Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter and Full Year 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, February 22, 2017. I would now like to turn the conference over to Scott Beamer, Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Terra. Hello everyone and thank you for joining Stepan Company's fourth quarter and full year financial review. Before we 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 of our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings. Whether you're joining us online or over the phone, we encourage you to review the Investor Slide Presentation, which we have made available at www.stepan.com, under the Investor Relations section of our website. We make these slides available at approximately the same time as when the earnings release is issued and we hope that you find the information and prospectus helpful. With that said, I'd like to turn the call over to F. Quinn Stepan Jr., our Chairman, President and Chief Executive Officer.

Thank you, Scott. Good morning, and thank you all for joining our call today. 2016 was a good year for Stepan Company. The company delivered record reported and adjusted net income results for the full year 2016. Reported net income was $86.2 million, up 13% versus last year. Adjusted net income was $98.2 million, 24% higher than 2015. Adjusted net income as a percent of sales was 5.6%. The strong year was driven by enhanced internal efficiencies, increased asset utilization and higher global rigid polymer volumes. Our internal efficiency program DRIVE contributed $15 million in pretax cash cost-out improvements. Through active employee engagement, we use the process to reduce cost. We've also used DRIVE to improve our raw material margins and to increase capacity of our production assets. We have an active pipeline of DRIVE opportunities for 2017. Surfactants delivered income growth on improved utilization of new laundry supply contract and it slightly improved product mix, which was offset by certain nonrecurring cost. Polymer results benefited from increased rigid polyol volumes due to global energy conservation efforts and new customer volumes. Specialty products benefited from restored lipid nutrition profitability. Our balance sheet continues to remain strong as we reduce net debt from 22% at the end of 2015 to 13% at the end of 2016. Our Board of Directors declared a quarterly cash dividend on Stepan's common stock of $0.205 per share payable on March 15, 2017. At this point I'd like Scott to walk through a few more details about our fourth quarter and full year results.

Thank you, Quinn. My comments will generally follow the slide presentation and I'd like to start with Slide Number 5, which recaps the quarter. First, we show the items we are including as adjustments to reported net income and fundamentally we believe this should be a very short list. We have a normal deferred compensation expense or income, in this case expense, and we took a restructuring charge of a net impact of $4 million after-tax. The first piece was related to severance and decommissioning at our Canadian plant, which was previously announced as a closure. There was an asset write-down related to an investment in Louisiana and there was an asset write-down related to our plant in Bahia in Brazil. These totaled $4 million on an after-tax basis. Then to discuss the underlying business, we've also highlighted a few more significant nonrecurring items. The fourth quarter was impacted negatively by these items of about $8.9 million on a pretax basis, $5.5 million was related to product claim commitments in Europe and $3.4 million was for environmental remediation in the United States. On an after-tax basis, the unfavorable impact was $6.1 million or $0.26 per diluted share. Of the nonrecurring items, $8.3 million was reported within the surfactant segment and $600,000 was reported within polymers. Adjusted net income was $12.3 million or $0.52 per diluted share compared to $17 million or $0.74 per diluted share in the fourth quarter of last year. Surfactants reported operating income was $14.6 million compared to $24.3 in the prior-year quarter. The decrease was primarily due to $8.3 million of the nonrecurring items as well as $600,000 of accelerated depreciation related to our Canadian plant. Raw material costs were also higher and volumes were slightly lower. We discussed last quarter that we expected a negative…

