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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, 1997 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 6, 1998: $3,990,208,069
Common stock outstanding at March 6, 1998: 60,652,392 SHARES.
Documents incorporated by reference:
Part I --Annual Report to Stockholders for year ended December 31, 1997
Part II --Annual Report to Stockholders for year ended December 31, 1997
Part III --Definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or about March 27, 1998, except
the Report on Executive Compensation and Graph titled
"Cumulative Total Return to Shareholders" on pages 13
through 15.
Part IV --Annual Report to Stockholders for year ended December 31, 1997
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PART I
ITEM 1. BUSINESS
The information indicated below appears in the 1997 Annual Report to
Stockholders (Stockholders' Report) and is incorporated by reference:
Page of
Stockholders'
Report
------------
Business operations:
Polymers, Resins and Monomers ........................... 6
Performance Chemicals.................................... 11
Plastics................................................. 15
Agricultural Chemicals................................... 17
Industry segment information for years 1995-97............. 43
Foreign operations for years 1995-97....................... 43
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 6 through
17. 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.
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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 $201,000,000,
$187,000,000 and $194,000,000 in 1997, 1996 and 1995, respectively.
Approximately 15% of the company's employees were engaged in research and
development activities in 1997, 1996 and 1995.
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 6 through 17 of the
Stockholders' Report.
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 1997.
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 4,357 registered common
stockholders as of March 6, 1998. The 1997 and 1996 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 33 and 34 of the
Stockholders' Report and are incorporated in this Form 10-K by reference.
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ITEM 6. SELECTED FINANCIAL DATA
The company's summary of selected financial data and related notes for
the years 1993 through 1997 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 1995 to 1997 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 35 through 53 of the
Stockholders' Report.
Cautionary Statements
Any statements made by the company in its filings with the Securities
and Exchange Commission or other communications (including press releases
and analyst meetings and calls) that are not statements of historical fact
are forward-looking statements. These statements include, without
limitation, those relating to anticipated product plans, litigation and
environmental matters, currency effects, profitability, and other
commitments or goals. Forward-looking statements are subject to a number
of risks and uncertainties that could cause actual results to differ
materially from the statements made. These risks and uncertainties
include, but are not limited to, the following:
1) Currencies. Approximately half of the company's revenues are from
outside the United States, a significant portion of which are denominated
in foreign currencies. Also, significant production facilities are located
outside the United States. The company's financial results therefore can
be affected by changes in foreign currency rates. Though the company uses
certain financial instruments to mitigate these effects, it does not hedge
its foreign currency exposure in a manner that would entirely eliminate the
effects of changes in foreign exchange rates on the company's earnings,
cash flows and fair values of assets and liabilities. Accordingly,
reported revenue, net income, cash flows and fair values have been and in
the future may be affected by changes in foreign exchange rates. In
addition, because of the extensive nature of the company's foreign business
activities, financial results could be adversely affected by changes in
worldwide economic conditions, changes in trade policies or tariffs,
changes in interest rates, and political unrest.
2) Competition and Demand. The company's products are sold in a
competitive, global economy. Competitors include many large multinational
chemical firms based in Europe, Japan and the United States. These
competitors often have resources that are greater than the company's. In
addition, financial results are subject to fluctuations in demand and the
seasonal activity of certain of the company's businesses. The company also
manufactures and sells its products to customers in industries and
countries that are experiencing periods of rapid change, most notably
countries in the Asia-Pacific region. Also, weather conditions have
historically had, and will likely continue to have in the future, a
significant impact on revenues and earnings in the company's Agricultural
Chemicals business. These factors can
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adversely affect demand for the company's products and therefore may
have a significant impact on financial results.
3) Supply and Capacity. From time to time certain raw materials the
company requires become limited. It is likely this will occur again in the
future. Should such limitations arise, disruptions of the company's supply
chain may lead to higher prices and/or shortages. Also, from time to time,
the company is subject to increases in raw material prices and, from time
to time, experiences significant capacity limitations in its own
manufacturing operations. These limitations, disruptions in supply, price
increases and capacity constraints could adversely affect financial
results.
4) Technology. The company has invested significant resources in
intellectual properties such as patents, trademarks, copyrights, and trade
secrets. The company relies on the protection these intellectual property
rights provide since it depends on these intellectual resources for its
financial stability and its future growth. The development and successful
implementation of new, competing technologies in the market place could
significantly impact future financial results.
5) Joint Ventures and Acquisitions. The company has entered, and in
the future may enter, into arrangements with other companies to expand
product offerings and to enhance its own capabilities. It will likely also
continue to make strategic acquisitions and divestitures. The success of
acquisitions of new technologies, companies and products, or arrangements
with third parties, is not predictable and there can be no assurance that
the company will be successful in realizing its objectives, or that
realization may not take longer than anticipated, or that there will not be
unintended adverse consequences from these actions.
6) Environmental. Risks and uncertainties related to environmental
matters are discussed on pages 27 and 28 of the Stockholders' Report and
are incorporated herein by reference.
ITEM 7A. MARKET RISK DISCUSSION
Management's discussion of market risk is incorporated herein by
reference to page 32 of the Stockholders' Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1997, and 1996, and
the related consolidated statements of earnings, stockholders' equity and
cash flows for the years ended December 31, 1997, 1996, and 1995, together
with the report of KPMG Peat Marwick LLP dated February 23, 1998 are
incorporated in this Form 10-K by reference to pages 35 through 53 of the
Stockholders' Report. Supplementary selected quarterly financial data is
incorporated in this Form 10-K by reference to pages 33 and 34 of the
Stockholders' Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K were filed during 1997 or 1996 relating to any
disagreements with accountants on accounting and financial disclosure.
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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, 1997, has been omitted, except for
the information presented below, because the company on or about March 27,
1998, 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.
William C. Andrews, 52, vice president since 1997; corporate controller
since 1995; previously assistant controller from 1992 to 1995 and director
of finance and customer service for the European region from 1989 to 1994.
Thomas L. Archibald, 48, vice president since 1997; director of
engineering and manufacturing; previously plant manager for the Louisville,
Kentucky plant from 1990 to 1996.
Paul J. Baduini, 50, vice president since 1993; business unit director
for ion exchange resins since 1992.
Bradley J. Bell, 45, vice president since 1997; chief financial officer
and treasurer since 1997; previously vice president and treasurer of
Whirlpool Corporation from 1987 to 1997.
Albert H. Caesar, 60, vice president since 1993; business unit director
and president of AtoHaas Americas Inc. since 1992.
A. Wayne Carney, 49, vice president since 1995; business unit director
for formulation chemicals since 1990.
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Patrick R. Colau, 52, 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, 50, 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.
David T. Espenshade, 59, vice president since 1993; director of
materials management since 1990.
Carlos Estevez, 55, 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. Michael Fitzpatrick, 51, 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, 45, vice president since 1994; director of human
resources since 1994; previously manager of training and development from
1991 to 1994 .
Rajiv L. Gupta, 52, 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, 54, vice president since 1993; business unit director
for biocides since 1989.
Philip G. Lewis, 47, 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, 62, director since 1982; president and chief
operating officer since 1986; director of Teradyne Inc. and Aluminum
Company of America.
