Arch Chemicals Reports Second Quarter 2005 Earnings In-Line with Guidance; Reaffirms Full Year Outlook

Highlights:

-- Sales for 2005 increased approximately 14 percent over the second quarter 2004, driven by organic growth.

-- Second quarter earnings from continuing operations were $1.03 per share.

-- Third quarter earnings per share are expected to be in the $0.15 to $0.25 range.

Arch Chemicals, Inc. (NYSE: ARJ) announced for the second quarter2005, sales were $411.3 million compared to $362.0 million in thecorresponding period in 2004. Segment operating income was $40.0million in 2005 compared to $41.4 million in 2004. Earnings per sharefrom continuing operations were $1.03 for the second quarter 2005 on$24.5 million of income, compared to $0.93 per share, which included$0.04 of restructuring expense, on income of $22.0 million a year ago.

"I'm pleased by our higher year-over-year earnings in the secondquarter, which were driven by record sales of biocides in the marinepaint and building products markets, strong sales of personal careproducts and a significant improvement in performance urethanes," saidChairman, President and CEO Michael E. Campbell. "We reported earningsat the lower end of our guidance due to higher freight and productsourcing costs in our water business. We've already begun taking steps-- from price increases to tighter freight controls -- that shouldsignificantly improve results in this business."

The following compares segment sales and operating income for thesecond quarters of 2005 and 2004 (including equity in earnings ofaffiliated companies and excluding restructuring and certainunallocated expenses of the corporate headquarters):

Treatment Products

Treatment Products reported sales of $355.1 million and operatingincome of $40.9 million compared with sales of $323.8 million andoperating income of $51.2 million in 2004.

HTH Water Products

HTH water products reported sales of $183.2 million and operatingincome of $23.5 million for 2005 compared to sales of $162.5 millionand operating income of $27.9 million for 2004.

Sales increased $20.7 million, or approximately 13 percent,principally due to higher North American residential swimming poolvolumes and, to a lesser extent, favorable foreign currency rates. Theincrease in sales volumes resulted from higher demand from existingand new customers for branded chlorinated isocyanurates (Pace(R)) andcalcium hypochlorite (HTH(R)), as well as pool maintenance productsand accessories.

Operating income decreased $4.4 million primarily as a result oflower gross margin due to an increase in cost of sales driven byunfavorable product mix, higher product sourcing costs and an increasein freight and distribution costs. The unfavorable mix is the resultof higher volumes of chlorinated isocyanurates and lower volumes ofnon-chlorine branded products. The higher product sourcing costs werea result of new import duties and utilization of an alternativesupplier for chlorinated isocyanurates due to strong demand. Thehigher freight and distribution costs were due to higher volumes andinefficiencies encountered in the distribution channels. Theseincreases were slightly offset by a decrease in operating expensesprimarily due to the higher self-insurance reserves ($3 million)recorded in 2004, partially offset by increased compensation andbenefit-related costs in 2005.

Personal Care and Industrial Biocides

Personal care and industrial biocides reported sales of $70.6million and operating income of $10.8 million compared to sales andoperating income of $65.8 million and $12.9 million, respectively, in2004.

Sales increased $4.8 million, or approximately seven percent,principally due to higher volumes which were attributable to continuedstrong demand for biocides used in personal care products, includingantidandruff products, and in industrial applications, includingmarine antifouling paints.

Operating income decreased $2.1 million. The prior year periodbenefited ($3 million) from a $6.1 million settlement of a favorablejudgment obtained against a former owner of an acquired company.Excluding the favorable judgment in 2004, operating income improved by$0.9 million due to higher sales volumes.

Wood Protection and Industrial Coatings

Wood protection and industrial coatings reported sales of $101.3million and operating income of $6.6 million compared to sales andoperating income of $95.5 million and $10.4 million, respectively, in2004.

Sales increased $5.8 million, or approximately six percent, due tothe favorable effect of pricing and favorable foreign exchange,primarily in the industrial coatings business. The improved pricing isthe result of price increases to mitigate higher raw material costsprincipally for polyurethane and water-based products in theindustrial coatings business, as well as for Wolman(R) E(CCA-replacement) products in the wood protection business.

