Good afternoon, and thank you for joining the Stepan Company's second quarter 2012 financial review. 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 factors detailed in the company's Securities and Exchange Commission filings.

That being said, I would now like to turn the call over to F. Quinn Stepan Jr., President and Chief Executive Officer of Stepan.

Thank you, Jim, and thank you all for joining us today. Stepan delivered a strong second quarter as our U.S.

business continued to perform and recent global investments began to generate anticipated volumes and profitability.

Net income increased 3% in the second quarter and rose 10% in the first half of 2012 versus last year. Net income excluding deferred compensation expense grew by 9% for the quarter and 19% for the first 6 months.

Our results reflect our ability to effectively manage commodity raw material costs and extend our global reach. We achieved higher earnings despite the negative effects of a strengthening dollar and a significant maintenance turnaround in our phthalic anhydride plant.

I'm also pleased to report that our Board declared a quarterly cash dividend on a common shares of $0.28 per share. The Board also declared a quarterly cash dividend on its 5.5% convertible preferred stock at the quarterly rate of approximately $0.34 per share.

Dividends remain a key part of our philosophy of providing value to our shareholders.

Our strong first half results, our consistent focus on profitable growth and project execution provides us with the foundation upon which we will deliver full year earnings growth.

At this point, I would like Jim to walk through Stepan's second quarter results.

Thanks, Quinn. I'll start my review with a look at the top line.

Total net sales for the second quarter were approximately $470 million, down 1% versus the year ago quarter. The modest decline in second quarter sales was primarily related to foreign exchange translation, which contributed a 4 percentage point decline in second quarter sales, largely due to the weakening of the euro versus the U.S.

dollar.

Lower selling prices also accounted for a 2 percentage point decline in sales. The decline in selling prices was brought on by lower crude and natural oil prices resulting in lower commodity raw material costs.

The foreign exchange and lower selling prices were largely offset by higher volume, which accounted for 5 percentage points of the growth.

Net income attributable to Stepan Company on a GAAP basis for the second quarter totaled $21.4 million, up 3% from the prior year. GAAP EPS was $1.89 per diluted share, up 1% versus the year ago quarter.

The impact of deferred compensation reduced GAAP diluted earnings per share by $0.10 in the second quarter of 2012.

Second quarter non-GAAP net income which excludes approximately $1.8 million in deferred compensation expense increased by 9% to $22.6 million versus the year ago quarter. Non-GAAP EPS was $1.99 per diluted share, up 8% from the year ago quarter.

A detailed table outlining the financial effect of the deferred compensation plan has been provided in the earnings release as Table 2 for your reference. Also please see Table 3 in our earnings release for a summary of the effects of foreign currency translation on net sales and key income line items.

Second quarter 2012 gross profit increased 5% year-over-year to $73.4 million. Improved gross margin benefited from strong Surfactant and Specialty product results partially offset by weaker polymer earnings caused by the maintenance turnaround in our phthalic anhydride plant.

Moving on, the quarterly operating expenses which rose $3.1 million or 9% versus a year ago quarter. Deferred compensation plan expense accounted for $1.8 million of the increase.

The higher level of selling up 7% and research expenses up 8%, primarily relate to investments made for future growth in Singapore and Brazil, and the Lipid Nutrition business in the Netherlands acquired in June of 2011. These relate primarily to the addition of employees to support our international growth strategy.

Looking now to net interest expense for the quarter of $2.1 million, which was down 5% versus the year ago period largely due to lower average debt levels. The year-to-date effective tax rate was 31.7%, compared to 31.9% a year ago.

The reduction reflects increased profitability of operations in countries having lower tax rates. The rate does not include the potential benefit of the U.S.

research tax credit pending reenactment by Congress.

Let's move now to a review of the performance of our 3 key business segments. First, we'll look at Surfactants, the largest segment of our business accounting for 71% of companywide sales.

Net sales of Surfactants totaled $335.1 million for the quarter, a decrease of 3% versus the year ago quarter. Sales volume rose 6% for the quarter with all regions contributing.

The decline in net sales was attributable to lower selling prices due to lower commodity raw material costs.

North American volume growth was primarily from functional surfactants used in agricultural and oilfield applications. Sales of consumer cleaning products led the growth in Latin America and Asia-Pacific.

