PHILADELPHIA, July 25 /PRNewswire-FirstCall/ -- Rohm and Haas Company today reported second quarter 2006 sales of $2,081 million, a 5 percent increase over the same period in 2005, driven primarily by higher demand. Higher selling prices, necessary to help offset continued high raw material and energy costs, were nearly offset by an unfavorable impact of currencies. Second quarter earnings from continuing operations were $192 million, or $0.87 per share, compared to $172 million, or $0.76 per share, for the second quarter of 2005. The prior year results included a net favorable impact of $0.03 per share from favorable tax reserve and valuation allowance adjustments partially offset by restructuring and asset impairment charges.
Second Quarter (in millions, except per share amounts) 2006 2005 % Change Sales $ 2,081 $1,978 5% Net Earnings from Continuing Operations $ 192 $ 172 12% Diluted Net Earnings per Share from Continuing Operations $ 0.87 $ 0.76 14%
The company intends to sell its Automotive Coatings business and has presented its operations as "Discontinued Operations" for all periods reported. The sale is consistent with the company's ongoing portfolio management strategy. For the quarter, the loss from discontinued operations, after-tax, was $26 million, or $0.12 per share.
"We delivered outstanding sales and earnings growth from all of the businesses within the Electronic Materials segment, with steady growth in demand in a number of our larger chemicals businesses, such as Plastics Additives, Process Chemicals and Architectural and Functional Coatings," said Raj L. Gupta, chairman, president and chief executive officer. "We remain focused on innovation and geographic expansion, with this quarter's results demonstrating accelerating growth in Asia, Central and Eastern Europe and Turkey."
Gupta noted that the company continues to respond to the challenge of an environment of extraordinarily high and volatile raw material and energy costs. "We are proactively managing the raw material/selling price balance while we maintain our strong cost control discipline and invest for growth," Gupta explained.
Second Quarter 2006 Business Results
Coatings
Sales in the Coatings segment of $739 million increased 4 percent over the second quarter of 2005. The improvement was attributed to increased demand and higher selling prices, partially offset by an unfavorable impact of currencies.
* Architectural and Functional Coatings sales increased 4 percent over the comparable period, with stronger demand and higher pricing the primary drivers of the increase. Growth in the decorative coatings segment reflects both continued growth of technologically differentiated low VOC emulsions, and strong emerging market penetration. As anticipated, our growth in demand in China, India, Turkey and other emerging markets has been strong and shows broad adoption of core Rohm and Haas technologies in decorative coatings. * Powder Coatings sales were flat at $85 million when compared to the prior-year period, with higher selling prices, on flat volume, offset by the unfavorable impact of weaker European currencies.
Second quarter earnings for the Coatings business were $71 million, versus $69 million in earnings in the same period in 2005. The second quarter 2005 results included a $7 million, after-tax, charge for restructuring and asset impairments related to the Powder Coatings business. Coatings segment earnings reflect the favorable impact of higher selling prices and improved demand, which were more than offset by higher raw material, energy and operating costs, and increased spending to fund geographic expansion and research.
Monomers
Sales of $499 million were up 1 percent from $495 million in the same period a year ago. Third party sales of $154 million decreased 13 percent from the prior year period, primarily due to decreased demand and lower selling prices. Sales to downstream Rohm and Haas specialty businesses were 8 percent higher versus the prior year, reflecting the impact of higher selling prices along with higher demand.
Monomers earnings of $50 million for the quarter decreased from $53 million in the same period a year ago. Prior period results included $15 million, after-tax, of expenses associated with an unplanned plant outage at the Deer Park, Texas facility. The decrease in earnings is primarily due to the decreased demand and lower selling prices to third party customers, as well as higher raw material and energy costs. In the quarter, approximately 61 percent of Monomers earnings was generated by sales to the downstream businesses, as compared to approximately 43 percent in the same period last year.
Performance Chemicals
Sales of $452 million were up 6 percent over the comparable period in 2005. The increase was driven by improved demand and higher selling prices, partially offset by the unfavorable impact of currencies.
