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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-3507
___________________________
ROHM AND HAAS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 23-1028370
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 INDEPENDENCE MALL WEST, PHILADELPHIA, PA 19106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-592-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------------------- ------------------------
Common Stock of $2.50 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes / X / No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of March 7, 1997: $3,800,305,465
Common stock outstanding at March 7, 1997: 62,868,326 SHARES.
Documents incorporated by reference:
Part I --Annual Report to Stockholders for year ended December 31, 1996
Part II --Annual Report to Stockholders for year ended December 31, 1996
Part III --Definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or about March 21, 1997, except
the Report on Executive Compensation and Graph titled
"Cumulative Total Return to Shareholders" on pages 13
through 16.
Part IV --Annual Report to Stockholders for year ended December 31, 1996
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<PAGE>
PART I
ITEM 1. BUSINESS
The information indicated below appears in the 1996 Annual Report to
Stockholders (Stockholders' Report) and is incorporated by reference:
PAGE OF
STOCKHOLDERS'
REPORT
-------------
Business operations:
Polymers, Resins and Monomers .......................... 14
Performance Chemicals .................................. 16
Plastics ............................................... 17
Agricultural Chemicals ................................. 19
Industry segment information for years 1994-96 ........... 42
Foreign operations for years 1994-96 ..................... 42
Employees ................................................ 54
Raw Materials
The company uses a variety of commodity chemicals as raw materials
in its operations. In most cases, these raw materials are purchased
from multiple sources under long-term contracts. Most of these
materials are hydrocarbon derivatives such as propylene, acetone and
styrene.
Competition
The principal market segments in which the company competes are
described in the company's Annual Report to Stockholders on pages 14
through 19. The company experiences vigorous competition in each of
these segments. The company's competitors include many large
multinational chemical firms based in Europe, Japan and the United
States. In some cases, the company competes against firms which are
producers of commodity chemicals which the company must purchase as the
raw materials to make its products. The company, however, does not
believe this places it at any significant competitive disadvantage. The
company's products compete with products offered by other manufacturers
on the basis of price, product quality and specifications, and customer
service. Most of the company's products are specialty chemicals which
are sold to customers who demand a high level of customer service and
technical expertise from the company and its sales force.
Research and Development
The company maintains its principal research and development
laboratories at Spring House, Pennsylvania. Research and development
expenses, substantially all company sponsored, totaled $187,000,000,
$194,000,000 and $201,000,000 in 1996, 1995 and 1994, respectively.
Approximately 15% of the company's employees were engaged in research
and development activities in 1996, 1995 and 1994.
Environmental Matters
A discussion of environmental matters is incorporated herein by
reference to pages 27 and 28 of the Stockholders' Report.
ITEM 2. PROPERTIES
The company, its subsidiaries and affiliates presently operate 48
manufacturing facilities in 22 countries. A list identifying those
facilities is found on page 60 of the company's Annual Report to
Stockholders which is hereby incorporated by reference. Additional
information addressing the suitability, adequacy and productive capacity
of the company's facilities is found on pages 28 and 29 of the company's
Stockholders' Report and throughout the various business discussions of
the company's industry segments found on pages 14 through 19 of the
Stockholders' Report.
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ITEM 3. LEGAL PROCEEDINGS
A discussion of legal proceedings is incorporated herein by
reference to pages 51 and 52 of the Stockholders' Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The company's common stock of $2.50 par value is traded on the New
York Stock Exchange (Symbol: ROH). There were 4,438 registered common
stockholders as of March 7, 1997. The 1996 and 1995 quarterly summaries
of the high and low prices of the company's common stock and the amounts
of dividends paid on common stock are presented on pages 32 and 33 of
the Stockholders' Report and are incorporated in this Form 10-K by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The company's summary of selected financial data and related notes
for the years 1992 through 1996 are incorporated in this Form 10-K by
reference to pages 54 through 56 of the Stockholders' Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of 1994 to 1996 results is
incorporated herein by reference to pages 22 through 31 of the
Stockholders' Report. These items should be read in conjunction with
the consolidated financial statements presented on pages 34 through 53
of the Stockholders' Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1996, and 1995,
and the related consolidated statements of earnings, stockholders'
equity and cash flows for the years ended December 31, 1996, 1995, and
1994, together with the report of KPMG Peat Marwick LLP dated February
24, 1997 are incorporated in this Form 10-K by reference to pages 34
through 53 of the Stockholders' Report. Supplementary selected
quarterly financial data is incorporated in this Form 10-K by reference
to pages 32 and 33 of the Stockholders' Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K were filed during 1996 or 1995 relating to
any disagreements with accountants on accounting and financial
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
AND
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Items 10 and 11 of this Form 10-K
report for the fiscal year ended December 31, 1996, has been omitted,
except for the information presented below, because the company on or
about March 21, 1997, will file with the Securities and Exchange
Commission a definitive Proxy Statement pursuant to regulation 14(a)
under the Securities Exchange Act of 1934.
Executive Officers
The company's executive officers along with their present position,
offices held and activities during the past five years are presented
below. All officers normally are elected annually and serve at the
pleasure of the Board of Directors. The company's non-employee
directors and their business experience during the past five years are
listed in the company's Proxy Statement.
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Thomas L. Archibald, 47, effective April 1, 1997, will become vice
president and director of engineering and manufacturing; previously
plant manager for the Louisville, Kentucky plant.
Paul J. Baduini, 49, vice president since 1993; business unit
director for ion exchange resins since 1992.
Albert H. Caesar, 59, vice president since 1993; business unit
director and president of AtoHaas Americas Inc. since 1992.
A. Wayne Carney, 48, vice president since 1995; business unit
director for formulation chemicals since 1990.
Patrick R. Colau, 51, vice president since 1995; business unit
director for polymers and resins since 1996; previously chief operating
officer from 1994 to 1995 and chief executive officer from 1992 to 1994
of Shipley Company.
Nance K. Dicciani, 49, vice president since 1993; business unit
director for monomers and chairman of RohMax since 1996; previously
business unit director for petroleum chemicals from 1991 to 1996.
Robert M. Downing, 53, vice president since 1993; operations
director for the North American region since 1986.
David T. Espenshade, 58, vice president since 1993; director of
materials management since 1990.
Carlos Estevez, 54, vice president since 1996; regional director for
Latin America since 1996; previously business director for agricultural
chemicals in Latin America from 1994 to 1996 and general manager of Rohm
and Haas Brazil and Southern Cone countries from 1992 to 1996.
J. Gary Fischette, 62, vice president since 1995; director of
engineering since 1990.
J. Michael Fitzpatrick, 50, vice president since 1993; Chief
Technology Officer since 1996; previously director of research since
1993 and general manager of Rohm and Haas (UK) Limited and European
regional business director for polymers and resins from 1990 to 1993.
Marisa L. Guerin, 44, vice president since 1994; director of human
resources since 1994; previously manager of training and development
from 1991 to 1994.
Rajiv L. Gupta, 51, vice president since 1993; regional director of
Asia-Pacific since 1993; previously business unit director for plastics
additives from 1989 to 1993.
Howard C. Levy, 53, vice president since 1993; business unit
director for biocides since 1989.
Philip G. Lewis, 46, vice president since 1993; director of safety,
health and environmental affairs and product integrity since 1993;
previously director of safety, health and environmental affairs from
1989 to 1993 and corporate medical director from 1987 to 1993.
John P. Mulroney, 61, director since 1982; president and chief
operating officer since 1986; director of Teradyne Inc. and Aluminum
Company of America.
Fred W. Shaffer, 64, vice president since 1978; chief financial
officer since 1979.
Richard C. Shipley, 51, vice president since 1996; president of
Shipley Company L.L.C. since 1985.
William H. Staas, 53, vice president since 1993; director of
research since 1996; previously business unit director for monomers from
1990 to 1996.
David A. Stitely, 57, vice president since 1995; director of
information technology and chief information officer since 1990.
John F. Talucci, 57, vice president and business unit director for
agricultural chemicals since 1989.
Charles M. Tatum, 49, vice president since 1990; business unit
director of plastics additives since 1993; previously director of
research from 1989 to 1993.
Basil A. Vassiliou, 62, vice president since 1986; regional director
of Europe since 1985; business group executive for plastics since 1991.
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Robert P. Vogel, 52, vice president since 1994; general counsel
responsible for legal, insurance, tax and regulatory matters since 1994;
previously associate general counsel, regulatory counsel and director of
safety, health and environment and product integrity from 1991 to 1993.
J. Lawrence Wilson, 61, director since 1977; chairman of the board
and chief executive officer since 1988; director of The Vanguard Group
of Investment Companies and Cummins Engine Company, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership of certain beneficial owners and management
is incorporated in this Form 10- K by reference to pages 21 through 23
of the definitive Proxy Statement to be filed with the Securities and
Exchange Commission on or about March 21, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated in this Form
10-K by reference to page 9 of the definitive Proxy Statement to be filed
with the Securities and Exchange Commission on or about March 21, 1997.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
The consolidated financial statements of Rohm and Haas Company
are incorporated in this Form 10-K by reference to pages 34 through
53 of the Stockholders' Report, a complete copy of which follows
page 6 of this report, together with the report of KPMG Peat Marwick
LLP dated February 24, 1997.
2. Financial Statement Schedule
The following supplementary financial information is filed in
this Form 10-K and should be read in conjunction with the financial
statements in the Stockholders' Report:
PAGE
----
Independent Auditors' Report on Financial Statement Schedule ... 6
Schedule submitted:
II -- Valuation and qualifying accounts for the
years 1996, 1995 and 1994 ................................ 7
The schedules not included herein are omitted because they
arenot applicable or the required information is presented in
the financial statements or related notes.
3. Exhibits
Exhibit (10), Material Contracts. The following compensatory
plans are filed as Exhibit (10)(a) and (b) and are attached as pages
9 through 18 of this Form 10-K.
(a) Agreement between Rohm and Haas and Mr. John F. Talucci
(b) 1997 Non-Employee Directors' Stock Plan
The following management compensatory plans, which are subject
to stockholders' approval at the annual meeting on May 5, 1997, are
incorporated in this Form 10-K by reference to Exhibits A and B of
the definitive Proxy Statement to be filed with the Securities and
Exchange Commission on or about March 21, 1997:
(a) Rohm and Haas Annual Bonus Plan
(b) Rohm and Haas Long-Term Bonus Plan
Exhibit (12), Computation of Ratio of Earnings to Fixed Charges
for the company and subsidiaries, is attached as page 19 of this
Form 10-K.
Exhibit (13), Annual Report to Stockholders, follows page 6 of
this report.
Exhibit (21), Subsidiaries of the registrant, is attached as
page 20 and 21 of this Form 10-K.
Exhibit (23), Consent of independent certified public
accountants, is attached as page 22 of this Form 10-K.
Exhibit (27), Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Rohm and Haas Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Fred W. Shaffer
---------------------------------
Fred W. Shaffer
Vice President and
Chief Financial Officer
March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 21, 1997 by the following persons on behalf of
the registrant and in the capacities indicated.
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SIGNATURE AND TITLE SIGNATURE AND TITLE
- ------------------------------------------------------------------------------
/s/ J. Lawrence Wilson /s/ Jorge P. Montoya
- ----------------------------------- -----------------------------------
J. Lawrence Wilson Jorge P. Montoya
Director, Chairman of the Board and Director
Chief Executive Officer
/s/ Fred W. Shaffer /s/ Sandra O. Moose
- ----------------------------------- -----------------------------------
Fred W. Shaffer Sandra O. Moose
Vice President and Director
Chief Financial Officer
/s/ George B. Beitzel /s/ John P. Mulroney
- ----------------------------------- -----------------------------------
George B. Beitzel John P. Mulroney
Director Director
/s/ Daniel B. Burke /s/ Gilbert S. Omenn
- ----------------------------------- -----------------------------------
Daniel B. Burke Gilbert S. Omenn
Director Director
/s/ Earl G. Graves /s/ Ronaldo H. Schmitz
- ----------------------------------- -----------------------------------
Earl G. Graves Ronaldo H. Schmitz
Director Director
/s/ James A. Henderson /s/ Alan Schriesheim
- ----------------------------------- -----------------------------------
James A. Henderson Alan Schriesheim
Director Director
/s/ John H. McArthur /s/ Marna C. Whittington
- ----------------------------------- -----------------------------------
John H. McArthur Marna C. Whittington
Director Director
/s/ Paul F. Miller, Jr.
- -----------------------------------
Paul F. Miller, Jr.
Director
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Rohm and Haas Company:
Under date of February 24, 1997, we reported on the consolidated
balance sheets of Rohm and Haas Company and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996, which are included in the
1996 Annual Report to Stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1996. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed
in Item 14 of the Form 10-K for the year 1996 under the heading "Financial
Statement Schedule." This financial statement schedule is the
responsibility of the company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG PEAT MARWICK LLP
-----------------------------------
KPMG PEAT MARWICK LLP
Philadelphia, PA
February 24, 1997
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SCHEDULE II
ROHM AND HAAS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(millions of dollars)
Deducted from Accounts Receivable --
Allowances for losses:
Balance at beginning of year..... $12 $11 $10
Additions charged to earnings.... 4 4 3
Charge-offs, net of recoveries... (2) (3) (2)
--- --- ---
Balance at end of year........... $14 $12 $11
=== === ===
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EXHIBIT (10)(a)
AGREEMENT AND RELEASE
A. The Parties to this Agreement
-----------------------------
1. "Mr. Talucci" means John F. Talucci, an individual who lives at
1555 Mt. Pleasant Road, Villanova, Pennsylvania 19085.
2. "Rohm and Haas" means Rohm and Haas Company, a Delaware
corporation with its corporate offices at 100 Independence Mall West,
Philadelphia, Pennsylvania 19106-2399.
B. Background
----------
3. Mr. Talucci has been employed with Rohm and Haas since June 26,
1961. By an earlier agreement, dated January 17, 1995, Mr. Talucci had
voluntarily agreed to separate from Rohm and Haas on December 31, 1996,
under the Rohm and Haas executive Severance Benefit Program. At Rohm
and Haas' request, made because of its business need to retain Mr.
Talucci's services, Mr. Talucci has agreed to remain in Rohm and Haas
employ until December 31, 1998 ("LDW") and to voluntarily separate from
service on that date.
4. Mr. Talucci is free to sign this Agreement or not sign it. If
Mr. Talucci chooses not to voluntarily separate from Rohm and Haas under
the terms of this Agreement, he will continue to be bound by the terms
of the January 17, 1995 Agreement described in paragraph 3.
C. Payments and Benefits Received by Mr. Talucci if he signs this Agreement
------------------------------------------------------------------------
5. If Mr. Talucci signs this Agreement and does not revoke it, he
will separate from Rohm and Haas on December 31, 1998, and will receive
as severance pay an amount equal to twenty-four months salary based on
his annual salary as of his LDW, less applicable taxes and withholdings.
6. Mr. Talucci will be eligible for the same retiree medical
insurance coverage and life insurance that Rohm and Haas provides to
other retirees, on the same terms and conditions as are made available
to other retirees.
7. Mr. Talucci will also be paid for any unused 1998 vacation or
floating holiday earned as of his LDW. These funds will be processed
during the next payroll cycle immediately following his LDW. Vacation
accrued toward the following year will not be paid, notwithstanding any
Rohm and Haas policy to the contrary.
8. Mr. Talucci will be guaranteed a minimum retirement benefit equal
to the lump sum value of his accrued pension benefit from the Pension
Plan and the Non-Qualified Pension Plan (formerly the Executive Pension
Parity Plan) as of December 31, 1996. This amount shall be calculated
using the PBGC interest rate and the mortality table used by the
Non-Qualified Pension Plan at December 31, 1996. If at the date of his
retirement under this Agreement, the combined lump sum values of the
Pension Plan and Non-Qualified Plan are less than the guaranteed minimum
retirement benefit, the difference will be paid in a lump sum, net of
any legally required withholdings, at the same time as Mr. Talucci's
severance payment is paid under paragraph 5.
9. Mr. Talucci will receive annual payments equal to what he would
have received under the Annual and Long-Term bonus plans had he remained
an employee until December 31, 2000.
10. If Mr. Talucci terminates his employment before December 31,
1998, with the consent of the Chief Executive Officer of Rohm and Haas,
the benefits payable to him under paragraph S and the hypothetical
period of extended service under paragraph 9 will be adjusted
proportionately, by multiplying the otherwise payable amount or service
period, as applicable, by a fraction, the numerator of which is equal to
12 plus one-half of the number of calendar months after December 1996
during which Mr. Talucci has worked for Rohm and Haas and the
denominator of which is 24.
11. Rohm and Haas will also buy a term life insurance policy, of
which Rohm and Haas will be policy owner, on Mr. Talucci's life (the
"Term Policy"), for a term of two years, in a face amount equal to the
excess of the December 31, 1996 values of (1) one year's base salary
plus (2) the minimum retirement benefit guaranteed under paragraph 8
plus (3) the value of the level lifetime income option that would be
paid under the Rohm and Haas post-retirement insurance program in the
event of Mr. Talucci's death over (4) the death benefits that
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would be payable by Rohm and Haas and its employee benefit plans in
the event of Mr. Talucci's death, as an active employee, at December 31,
1996. If Mr. Talucci dies on or before December 31, 1998, Mr. Talucci's
beneficiary, who will be designated by Mr. Talucci in a writing
delivered to Rohm and Haas, will be paid the face amount of the Term
Policy. No benefit will be payable under the Term Policy if Mr. Talucci
dies after December 31, 1998.
12. If Mr. Talucci dies before the LDW identified in paragraph 3,
the payments and benefits conferred on him in paragraphs 5 through 10 of
this Agreement, other than those benefits to which Mr. Talucci is
otherwise entitled apart from this Agreement, will be replaced by the
usual and customary death benefits available to similarly situated Rohm
and Haas employees, plus an additional year of bonuses under the Annual
and Long Term Award Plans. This paragraph 12 will not affect the
benefits provided under paragraph 11.
13. If Mr. Talucci is determined to have committed an act of
intentional wrongdoing against Rohm and Haas or any of its employees
before his LDW, he will separate from employment with Rohm and Haas at
that time and will forfeit all benefits conferred upon him in paragraphs
5 through 11 of this Agreement, other than those benefits to which he is
otherwise entitled apart from this Agreement. For this purpose
"intentional wrongdoing" shall mean (i) defrauding Rohm and Haas, (ii)
embezzling, converting or otherwise illegally or impermissibly obtaining
possession of Rohm and Haas property or funds, (iii) disclosing or
otherwise using confidential information, trade secrets or similar
material other than for the benefit of Rohm and Haas. The initial
determination of whether an act of intentional wrongdoing has occurred
will be made by the Chief Executive Officer or President of Rohm and
Haas, but Mr. Talucci may appeal the determination to the Executive
Compensation Committee of the Board of Directors. Notwithstanding any
other provision in this Agreement, Mr. Talucci does not give up his
right to sue under this Paragraph 13.
D. The Release of Claims
---------------------
14. In return for the promises herein, which exceed that to which
Mr. Talucci is otherwise entitled under Rohm and Haas' policies and
practices, Mr. Talucci, his representatives, successors, heirs, and
assigns do hereby completely release and forever discharge Rohm and
Haas, its past and present direct or indirect predecessors, successors,
parents, subsidiaries, business units or affiliated companies, its and
their respective past and present directors, officers, attorneys,
employees, successors, assigns, insurers and other representatives
(collectively, the "RELEASED PARTIES"), from any and all manner of
claims, demands, actions, causes of action, suits, arbitration
proceedings, debts, costs, judgments, executions, claims and demands of
whatsoever nature, direct or indirect, known or unknown, asserted or
unasserted, matured or not matured, which Mr. Talucci, his spouse,
children, heirs, parents, siblings, extended family, successors or
assigns, or other representatives (collectively, the "RELEASING
PARTIES"), either individually or collectively, ever had, now or
hereinafter can, shall or may have against the RELEASED PARTIES, from
the beginning of time until the present, arising out of or in any manner
relating to all events or circumstances in any way related to Mr.
Talucci's employment with Rohm and Haas or the separation of that
employment. This Agreement specifically includes, but is not limited
to, any and all claims for wrongful discharge, breach of contract
(whether express or implied), and all forms of employment discrimination
in violation of federal, state or local statute, ordinance, executive
order, or common law (including but not limited to claims for
discrimination on the basis of race, color, religion, sex, national
origin, mental or physical disability or for age discrimination under
Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e et. seq.),
the Age Discrimination in Employment Act (42 U.S.C. 621 et. seq.), the
Civil Rights Act (42 U.S.C. 1981), the Americans With Disabilities Act
(29 U.S.C. section 706, 42 U.S.C. 12101 et. seq.) and any state Human
Relations Act or any other such laws or any and all suits in tort (for
personal injury of any kind) as well as any and all claims for damages
whatsoever kind arising from Mr. Talucci's employment relationship with
Rohm and Haas or separation therefrom. Mr. Talucci further agrees not
to bring any suit, action or legal proceeding against the RELEASED
PARTIES concerning any matter covered by this Release.
E. Claims Not Released
-------------------
15. Notwithstanding the above, this Agreement does not release any
claims possessed by Mr. Talucci for benefits under the applicable
Workers' Compensation Act, including claims arising from workplace
exposure to toxic substances. This Agreement also does not release any
rights to recover post-separation benefits to which he is entitled under
any applicable Rohm and Haas retirement or other benefit plan in effect
as of his LDW including any enhancements made between the date of this
Agreement and his LDW.
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F. Additional Terms of This Agreement
----------------------------------
16. Rohm and Haas has the right to disclose the terms of this
Agreement for any bona fide business reason.
17. The post-separation provisions of the Employment Agreement
between Mr. Talucci and Rohm and Haas ("Exhibit A"), and the signed
Records Security Statement ("Exhibit B") shall remain in full force and
effect and be incorporated into this Agreement. Rohm and Haas and Mr.
Talucci agree that paragraph 11 of Exhibit A will have no further effect
after Mr. Talucci's LDW. The remaining provisions of Exhibit A will at
all times remain in full force and effect.
18. Mr. Talucci may name Larry Wilson or his designee as an
employment reference for Mr. Talucci's work at Rohm and Haas.
Alternatively, Mr. Talucci is free to name any employee of Rohm and
Haas, its subsidiaries or affiliates as a reference. Mr. Talucci agrees
the opinions and statements given by those individuals will in no way be
construed to represent opinions and statements of Rohm and Haas. Any of
the individuals who choose to provide a reference for Mr. Talucci will
not be acting on behalf of Rohm and Haas or as agents of Rohm and Haas
or in the scope of their employment with Rohm and Haas in providing any
such reference. Mr. Talucci further agrees that any opinions or
statements given by those persons are subject to the release set forth
in paragraph 14.
19. Nothing in this Agreement shall be deemed an admission of
liability by Rohm and Haas. To the contrary, Rohm and Haas expressly
denies any liability to Mr. Talucci and maintains that its conduct
relating to Mr. Talucci's employment with Rohm and Haas and subsequent
separation was at all times proper.
20. Mr. Talucci acknowledges that he is acting of his own free
will, that he has been advised by Rohm and Haas to consult an attorney
of his choice, that he has had a sufficient opportunity to read the
terms of this Agreement, and consult legal counsel, if desired, and that
he fully understands all of the provisions of this Agreement. In
addition, Mr. Talucci acknowledges that neither Rohm and Haas nor any of
its employees, agents, representatives or attorneys have made any
representations concerning the terms of this Agreement other than those
contained herein.
21. Mr. Talucci hereby acknowledges that he has had a period of 45
days to fully consider his decision to voluntarily separate from Rohm
and Haas and to fully consider whether to accept the terms of this
Agreement.
22. Mr. Talucci may change his decision to voluntarily separate and
to execute this Agreement within seven (7) days of his signing it, and
the Agreement shall not become effective or enforceable, nor will the
payments and benefits outlined above be paid, until the revocation
period has expired.
23. Mr. Talucci acknowledges that if he signs this Agreement and
does not revoke it, the prior Agreement described in paragraph 3 above
will be superseded and of no further effect.
24. The fact that a provision of this Agreement is found invalid or
unenforceable shall not affect the validity or enforceability of the
remainder of this Agreement.
25. This Agreement contains the entire agreement of the parties
relating to the subject matter herein. It may be changed only by a
written agreement, signed by both parties.
26. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
27. This Agreement may be executed in counterparts and will be
valid even though the signatures of all parties do not appear on the
same page.
Dated: _______________ ___________________________________
JOHN TALUCCI
Dated: _______________ ____________________________________
C.D. SOUTHWARD
FOR ROHM AND HAAS
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EXHIBIT A
EMPLOYMENT AGREEMENT
In consideration of my employment by Rohm and Haas Company and the
compensation and benefits attendant thereto, I agree as follows:
I. I recognize any business or trade secrets, including secret
processes of manufacture of Rohm and Haas Company, as the property of
Rohm and Haas Company, as well as any information contained in research
records, financial records, payroll records, personnel records, and all
other confidential information to which I have access. I agree to keep
such information secret and confidential and not to use such information
other than in an authorized manner in the course of Rohm and Haas
Company's business. I further agree not to divulge such information to
outsiders or other unauthorized persons either while employed by Rohm
and Haas Company or afterwards.
II. I will not engage in any business interests or business
activities which, in the opinion of Rohm and Haas Company, conflict with
the interests of Rohm and Haas Company.
III. I will disclose promptly to Rohm and Haas Company any and all
inventions, discoveries, and improvements (patentable or not) conceived
or made by me during the period of my employment and relating to the
business or activities of Rohm and Haas Company. I hereby assign and
agree, to assign all of my interest therein to Rohm and Haas Company or
its nominee and agree to execute any and all documents necessary to
enable Rohm and Haas Company to secure Letters Patent of the United
States and any foreign country or to otherwise protect Rohm and Haas
Company's interests therein. These obligations shall continue beyond
the termination of my employment with respect to inventions,
discoveries, and improvements conceived or made by me during the period
of employment.
IV. I agree, on termination of my employment, to return to Rohm and
Haas Company all papers, notes, books, or other documents or property
belonging to Rohm and Haas Company or relating to its business.
Executed in _______________, this _________ day of ________________________.
_________________________________ (SEAL) ROHM AND HAAS COMPANY
SIGNATURE
_________________________________ ______________________________
WITNESS
12
<PAGE>
EXHIBIT B
RECORDS SECURITY STATEMENT
I have returned all Company Confidential documents, including
research notebooks, which I have had in my possession to Rohm and Haas,
and I have no copies of such documents remaining in my possession. I
have reread my Employment Agreement and understand that my obligations,
to which I had agreed earlier, continue beyond the separation of my
employment.
