<PAGE>
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, 1999
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, 1999, there were 23,002,830 outstanding shares of the
registrant's common stock.
<PAGE>
ARCH CHEMICALS, INC.
INDEX
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<TABLE>
<CAPTION>
Page Numbers
------------
PART I. FINANCIAL INFORMATION:
---------------------
<S> <C> <C>
Item 1. Financial Statements........................................... 2
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998.......................................... 2
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 1999 and 1998.................... 3
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998............................ 4
Notes to Condensed Consolidated Financial Statements........... 5 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 9 - 18
PART II. OTHER INFORMATION:
------------------
Item 5. Other Information.............................................. 19
Item 6. Exhibits and Reports on Form 8-K............................... 19
Signatures..................................................... 20
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ARCH CHEMICALS, INC.
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
Unaudited
June 30, December 31,
1999 1998
ASSETS ---- ----
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5.1 $ 7.1
Accounts receivable, net 232.4 141.7
Inventories, net 119.3 139.3
Other current assets 30.9 25.6
---- ----
Total current assets 387.7 313.7
Investments and advances - affiliated companies at equity 18.9 21.1
Property, plant and equipment, net 316.9 331.6
Goodwill 33.7 34.8
Other assets 19.6 20.4
---- ----
Total assets $ 776.8 $ 721.6
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings $ 9.9 $ 0.9
Accounts payable 120.4 106.7
Accrued liabilities 70.7 59.0
---- ----
Total current liabilities 201.0 166.6
Long-term debt 81.7 7.0
Other liabilities 48.1 43.5
Commitments and contingencies
Shareholders' equity:
Common stock, par value $1 per share,
Authorized 100.0 shares:
23.0 shares issued and outstanding in 1999 23.0 -
Additional paid-in capital 422.9 -
Retained earnings from February 8, 1999 25.4 -
Equity - 519.0
Cumulative translation adjustment (25.3) (14.5)
----- ------
Total shareholders' equity 446.0 504.5
----- -----
Total liabilities and shareholders' equity $ 776.8 $ 721.6
======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the
condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
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,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 268.2 $ 270.4 $ 493.2 $ 490.8
Operating expenses:
Cost of goods sold 190.4 190.7 348.1 340.8
Selling and administration 41.2 44.2 83.8 86.9
Research and development 4.4 4.4 8.9 8.8
------- ------- ------- -------
Operating income 32.2 31.1 52.4 54.3
------- ------- ------- -------
Equity in earnings of affiliated companies 1.4 0.6 2.7 2.0
Interest expense 1.6 0.1 2.6 0.2
Interest income 0.1 0.3 0.4 0.5
------- ------- ------- -------
Income before taxes 32.1 31.9 52.9 56.6
Income taxes 11.2 10.8 18.5 19.2
------- ------- ------- -------
Net income $ 20.9 $ 21.1 $ 34.4 $ 37.4
======== ======== ======== =======
Net income per common share:
Basic $ 0.91 $ 0.86 (a) $ 1.49 $ 1.51 (a)
======== ======== ======== =======
Diluted $ 0.90 $ 0.86 (a) $ 1.49 $ 1.51 (a)
======== ======== ======== =======
Weighted average common shares outstanding:
Basic 23.0 23.0 (a) 23.0 23.0 (a)
======== ======== ======== =======
Diluted 23.2 23.0 (a) 23.1 23.0 (a)
======== ======== ======== =======
(a) Pro forma financial information - In January 1999, Olin borrowed $75 million and on February 8, 1999 the Company assumed this
debt from Olin. Pro forma income per share of $0.86 and $1.51 are based upon pro forma net income of $19.8 million and $34.8 million
and pro forma common stock outstanding of 23.0 million shares for the three and six months ended June 30, 1998, respectively. Pro
forma net income reflects pro forma net interest expense of $1.8 million and $3.9 million on assumed borrowings for the three and
six months ended June 30, 1998, respectively. This assumes that $75 million was outstanding and that the Company had seasonal
weighted average borrowings related to the Water Chemicals segment of $40 million for such periods. Such borrowings were assumed to
be at an aggregate effective rate of 7% for the three and six months ended June 30, 1998. Pro forma common stock outstanding
represents the number of common shares issued at the Distribution Date and assumes that such shares were outstanding for all periods
prior to the Distribution.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the condensed
consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
ARCH CHEMICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Six Months
Ended June 30,
--------------
1999 1998
---- ----
<S> <C> <C>
Operating activities
- --------------------
Net income $ 34.4 $ 37.4
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities
Equity in earnings of affiliates (2.7) (2.0)
Depreciation and amortization 27.0 22.7
Deferred taxes 0.3 5.5
Change in assets and liabilities:
Receivables (90.0) (56.9)
Inventories 20.3 17.8
Other current assets (4.0) (0.8)
Accounts payable and accrued liabilities 22.9 0.4
Noncurrent liabilities (0.7) (3.4)
Other operating activities 0.1 (7.3)
-------- --------
Net operating activities 7.6 13.4
-------- --------
Investing activities
- --------------------
Capital expenditures (16.4) (29.4)
Other investing activities (1.8) 3.2
-------- --------
Net investing activities (18.2) (26.2)
-------- --------
Financing activities
- --------------------
Long-term debt borrowings 74.8 0.2
Short-term borrowings (repayments) 8.8 (0.5)
Dividends paid (4.6) -
Transfer (to) from Olin (71.6) 7.0
Other financing activities 0.3 -
-------- --------
Net financing activities 7.7 6.7
-------- --------
Effect of exchange rate changes on cash and cash equivalents 0.9 2.1
-------- --------
Net decrease in cash and cash equivalents (2.0) (4.0)
Cash and cash equivalents, beginning of year 7.1 9.0
-------- --------
Cash and cash equivalents, end of period $ 5.1 $ 5.0
======== ========
Supplemental cash flow information:
Taxes paid $ 9.5 $ -
======== ========
Interest paid $ 1.9 $ 0.1
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the condensed
consolidated financial statements.
