Tuesday, October 8, 2019

Census QFR Program Provides Insights into Industry Financial Status

QFR

U.S. Census Bureau publishes a series of aggregate statistics on the financial results and position of U.S. corporations under its Quarterly Financial Report (QFR) Program. Based upon a sample survey, the QFR presents estimated statements of income and retained earnings, balance sheets, and related financial and operating ratios for manufacturing corporations with assets of $250,000 and over, and corporations in mining, wholesale trade, retail trade, information, and professional and technical services (except legal services) industries, with assets of $50 million and over. The statistical data are classified by industry and by asset size.

The QFR data are used as an important component in determining corporate profits for the Gross Domestic Product (GDP) and National Income estimates. Additionally, the Federal Reserve, the Treasury, and the FTC use QFR data to assess such things as industrial debt structure, liquidity, tax liability, and profitability, and the Council of Economic Advisers and Congressional Committees utilize key indicators derived from QFR data as they design economic policies and draft legislation. The data have clear utility to business leaders and finance professionals as a financial benchmark and an indicator of the overall health of the private sector and specific manufacturing sectors, such as chemicals.

The QFR also provides income statements by various sectors1 and also provides various financial ratios of interest. Table 1 shows the overall income and expense status of all manufacturing industries over the past five quarters.

The Census also drills down to specific NAICS groupings within manufacturing and the other sectors. For example, within manufacturing, Census provides data on chemical manufacturing in general,2 along with “Basic Chemicals, Resins, and Synthetics”3, Pharmaceuticals, and “all other chemicals”4, which including paint and coatings manufacturing, NAICS 32551.

Looking more closely at the category “all other chemicals,” Figure 1 shows the overall aggregated revenues and expenses of the manufacturing sector “other chemicals,” where the coatings industry resides, along with pre and post-tax earnings. Although after-tax income for this grouping of industries has averaged approximately $7.5 billion per quarter from 2010 through Q1 2019, in the most recent quarter reported (Q2 2019), the sector had a loss of $51 million. As shown in Table 2, this appears to be largely the result of a roughly $7 billion swing in the accounting category “All other nonoperating income (expense).”

Census also provides a separate breakout for smaller firms (with total assets less than $25 million), which provides an interesting comparison.  For example, in the most recent quarter, while the aggregated large firms in the category showed a net loss after taxes, the smaller firm category recorded a profit5 of 9.38% pre-tax and 8.5% post-tax.

For more information on the Quarterly Financial Reports program, including downloadable income and balance sheet calculations, go to https://www.census.gov/econ/qfr/.

Contact ACA’s Allen Irish for more information.


1 In addition to manufacturing corporations (with assets of at least $250,000), Census provides QFR data on corporations in mining, wholesale trade, retail trade, information, and professional and technical services (except legal services) industries, with assets of $50 million and over.

2 NAICS Manufacturing Industry Group 325.

3 NAICS Manufacturing Industry Groups 3251 and 3252.

4 NAICS Manufacturing Industry Groups 3253, 3255, 3256, and 3259.  This grouping includes a variety of industries, including pesticides, fertilizer, soaps and detergents, and adhesives.

5 Calculated as income as a percentage of net sales, receipts, and operating revenues.

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FTC Considers Enforcement Related to “Made in the USA” Label Statements

FTC

On Sept. 26, 2019, the Federal Trade Commission (FTC) hosted a public workshop to further understand consumer perception of “Made in the USA” and other U.S.-origin claims, and to consider whether it can improve its “Made in USA” enforcement program.

While FTC has not issued regulations specifically covering “Made in USA” and other U.S.-origin claims, its 1997 Enforcement Policy Statement On U.S. Origin Claims (“Policy Statement”) provides guidance on how the commission applies Section 5 of the FTC Act, 15 U.S.C. § 45(a), to the use of such claims in advertising and labeling. Based on consumer research and thousands of public comments, the Policy Statement states that when a marketer makes a “Made in USA” claim, the marketer should, at the time of the representation, have a reasonable basis for asserting that “all or virtually all” of the product is, in fact, made in the United States. The Policy Statement also provides guidance to marketers on how to make appropriately qualified claims.

The workshop began by summarizing research on consumer perception of U.S.-origin claims, and included panels to discuss policy issues and appropriate enforcement measures and remedies. The panels included experts representing a wide range of perspectives, including industry representatives (large and small manufacturers, retailers, etc.) and consumer groups.

Key takeaways from the workshop, attended by ACA staff, are outlined below.

