##### Table of Contents




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, 2002





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. Employerincorporation 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, 2002, there were 22,400,892 outstanding shares of the registrants common stock.




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##### Table of Contents




ARCH CHEMICALS, INC.





INDEX





Page NumbersPART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements

2Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001

2Condensed Consolidated Statements of Income for the three and six months ended June 30, 2002 and 2001

3Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001

4Notes to Condensed Consolidated Financial Statements

5-15Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

16-25Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26PART II.

OTHER INFORMATIONItem 4.

Submission of Matters to a Vote of Security Holders

27Item 6.

Exhibits and Reports on Form 8-K

27Signatures

28







1




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##### Table of Contents




PART I.     FINANCIAL INFORMATION


Item 1.     
Financial Statements





ARCH CHEMICALS, INC.


Condensed Consolidated Balance Sheets


(In millions, except per share amounts)


June 30, 2002


December 31, 2001(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
9.3


$
4.0Accounts receivable, net


117.8



162.6Short-term investment


50.8



Inventories, net


138.6



131.1Other current assets


21.9



25.6Assets held for sale


32.0



53.5Total current assets


370.4



376.8Investments and advancesaffiliated companies at equity


23.8



27.2Property, plant and equipment, net


330.6



332.4Goodwill


135.8



131.6Other intangibles


63.4



64.4Other assets


21.3



19.6Total assets

$
945.3


$
952.0LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term borrowings

$
4.5


$
38.5Accounts payable


157.9



111.3Accrued liabilities


98.8



85.3Total current liabilities


261.2



235.1Long-term debt


220.9



265.1Other liabilities


65.6



64.3Commitments and contingenciesShareholders equity:Common stock, par value $1 per share, Authorized 100.0 shares:22.4 shares issued and outstanding in 2002 (22.2 in 2001)


22.4



22.2Additional paid-in capital


418.7



424.4Accumulated deficit


(6.9
)


(12.5
)Accumulated other comprehensive loss


(36.6
)


(46.6
)Total shareholders equity


397.6



387.5Total liabilities and shareholders equity

$
945.3


$
952.0





The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part


of the condensed consolidated financial statements.







2




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ARCH CHEMICALS, INC.


Condensed Consolidated Statements of Income


(Unaudited)


(In millions, except per share amounts)


Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001Sales

$
296.2


$
284.9


$
507.3


$
540.5Cost of goods sold


204.6



195.0



357.5



377.4Selling and administration


59.7



56.5



106.8



102.1Amortization of intangibles


1.6



2.5



2.6



5.0Research and development


5.8



6.0



11.6



12.4Equity in (earnings) of affiliated companies


(1.4
)


(0.1
)


(2.0
)


(1.3
)Restructuring






(0.2
)


7.6



0.6Income from continuing operations before interest, taxes and cumulative effect of accounting change


25.9



25.2



23.2



44.3Interest expense


5.2



5.3



8.7



10.8Interest income


0.2



0.3



0.5



0.4Income from continuing operations before taxes and cumulative effect of accounting change


20.9



20.2



15.0



33.9Income tax expense


7.5



6.7



5.2



11.3Income from continuing operations before cumulative effect of accounting change


13.4



13.5



9.8



22.6Loss from discontinued operations, net of tax


(0.4
)






(2.7
)


Loss on sale of DanChem, net of tax










(1.5
)


Cumulative effect of accounting change, net of tax














(0.2
)Net income

$
13.0


$
13.5


$
5.6


$
22.4Basic income (loss) per common share:Continuing operations before cumulative effect of accounting change

$
0.60


$
0.60


$
0.44


$
1.02Loss from discontinued operations


(0.02
)






(0.12
)


Loss on sale of DanChem










(0.07
)


Cumulative effect of accounting change














(0.01
)Basic income per common share

$
0.58


$
0.60


$
0.25


$
1.01Diluted income (loss) per common share:Continuing operations before cumulative effect of accounting change

$
0.59


$
0.60


$
0.43


$
1.01Loss from discontinued operations


(0.01
)






(0.11
)


Loss on sale of DanChem










(0.07
)


Cumulative effect of accounting change














(0.01
)Diluted income per common share

$
0.58


$
0.60


$
0.25


$
1.00Weighted average common shares outstanding:Basic


22.4



22.3



22.4



22.3Diluted


22.6



22.4



22.6



22.3Dividends declared per share

$
0.20


$
0.20


$
0.40


$
0.40





The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part


of the condensed consolidated financial statements.




3




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##### Table of Contents

ARCH CHEMICALS, INC.


Condensed Consolidated Statements of Cash Flows


(Unaudited)


(In millions)


Six Months Ended June
30,2002


2001Operating activitiesNet income

$
5.6


$
22.4Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities, net of business
acquired:Loss from discontinued operations


2.7



Loss on sale of DanChem


1.5



Equity in earnings of affiliates


(2.0
)


(1.3
)Depreciation


25.5



24.3Amortization of intangibles


2.6



5.0Deferred taxes


6.1



4.1Restructuring


7.6



0.6Restructuring payments


(4.1
)


(11.1
)Changes in assets and liabilities, net of purchase and sale of business:Sale of accounts receivable


71.8



Receivables


(70.3
)


(23.6
)Inventories


(2.7
)


24.0Other current assets


(2.0
)


0.4Accounts payable and accrued liabilities


42.5



(21.8
)Noncurrent liabilities


3.1



0.9Other operating activities


2.8



0.2Net operating activities from continuing operations


90.7



24.1Change in net assets held for sale


(8.3
)


4.4Net operating activities


82.4



28.5Investing activitiesCapital expenditures


(17.1
)


(18.8
)Business acquired in purchase transaction, net of cash acquired






(2.0
)Proceeds from sale of business


25.0



Other investing activities


0.1



(0.1
)Net investing activities


8.0



(20.9
)Financing activitiesLong-term debt repayments, net


(65.2
)


(13.6
)Short-term debt borrowings (repayments), net


(224.5
)


3.5Issuance of unsecured senior notes


211.0



Dividends paid


(8.9
)


(8.9
)Other financing activities


2.7



1.5Net financing activities


(84.9
)


(17.5
)Effect of exchange rate changes on cash and cash equivalents


(0.2
)


(1.6
)Net increase (decrease) in cash and cash equivalents


5.3



(11.5
)Cash and cash equivalents, beginning of year


4.0



19.1Cash and cash equivalents, end of period

$
9.3


$
7.6Supplemental cash flow informationTaxes paid (refunds), net

$
(5.8
)

$
8.0Interest paid

$
5.1


$
14.9





The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part


of the condensed consolidated financial statements.




4




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ARCH CHEMICALS, INC.


Notes to Condensed Consolidated Financial Statements


(Unaudited)


($ in millions, except share amounts)







1.    Basis of Presentation





These condensed consolidated financial statements have been prepared by Arch Chemicals, Inc. (the Company), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of the Company, reflect all adjustments (consisting of normal accruals) which are necessary to present fairly the results for interim periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial
statements, accounting policies and the notes thereto and managements discussion and analysis of financial condition and results of operations included in the Companys Form 10-K for the year ended December 31, 2001. The Companys
HTH water products business is seasonal in nature as its products are primarily used in the U.S. residential pool market. Therefore, the results of operations for the Company and in particular the HTH water products business for the three and six
months ended June 30, 2002, are not necessarily indicative of the results to be expected for the entire fiscal year.





Reclassifications of prior-year data have been made, where appropriate, to conform to the 2002 presentation.





2.    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. Diluted weighted average common shares outstanding for the three and six months ended June 30,
2002 excludes the impact of 1.0 million stock options with exercise prices greater than the average market price of the Companys common stock.





Three Months Ended June 30,

Six Months Ended June 30,2002

2001

2002

2001Basic

22.4

22.3

22.4

22.3Common equivalent shares from stock options using the treasury stock method

0.2

0.1

0.2

Diluted

22.6

22.4

22.6

22.3





The Company accounts for stock-based compensation under Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). As allowed under SFAS 123, the Company has chosen to account for stock-based compensation cost in accordance with APB No. 25,
Accounting for Stock Issued to Employees. If the Company expensed the issuance of stock options under SFAS 123, net income and diluted earnings per share would have been reduced by $0.4 and $0.02, and $0.7 and $0.04, respectively for the
six months ended June 30, 2002 and 2001.





