Highlights:
- Earnings per share from continuing operations were $0.45 for
the first quarter of 2011, which includes $0.24 per share of
special items. Earnings were $0.21 per share excluding special
items, compared to $0.27 for the prior year quarter.
- Sales increased nine percent from the prior year's
quarter.
- Second quarter earnings per share from continuing operations
are expected to be in the $1.70 to $1.90 range, excluding special
items.
- The Company reaffirms its full-year 2011 earnings from
continuing operations guidance in the range of $2.75 to $3.00 per
share, excluding special items.
ARCH CHEMICALS, INC. (NYSE:ARJ) announced sales for the first
quarter of 2011 of $325.5 million, compared to $298.7 million for
the first quarter of 2010. Earnings per share from continuing
operations for 2011 were $0.45 per share on $11.4 million of
income. Included in the 2011 results is a non-recurring income tax
benefit of $6.4 million, or $0.25 per share. Additionally, the 2011
results include an after-tax charge of $0.2 million, or $0.01 per
share, for relocation costs incurred in conjunction with the
previously announced research and development consolidation.
Excluding these items, earnings per share from continuing
operations for 2011 were $0.21 on $5.2 million of income, compared
to $0.27 per share on $6.7 million of income in 2010.
Segment operating income was $11.9 million in 2011, compared to
$13.1 million in 2010.
Commenting on the quarter's performance, Arch Chemicals'
Chairman, President and CEO Michael E. Campbell said, "Arch's first
quarter earnings met our expectations as stronger-than-expected
results from the HTH water products business and lower corporate
expenses offset delayed demand for antidandruff biocides and
one-time costs in our wood protection business. The reduced
shipments of our biocides for antidandruff products in the quarter
were due to timing, and based on discussions
with our customer, we expect 2011 total volumes to be higher
on a year-over-year basis. Boding well for 2011, we experienced
record quarterly demand for our biocides used in health and hygiene
applications and in skincare cosmetics, while sales of our biocides
for building products grew approximately 20 percent." Mr. Campbell
added, "Our business teams are aggressively growing sales from
innovative products, emerging markets and new applications for
existing products, as well as by expanding market share."
The following compares segment sales and operating income (loss)
for the first quarters of 2011 and 2010 (including equity in
earnings of affiliated companies and excluding restructuring and
impairment):
Biocides
Products
Biocides Products reported sales of $268.1 million and operating
income of $19.0 million in 2011, compared with sales of $254.6
million and operating income of $21.8 million in 2010.
HTH Water Products
HTH water products reported sales of $127.3 million and
operating income of $4.1 million for 2011, compared to sales of
$116.0 million and operating income of $4.2 million for 2010.
Sales increased $11.3 million, or ten percent, due to higher
volumes. Favorable foreign exchange (three percent) offset lower
pricing. The increased volumes principally related to North America
and, to a lesser extent, Latin America. The higher North American
volumes were primarily due to selling additional products to
existing mass retail customers. The lower pricing principally
related to Latin America, due to competitive pressures driven by
strong local currency, and North America, due to product mix and
lower prices for selective products driven by competitive
pressures.
Operating income was consistent with prior year as the improved
volumes were offset by lower pricing and higher product costs.
Personal Care and Industrial
Biocides
Personal care and industrial biocides reported sales of $83.0
million and operating income of $16.3 million, compared to sales
and operating income of $80.9 million and $18.5 million,
respectively, in 2010.
Sales increased $2.1 million, or three percent, due to higher
volumes. The higher volumes were primarily due to increased demand
for biocides used in industrial and health and hygiene
applications, mostly offset by lower demand for biocides used in
antidandruff products. In particular, sales of biocides used in
building products grew significantly as a result of increased
remodeling activities and expanded applications for the Company's
products in paint applications. Additionally, shipments of biocides
used in household and commercial disinfection products were well
ahead of prior year. Demand for biocides used in antidandruff
products declined due to timing of shipments.
Operating income decreased $2.2 million as the higher volumes
were more than offset by foreign currency gains in 2010 and, to a
lesser extent, higher product costs and lower pricing.
Wood Protection
Wood protection reported sales of $57.8 million and an operating
loss of $1.4 million, compared to sales and an operating loss of
$57.7 million and $0.9 million, respectively, in 2010.
