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Arch Chemicals, Inc. (NYSE:ARJ)

Q4 2008 Earnings Call

February 04, 2009 11:00 AM ET

Executives

Michael E. Campbell - Chairman, President and Chief Executive Officer

Steven C. Giuliano - Vice President and Chief Financial Officer

Louis S. Massimo - Executive Vice President and Chief Operating Officer

Analysts

Frank Mitsch - BB&T Capital Markets

Robert Felice - Gabelli & Company

Brian Bittner - Oppenheimer & Company

Christopher Butler - Sidoti & Co.

Saul Ludwig - KeyBanc Capital Markets

Ivan Marcuse - KeyBanc Capital Markets

Operator

Good morning and welcome ladies and gentlemen to Arch Chemicals Fourth Quarter 2008 Earnings Conference Call. At this time, I'd like to inform you that this conference call is available to the public including the media, is being recorded for re-broadcasting and that all participants are in a listen-only mode. This call is being broadcast live at www.archchemicals.com and is Real Media Player and Windows Media Player compatible. If you wish to ask us a replay for this call, you may do so by dialing 888-203-1112 or 719-457-0820 from outside the U.S. The access number is 6234103.

I would now like to turn the conference call over to Mr. Michael Campbell, Chairman, President and CEO. Please go ahead, sir.

Michael E. Campbell

Thank you very much, operator, good morning. Thanks for joining us. With me today are Louis Massimo, Chief Operating Officer; Steve Giuliano, Chief Financial Officer; and Mark Faford, Director of Investor Relations.

As you know, throughout this call, we'll make statements regarding estimates of future performance. Actual results could differ significantly from those projected. Some of the factors that could cause such differences are described in our earnings release. Earlier today, we filed our earnings release as part of an 8-K that's been posted on the Arch Chemicals website in the Investor Relations section.

In the release, we announced that full year 2008 sales were comparable to 2007, as improved pricing and the benefit from acquisitions were offset by lower volumes. We also reported full year 2008 earnings of $2.49 per share from continuing operations, and before special items equaled to $1 per share. This is an outstanding 8% improvement over 2007's earnings of $2.30 per share.

I am obviously very pleased with our 2008 earnings. Our business leaders did an excellent job of increasing prices and executing on cost reduction programs in very difficult market environments.

Overall, 2008 was another strong year for Arch, as we again achieved a record profitability in our Water Products, Personal Care and Industrial Biocides businesses. We continue to execute on our strategies to drive profitable growth, reduce costs and create even greater value for our shareholders.

Turning to the fourth quarter, we reported earnings from continuing operations of $0.22 per share before special items. This compares to our earlier guidance of a loss of $0.02.

Our core Treatment Products segment posted lower 2008 sales and operating income compared to last year's fourth quarter due to the timing of the favorable iso anti-dumping duty benefit.

In 2008, we recorded the anti-dumping duty benefit in the third quarter. Excluding this benefit comparing apples to apples, operating income improved year-over-year. Within the segment, HTH Water Products sales increased due to our acquisition of the water treatment chemicals business of Advantis. We completed that in October. Excluding the acquisition, sales decreased as unfavorable currency exchange rates in South Africa and Brazil and lower volumes more than offset improved global pricing.

The lower volumes occurred because of reduced demand in the North American professional pool dealer segment and a slow start to the season in Brazil.

Water Products operating results decreased from last year's fourth quarter solely due to the timing of the anti-dumping duty benefit. Excluding this benefit, operating results improved year-over-year as a result of higher global selling prices and the positive contribution from our recent acquisition.

Our Water team has done an excellent job of mitigating higher raw material and freight costs by increasing selling and reducing discretionary... excuse me... by increasing selling prices and reducing discretionary spending, while at the same time successfully integrating the Advantis acquisition. All of these profit improvement programs were accomplished in what you know to be a very challenging market environment.

In our Personal Care and Industrial Biocides businesses, sales declined during the fourth quarter, while operating results improved significantly.

Sales decreased as higher pricing for health and hygiene products were unable to offset lower volumes. We experienced reduced demand for our biocides used in building products, and to a lesser extent in anti-dandruff shampoo. The considerably lower building products demand was a result of the depressed global housing market, which continues to adversely impact paints, coatings and wallboards used in residential construction and remodeling.

