EXHIBIT 99.2
Page
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Pro Forma Financial Statements (Unaudited)
Pro Forma Combined Condensed Balance Sheet as of June 30, 2000 51
Pro Forma Combined Condensed Statement of Income for the Six Months
Ended June 30, 2000 52
Pro Forma Combined Condensed Statement of Income for the Twelve Months
Ended December 31, 1999 53
Notes to Pro Forma Financial Statements 54
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On July 6, 2000, Arch Chemicals UK Holdings Limited ("Arch UK"), a newly formed,
wholly-owned, indirect subsidiary of Arch Chemicals, Inc. ("Arch"), announced a
formal cash offer (the "Offer") to acquire the entire issued and to be issued
share capital of Hickson International PLC ("Hickson"). The offer, which was
unanimously recommended by Hickson's Board of Directors, was for (Pounds)0.55 in
cash for each Hickson share. On August 3, 2000, the Offer was declared
unconditional as to acceptances. On August 22, 2000, Arch UK declared the offer
wholly unconditional. To date, Arch UK has received and paid valid acceptances
for Hickson shares totaling 175,064,729, representing approximately 99.4% of the
issued share capital of Hickson. Arch UK has begun the compulsory acquisition
process under UK law to acquire all remaining issued Hickson shares not tendered
in the Offer.
The following unaudited pro forma combined condensed financial statements
reflect the acquisition of Hickson using the purchase method of accounting and
should be read in conjunction with the historical consolidated financial
statements and accompanying notes of Hickson and Arch. The unaudited Pro Forma
Combined Condensed Balance Sheet gives effect to the acquisition as if it had
occurred on June 30, 2000. The unaudited Combined Condensed Statements of Income
for the twelve and six months ended December 31, 1999 and June 30, 2000, give
effect to the acquisition as if it had occurred on January 1, 1999. In these
statements, the allocation of the purchase price to the assets acquired and the
liabilities assumed, based on their respective fair values, has been made on the
basis of preliminary estimates. The final determination of these fair values
could result in purchase accounting adjustments, which may impact Arch's results
of operations and financial position.
The unaudited pro forma financial information has been adjusted to reflect the
anticipated disposition of Hickson's organics division and the classification of
such assets as held for sale, pursuant to Arch's intention to complete a sale
within one year.
The pro forma adjustments are based upon currently available information and
certain estimates and assumptions, and therefore the actual results may differ
from the pro forma results. However, management believes that the assumptions
provide a reasonable basis for presenting the significant effects of the
transaction as contemplated, and that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the pro forma financial
information.
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The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the acquisition had been
completed at the dates indicated. The information does not necessarily indicate
the future operating results or financial position of Arch.
Cautionary Statement Concerning Forward-Looking Statements
This pro forma financial information contains forward-looking statements. These
statements are based on our estimates and assumptions and are subject to risks
and uncertainties. Forward-looking statements include the information concerning
our possible or assumed future results of operations. Forward-looking statements
also include those preceded or followed by the words "anticipates," "believes,"
"estimates," "hopes," or similar expressions are intended to identify such
forward-looking statements. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The following important factors could affect future results and could cause
those results to differ materially from those expressed in the forward-looking
statements: the ability of Arch to combine operations and obtain revenue
enhancements and cost savings; the ability of Arch to sell the organics
division; general economic and business and market conditions, lack of moderate
growth in the U.S. economy or even a slight recession in 2000; the continued
recovery of economic conditions in Asia; 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 for certain chemical
product lines; increased foreign competition in the calcium hypochlorite
markets; continued improvement in the semiconductor industry; unfavorable court,
arbitration or jury decisions, the supply/demand balance for the Company's
products, including the impact of excess industry capacity; failure to achieve
targeted cost reduction programs; unsuccessful entry into new markets for
electronic chemicals; capital expenditures in excess of those scheduled;
environmental costs in excess of those projected; and the occurrence of
unexpected manufacturing interruptions/outages at the customer's or company
plants.
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Pro Forma Financial Statements
Arch Chemicals, Inc.