______________________________
JOHN F. TALUCCI
13
<PAGE>
EXHIBIT C
JOB GROUP: EXECUTIVES
AGE AS OF 11/1/94 NUMBER OF EMPLOYEES NUMBER AFFECTED
62 2 0
60 2 1
59 2 1
58 1 1
57 5 3
56 2 1
55 7 2
54 5 0
53 3 1
52 5 0
51 6 0
50 5 0
49 3 0
48 3 0
47 5 0
46 2 0
45 2 0
43 3 0
42 2 0
41 1 0
14
<PAGE>
EXHIBIT D
REFERENCE LETTER
A form of reference letter will be mutually agreed upon between Mr.
Talucci and Rohm and Haas, and will be included as Exhibit D. The
procedure will work as follows: Mr. Talucci will draft a letter and send
it to Mr. Wilson for comments or changes. When both parties agree to
the language of the letter, it will become Exhibit D to this Agreement.
15
EXHIBIT (10)(b)
ROHM AND HAAS COMPANY
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1997 Non-Employee Directors' Stock
Plan (the "Plan") of Rohm and Haas Company (the "Company") is to advance
the interests of the Company and its stockholders by providing a means
(i) to promote ownership by the directors of a greater proprietary
interest in the Company, aligning the directors' interests more closely
with the interests of stockholders, and (ii) to attract and retain
highly qualified persons to serve as non-employee directors.
2. Definitions.
(a) "Deferred Stock" means the credits to a director's deferral
account under Section 6, each of which represents the right to receive
one share of Stock upon settlement of the deferral account. Deferral
accounts, and Deferred Stock credited to the deferred accounts, are
maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(b) "Fair Market Value" of Stock means, as of any given date, the
average of the high and low price of a share of Stock reported in the
New York Stock Exchange Composite Transactions.
(c) "Stock" means the Common Stock, $2.50 par value, of the Company
and such other securities as may be substituted for Stock or such other
securities pursuant to Section 3.
3. Shares Available Under the Plan. The total number of shares of
Stock reserved and available for issuance under the Plan is 150,000.
Such shares may be authorized but unissued shares or treasury shares.
The total number and nature of shares so reserved shall be appropriately
adjusted to reflect stock dividends, stock splits, combinations of
shares and any similar change in the corporate capital structure which
affects the Stock such that an adjustment is appropriate to prevent
dilution or enlargement of a director's rights under the Plan, including
change as a result of a reorganization, recapitalization, merger or
consolidation.
4. Administration of the Plan. The Plan will be administered by the
Board of Directors of the Company. Any action taken must be approved by
the affirmative vote of a majority of those directors who are not
eligible to participate in the Plan.
5. Eligibility. Deferred Stock under this Plan may be granted only
to directors of the Company who are not employees of the Company or any
of its subsidiaries and who have less than a 5% beneficial interest in
the Company's outstanding shares. The grant of any share under this
Plan shall not impose upon the Company or its subsidiaries any
obligation to retain the director for any period.
6. Receipt of Deferred Stock.
(a) Conversion of Retirement Benefit. In January, 1997, the Company
will credit the deferral account of each director vested, as of January
1, 1997, under the Rohm and Haas Retirement Plan for Non-Employee
Directors with a number of shares of Deferred Stock calculated by
dividing the present value of his or her pension (calculated
actuarially) by a stock price on the conversion date based upon a trend
line analysis of the average of the quarterly high and low stock prices
over the preceding 40 quarters.
(b) Payment of One-Half the Directors' Annual Retainer. Each
eligible director will receive one-half of the amount of his or her
annual retainer for services as a director in Deferred Stock. The
Company will credit the director's deferral account, on the first
business day in January or promptly after election if newly elected,
with a number of shares of Deferred Stock calculated by dividing
one-half the annual retainer by a stock price on the grant date based
upon a trend line analysis of the average of the quarterly high and low
stock prices over the preceding 40 quarters. If the director dies,
retires or leaves the Board before the completion of the calendar year,
his or her account will be adjusted to subtract the amounts not yet
earned.
16
<PAGE>
(c) Election to Defer.
(i) An eligible director may elect, no later than December 31 of any
year, to defer all or a portion of his or her annual retainer which
would otherwise be paid in cash during the next calendar year by filing
a written election with the Corporate Secretary. A new director may
elect to defer all or part of his or her annual retainer which would
otherwise be paid in cash during that calendar year by filing a written
election with the Corporate Secretary before the commencement of his or
her term in office. Once the election to defer is in place, the same
election will remain in effect for each succeeding year until the
election is changed at any time prior to the start of the calendar year
when the new election will take effect.
(ii) The Company will credit the director's deferral account (at the
same time that the Deferred Stock is credited under Section 6(b)) with a
number of shares of Deferred Stock calculated by dividing the dollar
amount being deferred by a stock price on the day of deferral based upon
a trend line analysis of the average of the quarterly high and low stock
prices over the preceding 40 quarters.
(d) Crediting of Dividend Equivalents. Whenever dividends are paid
or distributions made with respect to Stock, each director shall be
entitled to receive, as dividend equivalents, an amount equal in value
to the amount of the dividend paid or property distributed on a single
share of Stock multiplied by the number of shares of Deferred Stock
(including any fractional share) credited to his or her deferral account
as of the record date for the dividend or distribution. The dividend
equivalents shall be credited to the director's deferral account as a
number of shares of Deferred Stock determined by dividing the aggregate
value of the dividend equivalents by the Fair Market Value of a share of
Stock at the payment date of the dividend or distribution.
(e) Settlement of Deferred Stock. The Company will settle the
directors' deferral account by delivering to the directors (or his or
her beneficiary) a number of shares of Stock equal to the number of
whole shares of Deferred Stock then credited to his or her deferral
account (or a specified portion in the event of a partial settlement),
together with cash in lieu of any fractional share of Deferred Stock
credited to the deferral account. The settlement shall be made at the
time or times specified in the director's election filed in accordance
with section 6(g)).
(f) Designation of Beneficiary. Each director may designate one or
more beneficiaries to receive the amounts distributable from the
director's deferral account under the Plan in event of the director's
death. The Company may rely upon the beneficiary designation last filed
with the Company.
(g) Elections. Each director may elect to receive settlement of the
Deferred Stock (i) on the first business day of the month following
termination of Board membership or death or (ii) in a series of equal
annual installments in such number as the director shall specify (but
not exceeding 10) commencing on the first business day of the month
following termination of Board membership or death. The election must
be made to the Corporate Secretary no later than one hundred and eighty
days prior to the director's termination of Board membership or death.
Failure to provide an election prior to that one hundred eighty day
period will result in the settlement being made on the first business
day of the month following termination of Board membership or death.
Any election made within the one hundred eighty day period will be void.
In no event, however, shall any settlement of the Deferred Stock be made
within six months of the Deferred Stock being awarded if necessary to
qualify for an exemption under section 16 of the Securities and Exchange
Act of 1934.
(h) Nonforfeitability. The interest of each director in the
Deferred Stock in his or her deferral account will be nonforfeitable.
7. Changes to the Plan. The Board of Directors may amend, alter,
suspend, discontinue or terminate the Plan or authority to pay retainers
in the form of Deferred Stock under the Plan without the consent of
stockholders unless stockholder consent is required by any federal or
state law or regulation or the rules of any stock exchange. The Board
may, in its discretion, decide to submit amendments or alterations to
stockholders for approval. No action may materially impair the rights
of the directors with respect to any previously granted Deferred Stock
without the consent of the affected director.
17
<PAGE>
8. General Provisions.
(a) Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver shares of Stock in settlement of Deferred
Stock in a transaction subject to the registration requirements of the
Securities Act of 1933, as amended, or any other federal or state
securities law, any listing requirement under any listing agreement
between the Company and any stock exchange or any other law, regulation
or contractual obligation of the Company until the Company is satisfied
that such laws, regulations and other obligations of the company have
been complied with in full. Certificates representing shares of Stock
issued under the Plan will be subject to stop-transfer orders and other
restrictions as may be applicable under such laws, regulations, and
other obligations of the Company, including any requirement that a
legend or legends be placed on the certificates.
(b) Limitations on Transferability. Deferred Stock will not be
transferable except by will or the laws of descent and distribution (or
to a designated beneficiary in the event of a director's death).
(c) No Stockholder Rights Conferred. Nothing in this Plan will
confer upon a director any rights of a stockholder of the Company unless
and until shares of Stock are issued.
(e) Governing Law. The validity, construction and effect of the
Plan will be determined in accordance with the Delaware General
Corporation Law and other laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
18
EXHIBIT (12)
ROHM AND HAAS COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
--------------------------------
(millions of dollars)
Earnings before income taxes .......... $530 $441 $407 $194 $261
Fixed charges ......................... 75 84 82 79 83
Capitalized interest adjustment ....... (1) (5) (2) (7) (3)
Undistributed earnings adjustment ..... 12 (3) (2) 6 2
---- ---- ---- ---- ----
Earnings .............................. $616 $517 $485 $272 $343
==== ==== ==== ==== ====
Ratio of earnings to fixed charges .... 8.2 6.2 5.9 3.4 4.1
==== ==== ==== ==== ====
Note: Earnings consist of earnings before income taxes and fixed
charges after eliminating undistributed earnings of affiliates and
capitalized interest net of amortization of previously capitalized
interest. Fixed charges consist of interest expense, including
capitalized interest, and amortization of debt discount and expense on
all indebtedness, plus one-third of rent expense deemed to represent an
interest factor.
19
Rohm and Haas Company
We're a Part of Your Life
- -------------------------
Rohm and Haas is a specialty chemical company focused on profitable
growth.
We sell most of our products to industrial manufacturers, yet our
ultimate success depends upon how well our technology satisfies consumer
needs around the world. And even though most people have never heard of
us, we are an integral part of their everyday lives.
For example, Rohm and Haas technology enables computers to process
information more quickly, and gives homeowners high-quality building
materials and paints that do their job beautifully and clean up easily.
Our know-how purifies the water you drink, and helps bring food to your
dinner table. It makes laundry detergents work better, and thickens
creams and lotions. Our technology is in the magazines you read and the
cars you drive.
These are only a few illustrations of Rohm and Haas technology at work.
We invite you to read through this annual report for other examples of
our presence in your life.
Table of Contents
- ---------------------------------------
Financial Highlights 1
Letter to Shareholders 2
Profitable Growth 6
Rohm and Haas at a Glance 12
Business Discussions
Polymers, Resins and Monomers 14
Performance Chemicals 16
Plastics 17
Agricultural Chemicals 19
Corporate Responsibility 20
Financial Review and Index 21
Shareholder Information 57
Directors and Officers 58
Locations 60
- ---------------------------------------
<PAGE>
Financial Highlights
Millions of dollars (except per-share amounts) 1996 1995
- -------------------------------------------------------------------
FOR THE YEAR:
Net sales $3,982 $3,884
Net earnings 363 292
Net cash provided by operating activities 706 513
Capital additions 334 417
- -------------------------------------------------------------------
AT YEAR END:
Total assets $3,933 $3,916
Total debt 707 696
Stockholders' equity 1,728 1,781
- -------------------------------------------------------------------
RATIOS:
Total debt-to-equity* 38% 36%
Return on net assets 10 8
Return on common stockholders' equity* 20 17
- -------------------------------------------------------------------
PER COMMON SHARE:
Net earnings $ 5.45 $ 4.22
Common dividends 1.72 1.56
- -------------------------------------------------------------------
* Stockholders' equity is before reduction for the ESOP transaction.
ID: GRAPHICS -- PIE CHARTS ...
SALES BY BUSINESS GROUP
SALES BY CUSTOMER LOCATION
1
<PAGE>
TO THE SHAREHOLDERS OF
ROHM AND HAAS COMPANY
[ID -- PHOTO]
JOHN P. MULRONEY, PRESIDENT AND
J. LAWRENCE WILSON, CHAIRMAN
2
<PAGE>
Dear Shareholder:
In 1996, we began to reap the benefits of change.
Early in this decade, it became clear that old ways of doing things
would no longer produce acceptable results for Rohm and Haas.
Customers were becoming more global, markets were increasingly
competitive, national economies were being replaced by regional ones
with names like the European Union, Mercusol, the Americas and ASEAN
nations.
We had a proud history of success as an innovator of chemical
technology but, faced with the need for faster customer response, better
productivity and greater growth in developing economies, what else
should we do?
We changed.
In 1992, we reaffirmed our commitment to total quality in everything
we do, and vowed to benchmark future success against how well we could
use our chemistry to benefit shareholders, customers, employees and
community residents. We began to streamline our organization and
internal processes so that we could be a fast, efficient company,
regardless of the health of the economies around us.
We changed the way we research and develop new products, and how we
build our plants. We embraced the notion that an 87-year-old
manufacturer of industrial chemicals should offer an array of chemical
products and services. And we even surprised ourselves, for we made
these changes in short order during times of economic uncertainty in
Europe, North America and, later, in Japan and Australia.
The success of countless efforts to improve the way we do business
is apparent in our 1996 performance. As economies improved, growth
returned to Rohm and Haas. Unit volume was up 6 percent, and sales of
nearly $4 billion were 3 percent higher than in 1995. The 24 percent
improvement in earnings is tangible evidence that internal
transformations to improve efficiency and speed of response have taken
hold.
Today, Rohm and Haas is a specialty chemical company focused on
profitable growth. We have incorporated our commitment to our
stakeholders by giving them a "voice" in how we run our organization.
We know we are most successful when we can please all five voices
(shareholder, customer, employee, community and process) all of the
time. In keeping with this commitment, we report our 1996 performance
according to the voices of these stakeholders.
VOICE OF THE OWNER
Our total return to shareholders grew at an average compound rate of
16 percent during the past five years, slightly better than that of the
Standard & Poor's 500 index.
In 1996, Rohm and Haas reported a return on equity (ROE) of 20
percent. This is a significant improvement from a ROE of 17 percent in
1995. In part, the increase in return on equity reflects repurchases of
Rohm and Haas stock. During 1996, we purchased 4.4 million shares of
common stock. We have authorization to purchase another 2.6 million
before the end of 1998.
Our goal is to provide owners with 10 percent annual increases in
sales and earnings and to report an average 20 percent return on equity
over the economic cycle. In 1996, we missed our sales target, exceeded
our earnings goal, and attained our average target level for ROE.
3
<PAGE>
Keeping costs under control yields a better return for the owner,
but the credit for this accomplishment belongs to employees. Since
1993, Rohm and Haas people have held selling, administrative and
research costs (SAR) essentially flat, even as the company has grown
nearly one-fourth larger as measured by unit volume. In 1996, SAR costs
totaled 20 percent of sales, down from 24 percent just four years ago.
The savings here have enabled us to expand business into new markets at
competitive costs.
VOICE OF THE CUSTOMER
Our customers have told us they want quality products delivered on
time, along with the best possible technical service -- all at competitive
prices. We must be doing something right. In 1996, customers bought
more Rohm and Haas products in every corner of the globe.
Roughly two-thirds of our product portfolio is based on acrylic
technology. Demand for these products picked up in May and became
stronger as 1996 progressed. Customers bought more water-based products
for consumer paints and industrial coatings. They purchased increasing
amounts of hollow-sphere pigments used in paper and paints. We sold
significantly more products for use in house siding, window profiles and
plastic packaging than we did in 1995.
There also was solid improvement in the 30 percent of our product
portfolio based on other chemistries. Sales continued to increase for
products used to make computer chips and printed circuit boards, laundry
detergents and industrial cleaners, and for agricultural products used
by farmers to bring food to tables everywhere.
On a geographic basis, unit volume was up 12 percent in the
Asia-Pacific region, an area targeted for strong growth through the end
of the decade. Efforts to reinvigorate business in Latin America paid
off in 1996 with a 6 percent increase in volume, and a dramatic increase
in earnings. Demand from customers in Europe and North America improved
unit volume by 6 percent and 4 percent, respectively.
Customers also want us to be as efficient as possible. To that end,
in 1996 we joined with Rohm GmbH of Germany to create RohMax, a
petroleum additives joint venture that extends our geographic presence,
broadens our product offerings, and gives us the benefits of economies
of scale.
Another measure of our success in satisfying customers in 1996 came
in the form of a multitude of supplier-of-the-year and vendor awards.
VOICE OF THE EMPLOYEE
One of our proudest achievements is our progress toward eliminating
workplace injuries. Fifty-eight fewer people were hurt in 1996 than in
1995, and 31 of our sites operated all year without a single injury.
Although our record is approaching those of the safest companies in the
chemical industry, we will be satisfied only when no one gets hurt while
working for Rohm and Haas.
The results of a 1996 employee survey challenged us to find better
ways to link pay with performance. Early in 1997, we shifted the basis
of our annual bonus system to return on net assets (RONA), a measure of
how efficiently we make, sell and deliver product. We now tie long-term
bonuses for senior managers directly to total return to shareholders,
and require them to hold specified amounts of Rohm and Haas stock. We
have also changed board member pay so that at least 50 percent of
compensation is based on stock. Rohm and Haas shareholders are being
asked to approve the bonus plan changes at the company's annual meeting
in May.
VOICE OF THE COMMUNITY
No one understands the benefits and risks of this industry better
than the people who live near a chemical facility. Responsible Care(r) is
a public commitment made by Rohm and Haas and chemical companies in more
than 40 countries to improve performance in safety, health and
environmental quality, to respond to public concerns, and to report
progress to the public.
We are among a handful of companies who have implemented all six
Responsible Care codes in the United States. Within the next year, we
intend to have the codes in place in Europe and Latin America, and to
have base-line programs in place in Asia-Pacific.
4
<PAGE>
In November, Rohm and Haas volunteered to be one of the first U.S.
companies to put its safety, health and environmental practices under
scrutiny by people outside of the company. Under a program put together
by the Chemical Manufacturers Association, eight verifiers evaluated the
practices of two of our businesses and three sites. Their findings were
a ringing endorsement of our high standards for safety, health and
environmental management.
We pursued environmental excellence in other areas as well. In
July, Sea-Nine biocide earned the Green Chemistry Challenge Award from
the U.S. government. Sea-Nine is a less toxic alternative to other
materials used in marine paints. Community members want to know that we
take the stewardship of our manufacturing operations seriously. To that
end, many of our facilities are pursuing certification under
international environmental standards. Two of our European plants
already have received ISO 14001 certifications or their equivalents.
During the first part of 1997, we expect certification for plants in
Australia, Canada, Colombia, Mexico and Brazil.
VOICE OF THE PROCESS
While this last "voice" is not a stakeholder in the sense of the
first four, we need robust and efficient internal systems if we are to
be successful in the future. The quality of these processes enhances
our ability to respond to our other stakeholders.
Our global supply chain has been aggressively re-engineered, with a
cumulative savings thus far of about $50 million. These new systems
have led to significant improvements in on-time delivery and customer
service, and will produce additional cost savings.
We have changed the way we construct plants. Indeed, we can build
some of them in half the time and at half the cost of five years ago.
Capital spending has declined from 11.7 percent of sales at the end of
1993 to 8.4 percent in 1996.
[ID -- BAR CHART GRAPHICS FOR VOLUME, SALES, AND EARNINGS]
OUTLOOK
We intend to write our own future at Rohm and Haas -- to be an agent
of change, not a victim of it. We want to improve our position in the
chemical industry, and believe we have the right market positions,
technical strengths, employee commitment and management strategies to
accomplish just that.
The pace of change picks up daily, and we must adapt. Our ability
to change faster than those around us is a competitive advantage. Our
success in 1996 is evidence of that.
We will leverage our strengths -- an unparalleled understanding of
acrylic technology; our commitment to profitable growth in new
technologies; our expert employee workforce; our worldwide network of
laboratories, plants and offices; strategic alliances with our
customers; and our unwavering commitment to be faster, leaner and more
efficient than any of our competitors -- in service of our stakeholders.
We will create a strong future for Rohm and Haas Company.
/s/ J. Lawrence Wilson
J. Lawrence Wilson
Chairman and CEO
/s/ John P. Mulroney
John P. Mulroney
President and COO
March 21, 1997
5
<PAGE>
Profitable Growth,
Measurable Value
[ID -- PHOTO]
As a specialty chemical company, Rohm and Haas is focused on
profitable growth.
We take basic petrochemical materials -- propylene, acetone, styrene
and the like -- then, using our technology, experience and expertise, we
create unique chemical products that are sold to other industrial
companies that make a wide array of finished consumer goods.
In other words, Rohm and Haas fits right in the middle of a long chain
of companies that extends from the discovery of raw materials to the
manufacture of consumer products found in grocery stores, home
improvement outlets and automobile showrooms. Most consumers have never
heard of us, yet our technology surrounds them every day in nearly every
part of the world.
Rohm and Haas earns money by creating value for its customers. In 1996,
we made $363 million -- a solid improvement over 1995.
We made great strides in improving other aspects of our financial
performance in 1996. The details can be found throughout this report.
[ID -- PHOTO]
6
<PAGE>
The four growth businesses -- Agricultural Chemicals,
Electronic Chemicals, Biocides and Formulation
Chemicals -- are introducing new technologies for
growing markets, and are expected to provide strong
earnings in coming years.
[ID -- PHOTO]
In today's competitive chemical industry, however, it is not enough to
have one good year, or even a string of several good years. Progress
must be on-going, and headed always in the right direction. Knowing
which path to pursue makes it easier to define which markets to target,
which technologies to develop, and where better links should be forged
with customers.
This is why, in 1996, Rohm and Haas began to speak more clearly about
the way in which we manage our 10 businesses, and placed each of them in
one of three categories -- growth, profitability or value.
These classifications are not reflected in the way we report our
financial numbers, but we are using them to better allocate resources
within the corporation -- research dollars, capital investment, money for
acquisitions, and even people.
7
<PAGE>
[ID -- PHOTO]
Our premise is that we will invest most heavily in businesses which can
generate the greatest economic return for shareholders. The placement
of a business in one of the three categories depends upon proven profit
performance and potential growth.
GROWTH BUSINESSES
Agricultural Chemicals, Biocides, Electronic Chemicals and Formulation
Chemicals are in the growth category. Together, they represent about 30
percent of total sales and generate a return well in excess of our 13
percent return on net assets target. We expect them to do even better
in the future and have channeled more than half of our $200 million
research budget in their direction. These businesses have a mission to
improve earnings by 15 percent per year. In several cases, we will have
to make acquisitions in order to achieve our aggressive growth targets.
PROFITABILITY BUSINESSES
Polymers and Resins, Monomers and Plastics Additives are in this group.
Collectively, they account for 55 percent of company sales. These are
the backbone businesses of Rohm and Haas, and represent the best of our
renowned acrylic technology. The goals of the profitability businesses
are to defend their franchises, improve earnings and asset turnover, and
maintain a return on net assets of 13 percent or more.
VALUE BUSINESSES
AtoHaas Americas, Ion Exchange Resins and RohMax represent the final 15
percent of company sales. These businesses were all profitable in 1996
and are generating cash. We are reinvesting in them as appropriate to
help them improve their competitive positions. Our primary aim is to
improve profitability and increase cash flow.
[ID -- PHOTO]
8
<PAGE>
[ID -- PHOTO]
Established expertise and world-
renowned chemistry are the hallmarks
of the company's profitability
businesses -- Polymers and Resins,
Monomers and Plastics Additives.
These businesses are focused on profitable
growth for Rohm and Haas.
9
<PAGE>
There is still great value in technologies that have withstood
the test of time. The innovations that underlie the value
businesses -- Ion Exchange Resins, AtoHaas and RohMax --
continue to generate considerable cash and benefit
to Rohm and Haas. These businesses are
expected to increase their contri-
bution in years to come.
[ID -- PHOTO]
10
<PAGE>
[ID -- PHOTO]
By setting tiered objectives for our businesses and by using growth and
profitability criteria as qualifiers for company resources, Rohm and
Haas expects to achieve its objective of ongoing, profitable growth.
Our senior managers are fully aligned with these goals and objectives.
Each manager's individual performance plan is tied directly to an
overall performance plan for the company that encompasses specific goals
for the benefit of our stakeholders. We have adjusted our compensation
programs so that increasing amounts of pay are linked directly to how
well we perform as a company. Senior managers are required to hold
predetermined levels of Rohm and Haas stock.
Increasingly, we are an efficient, smoothly operating company that knows
how to control internal costs and improve productivity.
Rohm and Haas is well prepared to be a strong, competitive participant
in the chemical industry of the next century. We understand that change
is constant and that the rate of change will only increase. We have the
building blocks we need for persistent success -- a fine business
portfolio, strong geographic reach and outstanding people. Strong
leadership, clarity of vision, and the ability to ensure that our
technology meets the needs of consumers around the world will continue
to differentiate Rohm and Haas from its competitors in the years to come.
