UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-3507
R O H M A N D H A A S C O M P A N Y
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1028370
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 INDEPENDENCE MALL WEST, PHILADELPHIA, PENNSYLVANIA 19106
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 592-3000
--------------
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 _______
Common stock outstanding at October 4, 1998: 166,481,479 SHARES
------------------
<PAGE>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following are incorporated herein by reference to pages 9 through 12
of the company's Quarterly Report to Stockholders for the third quarter
of 1998, a complete copy of which is attached as Exhibit 20.
1. Statements of Consolidated Earnings
2. Statements of Consolidated Cash Flows
3. Consolidated Balance Sheets
4. Notes to Consolidated Financial Statements
ITEM 2. - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The management discussion and analysis is incorporated herein by
reference to pages 2 through 6 of the company's Quarterly Report to
Stockholders for the third quarter of 1998, a complete copy of which is
attached as Exhibit 20.
ITEM 3. - MARKET RISK DISCUSSION
Management's discussion of market risk is incorporated herein by reference
to page 32 of the 1997 Stockholders' Report filed as Exhibit 13 to the
report on Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on March 27, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A discussion of legal proceedings is incorporated herein by reference to
pages 5 and 12 of the company's Quarterly Report to Stockholders for the
third quarter of 1998, a complete copy of which is attached as Exhibit 20.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit (12) - Computation of Ratio of Earnings to Fixed Charges
for the company and subsidiaries.
Exhibit (20) - Copy of the company's Quarterly Report to Stockholders
for the quarter ended September 30, 1998.
Exhibit (27) - Financial Data Schedules
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATE: November 12, 1998 ROHM AND HAAS COMPANY
----------------- (Registrant)
BRADLEY J. BELL
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<PAGE>
EXHIBIT INDEX
(Pursuant to Part 232.102(d) of Regulation S-T)
Exhibit
No. Description
- ------- -----------------------------------------------------------
(12) Computation of Ratio of Earnings to Fixed Charges
(20) Copy of Quarterly Report to Stockholders
(27.1) Financial Data Schedule
(27.2) Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT 12
ROHM AND HAAS COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars)
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPT. 30, --------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earnings before income
taxes $ 575 $ 611 $ 530 $ 441 $ 407 $ 194
Fixed charges 50 71 75 84 82 79
Capitalized interest
adjustment 4 3 (1) (5) (2) (7)
Undistributed earnings
adjustment (1) (11) 12 (3) (2) 6
------------ ------ ------ ------ ------ ------
Earnings $ 628 $ 674 $ 616 $ 517 $ 485 $ 272
------------ ------ ------ ------ ------ ------
Ratio of earnings to
fixed charges 12.6 9.5 8.2 6.2 5.9 3.4
------------ ------ ------ ------ ------ ------
</TABLE>
Note: Earnings consist of earnings before income taxes and fixed charges
after eliminating undistributed earnings (losses) 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.
EXHIBIT 20
COPY OF QUARTERLY REPORT TO STOCKHOLDERS
<PAGE>
ROHM AND HAAS COMPANY
THIRD QUARTER 1998
ID: COVER GRAPHIC
<PAGE>
FINANCIAL HIGHLIGHTS (Millions of dollars, except earnings per share)
- --------------------------------------------------------------------------------
Third Quarter Nine Months
----------------------- -----------------------
Percent Percent
1998 1997 Change 1998 1997 Change
----------------------- -----------------------
Net sales $ 909 $ 974 (7) $2,836 $3,049 (7)
Net earnings 86 91 (5) 365 312 17
Net earnings,
excluding non-
recurring items* 89 91 (2) 320 312 3
Net earnings per
common share:
-- Basic $ .49 $ .48 2 $ 2.02 $ 1.64 23
-- Diluted $ .48 $ .48 0 $ 1.98 $ 1.61 23
Net earnings per
common share,
excluding non-
recurring items:
-- Basic $ .51 $ .48 6 $ 1.77 $ 1.64 8
-- Diluted $ .50 $ .48 4 $ 1.74 $ 1.61 8
- -------------------------------------------------------------------------------
* non-recurring items include gains on the sale of joint venture interests in
AtoHaas and RohMax, asset write-downs, business realignment costs, and loss
on early extinguishment of debt during the second and third quarters of 1998.
1997 per share amounts are restated to reflect the third quarter 1998
three-for-one stock split.
SALES BY BUSINESS GROUP
Millions of dollars
PERFORMANCE POLYMERS $625
CHEMICAL SPECIALTIES $188 [PIE CHART]
ELECTRONIC MATERIALS $ 96
SALES BY CUSTOMER LOCATION
Millions of dollars
NORTH AMERICA $518
[PIE CHART] EUROPE $213
ASIA-PACIFIC $107
LATIN AMERICA $ 71
<PAGE>
=======================
== CHAIRMAN'S LETTER ==
=======================
Rohm and Haas's results for the third quarter of 1998 show sales down
7 percent and volume up 3 percent compared to the third quarter of 1997.