* Sales in Plastics Additives were up 9 percent, primarily due to stronger demand in most regions, combined with higher pricing. The business saw strength in both the Building and Construction and Packaging markets in Asia, as well as solid growth in the PVC window markets in Germany and Turkey. * Consumer and Industrial Specialties sales increased 2 percent compared to the same period last year, largely due to increased demand. The business enjoyed healthy growth in all regions, except Europe, where softness in dispersants and polymers depressed sales. * Sales for Process Chemicals were up 4 percent from the comparable period a year ago. The increase reflects strong demand for ion exchange resins across all regions.
Performance Chemicals earnings were $42 million in the quarter, up from $38 million in the prior year period, as the favorable impacts of higher pricing, strong demand, and efficient operations more than offset increased raw material and energy costs, and higher levels of spending to support business development and new product introductions.
Electronic Materials
Record quarterly sales of $393 million were up 21 percent over the same period in 2005, primarily due to strong demand across all businesses, especially in North America and Asia-Pacific. The business continues to deliver innovative technologies to meet the needs of this dynamic marketplace. Second quarter sales were up 5 percent sequentially over the first quarter of 2006.
* Semiconductor Technologies sales increased 22 percent over the same period in 2005, driven by strength in demand for CMP pads and slurries in all regions, along with increased sales of advanced photoresists and related products in all regions. * Circuit Board Technologies sales were up 11 percent over the same period in 2005, reflecting ongoing strength in Asia-Pacific, up 17 percent versus a year ago, which more than offset decreased demand in North America. * Packaging and Finishing Technologies sales were 28 percent higher than the same period a year ago, primarily driven by increased precious metals usage and the pass-through of higher precious metals prices. Process sales increased 4 percent during the quarter.
Electronic Materials' advanced technology products, such as deep ultraviolet photoresists, anti-reflective coatings and CMP pads and slurries, posted a 28 percent increase in sales year-over-year.
Second quarter 2006 earnings for Electronic Materials were a record $60 million, 58 percent higher than the second quarter of last year, reflecting increased sales of advanced technology products and strong discipline in cost management.
Salt
Sales of $160 million were up 6 percent versus the same period a year ago, primarily due to higher selling prices. Demand was down slightly overall, largely due to lower volumes for ice control salt and other bulk products. The Salt business recorded earnings of $1 million for the quarter, up $3 million from a loss in the prior year period. Higher selling prices, to offset increases in production and distribution costs, and a shift in sales mix toward higher margin products, both contributed to the change in earnings.
Adhesives and Sealants
Sales of $183 million were down 2 percent versus the comparable period in 2005, with slightly higher pricing more than offset by the unfavorable impact of currencies as well as lower demand. Growth in the core business segments was more than offset by the impact of prior portfolio management initiatives.
Earnings of $12 million were up versus break-even results in the second quarter of 2005, which included a non-cash impairment charge of $16 million, after-tax, in the prior-year period. Higher raw material, energy and operating costs and the unfavorable impact of currencies more than offset the favorable impact of higher selling prices.
Corporate
Corporate expense of $44 million, after-tax, for the quarter was up from $24 million, after-tax, in the second quarter of 2005. The increase reflects the absence in 2006 of a net $28 million benefit from tax reserve and valuation allowance adjustments, resulting from tax audit settlements.
Discontinued Operations
The company intends to sell its Automotive Coatings business, and as a result, has presented the business' results as "Discontinued Operations" for all periods reported. The loss from discontinued operations for the quarter, after-tax, was $26 million, or $0.12 per share, compared to a gain of $6 million, or $0.03 per share, in the same period last year. The loss is mainly attributable to $27 million in after-tax charges from the recognition of certain deferred tax liabilities and asset impairments triggered by the decision to sell the business.