[ID -- PHOTO]
11
<PAGE>
Rohm and Haas at a Glance
POLYMERS, RESINS
AND MONOMERS
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[ID -- PHOTO]
POLYMERS
AND RESINS
$1,596 MILLION IN SALES
KEY MARKETS
Professional and do-it-yourself home improvement,
construction, factory-applied finishes, road and bridge maintenance,
papermaking, textile, packaging, leather goods and apparel
PRODUCTS
Acrylic and vinyl acrylic emulsion polymers, resins and additives
used in house paints, bridge and maintenance coatings, adhesives,
caulks, floor polishes, inks, road-marking paints, paper coatings,
leather finishes, building products, patching cement, exterior home
finishes, textiles, nonwovens and wood finishes
COMPETITORS
BASF, Hoechst,
Union Carbide
[ID -- PHOTO]
MONOMERS
$266 MILLION IN SALES
KEY MARKETS
Primary source of starting materials for Rohm and Haas products;
also sells products for use in coatings, detergents, superabsorbent
materials, plastics, fuels, lubricants and refinery processing markets
PRODUCTS
Acrylic acid and its derivatives; methyl methacrylate and its
derivatives; specialty monomers; amine-based intermediates and
salt-forming organic bases
COMPETITORS
BASF, ICI, Elf Atochem,
Hoechst, Cyro
[ID -- PHOTO]
FORMULATION
CHEMICALS
$97 MILLION IN SALES, EXCLUDING
NORSOHAAS SALES
KEY MARKETS
Water treatment, detergent, industrial cleaning, personal care, oil
production and mining
PRODUCTS
Water-soluble polymers that boost power of laundry detergents and
industrial cleaners; scale inhibitors for cooling tower and boiler
applications; thickeners and specialty polymers for personal care
applications; dispersants for mining and oil production applications
COMPETITORS
BASF, National Starch,
Rhone Poulenc,
Nippon Shokubai
ROHMAX
$64 MILLION IN PETROLEUM CHEMICALS SALES PRIOR TO THE FORMATION OF
ROHMAX AT MID-YEAR
MARKETS
Automotive, industrial equipment, aviation, pharmaceuticals and oil
refining
PRODUCTS
Polymethacrylate-based and olefin copolymer products used in
high-performance lubricants
COMPETITORS
Shell, Lubrizol,
Sanyo, Exxon
PERFORMANCE
CHEMICALS
[ID -- PHOTO]
ELECTRONIC
CHEMICALS
$358 MILLION IN SALES
MARKETS
Computer components and circuitry, telecommunications equipment,
automotive products, medical equipment and mainframe computers
PRODUCTS
Specialty chemicals used to fabricate integrated circuits and printed
wiring boards; ultra-high purity photoresists for imaging applications;
processes for plating on plastic and on metal parts
COMPETITORS
TOK, JSR, Hoechst,
Atotech, MacDermid,
Olin, Sumitomo
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[ID -- PHOTO]
ION EXCHANGE
RESINS
$231 MILLION IN SALES
MARKETS
Water treatment, electronics, pharmaceuticals, biotechnology and food
processing
PRODUCTS
Ion exchange resins used to change the characteristics of water and
other fluids
COMPETITORS
Dow, Bayer, Purolite,
Mitsubishi Kasei
[ID -- PHOTO]
BIOCIDES
$152 MILLION IN SALES
MARKETS
Industrial water treatment, papermaking, cosmetics, household cleaning
products, paints and coatings, marine paints, swimming pools and spas
PRODUCTS
Isothiazolone biocides used to control algae, fungi and bacterial growth
COMPETITORS
Dow, Union Carbide,
Zeneca, Great Lakes
PLASTICS
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[ID -- PHOTO]
PLASTICS ADDITIVES
$394 MILLION IN SALES
MARKETS
Construction, automotive, packaging, home appliances, business machines
and consumer electronics
PRODUCTS
Impact modifiers and processing aids for vinyl siding, window profiles,
pipe, film, bottles and engineering plastics
COMPETITORS
Kaneka, Mitsubishi Rayon,
Dow, Elf Atochem
[ID -- PHOTO]
ATOHAAS
AMERICAS
$307 MILLION IN SALES
MARKETS
Automotive, construction, transportation,
sign, lighting and appliances
PRODUCTS
Acrylic sheet and resins for glazing, automotive taillights and other
parts, lighting fixtures, signs and medical devices
COMPETITORS
ICI, Cyro, Rohm,
Mitsubishi Rayon
AGRICULTURAL
CHEMICALS
$514 MILLION IN SALES
[ID -- PHOTO]
MARKETS
High-value specialty agricultural crops, including fruits, vegetables,
nuts, vines and flowers
PRODUCTS
A complete portfolio of herbicides, fungicides and insecticides
COMPETITORS
Elf Atochem, DuPont,
Monsanto, Zeneca, FMC
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Business Discussions
Rohm and Haas reports its financial performance through four business
groups: Polymers, Resins and Monomers (PRM), Performance Chemicals,
Plastics and Agricultural Chemicals. The major factors affecting each
of the company's businesses in 1996 are discussed on the following pages.
POLYMERS, RESINS
AND MONOMERS
Polymers, Resins and Monomers (PRM) includes the financial results of
four businesses: Polymers and Resins, Monomers, Formulation Chemicals
and Petroleum Chemicals. Together, these businesses reported sales of
$2 billion, about 50 percent of total company sales in 1996. Earnings
totaled $228 million, a 23 percent increase over their 1995
performance.
POLYMERS AND RESINS
Polymers and Resins, the company's largest business, reported strong
unit volume growth for the year. Sales were up 8 percent. Overall
profitability improved as a result of higher volume, improved cost
control and lower average raw material costs. Polymers and Resins
also made a dramatic 54 percent improvement in its worldwide safety
record, and continued its unbroken string of customer satisfaction and
supplier awards.
After a slow start, demand returned in May as economies in North
America and Europe strengthened. The Latin American region reported
double-digit growth -- the result of several years' effort to build a
stronger polymer business there. Polymers and Resins also improved
its position in Asia-Pacific in spite of slow economies in Japan and
Australia.
Sales of acrylic emulsions for use in everything from household paints
to roofing materials improved significantly.
Sales of water-based materials used to make road-marking traffic
paints were strong again in 1996. This product is now firmly
established in the North American market, and had outstanding growth
in central Europe and the Nordic countries.
[ID -- PHOTO]
Sales of a wide range of acrylic emulsions used to make consumer
paints remained strong in the United States late into the year.
Rheology modifiers, used to thicken paints, also reported good growth.
Rohm and Haas gained a strong position in Asia-Pacific and Europe as a
supplier of acrylic coatings for roofing materials.
The Ropaque line of hollow-sphere pigments is used in both paint and
paper coatings. Sales in the paint market remained robust. Sales for
use in paper coatings were even stronger and accelerated throughout
the year. The increased sales reflect improvements in the paper
industry and increased penetration in that market.
Products for the adhesives market reported good growth in Europe and
Asia-Pacific. Sales in North America were weak early in the year,
primarily the result of an inventory correction in the cardboard box
industry, but showed signs of recovery as the year came to a close.
Price increases for vinyl acrylic emulsion products during the year
helped offset increased raw material cost pressure in this sector.
The business also made improvements in operations to enhance overall
profitability. The vinyl acrylic business is targeted for continued
growth into European and Asia-Pacific markets, where Rohm and Haas
intends to be a major supplier of vinyl acrylic emulsions.
Polymers and Resins began production at a 200-million-pound-per-year
emulsions facility in Texas, expanded operations in France, and
dedicated a new emulsion plant in Thailand. In 1997, a new plant will
come on stream in Indonesia, as will a significant expansion of the
plant in Taiwan.
OUTLOOK
Polymers and Resins continues to overcome the pressures of increasing
competition through productivity improvements and shortened cycle
times for bringing innovations to market. Modest economic growth in
the Americas and ongoing improvements in European and established
Asia-Pacific economies should allow Polymers and Resins to report good
growth again in 1997.
MONOMERS
The Monomers business is the primary source of raw materials for
two-thirds of the Rohm and Haas product portfolio. In addition,
Monomers sells acrylic and methacrylic monomers to the merchant
market. In 1996, it also took responsibility for the sales of Primene
amines, chemical intermediates used in petroleum refining,
metalworking, inks, lubricant additives, dyes and pigments.
Monomer sales were up 16 percent for the year. The increase was due
to more active participation in the merchant market and a temporary
increase at the end of the year as a result of production problems at
a competitor's plant. Productivity improved as the business
implemented a number of supply chain improvements. Profitability was
also helped by raw material costs that drifted downward during the
year. However, raw material costs began to increase again very late
in 1996.
Great strides were made in safety, measured by a 55 percent
improvement in the Monomers' safety record for 1996. In addition,
Monomers was one of two Rohm and Haas businesses to receive high marks
from external verifiers for its safety, health and environmental
processes.
Demand for acrylic acid increased as the year progressed, prompted by
excellent growth in other Rohm and
14
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Haas businesses, as well as higher demand from external sources.
Sales to producers of superabsorbent materials for baby diapers
remained strong throughout the year.
Production facilities ran extremely well in 1996, and construction
continued on the 220-million-pound-per-year acrylic acid expansion in
Texas. When this expansion is completed in mid-1997, total acrylic
acid capacity will exceed one billion pounds annually.
[ID -- BAR CHART GRAPHIC
VOLUME, SALES, AND EARNINGS]
The company purchased land in Belgium early in the fall. This will be
the site for any future expansion of acrylic acid capacity, though
there are no immediate plans to begin construction. Continued
improvements in existing acrylic acid facilities should allow the
company to meet any increased need for product until after the turn of
the century.
Primene amines continued to find acceptance in niche applications
around the world, and are expected to make a solid contribution to
this business' future profitability.
OUTLOOK
The Monomers business is prepared to match the company's
internal needs for product throughout 1997 and beyond. An expansion
of the acrylic acid facility in Deer Park, Texas will come on stream
at mid-year to help meet that demand. In addition, the business
intends to take a more active position in the merchant market whenever
conditions are favorable. Rising raw material costs early in 1997 are
a concern, and Monomers is prepared to implement selling price
increases as needed to maintain reasonable margins. Improved
productivity efforts linked to supply chain enhancements are expected
to continue.
FORMULATION CHEMICALS
Formulation Chemicals reported sales of $97 million in 1996, a 10
percent increase from 1995. Profitability improved significantly as a
result of an improved product mix, raw material cost declines and
overall cost control efforts.
The business had an excellent safety record, with just one injury
reported during the entire year. Formulation Chemicals also was one
of the first businesses in the United States to put its safety, health
and environmental practices under scrutiny by people outside of the
company. The results of the evaluation, which was put together by the
Chemical Manufacturers Association, was a strong endorsement of the
quality of the programs in place and the commitment of the employees
who implement them.
A higher-solids additive for use in laundry detergents was embraced by
customers in North America. This product offers the same boost in
laundry detergent cleaning power, but represents much less volume
shipped. It also enables the customer to save money in transportation
costs.
[ID -- PHOTO]
Years of building strong, dedicated relationships with global
detergent producers have helped Formulation Chemicals earn good sales
growth of detergent-based products in North America, Europe, Latin
America, and Asia-Pacific. In 1996, a renewed push for
phosphate-based detergents in Western Europe meant lower demand for
polymer products. Consequently, the NorsoHaas joint venture with EIf
Atochem saw a significant drop in sales to the detergent market.
NorsoHaas used 1996 as a transition year to increase its focus on
industrial and hard-surface cleaners and geographic growth in the
Middle East.
In contrast, there was good growth in Rohm and Haas sales of products
aimed at the personal care market in both Europe and North America. A
fixative for hair sprays that reduces the emission of volatile organic
compounds to the air, new thickeners for creams and lotions, and a
sunscreen polymer are among the products in early stages of
development.
The consolidation in the water-treatment industry continued in 1996.
Rohm and Haas is a key supplier of scale inhibitors and other products
for this industry. The company has been successful in driving costs
out of products for this market and offering increased service for
significant customers.
Products aimed for use in paper and mining industries saw good growth
in 1996, especially in Asia-Pacific and Latin American countries.
Asia-Pacific growth currently is being supported by manufacturing
operations in Taiwan. There are plans to begin production in Thailand
during 1998. Formulation Chemicals continues to evaluate new product
and business opportunities in ceramics additives.
OUTLOOK
The Formulation Chemicals business is galvanized for strong,
profitable growth. Continued lower unit manufacturing costs at plants
in the United States, Mexico, Taiwan and France are evidence of
ongoing efforts to improve productivity. Good growth in new product
offerings for both traditional markets, such as laundry detergents,
and new ones, including personal care products, bode well for the
future of this business.
15
<PAGE>
ROHMAX
Rohm and Haas Company's Petroleum Chemicals business reported $64
million in sales during the first six months of 1996.
Early in July, Rohm and Haas and Rohm GmbH created RohMax Additives
GmbH, a joint venture for the worldwide manufacture of petroleum
additive products. Fifty percent of the subsequent earnings of the
RohMax joint venture were reported on the Rohm and Haas income
statement as a component of "share of affiliate net earnings."
The 50-50 joint venture has been well received by customers, and a
clear strategy has been implemented for the development of product
lines and geographic growth. The combining of the two companies has
allowed consolidation of research and manufacturing facilities and
improved efficiency throughout the new organization. RohMax makes
viscosity-index improvers, pour point depressants and synthetic-based
stocks for use in transmission fluids, railway and aircraft engines,
hydraulic systems and crankcase oils. The venture already has a
well-earned reputation for on-time delivery and customer service.
Combined research, sales and manufacturing operations, shared
technologies and more than 100 years of combined customer service have
made the RohMax joint venture more efficient and faster at bringing
new technology to the marketplace. Continued cost savings are
expected for the venture in 1997.
RohMax is headquartered in Darmstadt, Germany.
PERFORMANCE
CHEMICALS
Performance Chemicals includes the results of three businesses:
Electronic Chemicals, Ion Exchange Resins and Biocides. Together,
these three businesses reported sales of $744 million for the year, or
19 percent of total company sales. Earnings of $82 million were up 19
percent over the 1995 figure.
ELECTRONIC CHEMICALS
Shipley Company sales of $358 million were up 7 percent from record
levels set the year before. Profitability was excellent in the key
North American and Asia-Pacific markets, but declined in Europe due to
cost inefficiencies.
[ID -- PHOTO]
Shipley's safety performance for the year was unchanged.
Shipley's Printed Wiring Board business provides critical processes
used to make sophisticated wiring boards that feature surface-mounted
microprocessors, integrated circuits and other electronic components.
In 1996, this business introduced its Multiposit process, which allows
new methods for making printed wiring boards. New applications for
ceramic packaging also were introduced.
The Microelectronics business offers enabling chemical technology for
both current and future generations of high-powered semiconductor
chips. Photoresist chemistry uses increasingly narrow beams of light
to capture exposed light patterns on silicon chips. By repeating the
process over and over again with different masks and coatings, the
silicon chip acquires the desired electrical properties.
In 1996, Shipley saw increasing acceptance for its deep-ultra-violet
(UV) technology, as well as ongoing demand for earlier generation
I-line and G-line chemistries. The company felt the impact of the
downturn in the semiconductor industry. However, because its products
are used primarily in very powerful, high-value applications, Shipley
was less affected than others in the industry.
Overall, Shipley continues to focus on faster cycle times as a way to
get innovations to market more quickly and to drive costs out of the
business. The ability to deliver new technology on a timely basis
remains a differentiating characteristic for successful companies in
the electronics industry.
OUTLOOK
Overall growth for Shipley is expected to remain strong -- double-digit
growth for Microelectronics, and moderate growth for the Printed
Wiring Board segment. Achieving this level of growth will depend upon
increasing demand for electronics in applications ranging from cars,
office and home computers, as well as "smart" home appliances and
entertainment applications.
BIOCIDES
The Biocides business reported moderate volume growth for the year.
Sales were flat with 1995 levels, reflecting currency effects,
particularly in Japan, lower bromine biocide sales in anticipation of
the end of the joint venture with Dead Sea Bromine and overall
softness in European markets.
In 1995, Biocides reported just one employee injury, which earned them
the best
[ID -- BAR CHART GRAPHIC
VOLUME, SALES, AND EARNINGS]
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safety record in the company. In 1996, a handful of injuries caused
overall safety performance to decline.
Newer, growth-oriented products continued to do well. Most notable in
this category was Sea-Nine biocide, which is used in marine paints and
plastic applications. Sea-Nine continues to be embraced as an
environmentally friendly alternative to tin-based products currently
used in marine applications.
In July, Sea-Nine's novel chemistry, which degrades quickly and
harmlessly in sea water, was recognized with one of the U.S.
government's very first Green Chemistry Challenge Awards. This award
is co-sponsored by the country's Presidential administration and
Environmental Protection Agency and is awarded to companies for
products that reduce environmental hazards through technology.
The business's core isothiazolone products grew well in Latin America
and in Asia-Pacific, most visibly in China, where Kathon biocide
increasingly is used to control bacteria in water stored in cooling
towers. Core products for industrial applications did not do as well
as expected in North America and Europe, primarily the result of
slower economies during the first half of the year. Demand for these
products was increasing in all regions as the year came to a close.
The joint venture to make and sell bromine-based biocides with Dead
Sea Bromine came to an end in December. Rohm and Haas is actively
seeking other arrangements and sources of supply for bromine-based and
other biocide chemistries to further expand its range of product
offerings. On the manufacturing side, Biocides reported a successful
startup of a new plant in Bayport, Texas during the first quarter.
This plant provides much needed capacity for both Sea-Nine and Kathon
biocide products, and serves growing markets around the world.
Additional capacity increases and process improvements are under way
at a larger, world-source plant in Jarrow, England, which makes
biocides for industrial applications and mildewcides for consumer
paints.
OUTLOOK
Growth should be back on track in all regions in 1997, as long as
economies in North America and Europe continue at a steady pace.
Demand is expected to remain strong for Sea-Nine applications in
marine paints, plastics, paints and water treatment. If current
demand trends hold in the Asia-Pacific region, the growth will
continue in emerging economies in India and Southeast Asia. Volume
growth is expected to continue in Japan, though sales there could
continue to be affected by unfavorable currency translations.
ION EXCHANGE RESINS
Profitability returned for the Ion Exchange Resins business in 1996.
Sales remained essentially flat with 1995 levels as a result of
unfavorable currency impacts in Japan and Europe. However, ongoing
efforts to improve efficiency and productivity enabled Ion Exchange to
report earnings growth and to generate considerable cash.
People around the world kept plants running smoothly, made significant
strides in cost savings initiatives, streamlined distribution channels
and increased sales of higher-value products, including those for
pharmaceutical and ultrapure water applications.
Ion Exchange also reported a dramatic improvement in its safety
record, with 40 percent fewer injuries reported for the year.
Ion exchange resins are used to purify water, food and beverages, and
to increase the efficiency of utility plant operations. Special,
high-grade resins are sold for use in pharmaceutical applications.
[ID -- PHOTO]
Pharmaceutical-grade resins for use in medications designed to reduce
cholesterol and help people stop smoking are just two applications
which saw good sales growth in 1996. These products, along with
others designed for the pharmaceutical market, are made at the
company's state-of-the-art manufacturing facility in Chauny, France.
Rohm and Haas also provides resins to those who need ultrapure water
to make the semiconductor chips used in today's growing computer
industry. Sales in this market remained strong throughout the year,
especially in Asia-Pacific countries where much of the world's
semiconductors are made.
There was strong demand for ion exchange resins used in home
water-treatment systems in both Europe and North America. The trend
in this market is for small, stand-alone units that can be placed on a
countertop or inside a refrigerator. Rohm and Haas resins are shipped
from the factory in these units and are a critical component of the
customer's replacement cartridges. The business expects demand from
this sector to continue through the rest of the decade.
Rohm and Haas also saw increased installations of its Amberpack resins
systems, which are used by municipal water-treatment facilities.
These systems, along with Amberjet uniform particle-size resins, are
used most widely in water-treatment applications. Amberpack systems
also are used in the petrochemical, semiconductor and refining
industries.
OUTLOOK
While Rohm and Haas continues to offer leading technology and
high-quality products, it also has recognized the need to simplify
product offerings, reduce costs and compete strongly on price as the
market becomes increasingly competitive. The business made
significant strides in these areas in 1996, and expects to make
progress in 1997 that will continue to drive up profitability and
generate strong cash.
PLASTICS
The two Plastics businesses, Plastics Additives and AtoHaas, reported
combined sales of $701 million for 1996, or 18 percent of total
company sales. Combined earnings of $54 million were 19 percent lower
than they were in 1995.
PLASTICS ADDITIVES
Plastics Additives makes polymers that improve the performance
properties and processability of polyvinyl chloride (PVC) and various
17
<PAGE>
engineering thermoplastics. They are grouped into three product
families: acrylic processing aids, acrylic impact modifiers and methyl
methacrylate butadiene styrene (MBS) impact modifiers. These
additives are used in a variety of consumer, building, packaging and
industrial applications.
Sales of $394 million were up 3 percent from 1995. Safety performance
slipped. The business intends to make improvements in 1997.
[ID -- BAR CHART GRAPHIC
VOLUME, SALES, AND EARNINGS]
[ID -- PHOTO]
Weak demand in the building, construction and automotive sectors
worldwide forced the plastics industry into an economic slump beginning
in mid-1995. Recovery began for North America in mid-1996, driven by
the construction, film and sheet packaging markets. European markets
soon followed; Asia-Pacific picked up during the fourth quarter.
Pricing reached historic lows in the United States and experienced
significant drops in Europe due to industry overcapacity, as well as
intense economic pressure on customers in downstream markets.
There was moderate growth in PVC window applications and vinyl siding
in the second half of the year, which led to strong sales of Paraloid
acrylic modifiers. A new acrylic modifier for foamed PVC found new
uses in siding, sewer and conduit pipe, windows and fencing. Foamed
PVC is increasingly accepted in the market because it is lighter in
weight, lower in cost and has thermal and acoustic insulation
benefits. In Europe, the shift continued away from PVC for bottling
applications to an alternate-base plastic which does not require
modifiers. In contrast, PVC film and sheet packaging markets
strengthened. Sales of MBS impact modifiers were strong in Europe,
but weaker in North America.
Engineering resin additives, which are used in automotive bumpers and
other specialty applications, showed a decline due to model changes in
the automotive industry.
Plastics Additives continued its worldwide 55,000-metric-ton expansion
program started in 1994. A new spray dryer at Louisville, Kentucky
increased capacity for acrylic processing aids and improved their
physical properties -- lower dust and better flowability. Nineteen
ninety-six was a year for strong manufacturing discipline, quality
improvements and progress on productivity initiatives including
mechanical reliability and continued cost reduction.
OUTLOOK
Plastics Additives intends to grow, in spite of a very competitive,
price-sensitive environment. The business expects to see slow to
moderate growth as economies improve and will continue internal
efforts to strengthen the profitability of the business and increase
its presence in key markets around the world.
ATOHAAS
AtoHaas sales and unit volume were about even with 1995 levels,
excluding Europe. Sales for AtoHaas Europe were down significantly,
due to a severely depressed market. As a result, AtoHaas Europe
reported a loss for the year.
AtoHaas Americas was confronted with soft markets during the first six
monthsof 1996, but saw demand strengthen as the year progressed.
Ongoing manufacturing productivity improvements, along with lower raw
material, selling, administrative and research costs, enabled the
business to maintain profit margins and overcome the effect of lower
prices for acrylic sheet products in North America.
Improvement in the business' safety record remains a top priority for
AtoHaas Americas, which reported one more work-related injury in 1996
than it did in 1995.
Demand for acrylic sheet was down slightly for the year, except in
specialty applications and in sales to the point-of-purchase display
market. Acrylic resin sales to the automotive sector for use in car
taillights and other automotive parts improved as the year progressed.
The full-year comparison was even with 1995, and mirrors the
experience of the output by the U.S. auto industry.
[ID -- PHOTO]
Sales to Asia-Pacific were down from last year as the weak yen
affected selling prices in Japan. New business in video laser discs
established a growth opportunity for the future.
AtoHaas Europe, in which Rohm and Haas has a 49 percent interest, had
a difficult year in a severely depressed European market. This entity
reported losses throughout 1996, but the magnitude of the losses
decreased in the third and fourth quarters of
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the year. AtoHaas Europe announced restructuring plans early in
January that, when implemented, will effect a substantial reduction in
costs in Europe, including the closure of less efficient manufacturing
operations and a reduction in personnel. Rohm and Haas took a one-time,
pre-tax charge of $4 million in 1996 to pay for its portion of the
restructuring costs.
OUTLOOK
The financial picture for AtoHaas Europe will improve as 1997
progresses. The improvement will result from restructuring efforts,
the transfer of some acrylic resin manufacture from the U.S. to a new,
state-of-the-art facility in Rho, Italy, and improved economic
conditions in Europe.
With continued growth in the U.S. economy, AtoHaas Americas should
report a good year in 1997. Efforts to improve productivity will
continue to enhance profitability. Growth in Asia-Pacific is expected
to remain strong in emerging markets.
AGRICULTURAL
CHEMICALS
In 1996, the Agricultural Chemicals business built upon its very
successful 1995 performance. Sales of $514 million were 3 percent
higher than in 1995. Earnings, including a gain made through a land
sale in Japan, were $61 million, 11 percent higher than 1995 results.
Both established and new, growth-oriented products contributed to the
business' success. Agricultural Chemicals' bedrock product, Dithane
fungicide, had an especially strong year. Dithane manufacturing
plants set an all-time production record, while keeping costs low.
Good year-to-year Dithane profit comparisons boosted the business'
performance in 1996.
Goal experienced sales growth in all regions in 1996. North America
contributed the strongest growth, based on application in newly
planted grapes and favorable weather conditions in the western United
States.
Other new products lived up to expectations, although sales of Confirm
insecticide in the United States declined due to reduced insect
pressure on cotton. Confirm (sold under the tradename Mimic outside
the United States) continues to make inroads into new markets,
particularly in the Asia-Pacific and European regions. This
reduced-risk pesticide earned several new registrations in 1996 and
more are anticipated in 1997.
Mach 2 insecticide, a sister product to Confirm, is being developed,
registered and commercialized by RohMid L.L.C., a joint venture formed
between Rohm and Haas and American Cyanamid. U.S. registration is
expected early in 1997.
[ID -- PHOTO]
The pyridines business, acquired from Monsanto in 1994, is progressing
well. Dimension herbicide showed solid growth. Registration of Visor
herbicide is expected in several markets in 1997.
[ID -- PHOTO]
Early in the year some unique properties were discovered in
thifluzamide, which was part of the pyridine business acquisition.
Thifluzamide (to be sold under the tradenames Greatam in Japan and
Pulsor worldwide) could become an important fungicide for controlling
rice sheath blight in Japan, where registration is expected in late 1997.
While sales of Indar fungicide improved in 1996, market penetration
was less than expected due to freezing weather that ruined the peach
crop in the United States. This fungicide's use on cereal crops in
Europe was reduced, but there was some overall sales growth in the
region. Product demand was strong in the Latin American banana
market.
Rohm and Haas welcomed the passage of the Food Quality Protection Act
in 1996, which modernizes U.S. food safety law. The act repeals the
Delaney Clause, a 1958 food safety provision that set a zero-risk
cancer standard for pesticide residues on processed foods, and
replaces it with a unified safety standard for raw and processed
foods.
[ID -- BAR CHART GRAPHIC
VOLUME, SALES, AND EARNINGS]
OUTLOOK
The Agricultural Chemicals business expects continued good growth and
ongoing demand for its technology. With new products entering the
market, solidly performing mature products, and a full product
development pipeline, the outlook for the Agricultural Chemicals
business is bright for 1997 and beyond.
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Corporate Responsibility
[ID -- PHOTO]
In 1996, Rohm and Haas improved the safety of its operations, furthered
its commitment to the communities in which it operates and diminished
the size of its footprint on the world environment. These efforts, and
more, fall under the umbrella of Responsible Care.
Responsible Care is a worldwide initiative which began more than a
decade ago. Every Rohm and Haas facility is an active part of this
global campaign to ensure that the company meets or exceeds explicit
performance standards.
A RESPONSIBLE CITIZEN
One example of innovative progress is taking place in Geelong,
Australia, which has signed an Environmental Improvement Plan (EIP), a
pledge to minimize the environmental impact of its operations. This EIP
was developed with help from local community residents, local
government, Australia's Environmental Protection Authority and the
national chemical trade association. In return for its EIP pledge, the
Geelong plant hopes to receive an "accredited license" from the national
environmental authorities that will allow more autonomy in managing its
operations.
[ID -- BAR CHART GRAPHIC]
INVITING OTHERS
TO EVALUATE
OUR PRACTICES
For the first time, Rohm and Haas invited outside verifiers to conduct a
comprehensive review of its safety, health and environmental practices.
Two businesses -- Monomers and Formulation Chemicals -- their U.S. plants,
and the company's headquarters operations were evaluated under the
Responsible Care Management Systems Verification (MSV) process overseen
by the U.S. Chemical Manufacturers Association. In a closing session,
the evaluating panel praised the company for the integrity of its
processes, and the commitment to the principles of Responsible Care that
was evident at all levels of the organization.
