ARCH CHEMICALS, INC. (NYSE: ARJ) announced sales for the
first quarter of 2009 of $293.7 million, compared to $347.1 million
for the first quarter of 2008. Higher pricing and the favorable
impact of the Advantis acquisition were more than offset by lower
volumes and unfavorable foreign exchange. Earnings per share for
2009 were $0.13 per share on $3.2 million of income, compared to
$0.23 per share on $5.7 million of income in 2008. Segment
operating income was $9.1 million in 2009 compared to $12.2 million
in 2008.
�Despite the very challenging global market conditions, we are
pleased with our first quarter results, which exceeded our
expectations. These results were driven principally by our water
products and performance urethanes businesses, where we benefited
both from price increases and from ongoing margin-improvement
plans,� said Arch Chemicals� Chairman, President and CEO Michael E.
Campbell. �Personal care and industrial biocides met our
expectations through a combination of favorable product mix and
cost-control initiatives, which offset lower demand principally
from the building products market. The wood protection and
industrial coatings businesses experienced lower demand due to
continued weakness in the global housing and construction markets,�
said Mr. Campbell.
The following compares segment sales and operating income (loss)
for the first quarters of 2009 and 2008 (including equity in
earnings of affiliated companies and excluding restructuring and
impairment):
Treatment Products
Treatment Products reported sales of $249.0 million and
operating income of $14.6 million in 2009 compared with sales of
$293.6 million and operating income of $21.6 million in 2008.
HTH Water Products
HTH water products reported sales of $102.7 million and
operating income of $9.7 million for 2009 compared to sales of
$97.8 million and operating income of $6.0 million for 2008.
Sales increased $4.9 million, or approximately five percent.
Excluding the impact of the acquisition of the water treatment
chemicals business of Advantis Technologies ($8.9 million), sales
decreased $4.0 million due to lower volumes. Improved pricing,
principally related to price increases across all regions, was
offset by unfavorable foreign exchange. Lower volumes in the North
American repacker and dealer direct markets, as well as lower
volumes in Europe, more than offset improved volumes in the
domestic mass segment as well as in South Africa.
Operating income improved $3.7 million as higher pricing more
than offset unfavorable foreign exchange, higher product costs and
lower volumes.
Personal Care and Industrial Biocides
Personal care and industrial biocides reported sales of $68.1
million and operating income of $11.3 million compared to sales and
operating income of $80.4 million and $15.9 million, respectively,
in 2008.
Sales decreased $12.3�million, or approximately 15 percent, as
improved pricing was more than offset by lower volumes and
unfavorable foreign exchange. The lower volumes were caused by
decreased demand for biocides used in building products and
metalworking fluids, due to the downturn in the global construction
market and the depressed automotive industry. The improved pricing
principally related to health and hygiene products.
Operating income decreased $4.6 million as lower volumes were
partially offset by improved pricing and lower freight costs.
Wood Protection and Industrial Coatings
Wood protection and industrial coatings reported sales of $78.2
million and an operating loss of $6.4 million compared to sales and
an operating loss of $115.4 million and $0.3 million, respectively,
in 2008.
Sales decreased $37.2 million, or approximately 32 percent, as
significantly lower volumes due to the continued downturn in the
economy and unfavorable foreign exchange were partially offset by
improved pricing. In the wood protection business, lower volumes
across all regions for the residential sectors due to the continued
downturn in the global construction market were partially offset by
higher global prices. In the industrial coatings business, lower
volumes were attributable to poor economic conditions in
Europe.
Operating results were $6.1 million below the prior year,
principally due to lower volumes for both businesses. In addition,
higher pricing in the wood protection business was offset by
unfavorable foreign exchange and higher raw material costs.
Performance Products
Performance Products reported sales of $44.7 million and
operating income of $2.7 million compared with sales and an
operating loss of $53.5 million and $0.3 million, respectively, in
2008.
Performance urethanes sales decreased $8.0 million. Pricing was
significantly lower than the first quarter 2008 due to competitive
pressures in the polyol and glycol markets resulting from declining
raw material costs. Volumes were slightly lower than prior year due
to the downturn in the U.S. economy. Operating results improved by
$2.3 million due to improved margins from favorable raw material
costs, principally propylene.
Hydrazine sales and operating income were comparable to
2008.
General Corporate Expenses
General corporate expenses were lower than prior year
principally due to lower U.K. pension expense.
