For Release July 27, 2006 5:00 p.m. EDT | Contacts: Media: Nancy Ledford 423-229-5264 / nledford@eastman.com Investors: Greg Riddle 212-835-1620 / griddle@eastman.com |
Eastman Announces Second-Quarter 2006 Financial Results
KINGSPORT, Tenn., July 27, 2006 - Eastman Chemical Company (NYSE:EMN) today announced earnings of $1.37 per diluted share for second quarter 2006 versus earnings of $2.51 per diluted share for second quarter 2005. Excluding the items described in the table below, second-quarter 2006 earnings were $1.40 per diluted share, while second-quarter 2005 earnings were $1.59 per diluted share. For reconciliation to reported earnings per diluted share, see Table 5 in the accompanying second-quarter 2006 financial tables.
"In the second quarter, we continued to deliver strong earnings reflecting the value of our broad base of businesses," said Brian Ferguson, chairman and CEO. "These results are despite high and volatile raw material and energy costs as well as continued challenging conditions for global PET polymers product lines."
| (In millions, except per share amounts) | 2Q2006 | 2Q2005 |
| Sales revenue | $1,929 | $1,752 |
| Earnings per diluted share | $1.37 | $2.51 |
| Earnings per diluted share excluding asset impairments and restructuring charges, a gain on sale of investment in Genencor and early extinguishment of debt costs* | $1.40 | $1.59 |
| Net cash provided by operating activities | $126 | $108 |
* For reconciliation to reported operating earnings and earnings per diluted share, see Table 5 in the accompanying second-quarter 2006 financial tables.
Sales revenue for second quarter 2006 was $1.9 billion, a 10 percent increase over second quarter 2005. The increase in sales revenue was due to higher sales volume and higher selling prices.
Operating earnings in second quarter 2006 were $190 million compared with operating earnings in second quarter 2005 of $203 million. Excluding asset impairments and restructuring charges for both periods, operating earnings were $193 million in second quarter 2006 compared with $213 million in second quarter 2005. The year-over-year decline was due primarily to lower operating earnings in the performance polymers segment. The company's second-quarter 2006 raw material and energy costs increased by approximately $125 million compared with second quarter 2005.
Segment Results 2Q 2006 versus 2Q 2005
Coatings, Adhesives, Specialty Polymers and Inks - Sales revenue increased by 11 percent primarily due to higher selling prices, particularly in the adhesives product lines, and higher sales volume, particularly in the coatings product lines. The higher selling prices in the adhesives product lines were in response to higher raw material and energy costs, while the increased sales volume in the coatings product lines was attributed to strengthened end-market demand. Operating earnings increased as higher selling prices and higher sales volume were partially offset by higher raw material and energy costs.
Fibers - Sales revenue increased by 16 percent due to higher selling prices and higher sales volume. The higher selling prices were in response to higher raw material and energy costs as well as continued strong demand for and limited supply of acetate yarn and acetyl chemical products. Operating earnings increased as higher selling prices and higher sales volume more than offset higher raw material and energy costs.
Performance Chemicals and Intermediates - Sales revenue increased by 14 percent due to higher selling prices and higher sales volume. The higher selling prices, particularly for the intermediates product lines, were in response to higher raw material and energy costs. Operating earnings increased as higher selling prices and higher sales volume offset higher raw material and energy costs.
Performance Polymers - Sales revenue increased by 5 percent primarily due to higher sales volume. The higher sales volume, particularly for PET polymers in Latin America and Europe, was partially offset by lower sales volume for PET polymers in North America due to continued above historical levels of Asian imports into the region. Operating earnings for the segment declined due primarily to higher raw material and energy costs and lower selling prices for PET polymers globally.
Specialty Plastics - Sales revenue increased by 12 percent due to higher sales volume and higher selling prices. The higher sales volume was driven by continued market development efforts, particularly in copolyester product lines. Selling prices increased to offset higher raw material and energy costs with increases limited by competitive industry dynamics. Operating earnings declined due to an increase in expenditures related to growth efforts, including the company's copolyester technology innovation with the expectation that the first family of such products will be introduced in 2007.
