Investor Contact: | Mark E. Faford | |
(203) 229-2654 | ||
mefaford@archchemicals.com | ||
Press Contact: | Dale N. Walter | |
(203) 229-3033 | ||
dnwalter@archchemicals.com |
ARCH CHEMICALS THIRD QUARTER 2005 EARNINGS EXCEED GUIDANCE; |
REAFFIRMS FULL YEAR OUTLOOK |
• | Sales for 2005 increased approximately 14 percent over the third quarter 2004. |
• | Third quarter earnings from continuing operations were $0.28 per share. |
• | Full year earnings are expected to range from $1.20 to $1.30 per share. |
NORWALK, Conn., October 31, 2005 – ARCH CHEMICALS, INC. (NYSE: ARJ) announced for the third quarter 2005, sales were $314.2 million compared to $276.8 million in the corresponding period in 2004. Segment operating income was $15.3 million in 2005 compared to $8.4 million in 2004. Earnings per share from continuing operations were $0.28 for the third quarter 2005 on $6.7 million of income, compared to $0.07 on income of $1.6 million a year ago.
The following compares segment sales and operating income for the third quarters of 2005 and 2004 (including equity in earnings of affiliated companies and excluding restructuring and certain unallocated expenses of the corporate headquarters):
Operating income decreased $5.4 million. The prior year period benefited ($3.1 million) from partial payment of a $6.1 million settlement of a favorable judgment obtained against a former owner of an acquired company and a gain from the sale of a building ($0.6 million). Excluding these items in 2004, operating income decreased by $1.7 million primarily as a result of lower volumes and pricing in the protection & hygiene business.
Performance urethanes sales increased approximately 57 percent over the prior year due to higher volumes and improved pricing. The increase in volumes was due to stronger demand across all product lines, particularly in glycols and specialty polyols, and higher contract manufacturing business. The improved pricing was principally due to successful price increases that mitigated higher raw material costs. Operating results improved $7.3 million as a result of higher sales volumes and improved margins from the price increases, which were slightly offset by increased compensation and benefits-related costs.
Hydrazine sales decreased approximately 38 percent due primarily to lower volumes of Ultra Pure™ Hydrazine. Operating results decreased $0.3 million, primarily due to lower sales volumes that were mostly offset by cost-reduction efforts.
• | Listen in live to Arch Chemicals’ third quarter 2005 earnings conference call on Monday,October 31, 2005 at 1:00 p.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: (866) 203-3206, passcode 41858571, in the United States, or (617) 213-8848, passcode 41858571, outside the United States. |
• | A telephone replay will be available from 3:00 p.m. on Monday, October 31, 2005 until 6:00 p.m. (ET) on Monday, November 7, 2005. The replay number is (888) 286-8010, passcode 68611260; from outside the United States, please call (617) 801-6888, passcode 68611260. |
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Except for historical information contained herein, the information set forth in this communication may contain 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," "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; lack of moderate growth or recession in U.S. and European economies; increases in interest rates; economic conditions in Asia; worsening economic and political conditions in Venezuela; changes in foreign currencies against the U.S. dollar; customer acceptance of new products; efficacy of new technology; changes in U.S. laws and regulations; increased competitive and/or customer pressure; the Company's ability to maintain chemical price increases; higher-than-expected raw material costs and availability for certain chemical product lines; an increase in anti-dumping duties on certain products; increased foreign competition in the calcium hypochlorite markets; unfavorable court, 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; reduction in expected government contract orders; 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; and gains or losses on derivative instruments.
Arch Chemicals, Inc.