  • FTC is examining if its efforts (current guidance and enforcement) are enough to support the overall goal of increased manufacturing in the United States.
  • FTC suggested that its current policy is to go after companies that are not willing to work with FTC and assist others with compliance.
  • FTC heard comments from a broad range of panel guests, including representatives from Walmart, a jewelry manufacturer, a consumer goods manufacturer, a dishware manufacturer, a representative of the Alliance for American Manufacturing, a representative for the Apparel & Footwear Association, Consumer Reports, and Truthinadvertising.org.
  • Several of the manufacturers on the panel suggested that FTC should develop guidance and enforcement that is industry-specific – since each industry is a little different. FTC said that this would be difficult and, ultimately, FTC must gauge consumer perception of any labeling claims.
  • The industry panelists also suggested that they should be allowed to call a product “Made in America,” if the raw materials were sourced abroad but assembled in the United States while noting difficulty in identifying origin of many raw materials. FTC recognizes that some raw materials are not available in the United States.
  • FTC suggested that it is possible to make qualified claims that are accurate and substantiated under current requirements.
  • Some panelists mentioned other rules that apply including state rules (California’s seems to be the most stringent and was just changed); U.S. Customs Rules (for example, a company that exports from the United States can say 100% sourced in United States U.S. customs requirements, but may not be able to label the product “Made in the USA” according to FTC’s qualification requirements); U.S. Customs Rules of Origin, , and the federal government’s “Buy American” Policy in Executive Order 13788 of April 18, 2017 (Buy American and Hire American), and in Executive Order 13858 of January 31, 2019 (Strengthening Buy‑American Preferences for Infrastructure Projects).

FTC is seeking comment about evaluating and understanding consumer perception. More specifically, FTC poses 15 questions for comment, included here.

While FTC is accepting comments until Oct. 11, the agency will likely release a more formal request for comment in the future.

Contact ACA’s Riaz Zaman or David Darling for more information.

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OSHA Implements New Weighting System For Workplace Safety and Health Inspections

OSHA

Late last month, the U.S. Occupational Safety and Health Administration (OSHA) announced that it has recently implemented the OSHA Weighting System (OWS) for fiscal year (FY) 2020. According to the agency, the OWS will encourage the appropriate allocation of resources to support OSHA’s balanced approach of promoting safe and healthy workplaces, and continue to develop and support a management system that focuses enforcement activities on critical and strategic areas where the agency’s efforts can have the most impact. The OWS became effective Oct. 1, 2019.

Under the current enforcement weighting system, OSHA weights certain inspections based on the time taken to complete the inspection or, in some cases, the impact of the inspection on workplace safety and health. OWS recognizes that time is not the only factor to assess when considering the potential impact of an inspection. Per OSHA, other factors — such as types of hazards inspected and abated, and effective targeting — also influence the impact on workplace safety and health. The new OWS system adds enforcement initiatives such as the Site-Specific Targeting to the weighting system.

The OWS replaces the current enforcement weighting system initiated in FY 2015. The new system is based on an evaluation of the existing criteria and a working group’s recommendations regarding improvements to the existing weighting system. OSHA says it has been running the new weighting system to confirm data integrity.

The system will continue to weight inspections, but will do so based on other factors, including agency priorities and the impact of inspections, rather than simply on a time-weighted basis. The new OWS approach reinforces OSHA’s balanced approach to occupational safety and health (i.e., strong and fair enforcement, compliance assistance and recognition) and will incorporate the three major work elements performed by the field: enforcement activity, essential enforcement support functions (e.g., severe injury reporting and complaint resolution), and compliance assistance efforts.

Under the Occupational Safety and Health Act of 1970, employers are responsible for providing safe and healthful workplaces for their employees. OSHA’s role is to help ensure these conditions for America’s working men and women by setting and enforcing standards, and providing training, education and assistance. For more information, visit www.osha.gov.

Contact ACA’s Riaz Zaman for more information.

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from American Coatings Association https://www.paint.org/osha-ows/
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EPA Issues Guidance for Compliance with the Ban on DCM Paint Strippers

EPA

Last month, the U.S. Environmental Protection Agency (EPA) published a guidance document, Small Entity Compliance Guidance for the Regulation of Methylene Chloride, for clarification of its final rule banning methylene chloride paint stripping products for consumer use. The final rule takes effect on Nov. 22, 2019.

The final rule also implements downstream notification and record-keeping requirements when distributing in commerce for commercial and industrial use. This requirement took effect on Aug. 27, 2019.  To implement the ban, the final rule prohibits distribution of paint strippers with methylene chloride through distributors providing any chemical substance or mixture to consumers or retail outlets.

In March 2019, EPA issued a final rule to prohibit the manufacture (including import), processing, and distribution of methylene chloride in all paint and coating removers for consumer use. EPA has taken this action because of the acute fatalities that have resulted from exposure to the chemical. Paint removal products containing methylene chloride will not be able to be sold at any retail or distribution establishments that have consumer sales, including e-commerce sales.