Sales were consistent with prior year as higher pricing (three
percent) and favorable foreign exchange (two percent) offset lower
volumes. The higher pricing related to price increases in North
America and Europe as well as favorable mix in Europe. Volumes
decreased principally in the Asia-Pacific region due to competitive
pressures and customer disruptions from natural disasters. In
addition, lower volumes in North America were due to the weak
housing and construction markets.
Operating results decreased $0.5 million. Included in the 2011
operating results are $1.5 million of one-time legal-related costs
for a final resolution of a patent dispute. Excluding the
legal-related costs, operating results improved $1.0 million as the
increased pricing and favorable foreign exchange more than offset
higher raw material costs and the lower volumes.
Performance
Products
Performance Products reported sales of $57.4 million and an
operating loss of $0.1 million, compared with sales and an
operating loss of $44.1 million and $1.8 million, respectively, in
2010.
Performance urethanes sales increased $13.5 million, or 34
percent. Volumes increased 26 percent due to increased demand for
propylene glycol products used in airports for de-icing and related
antifreeze applications. Higher pricing (eight percent) was driven
by increased raw material costs. Operating results improved by $2.0
million as the higher pricing, and to a lesser extent the improved
volumes, more than offset higher raw material costs.
Hydrazine sales and operating income were consistent with
2010.
General Corporate Expenses /
Interest Expense
General corporate expenses were consistent with 2010.
Interest expense, net, increased $1.3 million principally due to
the higher cost of long-term fixed rate borrowings.
Non-recurring Income Tax
Benefit
Included in the 2011 results is a non-recurring income tax
benefit of $6.4 million related to the Company's tax planning
strategy to maximize the realizability of its deferred tax assets
principally related to its U.K. pension liabilities.
2011 Outlook
For the second quarter, the Company anticipates earnings per
share from continuing operations before special items to be in the
$1.70 to $1.90 per share range, compared to earnings per share from
continuing operations of $1.73 during the second quarter of 2010.
Overall improvement in the Biocides Products segment should
be principally driven by higher results from the wood
protection business due to improved pricing in North America and
Europe as well as higher volumes from a moderate recovery in the
U.S. housing and construction markets. Lower corporate costs will
be mostly offset by higher interest expense. The effective tax rate
for the second quarter is estimated to be in the 31 to 32 percent
range compared to 34 percent in 2010.
As the Company enters its peak seasonal earnings period, it
reaffirms its full-year guidance. The 2011 sales guidance assumes
an increase of five to seven percent over 2010 as a result of
strong organic growth from the Biocides Products segment. Segment
operating income margins are expected to be approximately 8.5
percent. Earnings from continuing operations before special items
are forecast to be in the $2.75 to $3.00 per share range.
Depreciation and amortization is estimated to be in the $40 to $45
million range. Capital spending is expected to be approximately $55
million, including a major technology upgrade at the Company's HTH
water products manufacturing plant in the U.S. and the
consolidation and expansion of three of the Company's U.S. research
and development functions into a newly leased facility. The
effective tax rate, before special items, is expected to be
comparable to 2010.
Included in the second half guidance is improved sequential
demand for biocides used in antidandruff products. The fourth
quarter 2011 guidance assumes the Company will recognize a pre-tax
benefit (approximately $6 million) from lower antidumping duty
rates due to expected favorable final rulings for two review
periods. The benefit from these two rulings is anticipated to be
mostly offset by higher sourcing costs in the HTH water products
business for isos purchased from China, primarily in the first half
of the year, increased investments in innovation and one-time costs
in the second half of the year associated with the major technology
upgrade project at the Company's HTH water products manufacturing
plant in the U.S. In addition, the second half guidance assumes
that price increases in the performance urethanes business will
recover the escalating oil-based raw material costs.
Commenting on the Company's outlook, Mr. Campbell remarked: "We
continue to believe that 2011 should be another record year for
Arch Chemicals, as we are well positioned to capitalize on
profitable, global growth opportunities in both emerging and
recovering markets. I am very excited about the earnings growth
potential in our core Biocides businesses, including expected
benefits from our multifaceted margin improvement plan. This
improvement plan includes focusing our portfolio on Biocides
businesses through strategic acquisitions and organic growth while
redeploying resources from the remaining, non-core businesses into
this key growth platform. Our relentless commitment to increase
profit margins, maximize cash generation, improve operational
excellence, optimize our Biocides portfolio and maintain an
attractive dividend will help deliver long-term shareholder
value."