Sales volume in Brazil rose 13%, accounting for most of the growth in Latin America.

Surfactant gross profit increased 13% in the second quarter to $51.7 million. Improved profitability in Brazil, coupled with improved sales mix of higher value functional Surfactants in North America led to the growth.

Our Singapore plant added $1.6 million of costs with limited production due to start-up delays. We have since completed start-up activities in Singapore and the plant is now operational.

Moving onto our Polymer segment, representing roughly 24% of sales. Net sales totaled $113.9 million for the quarter, a decrease of 6% versus the year ago quarter.

Polymer sales volume declined 1%, primarily due to an 8% decline in phthalic anhydride volume due to continuing weakness in the end-use markets for phthalic anhydride in housing, automotive and boating uses.

Polyol used primarily in insulation foam experienced volume growth of 2% for the second quarter. European polyol volume used in insulation was flat amid growing economic uncertainty in the region while polyol sold into adhesive applications continued to grow.

Second quarter polyol gross profit declined 16% to $17.4 million due to a decline in phthalic anhydride profits. The phthalic production facility went through a maintenance turnaround, resulting in higher maintenance and outsourcing costs of $2 million pretax.

Phthalic anhydride margins were also adversely impacted by high raw material costs. Polyol gross profit grew by 4%, benefiting from the improved volume of polyol sold to the adhesives market.

Finally, we look at our Specialty Products segment, which accounted for approximately 5% of the sales. For the second quarter, Specialty Products net sales totaled $21.2 million, up 71% versus the year ago quarter.

Segment sales benefited in large part from the June 2011 acquisition of the Lipid Nutrition product line.

Specialty product second quarter 2012 gross profit increased 26% versus the year ago quarter to $5.5 million. The improvement was attributable to the prior year acquisition of the Lipid Nutrition product line.

Moving now to the balance sheet. Total debt as of June 30, 2012 was $195.3 million, down $5.7 million from March 31, 2012 and up $4.6 million versus the year ago.

As of June 30, 2012, net debt representing total debt minus cash was $125.8 million, down $10.5 million from March 31, 2012 due to lower seasonal working capital requirements.

Second quarter 2012 net debt was down $39.3 million from the same quarter a year ago. Our total debt to total capitalization as of June 30, 2012 was 30.5%, compared to 32.2% for the year ago quarter.

The ratio of net debt-to-capitalization as of June 30, 2012 was 22%, compared to 29.2% a year ago.

As of June 30, 2012, inventories net of LIFO reserves totaled $137.9 million, an increase of $2.1 million versus the sequential quarterly comparison. Compared to one year earlier, inventories were down by $21.6 million, primarily due to lower raw material costs.

Capital expenditures were $19.5 million for the second quarter of 2012. Looking forward, we project full year 2012 capital expenditures to be within the range of $90 million to $100 million.

Moving to cash flows. Second quarter cash flow from operations was a source of $33.3 million, compared to a source of $4.1 million for the same quarter in 2011.

Second quarter 2012 working capital increases were down by $27.4 million compared to the second quarter of 2011, during which we experienced significant raw material inflation.

During the second quarter, Stepan did not purchase any shares and had approximately 190,000 shares remaining under its treasury share repurchase authorization as of June 30, 2012. In the second quarter of 2012, Stepan paid out a total of $3 million in cash dividends to its common and preferred shareholders.

Before we open the call to questions, Quinn will provide some perspective on Stepan's forward-looking outlook.

Thanks, Jim. We remain confident that we will deliver full year earnings growth in 2012 despite the macroeconomic environment, particularly in Europe.

At this time, I wanted to provide some perspective on Stepan's business in Europe for you.

Today, our sales in Europe account for 23% of total company sales. We generate 14% of our operating income from Europe.

The majority of our European sales are in the northern countries with very little business, less than 1.6% of total company sales in Portugal, Italy, Greece and Spain combined.

Our European Surfactant business is less vulnerable to a recession given the end markets in which we participate. And we believe that the business is positioned to offset a slow economy with higher margins and incremental new business.

Our Polymer business is more vulnerable to a recession in Europe. But here too, increased polyol sales into the adhesive applications from Poland should partially offset the decline in anticipated demand for rigid foam roof insulation.