Condensed Consolidated Statements of Income (a)
(In millions, except per share amounts)
Three Months | Nine Months | |||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||
Sales | $ | 314.2 | $ | 276.8 | $ | 1,026.8 | $ | 879.1 | ||||||
Cost of Goods Sold | 231.1 | 202.9 | 743.3 | 626.2 | ||||||||||
Selling and Administration | 62.3 | 61.5 | 203.1 | 186.2 | ||||||||||
Research and Development | 5.8 | 3.7 | 16.1 | 11.0 | ||||||||||
Other (Gains) and Losses (b) | 0.9 | 1.5 | 0.9 | 1.4 | ||||||||||
Restructuring (c) | - | - | - | 1.7 | ||||||||||
Interest Expense, Net | 4.9 | 5.3 | 15.1 | 14.6 | ||||||||||
Income from Continuing Operations Before Equity | ||||||||||||||
in Earnings of Affiliated Companies and Taxes | 9.2 | 1.9 | 48.3 | 38.0 | ||||||||||
Equity in Earnings of Affiliated Companies | 1.2 | 1.2 | 1.8 | 3.0 | ||||||||||
Income Tax Provision | 3.7 | 1.5 | 15.3 | 15.1 | ||||||||||
Income from Continuing Operations | 6.7 | 1.6 | 34.8 | 25.9 | ||||||||||
Income (Loss) from Discontinued Operations, Net of Tax (d) | (0.8 | ) | 4.2 | (0.8 | ) | 8.1 | ||||||||
Gain (Loss) on Sale of Discontinued Operations, Net of Tax (e) | - | (0.2 | ) | 2.9 | (0.2 | ) | ||||||||
Net Income | $ | 5.9 | $ | 5.6 | $ | 36.9 | $ | 33.8 | ||||||
Basic Income Per Share: | ||||||||||||||
Continuing Operations | $ | 0.28 | $ | 0.07 | $ | 1.47 | $ | 1.12 | ||||||
Income (Loss) from Discontinued Operations, Net of Tax (d) | (0.03 | ) | 0.18 | (0.03 | ) | 0.35 | ||||||||
Gain (Loss) on Sale of Discontinued Operations, Net of Tax (e) | - | (0.01 | ) | 0.12 | (0.01 | ) | ||||||||
Basic Income Per Share | $ | 0.25 | $ | 0.24 | $ | 1.56 | $ | 1.46 | ||||||
Diluted Income Per Share: | ||||||||||||||
Continuing Operations | $ | 0.28 | $ | 0.07 | $ | 1.46 | $ | 1.11 | ||||||
Income (Loss) from Discontinued Operations, Net of Tax (d) | (0.03 | ) | 0.18 | (0.03 | ) | 0.34 | ||||||||
Gain (Loss) on Sale of Discontinued Operations, Net of Tax (e) | - | (0.01 | ) | 0.12 | (0.01 | ) | ||||||||
Diluted Income Per Share | $ | 0.25 | $ | 0.24 | $ | 1.55 | $ | 1.44 | ||||||
Weighted Average Common Stock Outstanding - Basic | 23.6 | 23.4 | 23.6 | 23.1 | ||||||||||
Weighted Average Common Stock Outstanding - Diluted | 23.8 | 23.7 | 23.8 | 23.4 |
(a) | Unaudited. As a result of the sale of the microelectronic materials business, the Company has restated prior period results to include the results of operations of the microelectronic materials business in discontinued operations in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." |
(b) | The third quarter and year-to-date September 2005 include an additional charge of $0.9 million for a portion of penalties related to the Brazilian state import tax claim recorded in 2004. The third quarter and year-to-date September 2004 include a charge of $2.1 million for a Brazilian state import tax claim, primarily in the performance urethanes business, partially offset by a pretax gain on the sale of a building in the personal care business of $0.6 million. |
(c) | 2004 restructuring includes employee-related costs for the hydrazine business of $2.1 million, offset by a reduction of the prior years' restructuring reserves of $0.4 million. |
(d) | Represents the results of operations of the microelectronic materials business, net of tax, through the date of the sale of the business. The results of operations also include the CMS business as it is being accounted for as an asset held for sale. |
(e) | 2005 includes the receipt of £1.7 million (approximately $2.9 million), including interest, related to two outstanding notes from the sale of the Hickson organics Castleford operations that were previously reserved for at December 31, 2004, due to the uncertainty concerning the viability of the purchaser. 2004 principally represents a post-closing working capital adjustment related to the sale of the Hickson organics Castleford operations. |
Arch Chemicals, Inc.