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 over $1
billion. Arch and its subsidiaries provide innovative,
chemistry-based and related solutions to destroy or to selectively
inhibit the growth of harmful microorganisms. The Company is
concentrated in the areas of water treatment, personal care, health
and hygiene, industrial preservation and protection, and wood
treatment. Arch Chemicals operates in two segments: Biocides
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 2011 earnings
conference call on Wednesday, May 4, 2011 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: (877) 857-6144, passcode 7651457,
in the United States, or (719) 325-4813, passcode 7651457, outside
the United States.
- A telephone replay will be available from 2:00 p.m. on
Wednesday, May 4, 2011 until 11:00 p.m. (ET) on Wednesday, May 11,
2011. The replay number is (888) 203-1112, passcode 7651457; from
outside the United States, please call (719) 457-0820, passcode
7651457.
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 may differ materially from what is
expected or forecasted in such forward-looking statements. The
Company undertakes no obligation to update any forward-looking
statements, whether as a result of future events, new information
or otherwise. Future Factors which could cause actual outcomes to
differ materially from those discussed include but are not limited
to: general economic and business and market conditions; no
improvement or 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 or achieve targeted price increases; higher-than-expected
product, raw material and energy costs and availability for certain
chemical product lines; unexpected changes 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, tax matters or patent 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, supplier or Company plants; unfavorable weather
conditions for swimming pool use; realization of deferred taxes;
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; gains or losses on derivative instruments;
implementation of the Company's R&D consolidation consistent
with the Company's expectations;achievement of the Company's
multi-faceted margin improvement plan, including technology
improvements which result in lower processing, energy and other
costs; and unfavorable changes in the regulatory status of the
Company's products.
|
|
Arch Chemicals,
Inc. |
Condensed Consolidated
Statements of Income (a) |
(In millions,
except per share amounts) |
|
Three Months Ended
March 31, |
|
2011 |
2010 |
|
|
|
Sales |
$325.5 |
$298.7 |
Cost of Goods
Sold |
235.6 |
212.4 |
Selling and
Administration |
73.2 |
68.9 |
Research and
Development |
5.0 |
4.5 |
Restructuring Expense
(b) |
0.3 |
-- |
Interest Expense,
Net |
4.3 |
3.0 |
Income from Continuing Operations
Before Equity in Earnings of Affiliated Companies and
Taxes |
7.1 |
9.9 |
Equity in Earnings of Affiliated
Companies |
0.2 |
0.2 |
Income Tax (Benefit)
Expense (c) |
(4.1) |
3.4 |
Income from
Continuing Operations |
$11.4 |
$6.7 |
Income (Loss) from Discontinued
Operations, Net of Tax (d) |
0.4 |
(0.5) |
Gain on Sale of Discontinued
Operations, Net of Tax (e) |
-- |
5.6 |
Net
Income |
$11.8 |
$11.8 |
|
|
|
Basic Income (Loss) Per
Share: |
|
|
Continuing
Operations |
$0.45 |
$0.27 |
Income (Loss) from
Discontinued Operations, Net of Tax (d) |
0.01 |
(0.02) |
Gain on Sale of
Discontinued Operations, Net of Tax (e) |
-- |
0.22 |
Basic Income (Loss) Per
Share |
$0.46 |
$0.47 |
|
|
|
Diluted Income (Loss) Per
Share: |
|
|
Continuing
Operations |
$0.45 |
$0.27 |
Income (Loss) from
Discontinued Operations, Net of Tax (d) |
0.01 |
(0.02) |
Gain on Sale of
Discontinued Operations, Net of Tax (e) |
-- |
0.22 |
Diluted Income (Loss) Per
Share |
$0.46 |
$0.47 |
|
|
|
Weighted Average Common Stock
Outstanding - Basic |