After adjusting for the divestitures of AtoHaas and RohMax earlier in the
year, sales were down 3 percent from the year ago period, and volume was
up 1 percent.
Earnings per common share for the quarter were up 4 percent over a year
ago. Given the economic uncertainties around the world, this is a
commendable achievement.
The company's performance during the third quarter was influenced by the
continuing turmoil in Asian economies, improved raw material costs and
somewhat lower selling prices. The company's production facilities
continue to function smoothly and efficiently. Inventories remain at
levels similar to those seen earlier in the year.
As Rohm and Haas operates more efficiently, we continue to become more
profitable as well. For the first nine months of 1998, Rohm and Haas's
gross profit margin was 40 percent, compared to 36 percent for the first
nine months of 1997. That is the highest level in the 50 years Rohm and
Haas has been a public company.
Posting dependable growth in the company's profit margins and earnings per
share is the result of much hard work over the past several years. In
1993, we said that we would manage our own fate by changing the way we
work -- by creating better processes, controlling internal costs and putting
increasing emphasis on the specialty nature of our product portfolio. As
the economic slowdown persists in Asia and spreads to other parts of the
world, the positive results of the changes we have made become more
visible.
As you know, worldwide economic uncertainty persists into 1999. I remain
confident, however, that unless we face a deep global recession, Rohm and
Haas will continue to grow larger and more profitable.
/s/ J. LAWRENCE WILSON
J. Lawrence Wilson
November 12, 1998
<PAGE>
========================================
== MANAGEMENT DISCUSSION AND ANALYSIS ==
========================================
THIRD QUARTER 1998 VERSUS
THIRD QUARTER 1997
Earnings for the third quarter of 1998 decreased 5% to $86 million from
$91 million in the third quarter of 1997. Diluted earnings per common
share for the quarter were $.48 unchanged from the 1997 quarter.
Included in the 1998 results is an extraordinary after-tax charge of $3
million, or $.02 per share, related to an early extinguishment of debt.
Volume increased 3% for the quarter and sales decreased 7%. In addition
to the divestiture of two businesses, resulting in the exclusion of
AtoHaas' sales from 1998 results, the remaining 50% of NorsoHaas was
acquired and operations in China were consolidated in 1998. On a
comparable-business basis, volume increased 1% and sales decreased 3%
primarily as a result of lower selling prices and currency impacts.
Volume gains in North America and in Latin America, on a comparable
basis, carried the quarter to a 1% increase, despite volume losses due
to poor business conditions in the Asia-Pacific region and flat volume
in Europe. Asia-Pacific region sales declined 24% on a 14% volume
decrease. The company's earnings decreased 2%, excluding the
extraordinary item, as a result of lower selling prices, currency
impacts and the absence of affiliate earnings from businesses divested
in 1998, some of which was mitigated by lower raw material costs.
Diluted earnings per common share excluding the non-recurring
extraordinary item were $.50 for the third quarter, up 4% versus 1997.
The increase in earnings per share also reflects the impact of the
company's stock repurchase program.
In the first quarter of 1998, the company changed its financial
reporting structure and, in August 1998, the related management
structure to better reflect its technical strengths and focus on key
markets. Rohm and Haas now reports by three business segments:
Performance Polymers, consisting of the Polymers and Resins, Monomers,
Formulation Chemicals and Plastics Additives businesses; Chemical
Specialties, consisting of the Agricultural Chemicals, Ion Exchange and
Biocides businesses; and Electronic Materials, consisting of Shipley and
Rodel, Inc., an affiliate. The 1997 presentation of sales and earnings
has been restated to reflect these changes. In the restatement, 1997
results of AtoHaas and RohMax are reported under Performance Polymers.
Performance Polymers earnings of $83 million were down from prior year
earnings of $85 million. Sales were down 9% to $625 million from $684
million in the 1997 period, largely as a result of the absence of
AtoHaas sales. On a comparable basis volume increased 1% and sales
decreased 4%. The sales decrease on higher volume is a result of
unfavorable currency impacts in Asia-Pacific and lower selling prices in
North America and Europe. Volume and sales in Asia-Pacific were
significantly below 1997, reflecting the unfavorable economic conditions
in the region. Segment earnings were down 2% largely as a result of the
absence of affiliate earnings from businesses divested in 1998.
Chemical Specialties earnings of $8 million for the third quarter of
1998 were down $1 million from the prior-year period. Volume increased
2% because of strong demand in the Agricultural Chemicals business.
Biocides volume was also up while Ion Exchange volume was down.
Chemical Specialties sales increased slightly because of strength in
North America, which overcame unfavorable currency impacts and lower
demand in Asia-Pacific. Earnings decreased despite a strong
performance in North America in large part due to losses in Asia-
Pacific, which were driven by unfavorable currencies and lower demand.