Second Quarter 2006 Regional Sales Performance
North American sales of $1,061 million were up 4 percent over the comparable period in 2005, the result of higher selling prices and flat overall demand. The higher pricing across most of the chemicals businesses reflected efforts to mitigate the impact of higher raw material and energy costs. European sales were $521 million for the quarter, flat when compared to the same period last year, as the impact of increased demand was largely offset by the unfavorable impact of currencies. Demand was particularly strong in the Monomers, Plastics Additives, Architectural and Functional Coatings, and Electronic Materials businesses. Asia-Pacific sales were $418 million, a 15 percent increase over the same period last year, with all businesses contributing, led by Electronic Materials and Coatings. Latin American sales of $81 million in the quarter were 8 percent higher than the same period last year, reflecting increased demand, higher selling prices and the favorable impact of currencies. The higher demand was experienced primarily in the Architectural and Functional Coatings, Plastics Additives, and Process Chemicals businesses.
Comments on the Second Quarter 2006 Income Statement
Gross Profit Margin in the quarter was 30.2 percent, compared to 29.7 percent in the same period last year, as higher demand, increased selling prices, and the absence of prior year charges for a temporary Monomer production outage more than offset higher raw material, energy and freight costs, and the unfavorable impact of currencies.
Selling and Administrative (S&A) spending of $254 million was $11 million, or 5 percent higher, compared to 2005, largely reflecting increased spending to support growth initiatives. As a percentage of sales, S&A spending of 12.2 percent was virtually unchanged when compared to the same period in 2005.
Research spending of $71 million was $6 million, or 9 percent higher, versus the same period a year ago, due largely to increased spending to support growth projects in Electronic Materials, Coatings and Performance Chemicals.
Interest expense for the quarter was $27 million, down 7 percent from the same period in 2005, primarily due to lower levels of debt and a lower overall effective interest rate.
Income tax expense for the quarter was $73 million, reflecting an effective tax rate of 27.2 percent, as compared to income tax expense of $40 million, or an effective tax rate of 18.7 percent in the prior year period. The lower effective tax rate in the prior year period was primarily due to the adjustment of a net $28 million in tax reserves and valuation allowances resulting from tax audit settlements.
Year-To-Date 2006 Performance
Sales for the six months ending June 30, 2006 were $4,139 million, a 4 percent increase over the comparable period in 2005, driven by broad-based growth in demand. Higher selling prices, necessary to help balance continued high raw material and energy costs, were nearly offset by an unfavorable impact of currencies. Earnings from continuing operations for the first six months of 2006 were $399 million, or $1.79 per share, compared to $325 million, or $1.44 per share, a 23 percent increase over the prior period. Higher selling prices, increased demand, and lower interest expense more than offset the impact of higher raw material, energy, freight and operating costs, along with higher spending in S&A and research activities. During the first six months of 2005, significant favorable tax adjustments were more than offset by charges for restructuring, debt extinguishment, and the acceleration of stock-based compensation for retirement-eligible employees, for a net unfavorable impact of $0.04 per share.
Full-Year Guidance
Gupta noted that, while the ongoing pressure from extremely volatile and high raw material and energy costs will likely continue throughout the remainder of the year, the economic environment of the company's key markets remains sound, and provides a strong foundation for solid performance throughout 2006. "These market trends, together with our emphasis on innovation and geographic expansion, should result in full-year sales growth in the 4 to 5 percent range, yielding record annual sales of $8.3 billion and earnings from continuing operations in the $3.30-$3.45 range."
This release includes forward-looking statements. Actual results could vary materially, due to changes in current expectations. The forward-looking statements contained in this announcement concerning demand for products and services, sales and earnings forecasts, and actions that may be taken to improve financial performance, involve risks and uncertainties and are subject to change based on various factors, including the cost of raw materials, natural gas, and other energy sources, and the ability to achieve price increases to offset such cost increases, development of operational efficiencies, changes in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and services, the impact of competitive products and pricing, the impact of new accounting standards, assessments for asset impairments, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. Further information about these risks can be found in the company's SEC 10-K filing of March 2, 2006.