Our global Surfactant business should deliver full year earnings -- record full year earnings on the strength of an improved sales mix of higher value functional Surfactants used in the agricultural and oilfield markets, coupled with our global growth initiatives. Brazil will continue to deliver earnings growth and higher sales volumes.

The global Polymer segment is positioned to deliver record full year earnings as well. The completion of the phthalic anhydride triennial plant maintenance shutdown in the second quarter means the higher maintenance and outsourcing costs are behind us.

Polyol volume in North America is expected to increase, while European growth will be limited if economic conditions do not improve.

We have been awarded a contract to supply polyol for insulation in the hull of the new U.S. aircraft carrier.

The order will ship during and positively impact the third quarter.

Specialty products should deliver full year earnings growth due to the contribution of the Lipid Nutrition product line acquisition. Overall, we are well-positioned to deliver solid earnings growth in 2012.

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

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

I got a couple of questions here. In terms of volumes of surfactants, that seemed pretty strong.

As the quarter progressed, could you kind of breakdown how volumes changed? Did they accelerate as the quarter progressed and are you seeing this strength carry over into the third quarter?

Part of the big increase -- part of the increase is coming from our global initiatives and that's in particular South America with Brazil contributing. So that was pretty steady throughout the quarter.

The rest of the business, I think was steady growth as well. Quinn, do you have any?

I would say that we probably saw a little bit of a slowdown in our North American commercial account business, a little bit toward the end of the quarter but in the big picture, it was not significant.

Okay. And looking at -- you touched on the European polyol business there, if I could ask -- if you could have leveraged a little more because I know in the first quarter, Europe was weak on a macro basis as well but volumes were up 12% in the first quarter.

And that came against a really tough comp. So you come to the second quarter, little easier comp.

Volumes are flat. So could you just elaborate a little more like why such a drop-off in the first or second quarter.

Did it just get that much weaker in Europe? And based on the outlook comments you gave, it sounds like flattish-type volume is the expectation going forward.

I think we're anticipating some growth in the polyol volumes in the second half of the year primarily from new applications as opposed to the rigid lamination market, which is our traditional roof business if you will. So we're anticipating flat volumes in, kind of, the roof business maybe down a touch and then that will be offset by some new applications.

So we are anticipating some growth in the European marketplace. But the fundamentals for the roof insulation business in Europe, again we're benefiting by new regulations that are mandating in some cases, recommending another higher levels of insulation.

So generally, we're putting more insulation down on the roofs that do get done. But that is being offset to a great extent by the slowness in the European construction market.

Okay. And also there was some price giveback there in the quarter.

Did raw materials fall at a faster rate than pricing, giving you a little bump from the price for our [ph] relationship in that quarter. And as we look forward, crudes come up a little bit here in July.

Are you getting any price back as we go into the next quarter?

Our margins improved slightly in the second quarter but not -- most of the impact on sales was reduced. It was a function of the falling commodity prices.

So I'd say our margins improved marginally in the second quarter. We are hopeful that we'll get a little bit of a bump in the third quarter.

We would see that kind of returning back to a norm in the fourth quarter as the year progresses. Some raw materials, particularly oil derivatives are starting to move back up.

That will impact us more in the fourth quarter than the third quarter we believe.

Okay. And then I guess my final question, with the methyl ester plant now up and running, what type of impact do you expect us to have in the back half of the year?

And also in 2013, what type of impact are you expecting from this?

A minimal impact in 2012. We'll continue to run both our North American and our Singapore plant concurrently for most of the year as customers approve the Singapore production facility.

So we'll anticipate minimal impact in 2012 and it will be a positive impact in 2013.

Looking at your -- the cost of the plant maintenance turnaround. Wonder if you could talk a little bit about that and then there's potential for this to occur at some of your other plants?

Our phthalic anhydride plant is the biggest single asset that we have as a company and it's the -- it's not only our phthalic anhydride plant but it's also our North American polyol manufacturing plant. So it represents a significant part of our assets.

So we have routine maintenance shutdowns across our network or sulfonation units, ethoxylation units and other processes that we operate. And we just kind of absorb those as the year progresses and those are scheduled for the most part -- each unit will go down once a year.

So it's a normal part of our business. In the PA polyol complex in North America, we take it down once every 3 years.

And so it's a big event when that occurs. In addition to the routine maintenance activities we did, we actually implemented 30 different capital projects during that period as well.