3.    Accounts Receivable/Short-Term Investment





In March 2002, the Company completed arrangements to sell, without recourse, certain accounts receivable through its
wholly-owned subsidiary, Arch Chemicals Receivables Corp., a special-purpose corporation. Arch Chemicals Receivables Corp. entered into a trade accounts receivable securitization agreement with an independent financial institution whereby it can
sell, on an ongoing basis, participation interests in accounts receivable for a maximum purchase price of up to $80.0. The Company has agreed to provide servicing for accounts receivable collections. The proceeds from the sale of participation
interests under this arrangement are subject to change based on the level of eligible receivables. The accounts receivable sold have been reflected as a sale of accounts receivable in accordance with SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.




5




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ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







As of June 30, 2002, the Company had received proceeds of $71.8 from
the sale of participation interests in $126.6 of accounts receivable. The fair value of the retained undivided interest of $50.8 is classified as a held-to-maturity debt security and is reflected as Short-term Investment on the accompanying
Condensed Consolidated Balance Sheet. The proceeds of the sale were used to reduce borrowings. The costs of the program, including certain one-time fees, for the three and six months ended June 30, 2002 of $0.3 and $0.9 are included in Selling and
Administration expenses in the accompanying Condensed Consolidated Statements of Income. The Company expects the costs of the accounts receivable securitization program to be a percentage of the fair market value of the participation interests sold.
The percentage is variable and will be approximately equivalent to one month LIBOR plus 0.35%. Fair value of the retained undivided interest includes a reserve for credit losses and has not been discounted due to the short-term nature of the
underlying financial assets. The Company has not recorded an asset or liability related to the servicing responsibility retained as the fees earned for servicing are at fair value.





4.    Inventories





June 30, 2002


December 31, 2001Raw materials and supplies

$
43.6


$    43.3Work in process


21.8


24.6Finished goods


120.7


111.8Inventories, gross


186.1


179.7LIFO reserve


(47.5
)

(48.6
)Inventories, net

$
138.6


$  131.1





Approximately half of the Companys inventories are valued by
the dollar value last-in, first-out (LIFO) method of inventory accounting. Costs of other inventories are determined principally by the first-in, first-out method. Elements of costs in inventories include raw materials, direct labor and
manufacturing overhead. Inventories under the LIFO method are based on an annual determination of quantities and costs as of the year-end; therefore, the condensed consolidated financial statements at June 30, 2002 reflect certain estimates relating
to inventory quantities and costs at December 31, 2002.





5.    Assets Held For Sale/Discontinued Operations





The Company has accounted for the Hickson International Limited (Hickson) organics division
(Castleford, England and Danville, Virginia operations) in accordance with EITF 87-11, Allocation of Purchase Price to Assets to be Sold (EITF 87-11) through August 31, 2001 and in accordance with APB No. 30, Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB 30) and EITF No. 90-6, Accounting For Certain
Events Not Addressed in Issue No. 87-11 Relating to an Acquired Operating Unit To Be Sold (EITF 90-6) since September 1, 2001. Net earnings (losses) of the Hickson organics division from the acquisition date through August 31, 2001
were not included in the Condensed Consolidated Statements of Income, but have been recorded as an adjustment to the net asset value in accordance with EITF 87-11. The results of operations associated with these assets held for sale and interest
allocated to these assets, which are not included on the accompanying Condensed Consolidated Statements of Income are as follows:





ThreeMonths Ended June 30,
2001

Six Months Ended June 30,
2001Pretax income from operations, before interest

$0.1

$1.4Interest expense allocated

1.4

3.0





Beginning September 1, 2001, results of operations of the Hickson
organics division are included in Loss From Discontinued Operations, net of tax on the accompanying Condensed Consolidated Statements of Income and include an allocation of interest expense. Sales for the three and six months ended June 30, 2002
were $11.5 and $29.6, respectively. Interest allocated to discontinued operations for the three and six months ended June 30, 2002 was $0.5 and $1.0, respectively.




6




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ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







In March 2002, the Company completed the sale of its DanChem
operations in Danville, Virginia, which was part of the Hickson organics division, for approximately $25 and recorded a loss on the disposal of $1.5, net of tax of $0.9. Proceeds from the sale of these assets have been used to pay down debt. DanChem
sales for the three months ended March 31, 2002 were $2.9. Interest allocated to, and after-tax loss of the DanChem operation for the three months ended March 31, 2002 was $0.2 and $0.3, respectively.





Assets held for sale at June 30, 2002 include the Hickson organics division Castleford, England operation and certain land that the
Company is in the process of divesting. The Hickson organics business has been valued on the accompanying Condensed Consolidated Balance Sheets at its estimated net selling price. In addition, in accordance with APB 16, the Company has estimated the
net future results of operations through its expected disposition date. Accordingly, a $1.4 reserve for estimated losses to be incurred at the Castleford, England operation through the third quarter 2002 was recorded in the first quarter of 2002 and
is included in Loss From Discontinued Operations for the six months ended June 30, 2002 in the accompanying Condensed Consolidated Statements of Income. Second quarter operating losses of $1.2 have been applied against this reserve. The amounts
actually realized (including future operating results) by the Company could differ materially from the amounts estimated in the financial statements and could result in future gains or losses from discontinued operations or from disposal of this
business. Factors that could influence the ultimate outcome include, but are not limited to, general economic conditions, the Companys ability to dispose of the business within the time, price and manner originally estimated, the retention of
key customers during the divesture period, benefit plan costs, including pension, and environmental matters. The Company continues to actively work on completing the sale of these assets during 2002. However, due to the current market conditions, it
is possible that they may not be sold by the end of the third quarter. If the sale does not occur by such date, the Company may be required to discontinue its current accounting and include the results of this division in continuing operations. As a
result, the results of operations, cash flows and balance sheet information of the organics division would be included in all applicable line items of the Companys consolidated financial statements rather than the current treatment.





The Company adopted Statement of Financial Accounting Standard No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144) effective January 1, 2002. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It also extends the reporting requirements to report
separately as discontinued operations, components of an entity that have either been disposed of or classified as held for sale. In accordance with the transition provisions in paragraphs 50 and 51 of SFAS 144, the Company continues to account for
these assets held for sale in accordance with APB 30 and EITF 90-6.





6.    Goodwill and Other Intangibles





As of January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, Goodwill
and Other Intangible Assets (SFAS 142), which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the
provisions of SFAS 142. The application of the non-amortization provisions of SFAS 142 resulted in a decrease in amortization of goodwill and other intangibles in the three and six months ended June 30, of 2002 of $1.3 and $2.8, respectively. SFAS
142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment in accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The application of this provision of SFAS 142 did not have a material effect on the Companys results of operations.





The Company is required to test goodwill for impairment annually and upon adoption of SFAS 142. The first step of the transitional goodwill impairment assessment is a
comparison of the carrying amount of the reporting units to the corresponding fair value of those units. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its fair value. The initial test for
goodwill impairment was completed during the second quarter. Fair values were established using discounted cash flows. When available and as appropriate, comparative market multiples were used to corroborate discounted cash flow results. The fair
market values of the reporting units in all cases exceeded the carrying value of those units, including the allocation of certain corporate assets and liabilities, and therefore, no impairment has been recorded related to the Companys goodwill
balances.




7




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ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







The changes in the carrying amount of goodwill for the six months
ended June 30, 2002 are as follows:





Microelectronics Materials

HTHWater Products

Personal Care and Industrial Biocides

Wood Protection and Industrial Coatings

Performance Products

TotalBalance, January 1, 2002

$    26.8

$    2.2

$
30.3

$
67.9

$    4.4

$
131.6Post acquisition adjustment









3.6




3.6Other









0.6




0.6Balance, June 30, 2002

$    26.8

$    2.2

$
30.3

$
72.1

$    4.4

$
135.8





In accordance with EITF 93-7, Uncertainties Related to Income
Taxes in a Purchase Business Combination, the Company recorded a deferred tax liability and corresponding adjustment to goodwill as a result of its analysis of the tax basis of the DanChem assets acquired in the Companys acquisition of
Hickson.





