SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from____________ to______________
Commission file number: 1-14601
Arch Chemicals, Inc.
(Exact name of registrant as specified in its charter)
Virginia 06-1526315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Merritt 7, Norwalk, CT 06851
(Address of principal executive offices) (Zip Code)
(203) 229-2900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES X NO
----- -----
As of July 31, 2001, there were 22,184,343 outstanding shares of the
registrant's common stock.
ARCH CHEMICALS, INC.
INDEX
-----
Page Numbers
-------------
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements............................................................... 2
Condensed Consolidated Balance Sheets as of June 30, 2001
and December 31, 2000.............................................................. 2
Condensed Consolidated Statements of Income for the six
months ended June 30, 2001 and 2000................................................ 3
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2001 and 2000................................................ 4
Notes to Condensed Consolidated Financial Statements............................... 5 - 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 11 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 19
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders................................ 20
Item 6. Exhibits and Reports on Form 8-K................................................... 20
Signatures......................................................................... 21
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARCH CHEMICALS, INC.
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
Unaudited
June 30, December 31,
2001 2000
---- ----
ASSETS
------
Current assets:
Cash and cash equivalents $ 7.6 $ 19.1
Accounts receivable, net 230.6 212.7
Inventories, net 137.5 164.7
Other current assets 34.7 39.2
Assets held for sale 67.2 80.1
---------- ---------
Total current assets 477.6 515.8
Investments and advances - affiliated companies at equity 27.6 32.6
Property, plant and equipment, net 321.8 330.8
Goodwill 177.2 172.8
Other assets 21.5 21.6
---------- --- -----
Total assets $ 1,025.7 $ 1,073.6
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings $ 218.0 $ 95.8
Accounts payable 119.7 143.5
Accrued liabilities 83.4 104.2
---------- ---------
Total current liabilities 421.1 343.5
Long-term debt 113.7 247.6
Other liabilities 71.2 62.7
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share, Authorized 100.0 shares:
22.2 shares issued and outstanding in 2001 (22.1 in 2000) 22.2 22.1
Additional paid-in capital 424.1 423.3
Retained earnings 20.0 6.5
Accumulated other comprehensive loss (46.6) (32.1)
---------- ---------
Total shareholders' equity 419.7 419.8
---------- ---------
Total liabilities and shareholders' equity $ 1,025.7 $ 1,073.6
========== =========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the condensed consolidated financial statements.
2
ARCH CHEMICALS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(In millions, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 284.9 $ 282.1 $ 540.5 $ 510.8
Cost of goods sold 195.0 202.3 377.4 366.8
Selling and administration 56.5 43.2 102.1 82.2
Amortization of intangibles 2.5 1.2 5.0 2.3
Research and development 6.0 3.7 12.4 7.7
Restructuring (0.2) - 0.6 -
Equity in (earnings) of affiliated companies (0.1) (1.7) (1.3) (3.6)
------- -------- ------- -------
Income before interest and taxes and
cumulative effect of accounting change 25.2 33.4 44.3 55.4
Interest expense 5.3 3.0 10.8 5.6
Interest income 0.3 0.1 0.4 0.2
------- -------- ------- -------
Income before taxes and cumulative
effect of accounting change 20.2 30.5 33.9 50.0
Income tax expense 6.7 10.4 11.3 17.0
------- ------- ------- -------
Income before cumulative effect of accounting change 13.5 20.1 22.6 33.0
Cumulative effect of accounting change, net of tax - - (0.2) -
------- -------- ------- -------
Net income $ 13.5 $ 20.1 $ 22.4 $ 33.0
======= ======= ======= =======
Basic income per common share:
Before cumulative effect of accounting change $ 0.60 $ 0.91 $ 1.02 $ 1.48
Cumulative effect of accounting change - - (0.01) -
------- -------- ------- -------
Basic income per common share $ 0.60 $ 0.91 $ 1.01 $ 1.48
======= ======= ======= =======
Diluted income per common share:
Before cumulative effect of accounting change $ 0.60 $ 0.91 $ 1.01 $ 1.48
Cumulative effect of accounting change - - (0.01) -
------- -------- ------- -------
Diluted income per common share $ 0.60 $ 0.91 $ 1.00 $ 1.48
======= ======= ======= =======
Weighted average common shares outstanding:
Basic 22.3 22.2 22.3 22.3
======= ======= ===== =======
Diluted 22.4 22.2 22.3 22.4
======= ======= ===== =======
Dividends declared per share $ 0.20 $ 0.20 $ 0.40 $ 0.40
======= ======= ======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of the condensed consolidated financial statements.