Operating income decreased $3.8 million over the prior year,primarily in the wood protection business and, to a lesser extent, theindustrial coatings business. The lower operating results in the woodprotection business were primarily due to lower equity in earnings(losses) of the Koppers joint venture that were negatively impacted by$1.5 million, including applicable legal expenses related to apotential exposure in a case that has been filed against its NewZealand joint venture, Koppers Arch Wood Protection (NZ) Limited. Inaddition, the wood protection and industrial coatings businessesoperating results decreased due to the higher raw materials costs.

Performance Products

Performance Products reported sales of $56.2 million and operatingincome of $3.7 million compared with sales and an operating loss of$38.2 million and $3.2 million, respectively, in 2004.

Performance urethanes sales increased approximately 56 percentover the prior year due to improved pricing and higher volumes. Theimproved pricing was principally due to successful price increasesthat mitigated higher raw material costs. The increase in volumes wasdue to stronger demand across all product lines, particularly inglycols, specialty polyol products and higher contract manufacturingbusiness. Operating results improved $5.2 million as a result ofhigher sales volumes and improved margins from the higher pricing,which were slightly offset by increased compensation andbenefits-related costs.

Hydrazine sales decreased approximately five percent due primarilyto lower propellant revenues resulting from the expiration of theprior government contract in April 2004, which were partially offsetby higher pricing for hydrazine hydrates and increased pricing forUltra Pure(TM) Hydrazine. Operating results increased $1.7 millionprimarily as a result of cost-reduction efforts within the businessdue to the reduction in work force from last year.

Other Items

In the second quarter, the Company reduced its estimated effectivetax rate on income from continuing operations for the full year to 30percent from 35 percent primarily as a result of lower foreign sourceincome taxes. The effective tax rate for the full year 2004 on incomefrom continuing operations was 29 percent.

Gain on sale of discontinued operations, net of tax, representsthe recovery of GBP 1.7 million (approximately $2.9 million) relatedto two outstanding notes from the sale of the Hickson organicsCastleford operations, that were previously reserved as of December31, 2004 due to the significant uncertainty concerning the viabilityof the purchaser. The Company received the cash payment on July 19,2005 for the principle and interest on these two outstanding notes.

2005 Outlook

The Company anticipates earnings from continuing operations in thethird quarter 2005 to be in the $0.15 to $0.25 per share range,compared to $0.07 for the prior-year quarter. For full year 2005,sales are expected to increase approximately twelve to fifteen percentand earnings per share from continuing operations are expected torange from $1.20 to $1.30, compared to $0.74 for the prior year, whichincluded restructuring expense and an impairment charge that totaled$0.12. Depreciation and amortization is estimated to be approximately$45 million. Capital spending is anticipated to be approximately $20million. Pension expense is expected to increase by approximately $5million.

Note: All references to earnings per share above reflect dilutedearnings per share.

About Arch

Headquartered in Norwalk, Connecticut, Arch Chemicals, Inc. is aglobal specialty chemicals company with more than $1 billion in annualsales. Arch and its subsidiaries have leadership positions in theTreatment and Performance Products segments, where they serve leadingcustomers with forward-looking solutions to meet their chemical needs.Together with its subsidiaries, Arch has approximately 2,700 employeesand manufacturing and customer-support facilities in North and SouthAmerica, Europe, Asia and Africa. For more information, visit theCompany's Web site at http://www.archchemicals.com.

-- Listen in live to Arch Chemicals' second quarter 2005 earnings conference call on Monday August 8, 2005 at 1:00 p.m. (ET) at http://www.archchemicals.com.

-- If members of the public wish to access Arch's live earnings call in a listen-only mode, dial: (800) 591-6930, passcode 71153293, in the United States or (617) 614-4908, passcode 71153293, outside the United States.

-- A telephone replay will be available from 3:00 p.m. on Monday August 8, 2005 until 6:00 p.m. (ET) on Monday August 15, 2005. The replay number is (888) 286-8010, passcode 23781839; from outside the United States, please call (617) 801-6888, passcode 23781839.