EMPLOYEE HEALTH
AND SAFETY
Nineteen ninety-six was the safest year ever for Rohm and Haas
employees. The occupational injury and illness (OII) rate dropped to
1.5, a 24 percent improvement over 1995. In real terms, 58 fewer people
were injured during the year, and employees at 31 facilities worked
without any injury at all. The U.S. improvement in safety was
acknowledged in 1996 when Rohm and Haas received the Lammot du Pont
Achievement Award from the Chemical Manufacturers Association.
POLLUTION PREVENTION
Six years ago, Rohm and Haas pledged that its U.S. facilities would
achieve a 75 percent reduction in air emissions by the end of 1996.
When the 1996 data is reported to the U.S. Environmental Protection
Agency (EPA) in mid-1997, it will be clear that the company has achieved
this goal.
In fact, Rohm and Haas reduced emissions to air, water and land from its
U.S. facilities by 60 percent between 1987 and 1995. During this same
period, plant production rose by more than 60 percent. Early in 1996,
the company earned an "Environmental Champion Award" from the EPA for
achieving more than a 50 percent reduction in emissions of a specific
group of chemicals.
LANDFILL REMEDIATION
Rohm and Haas again made good progress toward ending its involvement in
landfills that were closed in the 1960s and 70s. In 1997, the company
will complete the restoration of the Lipari site in Pitman, New Jersey.
Jogging paths and recreational facilities will surround the lake that
was once part of the number-one Superfund site in the United States.
Progress also has been made at sites in Woodland, New Jersey; Whitmoyer,
Pennsylvania; and at a company-owned site in Bristol, Pennsylvania.
Additional information about the financial impact of environmental
remediation can be found on page 28 of this report.
OUTLOOK
Rohm and Haas will concentrate on additional efforts to improve the
safety of its workplace, continue environmental progress and extend its
relationships with local communities.
For manufacturing facilities, one goal is attaining certification under
international standards for environmental performance. ISO 14001
certification or its equivalent has already been achieved by two plants
in Europe, and certification is expected early in the year for plants in
the Latin American and Asia-Pacific regions.
20
<PAGE>
1996 FINANCIAL REVIEW
CONTENTS
MANAGEMENT DISCUSSION AND ANALYSIS
Results of Operations (1996, 1995 and 1994) 22
Summary by Business Group (1996, 1995 and 1994) 22
Liquidity, Capital Resources and Other Financial Data 27
Quarterly Results of Operations 32
CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies 34
Statements of Consolidated Earnings 35
Statements of Consolidated Cash Flows 36
Consolidated Balance Sheets 37
Statements of Consolidated Stockholders' Equity 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Acquisitions and Dispositions of Assets 39
Note 2 Investments 39
Note 3 Other Expense (Income), Net 39
Note 4 Financial Instruments 39
Note 5 Income Taxes 41
Note 6 Industry Segment Reporting and
Information about Foreign Operations 42
Note 7 Pension Plans 44
Note 8 Employee Benefits 45
Note 9 Accounts Receivable, Net 46
Note 10 Inventories 46
Note 11 Prepaid Expenses and Other Assets 46
Note 12 Land, Buildings and Equipment, Net 46
Note 13 Other Assets, Net 47
Note 14 Notes Payable 47
Note 15 Long-Term Debt 47
Note 16 Accounts Payable and Accrued Liabilities 48
Note 17 Other Liabilities 48
Note 18 Stockholders' Equity 48
Note 19 Stock Compensation Plans 49
Note 20 Leases 50
Note 21 Contingent Liabilities, Guarantees and
Commitments 51
Report on Financial Statements 53
Independent Auditors' Report 53
Eleven-Year Summary of Selected Financial Data 54
21
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS --
1996, 1995 and 1994
Earnings in 1996 were $363 million, 24% higher than the $292 million
reported in 1995. Earnings per common share were $5.45, up from $4.22
the previous year. Sales of $3,982 million were 3% higher than 1995,
reflecting 6% volume growth offset by 1% lower selling prices and a 15%
decline in the Japanese yen. European currencies were down slightly for
the year. All regions and most businesses contributed to the higher
volume. Earnings increased because of solid volume growth which started
about mid-year and continued strongly through the fourth quarter, 7%
lower raw material prices, tight cost control and the turnaround of the
ion exchange resins business. The earnings gain was dampened by lower
selling prices and losses from AtoHaas Europe.
The repurchase of 4.4 million common shares during 1996 contributed $.18
of the per-share increase. Current year earnings included an after-tax
gain of $.06 per common share for the sale of land and retroactive tax
credits, net of asset writedowns and restructuring charges. The 1995
results were reduced by a $.25 per common share charge for additional
potential liability related to the cleanup of a waste site. Absent
these items, earnings per common share increased 21%.
Earnings in 1995 totaled $292 million, 11% higher than the $264 million
reported in 1994. Earnings per common share were $4.22, up from $3.79
the year before. Charges for waste site accruals in 1995 were $.43 per
common share compared to $.30 in 1994. The 1995 amount included a $.25
first-quarter charge for the cleanup of the Whitmoyer waste site. Sales
of $3,884 million were 10% higher than 1994, though volume decreased 2%.
The sales growth reflected 4% higher selling prices, a higher-priced
product mix, 9% stronger European currencies and a 10% stronger Japanese
yen. Volume declined as a result of the sale of several small
businesses, shedding unprofitable products and a slowdown in certain
end-use markets. The earnings growth was due to a more profitable
product mix, cost control programs and favorable foreign currency
movements which offset the negative impact of 18% higher raw material
prices. In 1995, the benefits of increased productivity and cost
control efforts offset the impact of inflation on the company's
operating results.
These and other factors affecting earnings are discussed at right. They
are summarized on a per-share basis on page 26.
SUMMARY BY BUSINESS GROUP
(Refer to table on page 23)
The company's operations are organized by worldwide business groups.
A description of each business group's operations can be found in the
business review section of this report.
POLYMERS, RESINS AND MONOMERS (PRM) had 1996 earnings of $228 million,
up 23% from 1995. Sales increased 7% and volume grew 8%, excluding the
impact of the Petroleum Chemicals operations which became part of the
RohMax joint venture effective July 3, 1996 (see Liquidity section).
Volume growth reflected strong performances by Architectural Coatings in
North America and Latin America, and by Industrial Coatings and
Construction Products in all regions. Earnings increased due to volume
growth and lower raw material prices, but were held back by reduced
selling prices and startup expenses associated with a new emulsion
facility in Houston, Texas. Earnings were also reduced by a $7 million
after-tax charge for a plant writedown in the U.S. and restructuring
costs in Japan.
PRM earnings in 1995 were $185 million, down 1% from 1994. Sales
increased 9%, though volume declined 2% (excluding the RohMax
restatement), due to higher selling prices, a higher-priced product mix
and stronger currencies in Europe and Japan. Volume was lower due to
the sale of the styrene butadiene latex business, shedding unprofitable
products and the slowdown in certain end-use markets. Architectural
Coatings and Adhesives had strong volume growth in Europe and
Asia-Pacific and Industrial Coatings had volume gains in all regions.
Architectural Coatings reported lower volume in North America due to a
slowdown in the construction markets and shedding unprofitable products.
Earnings were hurt by higher raw material prices and costs resulting
from a fire in one of the acrylic acid units at Houston, Texas, earlier
in the year.
PERFORMANCE CHEMICALS reported 1996 earnings of $82 million, up 19% from
1995 earnings of $69 million. Sales increased 3% and volume grew 2%,
excluding the effect of the sale in 1995 of Plaskon, a small electronic
chemicals subsidiary. Sales were up because of a higher-priced product
mix, offset by lower selling prices and weaker currencies in Europe and
Japan. Volume gains were restrained by lower shipments by Shipley
Company in North America due to a slowdown in the electronics industry
during the middle of the year. Performance Chemicals earnings growth
was fueled by a turnaround of Ion Exchange Resins which reported
earnings in 1996 compared to losses in 1995. This improvement is due to
a significant reduction in operating costs, higher volume and declining
raw material prices, though selling prices continued to be lower than
the prior year. Performance Chemicals earnings were reduced by lower
selling prices, higher operating costs due to the startup of a new
biocides production facility, unfavorable currency movements, and
increased competition and higher operating costs in Europe for Shipley
Company.
Performance Chemicals 1995 earnings were $69 million, up sharply from
1994 earnings of $43 million. Sales increased 11%
22
<PAGE>
<TABLE>
<CAPTION>
NET SALES BY BUSINESS GROUP AND CUSTOMER LOCATION
- -----------------------------------------------------------------------------------------------------------------------------
POLYMERS, RESINS PERFORMANCE AGRICULTURAL
AND MONOMERS CHEMICALS PLASTICS CHEMICALS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
(Millions
of dollars) 1996 1995+ 1994+ 1996 1995+ 1994+ 1996 1995 1994 1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North
America $1,317 $1,277 $1,245 $288 $272 $235 $378 $384 $368 $139 $141 $119 $2,122 $2,074 $1,967
Europe 378 369 307 207 204 173 252 238 203 169 165 143 1,006 976 826
Asia-
Pacific 221 205 164 226 245 217 44 47 40 101 100 93 592 597 514
Latin
America 107 102 100 23 19 19 27 24 24 105 92 84 262 237 227
====================== ================== ================== ================== ========================
Total $2,023 $1,953 $1,816 $744 $740 $644 $701 $693 $635 $514 $498 $439 $3,982 $3,884 $3,534
- -----------------------------------------------------------------------------------------------------------------------------
+The operations of the Petroleum Chemicals business have been
reclassified from Performance Chemicals to Polymers, Resins and Monomers
due to the RohMax joint venture. Amounts have been restated for 1995 and
1994 to conform to current year presentation.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF 1992-1996 RESULTS BY BUSINESS GROUP
- -------------------------------------------------------------------------
(Millions of dollars) 1996 1995+ 1994+ 1993+ 1992+
- -------------------------------------------------------------------------
NET SALES
Polymers, Resins
and Monomers $2,023 $1,953 $1,816 $1,682 $1,576
Performance Chemicals 744 740 644 599 531
Plastics 701 693 635 579 573
Agricultural Chemicals 514 498 439 409 383
==============================================
Total $3,982 $3,884 $3,534 $3,269 $3,063
- -------------------------------------------------------------------------
NET EARNINGS*
Polymers, Resins
and Monomers $ 228 $ 185 $ 187 $ 137 $ 141
Performance Chemicals 82 69 43 35 26
Plastics 54 67 61 1 42
Agricultural Chemicals 61 55 42 41 27
Corporate (62) (84) (69) (88) (62)
===============================================
Total $ 363 $ 292 $ 264 $ 126 $ 174
*Excludes charges for the cumulative effect of accounting changes in
1993 and 1992.
- -------------------------------------------------------------------------
RONA
Polymers, Resins
and Monomers 14.7% 11.7% 12.7% 10.1% 10.1%
Performance Chemicals 9.8 8.6 5.2 4.4 3.2
Plastics 9.3 10.9 10.7 0.2 6.5
Agricultural Chemicals 15.1 14.7 11.6 14.1 8.4
Corporate (11.2) (15.6) (11.0) (15.7) (23.7)
=============================================
Total 9.9% 8.1% 7.6% 4.3% 6.1%
- -------------------------------------------------------------------------
SUMMARY OF 1992-1996 RESULTS BY CUSTOMER LOCATION
- -------------------------------------------------------------------------
(Millions of dollars) 1996 1995+ 1994+ 1993+ 1992+
- -------------------------------------------------------------------------
NET SALES
North America $2,122 $2,074 $1,967 $1,845 $1,678
Europe 1,006 976 826 744 788
Asia-Pacific 592 597 514 458 383
Latin America 262 237 227 222 214
==============================================
Total $3,982 $3,884 $3,534 $3,269 $3,063
- -------------------------------------------------------------------------
NET EARNINGS*
North America $ 235 $ 199 $ 198 $ 143 $ 106
Europe 96 102 75 30 80
Asia-Pacific 62 58 43 24 30
Latin America 32 17 17 17 20
Corporate (62) (84) (69) (88) (62)
==============================================
Total $ 363 $ 292 $ 264 $ 126 $ 174
*Excludes charges for the cumulative effect of accounting changes in
1993 and 1992.
- -------------------------------------------------------------------------
RONA
North America 13.9% 12.2% 12.0% 9.6% 6.0%
Europe 11.2 11.9 9.7 4.1 10.6
Asia-Pacific 9.8 8.4 6.8 4.2 6.0
Latin America 15.9 8.7 9.8 10.2 12.3
Corporate (11.2) (15.6) (11.0) (15.7) (23.7)
=============================================
Total 9.9% 8.1% 7.6% 4.3% 6.1%
- -------------------------------------------------------------------------
The four geographic regions reflect the company's major marketing
profit centers relative to customer location.
Corporate includes non-operating items such as interest income and expense,
corporate governance costs and corporate exploratory research.
See page 30 for definition of RONA.
+ 1992-1995 amounts have been restated for the following items:
1. Corporate governance costs, previously reported in the business and
regional results, are now reported in Corporate.
2. Corporate exploratory research, previously reported in Performance
Chemicals and North America, is now reported in Corporate.
3. The operations of the Petroleum Chemicals business have been moved from
Performance Chemicals to Polymers, Resins and Monomers.
23
<PAGE>
and volume grew 5%, excluding the effect of the RohMax restatement and
the sale of Plaskon, a small electronic chemicals subsidiary, because of
a higher-priced product mix, higher selling prices and stronger foreign
currencies. The earnings growth was fueled by a stellar performance by
Shipley, the company's electronic chemicals subsidiary. Shipley
reported double-digit increases in volume and sales and more than
doubled its 1994 earnings as a result of worldwide growth of the
semiconductor market. Ion Exchange Resins reported lower losses in 1995
as a result of higher volume in all regions, tight cost control, lower
inventory writeoffs and the strength of the Japanese yen. However,
selling prices continued to be lower than the prior year. Biocides
benefited from strong volume growth worldwide and the strengthening of
foreign currencies.
PLASTICS 1996 earnings were $54 million, down 19% from last year.
Though volume increased 6%, sales only grew 1%, reflecting lower selling
prices and weaker currencies in Europe and Japan. The earnings decline
was due to losses from AtoHaas Europe resulting from weak market
conditions characterized by lower volume, falling prices and higher raw
material prices. The company's share of AtoHaas Europe's losses also
included $4 million of costs related to restructuring their operations.
AtoHaas Americas had flat results due to falling selling prices, higher
operating costs and a $2 million after-tax charge for a plant writedown
in the U.S. Plastics Additives reported earnings growth fueled by a
strong performance in Europe where volume was up and unit operating
costs and selling and administrative costs were below 1995 levels.
Plastics reported earnings in 1995 of $67 million, up 10% from 1994
earnings. Sales increased 9%, though volume declined 5%, reflecting
higher selling prices and stronger European currencies. The earnings
growth was due to a strong performance by AtoHaas Americas and its
affiliates resulting from volume gains in Europe and Asia-Pacific.
Plastics Additives reported lower volume across all regions as a result
of the slowdown in construction and automotive markets and production
outages earlier in the year at the Louisville, Kentucky production
facility.
AGRICULTURAL CHEMICALS earnings in 1996 were $61 million, 11% higher
than 1995. Sales increased 3%, due to 7% higher volume, offset by a
lower-priced product mix and weaker currencies in Europe and Japan.
Volume rose due to increased shipments of Dithane fungicide in
Asia-Pacific because of reduced drought conditions and in Latin America
for use on bananas. Goal herbicide had higher volume in North America
due to approval for use on additional crops. The earnings improvement
reflects higher volume and selling prices, lower operating costs and a
$6 million after-tax gain on the sale of land in Japan previously used
for agricultural research. Weaker currencies in Japan and Europe and
higher selling, administrative and research costs to support new product
development and market introductions held back earnings growth.
Agricultural Chemicals 1995 earnings were $55 million, up 31% from 1994.
Sales of $498 million were 13% higher, despite flat volume, due to a
higher-priced product mix and stronger currencies in Europe and Japan.
Mimic, a new insecticide used to control caterpillar infestations,
reported strong growth in North America and Asia-Pacific. Systhane
fungicide had volume gains in North America due to heavy disease
pressure on California grapes and in Europe and Asia-Pacific due to new
promotions. Total volume was flat due to lower shipments of Dithane
fungicide in Europe and Asia-Pacific caused by softness in demand and
increased competition. The earnings comparison improved due to a more
profitable product mix, stronger currencies in Japan and Europe and
reduced asset writeoffs recorded in 1995 compared to 1994.
Corporate expenses totaled $62 million in 1996, compared with $84
million in 1995 and $69 million in 1994. The 1995 period included an
after-tax charge of $17 million for additional potential liability
related to the cleanup of the Whitmoyer waste site. Interest expense
was flat in 1996 compared to 1995. Interest expense declined in 1995
from 1994 due to lower interest rates and debt levels and higher
capitalization of interest expense as part of construction in progress.
[ID -- LINE CHART GRAPHIC]
GROSS PROFIT, SAR, OPERATING EARNINGS
24
<PAGE>
PHYSICAL VOLUME of shipments increased by 6% in 1996 from 1995 and
decreased by 2% in 1995 from 1994:
- -----------------------------------------------------------------
Percent change
BUSINESS GROUP 1996 vs 1995 1995 vs 1994
- -----------------------------------------------------------------
Polymers, Resins and Monomers* 6% (2)%
Performance Chemicals -- 17
Plastics 6 (5)
Agricultural Chemicals 7 --
===========================
Worldwide 6% (2)%
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Percent change
CUSTOMER LOCATION 1996 vs 1995 1995 vs 1994
- -----------------------------------------------------------------
North America 4% (5)%
Europe* 6 4
Asia-Pacific 12 14
Latin America 6 2
===========================
Worldwide 6% (2)%
- -----------------------------------------------------------------
*Polymers, Resins and Monomers volume would have increased 8% and Europe
would have increased 9% in 1996, excluding the impact of the Petroleum
Chemicals business, now accounted for through the RohMax joint venture.
The 1995 vs. 1994 comparison has been restated for the RohMax joint
venture.
SUMMARY OF CONSOLIDATED RESULTS
The graph on page 24 shows the historical trend of gross profit,
selling, administrative and research expenses and operating earnings as
a percent of sales.
An analysis of gross profit changes is summarized on a per-share basis
on page 26.
NET SALES of $3,982 million were 3% higher than 1995 due to 6% volume
gains, offset by 1% lower selling prices and a 15% weaker Japanese yen.
Volume grew due to strengthening economies around the world and the
resurgence of the construction and automotive markets. All regions and
most businesses contributed to the volume growth. Sales in 1995 of
$3,884 million were 10% higher than 1994, and volume decreased 2%. The
sales growth reflects 4% higher selling prices, a higher-priced product
mix and stronger currencies in Europe and Japan. Volume declined as a
result of the sale of several small businesses, shedding unprofitable
products and a slowdown in certain end-use markets.
RAW MATERIAL PRICES started declining in the fourth quarter of 1995 and
continued downward throughout most of 1996, though the downward trend
moderated in the fourth quarter due to an increase in natural gas and
oil prices. This decline followed a sharp escalation of raw material
prices during the second half of 1994 through the third quarter of 1995.
Prices for raw materials, including styrene, propylene, acetone and
butanol, were 7% lower in 1996 compared to increases of 18% in 1995 and
4% in 1994, excluding currency impacts. Prices declined in 1996 as
tightness of supply in the petrochemical markets eased. The charts
below and on page 26 identify year-to-year changes for average unit raw
material costs and average unit selling prices based on the company's
product mix.
[ID -- LINE CHART GRAPHIC]
SALES AND VOLUME INDICES
[ID -- LINE CHART GRAPHIC]
RAW MATERIALS COST INDEX
25
<PAGE>
GROSS PROFIT increased to $1,395 million in 1996, up 5% from 1995. The
gross profit margin was 35%, 34% and 36% in 1996, 1995 and 1994,
respectively. The gross profit margin increased in 1996 because of
declining raw material prices and higher volume. One percent lower
selling prices and a plant writedown in the U.S. and restructuring costs
in Japan hurt margins. The gross profit margin decreased in 1995
because the escalation of raw material prices outpaced selling price
increases, the benefits of productivity improvements and lower waste
accruals recorded as part of gross profit. Costs resulting from a fire
in one of the acrylic acid units at Houston, Texas, earlier in 1995 also
hurt margins.
SELLING, ADMINISTRATIVE AND RESEARCH (SAR) expenses in 1996 were up 3%
from 1995, excluding the impact of currency movements and the effect of
the RohMax joint venture (see Liquidity section) in 1996. Spending
increased due to higher bonus and insurance costs and the cost of new
product introductions. SAR expenses in 1995 were up less than 2% from
1994, excluding the impact of stronger foreign currencies and
divestitures in 1995 and the writeoff of a research facility in 1994.
The flat spending in 1995 reflects the success of internal cost control
efforts offsetting higher spending for Agricultural Chemicals and
Asia-Pacific region.
INTEREST EXPENSE of $39 million in 1996 was flat compared to 1995.
Interest expense in 1995 decreased $7 million from 1994, due to lower
interest rates and debt levels and higher capitalization of interest due
to higher capital spending.
SHARE OF AFFILIATE NET LOSSES were $12 million in 1996 compared to
earnings of $5 million in 1995 and $2 million in 1994. The dismal
results were due to AtoHaas Europe which experienced operating losses
resulting from weak market conditions characterized by lower volume,
falling selling prices and increasing raw material prices. The losses
also included $4 million of write-offs and costs related to
restructuring operations at AtoHaas Europe.
OTHER INCOME, NET, was $4 million, compared to net other expenses of $48
million in 1995 and $24 million in 1994. The current year included a
gain of $10 million on the sale of land in Japan and $6 million of
royalty income offset by $8 million of severance and early retirement
costs and $5 million of minority interest. The 1995 period included $26
million for additional potential liability related to the cleanup of the
Whitmoyer waste site, $16 million for severance and early retirement
costs and $4 million for the settlement of litigation. The 1994 expense
included $17 million of severance and early retirement costs related to
restructuring operations.
THE EFFECTIVE TAX RATE was 32%, down from 34% in 1995 and 35% in 1994.
The decreases in 1996 and 1995 were due to U.S. tax credits and
non-taxable currency gains. The 1996 period also included a $10 million
retroactive tax credit on sales outside the United States.
ANALYSIS OF CHANGE IN PER-COMMON-SHARE EARNINGS
CURRENT YEAR RELATIVE TO YEAR EARLIER
- -----------------------------------------------------------------------
$/Common Share
(after tax)
---------------
1996 1995
- -----------------------------------------------------------------------
GROSS PROFIT
Selling prices $(.33) $ 1.27
Raw material prices .75 (1.66)
Physical volume and product mix .73 .67
Plant writedown and restructuring charges (.12) --
Other manufacturing costs (.31) (.11)
Currency effect on gross profit (.12) .46
===============
Increase in gross profit .60 .63
- -----------------------------------------------------------------------
OTHER CAUSES
Selling, administrative and research expenses* (.08) (.17)
Share of affiliate earnings (losses),
excluding restructuring costs (.20) .04
Asset dispositions and affiliate restructuring costs .03 .09
Certain waste disposal site cleanup costs .25 (.25)
Retroactive tax credit on sales outside of the U.S. .15 --
Reduction in outstanding shares of common stock .18 --
Other .30 .09
===============
Increase (decrease) from other causes .63 (.20)
- -----------------------------------------------------------------------
Increase in per-common-share earnings $1.23 $ .43
- -----------------------------------------------------------------------
*The amounts shown are on a U.S. dollar basis and include the impact of
currency movements as compared to the prior period.
[ID -- LINE CHART GRAPHIC]
SELLING PRICE INDEX
26
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
CASH FLOW Cash provided by operations for 1996 was $706 million. These
funds were used to finance the company's capital expenditures, fund the
company's stock repurchase program and pay dividends during the year.
The company maintains an "A" debt rating and has adequate financial
resources available to provide cash required for future operations.
FINANCING Total borrowings at year-end 1996 were $707 million, up $11
million from the prior year. At the end of 1996, the debt-to-equity
ratio, calculated without the reduction to stockholders' equity for the
ESOP transaction, was 38%, compared with 36% at the end of 1995 and 44%
at the end of 1994. The company's capital structure is based upon a
planned maximum 50% debt-to-equity ratio. This financial policy was
established to ensure strong financial ratios and access to external
financing.
ENVIRONMENTAL There is an inherent risk of environmental damage in
chemical manufacturing operations. The company's environmental policies
and practices are designed to ensure compliance with existing laws and
regulations and to minimize the possibility of significant environmental
damage. These laws and regulations require the company to make
significant expenditures for remediation, capital improvements and
operating environmental protection equipment. Future developments and
even more stringent environment regulations may require the company to
make additional unforeseen environmental expenditures. The company's
major competitors are confronted by substantially similar environmental
risks and regulations.
The company is a party in various government enforcement and private
actions associated with former waste disposal sites, many of which are
on the U.S. Environmental Protection Agency's (EPA) Superfund priority
list. The company also is involved in corrective actions at some of its
manufacturing facilities. Accruals for expected future remediation
costs are in accordance with the provisions of SFAS No. 5, "Accounting
For Contingencies," which requires an accrual to be recorded when it is
probable a liability has been incurred and costs are reasonably
estimable. The company considers a broad range of information when
determining the amount of the accrual, including available facts about
the waste site, existing and proposed remediation technology and the
range of costs of applying those technologies, prior experience,
government proposals for this or similar sites, the liability of other
parties, the ability of other principally responsible parties to pay
costs apportioned to them and current laws and regulations. These
accruals are updated quarterly as additional technical and legal
information becomes available. Major sites for which reserves have been
provided are: the non-company-owned Lipari, Woodland and Kramer sites in
New Jersey, Whitmoyer in Pennsylvania and company-owned sites in Bristol
and Philadelphia, Pennsylvania and in Houston, Texas. In addition, the
company has provided for future costs at approximately 80 other sites
where it has been identified as potentially responsible for cleanup
costs and, in some cases, damages for alleged personal injury or
property damage.
[ID -- BAR CHART GRAPHIC]
CASH FLOW
[ID -- LINE CHART GRAPHIC]
ENVIRONMENTAL EXPENSES AND CAPITAL SPENDING
27
<PAGE>
The amounts charged to earnings before tax for environmental remediation
were $27 million, $45 million and $31 million in 1996, 1995 and 1994,
respectively. The charge in 1995 included $26 million for additional
potential liability related to the cleanup of the Whitmoyer waste site
as a result of an adverse court ruling in that year. The company
appealed that ruling and during 1996, the United States Court of Appeals
for the Third Circuit ruled in the company's favor by reversing the 1995
judgment of the Federal District Court regarding indemnification of
SmithKline Beecham (SKB) for cleanup of the Whitmoyer site. As a result
of this ruling, the District Court will determine the equitable
apportionment of costs between the two companies for cleanup of
contamination that occurred prior to either company's ownership of the
site. Rohm and Haas and SKB have agreed to an interim cost sharing
arrangement; however, the company will not make any adjustment to its
environmental remediation reserves until a final ruling is received.