The gross carrying amount and accumulated amortization for other intangible assets as of June 30, 2002
and December 31, 2001 are as follows:





June 30, 2002

December 31, 2001Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying AmountPatents

$
6.8

$
6.5

$
0.3

$
6.6

$
5.5

$
1.1Technology


11.7


11.0


0.7


11.7


10.3


1.4Customer lists


23.8


1.4


22.4


23.8


0.6


23.2Other


18.9


10.0


8.9


16.7


9.1


7.6Total amortizable other intangibles


61.2


28.9


32.3


58.8


25.5


33.3Trademarks


31.5


0.4


31.1


31.5


0.4


31.1Total non-amortizable other intangibles


31.5


0.4


31.1


31.5


0.4


31.1Total other intangibles

$
92.7

$
29.3

$
63.4

$
90.3

$
25.9

$
64.4





Amortization expense for the three and six months ended June 30,
2002 was $1.6 and $2.6. Estimated amortization expense for the years ended December 31, 2002, 2003, 2004, 2005 and 2006 is $4.4, $2.2, $2.1, $2.0 and $2.0, respectively.





In accordance with SFAS 142, prior period amounts have not been restated. A reconciliation of reported net income and earnings per share for the three and six months ended
June 30, 2001 to net income and earnings per share as adjusted for the elimination of the amortization of goodwill and certain other intangible assets, net of the related income tax effect, is as follows:





Three Months Ended June 30, 2001

Six Months Ended June 30, 2001Net Income

Diluted Earnings Per Share

Net Income

Diluted Earnings Per ShareAs reported

$
13.5

$
0.60

$
22.4

$
1.00Amortization of intangibles


1.3


0.05


2.8


0.11Adjusted net income

$
14.8

$
0.65

$
25.2

$
1.11







8




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##### Table of Contents



ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







7.    Debt





In April 2002, the Company entered into interest rate swap agreements under which the Company swaps the 7.94% fixed interest rate on $80.0 principal amount of
unsecured senior notes for floating rate interest based on six-month LIBOR plus 3.045%. The counterparties to these agreements are major financial institutions. The agreements expire in March 2007. The Company has designated the swap agreements as
fair value hedges of the risk of changes in the value of fixed rate debt due to changes in interest rates, for a portion of its fixed rate borrowings under Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). Accordingly, the swap agreements have been recorded at their fair market value of $1.6 and are included in Other Assets on the accompanying Condensed Consolidated Balance Sheet, with a
corresponding increase in the carrying amount of the related debt. No gain or loss has been recorded as the contracts meet the criteria of SFAS 133 to qualify for hedge accounting treatment with no ineffectiveness.





In March 2002, the Company issued $211.0 of unsecured senior notes to certain institutional investors in two series. The Series A notes of
$149.0 are due in March 2007 and the Series B notes of $62.0 are due in March 2009 and bear fixed interest rates of 7.94% and 8.24%, respectively, subject to certain leverage ratio requirements. The notes contain quarterly leverage ratio
(debt/EBITDA) covenants of 4.5 through December 31, 2002 and 3.5 thereafter and fixed coverage ratio covenants of 2.0 through December 31, 2002 and 2.25 thereafter, and restrict the payment of dividends and repurchases of stock in excess of $65.0
plus 50% of cumulative net income subject to certain adjustments. Proceeds from the issuance of these notes have been used to pay down debt, including the credit facility used to acquire Hickson (Acquisition Facility).





In January 2002, the Company renewed its existing 364-day credit facility in the amount of $87.5, which now expires in January
2003 and amended certain prospective financial covenants of this facility and its five-year credit facility to reflect the seasonality of its working capital requirements. The quarterly leverage ratio was increased to 4.5 for the first quarter of
2002 and to 4.0 for the second quarter of 2002, with gradual reductions to 3.5 as of December 31, 2002. The restriction on the payment of dividends and repurchase of shares was also amended to limit payments to $40.0 plus 50% of cumulative net
income subject to certain adjustments for the periods beginning December 31, 2001.





8.    Derivative
Instruments and Hedging





The Company accounts for derivatives in accordance with SFAS 133, as amended by SFAS
No. 137 and SFAS No. 138. The cumulative effect of the accounting change due to the adoption of SFAS 133 as of January 1, 2001 was $0.4 before taxes or $0.2 net of tax, principally due to interest rate swaps acquired in connection with the
acquisition of Hickson, which were cancelled in January 2001.





Foreign Currency





The Company uses foreign currency forward contracts as a means of hedging exposure to foreign currency risk. It is the Companys
policy to hedge up to 80% of its anticipated purchase and sales commitments denominated or expected to be denominated in a foreign currency. Accordingly, the Company has purchased forward contracts to hedge its exposure to the variability of future
foreign currency cash flows through December 2002. During the three and six months ended June 30, 2002 and 2001, the majority of the Companys foreign currency forward contracts qualified as effective cash flow hedges. The remainder of the
foreign currency contracts did not meet the criteria of SFAS 133 to qualify for effective hedge accounting. The fair value of the foreign currency contracts is included in Other Current Assets and Accrued Liabilities on the accompanying Condensed
Consolidated Balance Sheets. During the three and six months ended June 30, 2002 and 2001, the Company recorded income (loss) of $0.5 and $0.6, and $(0.3) and $(0.5), respectively, in Other Comprehensive Income (Loss) related to the change in the
fair market value of the derivatives designated as effective cash flow hedges. During the three and six months ended June 30, 2002 and 2001, the Company recorded a net gain (loss) of $(0.1) and $0, and $(0.1) and $(0.1), respectively, in Selling and
Administration expenses related to the change in fair value of derivatives which did not qualify for hedge accounting




9




---

##### Table of Contents



ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)




and the change in the time value of the forward contracts, which has been excluded from the assessment of hedge effectiveness.





Natural Gas





In order to manage the risks associated with the changes in natural gas prices, the Company purchased futures contracts to hedge a portion of its projected natural gas purchase requirements. These contracts expired in April
2002. These contracts have been recorded at fair value as of December 31, 2001 and are included in Accrued Liabilities on the accompanying Condensed Consolidated Balance Sheet. These derivative contracts did not meet the criteria of SFAS 133 to
qualify for effective hedge accounting. During the three and six months ended June 30, 2002 and 2001, the Company recorded an unrealized gain (loss) of $0 and $0.1, and $(1.4) and $(1.3), respectively, in Selling and Administration expenses related
to the change in fair value of derivatives which did not qualify for hedge accounting.





Debt and Interest





In April 2002, the Company entered into interest rate swap agreements under which the Company swaps the 7.94% fixed interest rate on $80.0
principal amount of unsecured senior notes for floating rate interest based on six-month LIBOR plus 3.045%. The counterparties to these agreements are major financial institutions. The agreements expire in March 2007. The Company has designated the
swap agreements as fair value hedges of the risk of changes in the value of fixed rate debt due to changes in interest rates for a portion of its fixed rate borrowings under SFAS 133. Accordingly, the swap agreements have been recorded at their fair
market value of $1.6 and are included in Other Assets on the accompanying Condensed Consolidated Balance Sheet, with a corresponding increase in the carrying amount of the related debt. No gain or loss has been recorded as the contracts meet the
criteria of SFAS 133 to qualify for hedge accounting treatment with no ineffectiveness.





In March 2002, the
portion of the Companys outstanding borrowings that was denominated in British pounds and that had been designated since its inception as a hedge of the British pound net investment in the Hickson organics division was paid-off with the
expiration of the Acquisition Facility. Cumulative foreign currency translation gain adjustments as of June 30, 2002 of $1.0 related to this debt instrument will be recognized upon the sale of the Hickson organics Castleford, England operation.





9.    Comprehensive Income





Comprehensive income includes the change in the cumulative translation adjustment and the change in the fair value of derivative financial instruments, which qualify for
hedge accounting. Comprehensive income for the three and six months ended June 30, 2002 and 2001 was as follows:





Three Months Ended June 30,


Six Months Ended June 30,2002

2001


2002

2001Net income

$
13.0

$
13.5


$
5.6

$
22.4Foreign currency translations adjustments


10.0


(6.0
)


9.4


(14.0
)Net unrealized gain (loss) on derivative instruments


0.5


(0.3
)


0.6


(0.5
)Total other comprehensive income (loss)


10.5


(6.3
)


10.0


(14.5
)Comprehensive income

$
23.5

$
7.2


$
15.6

$
7.9





The Company does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such taxes on undistributed earnings of foreign subsidiaries.







10




---

##### Table of Contents



ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







10.    Accumulated Net Unrealized Gain (Loss) on Derivative
Instruments





Changes in the accumulated net unrealized gain (loss) on derivative instruments for the three and
six months ended June 30, 2002 and 2001 are as follows:





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001Beginning balance of accumulated net unrealized gain (loss) on derivative instruments

$
0.1


$
(0.2
)

$



$
Net gain (loss) on cash flow hedges


0.6



(0.4
)


0.7



(0.6
)Less reclassification adjustments


(0.1
)


0.1



(0.1
)


0.1Ending balance of accumulated net unrealized gain (loss) on derivative instruments

$
0.6


$
(0.5
)

$
0.6


$
(0.5
)





The unrealized gains (losses) on derivative instruments included in
Accumulated Other Comprehensive Loss are expected to be reclassified into earnings within the next 12 months.




