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CHEMFIRST INC. SECOND QUARTER
Conference Call
July 24, 2002
Kelley Williams
Good morning. Thank you for joining us. I'm Kelley Williams, chairman and
CEO. I have with me Mike Summerford, president and COO, and Jim McArthur,
manager, investor relations.
I hope you all have a copy of the release we made late yesterday covering
the basic terms of the agreement we have reached with DuPont. DuPont has
made a cash offer to acquire ChemFirst for $408 million, or $29.20 per
share. It was unanimously accepted by our board. The deal is subject is
subject to regulatory and ChemFirst shareholder approval. We will discuss
the details of this transaction in a call to be made jointly with DuPont at
12:00 noon Eastern Daylight Time. We will not be able to discuss the
transaction in this call, so we hope you'll tune in to our joint conference
with DuPont later this morning. Please see the call info at the bottom of
the announcement.
We will, however, be discussing other good news regarding our second
quarter earnings this morning. After covering the earnings release we'll
open the floor to questions.
Earnings for the quarter were $3.9 million or 27 cents per share versus a
loss of $16.9 million or $1.19 cents per share last year. Prior year
earnings excluding a loss of $19.4 million or $1.37 per share related to
fine chemicals and a five cents per share gain on sale of a captive
insurance subsidiary were $1.8 million or 13 cents per share. Earnings were
up primarily on better results in electronic chemicals. Polyurethane
chemicals also improved. Sales were $75 million, same as prior year
excluding $14 million from fine chemicals.
Earnings for the six months were $9.4 million or 65 cents per share, up
from $6.6 million or 47 cents per share last year excluding special items.
Reported earnings for the quarter and six months include after-tax business
interruption insurance payments for the current year of $0.2 million and
$2.2 million, respectively, and $2.2 million for the six months prior year.
Electronic and Other Specialty Chemicals pretax operating profits for the
quarter were $2.3 million compared to a loss of $0.1 million last year
excluding fine chemicals. Current results include business interruption
payments of $0.4 million - no payments were received Q2 '01.
Earnings improved on higher volumes of electronic chemicals. We realized
record remover sales this quarter, largely driven by new business in the
Far East. HDA(R) remover volumes were up 53%. DUV resin volumes were also
up significantly. Other specialties operating profits were off on lower
margins. Sales were $33 million versus $28 million last year excluding fine
chemicals.
Profits for the six months were up 17% to $7.8 million versus $6.7 million
last year excluding fine chemicals and including business interruption
insurance payments of $3.5 and 3.6 million, respectively.
Polyurethane Chemicals earnings for the quarter were $8.6 million, up from
$6.9 million last year. Profits for the six months were $14.9 million, up
from $12 million. Sales for the quarter and year were $42 million and $72
million respectively, compared to $47 million and $86 million last year.
Profits increased on higher unit margins due to pass-throughs of favorable
energy and raw material costs and lower other expenses.
Stock Repurchase - We didn't repurchase any shares during the quarter
because we were in a quiet period due to on-going negotiations with
DuPont.
Outlook - Electronic chemicals made great gains despite semiconductor
industry weakness and inconsistency, mainly due to our growing market share
in the Far East. We expect continued improvement for this segment versus
prior year, and polyurethanes are on track for a healthy year as well. So,
we expect earnings this year to show solid improvement over last year.
Safe Harbor Statement - My comments and others by Mike are subject to and
qualified by the usual caveats about forward-looking statements described
in our most recent 10-K and 10Q's.
Now, Mike will give additional details about operations and financial
issues.
Mike Summerford
Second quarter pretax operating profit was $10.9 million including $400,000
business interruption insurance proceeds compared to $11.9 million last
quarter which included $3.1 million of insurance proceeds. Excluding
insurance, operating profits were up 20%.
Electronic and other specialties sales were $33 million down slightly from
last quarter on lower sales of nitrotoluene specialties. Excluding
insurance proceeds, pretax operating profit was $2 million compared to $2.4
million last quarter. Better results in removers and DUV resins were offset
by lower nitrotoluene specialty sales. Total insurance recoveries since the
June 2000 event are $16.4 million. The $400,000 collected in the second
quarter was a partial recovery under our European policy. We expect
additional recoveries under this policy and arbitration has been initiated
to recover additional losses under our US policy up to the $25 million
policy limit.