The fourth quarter operating income improvement was driven by higher selling prices, lower operating expenses and favorable currency exchange rates. The lower SG&A spending was a result of cost reduction programs as well as the timing of regulatory and toxicology expenditures.

In 2008, also benefited from a $1 million sale of data package rights for use in regulatory proceedings. Aided by a very strong fourth quarter, our Personal Care and Industrial Biocides businesses delivered record profitability in operating income for the full year.

Wood Protection and Industrial Coatings posted sales well below the year ago period, as improved pricing in both businesses wasn't sufficient to overcome lower volumes and unfavorable currency exchange rates.

Operating results were also lower than last year. Wood Protection continues to be adversely impacted by the steep decline in the U.S. construction and do-it-yourself markets. Our major overseas markets have also declined. In particular, our Asia Pacific and UMPM (ph) businesses were hurt by weakening economies, depressed housing markets and the strengthening of the U.S. dollar.

The lower global demand combined with higher raw materiel costs more than offset improved pricing and the benefits of our cost savings initiatives. And as a result, Wood Protection's operating results were well below the year ago period.

In our Industrial Coatings business, sales were lower than last year as improved pricing was unable to counter the reduced demand for wood coatings and unfavorable currency exchange rates.

Operating results for this business were comparable to the year-over-year. Lower demand and higher raw material costs were countered by price increases and cost containment initiatives. Because of the downturn in this business, we recorded a non-cash goodwill impairment charge of about $25 million in the quarter. This charge eliminated the remaining carrying amount of goodwill related to this business.

Now to our Performance Products segment. Here, sales decreased from the prior year's fourth quarter while operating income was well above last year. Urethane sales decreased by approximately 25% due to reduced demand for our polyol and glycol products, resulting from the depressed U.S. economy and in particular, the construction industry. This volume shortfall was partially overcome by higher year-over-year selling prices.

Urethanes' operating income increased over last year as we were able to maintain higher year-over-year pricing for our products while oil-based raw material costs declined.

Other positive contributors were our purchasing strategies and a $1 million benefit related to a Brazilian state import tax claim.

Our Urethanes team has done a fantastic job of managing this business in the face of a weak U.S. economy and extremely volatile raw material costs.

Finally, our Hydrazine business. Here we posted sales and operating income comparable to the year ago period.

Let's now turn to our 2009 forecast. We are not assuming any marked recovery in the global economy in 2008. In addition, the strengthening of the U.S. dollar should also be a headwind this year. We expect the year to start off slowly. First quarter earnings from continuing operations are forecast to be a loss in the range of 5 to $0.15 per share. The projected decline in our Personal Care and Industrial Biocides businesses is due to additional manufacturing costs for our new facilities in China and, to a lesser extent, reduced demand for our biocides used global in building products.

The first quarter year-over-year operating results in Wood Protection and Industrial Coatings reflect continued weakness in the global construction industry. And in addition, first quarter results will include higher interest costs related to borrowings for the Advantis acquisition as well as higher pension expenses.

Now for the full year, we estimate 2009 sales to grow by 2 to 4% over 2008 as the contribution from our Advantis acquisition and higher pricing will be, we believe, partially offset by unfavorable foreign exchange. 2009 full year earnings from continuing operations are forecasted to be in the $1.85 to $2.05 per range. We expect capital spending for 2009 to be in the 35 million to $40 million range. This represents a reduction from 2008 capital spending which included construction of two new biocides plants in China.

Depreciation and amortization will be approximately $50 million in 2009, and we expect the effective tax rate to be in the 37 to 38% range.

Now a closer look at the full year forecast for each of our businesses starting with the Treatment Products segment. Within this segment, we expect HTH Water Products to deliver improved top line and bottom line results despite a lower anti-dumping duty benefit.

This improvement will be driven by the full year benefit of our Advantis acquisition and global price increases, price increases implemented to mitigate rising raw material and sourcing costs and higher investments in research and development. Despite unfavorable currency exchange rates, our international operations are forecast to deliver favorable year-over-year operating results as a result of improved pricing and cost savings programs.