Term Loan Facility
During February 2009, the Company closed on a new unsecured $100
million term loan facility. The facility will mature on June 15,
2011, the same date that the Company�s existing $350 million
revolving credit facility expires. The Company may select various
floating rate borrowing options including, but not limited to,
LIBOR plus a spread that can range from 2.25% to 3.25%, depending
on the Company�s quarterly leverage ratios. The entire $100.0
million was drawn on the facility at closing. In addition, the
agreement provides for amortization of principal of 5% per quarter
beginning September 30, 2009.
2009 Outlook
For the second quarter, the Company anticipates earnings per
share from continuing operations to be in the $1.15 to $1.25 per
share range, compared to earnings per share from continuing
operations of $1.33 during the second quarter of 2008. Higher
results are expected from the HTH water products business due to
improved global pricing and the positive contribution from the
acquisition of Advantis, including related synergies, as well as
from the performance products business resulting from lower raw
material costs. These improved results are expected to be more than
offset by decreased demand for industrial biocides, used in the
building products market, as well as in the wood protection and
industrial coatings businesses. In addition, corporate unallocated
expenses will be higher than the year ago quarter as a result of
the mark-to-market impact of the stock price in the second quarter
of 2008 associated with the Company�s performance-based stock
awards and deferred compensation plans.
The Company now expects full-year 2009 sales to be approximately
two to four percent lower than 2008, as the contribution from the
acquisition of Advantis and higher pricing should be more than
offset by unfavorable foreign exchange and lower volumes. The
Company reaffirms its 2009 guidance of earnings per share from
continuing operations to be in the $1.85 to $2.05 range. The HTH
water products business is expected to deliver higher profits than
previously expected, driven by the favorable performance in the
first quarter. This better than expected performance is forecast to
be offset by lower than expected results for industrial biocides,
particularly biocides used in building products, and the wood
protection and industrial coatings businesses due to continued
weakness in the global housing and construction markets. The
Company continues to expect depreciation and amortization to be
approximately $50 million and capital spending to be in the $35 to
$40 million range. The effective tax rate is estimated to be in the
37 to 38 percent range.
�While we do not expect a recovery from the global recession in
2009, our relentless commitment to improve profit margins, reduce
costs, optimize our portfolio and maximize cash generation will
help deliver long-term shareholder value, while maintaining an
attractive dividend. In addition, our recent completion of a new
$100 million term loan facility in today�s challenging economic and
credit environment improves our liquidity and flexibility, while
reaffirming the value of our core Biocides portfolio and its
long-term, profitable growth prospects,� said Mr. Campbell.
Note: All references to earnings per share above reflect diluted
earnings per share.
About Arch
Headquartered in Norwalk, Connecticut (USA), Arch Chemicals,
Inc. is a global Biocides company with annual sales of
approximately $1.5 billion. Arch and its subsidiaries provide
innovative, chemistry-based solutions to control the growth of
harmful microbes. The Company�s concentration is in water
treatment, hair and skin care products, treated wood, preservation
and protection applications such as for paints and building
products, and health and hygiene applications. Arch Chemicals
operates in two segments: Treatment Products and Performance
Products. Together with its subsidiaries, Arch has approximately
3,000 employees and manufacturing and customer-support facilities
in North and South America, Europe, Asia, Australia and Africa. For
more information, visit the Company�s Web site at
http://www.archchemicals.com.
- Listen in live to Arch
Chemicals� first quarter 2009 earnings conference call on Tuesday,
May 5, 2009 at 11:00 a.m. (ET) at
http://www.archchemicals.com.
- If members of the public wish to
access Arch�s live earnings call in a listen-only mode, dial: (888)
724-9493, passcode 8825426, in the United States, or (913)
905-3216, passcode 8825426, outside the United States.
- A telephone replay will be
available from 1:00 p.m. on Tuesday, May 5, 2009 until 6:00 p.m.
(ET) on Tuesday, May 12, 2009. The replay number is (888) 203-1112,
passcode 8825426; from outside the United States, please call (719)
457-0820, passcode 8825426.
Except for historical information contained herein, the
information set forth in this communication contains
forward-looking statements that are based on management's beliefs,
certain assumptions made by management and management's current
expectations, outlook, estimates and projections about the markets
and economy in which the Company and its various businesses
operate. Words such as "anticipates," "believes," "estimates,"
"expects," "forecasts," "intends," "opines," "plans," "predicts,"
"projects," "should," "targets" and variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions ("Future Factors"), which are difficult to predict.
Therefore, actual outcomes and results may differ materially from
what is expected or forecasted in such forward-looking statements.