Richard C. Shipley, 52, vice president since 1996; president of
Shipley Company L.L.C. since 1985.
William H. Staas, 54, vice president since 1993; director of research
since 1996; previously business unit director for monomers from 1990 to
1996.
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David A. Stitely, 58, vice president since 1995; director of
information technology and chief information officer since 1990.
John F. Talucci, 58, vice president and business unit director for
agricultural chemicals since 1989.
Charles M. Tatum, 50, vice president since 1990; business unit director
of plastics additives since 1993; previously director of research from 1989
to 1993.
Basil A. Vassiliou, 63, vice president since 1986; regional director of
Europe since 1985; business group executive for plastics since 1991.
Robert P. Vogel, 53, vice president since 1994; general counsel
responsible for legal, 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, 62, director since 1977; chairman of the board and
chief executive officer since 1988; director of The Vanguard Group of
Investment Companies, Cummins Engine Company, Inc. and Mead Corporation
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 17 through 18 of the
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about March 27, 1998.
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 27, 1998.
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 35 through
53 of the Stockholders' Report, a complete copy of which follows page
7 of this report, together with the report of KPMG Peat Marwick LLP
dated February 23, 1998.
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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..................................... 7
Schedule submitted:
II - Valuation and qualifying accounts for the years
1997, 1996 and 1995 ................................... 8
The schedules not included herein are omitted because they are
not applicable or the required information is presented in the
financial statements or related notes.
3. Exhibits
Exhibit (10), Material Contracts. The Rohm and Haas Company Non-
Qualified Savings Plan is filed as Exhibit (10) and is attached as
pages 9 through 16 of this Form 10-K.
Exhibit (12), Computation of Ratio of Earnings to Fixed Charges
for the company and subsidiaries, is attached as page 17 of this Form
10-K.
Exhibit (13), Annual Report to Stockholders, follows page 7 of
this report.
Exhibit (21), Subsidiaries of the registrant, is attached as
pages 18 and 19 of this Form 10-K.
Exhibit (23), Consent of independent certified public
accountants, is attached as page 20 of this Form 10-K.
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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/ Bradley J. Bell
---------------------------------
Bradley J. Bell
Vice President, Chief Financial
Officer and Treasurer
March 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 23, 1998 by the following persons on behalf of
the registrant and in the capacities indicated.
- ------------------------------------------------------------------------------
Signature and Title Signature and Title
- ------------------------------------------------------------------------------
/s/ J. Lawrence Wilson /s/ Paul F. Miller, Jr.
- ----------------------------------- -----------------------------------
J. Lawrence Wilson Paul F. Miller, Jr.
Director, Chairman of the Board and Director
Chief Executive Officer
/s/ Bradley J. Bell /s/ Jorge P. Montoya
- ----------------------------------- -----------------------------------
Bradley J. Bell Jorge P. Montoya
Vice President, Chief Financial Director
Officer and Treasurer
/s/ William J. Avery /s/ Sandra O. Moose
- ----------------------------------- -----------------------------------
William J. Avery Sandra O. Moose
Director Director
/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
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Earl G. Graves Ronaldo H. Schmitz
Director Director
/s/ James A. Henderson /s/ Alan Schriesheim
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James A. Henderson Alan Schriesheim
Director Director
/s/ John H. McArthur /s/ Marna C. Whittington
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John H. McArthur Marna C. Whittington
Director Director
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Rohm and Haas Company:
Under date of February 23, 1998, we reported on the consolidated
balance sheets of Rohm and Haas Company and subsidiaries as of December 31,
1997 and 1996, 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, 1997, which are included in the 1997 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 1997. 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 1997 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 23, 1998
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SCHEDULE II
ROHM AND HAAS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
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(millions of dollars)
Deducted from Accounts Receivable --
Allowances for losses:
Balance at beginning of year..... $14 $12 $11
Additions charged to earnings.... 3 4 4
Charge-offs, net of recoveries... (2) (2) (3)
--- --- ---
Balance at end of year........... $15 $14 $12
=== === ===
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EXHIBIT (10)
ROHM AND HAAS COMPANY
NON-QUALIFIED SAVINGS PLAN
ARTICLE I
INTRODUCTION
------------
1.1 This is the Rohm and Haas Company Non-Qualified Savings Plan (the
"Plan"), adopted by the Company effective as of January 1, 1997.
ARTICLE II
PURPOSE
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2.1 The purpose of the Plan is to provide additional retirement savings
benefits beyond the otherwise determined savings benefits provided by the
Rohm and Haas Company Employee Stock Ownership and Savings Plan (the
Savings Plan") for a select group of management and highly compensated
employees of the Company whose pre-retirement income involves significant
performance related award payments.
In addition, to the extent not provided for in the preceding paragraph,
the Plan also provides additional savings benefits for eligible employees
of the Company whose otherwise determined savings benefits from the Savings
Plan are limited by Section 415 or Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended.
ARTICLE III
DEFINITIONS
-----------
The terms used herein shall have the following meanings, unless a
different meaning is clearly required by the context:
3.1 "Account" means a Participant's account under the Plan including
the following subaccounts:
3.1.1 "Matching Account" shall mean that portion of the account
maintained for a Participant to record the number of Deferred Stock
Shares representing the Company's matching contributions as described
in Section 6.2.
3.1.2 "Tax-Deferred Account" shall mean that portion of the
account maintained for a Participant to record notional amounts of
before-tax contributions as described in Section 6.1.
3.2 "Administrative Committee" means the Rohm and Haas Benefits
Administrative Committee. The duties of Administrative Committee are
defined in Article XIII. The Company
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has designated the Administrative Committee to be the named
fiduciary of the Plan for administrative matters as outlined in the
Plan.
3.3 "Affiliated Company" means Rohm and Haas Company and:
3.3.1 each entity in a controlled group of corporations or, trades
or businesses as determined under Section 414(b) or Section 414(c) of
the Code;
3.3.2 each entity in an affiliated service group as determined
under Section 414(m) of the Code; or
3.3.3 any other organization required to be aggregated with the
Company pursuant to regulations under Section 414(o) of the Code.
3.4 "Annual Performance Award Program" means the Company's performance
award program as in effect on January 1, 1992, and as may be amended from
time to time.
3.5 "Base Pay" shall mean compensation while a Participant of the Plan.
Base Pay shall include accident and sickness pay, basic disability pay,
extended disability pay, vacation pay, holiday pay, jury duty pay,
bereavement pay and salary reductions under a Company-sponsored section
401(k) or section 125 plan, but shall exclude for all Employees any
Workers' Compensation payments, long-term disability payments, overtime,
commissions or bonuses.
3.6 "Beneficiary" means the person, trust or institution designated to
receive benefits in accordance with Article XII. The Beneficiary of a
Participant who has not effectively designated a beneficiary shall be the
Participant's estate.
3.7 "Board of Directors" means the Board of Directors of the Rohm and
Haas Company.
3.8 "Code" means the Internal Revenue Code of 1986, as amended.
3.9 "Company" means Rohm and Haas Company and such of its Affiliated
Companies as may be designated from time to time by its Board of Directors
and as may adopt the Plan.