Finally, the integration of the Advantis acquisition has progressed extremely well, and we now expect to realize pre-tax synergy benefits of $10 million in 2009 which compares favorably to our previous guidance of $6 million.

In our Personal Care and Industrial Biocides businesses, we expect to see lower operating results in 2008. This expected year-over-year decline should result principally from higher raw material costs and the additional costs for our two new plants in China. We're also expecting lower demand for our biocides used globally in building products. And we're forecasting additional toxicology and regulatory spending to comply with European legislation. We view this spending done wisely as a strategic investment in support of our global growth initiatives.

We expect improved global pricing and increased demand for our biocides used in marine paints to somewhat counter the challenges these businesses face in 2009.

In Wood Protection and Industrial Coatings, we expect lower year-over-year sales, principally due to unfavorable foreign exchange rates, while operating results are forecast to be lower than 2008. Wood Protection's operating results are projected to be below 2008 as this business continues to be adversely impacted by weak global economies and unfavorable currency rates.

Our guidance assumes no recovery in the U.S. housing and construction markets in 2009 as well as no recovery in our other major markets: Europe, Australia and New Zealand. We do, however, expect to benefit from global price increases, lower raw material costs, new customer acquisitions in Europe and new product introductions.

Industrial Coatings' operating results are projected to be lower than 2008 as the economic slowdown in Europe will depress demand. The business continues to aggressively implement cost reduction initiatives to mitigate the lower volumes.

Our Performance Products segment is forecast to post slightly lower sales and operating income than the outstanding results achieved in 2008. In Urethanes, we anticipate lower selling prices due to increased competitive activities in the polyol and glycol markets. These pricing pressures are a direct result of the decline in oil-based raw material costs that occurred in the fourth quarter of 2008.

Urethanes' operating income in 2009 is expected to be lower than last year as the declining selling prices more than offset lower raw material and manufacturing costs.

And lastly, the Hydrazine business should post sales and operating results comparable to 2008.

For Arch overall, 2009 will be down from 2008 and yet still be another good year. The expected earnings decline year-over-year will be a direct result of depressed global economies, overcome in part by improved pricing and the successful integration of Advantis.

And as we've done in the past, we'll take aggressive action to respond to the difficult macroeconomic environment. Anticipating the declining economy, we took selective headcount reductions in 2008. The benefits of these actions will show in 2009. And in addition, our businesses have identified and, in many cases, are already executing various cost reduction programs for 2009.

Specific programs include hiring freezes, campaigning production runs, reducing work weeks, cutting back or eliminating contractors and third party co-manufacturers, consolidating vendors and, of course, our ongoing constraints on discretionary spending.

As Arch celebrates its 10th anniversary next week, I'm confident that we are well positioned to capitalize on profitable global growth opportunities as markets recover.

And with that, my prepared remarks are concluded. We'll be glad to field any questions you might have. To facilitate this let me turn the call back over to the operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We'll go first to Frank Mitsch with BB&T Capital Markets.

Frank Mitsch - BB&T Capital Markets

Good morning, gentlemen.

Michael Campbell

Hi Frank.

Frank Mitsch - BB&T Capital Markets

Hey, Mike, I was wondering if you could talk a little bit about what you are seeing in the first quarter so far given that one month is down in the history books. I ask the question in some part given the favorable miss you guys had on your forecast for the fourth quarter. And obviously you are introducing a relatively duller (ph) forecast for the first quarter. So could you add a little bit of a granularity to what you are seeing so far in this quarter?

Michael Campbell

Well, even though we do have sales numbers, and we don't have profit numbers in for the quarter. The sales are consistent with what we had forecast that we based our guidance on. And I think that people are very concerned generally. And our customers fall into this category are very concerned about economic conditions and are being cautious, in terms of their order patterns, so that they don't build up unnecessary working capital. And therefore, I think you're going to see some tentativeness in the first quarter of this year.

Frank Mitsch - BB&T Capital Markets

Would those comments apply to your dealer network and the Big Boxes?

Michael Campbell

Not so much to the Big Boxes as they have a better management of their inventory, but the dealers are certainly being cautious.