</TABLE>
4
<PAGE>
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
($ in millions, except share amounts)
Basis of Presentation
The condensed financial statements included herein 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 generally accepted accounting principles 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 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, 1998. The Company's water chemicals 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 water chemicals segment for the three and six months ended June
30, 1999, are not necessarily indicative of the results to be expected for the
entire fiscal year.
Arch Chemicals, Inc. spin-off from Olin Corporation
On February 8, 1999 ("Distribution Date"), one share of the Company's common
stock, $1 par value per share, was distributed to shareholders of Olin
Corporation ("Olin") for every two shares of Olin common stock held by such
shareholders at the record date. At the Distribution Date, the Company began
operations as a separate, publicly-owned corporation.
Inventory
June 30, December 31,
1999 1998
------------- --------------
Raw materials and supplies $ 47.8 $ 55.4
Work in process 12.0 14.2
Finished goods 111.6 121.7
------------- --------------
Inventories, gross 171.4 191.3
LIFO reserve (52.1) (52.0)
------------- --------------
Inventory, net $119.3 $139.3
============= ==============
Inventories are valued principally by the dollar value last-in, first-out
(LIFO) method of inventory accounting. Elements of costs in inventories include
raw materials, direct labor and manufacturing overhead. Inventories under the
LIFO method are based on an annual determination of quantities and costs as of
the year-end; therefore, the condensed financial statements at June 30, 1999
reflect certain estimates relating to inventory quantities and costs at December
31, 1999.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options.
5
<PAGE>
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
($ in millions, except share amounts)
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,
1999 1999
-------- --------
Basic 23.0 23.0
Common equivalent shares from stock options
using the treasury stock method 0.2 0.1
-------- --------
Diluted 23.2 23.1
======== ========
Pro forma earnings per share is based upon pro forma net income of $19.8
and $34.8 and pro forma common stock outstanding of 23.0 million shares for the
three and six months ended June 30, 1998. Pro forma net income reflects pro
forma net interest expense of $1.8 and $3.9 on borrowings for the three and six
months ended June 30, 1998, respectively. This assumes that $75.0 of debt
assumed from Olin was outstanding (see Long-Term Debt) and that the Company had
seasonal weighted average borrowings related to the water chemicals segment of
$40.0. Such borrowings were assumed to be at an aggregate effective interest
rate of 7% for the three and six months ended June 30, 1998. Pro forma common
stock outstanding represents the number of common shares issued at the
Distribution Date and assumes that such shares were outstanding for all periods
prior to such distribution.
Comprehensive Income
The Company's other comprehensive income currently consists solely of the
cumulative translation adjustment. 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 on foreign subsidiaries. Comprehensive
income for the three and six months ended June 30, 1999 and 1998 was $19.9 and
$23.6, and $22.0 and $36.4, respectively.
Long-Term Debt
On January 27, 1999, Olin obtained an unsecured $125 revolving five-year
credit facility which expires in January 2004 and an unsecured $125, 364-day
facility which expires in January 2000 (collectively, the "Credit Facility").
Olin borrowed $75 under the Credit Facility. On February 8, 1999, the Company
succeeded to the Credit Facility and assumed the $75 of debt.
The Credit Facility contains leverage and interest coverage ratio
covenants, and restricts the payment of dividends in excess of $65 plus 50% of
cumulative net income under certain circumstances. Facility fees are payable on
the unused credit and range from 0.125% to 0.30%. The Company may select various
floating rate borrowing options, including but not limited to, LIBOR plus .325%
to 1.00% and Prime.
1999 Long Term Incentive Plan
On February 9, 1999, the Company granted to certain employees approximately
968,000 options to purchase common stock at an exercise price of $19.41 (fair
market value of the common stock on the grant date). In addition, the Company
granted to certain employees approximately 245,000 performance share units. All
of these grants were made under the Company's 1999 Long Term Incentive Plan. The
options vest at the end of a three-year period and are exercisable up to ten
years from the date of grant. The performance share units will vest if certain
performance measures are met at the end of a three-year performance period and
upon vesting are paid out in shares of common stock. Units may be paid out in
shares on a basis of up to 1.5 shares for every unit depending on the Company's
performance.
6
<PAGE>
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
($ in millions, except share amounts)
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 (loss) includes the equity in earnings of affiliated companies.