3
ARCH CHEMICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Six Months
Ended June 30,
2001 2000
---- ----
Operating activities
- ----------------------
Net income $ 22.4 $ 33.0
Adjustments to reconcile net income to net cash and
cash equivalents provided (used) by operating activities
net of business acquired:
Equity in earnings of affiliates (1.3) (3.6)
Depreciation 24.3 23.1
Amortization of intangibles 5.0 2.3
Deferred taxes 4.1 -
Deferred income - (4.8)
Restructuring payments (11.1) -
Changes in assets and liabilities:
Receivables (23.6) (58.2)
Inventories 24.0 15.8
Other current assets 0.4 0.3
Accounts payable and accrued liabilities (27.8) (1.1)
Noncurrent liabilities 6.9 4.8
Other operating activities 0.8 (3.2)
----- ----
Net operating activities from continuing operations 24.1 8.4
Change in net assets held for sale 4.4 -
----- ----
Net operating activities 28.5 8.4
----- ----
Investing activities
- ----------------------
Capital expenditures (18.8) (26.1)
Business acquired in purchase transaction (2.0) -
Disposition of property, plant and equipment - 6.3
Investments and advances - affiliated companies at equity - (3.4)
Other investing activities (0.1) (0.3)
----- -----
Net investing activities (20.9) (23.5)
----- -----
Financing activities
- ----------------------
Long-term debt repayments, net (13.6) (1.7)
Short-term debt borrowings, net 3.5 29.2
Dividends paid (8.9) (8.9)
Purchases of Arch common stock - (9.5)
Other financing activities 1.5 0.4
----- ----
Net financing activities (17.5) 9.5
----- ----
Effect of exchange rate changes on cash and cash equivalents (1.6) (0.2)
----- -----
Net decrease in cash and cash equivalents (11.5) (5.8)
Cash and cash equivalents, beginning of year 19.1 12.1
----- -----
Cash and cash equivalents, end of period $ 7.6 $ 6.3
====== =====
Supplemental cash flow information
- -----------------------------------
Taxes paid, net $ 8.0 $11.8
====== =====
Interest paid $ 14.9 $ 4.2
====== =====
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of the condensed consolidated financial statements.
4
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
($ in millions, except share amounts)
Basis of Presentation
These condensed consolidated financial statements have been prepared by
Arch Chemicals, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of the
Company, reflect all adjustments (consisting of normal accruals) which are
necessary to present fairly the results for interim periods. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations;
however, the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements, accounting policies and the notes thereto and management's
discussion and analysis of financial condition and results of operations
included in the Company's Form 10-K for the year ended December 31, 2000. The
Company's HTH water products segment is seasonal in nature as its products are
primarily used in the U.S. residential pool market. Therefore, the results of
operations for the Company and in particular the HTH water products segment for
the three and six months ended June 30, 2001, are not necessarily indicative of
the results to be expected for the entire fiscal year.
Reclassifications of prior-year data have been made, where appropriate, to
conform to the 2001 presentation, including Sales and Cost of Goods Sold, which
were restated to reflect the adoption of EITF 00-10, "Accounting for Shipping
and Handling Fees and Costs," during the fourth quarter of 2000.
Inventories
June 30, December 31,
2001 2000
----------------- -------------------
Raw materials and supplies $ 46.3 $ 65.0
Work in process 26.3 23.0
Finished goods 114.8 128.8
----------------- -------------------
Inventories, gross 187.4 216.8
LIFO reserve (49.9) (52.1)
----------------- -------------------
Inventories, net $137.5 $164.7
================= ===================
Approximately half of the Company's inventories are valued by the dollar
value last-in, first-out ("LIFO") method of inventory accounting. Costs for
other inventories are determined principally by the first-in, first-out method.
Elements of costs in inventories include raw materials, direct labor and
manufacturing overhead. Inventories under the LIFO method are based on an annual
determination of quantities and costs as of the year-end; therefore, the
condensed consolidated financial statements at June 30, 2001, reflect certain
estimates relating to inventory quantities and costs at December 31, 2001.
Assets Held For Sale
Assets held for sale at June 30, 2001 include the Hickson organics
division and certain land that the Company is in the process of divesting. The
valuation of the Hickson organics division includes an estimate of the cash
flows, including estimated net sales proceeds, and an allocation of interest
expense during the holding period. Net earnings (losses) of the Hickson organics
division for the three and six months ended June 30, 2001 are not included in
the Condensed Consolidated Statements of Income, but have been recorded as an
adjustment to the net asset value in accordance with EITF 87-11. The results of
operations associated with these assets held for sale for the three and six
months ended June 30, 2001 was income of $0.1 and $1.4, respectively. In
addition, interest expense allocated to these assets was $1.4 and $3.0 for the
three and six months ended June 30, 2001. During the second quarter of 2001, the
value assigned at the acquisition date to certain land included in assets held
for sale was reduced by $6.6 and goodwill was adjusted accordingly.
5
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
($ in millions, except share amounts)
The Company continues to actively work on completing the sale of these
assets by the end of the third quarter. However, due to current market
conditions there is a reasonable likelihood that they may not be sold by such
date. If the sale does not occur by the third quarter, the Company will be
required to discontinue its current accounting and account for the results of
this division similar to a discontinued operation in accordance with APB No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". This is not expected to have a material effect on the
Company's cash flows or results of continuing operations.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options.
A reconciliation of basic and diluted weighted average common shares
outstanding is as follows (in millions):
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Basic 22.3 22.2 22.3 22.3
Common equivalent shares from stock options
using the treasury stock method 0.1 - - 0.1
-------- ------- -------- -------
Diluted 22.4 22.2 22.3 22.4
======== ======= ======== ========
Stock options with exercise prices greater than the average market price of
the Company's common stock were not included in the computation of diluted
earnings per share.
Derivative Instruments and Hedging
As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. The statement requires the recognition of all
derivative instruments as assets or liabilities in the Company's balance sheet
and the measurement of those instruments at fair value. The change in the fair
value of a derivative designated as a fair value hedge and the change in the
fair value of the hedged item attributable to the hedged risk are recognized in
earnings. For derivatives which qualify for designation as cash flow hedges, the
effective portion of the changes in fair value is recognized as part of other
comprehensive income until the underlying transaction that is being hedged is
recognized in earnings. The ineffective portion of the change in fair value of
cash flow hedges is recognized in earnings currently. Changes in fair value for
other derivatives which do not qualify as a hedge for accounting purposes are
recognized in current period earnings.