Frank Mitsch - BB&T Capital Markets

Okay. Terrific. And you also mentioned that you're looking at a pension headwind in '09 versus '08. And you discussed foreign exchange as well. What sort of numbers are embedded in your current guidance in terms of the negative headwinds from those two items?

Steven Giuliano

Frank, for pensions...

Michael Campbell

This is Steve speaking.

Frank Mitsch - BB&T Capital Markets

Yes. Thanks, Steve.

Steven Giuliano

We're expecting it to be about 4 million higher in '09 versus '08, in regards to FX, we just -- you're really looking for pre-tax headwind, if that's what you're asking. In '08, we benefited by approximately 1 million on an annual basis. And for '09 based upon the current rates, we're expecting to be a headwind approximately $5 million, from a pre-tax point of view.

Frank Mitsch - BB&T Capital Markets

Okay, great. And then lastly, Mike, you mentioned that toxicology spending is probably going to be picking up due to European -- I guess you were suggesting because of the REACH legislation. What sort of order of magnitude is that -- are you expecting that to be?

Michael Campbell

Well, we had started spending last year. We were able to move up some of the timing of that, which benefited our fourth quarter. But we're looking this year for spending in the 4 to $5 million range. And, I want to reiterate Frank that that we are very precise in how we go about our spending. Therefore, I think we're using those funds in a very wise fashion. But we really do see this as an investment in the future, because this permits us to offer products on a global basis that other competitors who don't keep up on a regulatory and toxicological basis, are able to compete or will be able to compete in the years ahead.

Frank Mitsch - BB&T Capital Markets

Great. That sounds logical. And lastly, I wanted to wish you guys a Happy Anniversary.

Michael Campbell

Well, thank you very much. We celebrate next week.

Steven Giuliano

Thank you.

Operator

We'll go next to Robert Felice with Gabelli & Company.

Robert Felice - Gabelli & Company

Hey, guys, just...

Michael Campbell

Hi, Robert.

Robert Felice - Gabelli & Company

Couple of quick questions. I guess first; as I look at your guidance, it seems to me to really be underpin by the assumption that HTH holds up very, very well in 2009, so a couple of questions around that.

I guess first, given the severity of the recession and given the fact that it's really a consumer level recession, what gives you the confidence that traditional, seasonal demand patterns will hold up? And then second, if we were to exclude Advantis and the synergies you expect to realize from the integration, would you still expect an earnings increase from HTH in '09?

Louis Massimo

Bob, this is Louis. First, let me attack in two pieces; the first piece being the economy. As we've talked many times, the consumer that just changes the buying pattern as to when they coronate and whatever be the reason, chlorine or non-chlorine products. They're still going to open their pool, they're still going to treat their pool. So, we're pretty confident on the going forward as to the forecast. We're being very modest in our volume forecast, we're actually expecting volumes to be relatively flat to build off of '08. So, the upside is volume.

We look to next year being a pretty really good year in Water because the new -- it seems like in the Water business they have a new phrase every year, and the new phrase is vacation used to be for cocooning.

People, in more challenging times stay home and use their backyard more. You're not going to have people not open their pools after they put in 10, $20,000 in them so, they'll be there.

So I think, as far as confident on the ability to continue to improve in the Water business, we're very confident on that. As far as the acquisition, yes, I will tell you that I know you do a very good job to try to corner me down to every number possible. I will say that the acquisition, the great acquisition we're seeing nice synergies and even more than when we first looked at that, we talked about in last call, the surface water group was a nice surprise and we see nice growth there. So without the acquisition... if you pro forma and we didn't have the acquisition, Water would still be up year-over-year.

Robert Felice - Gabelli & Company

Okay. And you mentioned that prices are again going up in that business. Can you give us a sense as to the magnitude of the increase you got through this year?

Louis Massimo

The prices have been increased across the globe because of rising raw material and sourcing costs, we're seeing chlorine and caustic go up. We're seeing iso costs going up. We're seeing everything under the sun going up like everybody else is saying it. We -- on average, I think we'll assume you could use is about a 15% increase in sales prices on a global basis. It's probably a good number to you.