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
----------------------------------
Sales:
Microelectronic Chemicals $ 53.4 $ 59.0 $105.6 $121.4
Water Chemicals 128.4 120.5 221.4 191.6
Performance Chemicals 86.4 90.9 166.2 177.8
----------------------------------
Total Sales $268.2 $270.4 $493.2 $490.8
==================================
Operating Income (Loss):
Microelectronic Chemicals $ (0.4) $ 0.7 $ (1.3) $ 3.1
Water Chemicals 21.6 18.0 34.1 24.7
Performance Chemicals 12.4 13.0 22.3 28.5
----------------------------------
Total Operating Income $ 33.6 $ 31.7 $ 55.1 $ 56.3
==================================
Capital Spending:
Microelectronic Chemicals $ 2.0 $ 11.5 $ 4.6 $ 18.7
Water Chemicals 1.1 2.5 2.1 4.7
Performance Chemicals 7.2 3.0 9.7 6.0
----------------------------------
Total Capital Spending $ 10.3 $ 17.0 $ 16.4 $ 29.4
==================================
Commitments and Contingencies
As a result of the spin-off from Olin and through an agreement, the
Company is only responsible for environmental liabilities at the Company's
current operating plant sites and certain offsite locations.
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.
7
<PAGE>
ARCH CHEMICALS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
($ in millions, except share amounts)
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, 1999.
See the Company's most recent Form 10-K for additional information on
the above items.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
- ---------
This management's discussion and analysis of financial condition and results of
operations also covers periods when the Company was not a separate, independent
corporation and operated as the specialty chemical businesses of Olin. However,
such discussion and analysis has been prepared as if the Company were a separate
entity for all such periods discussed. In analyzing the results of operations
for the Company and its segments, the following matters should be considered.
The Company's water chemicals segment is seasonal in nature. Historically,
approximately forty percent of the sales in the water chemicals 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. In
addition, segment operating income includes the equity in earnings of affiliated
companies.
Results of Operations
- ----------------------
Consolidated
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Sales $268.2 $270.4 $493.2 $490.8
Gross Margin 77.8 79.7 145.1 150.0
Selling and Administration 41.2 44.2 83.8 86.9
Research and Development 4.4 4.4 8.9 8.8
Equity in Earnings of Affiliated Companies 1.4 0.6 2.7 2.0
Interest Expense, net 1.5 1.8 (a) 2.2 3.9 (a)
Net Income $ 20.9 $ 19.8 (a) $ 34.4 $ 34.8 (a)
Income Per Share:
Basic $ 0.91 $ 0.86 (a) $ 1.49 $ 1.51 (a)
Diluted $ 0.90 $ 0.86 (a) $ 1.49 $ 1.51 (a)
Weighted Average Common Stock Outstanding:
Basic 23.0 23.0 (a) 23.0 23.0 (a)
Diluted 23.2 23.0 (a) 23.1 23.0 (a)
</TABLE>
Note:
- ----
(a) Pro Forma Financial Information - In January 1999, Olin Corporation ("Olin")
borrowed $75 million and on February 8, 1999, the Company assumed this debt from
Olin. Pro forma income per share of $0.86 and $1.51 are based upon pro forma
net income of $19.8 million and $34.8 million and pro forma common stock
outstanding of 23.0 million shares for the three and six months ended June 30,
1998, respectively. Pro forma net income reflects pro forma net interest
expense of $1.8 million and $3.9 million on assumed borrowings for the three and
six months ended June 30, 1998, respectively. This assumes that $75 million was
outstanding and that the Company had seasonal weighted average borrowings
related to the water chemicals segment of $40 million. Such borrowings were
assumed to be at an aggregate effective interest rate of 7% for the three and
six months ended June 30, 1998. Pro forma common stock outstanding represents
the number of common shares issued at the Distribution Date and assumes that
such shares were outstanding for all periods prior to the Distribution.
9
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended June 30, 1999 Compared to 1998
Sales decreased 1%. The decrease in sales was due to a 3% decrease in pricing
and a 2% increase in volumes. The decrease in pricing was related to the
microelectronic chemicals and performance chemicals segments. The increase in
volumes was related to the water chemicals segment.
Gross margin percentage was 29.0% and 29.5% for 1999 and 1998, respectively.
The decrease in gross margin was due to the weakness in the semiconductor
industry resulting in both lower volumes and pricing in the microelectronic
chemicals segment, and lower volumes and pricing in the performance chemicals
segment. In addition, 1999 results were impacted by higher manufacturing costs
in the performance chemicals segment.
Selling and administration expenses as a percentage of sales decreased to
15.4% in 1999 from 16.3% in 1998. The decrease is primarily a result of cost-
saving initiatives which more than offset incremental public company costs.
Research and development expenses as a percentage of sales were 2% in 1999 and
1998, and the amount of expenses was comparable to the prior year.
Equity in earnings of affiliated companies increased $0.8 million due to the
favorable performance of the Company's joint ventures.
Interest expense, net was $1.5 million in 1999 compared to pro forma net
interest expense of $1.8 million in 1998. The decrease was primarily due to
lower working capital borrowings than those assumed in the prior year period.
The effective tax rate increased to 35% in 1999 from 34% in 1998 due to
anticipated higher state income taxes stemming from the elimination of tax
saving strategies resulting from the spin-off.
Six Months Ended June 30, 1999 Compared to 1998
Sales increased 1%. The increase in sales was due to a 3% increase in volumes
and a 2% decrease in pricing. The increase in volumes was related to the water
chemicals segment, offset somewhat by lower volumes in the microelectronic
chemicals and performance chemicals segments. The decrease in pricing was
related to the microelectronic chemicals and performance chemicals segments.