The Company uses foreign currency forward contracts as a means of hedging
exposure to foreign currency risk. It is the Company's policy to hedge up to 80%
of its anticipated purchase and sales commitments denominated or expected to be
denominated in a foreign currency. Accordingly, the Company has purchased
forward contracts to hedge its exposure to the variability of future foreign
currency cash flows through December 2001. During the three and six months ended
June 30, 2001, the majority of the Company's foreign currency forward contracts
qualified as effective cash flow hedges. The remainder of the foreign currency
contracts did not meet the criteria of SFAS 133 to qualify for effective hedge
accounting. The fair value of the foreign currency contracts is included in
Other Current Assets and Accrued Liabilities on the accompanying Condensed
Consolidated Balance Sheet.
6
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
($ in millions, except share amounts)
In order to manage the risks associated with the changes in natural gas
prices, the Company purchases futures contracts to hedge a portion of its
projected natural gas purchase requirements. These contracts expire on various
dates through April 2002. These contracts have been recorded at fair value and
are included in Accrued Liabilities on the accompanying Condensed Consolidated
Balance Sheet. As of June 30, 2001, these derivative contracts did not meet the
criteria of SFAS 133 to qualify for effective hedge accounting.
As of June 30, 2001, a portion of the Company's outstanding short-term
borrowings is denominated in British pounds and has been designated since its
inception as a hedge of the British pound net investment in the Hickson
International PLC ("Hickson") organics division. Foreign currency translation
adjustments during the three and six months ended June 30, 2001 include $0.7 and
$2.0 related to this debt instrument.
The cumulative effect of the accounting change due to the adoption of SFAS
133 as of January 1, 2001 was $0.4 before taxes or $0.2 net of tax, principally
due to interest rate swaps acquired in connection with the acquisition of
Hickson, which were cancelled in January 2001. During the three and six months
ended June 30, 2001, the Company recorded a net loss of $ 0.3 and $0.5,
respectively in Other Comprehensive Loss related to the change in the fair
market value of the derivatives designated as effective cash flow hedges. During
the three and six months ended June 30, 2001, the Company recorded a net loss of
$1.4 and $1.3, respectively, in Selling and Administration expenses related to
the change in fair value of derivatives which did not qualify for hedge
accounting and the change in the time value of the forward contracts, which has
been excluded from the assessment of hedge effectiveness (principally natural
gas futures contracts).
Comprehensive Income
Comprehensive income includes the change in the cumulative translation
adjustment and the change in the fair value of derivative financial instruments
which qualify for hedge accounting. Comprehensive income for the three and six
months ended June 30, 2001 and 2000 was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net income $13.5 $ 20.1 $ 22.4 $ 33.0
Foreign currency translation adjustments (6.0) (2.0) (14.0) (3.6)
Unrealized loss on derivative instruments (0.3) - (0.5) -
-----------------------------------------------
Total other comprehensive loss (6.3) (2.0) (14.5) (3.6)
-----------------------------------------------
Comprehensive income $ 7.2 $ 18.1 $ 7.9 $ 29.4
===============================================
Accumulated Other Comprehensive Loss
Changes in the accumulated net unrealized gain (loss) on derivative
instruments for the three and six months ended June 30, 2001 are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Beginning balance of accumulated net unrealized gain
(loss) on derivative instruments $ (0.2) $ - $ - $ -
Net gain (loss) on cash flow hedges (0.4) (0.6)
Less reclassification adjustments 0.1 - 0.1 -
----------------------------------------------
Ending balance of accumulated net unrealized gain
(loss) on derivative instruments $ (0.5) $ - $(0.5) $ -
==============================================
7
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
($ in millions, except share amounts)
The unrealized losses on derivative instruments included in Accumulated
Other Comprehensive Loss are expected to be reclassified into earnings within
the next 12 months. The Company does not provide for U.S. income taxes on
foreign currency translation adjustments since it does not provide for such
taxes on undistributed earnings of foreign subsidiaries.
Segment Information
The Company has organized its segments around differences in products and
services, which is how the Company manages its business. Segment operating
income includes the equity in earnings of affiliated companies and excludes
certain unallocated expenses of the corporate headquarters.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------
Sales:
Microelectronic Materials $ 41.9 $ 57.8 $ 96.7 $ 114.9
HTH Water Products 94.6 108.3 153.6 182.0
Treatment Products 65.3 26.5 126.5 49.5
Performance Products 61.7 41.8 125.4 80.9
Other Specialty Products 21.4 19.0 38.3 38.0
SPPI - 28.7 - 45.5
---------------------------------------------------
Total Sales $284.9 $282.1 $ 540.5 $510.8
===================================================
Operating Income (Loss):
Microelectronic Materials $ (1.4) $ 2.0 $ 2.5 $ 3.6
HTH Water Products 10.7 22.0 19.4 36.4
Treatment Products 9.4 2.3 17.1 4.8
Performance Products 4.0 4.6 4.7 9.8
Other Specialty Products 4.2 3.5 4.6 4.8
SPPI - 2.2 - 2.4
Corporate Unallocated (1.7) (3.2) (4.0) (6.4)
---------------------------------------------------
Total Operating Income $ 25.2 $ 33.4 $ 44.3 $ 55.4
===================================================
Capital Spending:
Microelectronic Materials $ 1.9 $ 4.3 $ 3.3 $ 8.3
HTH Water Products 2.4 2.6 4.4 4.1
Treatment Products 1.5 5.0 2.9 8.2
Performance Products 3.6 1.2 6.3 2.5
Other Specialty Products 0.7 1.7 1.9 3.0
---------------------------------------------------
Total Capital Spending $ 10.1 $ 14.8 $ 18.8 $ 26.1
===================================================
Pro Forma Financial Information
During 2000, the Company acquired Hickson and Brooks Industries and sold
its subsidiary Superior Pool Products, Inc. The table below presents unaudited
pro forma financial information in connection with the 2000 acquisitions and
disposition as if they had occurred on January 1, 2000. This unaudited pro forma
financial information reflects the preliminary allocation of the excess of the
acquisition cost over the fair value of the assets and liabilities under the
purchase method of accounting for the acquisition of Hickson. The estimate of
fair values is preliminary, and is subject to change upon receipt of 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. The final
determination of these fair values, anticipated no later than the third quarter
of 2001, could result in purchase accounting adjustments, which may impact the
Company's results of operations and financial position.