Except for historical information contained herein, theinformation set forth in this communication may containforward-looking statements that are based on management's beliefs,certain assumptions made by management and management's currentexpectations, outlook, estimates and projections about the markets andeconomy in which the Company and its various businesses operate. Wordssuch as "anticipates," "believes," "estimates," "expects,""forecasts," "opines," "plans," "predicts," "projects," "should,""targets" and variations of such words and similar expressions areintended to identify such forward-looking statements. These statementsare not guarantees of future performance and involve certain risks,uncertainties and assumptions ("Future Factors"), which are difficultto predict. Therefore, actual outcomes and results may differmaterially from what is expected or forecasted in such forward-lookingstatements. The Company undertakes no obligation to update publiclyany forward-looking statements, whether as a result of future events,new information or otherwise. Future Factors which could cause actualresults to differ materially from those discussed include but are notlimited to: general economic and business and market conditions; lackof moderate growth or recession in U.S. and European economies;increases in interest rates; economic conditions in Asia; worseningeconomic and political conditions in Venezuela; changes in foreigncurrencies against the U.S. dollar; customer acceptance of newproducts; efficacy of new technology; changes in U.S. laws andregulations; increased competitive and/or customer pressure; theCompany's ability to maintain chemical price increases;higher-than-expected raw material costs for certain chemical productlines; availability of raw materials; an increase in anti-dumpingduties on certain products; increased foreign competition in thecalcium hypochlorite markets; unfavorable court, arbitration or jurydecisions or tax matters; the supply/demand balance for the Company'sproducts, including the impact of excess industry capacity; failure toachieve targeted cost-reduction programs; capital expenditures inexcess of those scheduled; environmental costs in excess of thoseprojected; the occurrence of unexpected manufacturinginterruptions/outages at customer or company plants; reduction inexpected government contract orders and/or the overturning of theaward to the Company of the new U.S. government contract for hydrazinepropellants; decision not to start up the Company's hydratesmanufacturing facility; unfavorable weather conditionsfor swimming pool use; inability to expand sales in the professionalpool dealer market; and gains or losses on derivative instruments.
Arch Chemicals, Inc.
Condensed Consolidated Statements of Income (a)
(In millions, except per share amounts)
----------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
----------------------------------------------------------------------
Sales $411.3 $362.0 $712.6 $602.3
Cost of Goods Sold 294.6 248.1 512.2 423.3
Selling and Administration 71.1 69.3 140.8 124.7
Research and Development 5.3 4.0 10.3 7.3
Other (Gains) and Losses - (0.1) - (0.1)
Restructuring (b) - 1.7 - 1.7
Interest Expense, Net 5.8 5.4 10.2 9.3
----------------------------------------------------------------------
Income from Continuing Operations
Before Equity in Earnings of
Affiliated Companies and Taxes 34.5 33.6 39.1 36.1
Equity in Earnings (Loss) of
Affiliated Companies (0.3) 0.7 0.6 1.8
Income Tax Provision 9.7 12.3 11.6 13.6
----------------------------------------------------------------------
Income from Continuing Operations 24.5 22.0 28.1 24.3
Income from Discontinued Operations,
Net of Tax (c) - 3.2 - 3.9
Gain on Sale of Discontinued
Operations, Net of Tax (d) 2.9 - 2.9 -
----------------------------------------------------------------------
Net Income $27.4 $25.2 $31.0 $28.2
======================================================================

Basic Income Per Share:
Continuing Operations $1.04 $0.94 $1.19 $1.06
Income from Discontinued
Operations, Net of Tax (c) - 0.14 - 0.17
Gain on Sale of Discontinued
Operations, Net of Tax (d) 0.12 - 0.12 -
----------------------------------------------------------------------
Basic Income Per Share $1.16 $1.08 $1.31 $1.23
======================================================================

Diluted Income Per Share:
Continuing Operations $1.03 $0.93 $1.18 $1.04
Income from Discontinued
Operations, Net of Tax (c) - 0.14 - 0.17
Gain on Sale of Discontinued
Operations, Net of Tax (d) 0.12 - 0.12 -
----------------------------------------------------------------------
Diluted Income Per Share $1.15 $1.07 $1.30 $1.21
======================================================================

Weighted Average Common Stock
Outstanding - Basic 23.6 23.3 23.6 22.9
Weighted Average Common Stock
Outstanding - Diluted 23.8 23.6 23.8 23.3
----------------------------------------------------------------------

(a) Unaudited. As a result of the sale of the microelectronic
materials business, the Company has restated 2004 results to
include the results of operations of the microelectronic materials
business in discontinued operations in accordance with SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."