Electronic Materials earnings of $9 million decreased 36% from 1997
earnings of $14 million. Sales were down 7% while volume increased 1%,
reflecting pricing pressure in the microelectronics and printed wiring
board businesses in part related to the weakened economy in Asia-Pacific
where sales and earnings were down. The earnings decrease is largely a
result of lower demand, unfavorable selling prices and after-tax charges
of $2 million in the quarter related to restructuring at both Shipley
and Rodel.
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<PAGE>
Corporate expenses totaled $14 million in the third quarter of 1998
compared to $17 million in the prior year period. The third quarter of
1998 includes a $3 million after-tax extraordinary loss on the early
extinguishment of debt. The decrease in corporate expenses was
primarily a result of lower interest expense.
The third quarter gross profit margin of 38% was up from 35% in the
prior-year period, largely as a result of lower raw material costs and
efficient plant operations that overcame selling prices and weaker
Asia-Pacific currencies.
Selling, administrative and research expenses increased slightly in the
third quarter of 1998 versus the 1997 period. Interest expense was
$4 million lower than in the 1997 period due in large part to debt
retirements, while the absence of earnings from RohMax resulted in a
decrease of $4 million in affiliate earnings.
The effective tax rate for the third quarter of 1998 was 33%, up from
32% for the third quarter of 1997. The lower rate in the prior year
results in part from the effect of affiliate earnings, which are
recorded on an after-tax basis.
NINE MONTHS 1998 VERSUS
NINE MONTHS 1997
Earnings for the first nine months of 1998 were $365 million, an
increase of 17% over last year's earnings of $312 million. Diluted
earnings per common share were $1.98 compared to $1.61 in 1997.
Included in 1998 results are a second quarter one-time net gain of
$48 million, or $.26 per share. This net gain affected all segments and
regions, except Latin America, and was the net result of the sale of the
company's interest in the AtoHaas and RohMax joint ventures, an early
extinguishment of debt, the write-off of certain intangible assets in
Europe and business realignment costs primarily in Asia. An additional
after-tax charge of $3 million related to debt extinguishment was
incurred in the third quarter of 1998. Sales decreased 7% on a 1%
volume increase. On a comparable-business basis, sales decreased 3%
while volume increased 1%. In addition to the divestiture of two
businesses, resulting in the exclusion of AtoHaas' sales from 1998, the
remaining 50% of NorsoHaas was acquired and operations in China were
consolidated during the year. The sales decrease on higher volume is
largely a result of weaker currencies, primarily in Asia-Pacific, and
lower selling prices. Volume was strong in Europe while the unfavorable
business environment hurt volume in the Asia-Pacific region. Volume in
North America was flat while Latin American volume was down. On a
comparable basis, Asia-Pacific region sales declined 19% and volume
decreased 11%. The company's earnings increased 3% excluding
non-recurring items due in part to lower raw material costs and higher
volume. Earnings per common share before non-recurring items were $1.74
for the first nine months of 1998, up 8% versus 1997. The increase in
earnings per share also reflects the impact of the company's stock
repurchase program.
Performance Polymers earnings, excluding non-recurring items, were $258
million, up 1% from the first nine months of 1997. Sales were down 10%
to $1,888 million from $2,097 million in 1997, largely as a result of
the absence of AtoHaas sales. Volume was flat and sales decreased 4% on
a comparable-business basis. The decrease in sales on flat volume was
primarily a result of unfavorable currencies in Europe and Asia-Pacific
and lower selling prices. Performance Polymer sales in the Asia-Pacific
region were down more than 27% from the prior year while volume
decreased 11%. Earnings increased, excluding non-recurring items,
largely as a result of lower raw material prices and volume in the
Polymers and Resins business in North America and Europe.
Chemical Specialties earnings were $69 million for the first nine months
of 1998, excluding non-recurring items, up 3% from $67 million in 1997.
Sales of $655 million decreased 1% from 1997 sales of $660 million, in
part due to weaker currencies in Europe and Asia-Pacific and to lower
selling prices. Volume increased 2% as a result of strong
3
<PAGE>
second and third quarter demand in the Agricultural Chemicals business.
The earnings increase was a result of increases in the Primenes and
Biocides businesses.
Electronic Materials earnings of $37 million, excluding second and third
quarter non-recurring items, decreased $2 million, or 5%, from the 1997
period. Sales were essentially flat and volume increased 6%. Shipley
Company volume increased in all regions, except Asia-Pacific. The lower
sales and earnings in Asia-Pacific mitigated the effects of solid growth
in North America. While earnings benefited from the contribution of
Rodel, an affiliate acquired in June 1997, the impact of losses in the
Asia-Pacific region was not offset.