3.10 "Deferred Stock Share" means a book-entry unit representing the
right to acquire one share of Rohm and Haas Company common stock. The
number of Deferred Stock Shares shall be adjusted to reflect stock
dividends, stock splits, combinations of shares, and any other change in
the corporate capital structure of Rohm and Haas Company including
reorganization, recapitalization, merger and consolidation.
3.11 "Effective Date" means January 1, 1997.
3.12 "Employee" means any salaried employee of the Company who is
employed on a regular full-time basis.
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3.13 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any regulations issued pursuant thereto.
3.14 "Fair Market Value" means, on any given date, the average of the
high and low prices of Rohm and Haas Company common stock on the New York
Stock Exchange composite transaction quotations for the immediately
preceding trading day.
3.15 "Income" shall mean all earnings on investments, as well as all
realized and unrealized increases and decreases in the value of the
securities held.
3.16 "Investment Adviser" shall mean the adviser or advisers appointed
from time to time by the Investment Committee to supervise and manage the
investment and reinvestment of the Equity and the Bond Funds. Any such
adviser must be (i) registered as such under the Investment Adviser's Act
of 1940; or (ii) a bank (as defined in such Act); and (iii) must
acknowledge in writing that it is a fiduciary with respect to the Plan.
3.17 "Investment Committee" means the Rohm and Haas Benefits Investment
Committee. The duties of the Investment Committee are defined in Article
XIII. The Company has designated this Committee to be the named fiduciary
of the Plan for financial matters as outlined in the Plan.
3.18 "Participant" means any Employee eligible to receive benefits
under Article IV.
3.19 "Plan" means the Rohm and Haas Company Non-Qualified Savings Plan,
as amended from time to time.
3.20 "Plan Year" means the calendar year.
3.21 "Retirement" means a Participant's termination of employment at
either his normal or early retirement date. A Participant's normal
retirement date under the Plan is the last day of the month in which the
Participant's 65th birthday occurs. A Participant's early retirement date
under the Plan may be the last day of any month during the 10-year period
immediately preceding the Participant's normal retirement date.
3.22 "Savings Funds" shall mean the five separate funds designated by
the Company for tracking of the Trust Fund's Investment Performance, as
follows:
3.22.1 Bond Fund - a fund invested in securities or other
obligations of the United States Government, including its agencies,
instrumentalities and corporations, and in bonds and other debt
obligations of industrial corporations which seeks to parallel the
investment performance of the Lehman Brothers Aggregate Bond Index.
3.22.2 Fixed Income Fund - a fund established by an agreement with
one or more insurance companies or other financial institutions under
which the insurance company or financial institution guarantees no loss
of principal and a fixed minimum rate of investment return for a
specified period of time.
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3.22.3 International Stock Fund - a fund which seeks to parallel
the investment performance of the Morgan Stanley Capital International
Europe, Australia and Far East Stock Index.
3.22.4 Large Company Fund - a fund invested in the 500 publicly
traded stocks in the Standard & Poor's 500 Composite Stock Price Index.
3.22.5 Small Company Stock Fund - a fund invested in common stock
which seeks to parallel the investment performance of the Wilshire 4500
Stock Index. The investment performance of the Savings Funds shall be
used as a device against which the investment performance of the Trust
Fund shall be measured. The Trustees shall attempt in investing the
Trust Fund to equal or exceed the investment performance of the Savings
Funds, although the actual performance of the Trust Fund may be less
than or greater than the Savings Funds. The Trustees are not obligated
to invest the Trust Fund in the Savings Funds. Participants' Accounts
shall, therefore, to the extent possible, track the investment
performance of the Savings Funds.
3.23 "Savings Plan" means the Rohm and Haas Company Employee Stock
Ownership and Savings Plan, as amended from time to time.
3.24 "Trust Fund" means the aggregate of all Participant contributions
credited to the grantor trust established by the Company pursuant to
Section 671 of the Code.
3.25 "Valuation Date" means the last business day of each month, and
such other dates as the Administrative Committee may designate, on which a
valuation of all assets and liabilities is to be made pursuant to Section
8.3.
ARTICLE IV
ELIGIBILITY
-----------
Each Employee of the Company is eligible to become a Participant in the
Plan if:
4.1 the Employee is eligible to participate in the Company's Annual
Performance Award Program; and
4.2 the Employee has been classified as an exempt level 14 or above
Employee for at least one month during the calendar year immediately
preceding the year in which the Employee's election to participate will be
effective.
ARTICLE V
EMPLOYEE PARTICIPATION
----------------------
5.1 Enrollment
5.1.1 An eligible Employee may become a Participant of the Plan by
entering into a salary reduction agreement in accordance with Section
5.3 and any additional procedures prescribed by the Administrative
Committee.
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5.1.2 The Employee may also designate a Beneficiary or
Beneficiaries, independent of any beneficiary designation under the
Savings Plan, and may change such designation at any time by written
notice to the Company.
5.2 Effective Date
For the purpose of determining the period of a Participant's
participation, the effective date of such participation shall be the first
day of the month in which the first authorized salary reduction from the
Participant's salary is made. The effective date for resuming or beginning
salary reductions after a suspension shall be the first day of the month
following the end of the suspension period.
5.3 Salary Reduction Agreement
5.3.1 A Participant may authorize the Company to make
contributions on the Participant's behalf on a before-tax basis,
through a written salary reduction agreement, in whole percentage
points of 1% to 16% of the Participant's Base Pay in excess of the Code
section 401(a)(17) limit ($160,000 for 1997) and annual bonus. The
same percentage shall apply to both Base Pay in excess of the Code
section 401(a)(17) limit and to the annual bonus.
5.3.2 Salary reduction agreements for the initial Plan Year must
be completed by the Participant and received by the Company before the
Participant has received Base pay in excess of $160,000. For all
subsequent Plan Years, salary reduction agreements must be received by
the Company before December 31 of the previous year.
5.3.3 Unless changed or suspended as described in Sections 5.4 and
5.5, the percentage designated by a Participant upon joining the Plan
shall be applied thereafter to the Participant's Base Pay in excess of
the Code section 401(a)(17) limit, and to the Participant's annual
bonus, as such amounts change from time to time.
5.3.4 Notwithstanding Section 5.3.1, if a Participant is
designated as eligible for a deferred bonus arrangement, such
Participant may authorize the Company to make contributions on the
Participant's behalf on a before-tax basis, through salary reduction,
in an amount equal to 100% of the Participant's annual bonus. Such
contributions shall be credited to the Participant's Account in the
year in which the bonus would otherwise be payable to the Participant.
5.4 Change in Amount of Salary Reduction
A Participant may make a change in his rate of savings annually by
authorizing a change in his salary reduction percentage. A new enrollment
form must be completed by each Participant prior to the beginning of each
new Plan Year. A Participant's election is irrevocable for the Plan Year
to which it pertains.
5.5 Suspension of Salary Reduction
- 5 -
<PAGE>
Notwithstanding anything herein to the contrary, if, after other
required and authorized salary reductions have been made in a payroll
period, there is insufficient money available in a Participant's pay to
permit the Participant's salary reduction, the salary reduction agreement
shall automatically be suspended for that payroll period.