Pro Forma Combined Condensed Balance Sheet
June 30, 2000
(Unaudited)
(In millions, except per share amounts)
Historical Historical Pro Forma Pro Forma Pro Forma
Arch Hickson (1) Adjustments (2) Adjustments Combined
---- ----------- --------------- ----------- --------
ASSETS
------
Current assets:
Cash and cash equivalents $ 6.3 $ 23.0 $ - $ - $ 29.3
Accounts receivable, net 227.4 73.2 (22.3) - 278.3
Inventories, net 131.3 46.7 (20.4) 0.4 (3a) 158.0
Other current assets 26.4 4.5 (2.9) - 28.0
Assets held for sale - 9.2 104.0 (29.0) (2) 84.2
-------- -------- ------- ------ ---------
Total current assets 391.4 156.6 58.4 (28.6) 577.8
Investments and advances - affiliated companies at equity 27.4 6.1 - - 33.5
Property, plant and equipment, net 324.2 129.7 (84.4) (0.3) (3a) 369.2
Goodwill 36.1 63.6 (7.6) 39.8 (3a) 131.9
Other assets 19.3 5.6 - - 24.9
-------- -------- ------- ------ ---------
Total assets $ 798.4 $ 361.6 $ (33.6) $ 10.9 $ 1,137.3
======== ======== ======= ====== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings $ 50.3 $ 2.4 $ - $ - $ 52.7
Accounts payable 108.2 45.0 (11.8) - 141.4
Accrued liabilities 59.7 49.1 (2.1) 10.3 (3a) 117.0
-------- -------- ------- ------ ---------
Total current liabilities 218.2 96.5 (13.9) 10.3 311.1
Long-term debt 75.1 73.3 - 146.2 (3c) 294.6
Other liabilities 41.9 31.4 (19.7) 14.8 (3a) 68.4
Commitments and contingencies
Shareholders' equity:
Common stock 22.1 66.8 - (66.8) (3b) 22.1
Additional paid-in capital 423.3 37.2 - (37.2) (3b) 423.3
Retained earnings 47.9 57.1 - (57.1) (3b) 47.9
Accumulated other comprehensive loss (30.1) (0.7) - 0.7 (3b) (30.1)
-------- -------- ------- ------ ---------
Total shareholders' equity 463.2 160.4 - (160.4) 463.2
-------- -------- ------- ------ ---------
Total liabilities and shareholders' equity $ 798.4 $ 361.6 $ (33.6) $ 10.9 $ 1,137.3
======== ======== ======= ====== =========
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
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Arch Chemicals, Inc.
Pro Forma Combined Condensed Statement of Income
For the Six Months ended June 30, 2000
(Unaudited)
(In millions, except per share amounts)
Historical Historical Pro Forma Pro Forma Pro Forma
Arch Hickson (1) Adjustments (2) Adjustments Combined
---- ----------- --------------- ----------- --------
Sales $ 493.9 $ 151.5 $ (38.5) $ - $ 606.9
Operating expenses:
Cost of goods sold 352.2 117.7 (41.3) 1.8 (3e)
(1.7) (3e) 428.7
Selling and administration 82.2 29.0 (4.4) - 106.8
Research and development 7.7 3.8 (1.2) - 10.3
------- ------- ------- ------- -------
51.8 1.0 8.4 (0.1) 61.1
------- ------- ------- ------- -------
Equity in earnings of affiliated companies 3.6 1.2 - - 4.8
Interest expense 5.6 2.8 - 5.4 (3d)
(2.0) (3d) 11.8
Interest income 0.2 1.1 (0.2) - 1.1
------- ------- ------- ------- -------
Income before income taxes 50.0 0.5 8.2 (3.5) 55.2
Income tax provision (benefit) 17.0 3.1 0.1 (1.1) (3f) 19.1
------- ------- ------- ------- -------
Net income $ 33.0 $ (2.6) $ 8.1 $ (2.4) $ 36.1
======= ======= ======= ======= =======
Net income per common share:
Basic $ 1.48 $ 1.62
======= =======
Diluted $ 1.48 $ 1.61
======= =======
Weighted average common shares outstanding:
Basic 22.3 22.3
======= =======
Diluted 22.4 22.4
======= =======
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
52
Arch Chemicals, Inc.