Cash Flow
Eastman generated $126 million in cash from operating activities during second quarter 2006 primarily due to continued strong net earnings. During the quarter, the company contributed $30 million to its U.S. defined benefit pension plan and continues to expect a full-year 2006 contribution of $75 million. The company's priorities for use of available cash continue to be to pay the dividend and to fund targeted growth initiatives and its defined benefit pension plans.
Outlook
Commenting on the outlook for the second half of the year, Ferguson said, "We expect continued solid results from our strong base of businesses. In addition, we anticipate high and volatile raw material and energy costs, particularly for paraxylene and propane. We also expect sales volume to be somewhat lower due to normal seasonality and planned maintenance. As a result, we expect full-year 2006 net earnings per share to follow our typical pattern of about 60 percent in the first half and about 40 percent in the second half."
Eastman will host a conference call with industry analysts on July 28 at 8:00 a.m. EDT. To listen to the live webcast of the conference call, go to www.eastman.com, Investors, Event Information, Audio Archives. To listen via telephone, the dial-in number is 913-981-5571, passcode number 3311437. A telephone replay will be available continuously from 11:00 a.m. EDT, July 28, to 12:00 midnight EDT, Aug. 4, at 888-203-1112, passcode number 3311437.
Eastman manufactures and markets chemicals, fibers and plastics worldwide. It provides key differentiated coatings, adhesives and specialty plastics products; is the world’s largest producer of PET polymers for packaging; and is a major supplier of cellulose acetate fibers. Founded in 1920 and headquartered in Kingsport, Tenn., Eastman is a FORTUNE 500 company with 2005 sales of $7 billion and approximately 12,000 employees. For more information about Eastman and its products, visit www.eastman.com.
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Forward Looking Statements: This news release includes forward-looking statements concerning current expectations for future raw material and energy costs; sales volume, and earnings for the company and for certain segments and product lines; uses of available cash; and development and introduction of new technologies and products. Such expectations are based upon certain preliminary information, internal estimates, and management assumptions, expectations and plans, and are subject to a number of risks and uncertainties inherent in projecting future conditions, events, and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from such expectations are and will be detailed in the company’s filings with the Securities and Exchange Commission, including the Form 10-Q filed for first quarter 2006 and the Form 10-Q to be filed for second quarter 2006, available on the Eastman web site at www.eastman.com in the Investors, SEC filings section.
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
5:00 PM EDT | |
FINANCIAL INFORMATION
July 27, 2006
For use in the Eastman Chemical Company Conference Call
at 8:00 AM (EDT), July 28, 2006.
Table of Contents
| Item | Page | |
| TABLE 1 | 1 | |
| TABLE 2A | 2 | |
| TABLE 2B | 2 | |
| TABLE 2C | 3 | |
| TABLE 3 | 4 | |
| TABLE 4A | 5 | |
| TABLE 4B | 5 | |
| TABLE 5 | 6 | |
| TABLE 6 | 8 | |
| TABLE 7 | 9 |
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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Page 1 |
Second Quarter | First Six Months | |||||||
| (Dollars in millions, except per share amounts) | 2006 | 2005 | 2006 | 2005 | ||||
| Sales | $ | 1,929 | $ | 1,752 | $ | 3,732 | $ | 3,514 |
| Cost of sales | 1,579 | 1,378 | 3,051 | 2,741 | ||||
| Gross profit | 350 | 374 | 681 | 773 | ||||