The 1994 charge included $14 million related to the company-owned
Bristol site.
The reserves for remediation were $139 million and $170 million at
December 31, 1996, and 1995, respectively, and are recorded as "other
liabilities" (current and long-term). Probable insurance recoveries
were $48 million at December 31, 1996 and $72 million at December 31,
1995. The reduction in 1996 was due to collections from certain
insurance carriers regarding the company's claims for environmental
remediation costs and related legal expenses. Late in 1996 and early
1997, the company negotiated settlements with additional insurers
totaling $61 million; $56 million will be collected in 1997 and $5
million will be collected in 1998 and 1999. The excess of the
settlements over the probable insurance recovery asset of $48 million
will be recognized as income. Other insurance carriers have denied
coverage in most cases and the company has initiated legal action in New
Jersey and Pennsylvania. The trial in the Pennsylvania case started
January 22, 1997, and the company is hopeful of receiving additional
recoveries.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies related to environmental matters
of approximately $65 million at December 31, 1996, compared to $70
million at December 31, 1995. Further, the company anticipates that
additional future environmental remediation may be required, but these
loss contingencies are not reasonably estimable at this time. These
matters involve significant unresolved issues, including the number of
parties found liable at each site and their ability to pay, the outcome
of negotiations with regulatory authorities, the alternative methods of
remediation and the range of cost associated with those alternatives.
The company believes that these matters, when ultimately resolved, which
may be over an extended period of time, will not have a material adverse
effect on the consolidated financial position or consolidated cash flows
of the company, but could have a material adverse effect on consolidated
results of operations in any given year.
In 1995, a lawsuit was filed against the company and other defendants,
seeking class action certification for property damage, personal injury
and medical monitoring allegedly related to contamination of the Lipari
landfill, nearby streams and Lake Alcyon in Pitman, New Jersey. In
1996, the plaintiffs dismissed the property damage claims. The company
believes it has substantial defenses to this lawsuit; it is too early to
determine what financial impact, if any, it may have.
Capital spending for new environmental protection equipment was $32
million in 1996. Spending for 1997 and 1998 is expected to be
approximately $22 million and $19 million, respectively. Capital
expenditures in this category include projects whose primary purpose is
pollution control and safety, as well as environmental aspects of
projects in other categories on page 29 which are intended primarily to
improve operations or increase plant efficiency. The company expects
future capital spending for environmental protection equipment to be
consistent with prior-year spending patterns. Capital spending does not
include the cost of environmental remediation of waste disposal sites.
Cash expenditures for waste disposal site remediation were $58 million
in 1996, $51 million in 1995 and $46 million in 1994. The expenditures
for remediation are charged against accrued remediation reserves. The
cost of operating and maintaining environmental facilities was $104
million, $96 million and $107 million in 1996, 1995 and 1994,
respectively, and was charged against current-year earnings.
DIVIDENDS Total common stock dividends paid in 1996 were $1.72 per
share, compared to $1.56 per share in 1995, and $1.44 per share in 1994.
The company's common stock dividend payout is targeted at approximately
35% of trendline earnings. Common stock dividends have been paid each
year since 1927. The common stock dividend payout has increased
annually every year since 1977. Total preferred dividends paid were
$2.75 per share in 1996, 1995 and 1994.
ADDITIONS TO LAND, BUILDINGS AND EQUIPMENT Fixed asset additions in 1996
were $334 million, down $83 million from last year's spending level.
Additions in 1996 included new emulsion facilities in Thailand,
Indonesia and Houston, Texas and capacity expansion for acrylic acid and
butyl acrylate ester at Houston, Texas. Spending in 1995 included
capacity expansion for acrylic acid and butyl acrylate ester at Houston,
Texas, a new biocides production facility at Bayport, Texas and emulsion
facility expansions at Houston, Texas and Lauterbourg, France. The
company has budgeted capital expenditures in 1997 of approximately $350
million. Spending for environmental protection equipment, which is
included in several of the categories on the chart shown at right, was
$32 million in 1996 and 1995, and $31 million in 1994.
28
<PAGE>
Expenditures for the past three years, categorized by primary purpose of
project, were:
- --------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------
Environmental, cost savings
and infrastructure $167 $185 $158
Capacity additions and new
products 134 198 139
Research facilities and
equipment 18 16 28
Capitalized interest cost 15 18 14
====================
Total $334 $417 $339
- --------------------------------------------------------
ACQUISITIONS AND DIVESTITURES On July 3, 1996, the company completed the
formation of RohMax, a 50-50 joint venture with Rohm GmbH for the
research, manufacture and sale of petroleum additives. The company
contributed its petroleum additives inventory, manufacturing and
research assets in the United States, Canada and France to the joint
venture. Rohm GmbH contributed the assets of its petroleum additives
business in Germany. Starting in the third quarter, the company's share
of RohMax's earnings was reported as equity in affiliates. RohMax is
expected to have annual sales of approximately $225 million, which will
not be included in the consolidated sales of Rohm and Haas. However,
the company will supply certain raw materials to the joint venture. On
an annualized basis, the net impact is a reduction of $100 million in
the company's sales, with an immaterial impact on earnings. The raw
materials will be supplied by Polymers, Resins and Monomers, so, for
reporting purposes the company has moved the results of the Petroleum
Chemicals business from Performance Chemicals to Polymers, Resins and
Monomers. Prior year information has been restated for this change.
On July 31, 1995, the company sold its Plaskon Electronic Materials
subsidiary. Plaskon manufactures molding compounds used to encapsulate
semiconductors. The sale did not have a material effect on the
company's results.
On June 29, 1994, the company acquired from Monsanto Company its
worldwide pyridine herbicide business and a new fungicide for $51
million. The purchase price will be paid in equal installments over a
four-year period and has been recorded as current and long-term debt.
The assets acquired included a manufacturing facility, inventory and
patents.
During 1994, the company sold the styrene butadiene latex business which
included a plant at Mallard Creek, North Carolina and a small emulsion
plant located in Lemont, Illinois. These transactions were not material
to the company's financial results.
STOCK REPURCHASES The 3.5 million share repurchase program approved at
the end of 1995 by the board of directors was completed in September.
Since the company continued to have strong cash flow and a
debt-to-equity ratio below 40%, in October the board of directors
approved a second buyback program of an additional 3.5 million shares
over the next 27 months. During 1996, the company repurchased 4,430,971
shares of its common stock at a total cost of $302 million, compared to
515,138 shares in 1995 at a cost of $29 million. There were 63,144,751
and 67,325,023 common shares outstanding at December 31, 1996, and 1995,
respectively.
WORKING CAPITAL (the excess of current assets over current liabilities)
was $570 million at year-end 1996, down $23 million from 1995. Accounts
receivable from customers increased $38 million, and inventory decreased
$21 million. Days sales outstanding were 64 days, up slightly from 62
days at the end of 1995.
[ID -- LINE CHART GRAPHIC]
EARNINGS AND COMMON STOCK DIVIDENDS
[ID -- LINE CHART GRAPHIC]
CAPITAL ADDITIONS AND DEPRECIATION
29
<PAGE>
Days cost of sales in ending inventory was 68 days, down from 72 days at
the end of 1995. Details about two major components of working capital
at the end of 1996 and 1995 follow:
- ------------------------------------------------
(Millions of dollars) 1996 1995
- ------------------------------------------------
INVENTORIES
Year-end balance $483 $504
Annual turnover 5.4x 5.1x
- ------------------------------------------------
CUSTOMER RECEIVABLES
Year-end balance $699 $661
Annual turnover 5.7x 5.9x
- ------------------------------------------------
NET FIXED ASSETS Investment in net fixed assets is summarized below.
- ------------------------------------------------
(Millions of dollars) 1996 1995
- ------------------------------------------------
Year-end balance $2,066 $2,048
Annual turnover 1.9x 1.9x
- ------------------------------------------------
These annual turnover figures were calculated by dividing annual sales
(for customer receivables and net fixed assets) or cost of goods sold
(for inventories) by the year-end balance. Days sales outstanding was
calculated by dividing ending customer receivables by daily sales, and
days cost of sales in ending inventory was calculated by dividing ending
inventory by daily cost of sales.
The graph below presents the trend of receivables, inventories and net
fixed assets as a percent of sales.
[ID -- LINE CHART GRAPHIC]
ASSETS
ASSET TURNOVER equals sales divided by year-end total assets. Asset
turnover has shown a steady improvement, increasing from a low of .87
times in 1992 to .99 in 1995 and 1.0 in 1996. The graph below shows
asset turnover, profit margin and return on net assets (RONA) for the
past 10 years.
RETURN ON NET ASSETS (RONA) equals net earnings plus after-tax interest
expense, divided by year-end total assets. RONA was 10% in 1996 and 8%
in 1995 and 1994.
RETURN ON COMMON STOCKHOLDERS' EQUITY (ROE) is obtained by dividing net
earnings less preferred stock dividends by average year-end common
stockholders' equity. Average year-end common stockholders' equity is
calculated without the reduction for the ESOP transaction. ROE was 20%
in 1996, 17% in 1995 and 16% in 1994.
The return on investment graph on page 31 shows these measures for the
past eleven years.
[ID -- LINE CHART GRAPHIC]
ASSET TURNOVER, PROFIT MARGIN & RONA
30
<PAGE>
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This statement requires
that long-lived assets be reviewed for impairment whenever events
indicate that the carrying amount of an asset may not be recoverable.
The adoption of this accounting standard in 1996 did not have a material
impact on the company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation," which
became effective in 1996. The statement encourages the fair value based
method which recognizes compensation expense equal to the fair value of
the stock-based compensation at the date of the grant. As an
alternative, the statement allows companies to continue to apply APB
Opinion No. 25 and related Interpretations, which for certain types of
stock-based compensation, does not result in a charge to earnings. The
company has elected to continue to apply the provisions of APB Opinion
No. 25. Accordingly, no compensation expense has been recognized for
the fixed stock option plans. Details about the company's stock option
plans are included in Note 19, Stock Compensation Plans.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 (SOP 96-1), Environmental Remediation
Liabilities, which is effective beginning in 1997. The statement
provides authoritative guidance regarding the recognition, measurement,
display and disclosure of environmental remediation liabilities. The
company is evaluating this guidance and believes that its current
policies and practices are substantially in agreement with the
requirements of the SOP. The company does not expect the adoption of
this accounting guidance in 1997 to have a material impact on the
company's financial position or results of operations.
[ID -- LINE CHART GRAPHIC]
RETURN ON INVESTMENT
31
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
First quarter 1996 earnings were $100 million, up 27% from last year's
very strong first quarter results of $79 million. Earnings per common
share were $1.46, up 28% from $1.14 per common share in 1995. Earnings
per share were up 5%, when a charge in 1995 of $.25 per common share for
cleanup of the Whitmoyer waste site is excluded. Though volume declined
3%, sales of $994 million were 1% higher than reported in the prior-year
period due to stronger European currencies and 2% higher selling prices.
Earnings increased as a result of higher selling prices, 7% lower raw
material prices and the absence of significant non-operating charges.
Higher unit manufacturing costs caused by lower production volumes hurt
earnings.
Second quarter 1996 earnings were $101 million, up 16% from last year's
results of $87 million. Earnings per common share of $1.50 rose 19%
from $1.26 per common share in 1995. Increasingly strong demand for
Polymers and Resins and Plastics Additives products in May and June
resulted in 5% volume growth for the quarter. Sales of $1,054 million
were 1% above the prior-year period due to higher volume, offset by a
21% weaker Japanese yen, 2% weaker European currencies and 1% lower
selling prices. Earnings increased as a result of increased sales, 8%
lower raw material prices, tight control of costs and a $10 million
($.15 per common share) retroactive tax credit on sales outside the
United States.
Third quarter 1996 earnings were $87 million, up 47% from last year's
results of $59 million. Earnings per common share increased 54% to
$1.31 from $.85 in 1995. All regions and businesses, except Electronic
Chemicals, had volume growth which resulted in an 8% increase in volume
for the quarter. Sales of $969 million were 3% above the prior-year
period due to higher volume, offset by a 17% weaker Japanese yen, 2%
weaker European currencies, a lower-priced product mix and 2% lower
selling prices. Earnings increased as a result of increased sales, 10%
lower raw material prices, smooth plant operations and flat selling,
administrative and research costs.
Earnings in the fourth quarter of 1996 were $75 million, 12% higher than
last year's exceptionally strong results. Earnings per common share
were $1.16, compared to $.98 in 1995. Sales increased 5% to $965
million, due to 14% higher volume, offset by 3% lower selling prices and
lower-priced product mix. Sales growth was also impacted by 2% weaker
currencies in Europe and an 11% weaker Japanese yen. Earnings benefited
from higher volume, 3% lower raw material prices, smooth plant
operations and a lower effective tax rate. Regional results were
exceptional in Latin America, where the company was able to take
advantage of improved economic conditions. The 1996 results included a
net after-tax charge of $.09 per common share for plant writedowns and
restructuring charges, net of a gain on the sale of land.
[ID -- BAR CHART GRAPHIC]
QUARTERLY STOCK PRICE
32
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERLY RESULTS
- ---------------------------------------------------------------------------------------
1st 2nd 3rd 4th YEAR
(Millions of dollars) Quarter Quarter Quarter Quarter 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 994 $1,054 $ 969 $ 965 $3,982
Gross profit 363 363 347 322 1,395
Net earnings 100 101 87 75 363
- ---------------------------------------------------------------------------------------
Net earnings per common share, in dollars $1.46 $ 1.50 $1.31 $1.16 $ 5.45
- ---------------------------------------------------------------------------------------
Cash dividends per common share, in dollars $ .41 $ .41 $ .45 $ .45 $ 1.72
- ---------------------------------------------------------------------------------------
Percentage change from prior year
Net sales 1% 1% 3% 5% 3%
Physical volume (3) 5 8 14 6
- ---------------------------------------------------------------------------------------
Net earnings 27% 16% 47% 12% 24%
- ---------------------------------------------------------------------------------------
Net earnings per common share 28% 19% 54% 18% 29%
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERLY RESULTS
- ---------------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 985 $1,042 $942 $915 $3,884
Gross profit 357 341 308 327 1,333
Net earnings 79 87 59 67 292
- ---------------------------------------------------------------------------------------
Net earnings per common share, in dollars $1.14 $ 1.26 $.85 $.98 $ 4.22
- ---------------------------------------------------------------------------------------
Cash dividends per common share, in dollars $ .37 $ .37 $.41 $.41 $ 1.56
- ---------------------------------------------------------------------------------------
Percentage change from prior year
Net sales 15% 10% 8% 6% 10%
Physical volume 5 (3) (4) (4) (2)
- ---------------------------------------------------------------------------------------
Net earnings 18% (8)% 7% 43% 11%
- ---------------------------------------------------------------------------------------
Net earnings per common share 19% (8)% 9% 44% 11%
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 QUARTERLY RESULTS
- ---------------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $856 $ 944 $874 $860 $3,534
Gross profit 317 351 298 301 1,267
Net earnings 67 95 55 47 264
- ---------------------------------------------------------------------------------------
Net earnings per common share, in dollars $.96 $1.37 $.78 $.68 $ 3.79
- ---------------------------------------------------------------------------------------
Cash dividends per common share, in dollars $.35 $ .35 $.37 $.37 $ 1.44
- ---------------------------------------------------------------------------------------
Percentage change from prior year
Net sales 4% 7% 9% 13% 8%
Physical volume 8 9 6 9 8
- ---------------------------------------------------------------------------------------
Net earnings 16% 51% --% 81% 110%
- ---------------------------------------------------------------------------------------
Net earnings per common share 16% 52% --% 94% 118%
- ---------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the company and its subsidiaries engaged in
manufacturing operations. Investments in unconsolidated subsidiaries,
which are involved mainly in selling operations outside of the United
States, are carried at cost and are insignificant in total. Investments
in affiliates (20-50%-owned) are recorded at cost plus equity in their
undistributed earnings since formation. Intercompany accounts,
transactions and unrealized profits and losses on transactions within
the consolidated group and with significant affiliates are eliminated in
consolidation.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
TRANSLATION PROCEDURES Foreign currency accounts are translated into
U.S. dollars under the provisions of SFAS No. 52, with the U.S. dollar
as the functional currency for the majority of international operations.
Under this standard: (1) land, buildings and equipment and related
depreciation, inventories and cost of goods sold, goodwill and
intangibles and related amortization and minority interest are
translated at historical rates of exchange; (2) all other assets and
liabilities are translated at current rates of exchange, and (3) monthly
income, costs and expenses other than depreciation, amortization of
goodwill and intangibles and cost of goods sold are translated at
current rates of exchange. Translation gains and losses of those
operations that use local currencies as the functional currency are
included as a separate component of stockholders' equity. Foreign
exchange adjustments, including recognition of unperformed foreign
exchange contracts which are not intended to hedge an identifiable
foreign currency commitment, are charged or credited to income based on
current exchange rates.
ENVIRONMENTAL ACCOUNTING Accruals for environmental remediation are
recorded when it is probable a liability has been incurred and costs are
reasonably estimable. The estimated liabilities are recorded at
undiscounted amounts. The cost of operating and maintaining
environmental control facilities are charged to expense. Expenditures
which mitigate or prevent contamination from future operations are
capitalized and depreciated under normal depreciation policies.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash, time
deposits and readily marketable securities with original maturities of
three months or less.
INVENTORIES Inventories are stated at the lower of cost or market. Cost
is primarily determined under the last-in, first-out (LIFO) method.
LAND, BUILDINGS AND EQUIPMENT AND RELATED DEPRECIATION Land, buildings
and equipment are carried at cost. Assets are depreciated over their
estimated useful lives on the straight-line and accelerated methods.
Maintenance and repairs are charged to earnings; replacements and
betterments are capitalized. The cost and related accumulated
depreciation of buildings and equipment are removed from the accounts
upon retirement or other disposition; any resulting profit or loss is
reflected in earnings.
INTANGIBLE ASSETS The company amortizes identifiable intangible assets
such as patents and trademarks on the straight-line basis over their
estimated useful lives. Goodwill is amortized on the straight-line
basis over periods not greater than 40 years.
INCOME TAXES The company uses the asset and liability method of
accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the estimated future consequences of
temporary differences between the financial statement carrying value of
assets and liabilities and their values as measured by tax laws.
STOCK COMPENSATION The company applies the intrinsic value method in
accordance with APB Opinion No. 25 and related Interpretations in
accounting for stock compensation plans. Under this method, no
compensation expense is recognized for fixed stock option plans.
34
<PAGE>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
Years ended December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
(Millions of dollars,
except per-share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------
CURRENT EARNINGS
- -------------------------------------------------------------------------------
Net sales $3,982 $3,884 $3,534
NOTE 10 Cost of goods sold 2,587 2,551 2,267
======================
Gross profit 1,395 1,333 1,267
Selling and administrative expense 631 616 591
Research and development expense 187 194 201
NOTE 12 Interest expense 39 39 46
NOTE 2 Share of affiliate net earnings (losses) (12) 5 2
NOTE 3 Other expense (income), net (4) 48 24
======================
Earnings before income taxes 530 441 407
NOTE 5 Income taxes 167 149 143
NET EARNINGS $ 363 $ 292 $ 264
======================
NOTE 18 Less preferred stock dividends 7 7 7
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 356 $ 285 $ 257
======================
NET EARNINGS PER COMMON SHARE $ 5.45 $ 4.22 $ 3.79
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (in millions) 65.4 67.5 67.7
- -------------------------------------------------------------------------------
See accompanying summary of significant accounting policies (page 34)
and notes to consolidated financial statements (pages 39-52).
35
<PAGE>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 363 $ 292 $ 264
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 262 242 231
Deferred income taxes 37 27 (2)
Accounts receivable (37) (77) (75)
Inventories 11 (25) (93)
Accounts payable 5 26 67
Federal, foreign and other income taxes (1) (3) 73
Gain on sale of facilities (10) -- --
Provision for plant writedown and
restructuring charges 19 -- --
Other working capital changes, net 1 (25) 35
Other, net 56 56 24
=======================
Net cash provided by operating activities 706 513 524
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and equipment (334) (417) (339)
Proceeds from sale of facilities 11 49 3
Investment in joint venture (7) -- --
=======================
Net cash used by investing activities (330) (368) (336)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of treasury shares (302) (29) (7)
Proceeds from issuance of long-term debt 2 32 38
Repayments of long-term debt (52) (126) (19)
Net change in short-term borrowings 68 2 (21)
Payment of dividends (116) (109) (102)
Other, net, primarily the effect of exchange
rate changes on financing activities (8) 2 14
=======================
Net cash used by financing activities (408) (228) (97)
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash -- (1) 1
=======================
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (32) $ (84) $ 92
- -------------------------------------------------------------------------------
See accompanying summary of significant accounting policies (page 34)
and notes to consolidated financial statements (pages 39-52).
36
<PAGE>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
- -------------------------------------------------------------------------------
Millions of dollars) 1996 1995
----------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 11 $ 43
NOTE 9 Accounts receivable, net 841 756
NOTE 10 Inventories 483 504
NOTE 11 Prepaid expenses and other assets 121 118
=====================
Total current assets 1,456 1,421
----------------------------------------------------------------------
NOTE 2 INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED
SUBSIDIARIES AND AFFILIATES 127 108
NOTE 12 LAND, BUILDINGS AND EQUIPMENT, NET 2,066 2,048
NOTE 13 OTHER ASSETS, NET 284 339
=====================
$3,933 $3,916
----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
CURRENT LIABILITIES
NOTE 14 Notes payable $ 145 $ 90
NOTE 16 Accounts payable and accrued liabilities 669 666
Federal, foreign and other income taxes 72 72
=====================
Total current liabilities 886 828
----------------------------------------------------------------------
NOTE 15 LONG-TERM DEBT 562 606
NOTE 5 DEFERRED INCOME TAXES 137 94
NOTE 8 EMPLOYEE BENEFITS 405 394
NOTE 17 OTHER LIABILITIES 141 144
MINORITY INTEREST 74 69
----------------------------------------------------------------------
NOTE 18 STOCKHOLDERS' EQUITY
$2.75 cumulative convertible preferred stock;
authorized -- 2,846,061 shares; issued -- 1996:
2,631,822 shares; 1995: 2,656,153 shares 131 133
Common stock; par value -- $2.50; authorized --
100,000,000 shares; issued -- 78,652,380 shares 197 197
Additional paid-in capital 143 150
Retained earnings 2,036 1,789
=====================
2,507 2,269
Less: Treasury stock (1996 -- 15,507,629 shares;
1995 -- 11,327,357 shares) 629 344
Less: ESOP shares 145 151
Other equity adjustments (5) 7
=====================
Total stockholders' equity 1,728 1,781
=====================
$3,933 $3,916
----------------------------------------------------------------------
See accompanying summary of significant accounting policies (page 34)
and notes to consolidated financial statements (pages 39-52).
37
<PAGE>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
----------------------------------------------------------------------
NOTE 18 PREFERRED STOCK
----------------------------------------------------------------------
Balance, beginning of year $ 133 $ 134 $ 136
Conversion of shares to common stock (2) (1) (2)
=======================
Balance, end of year $ 131 $ 133 $ 134
=======================
COMMON STOCK
----------------------------------------------------------------------
Balance, beginning and end of year $ 197 $ 197 $ 197
=======================
ADDITIONAL PAID-IN CAPITAL
----------------------------------------------------------------------
Balance, beginning of year $ 150 $ 151 $ 150
Shares issued to employees under bonus plan (7) (1) 1
=======================
Balance, end of year $ 143 $ 150 $ 151
=======================
NOTE 15 RETAINED EARNINGS
----------------------------------------------------------------------
Balance, beginning of year $1,789 $1,606 $1,444
Net earnings 363 292 264
Common stock dividends paid ($1.72, $1.56
and $1.44 per share in 1996, 1995 and
1994, respectively), net of tax benefit
of $4 million in 1996 and $3 million in
1995 and 1994 related to the ESOP (109) (102) (95)
Preferred stock dividends ($2.75 per share
in 1996, 1995 and 1994) (7) (7) (7)
=======================
Balance, end of year $2,036 $1,789 $1,606
=======================
NOTE 18 TREASURY STOCK, AT COST
----------------------------------------------------------------------
Balance, beginning of year $ 344 $ 323 $ 323
Shares issued to employees under bonus plan (16) (7) (6)
Purchases 302 29 7
Shares issued for conversion of preferred
stock (1) (1) (1)
=======================
Balance, end of year $ 629 $ 344 $ 323
=======================
OTHER EQUITY ADJUSTMENTS
----------------------------------------------------------------------
Balance, beginning of year $ 7 $ 11 $ --
Foreign currency translation (12) (2) 17
Pension adjustment -- (2) (6)
=======================
Balance, end of year $ (5) $ 7 $ 11
----------------------------------------------------------------------
See accompanying summary of significant accounting policies (page 34)
and notes to consolidated financial statements (pages 39-52).
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACQUISITIONS AND DISPOSITIONS OF ASSETS
On July 3, 1996, the company completed the formation of RohMax, a 50-50
joint venture with Rohm GmbH for the research, manufacture and sale of
petroleum additives. The company contributed its petroleum additives
inventory, manufacturing and research assets in the United States,
Canada and France to the joint venture. Rohm GmbH contributed the
assets of its related petroleum additives business in Germany to RohMax.
The company's share of RohMax's earnings have been reported using the
equity method since July.
On July 31, 1995, the company sold its Plaskon Electronic Materials
subsidiary to Amoco Corporation. Plaskon manufactured molding compounds
used to encapsulate semiconductors. The sale did not have a material
effect on the company's results.
On June 29, 1994, the company acquired from Monsanto Company its
worldwide pyridine herbicide business and a new fungicide for $51
million. The purchase price will be paid in equal installments over a
four-year period and has been recorded as current and long-term debt.
The assets acquired included a manufacturing facility, inventory and
patents.
During 1994, the company sold the styrene butadiene latex business which
included a plant at Mallard Creek, North Carolina and a small emulsion
plant located in Lemont, Illinois. These transactions were not material
to the company's financial results.
NOTE 2: INVESTMENTS
The company's investments in its affiliates (20-50%-owned) totaled $81
million and $60 million at December 31, 1996, and 1995, respectively.
The increase in 1996 is primarily due to the formation of RohMax, a
50-50 joint venture with Rohm GmbH for the research, manufacture and
sale of petroleum products (see financial statement Note 1). The
results of these operations, previously fully consolidated, have been
reported on an equity basis since July 1996. The company's equity in
the net assets of the affiliates exceeded the amount of investments in
affiliates by about $7 million and $13 million at December 31, 1996, and
1995, respectively, primarily due to investments in the AtoHaas
affiliates. This difference is being amortized to earnings over the
remaining life of the underlying fixed assets.
