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 $23,659,000 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)	Year Ended December 31, 2018
	As originally reported under LIFO		Effect of change			As adjusted under FIFO
Cost of Sales	$	1,652,354	$	2,154		$	1,654,508
Gross Profit		341,503		(2,154	)		339,349
Operating Income		151,419		(2,154	)		149,265
Income Before Provision for Income Taxes		139,923		(2,154	)		137,769
Provision for Income Taxes		27,173		(509	)		26,664
Net Income		112,750		(1,645	)		111,105
Net Income Attributable to Stepan Company		112,762		(1,645	)		111,117
Net Income Per Diluted Common Share Attributable to Stepan Company	$	4.83	$	(0.07	)	$	4.76

(In thousands, except per share amounts)	Year Ended December 31, 2017
	As originally reported under LIFO		Effect of change			As adjusted under FIFO
Cost of Sales	$	1,586,485	$	(7,645	)	$	1,578,840
Gross Profit		338,522		7,645			346,167
Operating Income		147,195		7,645			154,840
Income Before Provision for Income Taxes		139,237		7,645			146,882
Provision for Income Taxes		47,690		(1,551	)		46,139
Net Income		91,547		9,196			100,743
Net Income Attributable to Stepan Company		91,578		9,196			100,774
Net Income Per Diluted Common Share Attributable to Stepan Company	$	3.92	$	0.39		$	4.31

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

(In thousands)	Year Ended December 31, 2018
	As originally reported under LIFO			Effect of change			As adjusted under FIFO
Net Income	$	112,750		$	(1,645	)	$	111,105
Deferred Income Taxes		10,864			(509	)		10,355
Change in Assets and Liabilities:
Inventories		(26,832	)		2,154			(24,678	)

(In thousands)	Year Ended December 31, 2017
	As originally reported under LIFO		Effect of change			As adjusted under FIFO
Net Income	$	91,547	$	9,196		$	100,743
Deferred Income Taxes		550		(1,551	)		(1,001	)
Change in Assets and Liabilities:
Inventories		5,655		(7,645	)		(1,990	)

The following tables present what 2019 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)	Year Ended December 31, 2019
	As reported under FIFO		Effect of change			As computed under LIFO
Cost of Sales	$	1,519,031	$	(4,000	)	$	1,515,031
Gross Profit		339,714		4,000			343,714
Operating Income		127,260		4,000			131,260
Income Before Provision for Income Taxes		125,899		4,000			129,899
Provision for Income Taxes		22,798		983			23,781
Net Income		103,101		3,017			106,118
Net Income Attributable to Stepan Company		103,129		3,017			106,146
Net Income Per Diluted Common Share Attributable to Stepan Company	$	4.42	$	0.13		$	4.55

(In thousands)	December 31, 2019
	As reported under FIFO		Effect of change			As computed under LIFO
Inventories	$	203,647	$	(27,363	)	$	176,284
Other Non-Current Assets		13,210		1,415			14,625
Total Assets		1,579,367		(25,948	)		1,553,419
Deferred Income Taxes	$	23,391	$	(5,306	)	$	18,085
Retained Earnings		922,464		(20,642	)		901,822
Total Liabilities and Equity		1,579,367		(25,948	)		1,553,419

(In thousands)	Year Ended December 31, 2019
	As reported under FIFO			Effect of change			As computed under LIFO
Net Income	$	103,101		$	3,017		$	106,118
Deferred Income Taxes		(5,016	)		983			(4,033	)
Change in Assets and Liabilities:
Inventories		28,460			(4,000	)		24,460