| Selling, general and administrative expenses | 113 | 122 | 211 | 231 | ||||
| Research and development expenses | 44 | 39 | 86 | 78 | ||||
| Asset impairments and restructuring charges, net | 3 | 10 | 10 | 19 | ||||
| Other operating income | -- | -- | -- | (2) | ||||
| Operating earnings | 190 | 203 | 374 | 447 | ||||
| Interest expense, net | 21 | 24 | 41 | 54 | ||||
| Income from equity investment in Genencor | -- | (171) | -- | (173) | ||||
| Early debt extinguishment costs | -- | 46 | -- | 46 | ||||
| Other (income) charges, net | (2) | -- | (3) | (1) | ||||
| Earnings before income taxes | 171 | 304 | 336 | 521 | ||||
| Provision for income taxes | 57 | 98 | 117 | 153 | ||||
| Net earnings | $ | 114 | $ | 206 | $ | 219 | $ | 368 |
| Earnings per share | ||||||||
| Basic | $ | 1.39 | $ | 2.55 | $ | 2.68 | $ | 4.59 |
| Diluted | $ | 1.37 | $ | 2.51 | $ | 2.64 | $ | 4.52 |
| Shares (in millions) outstanding at end of period | 82.7 | 81.5 | 82.7 | 81.5 | ||||
| Shares (in millions) used for earnings per share calculation | ||||||||
| Basic | 81.9 | 80.7 | 81.7 | 80.1 | ||||
| Diluted | 83.0 | 82.0 | 82.7 | 81.5 | ||||
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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Second Quarter | First Six Months | |||||||
| (Dollars in millions) | 2006 | 2005 | 2006 | 2005 | ||||
| Sales by Segment | ||||||||
| Coatings, Adhesives, Specialty Polymers, and Inks | $ | 362 | $ | 325 | $ | 711 | $ | 644 |
| Fibers | 238 | 205 | 468 | 405 | ||||
| Performance Chemicals and Intermediates | 453 | 397 | 864 | 786 | ||||
| Performance Polymers | 674 | 642 | 1,300 | 1,298 | ||||
| Specialty Plastics | 202 | 180 | 389 | 357 | ||||
| Total Sales by Segment | 1,929 | 1,749 | 3,732 | 3,490 | ||||
| Other | -- | 3 | -- | 24 | ||||
| Total Eastman Chemical Company | $ | 1,929 | $ | 1,752 | $ | 3,732 | $ | 3,514 |
Second Quarter, 2006 Compared to Second Quarter, 2005 | |||||||||
Change in External Sales Revenue Due To | |||||||||
Revenue % Change | Volume Effect | Price Effect | Product Mix Effect | Exchange Rate Effect | |||||
| Coatings, Adhesives, Specialty Polymers, and Inks | 11% | 3 % | 8 % | 1 % | (1) % | ||||
| Fibers | 16 % | 4 % | 9 % | 3 % | -- % | ||||
| Performance Chemicals and Intermediates | 14 % | 4 % | 9 % | 1 % | -- % | ||||
| Performance Polymers | 5 % | 6 % | (1) % | -- % | -- % | ||||
| Specialty Plastics | 12 % | 9 % | 5 % | (1) % | (1) % | ||||
| Total Eastman Chemical Company | 10 % | 5 % | 5 % | -- % | -- % | ||||
First Six Months, 2006 Compared to First Six Months, 2005 | |||||||||
Change in External Sales Revenue Due To | |||||||||
Revenue % Change | Volume Effect | Price Effect | Product Mix Effect | Exchange Rate Effect | |||||
| Coatings, Adhesives, Specialty Polymers, and Inks | 10 % | 1 % | 9 % | 1 % | (1) % | ||||
| Fibers | 16 % | 11 % | 10 % | (5) % | -- % | ||||
| Performance Chemicals and Intermediates | 10 % | (1) % | 10 % | 1 % | -- % | ||||
| Performance Polymers | -- % | 2 % | (2) % | 1 % | (1) % | ||||
| Specialty Plastics | 9 % | 6 % | 6 % | (1) % | (2) % | ||||
| Total Eastman Chemical Company | 6 % | 3 % | 5 % | (1) % | (1) % | ||||
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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Page 3 |
Second Quarter, 2006 Compared to Second Quarter, 2005 | |
| Coatings, Adhesives, Specialty Polymers, and Inks | 3 % |
| Fibers | 4 % |
| Performance Chemicals and Intermediates | 4 % |
| Performance Polymers | 5 % |
| Specialty Plastics | 9 % |
| Total Eastman Chemical Company | 4 % |
First Six Months, 2006 Compared to First Six Months, 2005 | |
| Coatings, Adhesives, Specialty Polymers, and Inks | 1 % |
| Fibers | 11 % |
| Performance Chemicals and Intermediates | (1) % |