Corporate expenses were $55 million compared to expenses of $50 million
in 1997. Nineteen-ninety-eight included after-tax charges of $13
million related to extraordinary losses on the early extinguishment
of debt.
The gross profit margin for the first nine months was 40%, up from 36%
in the prior-year period, largely as a result of lower raw material
costs and efficient plant operations. Selling prices were lower and
currency fluctuations in Europe and Japan were unfavorable.
Selling, administrative and research expenses for the period were
essentially unchanged compared to the 1997 period, reflecting the net
effect of higher research expense and lower selling and administrative
expense due to the absence of AtoHaas costs. Interest expense was down
13% as a result of debt retirements in the second and third quarters,
while affiliate earnings decreased to $2 million compared to 1997
earnings of $10 million, due to the absence of the affiliate earnings of
RohMax. Other income of $108 million reflects the net before-tax gain
on second quarter non-recurring items, including the divestiture of the
AtoHaas and RohMax businesses.
The effective tax rate for the first nine months was 36%, up from 33%
for the same period of 1997, largely as a result of the tax effect of
the non-recurring items in the second quarter.
LIQUIDITY, CAPITAL RESOURCES
AND OTHER FINANCIAL DATA
In June 1998 the company sold its interest in the AtoHaas and RohMax
businesses for cash proceeds of $287 million, resulting in a net
after-tax gain of $76 million, or $.41 per share. During the third
quarter of 1998, the company repurchased 13,623,000 million shares of
its common stock, for which it paid $427 million, largely through an
accelerated stock repurchase program with a third party. Under the
terms of this purchase, the final cost to the company will reflect the
average share price in the market over an extended trading period. Also
during the quarter, the company retired $15 million of high interest
long-term debt after having retired $115 million of debt through a
tender offer in June of 1998. These debt retirements resulted in
after-tax extraordinary losses of $13 million, or $.07 per share through
the first nine months of 1998. Net cash out-flows during the first nine
months of 1998 included these transactions and resulted in a $17 million
decrease in cash and cash equivalents versus year-end 1997.
Free cash flows for the first nine months of 1998 versus the prior-year
period were as follows:
Nine Months Ended
September 30,
-----------------
1998 1997
-----------------
Cash provided by
operating activities $519 $596
Capital additions (137) (172)
Dividends (95) (89)
-----------------
Free cash flow $287 $335
-----------------
Fixed asset additions year-to-date through September of 1998 totaled
$137 million, compared to $172 million in the prior year. The decrease
reflects the absence of significant projects that were in process during
the same period of 1997, such as the completion of
4
<PAGE>
capacity expansion in Texas. Improved asset utilization also
contributed to the lower spending. Spending for the full year is
expected to be approximately $200 million, and includes spending on
emulsions capacity in Europe, ion exchange resin and emulsions capacity
in Asia-Pacific and further investment in the Electronic Materials
businesses.
On July 27, 1998, the board of directors declared a three-for-one split
of the company's common stock. The stock split was effected in the form
of a 200 percent common stock dividend paid on September 1, 1998 to
stockholders of record on August 7, 1998. The par value of the common
stock remains $2.50 per share. Also during the quarter, the company
retired 39 million treasury shares. As a result of these transactions,
the company transferred $296 million from retained earnings to common
stock. This amount represents the total par value of new shares issued.
Amounts per share, numbers of common shares and capital accounts have
been restated to give retroactive effect to the stock split.
On October 16, 1998, the board of directors declared regular quarterly
dividends of $.18 per common share and $.6875 per preferred share. Both
dividends are payable December 1, 1998 to stockholders of record on
November 6, 1998.
The debt-to-capital ratio, calculated without the reduction to
stockholders' equity for the ESOP transaction, was 28% at the end of the
quarter, compared with 23% at year-end 1997 and 24% at the end of the
third quarter of 1997. (Debt-to-capital is total debt divided by the
sum of total debt, minority interest, shareholders' equity and ESOP
shares.) The company repurchased a total of 17,454,000 shares of common
stock during the first nine months of 1998, at a cost of $562 million.
With 3 million shares remaining in its most recent authorization, on
October 16, 1998 the Board of Directors authorized the purchase of an
additional 9 million shares.
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
comprehensive income and its components. The company adopted this
standard in the first quarter of 1998. As permitted under the standard,
the company will present the components of comprehensive income in its
Statement of Consolidated Stockholders' Equity. Because this Statement
is not part of the company's required interim reporting, comprehensive
income is disclosed in a note to the financial statements.
Also in 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" and, in 1998, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits." Both standards establish guidance for disclosure in annual
financial statements. The company expects its business segment
reporting under SFAS No. 131 will be consistent with the changes in its
financial reporting structure incorporated in the company's reporting
since the first quarter of 1998. The company will adopt the disclosures
prescribed by both statements in its 1998 annual report as required.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
the accounting and reporting of derivative and hedging transactions.