So it's a Herculean effort. So most of that expense was budgeted.

We actually outsource a little bit more material than we were planning on during that period but you know, those expenditures were anticipated, again we would not anticipate that for another 3 years than -- nor would we anticipate talking to you at least in terms of other routine maintenance shutdowns throughout the facility because they are just absorbed within the normal budget cycles.

Okay. And looking at your win that sounds interesting, was it aircraft carrier, you talked about...

Yes. The Gerald R.

Ford aircraft carrier which is currently being built. Yes, it's a nice order to have.

And is there potential for additional orders in that area?

The last aircraft carrier we got I think it was 7 years ago. And then the next aircraft carriers not being into -- is not anticipated for another 9 years.

So I would hope that we would be able to compete for that, when the time comes around. But it's an activity that we were focusing on and it's a meaningful event.

And has there been any significant change in your customers as far as reformulating their products?

Yes. I think as a result of higher commodity prices particularly into 2010 and 2011, we have seen consumers -- customers of our customers, in many cases trade down from premium brands to more economy brands.

And then we have seen some deformulation or reformulation of some premium brands in the marketplace as well. So that is impacting our consumer product volumes and -- on a global basis.

I wonder if you could provide an update on the TIORCO joint venture as well as the Elevance partnership?

TIORCO is continuing to move forward. We're actively engaged in a number of commercial projects and pilot floods.

So we're pleased with the activity coming, if you will, into the funnel from a project -- from a number of projects perspective. We're little bit frustrated with the pace of activity in terms of driving those projects forward.

Again, as we've said, we anticipate benefit in 2014, '15, in terms of as the floods move from pilot to commercial. We're continuing to invest significantly with our partner Ecolab Nalco and we're very excited about the potential growth in this marketplace.

So we're still very enthusiastic about it. Elevance, and for those that are not familiar, we have a joint development agreement with a company called Elevance that relates to the derivatization of natural oils with metathesis [ph] chemistry.

We have made over 300 new-to-the-world molecules. And we're in the process of starting to introduce those to the marketplace in the month of August.

So we've got a small number of products that we're introducing to the marketplace. Again, in August, and those products are not registered yet.

So again, the commercialization of that -- again fully be reflected or begin to be reflected in our income statements in 2014 and '15, I would believe. So we're still very excited about the technology and what we found and we're eager to get some customer feedback on that.

Okay. And if I may, just a few quick ones for Jim.

Looking at the balance sheet, I wonder if you could provide the accounts receivable figure and accounts payable?

Yes. Receivable, total receivables are $278.2 million.

What was the other one you wanted?

Accounts payable?

$140.6 million.

And do have the early estimate for CapEx for 2013?

From -- specifically no, but I would anticipate it would be in the $100 million range.

Okay. And then finally, where do you think the tax rate is going to end up for 2012?

Now we are...

Barring any enactment of the R&D credit -- reenactment of the R&D credit in the U.S. probably pretty close to the rate we're at now, 31.7%.

And Quinn's comment about CapEx, we have several large opportunities that may or may not come to fruition that would determine whether we get to that $100 million level in 2013.

Wondered if you could comment on the cost for TIORCO and Elevance that was in your P&L whether or not you lost some money on that or if it was break-even or if you've made anything?

Overall, we lost -- from a total company perspective, we've lost a little bit of money on TIORCO.

And I presume the Elevance is still a cost factor at this point, since there is really no revenue there?

Elevance is research -- it's all of the activities embedded in our research and development expenses as well as -- some of it's in our legal expenses for patent charges.

And any comment on Elevance's own plans to, I guess, they filed for an IPO and they also got $104 million investment from several entities, which I wouldn't think would be viewed positively and your thoughts on that?

I would ask you to ask Elevance. We're excited about our relationship and the opportunity to derivatize products from the metathesis reaction.

And back on the aircraft carrier, you indicated it's a meaningful event, does that span more than one quarter or just the third quarter event. And can you provide any kind of indication on sales margins whether or not they are above or below your core and whether or not you have the capacity to meet that project?

All the materials have been made. It's in railcars, ready to ship.

It's -- will be above our average margin going out the door.

Can you comment on sales?

No.

I'd like to thank everyone for joining Jim and I on the call today. We look forward to reporting back to you all on our third quarter 2012 results.

Have a great day.