ARTICLE VI
CONTRIBUTIONS TO THE PLAN
-------------------------
6.1 Participant Contributions
For each payroll period, the Company, on behalf of each Participant who
has authorized before-tax savings pursuant to Section 5.3, will notionally
credit the Account of a Participant in an amount equal to the Participant's
deferral contributions made under Section 5.3. Such notional contributions
shall be allocated to the Participant's Tax-Deferred Account on a monthly
basis.
6.2 Company Matching Contributions. The Company shall match
Participant Contributions by contributing Deferred Stock Shares to the
Participant's Matching Account. The number of Deferred Stock Shares to be
contributed shall be determined as follows:
6.2.1 Rohm and Haas Employees. The number of Deferred Stock
Shares to be contributed shall be 60% of the amount determined by
dividing the lesser of (i) the Participant's contributions for the
year, or (ii) 6% of the Participant's compensation taken into account
under Section 5.3.1, by the Fair Market Value of Rohm and Haas common
stock on the date the contribution is allocated.
6.2.2 Shipley Employees. The number of Deferred Stock Shares to
be contributed shall be 120% of the amount determined by dividing the
lesser of (i) the Participant's contributions for the year, or (ii) 3%
of the Participant's compensation taken into account under Section.
5.3.1, by the Fair Market Value of Rohm and Haas common stock on the
date the contribution is allocated.
ARTICLE VII
INVESTMENT OF PARTICIPANT CONTRIBUTIONS
---------------------------------------
7.1 Participant Contributions. Subject to Section 8.3 the
contributions allocated to a Participant's Tax-Deferred Account will be
notionally invested in the same investment funds as such Participant has
elected for investment of his Savings Plan account. Notwithstanding the
foregoing, a Participant may not invest any portion of the Tax-Deferred
Account in Rohm and Haas Company common stock. A change in a Participant's
investment elections or a transfer of funds under the Savings Plan will
also effect the same change under the Plan. Investment elections under
this Article VII are notional only, and solely for the purpose of
calculating the ultimate amount of a Participant's benefit hereunder.
Actual investments, if any, by the Company to defray the costs of this Plan
will be governed by Section 8.3.
- 6 -
<PAGE>
7.2 Company Contributions. All Company contributions allocated to a
Participant's Matching Account will be made in Deferred Stock Shares.
ARTICLE VIII
PARTICIPANT ACCOUNTS AND TRUST FUND
-----------------------------------
8.1 The Administrative Committee shall maintain, or cause to be
maintained, for each Participant a Matching Account and a Tax-Deferred
Account. Notional amounts equal to a Participant's salary reductions
contributed by the Company shall be allocated to the Participant's
Tax-Deferred Account, and Deferred Stock Shares contributed by the Company
shall be allocated to a Participant's Matching Account.
8.2 The notional amount credited to a Participant's Account will be
reduced by the amount withdrawn.
8.3 Notwithstanding Article VII, the Trustees shall establish a rabbi
trust for the Plan and direct the investment of the Trust Fund. The actual
investment of the Trust Fund need not correspond to actual Participant
elections under Section 7.1. As of each Valuation Date, the Trustees will
determine the value of each Savings Fund, including Income thereon. The
Trustees shall also value the Trust Fund as of such valuation date, and
report to the Company the difference between the Trust Fund's actual value
and the Savings Fund's value, as derived from the investment elections by
Participants.
ARTICLE IX
VESTING
-------
9.1 A Participant shall at all times be 100% vested in all amounts
credited to his Account.
ARTICLE X
DISTRIBUTION OF ACCOUNTS
------------------------
10.1 Timing of Distribution.
Subject to the following provisions of this Article X, a Participant's
Account shall generally be paid to the Participant or the Participant's
Beneficiary in the event of one of the following:
10.1.1 Separation From Service
A Participant who has separated from service for any reason other
than Retirement or death, shall receive a distribution of his or her
Account in a lump sum as soon as administratively feasible following
the Participant's separation from service.
10.1.2 Participant's Death
- 7 -
<PAGE>
If the Participant dies while employed, his or her Account shall
be distributed to his or her Beneficiary as soon as administratively
feasible following the Participant's death. All decisions upon
questions of fact, in the determination of unnamed Beneficiaries, made
by the Administrative Committee in good faith and based upon proof by
affidavit or other evidence satisfactory to the Administrative
Committee, shall be conclusive, and payment made in accordance
therewith shall satisfy all liability hereunder.
10.1.3 Payment Following Retirement
10.1.3.1 The normal form of benefit shall be installment
payments over a term of years equal to (1) in the case of an
unmarried Participant, the Participant's life expectancy or (2) in
the case of a married Participant, the joint life expectancies of
the Participant and the Participant's spouse. The life
expectancies to be used will be determined from tables issued by
the Internal Revenue Service and will not be subject to
recalculation after payments begin. The amount of the payment to
be made each year (at intervals determined by the Administrative
Committee) will be determined by multiplying the balance of the
Participant's Account at the end of the previous year by a
fraction, the numerator of which will be one (1) and the
denominator of which will be the original term of years reduced by
the number of years during which payments have already been made.
10.1.3.2 In lieu of the normal form of benefit:
(a) an unmarried Participant may elect to receive his or her
distribution in either installment payments over a term of years
selected by the Participant but not to exceed the Participant's
life expectancy as determined under Section 10.1.3.1;
(b) a married Participant may elect to receive his or her
distribution in installment payments over a term of years selected
by the Participant but not to exceed the joint life expectancies
of the Participant and spouse as determined under Section
10.1.3.1; or
(c) any Participant may elect to receive a distribution of
his or her entire Account balance in a cash lump sum to paid at
least 90 days but not more than 120 days after the Administrative
Committee has received the Participant's election in writing. Any
distribution under this Section 10.1.3.2(c) shall be subject to
the following rules: (1) 100% of the value of the Participant's
Account shall be paid to the Participant provided he or she makes
such election within the 90 day period ending with his or her last
day of employment; and (2) 90% of the value of the Participant's
Account shall be paid to the Participant if he or she does not
make such election within the 90 day period ending with his or her
last day of active employment and the remaining 10% of such
Participant's Account shall be irrevocably forfeited.
- 8 -
<PAGE>
10.1.4 Change from Installment Payments to Lump Sum
A Participant who has retired and begun receiving benefits in
installment payments may, by filing a written election with the
Administrative Committee, elect to receive 90% of the value of the
Participant's Account, determined and paid 12 months after the date of
the election, in full satisfaction of all further benefit entitlements
under this Plan. Scheduled installments shall continue until the date
of the lump sum payment.
10.2 Form of Distribution.
10.2.1 Tax-Deferred Account. Amounts from a Participant's Tax-
Deferred Account shall be distributed in cash in accordance with
Section 10.1.
10.2.2 Matching Account. Deferred Stock Shares from a
Participant's Matching Account shall be distributed as Company common
stock shares in a amount equal to the number of whole Deferred Stock
Shares, plus a cash payment equal to the Fair Market Value on the date
of distribution of any fractional Deferred Stock Shares, credited to
the Participant's Account on the date of distribution.