11




---

##### Table of Contents



ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







11.    Segment Reporting





The Company has organized its segments around differences in products and services, which is how the Company manages its business. In
2002, the Company reorganized its business portfolio into four operating segments to better reflect the Companys business strategy. The four segments are microelectronic materials, treatment products, performance products and other specialty
products. Treatment products includes three reportable business units: the HTH water products business, the personal care and industrial biocides business and the wood protection and industrial coatings business. Performance products includes the
performance urethanes business. Other specialty products includes the hydrazine and sulfuric acid businesses. Sales and operating income for 2001 have been restated to conform to current year presentation. Segment operating income includes the
equity in earnings of affiliated companies and excludes special items and certain unallocated expenses of the corporate headquarters.





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001Sales:Microelectronic Materials

$
35.8


$
41.9


$
68.0


$
96.7Treatment Products:HTH Water Products


114.8



94.6



163.3



153.6Personal Care & Industrial Biocides


32.0



33.3



61.4



66.0Wood Protection & Industrial Coatings


61.9



57.7



114.6



111.5Total Treatment Products


208.7



185.6



339.3



331.1Performance Products


31.1



36.0



62.6



74.4Other Specialty Products


20.6



21.4



37.4



38.3Total Sales

$
296.2


$
284.9


$
507.3


$
540.5Operating Income (Loss):Microelectronic Materials

$
(2.4
)

$
(1.4
)

$
(6.7
)

$
3.3Treatment Products:HTH Water Products


15.3



10.7



20.0



19.4Personal Care & Industrial Biocides


7.2



6.3



13.5



12.9Wood Protection & Industrial Coatings


6.1



5.4



8.4



7.9Total Treatment Products


28.6



22.4



41.9



40.2Performance Products


0.3



1.5



(1.3
)


0.8Other Specialty Products


2.7



4.2



4.1



4.6Corporate Unallocated


(3.3
)


(1.7
)


(7.2
)


(4.0
)Total Operating Income

$
25.9


$
25.0


$
30.8


$
44.9Capital Spending:Microelectronic Materials

$
0.4


$
1.9


$
1.1


$
3.3Treatment Products:HTH Water Products


2.0



2.4



4.1



4.4Personal Care & Industrial Biocides


1.9



1.0



2.8



1.8Wood Protection & Industrial Coatings


0.8



1.0



1.6



2.0Total Treatment Products


4.7



4.4



8.5



8.2Performance Products


0.7



3.1



1.8



5.4Other Specialty Products


2.4



0.7



5.7



1.9Total Capital Spending

$
8.2


$
10.1


$
17.1


$
18.8




12




---

##### Table of Contents



ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







12.    Restructuring





In the first quarter of 2002, the Company recorded a restructuring charge of $7.6 which included $6.6 related to headcount reductions of
approximately 200 employees in the microelectronic materials, performance urethanes and HTH water products businesses, as well as a charge related to the consolidation of several treatment products segment operations. The non-cash portion of the
restructuring charge was approximately $1.0.





The following table summarizes activity related to the 2002, 2001
and 2000 restructuring costs:





Severance Costs


Asset Write-downs


Other Items


TotalProvision

$
18.0


$
11.0


$
5.0


$
34.02000 Activity:Payments


(1.4
)










(1.4
)Utilized






(11.0
)






(11.0
)Balance at December 31, 2000


16.6







5.0



21.62001 Activity:Provision


2.4











2.4Payments


(11.0
)






(1.6
)


(12.6
)Reclass postemployment liability


(2.5
)










(2.5
)Reserve reduction


(0.3
)






(1.2
)


(1.5
)Balance at December 31, 2001


5.2







2.2



7.42002 Activity:Provision


6.6







1.0



7.6Payments


(4.1
)










(4.1
)Balance at June 30, 2002

$
7.7


$



$
3.2


$
10.9





As of June 30, 2002, $31.6 had been charged against restructuring
reserves. As of June 30, 2002, all but approximately 10 employees from the 2002 restructuring program and all employees from the 2001 and 2000 restructuring programs had been terminated. At June 30, 2002, $10.9 of restructuring reserves was included
in Accrued Liabilities in the accompanying Condensed Consolidated Balance Sheet.





13.    Significant Contract





In April 2002, pursuant to the Companys Chlor-Alkali Supply Agreement with Olin Corporation
(Olin), the Company notified Olin of its intention to terminate its agreement effective December 31, 2003.





14.    Commitments and Contingencies





In connection with the
acquisition of Hickson, the Company assumed certain legal obligations, including a trial court judgment of approximately $8.5 plus interest in a lawsuit associated with a wood preservative spillage in 1994. In 2001, the judgment was reversed on the
successful appeal by the Company and remanded for a new trial on damages. The Company expects to settle this claim and/or obtain a favorable appeal judgment for significantly less than the original judgment.





In 2001, the Company received notification of a potential product claim by a customer related to a discontinued product. This claim was
settled by the Company in August 2002 for $3.0, net of estimated insurance proceeds of approximately $2.5. The Company expects to pay the settlement during the third quarter of 2002.





The Company does not expect any final resolutions of the above cases to have a material adverse effect on results of operations or financial position of the Company.




13




---

##### Table of Contents



ARCH CHEMICALS, INC.


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


($ in
millions, except share amounts)







Four putative class action lawsuits have been filed in various state
and federal courts against several chromated copper arsenate (CCA) manufacturers, including the Companys CCA-formulating subsidiary Arch Wood Protection, Inc., the Company, several CCA customers and various retailers regarding the
marketing and use of CCA-treated wood. Generally, the proposed class members purport to include persons who purchased, possess or own CCA-treated wood products or properties upon which CCA-treated wood products were stored or installed. None of the
putative class actions currently alleges personal injury. One case has been dismissed at the plaintiffs request. One other case has been denied class action status as a result of plaintiffs failure to timely request class certification.
In neither of the other two cases has a class been certified by the court.





These putative class action lawsuits
variously (1) allege conspiracy, breach of contract, breach of implied warranties, violation of consumer protection and/or unfair trade practices statutes, unjust enrichment, strict liability, nuisance, negligence and intentional tort, (2) seek
remedies, such as refunds of the price of product sold, the cost of removal and replacement of CCA-treated wood and the cost of soil testing and purported remediation of allegedly contaminated soil and (3) do not specify an amount of monetary
damages requested. These lawsuits are in their early stages of discovery.





In addition, the Companys
subsidiaries are named defendants in four other CCA-related lawsuits, which are not putative class actions.





The
Company and its subsidiary deny the material allegations of all the various CCA-related claims and will vigorously defend them.





All CCA-related cases are subject to a number of uncertainties, including in the case of the putative class actions, whether and to what extent any will be certified as class actions. As a result, their impact, if any, is difficult
to assess. Based on the information currently available to the Company, however, the Company does not believe these cases are likely to have a material adverse effect on its consolidated financial condition, cash flow or results of operations.





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.





In 1999, Olin and the Company entered into an agreement, which specifies that the Company is only responsible for environmental
liabilities at the Companys current operating plant sites and certain offsite locations. Olin retained the liability for all former plant sites and former waste disposal sites.





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, other
than those described above, during the six months ended June 30, 2002.





See the Companys Form 10-K for the
year ended December 31, 2001 for additional information.




14




---

##### Table of Contents



Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations







Overview





In analyzing the results of operations for the Company and its segments, the following matters should be considered. The Companys HTH water products business is
seasonal in nature. Historically, approximately 40%  50% of the sales in the HTH water products business occur in the second quarter of the fiscal year, as retail sales in the U.S. residential pool market are concentrated between Memorial Day
and the Fourth of July. In addition, this seasonality is expected to be affected by the change in distribution strategy to a direct-to-retail method. Accordingly, results of operations for the periods presented are not necessarily indicative of the
results to be expected for an entire fiscal year. Segment operating income includes the equity in earnings of affiliated companies and excludes special items and certain unallocated expenses of the corporate headquarters.





The term Company as used in Items 1 and 2 of this Report means Arch Chemicals, Inc. and its subsidiaries unless the context
indicates otherwise.