8
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
($ in millions, except share amounts)
The unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred if the acquisitions and disposition had been
completed at the dates indicated. The information does not necessarily indicate
the future operating results or financial position of the Company.
Three Months Ended Six Months Ended
June 30, June 30,
2000 2000
------------------- -----------------
Sales $323.1 $598.1
Net income $ 21.0 $ 35.0
Diluted income per share $ 0.94 $ 1.56
Restructuring Charge
In 2000, the Company recorded a restructuring charge of $34.0, which
included $8.9 of costs associated with headcount reductions and contractual
vendor obligations of the process chemicals business, $14.1 related to the
biocides business for the write-off of certain costs associated with the
abandonment of construction of a facility in China, the completion of a
consolidation study and additional headcount reductions, and $11.0 related to
headcount reductions at other businesses and corporate. Total headcount
reductions affect approximately 450 individuals. The non-cash portion of the
restructuring charges was approximately $13.
During the six months ended June 30, 2001, $11.8 was charged against the
restructuring reserve and approximately 230 employees had been terminated as of
June 30, 2001. In addition, during the three months ended June 30, 2001, the
Company recorded restructuring income of $0.2 for the reimbursement of certain
severance costs which were previously recorded in the fourth quarter of 2000.
For the six months ended June 30, 2001, restructuring also included a charge of
$0.8 consisting of retention payments made to employees as a result of the
Company's restructuring of the process chemicals business. Cumulative net
charges against the reserve and employee terminations total $24.2 and
approximately 320, respectively. At June 30, 2001, $9.8 of restructuring
reserves was included in Accrued Liabilities in the Company's Condensed
Consolidated Balance Sheet.
The following table summarizes activity related to the restructuring
costs:
Severance Costs Asset Write-downs Other Items Total
----------------------------------------------------------------
Provision $18.0 $11.0 $5.0 $34.0
2000 Activity:
Payments 1.4 - - 1.4
Utilized - 11.0 - 11.0
------- ------ ----- ------
Balance at December 31, 2000 16.6 - 5.0 21.6
2001 Activity:
Payments 8.3 - 1.0 9.3
Reclassification to Post-employment Liability 2.5 - - 2.5
------- ------ ----- ------
Balance at June 30, 2001 $ 5.8 $ - $4.0 $9.8
======= ====== ===== ======
U.S. Government Contract
On April 3, 2001 the Company announced it had agreed to a new contract
with the United States Department of the Air Force to supply hydrazine-based
propellant. It is a three-year contract with two one-year renewal options
effective March 1, 2001. The contract principally consists of a fixed price
facility management fee and a product purchase arrangement whereby the Company
supplies product at a fixed price per pound of product, adjusted annually for
agreed-upon cost escalations.
9
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
($ in millions, except share amounts)
Commitments and Contingencies
In 1999, Olin Corporation ("Olin") and the Company entered into an
agreement, which specifies that the Company is only responsible for
environmental liabilities at the Company's current operating plant sites and
certain offsite locations. Olin retained the liability for all former plant
sites and former waste disposal sites. In connection with the acquisition of
Hickson, the Company acquired certain environmental exposures and potential
liabilities of current and past operating sites, including a trial court
judgment of approximately $8.5 plus interest, which was reversed on the
successful appeal by the Company and remanded for a new trial on damages.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting from
investigatory studies, advances in technology, changes in environmental laws and
regulations and their application, the scarcity of reliable data pertaining to
identified sites, the difficulty in assessing the involvement and financial
capability of other potentially responsible parties and the Company's ability to
obtain contributions from other parties and the length of time over which site
remediation occurs.
There are a variety of non-environmental legal proceedings pending or
threatened against the Company. There has been no significant change in status
of such items during the six months ended June 30, 2001.
See the Company's Form 10-K for the year ended December 31, 2000 for
additional information on the above items.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
- --------
In analyzing the results of operations for the Company and its segments,
the following matters should be considered. The Company's HTH water products
segment is seasonal in nature. Historically, approximately forty-five percent of
the sales in the HTH water products business occur in the second quarter of the
fiscal year, as sales in the U.S. residential pool market are concentrated
between Memorial Day and the Fourth of July. Accordingly, results of operations
for the periods presented are not necessarily indicative of the results to be
expected for an entire fiscal year. Segment operating income includes the equity
in earnings of affiliated companies and excludes certain unallocated expenses of
the corporate headquarters.