Thank you, Scott. After record results in 2016, we are positioned for further growth in 2017. Despite nonoperational and nonrecurring items that negatively impacted the fourth quarter of 2016, our base business remained strong. Our path to increase shareholder value consists of three steps; the focus of our plan is to improve asset utilization, support global polyol growth driven by energy conservation and diversify through innovation, new products, new end markets and geographic expansion. Our DRIVE program provides the fundamental support for our journey by delivering cost out initiatives and improving our internal efficiencies. Our focused strategy should positively impact 2017 and position us well for the future. More specifically asset utilization will increase across several product lines as a transfer of production from our Longford Mills Canadian site to Millsdale is complete. Although we expect to incur an additional $1,700,000 of decommissioning expense in 2017, we expect that these one-time cash cost will be offset by related savings of approximately $4 million. In addition, due to key customer in Brazil exiting the powdered laundry market, we negotiated a contract termination fee. This enabled us to recover our cost, shutdown the Bahia Brazil site and consolidate production into our existing plant in Vespasiano, Brazil. We wrote down cost associated with the potential nonionic investment in Louisiana. We now plan to build nonionic surfactant capabilities in the Pasadena Texas site that we acquired from the Sun Products Corporation. Building in Pasadena will significantly reduce future required investment. Finally, we will continue to consider other potential opportunities to further optimize our production capacity throughout the world. Our capital expenditure plan is in aligned with our strategy to support global polyol growth in conjunction with energy conservation efforts in the United States and Europe. Projects to enhance production at our Wessling Germany and Millsdale United States plants are underway. Our new specialty polyol reactor in Poland began production in the third quarter of 2016 providing an opportunity for growth in 2017. A new specialty polyol reactor in Columbus Georgia, should start late this year. Our strategic plan also supports product and end market diversification. We are committed to deliver volume growth within certain targeted geographic regions for rigid polyols, case polyols, functional surfactants in Tier 2 and Tier 3 customers within the consumer product segment. Finally, our internal efficiency program DRIVE is an important component of our strategy to help support our long-term plans. This process should help the company reduce costs, improve our raw material margins and increase the capacity of our production assets. Our markets provide challenges and opportunities. We feel we're well-positioned to capture opportunities for you our shareholders. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Tara, please review the instructions for the question portion of today's call.

Thank you. [Operator instructions] And our first question comes from the line of David Stratton with Great Lakes Review. Please proceed.

Good morning. Thanks for taking the question.

Hi David.

If you look at raw material costs and your LIFO expenses, how is that going to play out going forward into 2017?

At this point, I would say that we anticipate that we're probably going to get some inflation on the petroleum-based raw materials. We are anticipating that we'll get a decrease in [veg] space raw materials toward the second half of the year. So, at this point time, we would probably anticipate that it would not be a significant factor for the year.

Okay. And then regarding the nonrecurring items, could you give a little more detail on what exactly was going on, especially with the product claims in Europe and is that expected to go forward? I know you have listed it as nonrecurring, but it looked like they kind of hit a little bit throughout the year of 2016. So just little more information around that please.

Maybe I'll take the second part. No, they didn't hit throughout the year. These were one-time, there was a small piece that hit in the third quarter that we didn't call out because it was I think $1 million or less. So, we do want to convey that this is not an item that we expect to repeat. These are not the types of items that we expect to repeat. So, the quarter was impacted. So, we've called those out, but we don't expect these types of items to repeat going forward.

And I would just indicate that we're also in conversations with our insurance company and we believe that while we continue to work with them throughout the year and we're hopeful that we'll get some insurance coverage for this claim.

And so what will that I guess when you think about insurance covering some of this claim, what does that do? Will that be hitting in the first, second quarter or second half of next year?

We don't have a specific update on that at this point in time. My assumption is it will take, at the earliest it would be the second half of the year, may spill into 2018.

Thank you. I'll get back in queue.

Thank you.

Thank you.

Thank you. And our next question comes from the line of Michael Harrison with Seaport Global Securities. Please proceed.

Good morning. This is Jacob on for Mike. Could you guys talk about where your surfactant capacity utilization in North America was at the start of last year and how it compares going into -- starting 2017?

I don't know that I want to give specific numbers today, but I would say that the utilization over the last year and a half to two years has improved by approximately 20%. We still have excess capacity available within our network.

All right and then another question on pricing, could you give a little more color on how pricing in both surfactants and the polymer business are playing out in regards to the raw materials that you mentioned in the earlier question?

With regard to pricing, we do have and particularly within our surfactant business, we have many contracts that are tied to increases and decreases to raw material costs. Having said that there is a large part of our business that is not tied to raw material contracts as well and so at this point in time, we are in the market place for our surfactant products with some price increases effective for the April 1. We've targeted and have announced some price increases for April 1 and then for petroleum-based products within our polymer business, we've recently announced some prices that are effective for March 15.

Okay. And then one more in terms of plant related cost either the shut downs that you mentioned or start-up activities, could you provide some more color on how that will play out over 2017?

Yes. So, 2016 was a big year for shutdown costs with the German TUV costs impacting both our surfactant and our polymer businesses and as well as a large maintenance shutdown of our Phthalic Anhydride plant in the United States. So, in 2017, we would anticipate significantly lower shutdown cost across our networks.

Okay. Thank you.

Thank you.

Thank you. [Operator instructions] And we have no further questions at this time.

Okay. Thank you very much for joining us on today's call. We appreciate your ownership in Stepan Company. We look forward to reporting positive performance to you in our first quarter call in April. Thank you very much have a great day.

Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.