was clear as our year-over-year net income and earnings per share growth rates significantly outpaced our growth in net sales.

At this point, let me turn now to our first quarter 2008 operating results. Start with the top line; total net sales for the first quarter were $381 million, an increase of 22% from the $313 million on sales reported for the same period in 2007.

Net sales benefited from higher selling prices, accounting for 20 percentage points net sales growth and the positive effect of foreign current translation, which accounted for 4 percentage points of net sales growth. This was partially offset lower sales volume which reduced net sales by 2 percentage points.

The recent surge in crude oil has led to further increases in our raw material costs as of April 1 and we have implemented further price increases to recover these costs. Net income for the first quarter increased 54% to $8.7 million or $0.85 per diluted share, compared to net income of $5.7 million or $0.56 per diluted share in the year-ago quarter.

First quarter gross profit increased by $11 million, up 32% year-over-year, supported by a significant improvement in surfactant earnings. Gross margin jumped roughly 90 basis points to 12% of revenue from a gross margin of 11.1% in the year-ago period.

Operating income increased $6.3 million in the first quarter or 60% due to the $11 million improvement in gross profit, partially offset by a $4.7 million increase in operating expenses. Regarding Stepan's foreign exchange impact for the quarter, the net effect of favorable translation gains and foreign exchange losses was pre-tax income of $800,000 as compared to zero impact in the year-ago period.

Turning to operating expenses, first quarter operating expenses total $29 million, up 19% as compared to the same period last year. A significant factor in this increase was the rise in deferred compensation expense, which increased $2 million from income of $1.3 million in the year-ago period to expense this quarter of $700,000.

As you will recall, the accounting requirement for the company's fully funded deferred compensation plan results in an expense being recognized when the price of Stepan Company's stock or mutual funds held the plan rise and income being recognized when they decline. Aside from the previously discussed impact of deferred compensation on operating expenses, the remaining increases in marketing, admin and research and development were largely attributable to a $1.5 million in higher wage and benefit costs associated with higher long-term incentive compensation plan costs, as well as bonus and profit sharing provisions.

Let's move now to a review of the performance of our three business segments. First, we'll look at surfactants, the largest segment of our business which accounts for 76% of the net sales for the quarter.

Net sales of surfactants were up 23% year-over-year on a 3% decline in volume as compared to the year-ago period. Surfactant gross profit increased by 11.4% or 51% to $33.5 million in the quarter driven by improved product and customer mix as well as continuing efforts to recover higher raw material cost in selling prices, particularly for fabric softeners.

Sales of higher value-added surfactants and agricultural products in the broader distributor market also contributed to the improved customer and product mix. Increased fabric softener capacity in Mexico has also eliminated prior year outsourcing costs, further benefiting the gross margin.

The gross profit improvement was broad based geographically, with North America contributing the largest portion of the improvement, but Latin America and Europe also contributed significantly. The marginal decline in surfactant volume was due to lower volume sold into the personal care market due in large part to a large customer switching from a low-active to a high-active formulation that results in lower sales volume for Stepan.

This was partially offset by improved commodity laundry and fabric softener volumes. Sales of biodiesel produced a slight operating profit compared to a year-ago loss on similar sales volumes.

Biodiesel profit margins continue to be depressed due to the high soybean oil prices. Moving now to our polymer segment which represented 21% of revenue in the first quarter.

Net sales of polymers rose 18% year-over-year to $80.8 million. Polymer segment gross profit declined by $900,000 or 8% and a 21% year-over-year decline in phthalic anhydride volume which was due to the recessionary environment in the automotive, recreational vehicle and boating industries where PA is used in polyester resins for plastic and composite materials.

Offsetting this decline has been a rise in Stepan's internal consumption of phthalic anhydride in our polyol product, which continues to experience significant growth. Internal consumption of phthalic anhydride now represents more than a third of capacity.

Polyol gross profit improved on a 20% increase in volume. Our polyol product is primarily used in rigid foam insulation for commercial roofing.

As we have stated in the past, the majority of this market is replacement roofs versus new construction, which based on current market conditions is an important distinction. Replacement market has not yet experienced recessionary effects due in part to the energy saving characteristics associated with increased insulation usage.