Results of Operations
- ---------------------
Consolidated
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------------------
2001 2000 2001 2000
----- ----- ---- ----
(In millions, except per share amounts)
Sales $284.9 $282.1 $540.5 $510.8
====== ====== ====== ======
Gross Margin $89.9 $79.8 $163.1 $144.0
Selling and Administration 56.5 43.2 102.1 82.2
Amortization of Intangibles 2.5 1.2 5.0 2.3
Research and Development 6.0 3.7 12.4 7.7
Restructuring (0.2) - 0.6 -
Equity in (Earnings) of Affiliated Companies (0.1) (1.7) (1.3) (3.6)
Interest Expense, net 5.0 2.9 10.4 5.4
Income Taxes 6.7 10.4 11.3 17.0
Cumulative Effect of Accounting Change - - (0.2) -
--------- --------- ---------- ---------
Net Income $ 13.5 $ 20.1 $22.4 $33.0
========= ========= ========== =========
Diluted Income Per Common Share $ 0.60 $ 0.91 $1.00 $1.48
========= ========= ========== =========
EBITDA $ 39.1 $ 43.8 $73.6 $76.0
========= ========= ========== =========
Three Months Ended June 30, 2001 Compared to 2000
Sales increased 1%, or $2.8 million. The increase was due to the impact of
the acquisitions of Hickson International PLC ("Hickson") and Brooks Industries
personal care intermediates business ("Brooks") (approximately $65 million),
partially offset by the divestiture of Superior Pool Products, Inc. ("SPPI")
(approximately $29 million), and a decrease in volumes, primarily related to the
HTH water products and microelectronic materials segments.
Gross margin percentage was 31.6% and 28.3% for 2001 and 2000,
respectively. The increase was due to the Hickson and Brooks acquisitions and
the disposition of a low margin business (SPPI), and higher margins in the
microelectronic materials segment due to the restructuring of the process
chemicals business, partially offset by lower margins in the performance
urethanes business as a result of higher energy costs and higher manufacturing
costs due to lower contract manufacturing. The absence of income related to the
BASF contract was essentially offset by the contract settlement gain related to
the termination by Sunoco of its contract manufacturing agreement.
11
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Selling and administration expenses as a percentage of sales increased to
19.8% in 2001 from 15.3% in 2000. Excluding the impact of the acquisitions and
disposition in 2000, selling and administrative expenses increased in amount by
approximately $2 million. The increase is primarily due to higher sales
promotion and advertising expenses at HTH water products and unrealized losses
principally related to natural gas futures contracts, partially offset by lower
selling expenses associated with microelectronic materials.
Research and development expenses increased $2.3 million primarily due to
the inclusion of expenses related to Hickson and Brooks as well as higher
expenditures associated with HTH water products segment and the photopolymers
business.
Restructuring consists of the reimbursement of certain severance costs,
which were previously recorded as part of the restructuring charge in the fourth
quarter of 2000.
Equity in earnings of affiliated companies decreased $1.6 million due to
lower profits from FUJIFILM Arch Co. Ltd., and Planar Solutions, LLC expenses
incurred in connection with the commercialization of new products, partially
offset by profits from Koppers Arch Investments Pty Limited, which was acquired
as part of Hickson.
Interest expense, net was $5.0 million in 2001 compared to $2.9 million in
2000. The increase was primarily due to higher debt levels directly related to
the Hickson and Brooks acquisitions, partially offset by overall lower effective
interest rates and lower working capital borrowings.
The effective tax rate for the second quarter was 33% in 2001 and 34% in
2000.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
decreased $4.7 million due to the exclusion of SPPI results and lower results
from the HTH water products and microelectronics materials segments and the
performance urethanes business, partially offset by the results of the Hickson
and Brooks acquisitions and improved results from the biocides business.
Six Months Ended June 30, 2001 Compared to 2000
Sales increased 6%, or $29.7 million. The increase was due to the impact of
the acquisitions of Hickson and Brooks (approximately $127 million), partially
offset by the divestiture of SPPI (approximately $46 million) and a decrease in
volumes, primarily in the HTH water products and microelectronic materials
segments.
Gross margin percentage was 30.2% and 28.2% for 2001 and 2000,
respectively. The increase was due to the Hickson and Brooks acquisitions and
the disposition of a low margin business (SPPI), and higher margins in the
microelectronic materials segment due to the restructuring of the process
chemical business, partially offset by lower margins in the performance
urethanes business as a result of higher energy costs, the absence of income
related to the BASF contract and higher manufacturing costs due to lower
contract manufacturing, partially offset by the contract settlement gain related
to the termination by Sunoco of its contract manufacturing agreement.
Selling and administration expenses as a percentage of sales increased to
18.9% in 2001 from 16.1% in 2000. Excluding the impact of the acquisitions and
disposition in 2000, selling and administrative expenses decreased approximately
$3 million. The decrease is primarily due to lower selling expenses associated
with microelectronic materials and lower corporate headquarters expenses,
partially offset by unrealized losses principally related to natural gas futures
contracts.
Research and development expenses increased $4.7 million primarily due to
the inclusion of expenses related to Hickson and Brooks as well as higher
expenditures associated with HTH water products and the photopolymers business.
Restructuring consists of retention payments to employees associated with
the restructuring of the process chemicals business, offset by the reimbursement
of certain severance costs, which were previously recorded as part of the
restructuring charge in the fourth quarter of 2000.
12
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Equity in earnings of affiliated companies decreased $2.3 million due to
significantly lower profits from FUJIFILM Arch Co. Ltd., and Planar Solutions,
LLC expenses incurred in connection with the commercialization of new products,
partially offset by profits from Koppers Arch Investments Pty Limited, which was
acquired as part of Hickson.