ARTICLE XI
IN-SERVICE WITHDRAWALS
----------------------
11.1 A Participant may withdraw all or a portion of his Account in a
lump sum either without penalty upon giving 12 months notice to the
Administrative Committee of such withdrawal, or, if less than 12 months
notice is provided, by agreeing to forfeit 10% of the balance of the
Account.
ARTICLE XII
REEMPLOYMENT
------------
12.1 If a Participant's employment is terminated, and he or she is
subsequently reemployed as an Employee eligible to participate in the Plan
under Article IV, such eligible Employee may again participate in the Plan
as of January 1 following his or her date of reemployment.
ARTICLE XIII
ADMINISTRATION OF THE PLAN
--------------------------
13.1 The Administrative Committee will be responsible for the
administration of the Plan and the Investment Committee will be responsible
for the financial performance of the Plan. Members of the Administrative
Committee shall be appointed by the Chief Executive Officer, or his or her
designee. Members of the Investment Committee shall be appointed by the
Board of Directors.
- 9 -
<PAGE>
13.2 The Administrative Committee shall have the full responsibility to
represent the Company and the Participants in all things it may deem
necessary for the proper administration of the Plan. Subject to the terms
of the Plan, the decision of the Administrative Committee upon any question
of fact, interpretation, definition or procedure relating to the
administration of the Plan shall be conclusive. The responsibilities of
the Administrative Committee shall include the following:
13.2.1 Verifying all procedures by which payments to Participants
and their Beneficiaries are authorized;
13.2.2 Deciding all questions relating to the eligibility of
Employees to become Participants in the Plan;
13.2.3 Interpreting the provisions of the Plan in all particulars;
13.2.4 Establishing and publishing rules and regulations for
carrying out the Plan;
13.2.5 Preparing an individual record for each Participant in the
Plan, which shall be available for examination by such Participant, the
Investment Committee and its members, or other authorized persons; and
13.2.6 Reviewing and answering any denied claim for benefits that
has been appealed to the Administrative Committee under the provisions
of Section 15.6.
13.3 The following general provision shall govern the actions of either
the Administrative or Investment Committee:
13.3.1 The Committee shall choose a chairman from its members and
shall appoint a secretary who shall keep minutes of the Committee's
proceedings and shall be responsible for preparing such reports as may
be advisable for the administration of the Plan. The Committee may
employ and compensate such advisory, clerical, and other employees as
it may deem reasonable and necessary to the performance of its duties.
13.3.2 The action of the Committee shall be determined by a
majority vote of all its members, except that no member of the
Committee may vote on any question relating specifically to himself or
herself.
13.3.3 The members of the Committee shall serve without
compensation for their services as such. All expenses of the Committee
shall be paid by the Company.
13.3.4 The chairman or the secretary of the Committee may execute
any written direction on behalf of the Committee.
13.3.5 The Committee may, at its discretion, allocate among its
members or to other persons those functions and responsibilities which
it deems advisable for the efficient and effective operation and
management of the Plan.
- 10 -
<PAGE>
13.3.6 Except as expressly provided, neither the Committee nor any
member thereof shall be in any way subject to any suit or litigation or
to any legal liability for any cause or reason or thing whatsoever in
connection with the administration or financial performance of the
Plan.
ARTICLE XIV
FUTURE OF THE PLAN
------------------
14.1 The Company hopes and expects to continue the Plan indefinitely,
but necessarily reserves the right at any time to reduce, suspend or
discontinue payments to be made by it as provided hereunder. The Company
reserves the right to amend or discontinue the Plan at any time.
ARTICLE XV
GENERAL PROVISIONS
------------------
15.1 The right of any Participant, or Beneficiary to receive future
payments under the provisions of the Plan shall be an unsecured claim
against the general assets of the Company. Any trust, and any other fund,
account, contract or arrangement that the Company chooses to establish for
the future payment of benefits under this Plan to a Participant or
Beneficiary shall remain part of the Company's general assets and no person
claiming payments under the Plan shall have any right, title or interest in
or to any such trust, fund, account, contract or arrangement.
15.2 where appropriate, and wherever the singular is used, it shall be
interpreted as including the plural.
15.3 To the extent permitted by law, payments to and benefits under the
Plan shall not be assignable, since they are primarily for the support and
maintenance of the Participant after Retirement. To extent permitted by
law, such payments and benefits shall not be subject to attachment by
creditors of, or through legal processes against, any Participant or
Beneficiary.
15.4 Participation in the Plan shall not give any Employee the right to
be retained in the service of the Company, nor any right or claim to
annuity income unless such right has specifically accrued under the terms
of the Plan.
15.5 If any person entitled to receive any benefits hereunder is a
minor, or is deemed by the Administrative Committee or is adjudged to be
legally incapable of giving a valid receipt and discharge for such
benefits, they will be paid to the duly appointed guardian, custodian or
committee of such minor or incompetent, or they maybe paid to such persons
who the Administrative Committee believes are caring for or supporting such
minor or incompetent.
15.6 Any Participant or Beneficiary who claims to be entitled to the
payment of a benefit under the Plan, should bring the matter to the
attention of the Company, normally through a local personnel department.
If a specific claim as to the amount of any benefit, the method of payment
or any other matter under the Plan is denied, the claimant will be provided
with a written notice, normally within 90 days of the date the claim was
filed. The notice will include:
- 11 -
<PAGE>
15.6.1 the specific reason or reasons for the denial;
15.6.2 the specific reference or references to the Plan provisions
on which the denial is based;
15.6.3 a notice that the claimant or the claimant's duly
authorized representative, any appeal the denial to the Administrative
Committee within 60 days; and
15.6.4 a description of any additional information or material
necessary to perfect the claim and an explanation of the need for such
material or information.
In the event of an appeal, the claimant or the claimant's
representative, may submit a written application for review of the
denial, may examine documents relating to this Plan or the claim, and
may submit written issues, comments, and documents. Such appeal will
be promptly considered by the Administrative Committee.
15.7 Except insofar as the law of Pennsylvania has been superseded by
Federal law, Pennsylvania law shall govern the construction, validity and
administration of this Plan.
To record the adoption of this Plan, effective as of January 1, 1997,
Rohm and Haas Company has caused its authorized officers to execute the
Plan and to affix its corporate name and seal this _____ day of
________________, 1998.
[CORPORATE SEAL} ROHM AND HAAS COMPANY
Attest: _________________________ By:___________________________
- 12 -
EXHIBIT (12)
ROHM AND HAAS COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
--------------------------------
(millions of dollars)
Earnings before income taxes .......... $611 $530 $441 $407 $194
Fixed charges ......................... 71 75 84 82 79
Capitalized interest adjustment ....... 3 (1) (5) (2) (7)
Undistributed earnings adjustment ..... (11) 12 (3) (2) 6
---- ---- ---- ---- ----
Earnings ............................ $674 $616 $517 $485 $272
==== ==== ==== ==== ====
Ratio of earnings to fixed charges .... 9.5 8.2 6.2 5.9 3.4
==== ==== ==== ==== ====
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.