NOTE 3: OTHER EXPENSE (INCOME), NET
- ---------------------------------------------------------------
(Millions of dollars) 1996 1995* 1994*
- ---------------------------------------------------------------
Interest income $ (7) $ (7) $ (7)
Royalty expense (income), net (6) 2 (2)
Foreign exchange losses (gains), net (4) (4) 8
Minority interest 5 8 2
Asset dispositions (10) (4) 6
Amortization of intangibles and
purchased option premiums 10 10 8
Voluntary early retirement incentives,
severance, litigation settlements
and certain waste disposal site
cleanup costs 8 46 17
Other, net -- (3) (8)
======================
Total $ (4) $ 48 $ 24
- ---------------------------------------------------------------
*Restated to conform to current-year presentation.
NOTE 4: FINANCIAL INSTRUMENTS
The company's consolidated results of operations are affected by changes
in interest rates and foreign exchange rates. The company uses
non-leveraged derivative financial instruments to reduce the impact on
the company's earnings of specific, known exposures to changes in
interest and exchange rates. The company does not use financial
instruments for trading purposes. Credit risk associated with
non-performance by counterparties is mitigated by only using major
financial institutions with high credit ratings. The company also
limits the amount of derivative financial contracts it enters into with
each counterparty.
The company entered into interest rate swap agreements and option
contracts to manage its exposure to changes in interest rates. At
December 31, 1996, and 1995, there were interest rate swaps outstanding,
with maturities through 1997, with total notional amounts of $50 million
and $150 million, respectively. The net swap position at December 31,
1996 and 1995, converted $50 million of fixed-rate debt to floating-rate
debt based on six-month LIBOR. The differential between the fixed and
floating rate amounts was accrued as an adjustment to interest expense.
In 1996, the company purchased an interest rate floor expiring in 1999
to hedge $50 million of fixed-rate debt. The premium paid for the
option is being amortized to interest expense over the option life. In
early 1996 and 1995, the company closed out an interest rate floor
option then outstanding hedging $75 million of the company's fixed rate
debt at a gain of $1 million in each year.
39
<PAGE>
In 1996, the company entered into a written interest rate option
contract with a notional amount of $25 million to monetize the call
provision on the company's 9.375% debentures due 2019. The counterparty
paid the company a premium of $5 million for the right to receive 9.375%
fixed rate payments beginning 1999 through 2002. In return, the
counterparty will pay the company variable interest payments based on
six-month LIBOR. The written option has been marked to market through
income at each balance sheet date.
Foreign currency option contracts are used to reduce foreign exchange
rate risk. Option contracts are used to hedge probable anticipated
sales by certain foreign subsidiaries. Gains and losses on these
contracts are deferred and included in income in the same period as the
related sales, except for subsidiaries using their local currency as
their functional currency. Those contracts, which amounted to
approximately 25% of the total notional amount outstanding at December
31, 1996 and 1995, are marked to market at each balance sheet date. The
notional amounts of currency option contracts totaled $114 million and
$158 million at December 31, 1996, and 1995, respectively. The
contracts outstanding at each balance sheet date have maturities of
fifteen months or less. At the end of both years, net deferred
unrealized gains and losses were immaterial.
Forward contracts are used to reduce the exchange rate risk of certain
foreign currency transactions. These agreements require the exchange of
a foreign currency for U.S. dollars at a fixed rate at a future date.
The carrying amounts of foreign currency forward contracts were adjusted
at each balance sheet date for changes in exchange rates. There were no
such contracts outstanding at December 31, 1996. At December 31, 1995,
there were contracts maturing within twelve months to sell $30 million
of various foreign currencies.
The fair value of financial instruments were estimated based on the
following methods and assumptions:
Cash and cash equivalents, accounts receivable, accounts payable and
notes payable -- the carrying amount approximates fair value due to
the short maturity of these instruments.
Long-term debt -- the fair value is estimated based on quoted market
prices for the same or similar issues or the current rates offered
to the company or its subsidiaries for debt with the same remaining
maturities and terms.
Interest rate options and swap agreements -- the fair value is
estimated based on quoted market prices of the same or similar
issues available.
Foreign currency forward contracts -- the carrying value
approximates fair value because these contracts are adjusted to
their market value at the balance sheet date.
Foreign currency option contracts -- the fair value is estimated
based on the amount the company would receive or pay to terminate
the contracts based on quotes from brokers.
The carrying value and fair value of financial instruments at December
31, 1996, and 1995 are as follows:
- -------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Millions of dollars) Amount Value Amount Value
- -------------------------------------------------------------------------
Asset (Liability)
Long-term debt $(562) $(623) $(606) $(701)
Foreign currency options 4 5 5 5
Interest rate swap agreements -- -- -- --
Interest rate options
Purchased -- -- -- 1
Written (5) (5) -- --
- -------------------------------------------------------------------------
40
<PAGE>
NOTE 5: INCOME TAXES
Earnings before income taxes earned within or outside the United States
are shown below:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
United States
Parent and subsidiaries $371 $266 $216
Foreign
Subsidiaries 171 170 189
Affiliates (12) 5 2
=======================
Earnings before income taxes $530 $441 $407
- ----------------------------------------------------------------
The provision for income taxes is composed of:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
Taxes on U.S. earnings
Federal
Current $ 56 $ 41 $ 49
Deferred 58 40 23
=======================
114 81 72
=======================
State and other
Current 2 7 4
=======================
Total taxes on U.S. earnings 116 88 76
- ----------------------------------------------------------------
Taxes on foreign earnings
Current 69 73 72
Deferred (18) (12) (5)
=======================
Total taxes on foreign earnings 51 61 67
=======================
Total income taxes $167 $149 $143
- ----------------------------------------------------------------
Cash payments of income taxes were $120 million, $111 million and $93
million in 1996, 1995 and 1994, respectively.
Deferred income taxes reflect temporary differences between the
valuation of assets and liabilities for financial and tax reporting.
Details at December 31, 1996, and 1995 were:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Deferred tax assets related to:
Compensation and benefit programs $200 $191
Alternative minimum tax credit carryforward 1 34
Research and foreign tax credit carryforwards 12 2
Accruals for waste disposal site remediation 34 27
Accruals for plant downsizing and writedowns 8 16
Inventories 34 36
All other 19 24
Valuation allowance (5) (7)
===============
Total deferred tax assets $303 $323
===============
Deferred tax liabilities related to:
Tax depreciation in excess of book
depreciation $282 $259
Pension 66 62
All other 3 13
===============
Total deferred tax liabilities $351 $334
===============
Net deferred tax liability $ 48 $ 11
- ----------------------------------------------------------------
Deferred taxes, which are classified into a net current and non-current
balance by tax jurisdiction, are presented in the balance sheet as
follows:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Prepaid expenses and other assets $ 86 $ 74
Other assets, net 4 9
Accounts payable and accrued liabilities 1 --
Non-current deferred income taxes 137 94
===============
Net deferred tax liability $ 48 $ 11
- ----------------------------------------------------------------
The valuation allowance was reduced by $2 million in 1996 and $1 million
in 1995 due to usage of tax credit carryforwards and net operating loss
carryforwards.
The effective tax rate on income differs from the U.S. statutory tax
rate due to the following:
- ----------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
U.S. tax credits (3.4) (0.9) (0.9)
Asset dispositions (0.2) (0.3) --
Effect of non-taxable
currency items (0.5) (0.7) (0.7)
Taxes on foreign earnings
and tax adjustments of
foreign subsidiaries 0.3 0.2 1.2
Other, net 0.3 0.5 0.5
=======================
Effective tax rate 31.5% 33.8% 35.1%
- ----------------------------------------------------------------
At December 31, 1996, the company had research tax credit carryforwards
of $1 million and foreign tax credit carryforwards of $11 million
available to reduce future U.S. income tax payments through 2010 and
2001, respectively, and alternative minimum tax credit carryforwards of
$1 million which are available to reduce future U.S. regular income tax
payments over an indefinite period. In addition, the company has net
operating loss carryforwards of $5 million to offset future foreign
taxable income through 2001.
Provision for U.S. income taxes, after applying statutory tax credits,
was made on the unremitted earnings of foreign subsidiaries and
affiliates which have not been reinvested abroad indefinitely.
Unremitted earnings, after provision for applicable foreign income
taxes, were approximately $374 million at December 31, 1996. If the
foreign subsidiary and affiliate earnings were remitted as dividends,
the amount of additional U.S. income taxes, after applying statutory tax
adjustments, would not be material.
41
<PAGE>
NOTE 6: INDUSTRY SEGMENT REPORTING AND INFORMATION ABOUT FOREIGN OPERATIONS
Rohm and Haas Company is a multinational manufacturer of specialty
chemicals. The company's principal lines of business, listed in order
of their relative size based on sales, are Polymers, Resins and Monomers
(PRM); Performance Chemicals; Plastics, and Agricultural Chemicals.
PRM and Plastics major markets are in North America and Europe.
Performance Chemicals products are sold mainly in North America, Europe
and Asia-Pacific. These three businesses sell their products to other
manufacturers who produce end products sold to consumers and other
industrial concerns. Agricultural Chemicals is the most global of the
company's businesses, with sales occurring almost evenly throughout the
four regions. These products are sold to growers of high-value
specialty agricultural crops.
In accordance with the provisions of SFAS No. 14, the tables below
present information for the years 1994-1996 related to the company's
results in the four industry segments described above. The company
defines the industry segment for each product shipment (including
intermediates) by the customer's use of the product shipped. Therefore,
no inter-segment sales or eliminations are shown. In computing each
segment's identifiable assets, production facilities that are shared by
more than one segment are allocated to each segment on an annual
utilization basis.
All information presented for 1995 and 1994 has been restated for the
following items:
1. Corporate governance costs, previously allocated to the businesses
and regions, are now reported in Corporate.
2. The operations of certain developing businesses, previously reported
in Performance Chemicals, are now reported in Polymers, Resins and
Monomers and Plastics.
3. Corporate exploratory research, previously reported in Performance
Chemicals and North America, is now reported in Corporate.
4. The operations of the Petroleum Chemicals business has been moved
from Performance Chemicals to Polymers, Resins and Monomers.
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
Sales to customers
Polymers, Resins and
Monomers $2,023 $1,953 $1,816
Performance Chemicals 744 740 644
Plastics 701 693 635
Agricultural Chemicals 514 498 439
=========================
Total $3,982 $3,884 $3,534
- ----------------------------------------------------------------
Operating profit
Polymers, Resins and
Monomers $ 332 $ 272 $ 288
Performance Chemicals 112 104 61
Plastics 90 97 96
Agricultural Chemicals 93 87 66
=========================
Total $ 627 $ 560 $ 511
- ----------------------------------------------------------------
Share of affiliate net earnings
(losses)
Polymers, Resins and
Monomers $ 2 $ 2 $ 2
Plastics (14) 3 --
=========================
Total $ (12) $ 5 $ 2
- ----------------------------------------------------------------
Identifiable assets at year end
Polymers, Resins and
Monomers $1,750 $1,733 $1,636
Performance Chemicals 811 847 878
Plastics 561 597 552
Agricultural Chemicals 425 391 380
=========================
Total $3,547 $3,568 $3,446
- ----------------------------------------------------------------
Investment in affiliates
Polymers, Resins and
Monomers $ 43 $ 7 $ 6
Plastics 38 53 46
=========================
Total $ 81 $ 60 $ 52
- ----------------------------------------------------------------
Depreciation expense
Polymers, Resins and
Monomers $ 130 $ 122 $ 110
Performance Chemicals 44 38 46
Plastics 52 47 44
Agricultural Chemicals 21 21 17
Corporate 15 14 14
=========================
Total $ 262 $ 242 $ 231
- ----------------------------------------------------------------
Capital additions
Polymers, Resins and
Monomers $ 187 $ 211 $ 186
Performance Chemicals 50 81 47
Plastics 58 71 53
Agricultural Chemicals 22 35 36
Corporate 17 19 17
=========================
Total $ 334 $ 417 $ 339
- ----------------------------------------------------------------
42
<PAGE>
In addition, the tables below provide information pertaining to the
company's operations in different geographic areas, in accordance with
SFAS No. 14. Transfers between geographic areas are accounted for at
market prices.
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
Sales to customers
United States $2,228 $2,168 $2,037
Canada 122 112 107
Europe 985 952 808
Asia-Pacific 453 483 421
Latin America 194 169 161
=========================
Total $3,982 $3,884 $3,534
- ----------------------------------------------------------------
Transfers between geographic areas
United States $ 429 $ 337 $ 269
Canada 41 47 35
Europe 154 116 180
Asia-Pacific 5 13 4
Latin America 27 26 26
Adjustments and eliminations (656) (539) (514)
=========================
Total $ -- $ -- $ --
- ----------------------------------------------------------------
Total sales
United States $2,657 $2,505 $2,306
Canada 163 159 142
Europe 1,139 1,068 988
Asia-Pacific 458 496 425
Latin America 221 195 187
Adjustments and eliminations (656) (539) (514)
=========================
Total $3,982 $3,884 $3,534
- ----------------------------------------------------------------
Operating profit (loss)
United States $ 549 $ 421 $ 361
Canada 9 15 6
Europe 72 115 143
Asia-Pacific (2) 14 (3)
Latin America -- 3 (3)
Adjustments and eliminations (1) (8) 7
=========================
Total $ 627 $ 560 $ 511
- ----------------------------------------------------------------
Identifiable assets at year end
United States $2,370 $2,383 $2,270
Canada 47 52 54
Europe 751 731 681
Asia-Pacific 438 468 469
Latin America 151 133 119
Adjustments and eliminations (210) (199) (147)
=========================
Total $3,547 $3,568 $3,446
- ----------------------------------------------------------------
United States export sales to customers were $230 million in 1996, $206
million in 1995 and $188 million in 1994.
Total operating profit and total identifiable assets for both the
segment and geographic results are reconciled below to consolidated
earnings before income taxes and consolidated total assets. General
corporate expense represents interest income earned by general corporate
assets, offset by the portion of total expenses incurred at corporate
headquarters that do not relate directly to the operations of any
geographic area or industry segment. General corporate assets primarily
include cash and cash equivalents, advances to unconsolidated
subsidiaries and affiliates and capitalized interest. Corporate capital
additions include capitalized interest cost. The reconciliation of
operating profits and identifiable assets to consolidated totals is as
follows:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
Total operating profit $ 627 $ 560 $ 511
Interest expense (39) (39) (46)
General corporate expense (46) (85) (60)
Share of affiliate net earnings
(losses) (12) 5 2
=========================
Earnings before income taxes $ 530 $ 441 $ 407
- ----------------------------------------------------------------
Identifiable assets at year end $3,547 $3,568 $3,446
General corporate assets 305 288 363
Investment in affiliates 81 60 52
=========================
Total assets at year end $3,933 $3,916 $3,861
- ----------------------------------------------------------------
The data presented above differ in certain ways from the company's
results by business group and customer location presented on page 23.
The customer location data on page 23 reflect the company's major
marketing profit centers relative to customer location, while the above
data are categorized by the geographic location from which the goods
were shipped. The charge in 1995 related to the Whitmoyer waste site
was included in Corporate for management purposes and for this footnote
since it was related to a previously discontinued business. Other
differences include the manner of directly assigning or allocating
certain parts of research expense, interest income and expense, other
income and expense and equity in affiliates. In addition, the earnings
data on page 23 are on an after-tax basis.
43
<PAGE>
NOTE 7: PENSION PLANS
The company has noncontributory pension plans which provide defined
benefits to domestic and non-U.S. employees meeting age and length of
service requirements. The following disclosures include amounts for
both the U.S. and significant foreign pension plans. Pension cost
determined in accordance with plan provisions is presented below:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
Pension cost $ (7) $ (13) $ (14)
Pension benefit payments 76 68 77
- ----------------------------------------------------------------
The negative pension cost primarily reflects recognition of favorable
investment experience as stipulated by SFAS No. 87. The pension benefit
payments in all three years included payments related to voluntary early
retirement incentives and a severance benefit program.
Pension cost includes the following components:
- ----------------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost -- benefits earned
during the year $ 38 $ 32 $ 36
Interest cost on projected
benefit obligation 60 57 56
Return on plan assets
-- actual $ (156) $ (253) $ 9
-- less deferred 60 163 (103)
====== ====== ======
(96) (90) (94)
Other amortization, net 2 (1) --
Amortization of net gain
existing at adoption of
SFAS No. 87 (11) (11) (12)
==== ==== ====
Net pension cost $ (7) $(13) $(14)
- ----------------------------------------------------------------------------
The early retirement and severance benefit programs resulted in a
pre-tax gain of $2 million in 1996 and $1 million in 1995, as settlement
gains from retirees electing lump-sum distributions exceeded the cost of
the special termination benefits.
The funded status of these plans at year end was as follows:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Actuarial present value of plan benefits
Vested $ 666 $ 625
Nonvested -- --
====================
Accumulated benefit obligation 666 625
Effect of projected future
compensation increase 241 237
====================
Projected benefit obligation 907 862
Plan assets at market value 1,306 1,236
====================
Plan assets in excess of projected
benefit obligation 399 374
Unrecognized net gain existing at
adoption of SFAS No. 87 (54) (67)
Other unrecognized net gain (219) (177)
====================
Prepaid pension cost $ 126 $ 130
- ----------------------------------------------------------------
Net assets of the pension trusts, which primarily consist of common
stocks and debt securities, were measured at market value. For U.S.
plans, the assumed long-term rate of return on trust assets was 8.5% in
1996 and 1995. Pension benefit obligations were determined from
actuarial valuations using an assumed discount rate of 7% at December
31, 1996, and 1995, and an assumed long-term rate of compensation
increase of 5% in 1996 and 1995. Non-U.S. plans assumed an average rate
of return on trust assets of 9.0% in 1996 and 1995, an average discount
rate for pension benefit obligations of 8.3% in 1996 and 8.5% in 1995,
and an average long-term rate of compensation increase of 6.1% in 1996
and 6.4% in 1995. The company transferred excess pension plan assets of
$13 million in 1996 and $12 million in 1995 to fund retiree medical
expenses as allowed by U.S. tax regulations.
The company has a noncontributory, unfunded pension plan which provides
supplemental defined benefits to U.S. employees whose benefits under the
qualified pension plan are limited by the Employee Retirement Security
Act of 1974 and the Internal Revenue Code. These employees must meet
age and length of service requirements. Pension cost determined in
accordance with plan provisions was $7 million in 1996 and $6 million in
1995 and 1994. Pension benefit payments for this plan were $5 million
in 1996 and $3 million in 1995 and 1994.
44
<PAGE>
In 1995, the company established a nonqualified trust, referred to as a
"rabbi" trust, to fund benefit payments under this pension plan. Trust
assets are subject to creditor claims under certain conditions and are
not the property of employees. Therefore, they are accounted for as
corporate assets and are classified as other non-current assets. Assets
held in trust at December 31, 1996, totaled $21 million.
The status of this plan at year end was as follows:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Actuarial present value of plan benefits
Vested $ 51 $ 51
Nonvested -- --
==================
Accumulated benefit obligation 51 51
Effect of projected future
compensation increase 2 1
==================
Projected benefit obligation 53 52
Unrecognized net loss existing at
adoption of SFAS No. 87 (1) (1)
Other unrecognized loss (22) (22)
Adjusted minimum liability 21 22
==================
Accrued pension benefit obligation $ 51 $ 51
- ----------------------------------------------------------------
Pension benefit obligations were determined from actuarial valuations
using an assumed discount rate of 7% at December 31, 1996, and 1995, and
an assumed long-term rate of compensation increase of 5% in 1996 and
1995.
NOTE 8: EMPLOYEE BENEFITS
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Postretirement health care and life
insurance benefits $319 $310
Postemployment benefits 18 17
Unfunded supplemental pension
plan (see Note 7) 48 48
Unfunded foreign pension liabilities 20 19
==================
Total $405 $394
- ----------------------------------------------------------------
The company provides health care and life insurance benefits for
substantially all of its domestic retired employees, for which the
company is self-insured. In general, employees who have at least 15
years of service and are 60 years of age are eligible for continuing
health and life insurance coverage. Retirees contribute toward the cost
of such coverage.
The status of the plans at year end was as follows:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees $175 $174
Fully eligible active plan participants 43 93
Other active plan participants 85 56
==================
Total accumulated postretirement benefit
obligation 303 323
Unrecognized prior service cost 11 10
Unrecognized gains (losses) 20 (7)
==================
Total accrued postretirement benefit
obligation $334 $326
- ----------------------------------------------------------------
The accrued postretirement benefit obligation is recorded in "accrued
liabilities" (current) and "employee benefits" (non-current).
Net periodic postretirement benefit cost includes the following
components:
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------
Service cost of benefits earned $ 5 $ 4 $ 6
Interest cost on accumulated
postretirement benefit
obligation 20 22 24
Net amortization (1) (1) 2
=======================
Net periodic postretirement
benefit cost $ 24 $ 25 $ 32
- ----------------------------------------------------------------
The calculation of the accumulated postretirement benefit obligation
assumes a 10% annual rate of increase in the health care cost trend
rate. The company's plan limits its cost for health care coverage to an
increase of 10% or less each year, subject ultimately to a maximum cost
equal to double the 1992 cost level. The maximum cost level is expected
to be reached in the year 2005. Increases in retiree health care costs
in excess of these limits will be assumed by retirees.
A one percentage point increase in the annual health care cost trend
rate would increase the accumulated postretirement benefit obligation by
approximately $5 million, with an immaterial effect on annual
postretirement benefit cost. The weighted average discount rate used to
estimate the accumulated postretirement benefit obligation was 7% at
December 31, 1996, and 1995.
45
<PAGE>
NOTE 9: ACCOUNTS RECEIVABLE, NET
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Customers $699 $661
Unconsolidated subsidiaries and affiliates 37 25
Employees 7 7
Probable insurance recoveries for
environmental remediation 48 24
Other 64 51
==================
855 768
Less allowance for losses 14 12
==================
Total $841 $756
- ----------------------------------------------------------------
The $24 million of probable insurance recoveries for environmental
remediation at December 31, 1995 were collected in January 1996. The
$48 million outstanding at December 31, 1996 will be collected in 1997.
NOTE 10: INVENTORIES
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Finished products and work in process $375 $377
Raw materials 55 61
Supplies 53 66
==================
Total $483 $504
- ----------------------------------------------------------------
Beginning inventories used in determining 1996 and 1995 cost of goods
sold were $504 million and $487 million, respectively. Inventories
amounting to $440 million and $449 million were valued using the LIFO
method at December 31, 1996, and 1995, respectively. The excess of
current cost over the stated amount for inventories valued under the
LIFO method approximated $135 million and $153 million at December 31,
1996, and 1995, respectively. Liquidation of prior years' LIFO
inventory layers in 1996 and 1995 did not materially affect cost of
goods sold in either year.
NOTE 11: PREPAID EXPENSES AND OTHER ASSETS
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Prepaid expenses $ 24 $ 35
Deferred tax benefits 86 74
Notes receivable 1 2
Other current assets 10 7
==================
Total $121 $118
- ----------------------------------------------------------------
NOTE 12: LAND, BUILDINGS AND EQUIPMENT, NET
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Land $ 49 $ 53
Buildings and improvements 790 741
Machinery and equipment 3,113 2,917
Capitalized interest cost 209 194
Construction 166 253
====================
4,327 4,158
Less accumulated depreciation 2,261 2,110
====================
Total $2,066 $2,048
- ----------------------------------------------------------------
The principal lives (in years) used in determining depreciation rates of
various assets are: buildings and improvements (10-50); machinery and
equipment (5-20); automobiles, trucks and tank cars (3-10); furniture
and fixtures, laboratory equipment and other assets (5-10).
Gross book values of assets depreciated by accelerated methods totaled
$1,120 million and $1,176 million at December 31, 1996, and 1995,
respectively. Assets depreciated by the straight-line method totaled
$2,992 million and $2,676 million at December 31, 1996, and 1995,
respectively.
In 1996, 1995 and 1994 respectively, interest costs of $15 million, $18
million and $14 million were capitalized and added to the gross book
value of land, buildings and equipment. Amortization of such
capitalized costs included in depreciation expense was $14 million in
1996, $13 million in 1995 and $12 million in 1994.
46
<PAGE>
NOTE 13: OTHER ASSETS, NET
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Prepaid pension costs $126 $130
Goodwill 100 100
Patents, trademarks, etc. 54 53
Probable insurance recoveries for
environmental remediation -- 48
Rabbi trust assets (see Note 7) 21 11
Deferred tax benefits 4 9
Other noncurrent assets 21 24
==================
326 375
Less accumulated amortization
of intangible assets 42 36
==================
Total $284 $339
- ----------------------------------------------------------------
Note 14: Notes Payable
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Short-term borrowings $123 $ 51
Current portion of long-term debt 22 39
==================
Total $145 $ 90
- ----------------------------------------------------------------
Short-term borrowings include commercial paper and bank debt owed by
foreign subsidiaries. The weighted-average interest rate of short-term
borrowings was 6.2% and 5.0% at December 31, 1996 and 1995,
respectively.
The company has revolving credit agreements totaling $250 million which
expire in 1999. These agreements, which carry various interest rates
and fees, are available to support commercial paper borrowings. Several
permit foreign subsidiaries to borrow local currencies and
Eurocurrencies. At December 31, 1996, $48 million was outstanding under
these agreements.
NOTE 15: LONG-TERM DEBT
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
9.80% notes due 2020 $150 $150
9.875% notes due 2000 100 100
9.375% debentures due 2019
(callable 1999 at 104.7%) 100 100
9.50% notes due 2021
(callable 2002 at 104.8%) 75 75
3.85%-5.98% notes (yen denominated)
due 1998 to 2008 47 63
6.60% obligation due through 2012
(callable 1997 at 102.6%) 50 51
5.67% notes due 1998 30 30
6.92% note due annually through 1997 -- 11
7.81%-8.27% notes due through 1998 5 10
11.75% note (sterling denominated)
due annually to 1997 -- 1
Other 5 15
==================
Total $562 $606
- ----------------------------------------------------------------
The various loan agreements contain certain restrictions with respect to
tangible net worth and maintenance of working capital. There are no
restrictions on the payment of dividends
Total cash used for the payment of interest expense, net of amounts
capitalized, was $39 million, $42 million and $45 million in 1996, 1995
and 1994, respectively.