Gross margin percentage was 29.4% and 30.6% for 1999 and 1998, respectively.
The decrease in gross margin was due to the weakness in the semiconductor
industry resulting in both lower volumes and pricing in the microelectronic
chemicals segment, and lower volumes and pricing in the performance chemicals
segment. In addition, 1999 results were impacted by higher manufacturing costs
in the performance chemicals segment.
Selling and administration expenses as a percentage of sales decreased to
17.0% in 1999 from 17.7% in 1998. The decrease is primarily a result of cost-
saving initiatives which more than offset incremental public company costs and
higher advertising and sales promotional expenses in the water chemicals
segment.
Research and development expenses as a percentage of sales were 2% in 1999 and
1998, and the amount of expenses was comparable to the prior year.
Equity in earnings of affiliated companies increased $0.7 million due to the
favorable performance of the Company's joint ventures.
10
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Interest expense, net was $2.2 million in 1999 compared to net pro forma
interest expense of $3.9 million in 1998. The decrease was primarily due to
lower working capital borrowings than those assumed in prior years.
The effective tax rate increased to 35% in 1999 from 34% in 1998 due to
anticipated higher state income taxes stemming from the elimination of tax
saving strategies resulting from the spin-off.
In November 1997, the Company completed a transaction with BASF whereby the
Company received $42 million for the sale of its performance chemicals'
surfactants business and a three-year supply agreement. Of the proceeds
received, $12 million was allocated to the sale of the surfactants business
based on the fair value of such business and $30 million was allocated to the
supply agreement. No gain or loss was recorded on the sale. In the supply
agreement, the Company agreed to reserve production capacity for surfactants
products at its Brandenburg, Kentucky facility and to supply BASF with such
products in exchange for a $30 million payment made at the time of signing the
agreement, plus recovery of all fixed and variable costs during the term of the
agreement. The agreement expires on December 31, 2000 unless extended; the
Company does not believe it will be extended. The $30 million payment was
recorded as deferred income and is amortized ratably into operating income over
the three-year term. Unless the supply agreement is extended beyond 2000, which
the Company does not expect to happen, no future income will be realized with
respect to this supply agreement after December 31, 2000. Sales and operating
income for the three and six months ended June 30, 1999 and 1998, include $2.3
million and $4.7 million, respectively, related to the amortization of deferred
income under the supply agreement.
For the full fiscal year, the Company's 1999 sales and operating income are
expected to be higher than 1998, and diluted income per share is expected to be
in the $1.85 range.
Microelectronic Chemicals
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------- ------ ------- ------
($ in millions)
Results of Operations
Sales $53.4 $59.0 $105.6 $121.4
Operating Income (Loss) (0.4) 0.7 (1.3) 3.1
Three Months Ended June 30, 1999 Compared to 1998
Sales decreased 9% with an operating loss in 1999 compared to an operating
profit in 1998. The overall sales decrease was due in large part to the
weakness of the semiconductor industry as compared to a year ago. The operating
loss was primarily due to lower pricing and volumes which were offset somewhat
by lower operating expenses.
Photopolymers' sales were lower across all product lines and operating income
was slightly higher as favorable manufacturing costs and the favorable
performance of its joint venture with Fuji Photo Film, more than offset the
effect of lower sales.
Chemicals and services' sales were lower primarily due to lower North American
process chemical sales, which offset higher thin film and chemical management
services sales. The operating loss increased as a result of lower pricing and
higher manufacturing costs related to quality improvement initiatives associated
with the process chemicals business.
11
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Six Months Ended June 30, 1999 Compared to 1998
Sales decreased 13% with an operating loss in 1999 compared to an operating
profit in 1998. The overall sales decrease was due in large part to the
weakness of the semiconductor industry as compared to a year ago. The operating
loss was due to lower volumes and pricing which were offset somewhat by lower
operating expenses.
Photopolymers' sales were lower across all product lines and operating income
was lower due to the decrease in sales, partially offset by favorable
manufacturing costs and the favorable performance of its joint venture with Fuji
Photo Film.
Chemicals and services' sales were lower primarily due to lower North American
process chemical sales, which offset slightly higher thin film and chemical
management services sales. The operating loss increased as a result of lower
pricing and higher manufacturing costs related to quality improvement
initiatives associated with the process chemicals business.
The Company expects its microelectronic chemicals businesses to be modestly
profitable for the year due to the benefits of its cost reduction, quality
improvement and operating efficiency programs, as well as an expected modest
recovery of the semiconductor industry in the second half of 1999.
Water Chemicals
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------ ------ ------ ------
($ in millions)
Results of Operations
Sales $128.4 $120.5 $221.4 $191.6
Operating Income 21.6 18.0 34.1 24.7
Three Months Ended June 30, 1999 Compared to 1998
Sales increased 7% and operating income increased 20%. Sales of branded,
bulk, and related products were comparable to prior year as strong seasonal
demand for certain branded products (Pace/O/), higher bulk volumes, and higher
accessory sales, were offset by lower Super Sock-It/O/ sales as a result of
product constraints due to the stronger demand experienced in the first quarter
of 1999 which lowered inventory levels ordinarily reduced during the second
quarter. The increase in sales was primarily attributable to higher sales from
the two distribution businesses, Superior Pool Products and Hydrochim. Prices
were comparable to last year as higher average brand prices were offset by lower
non-brand prices. Operating income increased primarily due to lower
manufacturing costs and selling and administrative expenses due to improved
plant performance, cost reduction initiatives, and a modest increase from the
higher sales of the distribution businesses.