| Performance Polymers | 2 % |
| Specialty Plastics | 6 % |
| Total Eastman Chemical Company | 2 % |
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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Page 4 |
Second Quarter | First Six Months | |||||||
| (Dollars in millions) | 2006 | 2005 | 2006 | 2005 | ||||
| Operating Earnings by Segment and Certain Items | ||||||||
| Coatings, Adhesives, Specialty Polymers, and Inks | ||||||||
| Operating earnings | $ | 68 | $ | 64 | $ | 123 | $ | 131 |
| Asset impairments and restructuring charges | 1 | 1 | 8 | 2 | ||||
| Other operating income | -- | -- | -- | (2) | ||||
| Fibers | ||||||||
| Operating earnings | 61 | 47 | 127 | 95 | ||||
| Performance Chemicals and Intermediates | ||||||||
| Operating earnings | 47 | 43 | 88 | 88 | ||||
| Asset impairments and restructuring charges | -- | -- | -- | 4 | ||||
| Performance Polymers | ||||||||
| Operating earnings | 12 | 50 | 29 | 134 | ||||
| Specialty Plastics | ||||||||
| Operating earnings | 14 | 21 | 32 | 42 | ||||
| Total Operating Earnings by Segment and Certain Items | ||||||||
| Total operating earnings | 202 | 225 | 399 | 490 | ||||
| Total asset impairments and restructuring charges | 1 | 1 | 8 | 6 | ||||
| Total other operating income | -- | -- | -- | (2) | ||||
| Other | ||||||||
| Operating loss | (12) | (22) | (25) | (43) | ||||
| Asset impairments and restructuring charges | 2 | 9 | 2 | 13 | ||||
| Total Eastman Chemical Company | ||||||||
| Total operating earnings | $ | 190 | $ | 203 | $ | 374 | $ | 447 |
| Total asset impairments and restructuring charges | 3 | 10 | 10 | 19 | ||||
| Total other operating income | -- | -- | -- | (2) | ||||
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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Page 5 |
Second Quarter | First Six Months | |||||||
| (Dollars in millions) | 2006 | 2005 | 2006 | 2005 | ||||
| Sales by Region | ||||||||
| United States and Canada | $ | 1,094 | $ | 1,006 | $ | 2,167 | $ | 2,016 |
| Europe, Middle East, and Africa | 384 | 351 | 709 | 719 | ||||
| Asia Pacific | 248 | 231 | 459 | 450 | ||||
| Latin America | 203 | 164 | 397 | 329 | ||||
| $ | 1,929 | $ | 1,752 | $ | 3,732 | $ | 3,514 | |
Second Quarter | First Six Months | ||
| Regional sales volume growth | |||
| United States and Canada | 1 % | -- % | |
| Europe, Middle East, and Africa | 5 % | (1) % | |
| Asia Pacific | 3 % | (3) % | |
| Latin America | 33 % | 29 % |
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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Page 6 |
EARNINGS PER DILUTED SHARE EXCLUDING CERTAIN ITEMS
Second Quarter 2006 | ||||||||
| (Dollars in millions) | Operating Earnings | Earnings Before Tax | Net Earnings | Net earnings per diluted share | ||||
As reported | $ | 190 | $ | 171 | $ | 114 | $ | 1.37 |
Certain Items: | ||||||||
| Asset impairments and restructuring charges | 3 | 3 | 2 | 0.03 | ||||
| Excluding certain items | $ | 193 | $ | 174 | $ | 116 | $ | 1.40 |
Second Quarter 2005 | ||||||||
| (Dollars in millions) | Operating Earnings | Earnings Before Tax | Net Earnings | Net earnings per diluted share | ||||
As reported | $ | 203 | $ | 304 | $ | 206 | $ | 2.51 |
Certain Items: | ||||||||
| Asset impairments and restructuring charges | 10 | 10 | 7 | 0.08 | ||||
| Early extinguishment of debt costs | -- | 46 | 28 | 0.35 | ||||
| Gain on sale of investment in Genencor | -- | (171) | (111) | (1.35) | ||||
| Excluding certain items | $ | 213 | $ | 189 | $ | 130 | $ | 1.59 |
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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TABLE 5 - OPERATING EARNINGS, NET EARNINGS, AND EARNINGS PER SHARE RECONCILIATION
EARNINGS PER DILUTED SHARE EXCLUDING CERTAIN ITEMS (CONTINUED)