The statement amends a number of existing standards and is effective for
fiscal years beginning after June 15, 1999. The company expects to
adopt this standard as required in fiscal year 2000 and has not yet
fully assessed its potential impact on its financial position or results
of operations.
Beginning in 1999 eleven of the fifteen member countries of the European
Union will adopt the Euro as their common currency after establishing
fixed conversion rates from their existing currencies. The company
formed a multifunctional steering team to evaluate the potential effect
of the Euro in key impact areas such as information technology,
treasury, supply chain and accounting. The
5
<PAGE>
company's view is that the relevant systems are generally capable of
accommodating a conversion to the Euro; therefore, the company does not
expect that the conversion will have a material effect on its financial
position or results of operations.
During 1996 management initiated an enterprise-wide program to prepare
the company's computer systems and applications for the year 2000, and,
in 1997, began assessing supply chain and customer implications. All of
the company's centralized computer systems have been inventoried and
assessed to determine their Year 2000 readiness. Remediation of
computer applications supporting manufacturing and order processing is
expected to be completed by year-end 1998 and for sales and marketing
and financial systems by the first quarter of 1999. Testing of all
remediated systems is expected to be completed by June of 1999.
Assessment of key process control and other plant floor systems at each
facility is complete with most remediation planned for completion by
year-end 1998, with some remediation extending into 1999. In addition
to these internal systems and processes, the company has placed a high
priority on assessing the status of its critical suppliers and business
partners, such as warehouses, toll manufacturers, distributors and
transportation services.
The company expects all of its internal remediation and testing to be
completed by June 1999; however, despite its best efforts, business may
be interrupted with potentially material impact on its financial
position or results of operations if any of the following occurs:
external supply of raw materials or utilities is delayed or unavailable
for an extended period; manufacturing systems fail; or, central
corporate computer systems fail. To limit the effects of these
potential failures, the company is beginning to prepare appropriate
contingency plans for individual systems. Examples of contingency plans
include a "freezing" of modifications to computer systems, ensuring
availability of additional information technology personnel during the
critical time period, backing-up systems at off-site facilities,
increasing inventory of products and raw materials, and preparing for
temporary shut-downs of certain plants and facilities. In addition, the
company has standard operating procedures in place for a safe and
orderly shut-down of systems and facilities should this be necessary.
A significant proportion of the costs associated with the year 2000
effort represent the redeployment of existing information technology
resources. In addition, consulting and other expenses related to
software application and facilities enhancements necessary to prepare
the systems for the year 2000 will be incurred. Approximately half of
these costs, which are expected to total $16 million, have been incurred
and charged to expense through September 30, 1998.
This discussion contains forward-looking statements based, in part, on
assumptions such as the following: that the manufacturers of the
company's computer systems and software have correctly represented the
year 2000 status of their products; that the company's suppliers and
customers will meet their stated year 2000 and Euro compliance
obligations; and that the company's own investigation, remediation,
testing and systems implementations are successful. The year 2000 and
Euro discussions and other forward-looking statements made in this
quarterly report are based on current expectations and are subject to
the risks and uncertainties discussed here as well as those detailed in
the company's March 27, 1998, Form 10-K filing with the Securities and
Exchange Commission. Actual results in the future may differ from those
projected.
6
<PAGE>
============================================
== ROHM AND HAAS COMPANY AND SUBSIDIARIES ==
============================================
SALES BY BUSINESS GROUP AND CUSTOMER LOCATION (Millions of dollars)
- ------------------------------------------------------------------------------
THIRD QUARTER 1998 AND 1997
- ------------------------------------------------------------------------------
Performance Chemical Electronic
Polymers Specialties Materials Total
--------------- ----------- ---------- --------------
1998 1997* 1998 1997* 1998 1997* 1998 1997*
--------------- ----------- ---------- --------------
North America $ 406 $ 442 $ 68 $ 55 $ 44 $ 46 $ 518 $ 543
Europe 140 140 50 52 23 23 213 215
Asia-Pacific 46 65 32 43 29 34 107 142
Latin America 33 37 38 37 -- -- 71 74
--------------- ----------- ---------- --------------
Total $ 625 $ 684 $188 $187 $ 96 $103 $ 909 $ 974
--------------- ----------- ---------- --------------
- ------------------------------------------------------------------------------
FIRST NINE MONTHS 1998 AND 1997
- ------------------------------------------------------------------------------
Performance Chemical Electronic
Polymers Specialties Materials Total
--------------- ----------- ---------- --------------
1998 1997* 1998 1997* 1998 1997* 1998 1997*
--------------- ----------- ---------- --------------
North America $1,207 $1,343 $242 $219 $134 $130 $1,583 $1,692
Europe 453 456 207 216 70 67 730 739
Asia-Pacific 136 190 105 128 89 95 330 413
Latin America 92 108 101 97 -- -- 193 205
--------------- ----------- ---------- --------------
Total $1,888 $2,097 $655 $660 $293 $292 $2,836 $3,049
--------------- ----------- ---------- --------------
*Restated to reflect the 1998 change in financial reporting structure.