(b) 2004 restructuring includes employee-related costs for the
hydrazine business of $2.1 million, offset by a reduction of the
prior year restructuring reserves of $0.4 million.

(c) Represents the results of operations of the microelectronic
materials business, net of tax, through the date of the sale of
the business. The results of operations also include the CMS
business as it is being accounted for as an asset held for sale.

(d) Represents the recovery of GBP 1.7 million (approximately $2.9
million), related to two outstanding notes from the sale of the
Hickson organics Castleford operations, that were previously
reserved as of December 31, 2004 due to the significant
uncertainty concerning the viability of the purchaser. The Company
received the cash payment on July 19, 2005 for the principle and
interest on these outstanding notes.



Arch Chemicals, Inc.
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
----------------------------------------------------------------------
June December
30, 31,
2005 (a) 2004
----------------------------------------------------------------------
Assets:
Cash & Cash Equivalents $36.4 $74.6
Accounts Receivable, Net (b) 156.9 125.6
Short-Term Investment (b) 61.6 53.3
Inventories, Net 178.5 151.1
Other Current Assets 38.2 37.9
Assets Held For Sale 11.4 15.9
----------------------------------------------------------------------
Total Current Assets 483.0 458.4
Investments and Advances - Affiliated
Companies at Equity 14.9 15.5
Property, Plant and Equipment, Net 193.0 211.6
Goodwill 197.4 192.4
Other Intangibles 142.6 151.2
Other Assets 62.5 70.9
----------------------------------------------------------------------
Total Assets $1,093.4 $1,100.0
----------------------------------------------------------------------

Liabilities and Shareholders' Equity:

Short-Term Borrowings $9.3 $9.1
Accounts Payable 196.1 160.2
Accrued Liabilities 95.9 108.1
Liabilities Associated with Assets Held For
Sale 12.2 12.2
----------------------------------------------------------------------
Total Current Liabilities 313.5 289.6
Long-Term Debt 213.4 215.2
Other Liabilities 199.7 235.4
----------------------------------------------------------------------
Total Liabilities 726.6 740.2
Commitments and Contingencies
Shareholders' Equity:
Common Stock, Par Value $1 Per Share,
Authorized 100.0 Shares:
23.6 Shares Issued and Outstanding (23.4
in 2004) 23.6 23.4
Additional Paid-in Capital 421.0 418.2
Retained Earnings 36.4 14.8
Accumulated Other Comprehensive Loss (114.2) (96.6)
----------------------------------------------------------------------
Total Shareholders' Equity 366.8 359.8
----------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,093.4 $1,100.0
----------------------------------------------------------------------

(a) Unaudited.

(b) In June 2005, the Company entered into a new securitization
program through which the Company sold certain accounts
receivable. This replaces the original accounts receivable
securitization program entered into in March 2002, which expired
on March 31, 2005. As of June 30, 2005, the Company had sold $77.0
million of participation interest in $138.6 million of accounts
receivable and as of December 31, 2004, the Company had not sold
any participation interests in accounts receivable.



Arch Chemicals, Inc.
Condensed Consolidated Statements of Cash Flows (a)
(In millions)
----------------------------------------------------------------------
Six Months Ended June 30, 2005 2004
----------------------------------------------------------------------
Operating Activities:
Net Income $31.0 $28.2
Adjustments to Reconcile Net Income to Net Cash
and Cash Equivalents (Used in) Provided by
Operating Activities:
Income from Discontinued Operations (2.9) (3.9)
Equity in Earnings of Affiliates (0.6) (1.8)
Depreciation and Amortization 23.6 22.2
Deferred Taxes 6.7 6.1
Restructuring - 1.7
Restructuring Payments (1.1) (0.8)
Changes in Assets and Liabilities, Net of Purchase
and Sale of Businesses:
Accounts Receivable Securitization Program 73.4 61.9
Receivables (118.2) (85.4)
Inventories (34.5) (19.4)
Other Current Assets - (1.8)
Accounts Payable and Accrued Liabilities 31.7 36.4
Noncurrent Liabilities (b) (28.9) 1.7
Other Operating Activities 1.6 5.7
----------------------------------------------------------------------
Net Operating Activities from Continuing
Operations (18.2) 50.8
Change in Net Assets Held for Sale 4.1 2.3
----------------------------------------------------------------------
Net Operating Activities (14.1) 53.1
----------------------------------------------------------------------
Investing Activities:
Capital Expenditures (6.4) (8.8)
Business Acquired in Purchase Transaction, Net of Cash
Acquired (3.1) (205.4)
Cash Payments from the Sale of a Business (3.9) -
Other Investing Activities (0.8) (1.1)
----------------------------------------------------------------------
Net Investing Activities (14.2) (215.3)
----------------------------------------------------------------------
Financing Activities:
Long-Term Debt Borrowings 111.0 207.0
Long-Term Debt Repayments (111.1) (75.4)
Short-Term Borrowings (Repayments), Net 1.2 14.3
Dividends Paid (9.4) (9.1)
Other Financing Activities 1.0 2.8
----------------------------------------------------------------------
Net Financing Activities (7.3) 139.6
----------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (2.6) 1.9
----------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (38.2) (20.7)
Cash and Cash Equivalents, Beginning of Year 74.6 64.8
----------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $36.4 $44.1
----------------------------------------------------------------------