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
September 30, | December 31, | ||||||
2005 (a) | 2004 | ||||||
Assets: | |||||||
Cash & Cash Equivalents | $ | 50.6 | $ | 74.6 | |||
Accounts Receivable, Net (b) | 134.4 | 125.6 | |||||
Short-Term Investment (b) | 59.6 | 53.3 | |||||
Inventories, Net | 169.8 | 151.1 | |||||
Other Current Assets | 38.2 | 37.9 | |||||
Assets Held For Sale | 16.5 | 15.9 | |||||
Total Current Assets | 469.1 | 458.4 | |||||
Investments and Advances - Affiliated Companies at Equity | 16.9 | 15.5 | |||||
Property, Plant and Equipment, Net | 190.1 | 211.6 | |||||
Goodwill | 196.3 | 192.4 | |||||
Other Intangibles | 141.6 | 151.2 | |||||
Other Assets | 57.7 | 70.9 | |||||
Total Assets | $ | 1,071.7 | $ | 1,100.0 | |||
Liabilities and Shareholders' Equity: | |||||||
Short-Term Borrowings | $ | 21.4 | $ | 9.1 | |||
Accounts Payable | 166.8 | 160.2 | |||||
Accrued Liabilities | 84.8 | 108.1 | |||||
Liabilities Associated with Assets Held For Sale | 14.3 | 12.2 | |||||
Total Current Liabilities | 287.3 | 289.6 | |||||
Long-Term Debt | 212.7 | 215.2 | |||||
Other Liabilities | 196.6 | 235.4 | |||||
Total Liabilities | 696.6 | 740.2 | |||||
Commitments and Contingencies | |||||||
Shareholders' Equity: | |||||||
Common Stock, Par Value $1 Per Share, Authorized 100.0 Shares: | |||||||
23.6 Shares Issued and Outstanding (23.4 in 2004) | 23.6 | 23.4 | |||||
Additional Paid-in Capital | 421.1 | 418.2 | |||||
Retained Earnings | 37.5 | 14.8 | |||||
Accumulated Other Comprehensive Loss | (107.1 | ) | (96.6 | ) | |||
Total Shareholders' Equity | 375.1 | 359.8 | |||||
Total Liabilities and Shareholders' Equity | $ | 1,071.7 | $ | 1,100.0 |
(a) | Unaudited. |
(b) | In June 2005, the Company entered into a new securitization program through which the Company sold certain accounts receivable. As of September 30, 2005, the Company had sold $10.0 million of participation interests in $69.6 million of accounts receivable and as of December 31, 2004, the Company had not sold any participation interests in accounts receivable. |
Arch Chemicals, Inc.
Condensed Consolidated Statements of Cash Flows (a)
(In millions)
Nine Months Ended September 30, | 2005 | 2004 | |||||
Operating Activities: | |||||||
Net Income | $ | 36.9 | $ | 33.8 | |||
Adjustments to Reconcile Net Income to Net Cash and Cash Equivalents (Used in) Provided by Operating Activities: | |||||||
(Income) Loss from Discontinued Operations | 0.8 | (8.1 | ) | ||||
(Gain) Loss on Sale of Discontinued Operations | (2.9 | ) | 0.2 | ||||
Other (Gains) and Losses | 0.9 | 1.4 | |||||
Equity in (Earnings) of Affiliates | (1.8 | ) | (3.0 | ) | |||
Depreciation and Amortization | 34.9 | 34.3 | |||||
Deferred Taxes | 10.3 | 6.1 | |||||
Restructuring | - | 1.7 | |||||
Restructuring Payments | (1.4 | ) | (3.3 | ) | |||
Changes in Assets and Liabilities, Net of Purchase and Sale of Businesses: | |||||||
Accounts Receivable Securitization Program | 10.0 | 49.2 | |||||
Receivables | (29.3 | ) | (11.9 | ) | |||
Inventories | (25.8 | ) | (3.8 | ) | |||
Other Current Assets | 0.2 | (0.2 | ) | ||||
Accounts Payable and Accrued Liabilities | (6.2 | ) | 7.7 | ||||
Noncurrent Liabilities (b) | (31.6 | ) | 0.9 | ||||
Other Operating Activities | 1.8 | 4.5 | |||||
Net Operating Activities from Continuing Operations | (3.2 | ) | 109.5 | ||||
Change in Net Assets Held for Sale | 3.2 | 6.0 | |||||
Net Operating Activities | - | 115.5 | |||||
Investing Activities: | |||||||
Capital Expenditures | (11.0 | ) | (12.4 | ) | |||
Business Acquired in Purchase Transaction, Net of Cash Acquired | (3.1 | ) | (214.8 | ) | |||
Cash Payments from the Sale of a Business | (3.8 | ) | - | ||||
Cash Proceeds from Sales of Buildings and Land | - | 0.9 | |||||
Other Investing Activities | (0.3 | ) | 0.2 | ||||
Net Investing Activities | (18.2 | ) | (226.1 | ) | |||
Financing Activities: | |||||||
Long-Term Debt Borrowings | 111.0 | 228.0 | |||||
Long-Term Debt Repayments | (111.0 | ) | (153.5 | ) | |||
Short-Term Borrowings Repayments, Net | 11.7 | 18.6 | |||||
Dividends Paid | (14.2 | ) | (13.8 | ) | |||
Other Financing Activities | 1.1 | 3.6 | |||||
Net Financing Activities | (1.4 | ) | 82.9 | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (4.4 | ) | 1.6 | ||||
Net Decrease in Cash and Cash Equivalents | (24.0 | ) | (26.1 | ) | |||
Cash and Cash Equivalents, Beginning of Year | 74.6 | 64.8 | |||||
Cash and Cash Equivalents, End of Period | $ | 50.6 | $ | 38.7 |
(a) | Unaudited. |
(b) | The cash used by Noncurrent Liabilities includes $36.2 million for voluntary cash contributions for the U.S. pension plan. |
Arch Chemicals, Inc.