PHYSICAL VOLUME CHANGE
CURRENT QUARTER RELATIVE TO YEAR-EARLIER QUARTER
- -----------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -----------------------------------------------------------------------
North America 3
Performance Polymers 4 Europe 9
Chemical Specialties 2 Asia-Pacific (7)
Electronic Materials 1 Latin America 3
- -----------------------------------------------------------------------
Worldwide 3 Worldwide 3
- -----------------------------------------------------------------------
CURRENT NINE MONTHS RELATIVE TO YEAR-EARLIER NINE MONTHS
- -----------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -----------------------------------------------------------------------
North America --
Performance Polymers 1 Europe 11
Chemical Specialties 2 Asia-Pacific (6)
Electronic Materials 6 Latin America (2)
- -----------------------------------------------------------------------
Worldwide 1 Worldwide 1
- -----------------------------------------------------------------------
7
<PAGE>
NET EARNINGS BY BUSINESS GROUP AND CUSTOMER LOCATION
- -------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1998 1997* 1998 1997*
--------------------------------------------
BUSINESS GROUP (Millions of dollars)
--------------------------------------------
Performance Polymers $ 83 $ 85 $332 $256
Chemical Specialties 8 9 54 67
Electronic Materials 9 14 34 39
Corporate (14) (17) (55) (50)
- --------------------------------------------------------- -------------------
Total $ 86 $ 91 $365 $312
- --------------------------------------------------------- -------------------
CUSTOMER LOCATION
North America $ 78 $ 70 $298 $224
Europe 10 17 88 72
Asia-Pacific 4 12 13 40
Latin America 8 9 21 26
Corporate (14) (17) (55) (50)
- --------------------------------------------------------- -------------------
Total $ 86 $ 91 $365 $312
- --------------------------------------------------------- -------------------
Corporate includes non-operating items such as interest income and expense,
corporate governance costs, corporate exploratory research and, in 1998,
loss on early extinguishment of debt.
* Restated to reflect the 1998 change in financial reporting structure.
ANALYSIS OF CHANGE IN BASIC PER-SHARE EARNINGS
CURRENT PERIOD RELATIVE TO YEAR-EARLIER PERIOD
- ----------------------------------------------------------------------
$/Share
(after-tax)
-----------------------------
THIRD FIRST
GROSS PROFIT QUARTER NINE MONTHS
------------ --------------
Selling prices $(.11) $(.12)
Physical volume and product mix (.01) (.04)
Raw material costs .13 .28
Other manufacturing costs .03 .12
Currency effect on gross profit (.03) (.17)
- ----------------------------------------------------- ---------------
Increase in gross profit .01 .07
- ----------------------------------------------------- ---------------
OTHER CAUSES
Gain on sale of facilities and
investments, net -- .41
Selling, administrative and
research expenses* (.01) (.01)
Interest expense .01 .01
Share of affiliate earnings (.02) (.04)
Extraordinary loss on early
extinguishment of debt (.01) (.07)
Provision for write-down of assets -- (.07)
Reduction in outstanding shares of
common stock .03 .09
Other -- (.01)
- ----------------------------------------------------- ---------------
Increase from other causes -- .31
- ----------------------------------------------------- ---------------
Increase in basic per-share earnings $ .01 $ .38
- ----------------------------------------------------- ---------------
*Amounts shown are on a U.S. dollar basis and include the impact of
currency movements compared to the prior-year period.
8
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS (Subject to Year-end Audit)
- -------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------
1998 1997 1998 1997
------------------------ --------------------
CURRENT EARNINGS (Millions of dollars, except per share amounts)
-----------------------------------------------
Net sales $ 909 $ 974 $ 2,836 $ 3,049
Cost of goods sold 564 632 1,712 1,945
- -------------------------------------------------------- --------------------
Gross profit 345 342 1,124 1,104
Selling and administrative expense 154 151 460 467
Research and development expense 50 50 154 145
Interest expense 5 9 26 30
Share of affiliate net earnings -- 4 2 10
Other (income) expense, net 3 2 (108) 8
- -------------------------------------------------------- --------------------
Earnings before income taxes and
extraordinary item 133 134 594 464
Income taxes 44 43 216 152
- -------------------------------------------------------- --------------------
EARNINGS BEFORE EXTRAORDINARY
ITEM $ 89 $ 91 $ 378 $ 312
Extraordinary loss on early
extinguishment of debt
(net of income tax benefit
of $1 and $6) 3 -- 13 --
- -------------------------------------------------------- --------------------
NET EARNINGS $ 86 $ 91 $ 365 $ 312
Less preferred stock dividends 1 2 5 6
- -------------------------------------------------------- --------------------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 85 $ 89 $ 360 $ 306
- -------------------------------------------------------- --------------------
EARNINGS PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM:
-- Basic $ .51 $ .48 $ 2.09 $ 1.64
-- Diluted .50 .48 2.05 1.61
NET EARNINGS PER COMMON SHARE:
-- Basic $ .49 $ .48 $ 2.02 $ 1.64
-- Diluted .48 .48 1.98 1.61
Common dividends $ .18 $ .17 $ .52 $ .47
Average number of common shares
outstanding (millions) 172.5 184.7 178.3 186.7
- -------------------------------------------------------- --------------------
See notes to consolidated financial statements.