The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of future events,
new information or otherwise. Future Factors which could cause
actual results to differ materially from those discussed include
but are not limited to: general economic and business and market
conditions; continued weakening in U.S., European and Asian
economies; increases in interest rates; changes in foreign
currencies against the U.S. dollar; customer acceptance of new
products; efficacy of new technology; changes in U.S. or foreign
laws and regulations; increased competitive and/or customer
pressure; loss of key customers; the Company's ability to maintain
chemical price increases; higher-than-expected raw material and
energy costs and availability for certain chemical product lines; a
change in the antidumping duties on certain products; increased
foreign competition in the calcium hypochlorite markets; inability
to obtain transportation for our chemicals; unfavorable court
decisions, including unfavorable decisions in appeals of
antidumping rulings, arbitration or jury decisions or tax matters;
the supply/demand balance for the Company's products, including the
impact of excess industry capacity; failure to achieve targeted
cost-reduction programs; capital expenditures in excess of those
scheduled; environmental costs in excess of those projected; the
occurrence of unexpected manufacturing interruptions/outages at
customer or Company plants; a decision by the Company not to start
up the hydrates manufacturing facility; unfavorable weather
conditions for swimming pool use; inability to expand sales in the
professional pool dealer market; the impact of global weather
changes; changes in the Company�s stock price; ability to obtain
financing at attractive rates; financial market disruptions that
impact our customers or suppliers; and gains or losses on
derivative instruments.
Arch Chemicals, Inc.
Condensed Consolidated
Statements of Income (a)
(In millions, except per share
amounts)
�
Three Months Ended March 31, � � �
2009 � �
2008 �
Sales $ 293.7 $
347.1 Cost of Goods Sold 205.1 253.4
Selling and Administration 74.3 76.1
Research and Development 5.3 5.5 Interest
Expense, Net � �
3.9 � �
3.3 Income from
Continuing Operations Before Equity
in Earnings of Affiliated
Companies and Taxes
5.1 8.8
Equity in Earnings of
Affiliated Companies
0.1 0.1 Income Tax Provision � �
2.0 �
�
3.2
Net Income
�
$ 3.2 �
$ 5.7 �
Basic Income Per
Common Share $ 0.13 $ 0.23 �
Diluted Income Per Common Share $ 0.13
$ 0.23 �
Weighted Average Common Stock Outstanding
- Basic 24.9 24.8 Weighted Average Common
Stock Outstanding - Diluted � �
25.0 � �
24.9 �
(a) Unaudited.
Arch Chemicals, Inc.
Condensed Consolidated Balance
Sheets
(In millions, except per share amounts) �
March 31, �
December 31, � �
2009 (a) �
2008 �
Assets: Cash & Cash Equivalents $
38.8 $ 50.8 Restricted Cash 4.3
- Accounts Receivable, Net (b) 184.5
184.2 Short-Term Investment (b) 53.7
56.0 Inventories, Net 252.7 216.1
Other Current Assets � �
21.5 � � �
19.6 �
Total Current Assets 555.5 526.7
Investments and Advances - Affiliated Companies at Equity
1.6 1.5 Property, Plant and Equipment, Net
209.8 212.2 Goodwill 199.1 199.6
Other Intangibles 180.1 183.0 Other
Assets � �
107.3 � � �
109.4 �
Total
Assets �
$ 1,253.4 � �
$ 1,232.4 �
�
Liabilities and Shareholders' Equity: Short-Term
Borrowings $ 17.9 $ 18.5 Current
Portion of Long-Term Debt 15.8 - Accounts
Payable 174.8 180.1 Accrued Liabilities �
�
69.0 � � �
75.9 �
Total Current Liabilities
277.5 274.5 Long-Term Debt 339.9
314.5 Other Liabilities � �
275.6 � � �
281.5 �
Total Liabilities 893.0 870.5
Commitments and Contingencies Shareholders' Equity:
Common Stock, Par Value $1 Per Share, Authorized 100.0
Shares: 25.0 Shares Issued and Outstanding (24.8 in
2008) 25.0 24.8 Additional Paid-in Capital
458.5 457.2 Retained Earnings 62.3
64.1 Accumulated Other Comprehensive Loss � �
(185.4 ) � �
(184.2 ) Total
Shareholders' Equity � �
360.4 � � �
361.9 �
Total Liabilities and Shareholders' Equity �
$
1,253.4 � �
$ 1,232.4 �
(a)
�
Unaudited.