25.4 |
25.0 |
Weighted Average
Common Stock Outstanding - Diluted |
25.5 |
25.2 |
|
|
|
(a) Unaudited. |
(b) Relocation costs
incurred in conjunction with the previously announced research and
development consolidation. |
(c) 2011 includes a
$6.4 million non-recurring income tax benefit related to the
Company's tax planning strategy to maximize the realizability of
its deferred tax assets. |
(d) 2011 relates to
changes in the estimates for retained contingencies of the
industrial coatings business. 2010 represents the results of
operations, net of tax, for the industrial coatings business
through the date of sale, March 31, 2010. |
(e) Represents the
gain on the sale of the industrial coatings business, net of
tax. |
|
|
|
|
|
|
Arch Chemicals,
Inc. |
|
|
Condensed Consolidated Balance
Sheets |
|
|
(In millions,
except per share amounts) |
|
March 31,
2011(a) |
December 31,
2010 |
|
|
|
Assets: |
|
|
Cash & Cash
Equivalents |
$93.9 |
$210.2 |
Accounts Receivable, Net
(b) |
139.2 |
124.5 |
Securitization-Related Receivable
(b) |
124.4 |
86.9 |
Inventories, Net |
230.3 |
168.3 |
Other Current
Assets |
33.0 |
28.1 |
Assets Held For
Sale |
1.3 |
1.3 |
Total Current
Assets |
622.1 |
619.3 |
Investments and Advances -
Affiliated Companies at Equity |
2.0 |
1.7 |
Property, Plant and Equipment,
Net |
177.5 |
176.5 |
Goodwill |
207.5 |
205.6 |
Other Intangibles |
145.5 |
146.4 |
Other
Assets |
95.3 |
88.5 |
Total Assets |
$1,249.9 |
$1,238.0 |
|
|
|
Liabilities and Shareholders'
Equity: |
|
|
Short-Term
Borrowings |
$1.7 |
$7.3 |
Current Portion of Long-Term
Debt |
32.3 |
31.2 |
Accounts Payable |
169.9 |
144.3 |
Accrued
Liabilities |
77.6 |
95.4 |
Total Current
Liabilities |
281.5 |
278.2 |
Long-Term Debt |
332.0 |
327.8 |
Other
Liabilities |
179.7 |
189.0 |
Total
Liabilities |
793.2 |
795.0 |
Commitments and
Contingencies |
|
|
Shareholders'
Equity: |
|
|
Common Stock, Par Value
$1 Per Share, Authorized 100.0 Shares: |
|
|
25.4 Shares Issued and
Outstanding (25.1 in 2010) |
25.4 |
25.1 |
Additional Paid-in
Capital |
470.2 |
469.3 |
Retained
Earnings |
148.6 |
141.8 |
Accumulated Other
Comprehensive Loss |
(187.5) |
(193.2) |
Total
Shareholders' Equity |
456.7 |
443.0 |
Total Liabilities and
Shareholders' Equity |
$1,249.9 |
$1,238.0 |
|
|
|
(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 amounts not yet collected from customers have been
reflected as a Securitization-Related
Receivable. |
|
|
|
|
|
|
Arch Chemicals,
Inc. |
|
|
Condensed Consolidated
Statements of Cash Flows (a) |
|
(In
millions) |
|
|
|
Three Months Ended March
31, |
2011 |
2010 |
Operating Activities: |
|
|
Net Income |
$11.8 |
$11.8 |
Adjustments to Reconcile Net Income
to Net Cash and Cash Equivalents (Used in) Provided by Operating
Activities, Net of Businesses Acquired: |
|
|
(Income) Loss from Discontinued
Operations |
(0.4) |
0.5 |
Gain on Sale of Discontinued
Operations |
-- |
(5.6) |
Equity in Earnings of Affiliated
Companies |
(0.2) |
(0.2) |
Depreciation and
Amortization |
10.4 |
10.1 |
Deferred Taxes |
(7.1) |
1.5 |
Restructuring Expense |
0.3 |
-- |
Restructuring Payments |
(0.2) |
-- |
Changes in Assets and Liabilities,
Net of Purchases and Sales of Businesses: |
|
|
Accounts Receivable
Securitization Program |
-- |
47.3 |
Receivables |
(50.0) |
(48.1) |
Inventories |
(60.4) |
(53.7) |
Other Current
Assets |
(2.1) |
(3.5) |
Accounts Payable and Accrued
Liabilities |
6.6 |
45.6 |
Noncurrent
Liabilities |
(9.3) |
(0.1) |
Other Operating
Activities |
(2.7) |
(0.1) |
Net Operating Activities from
Continuing Operations |
(103.3) |
5.5 |
Cash Flows of Discontinued
Operations |
-- |
(2.4) |
Net Operating
Activities |
(103.3) |
3.1 |
Investing Activities: |
|
|
Capital Expenditures |
(10.5) |
(5.2) |
Proceeds from Sale of a Business,
Net |
(0.1) |
53.2 |