Robert Felice - Gabelli & Company

Okay. And then I guess flipping gears to Personal Care, you mentioned that you completed the expansion of the facility in China. And then I also noticed Michael in your prepared remarks, you mentioned higher costs from that facility that will negatively impact '09 results which I guess suggest that things are a bit slower than you would have hoped for in that region. Can you discuss the outlook for Personal Care in China? How that facility is ramping up relative to your prior expectations and how we should we think about that?

Steven Giuliano

Yeah, let me attack about the -- there's two pieces, I want to make sure, first of all, when you talk about our China -- two China plants, it's supporting two businesses both in the Industrial Biocides business, it's preservation and protection business which is our antifouling paint market and the other piece is our health and hygiene, principally, the antidandruff market.

When you look at those two businesses, we are projecting the growth in the antifouling paint side, but we're projecting in our forecast flat volumes in the antidandruff and other antidandruff business. So the plants are -- as Mike said earlier, good investment in the future. So, we're going to have additional non-cash cost depreciation going back to financial days, right, and cash fixed cost to the tune about 6, $7 million without an incremental volume.

So you'll see in 2000 -- if there is -- if the economy comes back which we're not projecting and there'll be more leverage to the bottom line as the business recovers and grows. But the forecast assumes flat volumes with incremental fixed costs, and that is along with the number that Mike gave to Frank a little while ago on the regulatory and tox spending of about 4 is really the big change in the business that we're looking at next year.

We're able to pass on price increases and mitigate raw material increases, but the two big numbers that we'll have -- and basically investment in the future that all comes in next year is the -- is those two pieces.

Robert Felice - Gabelli & Company

You've got a net headwind of 10 to 12 million.

Steven Giuliano

Absolutely.

Robert Felice - Gabelli & Company

Okay, and then I guess also versus your prior expectations how ? should we think about volumes ramping up there? Should we think that given the recessionary environment things will push out roughly 12 to 24 months, in terms of ramp up at that facility?

Steven Giuliano

As I'll go over again, on the antifouling paint side, the volumes are...

Robert Felice - Gabelli & Company

No, no I am talking about the Personal Care

Steven Giuliano

I know, I wanted to give you the positive first. You do a good job, Bob. 2010 projection I think we do on February next year. But it is the volumes -- let me say a different way that, we could have supplied a 100% of the requirement of that business out of our Rochester plant for '09 without having the China plant. So it probably is looking at the forecast and some of our customers' longer-term growth.

It's probably the volumes that we expected at the time of putting the plant in and when we would need it, it's probably a two years delay and when we would actually need it at that plant up and running. But there's other synergies that we get from it even though we are at the same volumes, we save on freight, we save on a bunch of other things, but it's a right thing to do at the right time.

Robert Felice - Gabelli & Company

Okay. That's helpful and I guess one last one. I was really impressed by your performance this quarter, and I guess not to take anything away from those guys there but should we view this past quarter as one off, in terms of extraordinarily positive convergent of price versus cost? And then to that end, as I look at over the next couple of quarters, how quickly should I expect that favorable price cost dynamic to disappear? You'd mentioned that prices would decline there, how quickly should we see profit margins converge back to more historical levels?

Louis Massimo

Well, first part is that the fourth quarter was a lot of good work and hard work was put into the fourth quarter. We talked about it, I think on earlier calls, on our crystal ball being just like everybody else's crystal ball and what we thought propylene and PO would do. And we put in place purchasing strategies which are really simple, we didn't buy one at a time. We bought heck of a lot when it was low. At the same time we were able to recapture some of costs the higher costs in and our pricing into the fourth quarter.

We've been very successful as a team in holding on to that pricing. So yes I will say, first of all, you don't take the fourth quarter multiply it by four and say that's how the world will be. It is a very cyclical business. We're doing everything we can to reduce prices to move things on.

You are seeing more customers now want it to go to a formula based pricing because of the fact that when it was going up, nobody liked formula based pricing. When costs are going down, everybody wants formula based pricing. So we're seeing more of that. So we think there is going to be some competitive pressures on the price side, especially when the volumes are a little bit weaker. But so far it's only month and we were able to do... be very successful in the month of January holding onto pricing about at the time when PO is not -- it's projected to move up another $0.05 or something like that.

So, I think that you may look at it on a quarter-to-quarter basis. I know we scare you sometimes. But when you look at a year-to-year basis, the year-to-year of those businesses has been pretty consistent. It's just that I know you guys enjoy the rollercoaster ride that we take you on every now and then.