European polyol sales volume has grown significantly. Polyol sales volume in China remains slowed than anticipated, but China does project to be profitable for the full-year 2008.

And finally, our specialty products segment accounted for around 3% of the company's sales in the first quarter. Net sales of specialty products were up 31% year-over-year to $10.3 million.

Specialty products first quarter gross profit increased by $100,000 or 6% year-over-year driven by improved volume and margins in the food ingredients market. Looking at other income and expenses, interest expense rose 2% due to higher average debt levels brought about by increased working capital requirements.

The first quarter loss associated with our 50% equity stake in the Philippine joint venture totaled $300,000, up from a loss of $100,000 in the year-ago period. While a combination of planned and unplanned production interruptions were a primary factor in the higher loss from this facility, we believe improving volume and pricing in the region are projected to lead to a slight profit for the full-year period.

Moving on to the other net expense line which totaled roughly $1.5 million for the quarter compared to just $18,000 in the year-ago period, the increase is largely attributable to a $1.3 million loss on mutual fund investments held for our deferred compensation plan. In January of 2008, the company adopted new accounting rules Statement of Financial Accounting Standards Number 159, the fair value option for financial assets and financial liabilities, which allows for the marking to market of financial instruments such as these in the income statement which were previously recorded in accumulated other comprehensive income in the stockholders' equity section of the balance sheet.

The tax for the quarter was 31.8% compared to 29.6% in the year-ago period. Turning to the balance sheet, consolidated debt as of March 31, 2008, was $156.9 million, up from $128 million at the end of 2007 and $148.9 million at the end of the year-ago quarter.

Our total debt to total capitalization at quarter end was 41.7% compared to 38.3% in the fourth quarter of 2007. Capital expenditures were $10.6 million in the first quarter, down 8% from the same quarter last year.

This is mainly due to project timing. On a full-year basis, we expect our 2008 full-year capital expenditures to be in the range of $40 million to $45 million.

Looking at our cash flows during the quarter, working capital requirements increased by $41.6 million compared to a $15 million increase in the same quarter of 2007. This was due to higher receivables driven by increased sales and higher inventory levels.

Our outlook going forward, overall, we are quite pleased with our progress in the first quarter while we remain vigilant of the signs of weakness in the economy and the potential impact of a recession on our target markets and customers. Based on the global composition of our customer base and the defensive characteristics of many of our business segments, we believe our first quarter improvement is sustainable and anticipate continued profit growth over 2007.

This concludes my prepared remarks. At this time, I would like to turn the call over for questions.

Operator, please review the instructions for the question portion of today's call.

Hi, guys. I was wondering how much sulfur, sulfuric acid and phosphoric acids do you consume?

Are those some of the products that you are most worried about? Do you still have the brunt of the multiple 100% price increases in those products you realized?

On the polymer side, we have had a rapid run up in orthoxylene which is a crude oil derivative as well as diethylene glycol which has moderated slightly recently, but it has been very volatile for the last two years.

Okay. And then, you guys don't consume a lot of phosphoric acid?

No. To my knowledge, none.

Okay. Was there seasonality in this quarter in surfactants?

We tend to slow down a little bit in the fourth quarter and then come out fairly strong in the first. But, you see the first, second and third can all be fairly strong quarters.

There is no reason to suspect that the first quarter volume, since actually the volume wasn't all that strong, we are down overall 3%. So, no, we are not seeing any concerns that the volume issue in the first quarter will be any different going forward.

We hope that some of the opportunities we have at hand will kick in, in the next couple of quarters, barring a significant recession which again would primarily be on some of the functional product sides where we sell into paints or building product applications. But, on the cleaning compound side, we are not expecting a significant downturn.

Okay and one last question. Was your price increases or the bulk of the them, have they been put forward for April or did you have some of them begin in March?

Looked like your competitors had March 1.

Okay. Thank you.

Thank you.

Hi, Jim. I was wondering if you could just update a little bit about what's happening in China, especially since you sort of alluded that it might actually contribute a little something by year-end.

And then on the biodiesel situation, I was wondering what created the turnaround there in profitability and is that something where it will at least stay profitable versus being a drain?

Okay, great. Thanks, Jim.

Okay, well, I would just like to thank everybody for participating in today's call. Thank you very much.