Cash Flows of Discontinued
Operations |
-- |
(0.4) |
Net Investing
Activities |
(10.6) |
47.6 |
Financing Activities: |
|
|
Long-Term Debt
Borrowings |
-- |
64.0 |
Long-Term Debt
Repayments |
(0.2) |
(60.7) |
Short-Term (Repayments) Borrowings,
Net |
(0.2) |
(2.5) |
Dividends Paid |
(5.0) |
(5.0) |
Cash Flows of Discontinued
Operations |
-- |
-- |
Other Financing
Activities |
(0.1) |
0.2 |
Net Financing
Activities |
(5.5) |
(4.0) |
Effect of Exchange Rate Changes
on Cash and Cash Equivalents |
3.1 |
(4.7) |
Net (Decrease) Increase
in Cash and Cash Equivalents |
(116.3) |
42.0 |
Cash and Cash Equivalents,
Beginning of Year |
210.2 |
70.1 |
Cash and Cash Equivalents, End
of Period |
$93.9 |
$112.1 |
|
|
|
(a) Unaudited. |
|
|
|
|
|
|
|
|
Arch Chemicals,
Inc. |
|
|
Segment Information (a) |
|
|
(In
millions) |
|
Three Months Ended
March 31, |
|
2011 |
2010 |
Sales: |
|
|
Biocides
Products: |
|
|
- HTH Water
Products |
$127.3 |
$116.0 |
- Personal Care and
Industrial Biocides |
83.0 |
80.9 |
- Wood
Protection |
57.8 |
57.7 |
Total Biocides
Products |
268.1 |
254.6 |
Performance
Products: |
|
|
- Performance
Urethanes |
53.2 |
39.7 |
-
Hydrazine |
4.2 |
4.4 |
Total Performance
Products |
57.4 |
44.1 |
Total
Sales |
$325.5 |
$298.7 |
Operating Income (Loss)
(b): |
|
|
Biocides
Products: |
|
|
- HTH Water
Products |
$4.1 |
$4.2 |
- Personal Care and
Industrial Biocides |
16.3 |
18.5 |
- Wood
Protection |
(1.4) |
(0.9) |
Total Biocides
Products |
19.0 |
21.8 |
Performance
Products: |
|
|
- Performance
Urethanes |
(0.6) |
(2.6) |
-
Hydrazine |
0.5 |
0.8 |
Total Performance
Products |
(0.1) |
(1.8) |
|
18.9 |
20.0 |
General Corporate
Expenses (c) |
(7.0) |
(6.9) |
Total Segment Operating
Income including Equity in Earnings of Affiliated
Companies |
11.9 |
13.1 |
Restructuring Expense
(d) |
(0.3) |
-- |
Equity in
Earnings of Affiliated Companies |
(0.2) |
(0.2) |
Total Operating
Income |
11.4 |
12.9 |
Interest Expense,
Net |
(4.3) |
(3.0) |
Income from
Continuing Operations before Taxes and Equity in Earnings of
Affiliated Companies |
$7.1 |
$9.9 |
|
|
|
(a) Unaudited. |
(b) Includes equity
in earnings of affiliated companies and excludes restructuring and
impairment. |
(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. |
(d) Relocation costs
incurred in conjunction with the previously announced research and
development consolidation. |
|
|
|
|
|
|
Arch Chemicals,
Inc. |
|
|
Reconciliation of GAAP to Non-GAAP
Information (a) |
|
|
(In millions, except per share
amounts) |
|
|
|
|
|
The following table
reconciles income and diluted income per share from continuing
operations for the three months ended March 31, 2011 to income and
diluted income per share from continuing operations before
relocation costs incurred in conjunction with the previously
announced research and development consolidation and before a
non-recurring income tax benefit related to the Company's tax
planning strategy. The table is being included in order to
provide comparability to the Company's income and diluted income
per share from continuing operations for the three months ended
March 31, 2010 and in order to provide comparability to the
Company's earnings guidance for the three months ended March 31,
2011. |
|
Three Months
Ended March 31, 2011 |
|
Income |
EPS |
Income from Continuing
Operations |
$ 11.4 |
$ 0.45 |
Add: Relocation costs, net of
tax |
0.2 |
0.01 |
Less: Income tax benefit
related to tax planning strategy |
(6.4) |
(0.25) |
Income from Continuing
Operations before relocation costs and income tax
benefit |
$ 5.2 |
$ 0.21 |
|
|
|
(a) Unaudited. |
|
|
CONTACT: Investor Contact:
Mark E. Faford
(203) 229-3820
mefaford@archchemicals.com
Press Contact:
Dale N. Walter
(203) 229-3033
dnwalter@archchemicals.com
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