Robert Felice - Gabelli & Company

Oh we love it. Thanks for taking my questions.

Michael Campbell

Thank you, Robert.

Operator

We'll go next to Ian Zaffino with Oppenheimer & Company.

Brian Bittner - Oppenheimer & Company

Hi guys, this is Bryan Bittner sitting in for Ian.

Michael Campbell

Hey Brian.

Brian Bittner - Oppenheimer & Company

All my questions have firstly been answered now but, as far as the HTH Water Products, did I hear you right, you said volumes... you're assuming flat volumes and pricing up close to 15%?

Louis Massimo

Yeah, let me just clarify a little bit about that. We are expecting flat volumes in the North America region. That's probably about 1% increase in volumes outside of North America principally through the business that we've talked a lot about in the past, our global industrial commercial municipal business that where it's going to actually get to almost 17% of our Water sales going into next year.

And so the upside is in the volume. So a lot of people accuse me of being a sandbagger. I think we're (ph) being conservative in the economic conditions. And that on average, yes it's a 15% price increase. And that means it's an average; that means there is other places that prices were lower than that and there were places that prices were higher than that.

Brian Bittner - Oppenheimer & Company

So when we think about this prior to Advantis, it's going to be up close to 15% revenues prior to any additional revenues from Advantis.

Unidentified Analyst

Yeah.

Brian Bittner - Oppenheimer & Company

Okay. And then as far as your 2009 guidance, I know we just talked about Urethanes a bit. But what is directly assumed in your guidance model as far as Urethanes goes?

Louis Massimo

Okay. First of all, let me just go back to your question, because I know you're trying to get your model working on what the order sales (ph) will be for next year. As Steve said earlier I think you asked the question, you can factor in the price increase. You can factor in the acquisition. I told you the 1%... I gave you almost every number now.

Brian Bittner - Oppenheimer & Company

You did.

Louis Massimo

What I didn't give you is that the foreign currency has a big impact, and you really need to look at like an almost an 8% decrease on that. So we are projecting, since you got me there we're projecting Water to be about 100 million sales higher than this year.

Brian Bittner - Oppenheimer & Company

Got you.

Louis Massimo

The other piece on Urethanes, if you can ask us question again because I was...

Brian Bittner - Oppenheimer & Company

I'm just wondering as far as internally what you guys are assuming as far as your 2009 EPS guidance goes for the Urethanes business. Because I would assume pricing most likely would have to come down or at least what are you assuming on the propylene side?

Louis Massimo

Well there is a forecast that says propylene will go from the December low of 18 to something like $0.31, $0.34. So depending on how success we are in mitigating that or if it stays at $0.18 then you can cause me being a sandbagger.

But what we're doing, it's almost like similar to last year because of... we do see the volumes are weaker going into the year. So I think that you should be modeling somewhere in the range of maybe 65 to 70% of this year's profitability would be what we're modeling for the year... I think next year.

Brian Bittner - Oppenheimer & Company

Great. Thanks.

Louis Massimo

Nice business.

Brian Bittner - Oppenheimer & Company

Thanks for taking my questions.

Michael Campbell

Thank you, Brian.

Operator

We'll go next to Christopher Butler with Sidoti & Company.

Christopher Butler - Sidoti & Co.

Hi, good morning guys.

Michael Campbell

Hi Chris.

Christopher Butler - Sidoti & Co.

Sort of getting into the nitty-gritty questions here. The impairment charge was on industrial coatings. I think you had mentioned that there isn't much of any goodwill left from that business; is that true?

Michael Campbell

There is no goodwill left.

Christopher Butler - Sidoti & Co.

And the remaining 200 million of goodwill, could you give us an idea of what business has that been?

Michael Campbell

Yes. There is a good chunk for Advantis. We just added 45 million. And in addition, we also have the historical wood protection and the acquisition of industrial biocides and the fluorspar (ph) business.

Louis Massimo

All businesses that are doing extremely well to support that goodwill.

Christopher Butler - Sidoti & Co.

And was that tested as well at this time?

Michael Campbell

Absolutely. Yeah we test every year.