First Six Months 2006 | ||||||||
| (Dollars in millions) | Operating Earnings | Earnings Before Tax | Net Earnings | Net earnings per diluted share | ||||
As reported | $ | 374 | $ | 336 | $ | 219 | $ | 2.64 |
Certain Items: | ||||||||
| Asset impairments and restructuring charges | 10 | 10 | 9 | 0.12 | ||||
| Excluding certain items | $ | 384 | $ | 346 | $ | 228 | $ | 2.76 |
First Six Months 2005 | ||||||||
| (Dollars in millions) | Operating Earnings | Earnings Before Tax | Net Earnings | Net earnings per diluted share | ||||
As reported | $ | 447 | $ | 521 | $ | 368 | $ | 4.52 |
Certain Items: | ||||||||
| Asset impairments and restructuring charges | 19 | 19 | 13 | 0.13 | ||||
| Other operating income | (2) | (2) | (1) | (0.01) | ||||
| Net deferred tax benefit related to sale of certain businesses, product lines, and assets in the CASPI segment | -- | -- | (12) | (0.14) | ||||
| Early extinguishment of debt costs | -- | 46 | 28 | 0.35 | ||||
| Gain on sale of investment in Genencor | -- | (171) | (111) | (1.35) | ||||
| Excluding certain items | $ | 464 | $ | 413 | $ | 285 | $ | 3.50 |
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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First Six Months | ||||
| (Dollars in millions) | 2006 | 2005 | ||
| Cash flows from operating activities | ||||
| Net earnings | $ | 219 | $ | 368 |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||
| Income from equity investment in Genencor | -- | (173) | ||
| Depreciation and amortization | 150 | 153 | ||
| Early debt extinguishment costs | -- | 46 | ||
| Asset impairments | 8 | 1 | ||
| Provision for deferred income taxes | 29 | 67 | ||
| Changes in operating assets and liabilities: | ||||
| (Increase) decrease in receivables | (156) | (38) | ||
| (Increase) decrease in inventories | (49) | (173) | ||
| Increase (decrease) in trade payables | 59 | 22 | ||
| Increase (decrease) in liabilities for employee benefits and incentive pay | (74) | (46) | ||
| Other items, net | (23) | (16) | ||
| Net cash provided by operating activities | 163 | 211 | ||
| Cash flows from investing activities | ||||
| Proceeds from sale of equity investment in Genencor, net | -- | 417 | ||
| Additions to properties and equipment | (169) | (124) | ||
| Proceeds from sale of assets and investments | 11 | 50 | ||
| Additions to capitalized software | (8) | (6) | ||
| Other items, net | (1) | (2) | ||
| Net cash provided by (used in) investing activities | ( 167) | 335 | ||
| Cash flows from financing activities | ||||
| Net increase (decrease) in commercial paper, credit facility and other short-term borrowings | 23 | (104) | ||
| Repayment of borrowings | -- | (544) | ||
| Dividends paid to stockholders | (72) | (70) | ||
| Proceeds from stock option exercises and other items | 24 | 90 | ||
| Net cash provided by (used in) financing activities | (25) | (628) | ||
| Effect of exchange rate changes on cash & cash equivalents | 2 | (2) | ||
| Net change in cash and cash equivalents | (27) | (84) | ||
| Cash and cash equivalents at beginning of period | 524 | 325 | ||
| Cash and cash equivalents at end of period | $ | 497 | $ | 241 |
EASTMAN CHEMICAL COMPANY - EMN | July 27, 2006 |
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June 30, | December 31, | |||
| (Dollars in millions) | 2006 | 2005 | ||
| Current Assets | $ | 2,118 | $ | 1,924 |
| Net Properties | 3,209 | 3,162 | ||
| Other Assets | 675 | 687 | ||
| Total Assets | $ | 6,002 | $ | 5,773 |
| Payables and Other Current Liabilities | $ | 1,050 | $ | 1,047 |
| Short-term Borrowings | 3 | 4 | ||
| Long-term Borrowings | 1,581 | 1,621 | ||
| Other Liabilities | 1,516 | 1,489 | ||
| Stockholders’ Equity | 1,852 | 1,612 | ||
| Total Liabilities and Stockholders’ Equity | $ | 6,002 | $ | 5,773 |