Interest expense, net was $10.4 million in 2001 compared to $5.4 million in
2000. The increase was primarily due to higher debt levels directly related to
the Hickson and Brooks acquisition, partially offset by overall lower effective
interest rates and lower working capital borrowings.
The effective tax rate for the six months ended June 30 was 33% in 2001 and
34% in 2000.
EBITDA decreased $2.4 million due to the exclusion of SPPI's results and
lower results from the HTH water products and microelectronics materials
segments and the performance urethanes business, partially offset by the results
of the Hickson and Brooks acquisitions and improved results from the biocides
business.
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138. The adoption
of SFAS 133 resulted in a cumulative pre-tax reduction to income of $0.4 million
($0.2 million after-tax).
Third Quarter and Full Year Outlook
The Company anticipates that results for the third quarter of 2001 will be
in the range of a $0.10 loss per share to breakeven compared to income of $0.18
per share, excluding special items, reported in the third quarter of 2000. The
decrease in expected results as compared to 2000 is due primarily to the slowing
global economy and its adverse impact on the Company's customers' end markets,
and a planned extended shutdown of the Company's HTH water products' production
facility. For the full-year 2001, earnings per share are expected to be in the
$1.00 to $1.25 range, as compared to $1.66 reported in 2000 and EBITDA is
expected to be in the $115 to $125 million range. See also "Cautionary Statement
under Federal Securities Laws" below.
Microelectronic Materials
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----- ----- ---- ----
($ in millions)
Results of Operations
Sales $41.9 $57.8 $96.7 $114.9
Operating Income/(Loss) (1.4) 2.0 2.5 3.6
Three Months Ended June 30, 2001 Compared to 2000
Sales decreased 28% principally due to lower process chemicals sales due to
the exiting of certain unprofitable product lines as a result of the
restructuring announced during the fourth quarter of 2000. Photoresist and
ancillary sales were approximately 20% lower due to lower volumes as a result of
the downturn in the electronics industry.
The operating loss as compared to operating income in the prior year was
due to significantly lower profit from its joint venture FUJIFILM Arch Co. Ltd.,
Planar Solutions, LLC expenses incurred in connection with the commercialization
of new products and the lower sales. These were partially offset by lower
selling and administrative expenses and lower operating and depreciation
expenses as a result of the restructuring of the process chemicals business.
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Six Months Ended June 30, 2001 Compared to 2000
Sales decreased 16% principally due to lower process chemicals sales
due to the exiting of certain unprofitable product lines as a result of the
restructuring announced during the fourth quarter of 2000. Excluding process
chemicals, sales decreased 8% due to lower volumes as a result of the downturn
in the electronics industry.
The lower operating income as compared to the prior year was due to
significantly lower profits from its joint venture FUJIFILM Arch Co. Ltd.,
Planar Solutions, LLC expenses incurred in connection with the commercialization
of new products and the lower sales. These were partially offset by lower
selling and administrative expenses and lower operating and depreciation
expenses as a result of the restructuring of the process chemicals business,
which is now complete.
HTH Water Products
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
($ in millions)
Results of Operations
HTH Water Products $94.6 $108.3 $ 153.6 $ 182.0
SPPI - 28.7 - 45.5
---------------------------------------
Total Sales 94.6 137.0 153.6 227.5
HTH Water Products 10.7 22.0 19.4 36.4
SPPI - 2.2 - 2.4
---------------------------------------
Total Operating Income 10.7 24.2 19.4 38.8
Three Months Ended June 30, 2001 Compared to 2000
Sales decreased 31% and operating income decreased 56%. Excluding the
results of SPPI, which was sold in 2000, sales and operating income decreased
13% and 51%, respectively. Sales decreased primarily due to lower branded
(HTH(R)) and non-branded calcium hypochlorite volumes, and lower branded
trichlor (Pace(R)) volumes. The lower volumes were the results of lower mass
merchant category sales, customer inventory destocking and a cooler start to the
pool chemical season in the northeast and midwest U.S. markets. Operating income
decreased primarily due to the lower sales, higher sales promotion and
advertising expenses and higher research and development costs for new product
development.
Six Months Ended June 30, 2001 Compared to 2000
Sales decreased 32% and operating income decreased 50%. Excluding the
results of SPPI, which was sold in 2000, sales and operating income decreased
16% and 47%, respectively. Sales decreased primarily due to lower branded
(HTH(R)) and non-branded calcium hypochlorite volumes, lower branded trichlor
(Pace(R)) volumes as well as lower pricing. The lower volumes were due to excess
inventory from the 2000 pool season, unfavorable weather conditions, a
consolidation of the Company's third-party distributor locations and customer
destocking. Operating income decreased primarily due to the lower sales and
higher research and development costs for new product development.
14
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Treatment Products
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----- ---- ---- ----
($ in millions)
Results of Operations
Sales $65.3 $26.5 $126.5 $49.5
Operating Income 9.4 2.3 17.1 4.8
Three Months Ended June 30, 2001 Compared to 2000
Sales increased $38.8 million due to the inclusion of sales associated with
Hickson's wood protection business and Brooks' personal care intermediates
business (approximately $39 million) and strong antidandruff sales. Industrial
biocides' sales were 13% lower due to lower custom chemicals sales as a result
of the discontinuance of certain product lines, partially offset by higher
marine antifoulant paint sales. Operating income increased significantly as a
result of the acquisitions, favorable product mix and lower manufacturing and
selling costs.