Six Months Ended June 30, 1999 Compared to 1998
Sales increased 16% and operating income increased 38%. The increase in sales
was attributable to strong seasonal demand for branded products (HTH/O/, Sock-
It/O/, Super Sock-It/O/, and Pace/O/) and higher bulk and export sales. Strong
sales from the two distribution businesses, Superior Pool and Hydrochim, also
contributed to the
12
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
sales increase. Prices were comparable to last year as higher average brand
prices were offset by lower non-brand prices. Operating income increased as
additional sales volumes, lower general and administrative expenses, and the
favorable performance of its joint venture, more than offset increased
advertising and sales promotional expenses.
The Company expects improved operating performance in 1999 as compared to 1998
primarily from projected increases in volumes of branded products and lower
expenses due to cost reduction initiatives.
Performance Chemicals
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------ ------ ------ ------
($ in millions)
Results of Operations
Sales $86.4 $90.9 $166.2 $177.8
Operating Income 12.4 13.0 22.3 28.5
Three Months Ended June 30, 1999 Compared to 1998
Sales and operating income decreased 5%.
Sales in the performance urethanes and organics business were lower as a
result of lower pricing for propylene glycol and nonfoam polyols products
combined with lower volumes and pricing in Latin America, principally related to
surfactants products. Operating income decreased from the prior year as a
result of lower prices, slightly offset by favorable operating expenses.
Sales in the biocides business were comparable to prior year as increased
sales in the building products market were offset by slightly lower volumes in
the anti-dandruff and metalworking fluid markets. Operating income was slightly
lower due to the unfavorable sales mix.
Sales in the hydrazine and sulfuric acid businesses were lower due to lower
hydrazine hydrate prices and volumes caused by poor Asian economic conditions
and lower sulfuric acid volumes. Operating income was slightly higher as lower
manufacturing costs in the sulfuric acid business and a favorable mix of
propellant sales more than offset the overall sales decrease and poor plant
performance in the hydrazine business.
Six Months Ended June 30, 1999 Compared to 1998
Sales and operating income decreased 7% and 22%, respectively.
Sales in the performance urethanes and organics business decreased due to
lower pricing for nonfoam polyols and propylene glycol products combined with
lower volumes and prices in Latin America, principally related to the
surfactants businesses, partially offset by higher flexible polyols volumes.
Operating income decreased from the prior year as lower volumes and pricing more
than offset improved domestic product mix and favorable operating expenses from
cost reduction programs.
13
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Sales in the biocides business were higher primarily due to increased
international volumes related to the anti-dandruff and building products
markets. Operating income decreased from the prior year as higher international
operating costs more than offset the higher volumes. In addition, manufacturing
expenses were negatively impacted by an unscheduled outage at the Rochester
plant during the first quarter of 1999, resulting from a severe snowstorm.
Sales in the hydrazine business were lower due to lower hydrazine hydrate
prices and volumes caused by poor Asian economic conditions and lower Ultra
Pure/TM/ sales due to the timing of different launch schedules. Operating
income decreased from the prior year due to the sales shortfall and an
unanticipated, extended plant outage resulting in unfavorable manufacturing
costs.
Sulfuric acid sales were comparable to prior year as lower volumes offset
higher pricing. Operating income increased due to favorable manufacturing and
distribution costs.
In November 1997, the Company completed a transaction with BASF whereby the
Company received $42 million for the sale of its performance chemicals'
surfactants business and a three-year supply agreement. Of the proceeds
received, $12 million was allocated to the sale of the surfactants business
based on the fair value of such business and $30 million was allocated to the
supply agreement. No gain or loss was recorded on the sale. In the supply
agreement, the Company agreed to reserve production capacity for surfactants
products at its Brandenburg, Kentucky facility and to supply BASF with such
products in exchange for a $30 million payment made at the time of signing the
agreement, plus recovery of all fixed and variable costs during the term of the
agreement. The agreement expires on December 31, 2000 unless extended; the
Company does not believe it will be extended. The $30 million payment was
recorded as deferred income and is amortized ratably into operating income over
the three-year term. Unless the supply agreement is extended beyond 2000, which
the Company does not expect to happen, no future income will be realized with
respect to this supply agreement after December 31, 2000. Sales and operating
income for the three and six months ended June 30, 1999 and 1998, include $2.3
million and $4.7 million, respectively, related to the amortization of deferred
income under the supply agreement.
The Company expects operating performance for 1999 to be slightly lower than
that in 1998 from its performance chemicals businesses due to the decreased
operating income from the hydrazine business as a result of lower pricing and
volumes related to the hydrazine hydrate business, and from the biocides
business due to higher operating costs.
Liquidity, Investment Activity and Other Financial Data
Cash Flow Data
Six Months
Ended June 30,
1999 1998
------- -------
($ in millions)
Provided By (Used For)
Net Operating Activities $ 7.6 $ 13.4
Capital Expenditures (16.4) (29.4)
Net Investing Activities (18.2) (26.2)
Net Financing Activities 7.7 6.7
14
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Prior and up to the spin-off, the Company's financing requirements were
provided by Olin.