Results of Operations





Consolidated





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001(In millions, except per share amounts)Sales

$
296.2


$
284.9


$
507.3


$
540.5Gross Margin

$
91.6


$
89.9


$
149.8



163.1Selling and Administration


59.7



56.5



106.8



102.1Amortization of Intangibles


1.6



2.5



2.6



5.0Research and Development


5.8



6.0



11.6



12.4Equity in (Earnings) of Affiliated Companies


(1.4
)


(0.1
)


(2.0
)


(1.3
)Restructuring






(0.2
)


7.6



0.6Interest Expense, net


5.0



5.0



8.2



10.4Income Tax Expense


7.5



6.7



5.2



11.3Loss from Discontinued Operations, net of tax


(0.4
)






(2.7
)


Loss on Sale of DanChem, net of tax










(1.5
)


Cumulative Effect of Accounting Change, net of tax














(0.2
)Net Income

$
13.0


$
13.5


$
5.6


$
22.4Diluted Income Per Common Share

$
0.58


$
0.60


$
0.25


$
1.00EBITDA *

$
40.7


$
42.9


$
59.1


$
81.2





|* |  | Represents earnings before interest, taxes, depreciation and amortization, excludes special items and unremitted earnings of 50% or less owned affiliates and
includes the operating results of the Hickson organics division since the date of acquisition for the periods presented. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles. This
measure should not be used as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. Other companies that use EBITDA may calculate it differently and their figures may not be comparable to
ours.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15




---

##### Table of Contents

Managements Discussion and Analysis of Financial Condition and Results of Operations Continued





The following table reconciles diluted income per share to diluted income per share excluding special items, discontinued operations, cumulative effect of accounting change and the pro forma effect of not amortizing goodwill
and certain intangibles in 2001:





Three Months Ended June 30,

Six MonthsEnded June 30,2002

2001

2002

2001Diluted Income Per Share

$
0.58

$
0.60

$
0.25

$
1.00Amortization of Intangibles





0.05





0.110.58


0.65


0.25


1.11Restructuring, net of tax








0.21


0.02Loss from Discontinued Operations, net of tax


0.01





0.11


Loss on Sale of DanChem, net of tax








0.07


Cumulative Effect of Accounting Change, net of tax











0.010.01





0.39


0.03Diluted Income Per Share Excluding Special Items, Discontinued Operations, Cumulative Effect of Accounting Change and
Pro Forma Effect of Change In Accounting for Amortization of Goodwill and Certain Intangibles

$
0.59

$
0.65

$
0.64

$
1.14





Three Months Ended June 30, 2002 Compared to 2001





Sales increased $11.3 million. Excluding the decrease due to the exit of certain unprofitable process
chemical product lines (approximately $4 million), sales increased approximately $15 million due to an increase in volumes and prices in the HTH ® water products business. This increase was primarily a result of the change to a direct-to-retail distribution strategy, partially offset by a decrease in volumes in the microelectronic
materials and performance products segments.





Gross margin percentage was 30.9% and 31.6% for 2002 and 2001,
respectively. The decrease in margin percentage was primarily a result of higher hydrazine manufacturing costs, partially offset by lower manufacturing costs in the personal care and industrial biocides business.





Selling and administration expenses as a percentage of sales increased to 20.2% in 2002 from 19.8% in 2001. Selling and administration
expenses increased in amount by $3.2 million primarily due to higher selling and advertising costs in the treatment segment to support the HTH ® brand relaunch and the entrance into the dealer market, higher employee benefit-related expenses, and costs related to the Companys accounts receivable securitization program,
partially offset by lower selling expenses associated with the performance products segment.





Amortization of
intangibles decreased $0.9 million from the prior year, primarily due to the application of the non-amortization provisions of SFAS 142 of $1.3 million (see Note 6 of Notes to Condensed Consolidated Financial Statements), partially offset by the
write-off of certain intangible assets due to the cancellation of certain technology agreements of $0.4 million.





Research and development expenses were comparable to prior year primarily due to cost reduction initiatives in the microelectronic materials segment, partially offset by higher spending in the wood protection and industrial coatings
business.





Equity in earnings of affiliated companies increased $1.3 million due to favorable operating results of
the FUJIFILM Arch joint venture due to higher sales related to stronger Asian demand and of the Planar Solutions joint venture due to higher sales of copper-based slurries.





Interest expense, net was comparable to 2001 as higher interest rates resulting from the issuance in March 2002 of unsecured senior notes were offset by lower debt levels
primarily due to the sale of accounts receivable and lower working capital borrowing requirements.







16




---

##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued










The effective tax rate on
income from continuing operations before special items for the second quarter was 36% in 2002 compared to 33% in 2001.





Loss from discontinued operations, net of tax, reflects interest expense allocated to the Hickson organics Castleford business. Losses from operations for the second quarter of $1.2 million have been charged against the $1.4 million
reserve for estimated losses to be incurred through the estimated sale date which was recorded in the first quarter of 2002.





Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased $2.2 million principally due to lower operating results in the Hickson organics Castleford business and the sale of the Hickson organics
DanChem business in March 2002, partially offset by higher joint venture dividends.





Six Months Ended June
30, 2002 compared to 2001





Sales decreased $33.2 million. The decrease was due to the exit of certain
unprofitable process chemical product lines (approximately $16 million) and a decrease in volumes, primarily related to the microelectronic materials and performance products segments, partially offset by higher HTH water products sales.





Gross margin percentage was 29.5% and 30.2% for 2002 and 2001, respectively. The decrease in margin percentage
was due to lower margins in the microelectronic materials business as a result of lower volumes, partially offset by lower manufacturing costs in the industrial biocides and industrial coatings businesses.





Selling and administration expenses as a percentage of sales increased to 21.1% in 2002 from 18.9% in 2001 principally due to the lower
sales in 2002. Selling and administration expenses increased in amount by $4.7 million primarily due to higher selling and advertising costs in the treatment segment to support the HTH ® brand relaunch and the entrance into the dealer market, higher employee benefit-related expenses, and costs related to the Companys
accounts receivable securitization program, partially offset by lower selling expenses associated with the microelectronic materials and performance products segments due to cost reduction initiatives.





Amortization of intangibles decreased $2.4 million from the prior year, primarily due to the application of the non-amortization
provisions of SFAS 142 of $2.8 million (see Note 6 of Notes to Condensed Consolidated Financial Statements), partially offset by the write-off of certain intangible assets due to the cancellation of certain technology agreements of $0.4 million.





Research and development expenses decreased $0.8 million primarily due to cost reduction initiatives in the
microelectronic materials and performance products segments.





Equity in earnings of affiliated companies increased
$0.7 million due to favorable operating results of the FUJIFILM Arch joint venture due to higher sales related to stronger Asian demand and of the Planar Solutions joint venture due to higher sales of copper-based slurries.





Restructuring in 2002 includes a $6.6 million charge for headcount reductions in the microelectronics materials, treatment products and
performance products segments, and a $1.0 million charge for expenses related to the consolidation of several treatment products segment operations. The Company anticipates future annual cost savings of $10 to $12 million related to the workforce
reductions. Restructuring in 2001 consists of retention payments made to employees as a result of the Companys restructuring of the process chemicals business in 2000, partly offset by the reimbursement of certain severance costs, which were
previously recorded as part of the restructuring charge in the fourth quarter of 2000.





Interest expense, net was
$8.2 million in 2002 compared to $10.4 million in 2001. The decrease was primarily due to lower effective interest rates and lower debt due to the sale of accounts receivable and lower working capital borrowings.





The effective tax rate on income from continuing operations before cumulative effect of accounting change and before special items for the
six months ended June 30, was 36% in 2002 compared to 33% in 2001.







17




---

##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued










Loss from discontinued
operations, net of tax, reflects the results of operations of the Hickson organics division including a $0.6 million restructuring charge for severance costs and interest expense allocated to this business. In addition, it includes a $1.4 million
charge for estimated losses to be incurred through the estimated sale date, of which $1.2 million has been charged against such reserve.





Loss on the sale of DanChem, net of tax, represents the after-tax loss on the sale of the Companys operations in Danville, Virginia for proceeds of approximately $25 million.





EBITDA decreased $22.1 million principally due to lower operating results in the microelectronics materials segment, lower operating
results in the Hickson organics Castleford business and the sale of the Hickson organics DanChem business in March 2002.