Six Months Ended June 30, 2001 Compared to 2000
Sales increased $77.0 million primarily due to the inclusion of sales
associated with Hickson's wood protection business and Brooks' personal care
intermediates business (approximately $76 million). Higher antidandruff sales
and continued growth in marine antifoulant paint sales were partially offset by
lower custom chemicals sales as a result of the discontinuance of certain
product lines. Operating income increased significantly as a result of the
acquisitions, higher antidandruff and marine antifoulant paint sales and lower
manufacturing and selling costs.
Performance Products
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----- ---- ----- ----
($ in millions)
Results of Operations
Sales $61.7 $41.8 $125.4 $80.9
Operating Income 4.0 4.6 4.7 9.8
Three Months Ended June 30, 2001 Compared to 2000
Sales increased $19.9 million due to the inclusion of sales associated with
Hickson's coatings business (approximately $26 million), partially offset by
lower performance urethanes sales. Performance urethanes sales decreased 14%
principally due to lower volumes of performance polyols and glycol products. The
lower volumes were due to the dramatic slowdown in customer demand in the North
American coatings, adhesives, sealants and elastomers markets and increased
pressures from imports due to the strength of the U.S. dollar.
Operating income decreased by 13%. The operating income contribution from
the coatings business was more than offset by lower results from performance
urethanes due to the lower sales, higher energy costs and higher manufacturing
costs due to lower contract manufacturing. The absence of income related to the
BASF contract, which was completed on December 31, 2000, was essentially offset
by a contract settlement gain related to the termination by Sunoco of its
contract manufacturing agreement.
15
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Six Months Ended June 30, 2001 Compared to 2000
Sales increased $44.5 million due to the inclusion of sales associated with
Hickson's coatings business (approximately $51 million), partially offset by
lower performance urethanes sales. Performance urethanes sales decreased 8%
principally due to lower volumes of performance polyols.
Operating income decreased significantly. The operating income contribution
from the coatings business was more than offset by lower results from
performance urethanes due to the lower sales, the absence of income related to
the BASF contract which was completed on December 31, 2000, higher energy costs
and higher manufacturing costs due to lower contract manufacturing. Lower
operating results were partially offset by the contract settlement gain related
to the termination of the contract manufacturing agreement with Sunoco.
Other Specialty Products
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----- ---- - ----- ----
($ in millions)
Results of Operations
Sales $21.4 $19.0 $38.3 $38.0
Operating Income 4.2 3.5 4.6 4.8
Three Months Ended June 30, 2001 Compared to 2000
Sales and operating income increased 13% and 20%, respectively.
Hydrazine sales were 12% higher as a result of higher propellant revenues
associated with the new contract with the U.S. government and higher hydrazine
hydrate pricing, partially offset by reduced shipments in Asian markets where
pricing was not advantageous. Operating income increased due to higher sales and
lower selling and administrative expenses, partially offset by unfavorable fixed
costs absorption, higher energy costs and unrealized losses related to natural
gas futures contracts.
Sulfuric acid sales increased 13% as a result of higher pricing. Operating
income was higher primarily due to the higher sales.
Six Months Ended June 30, 2001 Compared to 2000
Sales increased 1% and operating income decreased 4%, respectively.
Hydrazine sales were 3% lower due to lower hydrazine hydrate volumes as a
result of reduced shipments in Asian markets where pricing was not advantageous,
partially offset by higher hydrazine hydrate pricing in other markets and higher
propellant revenues associated with the new contract with the U.S. government.
Operating income decreased due to unabsorbed costs due to a plant shutdown in
the first quarter of 2001, higher energy costs and unrealized losses related to
natural gas futures contracts, partially offset by lower selling and
administrative expenses.
Sulfuric acid sales increased 5% due to higher pricing. Operating income
was higher primarily due to higher sales, partially offset by higher energy
costs.
16
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Liquidity, Investment Activity and Other Financial Data
- -------------------------------------------------------
Cash Flow Data
Six Months
Ended June 30,
2001 2000
---- ----
($ in millions)
Provided By (Used For)
Net Operating Activities from Continuing Operations $ 24.1 $8.4
Capital Expenditures (18.8) (26.1)
Net Investing Activities (20.9) (23.5)
Net Financing Activities (17.5) 9.5
Six Months Ended June 30, 2001 Compared to 2000
For the six months ended June 30, 2001, the increase in cash flow provided
by net operating activities from continuing operations was attributable to the
Company's focus on reducing investment in working capital partially offset by
$11.1 million of payments related to the 2000 restructuring.
Capital expenditures for the first six months of 2001 decreased
significantly as compared to 2000 due to lower expenditures associated with the
microelectronic materials and treatment products segments. Capital expenditures
for 2001 are expected to be in the $50 to $55 million range.
In March 2001, the Company completed the acquisition of the assets of
Walker Brothers, a division of Consolidated Coatings, for approximately $2
million in cash.
In April 2000, the Company formed Planar Solutions, LLC to produce and
market chemical mechanical planarization slurry products. The Company
contributed cash of approximately $3.4 million and intellectual property to the
venture. In March 2000, the Company sold its building in Cheshire, Connecticut
for cash proceeds of $6.3 million.
On March 9, 2001 and June 8, 2001, the Company paid quarterly dividends of
$0.20 on each share of common stock. Total dividends paid to shareholders were
$8.9 million during the first six months of 2001.
Cash used by financing activities in the first half of 2001 as compared to
cash provided by financing activities in the first half of 2000 was due to lower
borrowing for working capital needs which resulted in the paydown of debt,
partially offset by the absence of purchases of common stock in 2001.