Segment Information (a)
(In millions)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Sales: | ||||||||||||||||
Treatment Products: | ||||||||||||||||
- HTH Water Products (b) | $ | 95.8 | $ | 83.0 | $ | 369.8 | $ | 315.5 | ||||||||
- Personal Care and Industrial Biocides (b) | 66.9 | 65.5 | 207.3 | 172.9 | ||||||||||||
- Wood Protection and Industrial Coatings | 89.7 | 86.2 | 278.1 | 267.8 | ||||||||||||
Total Treatment Products | 252.4 | 234.7 | 855.2 | 756.2 | ||||||||||||
Performance Products: | ||||||||||||||||
- Performance Urethanes | 59.0 | 37.6 | 158.8 | 103.6 | ||||||||||||
- Hydrazine | 2.8 | 4.5 | 12.8 | 19.3 | ||||||||||||
Total Performance Products | 61.8 | 42.1 | 171.6 | 122.9 | ||||||||||||
Total Sales | $ | 314.2 | $ | 276.8 | $ | 1,026.8 | $ | 879.1 | ||||||||
Operating Income (Loss) (c): | ||||||||||||||||
Treatment Products: | ||||||||||||||||
- HTH Water Products (b, d) | $ | (2.3 | ) | $ | (6.9 | ) | $ | 21.2 | $ | 23.3 | ||||||
- Personal Care and Industrial Biocides (b, e, f) | 11.5 | 16.9 | 34.8 | 38.1 | ||||||||||||
- Wood Protection and Industrial Coatings | 6.0 | 7.1 | 13.9 | 20.7 | ||||||||||||
Total Treatment Products | 15.2 | 17.1 | 69.9 | 82.1 | ||||||||||||
Performance Products: | ||||||||||||||||
- Performance Urethanes (d) | 5.3 | (2.0 | ) | 9.5 | (7.3 | ) | ||||||||||
- Hydrazine (d) | (1.6 | ) | (1.3 | ) | (1.9 | ) | (1.2 | ) | ||||||||
Total Performance Products | 3.7 | (3.3 | ) | 7.6 | (8.5 | ) | ||||||||||
18.9 | 13.8 | 77.5 | 73.6 | |||||||||||||
General Corporate Expenses (g) | (3.6 | ) | (5.4 | ) | (12.3 | ) | (16.3 | ) | ||||||||
Total Segment Operating Income Including Equity in Earnings of Affiliated Companies | 15.3 | 8.4 | 65.2 | 57.3 | ||||||||||||
Restructuring | - | - | - | (1.7 | ) | |||||||||||
Equity in (Earnings) Losses of Affiliated Companies | (1.2 | ) | (1.2 | ) | (1.8 | ) | (3.0 | ) | ||||||||
Total Operating Income | 14.1 | 7.2 | 63.4 | 52.6 | ||||||||||||
Interest Expense, Net | (4.9 | ) | (5.3 | ) | (15.1 | ) | (14.6 | ) | ||||||||
Income from Continuing Operations Before | ||||||||||||||||
Taxes and Equity in Earnings of Affiliated Companies | $ | 9.2 | $ | 1.9 | $ | 48.3 | $ | 38.0 |
(a) | Unaudited. 2004 restated to reflect the sale of the Microelectronic Materials business segment including a reallocation of corporate and centralized services to existing businesses previously allocated to the Microelectronic Materials segment. |
(b) | Includes the results of the acquired pool & spa and protection & hygiene businesses from the date of acquisition on April 2, 2004. |
(c) | Includes equity in earnings (losses) of affiliated companies. |
(d) | Third quarter and year-to-date September 2005 include a charge for a portion of penalties related to the Brazilian state import tax claim of $0.2 million and $0.7 million for the water products and performance urethanes businesses, respectively. Third quarter and year-to-date September 2004 include a charge for a Brazilian state import tax claim of $0.4 million, $1.6 million and $0.1 million for the water products, performance urethanes and hydrazine businesses, respectively. |
(e) | Third quarter and year-to-date September 2004 include a $0.6 million gain on the sale of a building for the personal care business. |
(f) | Third quarter 2004 includes a $3.1 million settlement from a favorable judgment obtained against a former owner of an acquired company and full year 2004 includes $6.1 million. |
(g) | 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 the results of the Company's Planar Solutions joint venture. |