R O H M A N D H A A S C O M P A N Y
A N N U A L R E P O R T
1 9 9 7
[ID -- COVER GRAPHIC]
M O L E C U L E M A G I C
<PAGE>
Rohm and Haas is a specialty chemical company focused on profitable
growth. Our technology is the magic behind water-based house paints and
coatings, and paints that protect ship hulls but degrade quickly and
harmlessly when flaked off in sea water. We're the enabling technology
used to create faster, more powerful chips that will drive tomorrow's
computers. Our technology keeps packages sealed tight, but also can be
transparent to allow the beauty of the product to show through. Rohm
and Haas technology helps provide clean water to homes around the globe
and helps clean the clothes dirtied during a day of fun in the back
yard. We enable farmers to improve crop yields so that more food can be
brought to the tables of a hungry world.
In short, Rohm and Haas makes every day a little easier by quietly
improving the quality of life.
TABLE OF CONTENTS
Rohm and Haas at a Glance
Inside front cover
Financial Highlights
1
Letter to Shareholders
2
BUSINESS DISCUSSIONS
Polymers, Resins and Monomers
6
Performance Chemicals
11
Plastics
15
Agricultural Chemicals
17
Corporate Responsibility
19
Financial Review and Index
21
Shareholder Information
57
Directors and Officers
58
Locations
60
<PAGE>
R O H M A N D H A A S A T A G L A N C E
_____________________________________________________________________
___________________ POLYMERS, RESINS AND MONOMERS ___________________
BUSINESS UNITS
Sales in millions
POLYMERS AND RESINS
$1,655 MILLION
KEY MARKETS
Professional and do-it-yourself home improvement, construction,
factory-applied finishes, road and bridge maintenance, paper making,
textile, packaging, leather goods and apparel.
PRODUCTS
Acrylic and vinyl acrylic emulsion polymers, resins and additives used
in house paints, coatings, adhesives, caulks, road-marking paints,
paper coatings, building products, etc.
COMPETITORS
BASF, Hoechst, Union Carbide.
________________________
BUSINESS UNITS
Sales in millions
MONOMERS
$291 MILLION
KEY MARKETS
Primary source of starting materials for Rohm and Haas products.
Also sells products for use in coatings, detergents, superabsorbent
materials, 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.
________________________
BUSINESS UNITS
Sales in millions
FORMULATION CHEMICALS
$105 MILLION (excluding NorsoHaas sales)
KEY MARKETS
Water-treatment, detergent, industrial cleaning, personal care, oil
production and mining.
PRODUCTS
Water-soluble polymers for detergents and cleaners, scale inhibitors,
specialty polymers for personal care applications and dispersants.
COMPETITORS
BASF, National Starch, Rhone Poulenc, Nippon Shokubai.
_____________________________________________________________________
_______________________ PERFORMANCE CHEMICALS _______________________
BUSINESS UNITS
Sales in millions
ELECTRONIC CHEMICALS
$399 MILLION
KEY 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.
COMPETITORS
TOK, JSR, Hoechst, Atotech, MacDermid, Olin.
________________________
BUSINESS UNITS
Sales in millions
ION EXCHANGE RESINS
$227 MILLION
KEY 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.
________________________
BUSINESS UNITS
Sales in millions
BIOCIDES
$131 MILLION
KEY MARKETS
Industrial water treatment, paper making, 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 ______________________________
BUSINESS UNITS
Sales in millions
PLASTICS ADDITIVES
$382 MILLION
KEY 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.
________________________
BUSINESS UNITS
Sales in millions
ATOHAAS AMERICAS *
$305 MILLION
KEY 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.
_____________________________________________________________________
________________________________ AG _________________________________
BUSINESS UNITS
Sales in millions
AGRICULTURAL CHEMICALS
$502 MILLION
KEY 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.
<PAGE>
F I N A N C I A L H I G H L I G H T S
Millions of dollars (except per-share amounts) 1997 1996
- ---------------------------------------------------------------------------
FOR THE YEAR:
Net sales $3,999 $3,982
Net earnings 410 363
Capital additions 254 334
Free cash flow (1) 416 256
- ---------------------------------------------------------------------------
AT YEAR END:
Total assets $3,900 $3,933
Total debt 606 707
Stockholders' equity 1,797 1,728
- ---------------------------------------------------------------------------
RATIOS:
Total debt-to-equity (2) 31% 38%
Return on net assets 11 10
Return on common stockholders' equity (2) 23 20
- ---------------------------------------------------------------------------
PER COMMON SHARE:
Net earnings
Basic $6.51 $5.45
Diluted $6.39 $5.37
Common dividends $1.90 $1.72
- ---------------------------------------------------------------------------
(1) Free cash flow is cash provided by operating activities less fixed
asset spending and dividends.
(2) Stockholders' equity is before reduction for the ESOP transaction.
[ID: GRAPHICS -- PIE CHARTS . . .
SALES BY BUSINESS GROUP
SALES BY CUSTOMER LOCATION]
1
<PAGE>
T O T H E S H A R E H O L D E R S O F
R O H M A N D H A A S C O M P A N Y
[ID -- PHOTO AND CAPTION]
Left: J. Lawrence Wilson, Chairman
Right: John P. Mulroney, President
The magic is working at Rohm and Haas. For the fourth consecutive
year, the company reported double-digit growth in earnings per common
share.
Unit volume was up 6 percent for the second year in a row in 1997,
a good indicator of ongoing demand for our products and technology.
The year-long strength of the U.S. dollar made it impossible to
capture the impact of volume growth in the sales numbers. As a result,
overall sales of $4 billion remained essentially flat with 1996 levels.
The magic becomes apparent when one talks about net earnings and
cash flow. Rohm and Haas reported earnings of $410 million, a 13
percent increase over the $363 million reported for 1996. The higher 19
percent increase in earnings per common share reflects the impact of an
ongoing stock buyback program. Free cash flow for the year was $416
million, up more than 60 percent from 1996.
No matter how easy it looks on stage, magic is hard work. Every feat
is the culmination of hours of study and practice, a combination of bright
ideas, chemistry and physics. It's no different at Rohm and Haas. We've
been hard at work transforming this company since 1993.
That year, the U.S. dollar strengthened against foreign currencies --
much as it did in 1997. And volume growth in 1993 was exceptional -- up
12 percent from the previous year. Yet, although Rohm and Haas
struggled mightily to overcome the effects of the stronger dollar, the
company reported an earnings decline. We could not let that happen
again!
At the end of that year, every business and staff group made
commitments to reduce costs and to find faster ways of inventing, making
and delivering products.
We shed lower margin products in favor of more profitable ones. We
streamlined internal processes and accelerated our speed of response to
changing market conditions and customer needs. We reconfigured the
connections among research, manufacturing, marketing, sales and staff
functions in new, innovative and more productive ways.
The numbers for 1997 prove that we have kept our commitments and
have fundamentally changed this company for the better. When the dollar
again strengthened in 1997 we transformed solid volume increases into
2
<PAGE>
exceptional earnings growth because we've focused our product
portfolio and lowered the overall cost structure for Rohm and Haas.