Remover volume was up 12% from last quarter. Sales were up in all regions
except the US. Most of the increase came from higher sales in the Far East
where the industry recovery is strongest. This was the second best volume
quarter in our history.
DUV photoresist resin volume was up 26% from the 1st quarter. Operating
results were positive and improved on the higher volume and lower costs.
The 2nd quarter loss for CMP was 10 cents per share, a little higher than
last quarter on higher expenses. CMP activities with customers and
equipment suppliers continues to be promising. We currently have over 30
customer evaluations underway with our STI, tungsten and copper slurries.
About half of these have progressed from the initial evaluation to process
optimization, data collection and testing in production environments,
including several that are moving into production scale up. In addition, we
are working with the leading tool vendors to establish processes of record
for selected products.
Polyurethane chemical sales were $42 million, up 42% from last quarter on
higher volume and better unit margins. Operating profit was $8.6 million,
up 35% from $6.3 million last quarter.
Capital spending for the quarter was $3 million and net cash at quarter-end
was $35 million.
We'll take your questions now.
QUESTIONS AND ANSWERS
John Roberts
Buckingham Research
Good Morning guys. Congratulations. Could you give us an update on your
efforts to inforce your patents in Japan on remover business and
secondarily it has been awhile since we heard anything on PMOD. Could you
provide an update there?
Mike Summerford
Thank you John. On the patent situation in Japan we are in the process of
sorting out the situation with the two or three competitors in Japan who
are selling products using hydroxalimine that we believe infringe on our
patents. We've got discussion underway now. It will be awhile before we
conclude those discussions but expect that to happen this year. PMOD is
still in a very early development stage. We have a number of activities
underway with Simon Frazier University and Georgia Tech and others on
development work on PMOD. it is still too early to make any predictions
about what success we ought to have with the various opportunities we see
with PMOD, but at this point, not much of an update.
Joe Chumbler
Stephens Inc.
Good Morning. I'm wondering about the CMP competitive environment over the
last 12 months. Would you characterize it as having intensified or maybe
stabilized?
Mike Summerford
Joe, I don't think I would say that it has intensified. There certainly are
a number of players in the market with products that are competing to gain
business and to gain share. It's very competitive. Customers are very
demanding in terms of performance in the products they are seeking. So it's
a tough market and it's going to continue to be a very intense competition.
Joe Chumbler
In the general chip manufacturing side, are you seeing any signs of life in
the US or did we get a headfake the first quarter of this year?
Mike Summerford
Well, as I mentioned in my remarks our volumes were down in the second
quarter from the first and as we reported last quarter US volumes were up
from the fourth quarter. I don't really have a good explanation for that
except to say that it continues to be fairly weak in the US, but we are
encouraged by the up-tick in both Europe and in Japan. Clearly our volumes
have been strongest and growing the strongest in the Pac-Rim - Taiwan,
Korea and Singapore.
No further questions
* * * * * * * * * * * * * * * * * *
In connection with the transaction discussed in this conference call,
ChemFirst Inc. intends to file a proxy statement with the Securities and
Exchange Commission. Security holders are urged to read the proxy statement
when it becomes available because it will contain important information.
Security holders may obtain a free copy of the proxy statement when it
becomes available, as well as other materials filed with the Securities and
Exchange Commission concerning ChemFirst, at the Securities and Exchange
Commission's web site at http://www.sec.gov. Security holders of ChemFirst
Inc. may also obtain for free the proxy statement filed by ChemFirst Inc.
with the Securities and Exchange Commission in connection with the
transaction by directing a request to ChemFirst Inc., Attention: Investor
Relations Department, P.O. Box 1249, Jackson, MS 39215-1249, (601)
949-0213.
ChemFirst Inc. and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from ChemFirst shareholders
with respect to the transaction. Information regarding these directors and
executive officers and their ownership of ChemFirst common stock is
contained in ChemFirst Inc.'s proxy statement on Schedule 14A, filed with
the Securities and Exchange Commission on March 25, 2002, in connection
with the 2002 annual meeting ChemFirst shareholders. Investors may obtain
additional information regarding the interests of such participants by
reading the proxy statement regarding the transaction when it becomes
available.