Third Quarter and Full Year Outlook





The Company continues to expect 2002 to be a
transition year for major global economies and in turn for the chemical industry and the Company itself. However, although demand has increased in certain key markets, the semiconductor industry is experiencing a slower-than-expected recovery. As a
result, the Company anticipates earnings per share from continuing operations in the third quarter to be in the $0.05 range. For the full-year 2002, the Company has refined its estimate of earnings per share from continuing operations excluding
special items and now expects results to be in the range of $0.50 to $0.60 per share. Sales are expected to grow approximately two percent for the year. In addition, EBITDA is expected to be in the $95 million range, while capital spending should be
in the $45 million range. See Cautionary Statement under Federal Securities Laws below.





Segment
Information





The Company has reorganized its business portfolio into four operating segments to better
reflect the Companys business strategy. The four segments are microelectronic materials, treatment products, performance products and other specialty products. The treatment products segment includes three reportable business units: the HTH
water products business, the personal care and industrial biocides business and the wood protection and industrial coatings business. Performance products includes the performance urethanes business. Other specialty products include the hydrazine
and sulfuric acid businesses. Sales and operating income for 2001 have been restated to reflect the new structure.





Microelectronic Materials





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001($ in millions)Results of OperationsSales

$
35.8


$
41.9


$
68.0


$
96.7Operating Income/(Loss)


(2.4
)


(1.4
)


(6.7
)


3.3





Three Months Ended June 30, 2002 Compared to 2001





Sales decreased $6.1 million or approximately 15%. Of the sales decrease, approximately $4 million was
related to the exit of certain unprofitable process chemical product lines announced in the fourth quarter of 2000. Excluding this effect, sales were approximately six percent lower, as the segment continues to experience the lingering effects of
the downturn in the semiconductor industry, which adversely affected demand for ancillaries and thin film products. This was partially offset by increased demand for advanced photoresist products. The higher operating loss resulted primarily from
the lower sales, partially offset by favorable operating results of the FUJIFILM Arch and Planar Solutions joint ventures and lower manufacturing costs resulting from cost-reduction initiatives. In addition, operating results included the benefit of
the non-amortization of goodwill and other intangible assets of $0.5 million, which was offset by the write-off of certain intangible assets due to the cancellation of certain technology agreements of $0.4 million.







18




---

##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued







Six Months Ended June 30, 2002 compared to 2001





Sales decreased $28.7 million or approximately 30%. Of the sales decrease, approximately $16 million was
related to the exit of certain unprofitable process chemical product lines announced in the fourth quarter of 2000. Excluding this effect, sales were approximately 16% lower, principally due to the downturn in the semiconductor industry, which
adversely affected demand for the ancillaries, thin film and photoresist product lines. The operating loss as compared to operating income in the prior year, resulted primarily from the lower sales and was partially offset by favorable operating
results of the FUJIFILM Arch and Planar Solutions joint ventures and lower manufacturing and selling costs resulting from cost-reduction initiatives. In addition, operating results benefited from the non-amortization of goodwill and other intangible
assets of $1.0 million, partially offset by the write-off of certain intangible assets due to the cancellation of certain technology agreements of $0.4 million.





Treatment Products





Three Months Ended June 30,

Six Months Ended June 30,2002

2001

2002

2001($ in millions)Results of Operations:SalesHTH Water Products

$
114.8

$
94.6

$
163.3

$
153.6Personal Care & Industrial Biocides


32.0


33.3


61.4


66.0Wood Protection & Industrial Coatings


61.9


57.7


114.6


111.5Total Treatment Products

$
208.7

$
185.6

$
339.3

$
331.1Operating IncomeHTH Water Products

$
15.3

$
10.7

$
20.0

$
19.4Personal Care & Industrial Biocides


7.2


6.3


13.5


12.9Wood Protection & Industrial Coatings


6.1


5.4


8.4


7.9Total Treatment Products

$
28.6

$
22.4

$
41.9

$
40.2





Three Months Ended June 30, 2002 Compared to 2001





Sales increased 12% and operating income increased approximately 28%. The increase in sales is due to
higher volumes and pricing in the HTH water products business and higher volumes in the wood protection and industrial coatings business. The increase in operating income is primarily a result of the higher sales. In addition, operating results
included the benefit of the non-amortization of goodwill and other intangible assets of $0.8 million.





HTH
Water Products





Sales increased 21% and operating income increased $4.6 million. The increase in sales was
principally due to higher volumes of branded calcium hypochlorite and trichlor, pool maintenance products and accessories and higher chemical sales pricing. The higher volumes were primarily the result of a change in distribution strategy to a
direct-to-retail approach, which has shifted traditional first quarter sales into the second quarter. The higher pricing was principally due to the elimination of the distributor margin as a result of the switch to direct-to-retail distribution. The
increase in operating income was primarily due to the higher sales, partly offset by higher selling and advertising costs to support the HTH ® brand relaunch and the entrance into the dealer market. In addition, operating costs were higher because of increased distribution and warehousing expenses due to the change in distribution
strategy.







19




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued










Personal Care and
Industrial Biocides





Sales were four percent lower than 2001 as significantly higher marine antifouling
paint sales were more than offset by lower personal care sales, the discontinuance of a custom-chemical product line and reduced antidandruff volumes. Operating income was 14% higher than 2001 as the lower sales were more than offset by higher gross
margins due to favorable product mix and lower manufacturing costs from cost-reduction initiatives. In addition, operating results benefited from the non-amortization of goodwill of $0.4 million.





Wood Protection & Industrial Coatings





Sales were seven percent higher than the prior year due to stronger European economic conditions resulting in higher industrial coatings sales and higher volumes of the Wolmanized ® Natural Select  (Wolman ® E) and Tanalith ® E preservatives. Operating income was 13% higher than the prior year due to the higher sales as well as the benefit of the nonamortization of
goodwill and other intangible assets of $0.4 million, partially offset by higher research and development costs.





Six Months Ended June 30, 2002 compared to 2001





Sales increased approximately two
percent and operating income increased approximately four percent. The increase in sales is due primarily to higher pricing in the HTH water products business and higher volumes in the wood protection and industrial coatings business, partially
offset by lower personal care and industrial biocides volumes. The increase in operating income is primarily a result of the higher sales. In addition, operating results included the benefit of the non-amortization of goodwill and other intangible
assets of $1.7 million





HTH Water Products





Sales increased approximately six percent and operating income increased approximately three percent. The increase in sales was principally due to higher chemical
sales pricing due to the change in distribution to a direct-to-retail method. In addition, higher branded trichlor, pool maintenance products and accessories volumes were offset by lower branded and nonbranded calcium hypochlorite volumes. The
higher pool maintenance products and accessories volumes were due to new marketing initiatives and the lower calcium hypochlorite sales were due to a shift in customer demand for trichlor and decreased demand from repackaging customers. Operating
income increased primarily due to the higher sales and the favorable margin impact of the change to a direct-to-retail distribution strategy, partially offset by higher selling and advertising costs to support the HTH ® brand relaunch and the entrance into the dealer market. In addition, operating costs were higher because of
increased distribution and warehousing expenses due to the change in distribution strategy.





Personal Care
and Industrial Biocides





Sales were approximately seven percent lower than 2001 as higher marine
antifouling paint sales were more than offset by lower personal care sales, reduced antidandruff volumes and the discontinuance of a custom-chemical product line. Operating income was approximately five percent higher than 2001 as higher gross
margins due to favorable product mix and lower manufacturing and selling and administrative costs from cost-reduction initiatives were offset by the lower sales. In addition, operating results benefited from the non-amortization of goodwill of $0.8
million.





Wood Protection & Industrial Coatings





Sales were approximately three percent higher than the prior year due to stronger European economic conditions resulting in higher
industrial coatings sales and higher volumes of the Wolmanized ® Natural Select  (Wolman ® E) and Tanalith ® E preservatives.
Operating income was approximately six percent higher than the prior year due to the higher sales and lower raw materials costs, partially offset by higher selling and administrative and research and development expenses to support various
industrial coatings growth initiatives. In addition, operating results benefited from the non-amortization of goodwill and other intangible assets of $0.9 million.







20




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued










Performance Products





Three Months Ended June 30,

Six Months Ended June 30,2002

2001

2002


2001($ in millions)Results of OperationsSales

$
31.1

$
36.0

$
62.6


$
74.4Operating Income


0.3


1.5


(1.3
)


0.8





Three Months Ended June 30, 2002 Compared to 2001





Sales decreased $4.9 million or approximately 14% principally due to reduced propylene glycol volumes and
lower Latin American sales, a result of poor economic conditions and political instability in Venezuela. Operating results were $1.2 million lower as a result of the lower sales, partially offset by lower selling and administrative costs due to
cost-reduction initiatives implemented in 2001 and 2002. In addition, 2001 benefited from a $2.5 million contract settlement gain related to the termination of the contract manufacturing agreement with Sunoco.