We must pause here to acknowledge the stellar, ongoing achievements
of the men and women who are employed by Rohm and Haas. Their work --
along with our customers who challenge us to do better every day -- are
the originators of the "magic" behind this company.
SAFETY
After five years of dramatically declining injury rates, in 1997 the
number of employee injuries increased to 1.8 cases for every 100
full-time employees, up from the 1.5 incident rate reported for 1996.
While this injury rate is below the U.S. chemical industry average, we
are not where we want to be -- among the handful of the safest companies
in the world. We have begun an effort to identify and change the
underlying behaviors and cultural factors that may be impeding permanent
progress toward our "no injuries" goal for everyone who works for Rohm
and Haas.
THE PORTFOLIO
Again in 1997, Rohm and Haas converted its unparalleled expertise in
acrylic chemistry into products that quietly help improve the quality of
life around the world.
Polymers and Resins, our largest business, reported strong demand
for products used in acrylic paints, adhesive tapes and labels, floor
polishes and building materials, and for hollow-sphere pigments used in
the production of quality papers and paints.
Other segments of the acrylic portfolio -- Monomers and Formulation
Chemicals -- reported double-digit volume increases. Growth was not as
strong for Plastics Additives and AtoHaas, but productivity improvements
in those businesses enabled them to transfer the benefits of whatever
volume growth they did see directly to earnings.
Ion Exchange Resins deserves special mention for an improving
ability to deal with an extremely competitive market, and still managing
to make substantial contributions to the company's cash flow.
Profitability for this business improved throughout 1997.
Because of their heavy concentration of sales in Europe and Asia,
Agricultural Chemicals and Biocides were hurt most by unfavorable
currency translations. In addition, sales of Ag's flagship product,
Dithane fungicide, lagged in 1997, due primarily to drier weather
conditions that diminished the need to control crop fungus.
The fastest-growing business in Rohm and Haas today is Electronic
Chemicals, led by Shipley Company. Since 1993, volume and sales have
increased at an annual rate of about 10 percent, with earnings growth
substantially higher.
[ID -- BLURB]
The numbers for 1997 prove that
we have kept our commitments
and have fundamentally changed
this company for the better.
[ID -- PHOTO]
3
<PAGE>
[ID -- THREE BAR CHARTS ...
WORLDWIDE VOLUME
SALES
EARNINGS]
Electronic Chemicals also has been the most active area for
acquisitions. In 1997, Shipley acquired a 26 percent interest in Rodel,
Inc., a supplier of chemical mechanical polishing slurries and pads,
among other things. This technology complements Shipley's photoresist
chemistry and gives semiconductor manufacturers an excellent source for
the products they need to lay down complicated circuitry on silicon
wafers. Shipley also expanded its printed wiring board business with
the mid-year acquisition of Pratta. An alliance formed with LG Chemical
early in 1998 will lead to the manufacture, sale and distribution of
photoresist chemistry in Korea.
The performance of affiliate companies was nothing short of
outstanding -- swinging from a net loss of $12 million in 1996 to a net
gain of $11 million in 1997. AtoHaas Europe improved its performance
for most of 1997, but was in a negative position at the end of the year.
The newest contributor, Rodel, was mentioned earlier, but its immediate,
positive contribution to Rohm and Haas earnings is noted here. RohMax,
our former petroleum additives business which became part of a joint
venture with Rohm in 1996, exceeded all expectations for 1997. They are
applauded for their hard work and resulting success.
In December 1997, we announced a decision to sell our interest in
RohMax to Rohm, our partner in the lubricant additives joint venture.
The following month, we announced our intention to sell our stake in
AtoHaas, our acrylic sheet and resins joint venture, to Elf Atochem and
acquire from them full control of the NorsoHaas venture for polyacrylate
chemistry. While the departures of the Rohm and Haas employees
associated with these ventures and the products they made are
bittersweet, we believe the long-term future for these businesses will
be brighter with firms that want to concentrate in these markets.
On a regional basis, Latin America turned in an outstanding
performance, with increases in sales, volume and earnings on top of a
superb 1996. Demand remained strong throughout Europe, especially for
Polymers and Resins products, which reported unit volume increases at
double-digit rates. North America remained strong throughout the year.
All eyes -- including ours -- turned to Asia-Pacific during the
latter part of 1997. About one-fifth of that region's sales occur in
countries that today have experienced serious economic difficulties. If
these difficulties remain confined to those economies currently being
affected, Rohm and Haas could see a 5 to 7 percent decrease in 1998
Asia-Pacific region sales. And while we have taken decisive financial
action to protect and conserve our interests in the region, we also are
on the outlook for acquisition or venture opportunities which might
arise.
4
<PAGE>
DIRECTOR AND MANAGEMENT CHANGES
There also have been changes in our Board of Directors. In 1997,
Jorge Montoya of Procter & Gamble spent his first full year on the
board. William Avery of Crown, Cork & Seal joined us in December 1997.
In 1998, two long-time directors will reach retirement age and will not
stand for re-election in May. George "Spike" Beitzel, who came to us
from IBM, has given us wise counsel, both on the board and as a member
of our Environmental Advisory Council for more than a decade. Paul
Miller has earned the distinction of having the longest service of any
outside board member -- 29 years. Throughout his tenure, Paul has been
an unabashed champion of the shareholder. We thank both men for sharing
their wisdom and time with us.
Fred Shaffer, Chief Financial Officer, retired in August after 37
years of service. It is said that, "If a man has any greatness in him,
it comes to light -- not in one flamboyant hour, but in the ledger of
his daily work." Fred's contribution to Rohm and Haas was significant,
and we thank him for it. We also welcome Brad Bell, our new Chief
Financial Officer.
GOING FORWARD
We remain committed to making the magic work at Rohm and Haas. And
we are committed to making improvements at an ever faster pace.
Rohm and Haas's strategy is to expand its ever-growing franchise in
acrylic technology -- a technology that, absent RohMax and AtoHaas, has
generated an average of 15 percent compound earnings growth since 1993.
We are intent upon expanding our role in electronic chemicals, and
intend to advance our expertise in this area in the years to come. The
cluster of technologies linked with biocides, ion exchange resins and
agricultural chemicals will collectively continue to generate good
earnings growth and cash flow.
We will use the technologies we have invented and the efficiencies
we have learned to leverage our already strong positions in world
markets.
Look for more magic from Rohm and Haas. We are still hard at work
behind the scenes manipulating molecules into new products, and finding
faster and more efficient ways to get these products into the hands of
customers around the world.
/s/ J. Lawrence Wilson
J. LAWRENCE WILSON
CHAIRMAN
/s/ John P. Mulroney
JOHN P. MULRONEY
PRESIDENT
MARCH 27, 1998
[ID -- PHOTO]
[ID -- BLURB]
We remain committed to
making the magic work at
Rohm and Haas. And we are
committed to making
improvements at an
ever faster pace.
5
<PAGE>
B U S I N E S S D I S C U S S I O N S
In 1997, Rohm and Haas operated nine global business units,
organized into four groups for financial reporting purposes: Polymers,
Resins and Monomers; Performance Chemicals; Plastics, and Agricultural
Chemicals.