While the final rule is unclear on whether any product with methylene chloride triggers downstream notification, even if it appears in trace amounts, on page 9 of its guidance, EPA states, “This notification must be carried out for methylene chloride for all uses, not just paint and coating removal. The final rule does not set any minimum amount of methylene chloride required to provide downstream notification.”

The EPA guidance largely summarizes the underlying rule by:

  • Defining key terms;
  • Identifying regulated entities;
  • Describing prohibited activities; and
  • Summarizing notification and record-keeping requirements and related implementation dates.

Although the guidance is aimed at small entities, the requirements described therein are not specific to small entities. Any company can refer to the guidance.

The final rule resulted in two lawsuits. Advocacy groups are seeking judicial review because the ban excludes commercial and industrial use, allegedly endangering workers. The case NRDC, et. al. v. EPA was filed in the Second Circuit Court of Appeals in April 2019. The Halogenated Solvent Industry Alliance is also seeking judicial review, indicating that the ban is overly broad by prohibiting distribution through any entity dealing with consumer markets for any substance or mixture. The case, HSIA v. EPA, Case No. 19-1115, was filed in the DC Circuit in May 2019.

More information on the final rule and related commentary is available on the EPA’s website here.

Contact ACA’s Riaz Zaman for more information.

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Monday, October 7, 2019

Maroon Group Acquires Cambrian Solutions Inc.

Maroon Group LLC has acquired Cambrian Solutions Inc. This is Maroon Group’s tenth add-on acquisition and extends the company’s distribution capabilities across key end markets in Canada, Maroon Group stated.

According to Maroon Group, in addition to broadening its North American network of customers, suppliers, and facilities, this acquisition reinforces the company’s focus on providing differentiated value-added capabilities to customers’ and principals’ supply chains through technical proficiency, formulary expertise, and client solutions laboratories. Cambrian’s leadership team will continue to actively manage the business on a day-to-day basis while leveraging Maroon Group’s global network of resources, according to the companies.

“This transformational acquisition for our organization aligns with our strategic priorities of targeted aggressive growth and market leadership in strategic end markets,” said Terry Hill, CEO of Maroon Group. “We’ve admired Cambrian Solutions for several years due to the quality of their team, their culture, and the innovative solutions that they deliver. We are honored to carry on the legacy that Peter, Brenda, Mike, Greg and the entire Cambrian team has built, and are excited about the tremendous short- and long-term commercial opportunities available to us through the combination of our organizations.”

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Azelis to Acquire Orkila

Azelis has signed an agreement to acquire Orkila. Headquartered in Beirut, Lebanon, the Orkila group runs offices in 13 countries and is active in more than 30 countries in the region.

Through this transaction, Azelis intends to acquire 100 percent of Orkila, with more than 220 employees joining the Azelis team. According to Azelis, to ensure business continuity, Audrey Sacy Aris and Christophe Sacy, as well as other senior managers, will continue to run the operations going forward.

Azelis stated that the acquisition creates a unique combination of its innovation and formulation potential, its EcoVadis Gold status, and international reach on one side and the strong local presence, regional expertise, and excellent reputation of Orkila on the other.

“After almost 15 years of growing on a stand-alone basis, it is time for us to move into global waters,” said Antoine Sacy, founder, chairman and CEO of Orkila. “Joining a well-established global player such as Azelis will enable us not only to continue to deliver high quality products and services that our customers are accustomed to, but also to access new growth opportunities. It will enable us to continue to thrive under their ownership, securing unparalleled service to our customers, superior growth for our principals and a highly rewarding work environment for our employees.”

Transaction is expected to complete in the next four months.

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Omya and Cimbar Announce U.S. Distribution Agreement

Omya Specialty Materials Inc. has announced a distribution partnership with Cimbar Performance Minerals. Omya is now the national distributor for Cimbar’s Alumina Trihydrate (ATH) product lines to the flame-retardant market in the United States.

“Omya’s North American portfolio now has six different chemistries specifically designed to assist in being the solution provider that helps our customers meet their Flame Retardant demands. Cimbar’s full complement of ATH products will fit right in and be a welcome addition for our customers,” explained David Roth, director of Omya Distribution Services North America.

Cimbar Performance Minerals stated that it sees the partnership with Omya as a continuation of its goal to be a premier supplier of mineral based additive solutions. “Omya and Cimbar will bring technical expertise, innovation and superior customer service to the markets and industries we serve with our Alumina Trihydrate products,” said Miles Curtin, sales and marketing manager at Cimbar Performance Materials.

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