9
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (Subject to Year-end Audit)
- ------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------
1998 1997
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Millions of dollars)
---------------------------
Net earnings $ 365 $ 312
Adjustments to reconcile net earnings
to cash provided by operating activities,
net of the effects of acquisitions and
divestitures:
Depreciation 203 206
Deferred income taxes 2 10
Accounts receivable (42) 67
Inventories 14 41
Accounts payable and accrued liabilities (27) (56)
Income taxes payable (19) 17
Gain on sale of facilities and investments (76) --
Extraordinary loss on early extinguishment
of debt, net of tax 13 --
Provision for the write-down of assets 16 --
Other working capital changes, net (16) (22)
Other, net 86 21
- ------------------------------------------------------------------------
Net cash provided by operating activities 519 596
- ------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sales of facilities and investments,
net of cash sold 287 10
Additions to land, buildings and equipment (137) (172)
Investments in affiliates, net of cash acquired (21) (73)
- ------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 129 (235)
- ------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 8 14
Purchase of treasury stock (562) (169)
Repayments of long-term debt (190) (38)
Net change in short-term borrowings 177 (56)
Payment of dividends (95) (89)
Other, net (3) (2)
- ------------------------------------------------------------------------
Net cash used by financing activities (665) (340)
- ------------------------------------------------------------------------
Effect of exchange rate changes on cash -- 1
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (17) $ 22
- ------------------------------------------------------------------------
See notes to consolidated financial statements.
10
<PAGE>
Rohm and Haas Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Subject to Year-end Audit)
- -----------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
1998 1997 1997
------------------------------------------
ASSETS (Millions of dollars)
------------------------------------------
Current assets:
Cash and cash equivalents $ 23 $ 40 $ 33
Receivables, net 752 755 776
Inventories (note e) 414 459 442
Prepaid expenses and
other assets 145 143 140
- -----------------------------------------------------------------------------
Total current assets 1,334 1,397 1,391
- -----------------------------------------------------------------------------
Land, buildings and equipment 4,375 4,492 4,440
Less accumulated depreciation 2,513 2,484 2,429
- -----------------------------------------------------------------------------
Net land, buildings
and equipment 1,862 2,008 2,011
- -----------------------------------------------------------------------------
Other assets 433 495 481
- -----------------------------------------------------------------------------
$3,629 $3,900 $3,883
- -----------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 240 $ 97 $ 74
Accounts payable and
accrued liabilities 635 669 625
Accrued income taxes 115 84 88
- -----------------------------------------------------------------------------
Total current liabilities 990 850 787
- -----------------------------------------------------------------------------
Long-term debt 388 509 551
Employee benefits 415 410 411
Other liabilities 334 334 350
Stockholders' equity:
$2.75 Cumulative convertible
preferred stock (note g) 110 126 127
Common stock: shares
issued -- 196,957,140 492 590 590
Additional paid-in capital 119 135 134
Retained earnings 1,240 1,932 1,866
- -----------------------------------------------------------------------------
1,961 2,783 2,717
Less: Treasury stock (note h) 304 820 774
Less: ESOP shares 133 138 140
Other comprehensive income (22) (28) (19)
- -----------------------------------------------------------------------------
Total stockholders' equity 1,502 1,797 1,784
- -----------------------------------------------------------------------------
$3,629 $3,900 $3,883
- -----------------------------------------------------------------------------
See notes to consolidated financial statements.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
(A) These interim financial statements are unaudited, but, in the
opinion of management, all adjustments, which are of a normal
recurring nature, have been made to present fairly the company's
financial position, results of operations and cash flows. Certain
prior year amounts in the Statements of Cash Flows have been
restated to conform to current year presentation. These financial
statements should be read in conjunction with the financial
statements, accounting policies and the notes included in the
company's annual report for the year ended December 31, 1997.
(B) The company is a party in various government enforcement and private
actions associated with former waste disposal sites. The company is
also involved in potential remediations at some of its manufacturing
facilities. At September 30, 1998, the reserves for remediation
were $139 million, compared to $147 million at December 31, 1997.