Christopher Butler - Sidoti & Co.

All right. And pertaining to the debt that you have coming due here in March, could you review your liquidity position and your plans for possibly refinancing that?

Unidentified Analyst

Sure. Just to give a backdrop, we have the source of liquidity right now. We have a revolver 350 million. We have our AR securitization program which allows us to borrow or to sell up to 80 million. We have various other bond credit lines roughly in the 25 to $30 million range. If you look at where we came in at year end, we've approximately $100 million available under our revolving credit facility.

We had not used anything on the securitization program. So those two source of liquidity will be sufficient to pay off $62 million of notes that come due in March in addition to take care of the normal seasonal working capital bill which usually peaks out in April to May timeframe.

We talked about before our goal was to refinance the Advantis and even the notes on a longer term basis. And we are diligently working on accomplishing that, so we can attain some additional flexibility under our revolver and to term out some of this debt on a longer term basis.

Christopher Butler - Sidoti & Co.

And as far as the mention of the swap in the press release, going into this quarter was kind of looking at every dollar change in share price being about $0.5 million, I think it's pre-tax. Could you give an idea of what we can expect on that going forward?

Unidentified Analyst

Well, with the stock hedge we did in the fourth quarter now there is... you should be no fluctuation on our earnings related to a stock price change. So we've essentially eliminated the volatility related to our stock-based compensation programs.

Christopher Butler - Sidoti & Co.

And I just... that's all I have for right now. Thank you.

Michael Campbell

Thanks Chris.

Operator

We'll go next to Saul Ludwig with KeyBanc.

Saul Ludwig - KeyBanc Capital Markets

Hi good morning, guys.

Michael Campbell

Hi Saul.

Saul Ludwig - KeyBanc Capital Markets

Two things. In the water treatment and the distribution patterns where you sell your product through Wall-Marts, and has there been any change in terms of the number of stores of warehouses that you're going to supply versus Cemtura (ph) or is it pretty much the same hand this year versus last year?

Louis Massimo

As far as in the Wall-Mart, in particular, there has been no change in territory going into '09.

Saul Ludwig - KeyBanc Capital Markets

Okay. And then, there is always pluses and minuses with prices in raw materials. You guys did a fantastic job in the fourth quarter. Do you have an aggregate number that you got there so many dollars and price and incurred ex-dollars of cost increase within that being more priced than cost? And then as you think about whatever that aggregate number is, how you're thinking about that for 2009?

Louis Massimo

Well, Saul, what we do as everybody does in businesses, it's unique to each business and we share those, our cost data with our customers when we're talking about pricing. So, I'm not going to give a global answer on the overall Arch businesses. The bottom line is, last year we were able to pass on about a 4% price increase, and we're able to provide higher profits than the year before.

And next year, I think I gave you a little bit about what is going on, on one of the biggest businesses in Water. And you're going to see some price increases in the Industrial Biocides business to a lesser extent. And Urethanes, as I've said earlier, there is probably going to have some price decreases because of it's falling with raw material or so. It really can't... the businesses are so unique that it's pretty not... I don't think it has to do a lot of value to try to come up with a global thing because one business could swing in a lot. When you look at last year's numbers, that was really the two businesses between Water and Urethanes drove most of the price increases.

Saul Ludwig - KeyBanc Capital Markets

Okay. If you go back to Water, you announced that you're going to 15% price increase, this is pretty strong. And raw material, because I am thinking about chlorine caustic, the general thinking is that chlorine cost, because it's going to rollover and hit south this year. Are you being sort of even too conservative in what your Water performance might be if you can't capture 15% more in price? Are you locked in by contract such that your raw material costs will in fact be up? Or is there potential here that you could get some favorable news on your cost side of the equation in the Water side of your business?

Louis Massimo

Let me answer that this way. We do two things; one is that we commit to our customers in the Water business, our pricing for the whole season. And that we've been very successful. They appreciate it because they are seasonal businesses. They know what they need to do from a retail perspective. We do, as you... I think you are aware that we do have a contract with Olin, locking our cost for the season that gives us the ability to lock in our pricing with our customers.