Long-term debt maturing in the next five years is:
- ----------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------
1997 $22 2000 $111
1998 49 2001 13
1999 6
- ----------------------------------------------------------------
47
<PAGE>
NOTE 16: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Trade payables $319 $313
Payables due to unconsolidated subsidiaries
and affiliates 13 20
Salaries and wages 71 71
Taxes, other than income taxes 50 29
Interest 13 13
Employee benefits 22 24
Reserves for environmental
remediation 28 54
Reserves for plant shutdowns 8 8
Sales incentive programs 42 34
Other 103 100
==================
Total $669 $666
- ----------------------------------------------------------------
NOTE 17: OTHER LIABILITIES
- ----------------------------------------------------------------
(Millions of dollars) 1996 1995
- ----------------------------------------------------------------
Reserves for environmental remediation $111 $116
Reserves for plant shutdowns 6 11
Other 24 17
==================
Total $141 $144
- ----------------------------------------------------------------
NOTE 18: STOCKHOLDERS' EQUITY
The company has the authorization to issue up to 25 million shares of
preferred stock. The outstanding preferred stock was issued in
connection with the acquisition of Shipley Company in 1992. The company
may issue up to an additional 124,535 of these preferred shares for the
exercise of outstanding Shipley stock options. This preferred stock
pays an annual cumulative dividend of $2.75 per share. It has
antidilution protection against stock splits, stock dividends and
certain issuances of additional securities and extraordinary dividends.
This preferred stock is convertible at any time at the holder's option
into Rohm and Haas common stock at the rate of .7812 shares of common
stock for each share of preferred stock. Holders of the preferred stock
are entitled to one vote per share. The company has the option to
redeem the preferred stock on or after June 12, 1999, at a fixed
redemption price of $50.62, payable in Rohm and Haas common stock. The
redemption price reduces each year to a final price of $50 on or after
June 12, 2002.
Dividends paid on ESOP shares, used as a source of funds for meeting the
ESOP financing obligation, were $10 million in 1996 and 1995. These
dividends were recorded net of the related U.S. tax benefit. The number
of ESOP shares not allocated to plan members at December 31, 1996, and
1995 were 4.9 million and 5.1 million, respectively.
The company recorded compensation expense of $6 million in 1996, $5
million in 1995 and $7 million in 1994 for ESOP shares allocated to plan
members. The company expects to record annual compensation expense at
approximately this level over the next 24 years as the remaining $145
million of ESOP shares are allocated. The allocation of shares from the
ESOP is expected to fund a substantial portion of the company's future
obligation to match employees savings plan contributions as the market
price of Rohm and Haas stock appreciates.
Purchases of treasury stock in 1996 totaled 4,430,971 shares, compared
with 515,138 and 123,345 shares in 1995 and 1994, respectively. In
September 1996, the company completed the repurchase of 3.5 million
shares of common stock and received board approval on October 15, 1996,
for a second buyback program of another 3.5 million shares.
48
<PAGE>
NOTE 19: STOCK COMPENSATION PLANS
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation," which
became effective in 1996. The statement encourages the fair value based
method which recognizes compensation expense equal to the fair value of
the stock-based compensation at the date of the grant. As an
alternative, the statement allows companies to continue to apply APB
Opinion No. 25 and related Interpretations, which for certain types of
stock-based compensation, does not result in a charge to earnings.
The company has elected to continue to apply the provisions of APB
Opinion No. 25. Accordingly, no compensation expense has been
recognized for the fixed stock option plans. For restricted stock
awards, compensation expense equal to the fair value of the stock on the
date of the grant is recognized over the five-year vesting period.
Total compensation expense for restricted stock was $1 million in each
of the years ended December 31, 1996, 1995 and 1994. Had compensation
expense for the company's fixed stock option plans been determined in
accordance with SFAS No. 123, the company's net earnings would have been
reduced to $361 million in 1996and $291 million in 1995. Earnings per
common share would have been reduced to $5.41 and $4.20 in 1996, and
1995, respectively.
RESTRICTED STOCK PLAN OF 1992 FOR NON-EMPLOYEE DIRECTORS
Non-employee directors were given an initial grant of common stock equal
to $25,000 when they were first elected to the board and every fifth
year thereafter. The shares vest 20% for each year of service. The
plan covers an aggregate 50,000 shares of common stock. In 1996, 419
shares with a total value of $24,983 were issued in connection with the
election of a new member to the board. No such grants were made in
1995.
Non-employee directors could also elect to receive their board and
committee retainers in restricted stock. These shares are immediately
vested. In 1996 and 1995, 1,413 shares at a weighted-average grant-date
fair value of $64.88 and 920 shares at a weighted-average grant-date
fair value of $56.25 per share, respectively, were granted in payment of
board and committee retainers.
NON-EMPLOYEE DIRECTORS' STOCK PLAN OF 1997
Non-employee directors compensation was changed effective January 1,
1997. No further shares will be issued under the Restricted Stock Plan
of 1992 for Non-Employee Directors. Under the 1997 Non-Employee
Directors Stock Plan, directors will receive half of their annual
retainer in deferred stock. Each share of deferred stock represents the
right to receive one share of company common stock upon leaving the
board. Directors may also elect to defer all or part of their cash
compensation into deferred stock. Annual compensation expense will be
recorded equal to the number of deferred stock shares awarded multiplied
by the market value of the company's common stock on the date of award.
Additionally, directors will receive dividend equivalents on each share
of deferred stock, payable in deferred stock, equal to the dividend paid
on a share of common stock.
RESTRICTED STOCK PLAN OF 1992
Under this plan, executives are paid some or all of their bonuses in
shares of restricted stock instead of cash. The shares vest after 5
years. The plan covers an aggregate 150,000 shares of common stock.
Shares of restricted stock issued in 1996 totaled 8,854 at a
weighted-average grant-date fair value of $69.94 per share. In 1995,
15,272 shares of restricted stock were granted at a weighted-average
grant-date fair value of $56.13 per share.
FIXED STOCK OPTION PLANS
The company has granted stock options to key employees under its Stock
Option Plans of 1984 and 1992. Options granted pursuant to the plans
are priced at the fair market value of the common stock on the date of
the grant. Options vest after one year and expire 10 years from the
date of grant. The Stock Option Plan of 1992, as amended in 1994,
limits the number of options that can be granted to any one individual
within a five-year period to 100,000 shares. Under this plan, the
company may
49
<PAGE>
grant options for up to 2.5 million shares of common stock. The status
of the company's stock options is presented below:
- -----------------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
---------------------------------------------------------
Outstanding at
beginning
of year 777 $45.53 749 $41.84 763 $38.22
Granted 201 64.30 139 56.24 101 58.92
Cancelled (2) 64.44 -- -- -- --
Exercised (215) 38.28 (111) 33.97 (115) 32.87
=== === ===
Outstanding at
end of year 761 52.48 777 45.53 749 41.84
=== === ===
Options exercisable
at year-end 562 48.30 638 43.21 648 39.17
Weighted-average
fair value of
options granted
during the year $16.67 $14.95
- ------------------------------------------------------------------------------
The Black-Scholes option pricing model was used to estimate the fair
value for each grant made during the year. The following are the
weighted-average assumptions used for all shares granted in the years
indicated:
- ----------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------
Dividend yield 2.59% 2.45%
Volatility 21.52 23.26
Risk-free interest rate 5.69 5.52
Time to exercise 7 years 7 years
- ----------------------------------------------------------------
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1996:
- ------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------------------
Range Weighted- Weighted- Weighted-
of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices (000s) Life Price (000s) Price
- ------------------------------------------------------------------------------
$32 to $36 154 3.1 years $34.66 154 $34.66
42 to 55 188 5.5 48.86 188 48.86
56 to 64 419 6.2 60.65 220 57.36
=== ===
761 562
=== ===
- ------------------------------------------------------------------------------
NOTE 20: LEASES
The company leases certain properties and equipment usedin its
operations, primarily under operating leases. Most lease agreements
require minimum lease payments plus a contingent rental based on
equipment usage and escalation factors. Total net rental expense
incurred under operating leases amounted to $63 million in 1996, $81
million in 1995 and $63 million in 1994.
Total future minimum lease payments under the terms of non-cancellable
operating leases are as follows:
- ----------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------
1997 $35 2001 $10
1998 25 2002-2006 37
1999 20 After 2006 27
2000 11
- ----------------------------------------------------------------
The leases meeting the criteria for capitalization set forth in SFAS No.
13 have been classified and accounted for as capital leases. Land,
building and equipment, net of accumulated depreciation, included $1
million and $3 million at December 31, 1996 and 1995, respectively, for
assets recorded under capitalized leases. The related obligations for
these leases are included in notes payable and long-term debt, which
totaled $1 million and $2 million at December 31, 1996 and 1995,
respectively.
50
<PAGE>
NOTE 21: CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS
(a) Environmental
There is an inherent risk of environmental damage in chemical
manufacturing operations. The company's environmental policies and
practices are designed to ensure compliance with existing laws and
regulations and to minimize the possibility of significant environmental
damage. These laws and regulations require the company to make
significant expenditures for remediation, capital improvements and
operating environmental protection equipment. Future developments and
even more stringent environmental regulations may require the company to
make additional unforeseen environmental expenditures. The company's
major competitors are confronted by substantially similar environmental
risks and regulations.
The company is a party in various government enforcement and private
actions associated with former waste disposal sites, many of which are
on the U.S. Environmental Protection Agency's (EPA) Superfund priority
list. The company also is involved in corrective actions at some of its
manufacturing facilities. Accruals for expected future remediation
costs are in accordance with the provisions of SFAS No. 5, "Accounting
For Contingencies," which requires an accrual to be recorded when it is
probable a liability has been incurred and costs are reasonably
estimable. The company considers a broad range of information when
determining the amount of the accrual, including available facts about
the waste site, existing and proposed remediation technology and the
range of costs of applying those technologies, prior experience,
government proposals for this or similar sites, the liability of other
parties, the ability of other principally responsible parties to pay
costs apportioned to them and current laws and regulations. These
accruals are updated quarterly as additional technical and legal
information becomes available. Major sites for which reserves have been
provided are: the non-company-owned Lipari, Woodland and Kramer sites in
New Jersey, Whitmoyer in Pennsylvania and company-owned sites in Bristol
and Philadelphia, Pennsylvania and in Houston, Texas. In addition, the
company has provided for future costs at approximately 80 other sites
where it has been identified as potentially responsible for cleanup
costs and, in some cases, damages for alleged personal injury or
property damage.
The amounts charged to earnings before tax for environmental remediation
were $27 million, $45 million and $31 million in 1996, 1995 and 1994,
respectively. The charge in 1995 included $26 million for additional
potential liability related to the cleanup of the Whitmoyer waste site
as a result of an adverse court ruling in that year. The company
appealed that ruling and during 1996, the United States Court of Appeals
for the Third Circuit ruled in the company's favor by reversing the 1995
judgmentof the Federal District Court regarding indemnification of
SmithKline Beecham (SKB) for cleanup of the Whitmoyer site. As a result
of this ruling, the District Court will determine the equitable
apportionment of costs between the two companies for cleanup of
contamination that occurred prior to either company's ownership of the
site. Rohm and Haas and SKB have agreed to an interim cost sharing
arrangement; however, the company will not make any adjustment to its
environmental remediation reserves until a final ruling is received.
The 1994 charge included $14 million related to the company-owned
Bristol site.
The reserves for remediation were $139 million and $170 million at
December 31, 1996, and 1995, respectively, and are recorded as "other
liabilities" (current and long-term). Probable insurance recoveries
were $48 million at December 31, 1996 and $72 million at December 31,
1995. The reduction in 1996 was due to collections from certain
insurance carriers regarding the company's claims for environmental
remediation costs and related legal expenses. Late in 1996 and early
1997, the company negotiated settlements with additional insurers
totaling $61 million; $56 million will be collected in 1997 and $5
million will be collected in 1998 and 1999. The excess of the
settlements over the probable insurance recovery asset of $48 million
will be recognized as in come. Other insurance carriers have denied
coverage in most cases and the company has initiated legal action in New
Jersey and Pennsylvania. The trial in Pennsylvania started January 22,
1997, and the company is hopeful of receiving additional recoveries.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies related to environmental matters
of approximately $65 million at December 31, 1996, compared to $70
million at December 31, 1995. Further, the company anticipates that
additional future environmental remediation may be required, but these
loss contingencies are not reasonably estimable at this time. These
matters involve significant unresolved issues, including the number of
parties found liable at each site and their ability to pay, the outcome
of negotiations with regulatory authorities, the alternative methods of
remediation and the range of cost associated with those alternatives.
The company believes that these matters, when ulti-
51
<PAGE>
mately resolved, which may be over an extended period of time, will not
have a material adverse effect on the consolidated financial position or
consolidated cash flows of the company, but could have a material
adverse effect on consolidated results of operations in any given year.
In 1995, a lawsuit was filed against the company and other defendants,
seeking class action certification for property damage, personal injury
and medical monitoring allegedly related to contamination of the Lipari
landfill, nearby streams and Lake Alcyon in Pitman, New Jersey. In
1996, the plaintiffs dismissed the property damage claims. The company
believes it has substantial defenses to this lawsuit; it is too early to
determine what financial impact, if any, it may have.
Capital spending for new environmental protection equipment was $32
million in 1996. Spending for 1997 and 1998 is expected to be
approximately $22 million and $19 million, respectively. Capital
expenditures in this category include projects whose primary purpose is
pollution control and safety, as well as environmental aspects of
projects which are intended primarily to improve operations or increase
plant efficiency. The company expects future capital spending for
environmental protection equipment to be consistent with prior-year
spending patterns. Capital spending does not include the cost of
environmental remediation of waste disposal sites.
Cash expenditures for waste disposal site remediation were $58 million
in 1996, $51 million in 1995 and $46 million in 1994. The expenditures
for remediation are charged against accrued remediation reserves. The
cost of operating and maintaining environmental facilities was $104
million, $96 million and $107 million in 1996, 1995 and 1994,
respectively, and was charged against current-year earnings.
(b) Other
The company and its subsidiaries are parties to litigation arising out
of the ordinary conduct of its business. The company is also a subject
of an investigation by U.S. Customs into the labeling of some products
imported into the U.S. from some of the company's non-U.S. locations.
Recognizing the amounts reserved for such items and the uncertainty of
the ultimate outcomes, it is the company's opinion that the resolution
of all pending lawsuits, investigations and claims will not have a
material adverse effect, individually or in the aggregate, upon the
results of operations and the consolidated financial position of the
company.
In the ordinary course of business, the company has entered into certain
purchase commitments, has guaranteed certain loans (with recourse to the
issuer), and has made certain financial guarantees, primarily for the
benefit of its non-U.S. and unconsolidated subsidiaries and affiliates.
It is believed that these commitments and any liabilities which may
result from these guarantees will not have a material adverse effect
upon the consolidated financial position of the company.
At December 31, 1996, construction commitments totaled approximately
$56 million.
52
<PAGE>
REPORT ON FINANCIAL STATEMENTS
The financial statements of Rohm and Haas Company and subsidiaries were
prepared by the company in accordance with generally accepted accounting
principles. The financial statements necessarily include some amounts
that are based on the best estimates and judgments of the company. The
financial information in this annual report is consistent with that in
the financial statements.
The company maintains accounting systems and internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded, transactions are executed in accordance with the company's
authorization and transactions are properly recorded. The accounting
systems and internal accounting controls are supported by written
policies and procedures, by the selection and training of qualified
personnel and by an internal audit program. In addition, the company's
code of business conduct requires employees to discharge their
responsibilities in conformity with the law and with a high standard of
business conduct.
The company's financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their report below.
Their audit was conducted in accordance with generally accepted auditing
standards and included a review of internal accounting controls to the
extent considered necessary to determine the audit procedures required
to support their opinion.
The audit committee of the board of directors, composed entirely of
non-employee directors, recommends to the board of directors the
selection of the company's independent auditors, approves their fees and
considers the scope of their audits, audit results, the adequacy of the
company's internal accounting control systems and compliance with the
company's code of business conduct.
/s/ J. Lawrence Wilson /s/ Fred W. Shaffer
J. LAWRENCE WILSON FRED W. SHAFFER
Chairman of the Board Vice President and
and Chief Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders KPMG Peat Marwick LLP
1600 Market Street
Rohm and Haas Company: Philadelphia, Pennsylvania 19103
We have audited the accompanying consolidated balance sheets of Rohm and
Haas Company and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended December
31, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rohm
and Haas Company and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 24, 1997
53
<PAGE>
<TABLE>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
(Millions of dollars, except
per-share amounts) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 3,982 $ 3,884 $ 3,534 $ 3,269 $ 3,063 $ 2,763 $ 2,824 $ 2,661 $ 2,535 $ 2,203 $ 2,067
Cost of goods sold 2,587 2,551 2,267 2,174 2,014 1,861 1,894 1,820 1,646 1,430 1,346
-----------------------------------------------------------------------------------------------------
Gross profit 1,395 1,333 1,267 1,095 1,049 902 930 841 889 773 721
Selling and administrative
expense 631 616 591 590 549 470 454 401 381 335 320
Research and development
expense 187 194 201 205 199 183 178 175 156 142 133
Interest expense 39 39 46 41 53 48 37 39 32 31 36
Other expense (income), net 8 43 22 65 (13) (39) (52) (25) (26) (38) 13
-----------------------------------------------------------------------------------------------------
Earnings before income taxes 530 441 407 194 261 240 313 251 346 303 219
Income taxes 167 149 143 68 87 77 106 75 116 108 81
-----------------------------------------------------------------------------------------------------
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES $ 363 $ 292 $ 264 $ 126 $ 174 $ 163 $ 207 $ 176 $ 230 $ 195 $ 138
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES -- -- -- (19) (179) -- -- -- -- -- --
NET EARNINGS (LOSS) $ 363 $ 292 $ 264 $ 107 $ (5) $ 163 $ 207 $ 176 $ 230 $ 195 $ 138
- ---------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS)
APPLICABLE TO COMMON
SHAREHOLDERS $ 356 $ 285 $ 257 $ 99 $ (11) $ 157 $ 207 $ 176 $ 230 $ 195 $ 138
- ---------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER COMMON
SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES $ 5.45 $ 4.22 $ 3.79 $ 1.74 $ 2.53 $ 2.45 $ 3.10 $ 2.65 $ 3.46 $ 2.85 $ 2.01
- ---------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER
COMMON SHARE $ 1.72 $ 1.56 $ 1.44 $ 1.36 $ 1.28 $ 1.24 $ 1.22 $ 1.16 $ 1.02 $ .86 $ .78
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION--YEAR END
- ---------------------------------------------------------------------------------------------------------------------------------
Working capital $ 570 $ 593 $ 508 $ 499 $ 533 $ 606 $ 424 $ 434 $ 485 $ 486 $ 507
Gross fixed assets 4,327 4,158 3,969 3,696 3,470 3,015 2,770 2,396 2,062 1,754 1,627
Total assets 3,933 3,916 3,861 3,524 3,517 2,897 2,702 2,455 2,242 1,954 1,842
Long-term debt 562 606 629 690 699 718 598 359 288 258 278
Stockholders' equity 1,728 1,781 1,620 1,441 1,428 1,235 1,137 1,311 1,207 1,053 1,002
FINANCIAL RATIOS
- ---------------------------------------------------------------------------------------------------------------------------------
As a percent of sales
Gross profit 35.0% 34.3% 35.9% 33.5% 34.2% 32.6% 32.9% 31.6% 35.1% 35.1% 34.9%
Selling, administrative
and research expense 20.5 20.9 22.4 24.3 24.4 23.6 22.4 21.6 21.2 21.7 21.9
Earnings before cumulative
effect of accounting
changes 9.1 7.5 7.5 3.9 5.7 5.9 7.3 6.6 9.1 8.9 6.7
Debt-to-equity ratio at
year end* 37.5% 36.0% 44.3% 48.2% 50.1% 50.0% 48.0% 40.5% 37.6% 34.7% 38.7%
Return on common
stockholders' equity*+ 20.1% 16.6% 16.5% 8.1% 11.4% 11.2% 15.2% 14.0% 20.4% 19.0% 14.3%
Ten-year compound growth rate
Sales 6.8% 6.6% 5.6% 5.7% 5.3% 3.9% 5.1% 5.3% 7.3% 7.0% 7.4%
Earnings per common share
before cumulative effect
of accounting changes 10.5 7.7 5.4 (0.9) 8.6 7.4 9.9 7.1 17.0 19.0 13.4
Cash dividends per
common share 8.2 8.3 9.1 10.5 10.5 11.2 13.0 14.9 16.1 15.1 14.0
GENERAL
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
Volume of shipments,
millions of units 4,725 4,473 4,549 4,214 3,750 3,267 3,336 3,259 3,143 2,808 2,619
Additions to land,
buildings and
equipment $ 334 $ 417 $ 339 $ 382 $ 283 $ 265 $ 412 $ 385 $ 338 $ 222 $ 179
Depreciation 262 242 231 226 203 183 159 150 128 112 103
Cash dividends 116 109 102 97 88 80 79 77 67 59 54
Wages and salaries $ 627 $ 625 $ 632 $ 616 $ 589 $ 540 $ 520 $ 481 $ 457 $ 420 $ 390
Common stock price
High $82-1/2 $64-7/8 $68-1/2 $62 $59-5/8 $48-1/2 $37 $37-1/2 $37-1/2 $53-1/4 $38-3/4
Low 51-1/8 49-1/2 53-1/4 47-1/4 42-3/4 32-3/4 24-1/4 31 28 24 23-7/8
Year-end close 81-5/8 64-3/8 57-1/8 59-1/2 53-1/2 43-1/2 34-7/8 34-3/4 34-3/8 31-5/8 34-7/8
Average number of
shares outstanding
in thousands 65,374 67,522 67,707 67,619 66,396 64,103 66,218 66,593 66,561 68,578 68,963
AT YEAR END
Number of registered
common stockholders 4,492 4,721 4,907 5,120 5,653 5,796 6,088 5,816 5,695 5,864 5,540
Number of employees 11,633 11,670 12,211 12,985 13,619 12,872 12,920 13,040 12,444 12,021 11,972
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Excluding ESOP adjustment and including common stock that was to be
purchased in 1995
+Earnings excluding cumulative effect of accounting changes
See accompanying notes on page 56.
See 1996, 1995 and 1994 results in Management Discussion and Analysis on
pages 22 to 31.
54 <------ TABLE SPANS FOLIOS ------> 55
<PAGE>
NOTES
A. The 1996 earnings included a net gain of 6 cents per common share
from non-recurring items. This is the net effect of a 15 cent per
common share gain related to retroactive tax credits on sales outside of
the United States and a charge of 9 cents per common share for charges
for restructuring operations in Japan, a plant writedown in the United
States, a gain from a land sale in Japan, and restructuring costs
associated with the AtoHaas joint venture in Europe.
B. Results in 1995 were reduced by a charge of 25 cents per common share
for additional potential liability related to the cleanup of the
Whitmoyer waste site in Myerstown, Pennsylvania.
C. Earnings in 1993 included charges of 47 cents per common share for
remediation of property near the Lipari landfill, 24 cents per common
share for cancelling construction of a plastics manufacturing facility
in England and 27 cents per common share for the writedown of the
imidized plastics production line in Kentucky. Results also included a
gain of 16 cents per common share for the sale of Supelco, Inc.
D. Effective January 1, 1993, the company adopted a new accounting
standard for postemployment benefits. The cumulative effect of the
change as of the adoption date was a charge of 28 cents per common
share. The impact on 1993 earnings was an after-tax charge of 1 cent
per common share.
E. Results in 1992 included a 56 cents-per-common-share charge for the
estimated costs of downsizing a manufacturing site in Philadelphia.
F. Effective January 1, 1992, the company adopted new accounting
standards for postretirement benefits and income taxes. The cumulative
effect of these accounting changes as of the adoption date was a charge
of $2.69 per common share. The impact on 1992 results was an after-tax
charge of 11 cents per common share.
56
<PAGE>
Shareholder Information
- ---------------------------------------------------------------------------
1997 ANNUAL MEETING
The 1997 Annual Meeting of Shareholders will be held at WHYY
Studios, Independence Mall West, 150 N. Sixth Street, Philadelphia,
Pennsylvania, at 10:30 a.m. on Monday, May 5th. Formal notice of the
meeting, the proxy statement and form of proxy will be mailed on March
21, 1997.
FORM 10-K REPORT
A copy of the company's annual report to the Securities and Exchange
Commission on Form 10-K will be provided upon request to the Public
Relations Department, Rohm and Haas Company, 100 Independence Mall West,
Philadelphia, Pennsylvania USA 19106-2399, (215) 592-3045.
STOCK EXCHANGE LISTING
Rohm and Haas Company stock trades on the New York Stock Exchange under
the ROH symbol.
STOCK TRANSFER AGENT AND REGISTRAR
Wachovia Shareholder Services
Wachovia Bank of North Carolina, N.A.
P. O. Box 8217
Boston, Massachusetts USA 02266-8217
1-800-633-4236
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1600 Market Street
Philadelphia, Pennsylvania USA 19103
(215) 299-3100
57
<PAGE>
Board of Directors
GEORGE B. BEITZEL
Retired Senior Vice President and Director,
International Business Machines Corporation
Mr. Beitzel, 68, has been a director since
1983.
Committees: 1, 5 (Chairman), 6, 7
DANIEL B. BURKE
Retired Chief Executive Officer, President,
and Director, Capital Cities/ABC, Inc.
Mr. Burke, 68, has been a director since 1986.
Committees: 2, 4 (Chairman), 6, 7
EARL G. GRAVES
Chairman and Chief Executive Officer, Earl G.
Graves, Ltd.; Chairman and Chief Executive
Officer of Pepsi-Cola of Washington, D.C.,
L.P.; Publisher and Editor of Black
Enterprise Magazine; General Partner of EGOLI
Beverages (Pepsi-Cola S.A.)
Mr. Graves, 62, has been a director
since 1984.
Committees: 2, 4, 6, 7 (Chairman)
JAMES A. HENDERSON
Chairman, Chief Executive Officer and
Director, Cummins Engine Company, Inc.
Mr. Henderson, 62, has been a director since
1989.
Committees: 1, 5, 6, 7
JOHN H. MCARTHUR
George F. Baker Professor of Business
Administration Emeritus; Retired Dean,
Harvard Business School
Dr. McArthur, 62, has been a
director since 1977.
Committees: 1 (Chairman), 5, 6, 7
PAUL F. MILLER, JR.
Partner in Miller Associates
Mr. Miller, 69, has been a director since 1969.
Committees: 1, 3, 5, 6 (Chairman), 7
JORGE P. MONTOYA
Executive Vice President, The Procter &
Gamble Company;President, Procter & Gamble
Latin America
Mr. Montoya, 50, became a
director in 1996.
Committees: 2, 4, 6, 7
SANDRA O. MOOSE
Senior Vice President and Director, The
Boston Consulting Group, Inc.
Dr. Moose, 55, has been a
director since 1981.
Committees: 2 (Chairman), 3, 4, 6, 7
JOHN P. MULRONEY
President and Chief Operating Officer, Rohm
and Haas Company
Mr. Mulroney, 61, has been a
director since 1982.