For the six months ended June 30, 1999, the reduction in cash flow provided by
net operating activities was primarily attributable to higher working capital
due to higher seasonal demand, resulting in higher accounts receivable, in the
water chemicals segment as compared to 1998.
Capital expenditures for the first half of 1999 as compared to 1998 decreased
approximately 45%. The decrease is primarily attributable to the completion of
certain capital projects in the microelectronic chemicals segment in 1998 and as
a result of the Company's focus on reducing capital spending levels.
Capital expenditures for 1999 are expected to decrease approximately 10-20%
from 1998 as a result of the completion of such capital projects in 1998, and
the Company's continued focus on reducing capital spending levels.
On June 10, 1999, the Company paid its first quarterly dividend of $.20 on
each share of common stock. Total dividends to shareholders were $4.6 million
during the first six months of 1999.
On January 27, 1999, Olin obtained an unsecured $125 million revolving five-
year credit facility which expires in January 2004 and an unsecured $125
million, 364-day facility which expires in January 2000 (collectively the
"Credit Facility"). Olin borrowed $75 million under the Credit Facility. On
February 8, 1999, the Company succeeded to the Credit Facility and assumed the
$75 million of debt.
The Credit Facility contains leverage and interest coverage ratio covenants,
and restricts the payment of dividends in excess of $65 million plus 50% of
cumulative net income under certain circumstances. Facility fees are payable on
the unused credit and range from 0.125% to 0.30%. The Company may select
various floating rate borrowing options, including but not limited to, LIBOR
plus .325% to 1.00% and Prime. At June 30, 1999, the Company had $167 million
of available borrowings under this Credit Facility. The Company believes that
the Credit Facility is adequate to satisfy its liquidity needs for the near
future.
On July 29, 1999, the Company declared a quarterly dividend of $.20 on each
share of the Company's common stock. The dividend is payable on September 10,
1999, to shareholders of record at the close of business on August 10, 1999.
Year 2000 Computer Systems
The Company views the impact of the Year 2000 as a critical business issue. It
manages the process by having each business identify its own Year 2000 issues
and develop appropriate corrective action steps, while instituting a series of
management processes that coordinate and manage the process across business
boundaries and the corporate center. The process includes corporate oversight
and provides for consistent attention to progress made against planned
activities and a forum for issue resolution at the business and corporate levels
with periodic assessments made by independent parties which are periodically
reported to the Company's Board of Directors.
The Company recognizes that the Year 2000 issue is not limited to computer
programs normally associated with the processing of business information, but
can also be found in certain equipment and processes used in manufacturing and
operation of facilities. Furthermore, it also recognizes that the potential
exists for Year 2000 issues within the supply chain. The Company's approach was
to subdivide the program into four distinct segments: 1) Business Systems; 2)
Manufacturing; 3) Supply Chain; and 4) Infrastructure.
15
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
In the business systems segment, the Company has positioned itself very
favorably with respect to software and equipment that is Year 2000 compliant. In
1994, the Company began implementing a Year 2000 compliant client-server system,
Peoplesoft, to address payroll and human resource needs and it presently uses
such system in all domestic operations. Deployment of Peoplesoft was completed
in 1997. In 1993, the Company began implementing for all domestic businesses a
client-server system, SAP, for core business requirements as a vehicle to obtain
certain improvements in the business processes. SAP is currently utilized in all
of its domestic businesses. Since SAP was also a certified Year 2000 compliant
solution, migration plans were adjusted to take advantage of the business
benefit while eliminating the cost of remediating old legacy system code.
Deployment has been aggressive with all domestic functions and locations fully
transferred to SAP as of March 1999. In recognition of the key role that SAP
plays in the Company's business operations, an independent system test was
performed as further protection of Year 2000 compliance. Results of the
successful system testing have been documented and preserved as supportive
evidence in responding to Year 2000 inquiries from our customers. International
locations have upgraded their existing operational and personnel systems to Year
2000 compliant versions and will continue using existing systems until
conversion to SAP during 2000 and beyond.
In the manufacturing segment, plant level employees and independent
assessments were used to identify places where embedded systems exist and
categorize them by the potential impact to the business. Through a remediation
plan, which has made maximum advantage of "planned outages" in order to minimize
the impact on operations, Arch remains with less than 20 items for full
compliance. These remaining items are scheduled to be completed during the
third quarter.
The supply chain segment has seen much activity in terms of assessing vendor
Year 2000 preparedness, identifying alternate sources, as well as insertion of
certain Year 2000 compliance language in all purchase orders issued. The Company
has completed a review of single source and critical suppliers. During 1999, the
Company will continue to re-evaluate its suppliers on a periodic basis.
Personal computers, networks, and PBX's represent the majority of items in the
Company's infrastructure segment. The Company has deployed new Pentium Year 2000
compliant equipment in large numbers to support its SAP deployment program and
for internal standards compliance. In addition, the Company has utilized
software tools to test the entire PC inventory for Year 2000 compliance. The
Company's wide area network and all voice mail systems and PBX's are now Year
2000 compliant.
The Company believes its Year 2000 initiative is on track to address
significant Year 2000 issues, and is supported by the findings of an independent
assessment completed in December 1998. The independent assessment does not
address the accuracy of the Company's cost estimates. An additional independent
assessment was performed in July 1999.
Plans for a worst case scenario in the unlikely event of a major failure due
to a Year 2000 problem which causes significant disruptions to business
operations are being formulated. In the area of business systems, management
believes that the Company, with its operating units already migrated to Year
2000 compliant solutions, has already significantly reduced its potential risk.