Insurance recoveries receivable were $2 million at September 30,
1998 and $19 million at December 31, 1997, the change resulting
largely from collections in 1998. The company is in the midst of
lawsuits over insurance coverage for environmental liabilities. It
is the company's practice to reflect environmental insurance
recoveries in the results of operations for the quarter in which
litigation is resolved through settlement or other appropriate legal
process. Recoveries typically determine coverage for both past and
future environmental spending. The amounts charged to earnings
before tax for environmental remediation, net of insurance, were $9
million in the first nine months of 1998 and $10 million in the
first nine months of 1997. In the 1997 period, there were charges
of $27 million resulting largely from an unfavorable arbitration
decision related to the Woodland sites. These charges were offset
by a $25 million increase in insurance recoveries receivable
resulting from agreements reached during that quarter with certain
insurance carriers. The 1998 charge includes the aggregation of
smaller environmental accruals.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies relating to environmental
matters of approximately $65 million. The company has also
identified other sites, including its larger manufacturing
facilities in the United States, where future environmental
remediation expenditures may be required, but these expenditures are
not reasonably estimable at this time. The company believes that
these matters, when ultimately resolved, which may be over the next
decade, will not have a material adverse effect on the consolidated
financial position of the company, but could have a material adverse
effect on consolidated results of operations in any given year.
(C) 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 outcome, it is the company's opinion that
the resolution of all pending lawsuits 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.
(D) On July 27, 1998, the board of directors declared a three-for-one
split of the company's common stock. The stock split was effected
in the form of a 200 percent common stock dividend paid on September
1, 1998 to stockholders of record on August 7, 1998. The par value
of the common stock remains $2.50 per share. Also during the
quarter, the company retired 39 million treasury shares. As a
result of these transactions, the company transferred $296 million
from retained earnings to common stock. This amount represents the
total par value of new shares issued. Amounts per share, numbers of
common shares and capital accounts have been restated to give
retroactive effect to the stock split.
(E) Inventories consist of:
(Millions of dollars)
SEPT. 30, Dec. 31, Sept. 30,
1998 1997 1997
--------- -------- ---------
Finished products and work in process $307 $352 $331
Raw materials and supplies 107 107 111
---- ---- ----
Total inventories $414 $459 $442
---- ---- ----
(F) The components of third quarter and nine months of 1998
comprehensive income are as follows (millions of dollars):
Sept. 30, 1998
--------------
Qtr. YTD
---- ----
Net income $ 86 $365
Other comprehensive income,
net of tax: Foreign
currency translation
adjustment 4 (6)
---- ----
Comprehensive income $ 90 $359
---- ----
(G) The number of preferred shares issued and outstanding were:
September 30, 1998 2,198,590
December 31, 1997 2,522,926
September 30, 1997 2,530,805
(H) The number of common treasury shares were:
September 30, 1998 31,148,635
December 31, 1997 53,330,193
September 30, 1997 51,765,651
12
<PAGE>
[LOGO]
RESPONSIBLE CARE(R)
A PUBLIC COMMITMENT
[LOGO]
ROHM AND HAAS
<PAGE>
APPENDIX TO EXHIBIT 20
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- ----------- -----------------------------------------------------------
Cover An illustration of a chemical molecule and words
"Third Quarter 1998"
Pie Charts Description included in introduction to Exhibit 20
(not incorporated by reference)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 692
<ALLOWANCES> 13
<INVENTORY> 414
<CURRENT-ASSETS> 1,334
<PP&E> 4,375
<DEPRECIATION> 2,513
<TOTAL-ASSETS> 3,629
<CURRENT-LIABILITIES> 990
<BONDS> 388
0
110
<COMMON> 492
<OTHER-SE> 900
<TOTAL-LIABILITY-AND-EQUITY> 3,629
<SALES> 2,836
<TOTAL-REVENUES> 2,836
<CGS> 1,712
<TOTAL-COSTS> 1,712
<OTHER-EXPENSES> 506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 594
<INCOME-TAX> 216
<INCOME-CONTINUING> 378
<DISCONTINUED> 0
<EXTRAORDINARY> 13
<CHANGES> 0
<NET-INCOME> 365
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 1.98
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 692
<ALLOWANCES> 15
<INVENTORY> 442
<CURRENT-ASSETS> 1,391
<PP&E> 4,440
<DEPRECIATION> 2,429
<TOTAL-ASSETS> 3,883
<CURRENT-LIABILITIES> 787
<BONDS> 551
0
127
<COMMON> 590
<OTHER-SE> 1,067
<TOTAL-LIABILITY-AND-EQUITY> 3,883
<SALES> 3,049
<TOTAL-REVENUES> 3,049
<CGS> 1,945
<TOTAL-COSTS> 1,945
<OTHER-EXPENSES> 620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 464
<INCOME-TAX> 152
<INCOME-CONTINUING> 312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.61
</TABLE>