(a) Unaudited.

(b) The cash used by Noncurrent Liabilities includes $33.5 million for
a voluntary cash contribution for the U.S. pension plan.



Arch Chemicals, Inc.
Segment Information (a)
(In millions)
----------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
----------------------------------------------------------------------
Sales:
Treatment Products:
- HTH Water Products (b) $183.2 $162.5 $274.0 $232.5
- Personal Care and Industrial
Biocides (b) 70.6 65.8 140.4 107.4
- Wood Protection and Industrial
Coatings 101.3 95.5 188.4 181.6
----------------------------------------------------------------------
Total Treatment Products 355.1 323.8 602.8 521.5
Performance Products:
- Performance Urethanes 50.9 32.6 99.8 66.0
- Hydrazine 5.3 5.6 10.0 14.8
----------------------------------------------------------------------
Total Performance Products 56.2 38.2 109.8 80.8
----------------------------------------------------------------------
Total Sales $411.3 $362.0 $712.6 $602.3
----------------------------------------------------------------------
Operating Income (Loss) (c):
Treatment Products:
- HTH Water Products (b) $23.5 $27.9 $23.5 $30.2
- Personal Care and Industrial
Biocides (b) 10.8 12.9 23.3 21.2
- Wood Protection and Industrial
Coatings 6.6 10.4 7.9 13.6
----------------------------------------------------------------------
Total Treatment Products 40.9 51.2 54.7 65.0
Performance Products:
- Performance Urethanes 3.3 (1.9) 4.2 (5.3)
- Hydrazine 0.4 (1.3) (0.3) 0.1
----------------------------------------------------------------------
Total Performance Products 3.7 (3.2) 3.9 (5.2)
----------------------------------------------------------------------
44.6 48.0 58.6 59.8
General Corporate Expenses (d) (4.6) (6.6) (8.7) (10.9)
----------------------------------------------------------------------
Total Segment Operating Income
Including Equity in Earnings of
Affiliated Companies 40.0 41.4 49.9 48.9
Restructuring - (1.7) - (1.7)
Equity in (Earnings) Losses of
Affiliated Companies 0.3 (0.7) (0.6) (1.8)
----------------------------------------------------------------------
Total Operating Income 40.3 39.0 49.3 45.4
Interest Expense, Net (5.8) (5.4) (10.2) (9.3)
----------------------------------------------------------------------
Income from Continuing Operations
Before Taxes and Equity in Earnings
of Affiliated Companies $34.5 $33.6 $39.1 $36.1
----------------------------------------------------------------------

(a) Unaudited. 2004 restated to reflect the sale of the
microelectronic materials business segment including a
reallocation of corporate and centralized services to existing
businesses previously allocated to the microelectronic materials
segment.

(b) Includes the results of the acquired pool & spa and protection &
hygiene businesses from the date of acquisition on April 2, 2004.

(c) Includes equity in earnings (losses) of affiliated companies.

(d) Includes certain general expenses of the corporate headquarters
that are not allocated to the business segments, including costs
associated with the Company's accounts receivable securitization
program and the results of the Company's Planar Solutions joint
venture.