As added protection, software migration plans to newer releases of core business
systems (e.g. Peoplesoft, SAP) include Year 2000 testing scenarios.
The Company continues to focus attention to the manufacturing segment. It has
deployed several independent initiatives to identify embedded systems, develop
comprehensive equipment lists, obtained vendor certifications of Year 2000
compliance, and to insure that adequate remediation plans are in place. It has
developed plans for further testing with respect to key manufacturing equipment
and systems, during periods of scheduled outages.
16
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company will continue to monitor progress against plans in the business
systems, manufacturing, infrastructure, and supply chain segments, and take
corrective action should slippage occur. The use of vendor-supplied Year 2000
compliant solutions, coupled with substantive pre-testing of key systems and a
strong management commitment and oversight are the cornerstone of the Company's
Year 2000 program.
Nonetheless, in the unlikely occurrence of some unforeseen event, contingency
plans are being developed, which will include a provision for the formation of
emergency teams skilled in each of the disciplines. They will be deployed to
assist local personnel in the event of a Year 2000 issue at the turn of the
millennium.
The Company does not expect Year 2000 initiative costs to exceed $5 million
over the next six months, inclusive of the cost for continued deployment of SAP
and related infrastructure.
New Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company is currently evaluating the effect this statement
will have on its financial position and results of operations in the period of
adoption.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective
for fiscal years beginning after December 15, 1998. The Company adopted this
statement as of January 1, 1999, and it did not have a material effect on its
financial position or results of operations.
Also in 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." This Statement of Position requires the expensing of certain costs
such as pre-operating expenses and organizational costs associated with the
Company's start-up activities, and is effective for fiscal years beginning after
December 15, 1998. The Company adopted this statement as of January 1, 1999, and
it did not have a material effect on its financial position or 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 business segments operate. Words such
as "anticipates," "believes," "estimates," "expects," "forecasts," "opines,"
"plans," "projects," "should," "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 does not
undertake any 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 in the U.S. economy or even a slight
recession in 1999, loss of a key customer, higher than expected raw material
costs for certain chemical product lines, increased foreign competition in the
calcium hypochlorite
17
<PAGE>
ARCH CHEMICALS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
markets, lack of stability, recovery or growth in the semiconductor industry,
the Company's ability to maintain chemical price increases, the supply/demand
balance for the Company's products, failure to achieve targeted cost reduction
programs, unsuccessful entry into new markets for electronic chemicals,
continued poor economic conditions in Asia, capital expenditures, such as cost
overruns, in excess of those scheduled, the occurrence of unexpected
manufacturing interruptions/outages, environmental costs in excess of those
projected, increased competitive and/or customer pressure, customer acceptance
of new products, efficacy of new technology, changes in U.S. laws and
regulations, costs or difficulties relating to the establishment of the Company
as an independent entity, and unfavorable court or jury decisions.
18
<PAGE>
ARCH CHEMICALS, INC.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
-----------------
Effective close of business on July 23, 1999, First Chicago Trust
Company of New York ("First Chicago") became the Corporation's
registrar and transfer agent for the Corporation's Common Stock and
Series A Participating Cumulative Preferred Stock. In addition,
effective on such date, First Chicago was appointed the Rights Agent
for the Corporation's Series A Participating Cumulative Preferred
Stock Purchase Rights under the Rights Agreement, dated as of January
29, 1999. The Corporation and First Chicago also entered into an
amendment to such Rights Agreement and such amendment is attached
hereto as Exhibit 4.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K.
4. Amendment No. 1 dated as of July 23, 1999 to the Rights
Agreement, dated as of January 29, 1999.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1999.
19
<PAGE>
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, 1999 By: Louis S. Massimo
---------------------------------
Louis S. Massimo
Vice President and Chief
Financial Officer
20
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--------- -----------
4. Amendment No. 1 dated as of July 23, 1999 to the Rights Agreement,
dated as of January 29, 1999.
27. Financial Data Schedule.
21
<PAGE>
EXHIBIT 4
CONFORMED COPY
AMENDMENT NO. 1 dated as of July 23, 1999 (this
"Amendment"), between ARCH CHEMICALS, INC., a Virginia
corporation (the "Company") and FIRST CHICAGO TRUST COMPANY OF
NEW YORK, as Rights Agent ("First Chicago"), to Rights Agreement
dated as of January 29, 1999 (the "Rights Agreement"), between
the Company and ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon").
WHEREAS the Company and ChaseMellon entered into the Rights Agreement
on January 29, 1999;
WHEREAS the Company has removed ChaseMellon as Rights Agent under the
Rights Agreement by delivering written notice of such removal in accordance with
Section 22 of the Rights Agreement, and the Company desires to appoint First
Chicago as Rights Agent under the Rights Agreement; and
WHEREAS the Company, pursuant to Section 26 of the Rights Agreement,
has determined to amend the Rights Agreement as set forth herein.
NOW THEREFORE, in consideration of the mutual premises and the mutual
agreements set forth herein, the parties hereby agree as follows:
SECTION 1. Appointment of New Rights Agent.