Six Months Ended June 30, 2002 compared to 2001





Sales decreased $11.8 million or approximately 16% principally due to lower propylene glycol volumes and lower Latin American sales, a result of poor economic conditions
and political instability in Venezuela. Operating results were lower as a result of the lower sales, partially offset by lower manufacturing and selling and administrative costs due to cost-reduction initiatives implemented in 2001 and 2002. In
addition, 2001 benefited from a $2.5 million contract settlement gain related to the termination of the contract manufacturing agreement with Sunoco.





Other Specialty Products





Three Months Ended June 30,

Six Months Ended June 30,2002

2001

2002

2001($ in millions)Results of OperationsSales

$
20.6

$
21.4

$
37.4

$
38.3Operating Income/(Loss)


2.7


4.2


4.1


4.6





Three Months Ended June 30, 2002 Compared to 2001





Sales decreased $0.8 million or approximately four percent and operating income decreased approximately
36%.





Hydrazine sales increased by approximately 11% due to higher hydrate volumes, partially offset by lower
hydrate prices, both as a result of the re-entry into the Asian market. Operating income was approximately 35% lower due to unfavorable fixed cost absorption, partially offset by the higher sales, excluding the unrealized losses related to natural
gas futures contracts in 2001 of $1.0 million.







21




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued










Sulfuric acid sales decreased
approximately 17% as a result of lower pricing, principally due to an unfavorable product mix and lower demand resulting from operating difficulties at some refinery customers. Operating income was approximately 65% lower than the prior year due to
the lower sales.





Six Months Ended June 30, 2002 compared to 2001





Sales decreased $0.9 million or approximately two percent and operating income decreased approximately 11%.





Hydrazine sales increased by approximately eight percent due to higher hydrate volumes, partially offset by lower hydrate prices, both as
a result of the re-entry into the Asian market. Operating income was comparable to 2001 as the higher sales were offset by lower gross margins on the Asian market sales and unfavorable fixed cost absorption, excluding the unrealized losses related
to natural gas futures contracts in 2001 of $1.0 million.





Sulfuric acid sales decreased approximately 12% as a
result of lower pricing due to an unfavorable product mix compared to the prior year. Operating income was approximately 64% lower than prior year due to the lower sales.





Liquidity, Investment Activity and Other Financial Data








Six Months Ended June 30,Cash Flow Data

2002


2001($ in millions)Provided By (Used For)Sale of Accounts Receivable

$
71.8


$
Net Operating Activities from Continuing Operations


90.7



24.1Change in Net Assets Held for Sale


(8.3
)


4.4Capital Expenditures


(17.1
)


(18.8
)Proceeds from Sale of Business


25.0



Business Acquired, Net of Cash






(2.0
)Net Investing Activities


8.0



(20.9
)Debt Repayments


(78.7
)


(10.1
)Net Financing Activities


(84.9
)


(17.5
)





Six Months Ended June 30, 2002 Compared to 2001








For the six months ended June 30, 2002, the $66.6 million
increase in cash flow provided by net operating activities from continuing operations was primarily attributable to the sale of accounts receivable and lower restructuring payments, partly offset by lower cash earnings and the larger increase in
working capital in 2002 compared to 2001.





Cash used by assets held for sale was $8.3 million in 2002 compared to
cash provided of $4.4 million in 2001 primarily due to higher working capital due to the timing of certain contract manufacturing agreements and lower cash earnings of the Hickson organics Castleford, England operation and due to the sale of the
DanChem business in March 2002.





Capital expenditures for the first six months of 2002 were comparable to 2001 as
higher propellant-related expenditures in the hydrazine business was offset by lower discretionary expenditures in the microelectronic materials and performance products segments. Capital expenditures for 2002 are expected to be in the $45 million
range.







22




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued







In March 2002, the Company completed the sale of its DanChem
operations in Danville, Virginia for approximately $25 million. Proceeds from the sale of these assets have been used to pay down debt.





In March 2001, the Company completed the acquisition of the assets of Walker Brothers, a division of Consolidated Coatings, for approximately $2 million in cash.





Cash used by financing activities in the first six months of 2002 as compared to 2001, was higher due to the pay down of debt from the proceeds of the sale of accounts
receivable and the sale of the Companys operations in Danville, Virginia, partially offset by the lower cash earnings and higher working capital borrowing needs.





On March 8, 2002 and June 5, 2002, the Company paid quarterly dividends of $0.20 on each share of common stock. Total dividends paid to shareholders were $8.9 million
during the first six months of 2002.





On October 28, 1999, the Companys Board of Directors approved a stock
repurchase program whereby the Company is authorized to buy back up to 1.2 million shares of its common stock, representing approximately 5% of outstanding shares. Through December 31, 2000, the Company had repurchased approximately 893,000 shares
under this program at a cost of approximately $16 million. The program was suspended in 2000 pending the completion of the Hickson acquisition, including the subsequent sale of the organics business.





At June 30, 2002, the Company had two credit facility agreements. These included an unsecured $125 million revolving five-year credit
facility (Five-year Facility), which expires in January 2004 and an unsecured $87.5 million 364-day facility (364-day Facility), which had expired in January 2002 and was subsequently renewed (see below). The Companys
$225 million revolving credit facility (Acquisition Facility), which the Company used to finance the Hickson acquisition and refinance a portion of the assumed Hickson debt (collectively the Credit Facilities), expired in
March 2002. As of June 30, 2002, facility fees are payable on the Credit Facilities and range from 0.125% to 0.5%. The Company may select various floating rate borrowing options, including, but not limited to, LIBOR plus 0.425% to 1.55%. At June 30,
2002, the Company had approximately $207 million of available borrowings under the Credit Facilities.





In April
2002, the Company entered into interest rate swap agreements under which the Company swaps the 7.94% fixed interest rate on $80.0 million principal amount of its unsecured senior notes for floating rate interest based on six-month LIBOR plus 3.045%.
The counterparties to these agreements are major financial institutions. The agreements expire in March 2007. The Company has designated the swap agreements as fair value hedges of the risk of changes in its value of fixed rate debt due to changes
in interest rates for a portion of its fixed rate borrowings under SFAS 133. Accordingly, the swap agreements have been recorded at their fair market value of $1.6 million and are included in Other Assets on the accompanying Condensed Consolidated
Balance Sheet, with a corresponding increase in the carrying amount of the related debt. No gain or loss has been recorded as the contracts meet the criteria of SFAS 133 to qualify for hedge accounting treatment with no ineffectiveness.





In March 2002, the Company completed arrangements to sell certain accounts receivable through its wholly-owned
subsidiary, Arch Chemicals Receivables Corp., a special-purpose corporation. Arch Chemicals Receivables Corp. entered into a trade accounts receivable securitization agreement with an independent financial institution whereby it can sell, on an
ongoing basis, participation interests in accounts receivable for a maximum purchase price of up to $80.0 million. As of June 30, 2002, the Company had received proceeds of $71.8 million from the sale of participation interests in accounts
receivable under this program. The amount of participation interests sold under this arrangement is subject to change based on the level of eligible receivables. The accounts receivable sold are reflected as a sale of accounts receivable in
accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The accounts receivable securitization program provides another source of funding for the Company and is
expected to lower overall funding costs.




23




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued







In March 2002, the Company issued $211.0 million of unsecured senior
notes to certain institutional investors in two series. The Series A notes of $149.0 million are due in March 2007 and the Series B notes of $62.0 million are due in March 2009 and bear fixed interest rates of 7.94% and 8.24%, respectively, subject
to certain leverage ratio requirements. The notes contain quarterly leverage ratio covenants of 4.5 through December 31, 2002 and 3.5 thereafter and fixed coverage ratio covenants of 2.0 through December 31, 2002 and 2.25 thereafter, and restrict
the payment of dividends and repurchases of stock in excess of $65 million plus 50% of cumulative net income under certain circumstances. Proceeds from the issuance of these notes have been used to pay down debt, including the Acquisition Facility.