The Company has an unsecured $125 million revolving five-year credit
facility ("Five-year Facility"), which expires in January 2004, an unsecured
$125 million 364-day facility ("364-day Facility"), which expires in January
2002, and a $225 million revolving credit facility ("Acquisition Facility"),
which expires in March 2002, which the Company used to finance the Hickson
acquisition and refinance a portion of the assumed Hickson debt (collectively,
the "Credit Facilities"). It is the Company's intention to refinance the debt of
the Acquisition Facility on a long-term basis. However, due to the maturity of
the Acquisition Facility, all such borrowings thereunder have been classified as
short-term. The Credit Facilities contain leverage and interest coverage ratio
covenants, and restrict the payment of dividends and repurchases of stock in
excess of $65 million plus 50% of cumulative net income under certain
circumstances. Facility fees are payable on the Credit Facilities and range from
0.125% to 0.35%. The Company may select various floating rate borrowing options,
including, but not limited to, LIBOR plus 0.325% to 1.15%. At June 30, 2001, the
Company had approximately $151 million of available borrowings under the Credit
Facilities. The Company believes that the Credit Facilities and cash provided by
operations are adequate to satisfy its liquidity needs for the near future.
17
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
On October 28, 1999, the Company's Board of Directors approved a stock
repurchase program whereby the Company is authorized to buy back up to 1.2
million shares of its common stock, representing approximately 5% of outstanding
shares. Through June 30, 2001, the Company had repurchased approximately 893,000
shares under this program at a cost of approximately $16 million. The program
was suspended in 2000 pending the completion of the Hickson acquisition,
including the subsequent sale of the organics business.
The Company is pursuing the sale of the organics business by the end of the
third quarter of 2001. However, due to current market conditions there is a
reasonable likelihood that the assets may not be sold by such date. Proceeds
from the sale are expected to be used to reduce debt levels.
On July 26, 2001, the Company declared a quarterly dividend of $0.20 on
each share of the Company's common stock. The dividend is payable on September
7, 2001, to shareholders of record at the close of business on August 9, 2001.
New Accounting Standard
- -----------------------
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. SFAS 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142. SFAS
142 will also require that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Company is required to adopt the provisions of SFAS 141
immediately and SFAS 142 effective January 1, 2002. The Company is currently
evaluating the effect this statement will have on its financial position and
results of operations.
Cautionary Statement under Federal Securities Laws
- --------------------------------------------------
The information in this Form 10-Q contains forward-looking statements that
are based on management's beliefs, certain assumptions made by management and
management's current expectations, 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," "will," 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, except as required by law, 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 in the U.S. or European economies; increases in interest rates;
economic conditions in Asia; strengthening of the U.S. dollar against the euro;
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 slowdown or lack of recovery 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; the occurrence of unexpected manufacturing
interruptions/outages at the customer's or company plants; unfavorable weather
conditions for swimming pool use; the unsuccessful restructuring of the process
chemicals business; gains or losses on derivative instruments; the inability of
the Company to sell the Hickson organics division at its desired price; and the
unsuccessful integration of acquired businesses.
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2001, the Company had forward contracts to sell foreign
currencies with notional amounts of $6.4 million and forward contracts to buy
foreign currencies with notional amounts of $8.5 million. The fair values of
these forward contracts is included in Other Current Assets and Accrued
Liabilities.
Holding other variables constant, if there were a 10 percent adverse change
in foreign currency exchange rates, the net effect on the Company's annual cash
flows would be a decrease of between $1 million to $2 million, as any increase
(decrease) in cash flows resulting from the Company's hedge forward contracts
would be offset by an equal (decrease) increase in cash flows on the underlying
transaction being hedged. The application of SFAS 133 may cause increased
volatility in the Company's results of operations for interim periods in the
future, if the Company changes its policies, or because some of the derivative
instruments may not meet the requirements for hedge accounting.
The Company is exposed to commodity price risk as it relates to natural
gas, utilized at certain manufacturing sites, which is subject to price
volatility. Depending on market conditions, the Company may purchase derivative
commodity instruments to minimize the risk of price fluctuations. At June 30,
2001, the Company had forward contracts to purchase natural gas with notional
amounts of $3.9 million. The fair value of these contracts is included in
Accrued Liabilities. A 10 percent change in the forward price of natural gas
would increase or decrease the fair value of these forward contracts by
approximately $0.3 million.
See the Company's Form 10-K for the year ended December 31, 2000 for
additional information on the above items.
19
ARCH CHEMICALS, INC.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 26,
2001. Of the 22,158,963 shares of Common Stock entitled to vote at
such meeting, at least 20,389,956 shares were present for purposes of
a quorum. At the meeting, shareholders elected to the Board of
Directors Richard E. Cavanagh and Michael O. Magdol as Class II
directors each with a term expiring in 2004. Votes cast for and votes
withheld in the election of Directors were as follows:
FOR WITHHELD
--- --------
Richard E. Cavanagh 20,024,846 365,110
Michael O. Magdol 20,025,168 364,788
There were no abstentions or broker nonvotes.
The shareholders also ratified the appointment of KPMG LLP as
independent auditors for the Company for 2001. Voting for the
resolution ratifying the appointment were 19,968,944 shares. Voting
against were 297,208 shares. Abstaining were 123,804 shares. There
were no broker nonvotes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K.
None.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 2001.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCH CHEMICALS, INC.
--------------------
(Registrant)
August 13, 2001 By: Louis S. Massimo
------------------
Louis S. Massimo
Vice President and Chief
Financial Officer
21