So, there we are locked in and so there is no upside to the numbers based on lower chlorine caustic costs for at least through September because the contract goes into the fourth quarter, and that's when we talk about pricing for the 2010 season. And we share that information with our customers that here's what we need to do from a pricing point of view.

Saul Ludwig - KeyBanc Capital Markets

Thank you, Louis. Thank you very much.

Operator

(Operator Instructions). And we'll go to Ivan Marcuse with KeyBanc Capital Markets.

Ivan Marcuse - KeyBanc Capital Markets

Hey guys. Two quick questions. Is the corporate was there...have you taken the costs out and I guess equity being hedged now, would corporate expense be lower year-over-year in 2009 or would it be a good (inaudible) versus 2008?

Louis Massimo

We expect it to be a couple of million dollars higher. And, you've got the increased pension costs, and we talked about the royalty stream that goes away and hopefully won't have some of the headwind or the foreign exchange that we have in the fourth quarter. So, net, net I'd say around 2 million higher, it's our projection for 2009.

Ivan Marcuse - KeyBanc Capital Markets

Great. Thanks. And Steve, is there going to be... what do you expect to cash outlay to be for the pension in 2009?

Steven Giuliano

Right now, breaking into two pieces, the UK, we're expecting the cash contribution to be 15 to 20 million and balance is really just what you assume for the foreign exchange. In regards to our U.S. funding, we basically have options, if you assume.... we have an option to essentially contribute nothing for 2009. On the other hand, based upon that where we felt at year-end and the current rules and laws, it could be as high as 50 million. We do not need to make that decision until September. We are hopeful that there will be some favorable legislation that would modify some of the assumptions or less than more favorable assumptions. So that's some relative magnitude and again, we are not forced to commit anything other than -- it could be as low as zero for 2009. So we're...

Ivan Marcuse - KeyBanc Capital Markets

They were between zero and 50?

Steven Giuliano

Yeah. Unfortunately, that's the relative magnitude, and we all look at it closely to the year and we'll give you updates on the quarters. But again, we don't need to make a decision to the third quarter nor would we have to make any significant contribution if we decide to into the third quarter. So when we're looking at the legislation macroeconomic environment, what the business looks like and based upon all those factors, we'll make a determination on what the right thing for Arch is at that point in time.

Ivan Marcuse - KeyBanc Capital Markets

Great. And then the last question is...

Steven Giuliano

Rollercoaster's too.

Ivan Marcuse - KeyBanc Capital Markets

Right. One last question on the Personal Care, Industrial Biocides. I understand how the raw materials and the pricings fixed year-over-year. Is it -- does they work same way in that business or do you -- since you've raw materials why not you're able to get some pricing, looks like you're able to get more pricing to fourth quarter to result of that. Now, with raw materials in general falling, do you -- you have to give back price or is that a pretty stable throughout the year on contract based or how does that work?

Louis Massimo

Okay. I think you were talking about the Water business, we lock in a lot of our cost rate...

Ivan Marcuse - KeyBanc Capital Markets

Right, is it somewhere the Personal Care?

Louis Massimo

And Industrial Biocides. It is -- if there is opportunities where cost come down, we will benefit but the offset is as cost come down a lot of times, if volumes are robust, we do have undisciplined players every now and then in the marketplace that you might have to offset some of those opportunities. But there is not a locked in for the -- a season you might say on the Industrial Biocides and Personal Care side.

Ivan Marcuse - KeyBanc Capital Markets

Great. Thanks a lot and great quarter.

Michael Campbell

Thank you.

Operator

Having no further questions, I will now turn the conference back to Mr. Campbell.

Michael Campbell

Thanks operator. Let me just make a few closing comments. We all know that this is a very difficult environment within which to be operating. However, our business fundamentals remain strong. And despite the challenge of the environment, we are excited about Arch's future bolstered by our Advantis Technologies acquisition.

We have a focused portfolio core biocides businesses and we're well positioned to accelerate profitable global growth opportunities, and I can assure you that the entire Arch management team is committed to delivering strong top-line and bottom line results while maintaining an attractive sustainable dividend.

That's all for now. Thanks for your participation and the opportunity to provide you with this update.

Operator

All parties may now disconnect.

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Source: Arch Chemicals Q4 2008 Earnings Call Transcript

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