Pro Forma Combined Condensed Statement of Income
For the Twelve Months ended December 31, 1999
(Unaudited)
(In millions, except per share amounts)
Historical Historical Pro Forma Pro Forma Pro Forma
Arch Hickson (1) Adjustments (2) Adjustments Combined
---- ----------- --------------- ----------- --------
Sales $ 879.8 $ 325.4 $ (105.0) $ - $ 1,100.2
Operating expenses:
Cost of goods sold 637.7 283.6 (136.8) 3.5 (3e)
(3.2) (3e) 784.8
Selling and administration 163.8 66.4 (13.5) - 216.7
Research and development 17.7 7.4 (2.2) - 22.9
-------- ------- -------- -------- ---------
60.6 (32.0) 47.5 (0.3) 75.8
-------- ------- -------- -------- ---------
Equity in earnings of affiliated companies 5.8 1.4 - - 7.2
Interest expense 5.7 4.5 - 10.7 (3d)
(4.0) (3d) 16.9
Interest income 0.8 0.6 (0.2) - 1.2
-------- ------- -------- -------- ---------
Income before income taxes 61.5 (34.5) 47.3 (7.0) 69.4
Income tax provision 20.8 9.7 - (7.3) (3f) 23.2
-------- ------- -------- -------- ---------
Income from continuing operations $ 40.7 $ (44.2) $ 47.3 $ 0.3 $ 44.1
======== ======= ======== ======== ==========
Income from continuing operations per common share:
Basic $ 1.77 $ 1.92
======== =========
Diluted $ 1.76 $ 1.91
======== =========
Weighted average common shares outstanding:
Basic 23.0 23.0
======== =========
Diluted 23.1 23.1
======== =========
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
53
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Note 1 - Reclassifications
Reclassifications have been made to the historical financial statements of
Hickson to conform with accounting principles generally accepted in the United
States as well as the presentation expected to be used by the combined company.
Note 2 - Divestiture of Organics Division
These pro forma adjustments reflect Arch's previously announced intention to
divest Hickson's organics division within twelve months of the acquisition of
such business. The net assets of these businesses have been classified as
"Assets held for sale." The valuation includes an estimate of net cash flows
during the holding period, including estimated net sales proceeds, and an
allocation of interest expense during the holding period. Arch expects a
transaction to be completed no later than the end of the third quarter 2001. As
such, all amounts related to the income statement have been adjusted to
eliminate their impact on the condensed statements.
Note 3 - Pro Forma Adjustments
a) Reflects the preliminary allocation of the excess of the acquisition cost
over the fair value of the assets and liabilities acquired under the
purchase method of accounting for the acquisition of Hickson. The estimate
of fair values is preliminary, and is subject to change upon the final
results of an appraisal of the fair value of the assets and liabilities of
Hickson, as well as the identification of certain intangible assets.
Accruals include estimates of acquisition-related expenses to be incurred
by Arch and Hickson in connection with the transaction.
b) Reflects the elimination of the equity accounts of Hickson.
c) Reflects the third-party borrowings to finance the purchase price of
Hickson's outstanding shares and share equivalents (approximately 178.1
million shares at $0.82).
d) Reflects the interest expense related to borrowings of $145.9 million for
the purchase of shares and the assumed debt of Hickson ($68.9 million at
June 30, 2000), required to be repaid, at an estimated effective interest
rate, inclusive of fees, of 8.25%. In addition, this adjustment includes
the incremental effect of higher interest rates on Arch's existing debt due
to the new leverage ratio as a result of the Hickson acquisition. Arch's
revolving credit facilities contain a leverage-based financing grid, which
increases the cost of borrowings as leverage increases. This amount
excludes interest expense associated with carrying the organics division
for sale, which is reflected as a charge to assets held for sale.
e) Reflects the amortization of goodwill over an estimated life of 30 years,
and the elimination of amounts already reflected in the historical
financial statements of Hickson.
f) Pro forma adjustments have been made for the estimated tax effects of the
adjustments discussed above.
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Notes to Unaudited Pro Forma Combined Condensed Financial Statements -
(continued)
Note 4 - Exchange Rates
The following exchange rates have been used to translate the historical
Financial statements of Hickson from UK pounds to US dollars:
June 30, 2000 1.52
Six months ended June 30, 2000 1.55
Twelve months ended December 31, 1999 1.62
Note 5 - Intercompany Items
There are no significant intercompany transactions between Arch and Hickson.
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