�
(b)
The Company sold certain
accounts receivable through an accounts receivable securitization
program (see Form 10-K for additional information). As a result,
accounts receivable have been reduced, and the Company's retained
interest in such receivables has been reflected as a short-term
investment. As of March 31, 2009, the Company had sold $33.4
million of participation interests in $87.1 million of accounts
receivable and, as of December 31, 2008, the Company had not sold
any participation interests in such accounts receivable.
Arch Chemicals, Inc.
� �
Condensed Consolidated
Statements of Cash Flows (a)
(In millions)
�
Three Months Ended March 31, � �
2009 � � �
2008 �
Operating Activities: Net Income
$ 3.2 $ 5.7 Adjustments to Reconcile
Net Income to Net Cash and Cash Equivalents Used in
Operating Activities: Equity in Earnings of Affiliates
(0.1 ) (0.1 ) Depreciation and
Amortization 11.4 11.2 Deferred Taxes
0.1 0.6 Restructuring Payments -
(0.2 ) Changes in Assets and Liabilities, Net of
Purchase and Sale of Businesses: Accounts Receivable
Securitization Program 33.4 38.5
Receivables (33.6 ) (48.2 )
Inventories (38.0 ) (41.3 )
Other Current Assets (1.0 ) 1.3
Accounts Payable and Accrued Liabilities (6.8
) (7.8 ) Noncurrent Liabilities
(3.7 ) (4.0 ) Other Operating
Activities � �
1.9 � � �
(0.6 ) Net
Operating Activities � �
(33.2 ) � �
(44.9
) Investing Activities: Capital Expenditures
(7.1 ) (12.0 ) Businesses Acquired
in Purchase Transaction 0.3 (0.2 )
Proceeds from Sale of a Business 0.5 2.7
Proceeds from Sale of Land and Property � �
- � � �
0.7 �
Net Investing Activities � �
(6.3
) � �
(8.8 ) Financing Activities:
Long-Term Debt Borrowings 114.8 55.0
Long-Term Debt Repayments (76.4 ) (37.0
) Short-Term (Repayments) Borrowings, Net (0.6
) 13.8 Dividends Paid (5.0 )
(5.0 ) Other Financing Activities � �
(4.4 ) � �
0.7 �
Net Financing
Activities � �
28.4 � � �
27.5 �
Effect of
Exchange Rate Changes on Cash and Cash Equivalents � �
(0.9 ) � �
2.8 �
Net Decrease in Cash and
Cash Equivalents (12.0 ) (23.4 )
Cash and Cash Equivalents, Beginning of Year � �
50.8
� � �
73.7 �
Cash and Cash Equivalents, End of Year �
$ 38.8 � �
$ 50.3 � �
(a)
Unaudited. Arch Chemicals, Inc. Segment Information
(a) (In millions) � � � � �
Three Months Ended
March 31, � � �
2009 � � �
2008 �
Sales: �
Treatment Products: - HTH Water Products $
102.7 $ 97.8 - Personal Care and Industrial
Biocides 68.1 80.4 - Wood Protection and
Industrial Coatings � �
78.2 � � �
115.4 �
Total Treatment Products 249.0 293.6
Performance Products: - Performance Urethanes
41.0 49.0 - Hydrazine � �
3.7 � � �
4.5 �
Total Performance Products � �
44.7 � �
�
53.5 �
Total Sales �
$ 293.7 � �
$ 347.1 �
Operating Income (Loss) (b):
Treatment Products: - HTH Water Products $
9.7 $ 6.0 - Personal Care and Industrial
Biocides 11.3 15.9 - Wood Protection and
Industrial Coatings � �
(6.4 ) � �
(0.3
) Total Treatment Products 14.6 21.6
Performance Products: - Performance Urethanes
2.0 (0.3 ) - Hydrazine � �
0.7 �
� �
- �
Total Performance Products � �
2.7 � �
�
(0.3 ) 17.3 21.3 General Corporate
Expenses (c) � �
(8.2 ) � �
(9.1 )
Total Segment Operating Income including Equity in
Earnings of Affiliated Companies 9.1 12.2
Equity in Earnings of Affiliated Companies � �
(0.1
) � �
(0.1 ) Total Operating Income
9.0 12.1 Interest Expense, net � �
(3.9
) � �
(3.3 ) Income from Continuing
Operations before Taxes and Equity in Earnings of Affiliated
Companies �
$ 5.1 � �
$ 8.8 �
(a) �
Unaudited. �
(b) Includes equity in
earnings of affiliated companies. �
(c)
Includes certain general
expenses of the corporate headquarters that are not allocated to
the business segments, including costs associated with the
Company's accounts receivable securitization program and certain
pension expenses.
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