Committees: 2, 3, 7
GILBERT S. OMENN
Dean, School of Public Health and Community
Medicine, University of Washington, Seattle
Dr. Omenn, 55, has been a director since
1987.
Committees: 1, 5, 6, 7
RONALDO H. SCHMITZ
Member of the Board of Managing Directors of
Deutsche Bank, AG; Chairman Deutsche Morgan
Grenfell
Dr. Schmitz, 58, has been a
director since 1992.
Committees: 1, 5, 6, 7
ALAN SCHRIESHEIM
Director Emeritus of Argonne National
Laboratory
Dr. Schriesheim, 67, has been a
director since 1989.
Committees: 2, 4, 6, 7
MARNA C. WHITTINGTON
Chief Operating Officer, Morgan Stanley Asset
Management Inc.
Dr. Whittington, 49, has
been a director since 1989.
Committees: 1, 3, 5, 6, 7
J. LAWRENCE WILSON
Chairman of the Board and Chief Executive
Officer, Rohm and Haas Company
Mr. Wilson, 61, has been a
director since 1977.
Committees: 3 (Chairman), 7
Board
Committees
- -------------------------------
1 Audit
2 Corporate Responsibility
3 Executive
4 Executive Compensation
5 Finance
6 Nominating
7 Strategic Planning
58
<PAGE>
CHAIRMAN'S COMMITTEE
[ID -- PHOTO]
From left to right:
J. LAWRENCE WILSON
Chairman and CEO
JOHN P. MULRONEY
President and COO
BASIL A. VASSILIOU
Vice President
Regional Director, Europe
CHARLES M. TATUM
Vice President
Business Unit Director,
Plastics Additives
RAJIV L. GUPTA
Vice President
Regional Director,
Asia-Pacific
J. MICHAEL FITZPATRICK
Vice President
Chief Technology Officer
THE CHAIRMAN'S COMMITTEE IS RESPONSIBLE FOR OVERALL COMPANY STRATEGY,
AND FOR ALLOCATING RESOURCES AMONG THE COMPANY'S TEN BUSINESSES.
OTHER OFFICERS
- ------------------------------------------------------------------------------
THOMAS L. ARCHIBALD
Vice President*
PAUL J. BADUINI
Vice President
ALBERT H. CAESAR
Vice President
A. WAYNE CARNEY
Vice President
PATRICK R. COLAU
Vice President
NANCE K. DICCIANI
Vice President
ROBERT M. DOWNING
Vice President
DAVID T. ESPENSHADE
Vice President
CARLOS A. ESTEVEZ
Vice President
J. GARY FISCHETTE
Vice President
MARISA L. GUERIN
Vice President
HOWARD C. LEVY
Vice President
PHILIP G. LEWIS
Vice President
FRED W. SHAFFER
Vice President
Chief Financial Officer
RICHARD C. SHIPLEY
Vice President
WILLIAM H. STAAS
Vice President
DAVID A. STITELY
Vice President
Chief Information Officer
JOHN F. TALUCCI
Vice President
ROBERT P. VOGEL
Vice President
General Counsel
WILLIAM C. ANDREWS
Controller
GAIL P. GRANOFF
Secretary
ANGUS F. SMITH
Treasurer
MARC S. ADLER
Assistant Secretary
STANLEY J. HARMER
Assistant Secretary
ENRIQUE F. MARTINEZ
- ------------------------------------------------------------------------
Enrique "Henry" Martinez, Vice President and Director of the Latin
American region, retired from the company on July 31st. He was the
major force in the development and success of the Latin American region.
Henry guided operations there through the difficult years, and was the
architect behind the tremendous earnings performance for the Latin
American region in 1996.
59
<PAGE>
Rohm and Haas Company Locations
- ------------------------------------------------------------------------
CORPORATE
HEADQUARTERS
Rohm and Haas Company
100 Independence Mall West
Philadelphia, Pennsylvania USA 19106-2399
(215) 592-3000
(Delaware Corporation)
SUBSIDIARIES
ATOHAAS AMERICAS INC.
Philadelphia, Pennsylvania USA
(51% owned)
ATOHAAS CANADA INC.
West Hill, Canada
(51% owned)
ATOHAAS DELAWARE INC.
Wilmington, Delaware USA
ATOHAAS FOREIGN
SALES CORPORATION
St. Thomas, U.S. Virgin Islands
ATOHAAS MEXICO INC.
Matamoros, Mexico
(51% owned)
BEIJING EASTERN ROHM AND
HAAS COMPANY, LIMITED
Beijing, China
(60% owned)
JAPAN ACRYLIC CHEMICAL
COMPANY, LTD.
Tokyo, Japan
MAQUILADORA GENERAL DE
MATAMOROS, S.A. DE C.V.
Matamoros, Mexico
(51% owned)
POLYTRIBO, INC.
Bristol, Pennsylvania USA
(60% owned)
P.T. ROHM AND HAAS
COMPANY INDONESIA
Jakarta, Indonesia
ROHM AND HAAS AUSTRALIA PTY. LTD.
Melbourne, Australia
ROHM AND HAAS (BERMUDA), LTD.
Hamilton, Bermuda
ROHM AND HAAS CANADA INC.
West Hill, Canada
ROHM AND HAAS CAPITAL CORPORATION
Wilmington, Delaware USA
ROHM AND HAAS CHEMICAL (THAILAND) LTD.
Bangkok, Thailand
ROHM AND HAAS CHINA, INC.
Hong Kong
ROHM AND HAAS COLOMBIA S.A.
Bogota, Colombia
ROHM AND HAAS CREDIT CORPORATION
Wilmington, Delaware USA
ROHM AND HAAS DEUTSCHLAND GMBH
Frankfurt, Germany
ROHM AND HAAS EQUITY CORPORATION
Wilmington, Delaware USA
ROHM AND HAAS ESPANA S.A.
Barcelona, Spain
ROHM AND HAAS FINANCE COMPANY
Wilmington, Delaware USA
ROHM AND HAAS FOREIGN SALES CORPORATION
St. Thomas, U.S. Virgin Islands
ROHM AND HAAS FRANCE S.A.
Paris, France
ROHM AND HAAS HOLDINGS LTD.
Hamilton, Bermuda
ROHM AND HAAS ITALIA S.R.L.
Milan, Italy
ROHM AND HAAS JAPAN K.K.
Tokyo, Japan
ROHM AND HAAS LATIN AMERICA, INC.
Philadelphia, Pennsylvania USA
ROHM AND HAAS MEXICO S.A. DE C.V.
Mexico City, Mexico
ROHM AND HAAS NEW ZEALAND LIMITED
Auckland, New Zealand
ROHM AND HAAS NORDISKA AB
Landskrona, Sweden
ROHM AND HAAS PERFORMANCE PLASTICS INC.
Wilmington, Delaware USA
ROHM AND HAAS PHILIPPINES, INC.
Manila, Philippines
ROHM AND HAAS QUIMICA LTDA.
Sao Paulo, Brazil
ROHM AND HAAS ROHMAX HOLDINGS INC.
Wilmington, Delaware USA
ROHM AND HAAS (SCOTLAND) LIMITED
Grangemouth, Scotland
(75% owned)
ROHM AND HAAS SINGAPORE (PTE.) LTD.
Singapore
ROHM AND HAAS SLOVENIA
Ljubljana, Slovenia
(51% owned)
ROHM AND HAAS TAIWAN INC.
Taipei, Taiwan
ROHM AND HAAS TEXAS INCORPORATED
Houston, Texas USA
ROHM AND HAAS (UK) LIMITED
Croydon, England
SHIPLEY COMPANY L.L.C.
Marlboro, Massachusetts USA
SHIPLEY EUROPE LIMITED
Coventry, England
SHIPLEY FAR EAST LIMITED
Tokyo, Japan
AFFILIATES
ATOHAAS B.V.
Haarlem, The Netherlands
(50% owned)
ATOHAAS EUROPE S.C.A.
Paris, France
(49% owned)
ATOHAAS HOLDING C.V.
Haarlem, The Netherlands
(50% owned)
KUREHA CHEMICALS (SINGAPORE) PTE. LTD.
Singapore
(25% owned)
NORSOHAAS S.A.
Villers-Saint-Paul, France
(50% owned)
ROHMAX ADDITIVES GMBH
Darmstadt, Germany
(50% owned)
ROHMID L.L.C.
Parsippany, New Jersey USA
(50% owned)
TOSOHAAS
Montgomeryville, Pennsylvania USA
(50% owned)
MANUFACTURING
LOCATIONS
AUSTRALIA: Geelong
BRAZIL: Jacarei; Sao Leopoldo
CANADA: Morrisburg; West Hill
CHINA: Beijing
COLOMBIA: Barranquilla
ENGLAND: Coventry; Jarrow
FRANCE: Bernouville; Chauny;
Lauterbourg; Saint Avold;
Villers-Saint-Paul
GERMANY: Darmstadt;
Stuttgart; Weiterstadt
ITALY: Mozzanica; Rho
JAPAN: Nagoya; Sasagami; Soma
MEXICO: Apizaco; Matamoros
NETHERLANDS: Leeuwarden
NEW ZEALAND: Auckland
PHILIPPINES: Las Pinas
SCOTLAND: Grangemouth
SINGAPORE: Singapore
SLOVENIA: Ljubljana
SPAIN: Tudela
SWEDEN: Landskrona
TAIWAN: Min-Hsiung
THAILAND: Map Ta Phut
UNITED STATES:
California - Hayward; LaMirada
Connecticut - Kensington
Illinois - Chicago Heights; Kankakee
Kentucky - Louisville
Massachusetts - Marlboro
North Carolina - Charlotte
Pennsylvania - Bristol;
Montgomeryville;
Philadelphia
Tennessee - Knoxville
Texas - Bayport; Houston
60
<PAGE>
RESEARCH LABORATORIES
CORPORATE RESEARCH
HEADQUARTERS
Spring House, Pennsylvania
Bristol, Pennsylvania
OTHER RESEARCH AND TECHNICAL
FACILITIES
Campinas, Brazil
Charlotte, North Carolina
Chauny, France
Geelong, Australia
Himeji, Japan
Houston, Texas
Marlboro, Massachusetts
Newtown, Pennsylvania
Sasagami, Japan
Singapore, Singapore
Valbonne, France
Waller County, Texas
Washimiya, Japan
SALES OFFICES
In major cities of the world.
The company owns a number of other domestic and foreign subsidiaries
which are involved primarily in sales activities.
These subsidiaries, either singly or in the aggregate, are not
significant. These accounts are not included in the consolidated
financial statements.
COMPANY INFORMATION
Internet World Wide Web users can access information about Rohm and
Haas at the following Web address:http://www.rohmhaas.com
General information brochures about Rohm and Haas Company and about
its safety, health and environmental policies also are available upon
request to the Public Relations Department, Rohm and Haas Company, 100
Independence Mall West, Philadelphia, Pennsylvania, 19106-2399, (215)
592-3045.
TRADEMARKS
Confirm, Dimension, Dithane, Goal, Greatam, Indar, Kathon,
Mimic, Primene, Pulsor, Ropaque, Sea-Nine, Systhane and
Visor are trademarks of Rohm and Haas Company.
Mach 2 is a trademark of RohMid LLC.
Multiposit is a trademark of Shipley Company.
Responsible Care is a trademark of the Chemical
Manufacturers Association.
[LOGO] RESPONSIBLE CARE(r)
A PUBLIC COMMITMENT
Rohm and Haas is a Responsible Care(r) Company
[LOGO] Printed on recycled paper
<PAGE>
[LOGO] ROHM AND HAAS COMPANY
<PAGE>
APPENDIX TO ANNUAL REPORT TO STOCKHOLDERS
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- ------- ---------------------------
Cover Insert photograph of a women at a checkout line at a supermarket,
with background photograph of fresh fruits and
vegetables and packaged foods.
Page 1 Pie charts
Sales by Business Group
Polymers, Resins and Monomers $2,023 million
Performance Chemicals 744 million
Plastics 701 million
Agricultural Chemicals 514 million
Sales by Customer Location
North America $2,122 million
Europe 1,006 million
Asia-Pacific 592 million
Latin America 262 million
Page 2 Photograph of:
John P. Mulroney, President
J. Lawrence Wilson, Chairman
Page 5 Bar Charts for Rohm and Haas Company of:
Volume
1992 3,750 million units
1993 4,214 million units
1994 4,549 million units
1995 4,473 million units
1996 4,725 million units
Sales
1992 $3,063 million
1993 $3,269 million
1994 $3,534 million
1995 $3,884 million
1996 $3,982 million
Earnings, before cumulative effect of accounting change
1992 $174 million
1993 $126 million
1994 $264 million
1995 $292 million
1996 $363 million
Page 6 Photographs of:
Man with cellular phone and caption "Electronic chemistry is
everywhere - in cellular phones, fax machines,
personal computers and automobiles."
Ships at harbor with caption "Products more friendly
to the environment keep barnacles from
forming on ship hulls."
Grapes and almonds with caption "New products
for agriculture help ring healthy food to the
world's tables."
Page 7 Photographs of :
A women in a Laundromat with basket of clothing
with caption "Newer additives help boost
the cleaning power of laundry detergents."
Peppers and grapes with caption "Growing for a healthy future."
Page 8 Photographs of:
A women at a personal computer with caption
"Plastics additives are used in computer
housings and keyboards."
A house with caption "Acrylic latex emulsions
are the fundamental component of paints used
throughout homes around the world."
Page 9 Photographs of:
Children at play with heading "Playing for
Profitability" and caption "Our technology for
maintenance coatings even stands up to tough
playground standards."
Nurse diapering a baby in the hospital
with caption "The superabsorbancy of today's diapers
is an important part of baby's comfort."
Page 10 Photograph of home water filter and ion exchange
resin cartridges with heading "Discovering
Value in Traditional Technology" and caption
"Water purification for home use and industry
are just two uses for ion exchange technology."
Page 11 Photographs of:
Tractor-trailer on highway with caption
"Trucks, cars and airplanes all rely on additives
for oils and hydraulic fluids."
A woman standing next to a Plexiglas display
case filled with decorative pillows with
caption :"crylic resins are found in
everything from display cases to car taillights."
Page 12 Photographs of:
Man caulking a sink
Cans of paint
Man running oil drilling equipment
Man sitting at computer
Page 13 Photographs of:
A cup of coffee with sugar cubes
Oriental book
A man installing a vinyl-clad window
Plastic soap pump dispenser and toothbrush holder
A man on a golf course
Page 14 Photograph of man painting a Victorian house
Page 15 Bar Charts for Polymers, Resins and Monomers Business Group of:
Volume*
1992 2,838 million units
1993 3,229 million units
1994 3,493 million units
1995 3,408 million units
1996 3,615 million units
Sales*
1992 $1,576 million
1993 $1,682 million
1994 $1,816 million
1995 $1,953 million
1996 $2,023 million
Earnings*
1992 $141 million
1993 $137 million
1994 $187 million
1995 $185 million
1996 $228 million
*Restated for RohMax JV and a change in cost allocations
Photograph of a women putting dishes in a dishwasher
Page 16 Photograph of printed computer board
Bar Charts for Performance Chemicals Business Group of:
Volume*
1992 213 million units
1993 220 million units
1994 230 million units
1995 270 million units
1996 272 million units
Sales*
1992 $531 million
1993 $599 million
1994 $644 million
1995 $740 million
1996 $744 million
Earnings*
1992 $ 26 million
1993 $ 35 million
1994 $ 43 million
1995 $ 69 million
1996 $ 82 million
*Restated for RohMax JV and a change in cost allocations
Page 17 Photograph of an electric generating facility
Page 18 Photographs of:
PVC piping
Taillights of an automobile
Bar Charts for Plastics Business Group of:
Volume
1992 533 million units
1993 580 million units
1994 638 million units
1995 605 million units
1996 640 million units
Sales
1992 $573 million
1993 $579 million
1994 $635 million
1995 $693 million
1996 $701 million
Earnings*
1992 $42 million
1993 $ 1 million
1994 $61 million
1995 $67 million
1996 $54 million
*Restated for a change in cost allocations
Page 19 Photographs of:
Baskets of fresh fruits, vegetables and nuts
Red potato sorting line
Bar charts for the Agricultural Chemicals Business Group
Volume
1992 166 millions of units
1993 185 millions of units
1994 188 millions of units
1995 188 millions of units
1996 201 millions of units
Sales
1992 $383 million
1993 $409 million
1994 $439 million
1995 $498 million
1996 $514 million
Earnings*
1992 $27 million
1993 $41 million
1994 $42 million
1995 $55 million
1996 $61 million
*Restated for a change in cost allocations
Page 20 Photograph of senior executives with caption
"Senior executives answered questions posed
by outside verifiers during the MSV process period."
Bar chart of Rohm and Haas worldwide occupational
injury and illness average rate
vs. U.S. chemical industry.
Cases per 200,000 hours worked:
Rohm and Haas U.S. chemical
worldwide average industry average
1992 4.3 3.1
1993 3.7 2.9
1994 2.5 2.8
1995 2.0 2.6
1996 1.5 2.2
Page 24 Line Chart of Gross Profit, Selling, Administrative and
Research Expense (SAR) and Operating Earnings
(earnings excluding after-tax interest expense) as a
percent of sales:
Year Gross Profit SAR Operating Earnings
1986 34.9 21.9 7.5
1987 35.1 21.7 9.3
1988 35.1 21.2 9.6
1989 31.6 21.6 7.1
1990 32.9 22.4 8.3
1991 32.6 23.6 7.1
1992 34.2 24.4 6.8
1993 33.5 24.3 4.7
1994 35.9 22.4 8.4
1995 34.3 20.9 8.2
1996 35.0 20.5 9.8
Page 25 Line Chart of Sales and Volume Indices
1986 = 100
Year Sales Dollars Physical Volume
1986 100 100
1987 107 107
1988 123 120
1989 129 124
1990 137 127
1991 134 125
1992 148 143
1993 158 161
1994 171 174
1995 188 171
1996 193 180
Line Chart of Raw Material Cost Index
1986 = 100
Year Index Percentage Change
1986 100 0
1987 105 5
1988 119 13
1989 123 3
1990 124 0
1991 124 0
1992 113 (9)
1993 109 (3)
1994 114 4
1995 138 21
1996 128 (7)
Page 26 Line Chart of Selling Price Index
1986 = 100
Year Index Percentage Change
1986 100 0
1987 104 3
1988 109 5
1989 110 1
1990 113 3
1991 116 2
1992 115 (1)
1993 110 (4)
1994 110 0
1995 117 6
1996 116 (1)
Page 27 Stacked Bar Chart of Cash Flow
Provided by operations
1992 $401 million
1993 358 million
1994 524 million
1995 513 million
1996 706 million
Treasury Stock Purchases
1992 $ 1 million
1993 0 million
1994 7 million
1995 29 million
1996 302 million
Capital Additions & Acquisitions Net of Divestitures
1992 $447 million
1993 290 million
1994 336 million
1995 368 million
1996 330 million
Dividends
1992 $ 88 million
1993 97 million
1994 102 million
1995 109 million
1996 116 million
Line Chart of Environmental Expenses and Capital Spending
Operating and Maintaining Environmental Facilities
1987 $ 54 million
1988 66 million
1989 77 million
1990 82 million
1991 92 million
1992 108 million
1993 105 million
1994 107 million
1995 96 million
1996 104 million
Capital Spending for New Environmental Protection Equipment
1987 $ 17 million
1988 34 million
1989 50 million
1990 54 million
1991 48 million
1992 55 million
1993 55 million
1994 31 million
1995 32 million
1996 32 million
Waste Site Remediation Accruals
1987 $ 12 million
1988 5 million
1989 12 million
1990 46 million
1991 49 million
1992 23 million
1993 57 million
1994 31 million
1995 45 million
1996 27 million
Page 29 Line Chart of Earnings and Common Dividends
Dollars per Share
Year Earnings* Common Dividends
1986 $2.01 $ .78
1987 2.85 .86
1988 3.46 1.02
1989 2.65 1.16
1990 3.10 1.22
1991 2.45 1.24
1992 2.53 1.28
1993 1.74 1.36
1994 3.79 1.44
1995 4.22 1.56
1996 5.45 1.72
*Earnings per share in 1992 and 1993 are before the cumulative effect of
accounting changes
Line Chart of Capital Additions and Depreciation
Year Additions Depreciation
1986 $179 million $103 million
1987 222 million 112 million
1988 338 million 128 million
1989 385 million 150 million
1990 412 million 159 million
1991 265 million 183 million
1992 283 million 203 million
1993 382 million 226 million
1994 339 million 231 million
1995 417 million 242 million
1996 334 million 262 million
PAGE 30 LINE CHART OF ASSETS AS A PERCENT OF SALES
Year Fixed Assets Receivables Inventories
1986 31.3% 15.4% 14.9
1987 33.2 16.1 14.0
1988 36.9 15.5 13.4
1989 43.1 15.8 13.0
1990 49.2 16.2 13.7
1991 53.2 17.1 12.4
1992 57.7 17.9 14.3
1993 57.2 18.5 12.1
1994 55.5 19.2 13.8
1995 52.7 19.5 13.0
1996 51.9 19.9 12.1
Dual-axis line chart of Asset Turnover, Profit Margin and RONA
Year Asset Turnover RONA Profit Margin
1986 1.12 8.7% 6.7%
1987 1.13 11.0 8.9
1988 1.13 11.2 9.1
1989 1.08 8.3 6.6
1990 1.05 8.6 7.3
1991 .95 6.8 5.9
1992 .87 6.1 5.7
1993 .93 4.3 3.9
1994 .92 7.6 7.5
1995 .99 8.1 7.5
1996 1.01 9.9 9.1
PAGE 31 LINE CHART OF RETURN ON INVESTMENT
Year ROE RONA
1986 14.3% 8.7%
1987 19.0 11.0
1988 20.4 11.2
1989 14.0 8.3
1990 15.2 8.6
1991 11.2 6.8
1992 11.4 6.1
1993 8.1 4.3
1994 16.5 7.6
1995 16.6 8.1
1996 20.1 9.9
PAGE 31 HIGH-LOW CHART OF QUARTERLY STOCK PRICES IN DOLLARS
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1994
High 60 64 1/2 68 1/2 61 3/8
Low 53 1/2 53 1/4 54 3/8 54 1/8
Close 54 5/8 62 1/4 57 1/8 57 1/8
1995
High 59 1/4 62 61 7/8 64 7/8
Low 52 49 1/2 54 3/4 54 1/4
Close 59 54 7/8 60 3/8 64 3/8
1996
High 74 3/4 71 66 3/4 82 1/2
Low 63 7/8 61 5/8 51 1/8 65 3/8
Close 66 1/2 62 3/4 65 1/2 81 5/8
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT
STATE OR COUNTRY
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
AtoHaas Canada Inc. Canada
AtoHaas Mexico Inc. Delaware
AtoHaas Americas Inc. Delaware
AtoHaas Delaware Inc. Delaware
AtoHaas Foreign Sales Corporation U.S. Virgin Islands
Beijing Eastern Rohm and Haas Company, Limited China
Japan Acrylic Chemical Company, Ltd. Japan
Maquiladora General de Matamoros, S.A. de C.V. Mexico
Polytribo, Inc. Delaware
P.T. Rohm and Haas Company Indonesia Indonesia
Rohm and Haas Australia Pty. Ltd. Australia
Rohm and Haas (Bermuda), Ltd. Bermuda
Rohm and Haas Canada Inc. Canada
Rohm and Haas Capital Corporation Delaware
Rohm and Haas Chemical (Thailand) Ltd. Thailand
Rohm and Haas China, Inc. Delaware
Rohm and Haas Colombia S.A. Colombia
Rohm and Haas Credit Corporation Delaware
Rohm and Haas Deutschland GmbH Germany
Rohm and Haas Equity Corporation Delaware
Rohm and Haas Espana S.A. Spain
Rohm and Haas Finance Company Delaware
Rohm and Haas Foreign Sales Corporation U.S. Virgin Islands
Rohm and Haas France S.A. France
Rohm and Haas Holdings Ltd. Bermuda
Rohm and Haas Italia S.r.l. Italy
Rohm and Haas Japan K.K. Japan
Rohm and Haas Latin America, Inc. Delaware
Rohm and Haas Mexico S.A. de C.V. Mexico
Rohm and Haas New Zealand Limited New Zealand
Rohm and Haas Nordiska AB Sweden
Rohm and Haas Performance Plastics, Inc. Delaware
Rohm and Haas Philippines, Inc. Philippines
20
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT (CONTINUED)
STATE OR COUNTRY
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ----------------
Rohm and Haas Quimica Ltda. Brazil
Rohm and Haas RohMax Holdings Inc. Delaware
Rohm and Haas (Scotland) Limited England
Rohm and Haas Singapore (Pte.) Ltd. Singapore
Rohm and Haas Slovenia Slovenia
Rohm and Haas Taiwan Inc. Taiwan
Rohm and Haas Texas Incorporated Texas
Rohm and Haas (UK) Limited England
Shipley Company L.L.C. Massachusetts
Shipley Europe Limited England
Shipley Far East Limited Japan
NOTE: All subsidiaries listed are greater than 50% owned, directly or
indirectly, by Rohm and Haas Company. The company owns a number of
other domestic and foreign subsidiaries which are involved primarily
in sales activities. These subsidiaries, either singly or in the
aggregate, are not significant and their accounts are not included in
the consolidated financial statements.
21
EXHIBIT (23)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rohm and Haas Company:
We consent to incorporation by reference in the Prospectuses
constituting part of Registration Statements No. 2-90736, No. 33-56842
and No. 333-18879 on Form S-8 and Registration Statement No. 333-14017
on Form S-3 of Rohm and Haas Company of our reports dated February 24,
1997, relating to the consolidated balance sheets of Rohm and Haas
Company and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and
cash flows and the related schedule for each of the years in the
three-year period ended December 31, 1996, which reports appear or are
incorporated by reference in the December 31, 1996 Annual Report on Form
10-K of Rohm and Haas Company and subsidiaries.
/s/ KPMG PEAT MARWICK LLP
--------------------------------
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
March 21, 1997
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 699
<ALLOWANCES> 14
<INVENTORY> 483
<CURRENT-ASSETS> 1,456
<PP&E> 4,327
<DEPRECIATION> 2,261
<TOTAL-ASSETS> 3,933
<CURRENT-LIABILITIES> 886
<BONDS> 562
0
131
<COMMON> 197
<OTHER-SE> 1,400
<TOTAL-LIABILITY-AND-EQUITY> 3,933
<SALES> 3,982
<TOTAL-REVENUES> 3,982
<CGS> 2,587
<TOTAL-COSTS> 2,587
<OTHER-EXPENSES> 814
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 530
<INCOME-TAX> 167
<INCOME-CONTINUING> 363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363
<EPS-PRIMARY> 5.45
<EPS-DILUTED> 5.45
</TABLE>