In January 2002, the Company renewed its existing 364-day Facility in the amount of $87.5 million, which now
expires in January 2003 and amended certain prospective financial covenants of this facility and the Five-year Facility to reflect the seasonality of its portfolio. The quarterly leverage ratio (debt/EBITDA) was increased to 4.5 for the first
quarter of 2002 and to 4.0 for the second quarter of 2002, with gradual reductions to 3.5 as of December 31, 2002. The restriction on the payment of dividends and repurchase of shares was also amended to limit payments to $40 million plus 50% of
cumulative net income under certain circumstances beginning December 31, 2001.





At June 30, 2002, the Company had
$8.5 million of outstanding letters of credit and $4.5 million of letters of guarantee, including $3.6 million of its joint venture Planar Solutions borrowings. The Company has agreed to guarantee up to $8.5 million of Planar borrowings.





In 2001, the Company received notification of a potential product claim by a customer related to a discontinued
product. This claim was settled by the Company in August 2002 for a total of $5.5 million, exclusive of estimated insurance proceeds of approximately $2.5 million. The Company expects to pay the settlement during the third quarter of 2002.





The Company believes that the Credit Facilities, accounts receivable securitization program and cash provided by
operations are adequate to satisfy its liquidity needs for the near future. However, if Company earnings were to fall significantly below current expectations, a risk exists that the Company would not meet its quarterly leverage, interest coverage
or fixed charge coverage ratio covenants which could trigger a default condition under its debt agreements.





The
Company is pursuing the sale of the Hickson organics Castleford, England operation. Proceeds from the sale are expected to be used to repay debt.





On July 25, 2002, the Company declared a quarterly dividend of $0.20 on each share of the Companys common stock. The dividend is payable on September 4, 2002, to shareholders of record at the
close of business on August 5, 2002.





New Accounting Standards





In August 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 143, Accounting for Asset Retirement Obligations (SFAS
143). SFAS 143 requires recording the fair market value of an asset retirement obligation as a liability in the period in which a legal obligation associated with the retirement of tangible long-lived assets is incurred. SFAS 143 also requires
recording the contra asset to the initial obligation as an increase to the carrying amount of the related long-lived asset and to depreciate that cost over the life of the asset. The liability is then increased at the end of each period to reflect
the passage of time and changes in the initial fair value measurement. The Company is required to adopt the provisions of SFAS 143 effective January 1, 2003 and has not yet determined the extent of its impact, if any.




24




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations


Continued







Cautionary Statement under Federal Securities Laws





The information in this Form 10-Q contains forward-looking statements that are based on managements beliefs, certain assumptions
made by management and managements current expectations, estimates and projections about the markets and economy in which the Company and its various businesses operate. Words such as anticipates, believes,
estimates, expects, forecasts, opines, plans, predicts, projects, should, targets, will, and variations of such words and similar
expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (Future Factors), which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, 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 economic recovery in
the second half of 2002 in the U.S.; lack of moderate growth or recession in European economies; increases in interest rates; economic conditions in Asia; worsening economic and political conditions in Venezuela; strengthening of the U.S. dollar
against the euro; customer acceptance of new products; efficacy of new technology; changes in U.S. laws and regulations; increased competitive and/or customer pressure; the Companys ability to maintain chemical price increases;
higher-than-expected raw material costs for certain chemical product lines; increased foreign competition in the calcium hypochlorite markets; further deterioration in the semiconductor industry and lack of recovery in the second half of 2002;
unfavorable court, arbitration or jury decisions; the supply/demand balance for the Companys products, including the impact of excess industry capacity; failure to achieve targeted cost-reduction programs; unsuccessful entry into new markets
for electronic chemicals; capital expenditures in excess of those scheduled; environmental costs in excess of those projected; the occurrence of unexpected manufacturing interruptions/outages at customer or company plants; unfavorable weather
conditions for swimming pool use; higher-than-expected costs of switching to a direct-to-retail distribution method; gains or losses on derivative instruments; and the inability of the Company to sell the Hickson organics Castleford, England
operation or to sell it at its desired price.







25




---

##### Table of Contents




Item 3.    
Quantitative and Qualitative Disclosures About Market Risk





Interest Rate Risk





At June 30, 2002, the Company was exposed to interest rate risk on approximately 50% of its outstanding borrowings including funding under
its accounts receivable securitization program which are subject to floating rates. Based on the Companys expected 2002 borrowing levels, an increase in interest rates of 100 basis points would decrease the Companys results of operations
and cash flows by approximately $1 million.





Foreign Currency Risk





At June 30, 2002, the Company had forward contracts to sell foreign currencies with notional amounts of $5.9 million and forward contracts to buy foreign currencies with
notional amounts of $9.0 million. The fair values of these forward contracts is included in Other Current Assets and Accrued Liabilities, respectively.





Holding other variables constant, if there were a 10 percent change in foreign currency exchange rates, the net effect on the Companys annual cash flows would be an increase (decrease) of between
$1 million to $2 million related to the unhedged portion, as any increase (decrease) in cash flows resulting from the Companys hedge forward contracts would be offset by an equal (decrease) increase in cash flows on the underlying transaction
being hedged. The application of SFAS 133 may cause increased volatility in the Companys results of operations for interim periods in the future, if the Company changes its policies, or if some of the derivative instruments do not meet the
requirements for hedge accounting.





Commodity Price Risk





The Company is exposed to commodity price risk related to the price volatility of natural gas utilized at certain manufacturing sites. Depending on market conditions, the
Company may purchase derivative commodity instruments to minimize the risk of price fluctuations. At June 30, 2002, the Company had no outstanding forward contracts to purchase natural gas.





See the Companys Form 10-K for the year ended December 31, 2001 for additional information on the above items.




26




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##### Table of Contents




ARCH CHEMICALS, INC.


PART II.    OTHER INFORMATION





Item
4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





The Company held its Annual
Meeting of Shareholders on April 25, 2002. Of the 22,265,757 shares of common stock entitled to vote at such meeting, at least 20,142,894 shares were present for purposes of a quorum. At the meeting, shareholders elected to the Board of Directors
Michael E. Campbell, H. William Lichtenberger and John P. Schaefer as Class III directors each with a term expiring in 2005. Votes cast for and votes withheld in the election of Directors were as follows:





FOR

WITHHELDMichael E. Campbell

19,632,546

510,348H. William Lichtenberger

19,631,011

511,883John P. Schaefer

19,628,932

513,962





There were no abstentions or broker non-votes. The shareholders
also ratified the appointment of KPMG, LLP as independent auditors for the Company for 2002. Voting for the resolution ratifying the appointment were 19,660,053 shares. Voting against were 321,775 shares. Abstaining were 161,066 shares. There were
no broker non-votes.





|Item |  | 6.    EXHIBITS AND REPORTS ON FORM 8-K
|---- |  | --------------------------------------




| | (a) |  | Exhibits required by Item 601 of Regulation S-K.
| | --- |  | ------------------------------------------------




| | 10.1 |  | Second Amendment, dated as of May 15, 2002, to Receivables Purchase Agreement, dated as of March 19, 2002, among Arch Chemicals Receivables Corp.,
ArchChemicals, Inc., Blue Ridge Asset Funding Corporation and Wachovia Bank, National Association.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 10.2 |  | Consulting Agreement, dated May 1, 2002, between Hickson International Limited and John H. Markham, Pension Supplement Agreement, dated May 1, 2002, among
Hickson International Limited, John H. Markham and Mrs. John H. Markham and related Promissory Note, dated May 1, 2002, in the amount of GBP 46,778, from John H. Markham.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 99.1 |  | Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002 by the Chief Executive Officer.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------




| | 99.2 |  | Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 by the Chief Financial Officer.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | No reports on Form 8-K were filed during the quarter ended June 30, 2002.
| | --- |  | -------------------------------------------------------------------------






27




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##### Table of Contents




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 14, 2002

By:

Louis S. MassimoLouis S. Massimo Vice President and Chief Financial Officer







28




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##### Table of Contents




EXHIBIT INDEX





10.1

Second Amendment, dated as of May 15, 2002, to Receivables Purchase Agreement, dated as of March 19, 2002, among Arch Chemicals Receivables Corp., Arch
Chemicals, Inc., Blue Ridge Asset Funding Corporation and Wachovia Bank, National Association.10.2

Consulting Agreement, dated May 1, 2002, between Hickson International Limited and John H. Markham, Pension Supplement Agreement, dated May 1, 2002, among
Hickson International Limited, John H. Markham and Mrs. John H. Markham and related Promissory Note, dated May 1, 2002, in the amount of GBP 46, 778, from John H. Markham.99.1

Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive
Officer.99.2

Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 by the Chief Financial
Officer.