-------------------------------
Pursuant to and in accordance with Section 22 of the Rights Agreement, the
Company hereby appoints First Chicago as Rights Agent under the Rights
Agreement, and First Chicago hereby accepts such appointment. Without any
further action, First Chicago shall be the Rights Agent under the Rights
Agreement, and shall succeed to all of the covenants, agreements, obligations,
rights and benefits of ChaseMellon in its former capacity as Rights Agent under
the Rights Agreement (as amended hereby).
SECTION 2. Section 3. Section 3(d) of the Rights Agreement is hereby
----------
amended as follows:
(a) By deleting the words "ChaseMellon Shareholder Services, L.L.C."
in the first sentence of the legend set forth therein and replacing such words
with the words "First Chicago Trust Company of New York";
<PAGE>
2
(b) By deleting the words "Rights Agent" in the third sentence of the
legend set forth therein and replacing such words with the word "Company"; and
(c) By deleting the last sentence thereof and replacing it with the
following sentence:
"Notwithstanding this paragraph (d), neither the omission of a legend
(or any words thereof), nor the inclusion of a different legend or a
legend that makes reference to a rights agreement other than the
Rights Agreement shall affect the enforceability of any part of this
Rights Agreement or the rights of any holder of the Rights."
SECTION 3. Section 22. Section 22 of the Rights Agreement is hereby
-----------
amended by deleting the fifth sentence thereof and replacing it with the
following sentence:
"Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be (A) a Person organized and doing business under
the laws of the United States or of any state of the United States, in
good standing, having a principal office in the United States, which
is subject to supervision or examination by Federal or state authority
and which has (either alone or together with an Affiliate) at the time
of its appointment as Rights Agent a combined capital and surplus of
at least $25,000,000 or (B) an Affiliate of a Person described in
clause (A) of this sentence; provided that the principal transfer
--------
agent for the Common Shares shall in any event be qualified to be the
Rights Agent."
SECTION 4. Section 25. Section 25 of the Rights Agreement is hereby
-----------
amended by deleting the name and address of ChaseMellon and replacing it with
the following:
"First Chicago Trust Company of New York
525 Washington Blvd.
Suite 4660
Jersey City, NJ 07310
Attention: Corporate Actions Administration".
<PAGE>
3
SECTION 5. Section 26. Section 26 of the Rights Agreement is hereby
-----------
amended by deleting the word "last" in the first sentence thereof and replacing
such word with the word "penultimate".
SECTION 6. Exhibit B. Exhibit B of the Rights Agreement is hereby
----------
amended by deleting the words "ChaseMellon Shareholder Services, L.L.C., a New
Jersey corporation" and "CHASEMELLON SHAREHOLDER SERVICES, L.L.C." and replacing
such words with the words "First Chicago Trust Company of New York" and "FIRST
CHICAGO TRUST COMPANY OF NEW YORK", respectively.
SECTION 7. Certain References. (a) All references in the Rights
-------------------
Agreement (and in any exhibits thereto) to the "Rights Agent" shall be deemed to
be references to First Chicago.
(b) All references in the Rights Agreement (and in any exhibits
thereto) to the term "Rights Agreement" or to the terms "herein", "hereof" or
words of similar import shall in each case be deemed to be references to the
Rights Agreement as amended hereby.
SECTION 8. Rights Agreement. Except as expressly amended hereby, the
-----------------
Rights Agreement shall remain in full force and effect, and shall be otherwise
unaffected hereby.
SECTION 9. Governing Law. This Amendment shall be deemed to be a
--------------
contract made under the law of the Commonwealth of Virginia and for all purposes
shall be governed by and construed in accordance with the law of such
Commonwealth applicable to the contracts to be made and performed entirely
within such Commonwealth.
SECTION 10. Severability. If any term, provision, covenant or
-------------
restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
<PAGE>
4
SECTION 11. Counterparts; Effectiveness. This Amendment may be
----------------------------
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts shall
together constitute one and the same instrument. This Amendment shall be
effective as of 5:00 p.m. New York City time on July 23, 1999.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
ARCH CHEMICALS, INC.,
by
/s/ Michael E. Campbell
-------------------------------------
Name: Michael E. Campbell
Title: Chairman of the Board and
Chief Executive Officer
FIRST CHICAGO TRUST COMPANY
OF NEW YORK, as Rights Agent,
by
/s/ Michael S. Duncan
-------------------------------------
Name: Michael S. Duncan
Title: Director, Corporate Actions
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements contained in Item 1 on Form 10-Q for the period ended June
30, 1999 and is qualified in its entirety by reference to such financial
statements. Figures are rounded to the nearest 100,000 (except EPS).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,100
<SECURITIES> 0
<RECEIVABLES> 232,400
<ALLOWANCES> 0
<INVENTORY> 119,300
<CURRENT-ASSETS> 387,700
<PP&E> 851,300
<DEPRECIATION> 534,400
<TOTAL-ASSETS> 776,800
<CURRENT-LIABILITIES> 201,000
<BONDS> 81,700
0
0
<COMMON> 23,000
<OTHER-SE> 423,000
<TOTAL-LIABILITY-AND-EQUITY> 776,800
<SALES> 493,200
<TOTAL-REVENUES> 493,200
<CGS> 348,100
<TOTAL-COSTS> 348,100
<OTHER-EXPENSES> 92,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,600
<INCOME-PRETAX> 52,900
<INCOME-TAX> 18,500
<INCOME-CONTINUING> 34,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,400
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.49
</TABLE>