About Rohm and Haas Company
Rohm and Haas is a global leader in the creation and development of innovative technologies and solutions for the specialty materials industry. The company's technologies are found in a wide range of markets including: Building and Construction, Electronics, Industrial Process, Packaging and Paper, Transportation, Household and Personal Care, Water, Food and Retail and Pharma and Medical. Its technologies and solutions help to improve life everyday, around the world. Based in Philadelphia, Pa, the company generated annual sales of approximately $8 billion in 2005. Visit www.rohmhaas.com for more information.
imagine the possibilities(TM) Rohm and Haas Company and Subsidiaries Consolidated Statements of Operations (in millions, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, Percent Percent Change Change 2006 2005 2006 2005 Net sales $2,081 $1,978 5% $4,139 $3,971 4% Cost of goods sold 1,453 1,391 4% 2,868 2,783 3% Gross profit 628 587 7% 1,271 1,188 7% Selling and administrative expense 254 243 498 496 Research and development expense 71 65 142 128 Interest expense 27 29 52 64 Amortization of intangibles 14 14 27 28 Restructuring and asset impairments - 33 4 29 Loss on early extinguishment of debt - - - 17 Share of affiliate earnings, net 4 1 5 3 Other (income), net (2) (10) (16) (12) Earnings from continuing operations before income taxes and minority interest 268 214 569 441 Income taxes 73 40 163 113 Minority interest 3 2 7 3 Net earnings from continuing operations $ 192 $ 172 $ 399 $ 325 Net (loss) earnings from discontinued operation (26) 6 (26) 12 Net earnings $166 $178 $373 $337 Basic net earnings per share: Net earnings from continuing operations 0.88 0.77 1.81 1.46 Net (loss) earnings from discontinued operation (0.13) 0.03 (0.12) 0.05 Net earnings $ 0.75 $ 0.80 $ 1.69 $ 1.51 Diluted net earnings per share: Net earnings from continuing operations 0.87 0.76 1.79 1.44 Net (loss) earnings from discontinued operation (0.12) 0.03 (0.12) 0.06 Net earnings $ 0.75 $ 0.79 $ 1.67 $ 1.50 Weighted average common shares outstanding - basic: 220.3 222.6 220.5 223.2 Weighted average common shares outstanding - diluted: 222.6 224.7 222.8 225.5 Other Data: Capital spending $ 92 $ 84 $ 145 $ 132 Depreciation expense $ 102 $ 109 $ 204 $ 213 Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Rohm and Haas Company and Subsidiaries Consolidated Balance Sheets (in millions, except share data) (preliminary and unaudited) June 30, December 31, 2006 2005 Assets Cash and cash equivalents $ 492 $ 566 Restricted cash 3 4 Receivables, net 1,616 1,479 Inventories 851 798 Prepaid expenses and other current assets 289 302 Current assets of discontinued operation 55 56 Total current assets 3,306 3,205 Land, buildings and equipment, net of accumulated depreciation 2,616 2,642 Investments in and advances to affiliates 105 103 Goodwill, net of accumulated amortization 1,555 1,525 Other intangible assets, net of accumulated amortization 1,507 1,503 Other assets 456 475 Other assets of discontinued operation 267 274 Total Assets $ 9,812 $ 9,727 Liabilities and Stockholders' Equity Liabilities: Short-term obligations $ 396 $ 121 Trade and other payables 594 612 Accrued liabilities 749 807 Income taxes payable 161 193 Current liabilities of discontinued operation 9 11 Total current liabilities 1,909 1,744 Long-term debt 1,802 2,074 Employee benefits 669 649 Deferred income taxes 902 935 Other liabilities 234 241 Other liabilities of discontinued operation 78 56 Total Liabilities 5,594 5,699 Minority Interest 117 111 Commitments and contingencies Stockholders' Equity: Preferred stock; par value - $1.00; authorized - 25,000,000 shares; issued-no shares - - Common stock; par value - $2.50; authorized - 400,000,000 shares; issued - 242,078,349 shares 605 605 Additional paid-in capital 2,182 2,152 Retained earnings 1,998 1,762 Treasury stock at cost (2006 - 21,322,501 shares; 2005 - 20,115,637 shares) (525) (409) ESOP shares (2006 - 8,844,424 shares; 2005 - 9,220,434 shares) (85) (88) Accumulated other comprehensive loss (74) (105) Total Stockholders' Equity 4,101 3,917 Total Liabilities and Stockholders' Equity $ 9,812 $ 9,727 Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Rohm and Haas Company and Subsidiaries Appendix I (in millions) (unaudited) Net Sales by Business Segment and Region Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Business Segment Coatings $ 739 $ 713 $1,387 $1,308 Monomers 499 495 972 972 Performance Chemicals 452 425 886 829 Electronic Materials 393 326 767 628 Salt 160 151 423 469 Adhesives and Sealants 183 186 368 379 Elimination of Intersegment Sales (345) (318) (664) (614) Total $2,081 $1,978 $4,139 $3,971 Customer Location North America $1,061 $1,019 $2,164 $2,088 Europe 521 521 1,013 1,044 Asia-Pacific 418 363 805 690 Latin America 81 75 157 149 Total $2,081 $1,978 $4,139 $3,971 Net Earnings (Loss) from Continuing Operations by Business Segment Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Business Segment Coatings $ 71 $ 69 $ 123 $ 117 Monomers 50 53 116 112 Performance Chemicals 42 38 82 80 Electronic Materials 60 38 111 63 Salt 1 (2) 19 28 Adhesives and Sealants 12 - 27 16 Corporate (44) (24) (79) (91) Total $ 192 $ 172 $ 399 $ 325 Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Rohm and Haas Company and Subsidiaries Appendix II (in millions) (unaudited) Provision for Restructuring and Asset Impairments by Business Segment Pre-tax Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Business Segment Coatings $(1) $10 $4 $10 Monomers - - - - Performance Chemicals - - - (1) Electronic Materials - (1) (1) 3 Salt - - - - Adhesives and Sealants - 25 1 24 Corporate 1 (1) - (7) Total $ - $33 $4 $ 29 After-tax Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Business Segment Coatings $(1) $ 7 $2 $ 7 Monomers - - - - Performance Chemicals - - - (1) Electronic Materials - (1) (1) 2 Salt - - - - Adhesives and Sealants - 16 1 16 Corporate 1 (1) (1) (6) Total $ - $21 $1 $18 EBITDA (1) by Business Segment Due to the varying impacts of debt, interest rates, acquisition related amortization, asset impairments and effective tax rates, EBITDA is calculated to facilitate comparisons between Rohm and Haas Company and its competitors. EBITDA is not a measurement recognized in accordance with generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance. Futhermore, this measure may not be consistent with similar measures presented by other companies. Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Business Segment Coatings $119 $130 $216 $222 Monomers 88 98 205 202 Performance Chemicals 80 74 159 155 Electronic Materials 105 75 201 132 Salt 21 17 68 79 Adhesives and Sealants 25 31 52 63 Corporate (30) (27) (50) (75) Total $408 $398 $851 $778 Reconciliation of EBITDA to Earnings from Continuing Operations Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 EBITDA $408 $398 $851 $778 Asset Impairments - 34 3 36 Interest expense 27 29 52 64 Income taxes 73 40 163 113 Depreciation expense 99 107 200 209 Amortization of finite-lived intangibles 14 14 27 28 Minority Interest 3 2 7 3 Net Earnings from Continuing Operations $192 $172 $399 $ 325 (1) EBITDA is defined as Earnings from Continuing Operations Before Interest, Taxes, Depreciation and Amortization, Asset Impairments and Minority Interest. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. A copy of the full year 2005 reclassified schedule can be found on the Company's website at www.rohmhaas.com.
Rohm and HaasCONTACT: Investor Relations, Gary O'Brien, Director, Investor Relations,+1-215-592-3409, GOBrien@rohmhaas.com, or Media Relations, RichardWilliams, Corporate Communications, +1-215-592-2409,RichardWilliams@rohmhaas.com
Web site: http://www.rohmhaas.com/
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