POLYMERS, RESINS AND MONOMERS
POLYMERS AND RESINS
Strong increases in volume, stringent cost control, and continuing
productivity improvements combined to deliver an excellent year for
Polymers and Resins.
[ID -- PHOTO]
There was strong demand for polymers, resins and additives used in
everything from house paints and industrial coatings to paper coatings,
adhesives, floor polishes and building materials. Unit volume growth in
the high single digits offset the negative effects of the strong U.S.
dollar on sales and earnings in Europe and Asia-Pacific. Sales of
$1,655 million were up 4 percent from 1996 levels in spite of currency
impacts. Coatings, which includes emulsion binders, solvent-based
binders, and additives, recorded impressive volume growth across the
product range. Acrylic products used in specialty coatings and wall
paints did especially well because of a healthy paint industry and
growing demand for water-based materials. Business increased
significantly in the U.S. and Canada. Coatings also reported
double-digit volume growth in Australia, New Zealand, Germany, France,
Italy, Brazil and other countries.
Specialty Polymers, which includes paper, adhesives, leather, and
fiber and textile products, had an excellent year. A multi-year effort
to provide ongoing, dedicated technical support for the paper industry
paid off in strong growth of hollow sphere polymers, particularly for
use in publication-grade papers. The paper and adhesives businesses
were especially strong in Europe.
Sales of adhesives increased in North America as the tape industry
recovered and shrugged off excess inventories built up in 1995 and 1996.
Earnings in
[ID -- CAPTION]
At left: Winners of the "Prettiest
Painted Places" contest held by Rohm
and Haas's Paint Quality Institute in
1997 demonstrate that latex paints are
beautiful, durable and the ideal choice
for homes around the world.
Opposite: Rohm and Haas's unparalleled
expertise in acrylic emulsion technology
is used to make high-quality paper coat-
ings, water-based stains and sealants,
adhesives, latex paints and many other
products.
6
<PAGE>
[ID -- PHOTO]
7
<PAGE>
Europe were dampened by a lack of growth in fiber and textiles, and
by negative currency effects. Results in Asia-Pacific were below
expectations, especially for adhesives, due to weaker than expected
demand.
[ID -- PHOTO]
[ID -- CAPTION]
Water-based adhesive dry clear, making
them the ideal product for today's wine
bottle labels.
In September, Specialty Polymers announced an alliance with Bayer AG
to become a single worldwide source of leather tanning and finishing
chemicals. Under this alliance, Rohm and Haas provides research,
development and manufacturing, while Bayer has worldwide marketing,
technical support and supply responsibilities.
Building Products, which includes a broad line of construction
products and coatings, had a strong year. The unit achieved
breakthrough business for exterior insulated finish systems and
excellent growth in the floor care, and roof tile and siding markets.
Building Products capitalized on greater consumer confidence and
strengthened customer relationships in Latin America. Despite the
difficult economic conditions in Asia-Pacific late in the year, Building
Products grew its business in the region, anchored by a strong position
in Australia and New Zealand.
Productivity improvements continued in 1997, including refinements
in a process that forecasts future customer demand which enables more
accurate production scheduling and better inventory management.
Polymers and Resins also refocused its research portfolio in 1997,
putting greater emphasis on fewer, higher impact programs. This effort
should increase the short-term and long-term impact of research efforts.
Strong business results were dampened by a disappointing safety
performance as the injury rate increased 30 percent from the year
before. Polymers and Resins is taking firm steps to ensure that all
manufacturing and support employees adopt world-class systems and accept
personal accountability for safety.
[ID -- PHOTO]
[ID -- CAPTION]
Acrylic fixatives for hair sprays reduce
the emmission of compounds to the air
that contribute to ground smog.
OUTLOOK
The outlook is cautiously optimistic. The start-up of a new reactor
in Sweden should ease capacity problems in Europe, and gains in North
America should mirror regional economic growth rates. The strength of
the U.S. dollar and the impact of continuing economic upheaval in
Asia-Pacific will be important factors in 1998 performance.
MONOMERS
In 1997, Monomers again kept pace with growing demand for the
acrylate and methacrylate raw materials used throughout the company's
acrylic product portfolio.
Productivity improvements -- a fully integrated supply chain, tight
cost control, efficient incremental capacity increases and
smooth-running manufacturing operations -- enabled Monomers to reduce
working capital and improve the overall profitability of the business
while continuing to meet double-digit increases in both internal and
external demand. External sales to the merchant market totaled $291
million in 1997, 9 percent higher than the $266 million reported
for 1996.
The only cloud on an otherwise bright performance for the year was
an increase in the number of employee injuries to 2.5 cases for every
100 people. A concerted effort is under way to fully understand and
eliminate the causes and behaviors behind the increased injury rate.
8
<PAGE>
[ID -- THREE BAR CHARTS ...
POLYMERS, RESINS AND MONOMERS VOLUME
SALES
EARNINGS]
A new and more accurate sales forecasting system became fully
operational throughout the acrylic chain businesses (Polymers and
Resins, Formulation Chemicals, Plastics Additives and Monomers). The
forecasting system, coupled with improved production planning, allowed
Monomers to increase utilization of its assets and reduce working
capital.
In addition, the business reaffirmed its commitment to the merchant
market and began to broaden its geographic reach.
An ongoing effort to streamline world-scale manufacturing operations
near Houston, Texas led to significant incremental increases in acrylic
acid, butyl acrylate and methyl methacrylate capacity with minimal
capital investment. Rohm and Haas believes it can further increase
capacity with continued emphasis on technology and process improvements.
These improvements also should allow Rohm and Haas to postpone the need
for any new greenfield acrylic acid plant to 2003 or later, as long as
current demand trends remain.
In taking full advantage of these productivity improvements, the
Monomers team will have a dramatic impact on the competitiveness of the
Rohm and Haas acrylic businesses, including the Monomers business
itself.
The Primene amine business, also part of Monomers, continued to
expand its portfolio of products. During 1997, a new product, BC-9, was
introduced which brings the unique Primene properties to the fuel,
lubricant additives, dyes, and refinery process chemicals markets.
OUTLOOK
Monomers will remain the keystone of the acrylic chain businesses.
Its increasing competency as a low-cost producer of essential raw
materials for internal use, along with an expanding reputation as a
reliable long-term supplier of product for the merchant market will
enable this business to continue to grow profitably in 1998.
FORMULATION CHEMICALS
Formulation Chemicals had a strong year, posting significant volume
increases on sales that, at $105 million, were 8 percent higher than the
1996 figures. Profitability improved as a result of increased demand
for detergent and water-treatment products and ongoing productivity
gains.
[ID -- PHOTO]
[ID -- CAPTION]
Water-based traffic paints are replacing
solvent-based compounds on roadways
around the world.
The business strengthened an already excellent position in the North
American detergent market and increased penetration in Latin America and
Asia-Pacific. In Europe, considerable pricing pressure resulted in flat
growth for detergent additives even as the NorsoHaas joint venture with
Elf Atochem expanded its market reach into Eastern Europe and the Middle
East, and stepped up the manufacture of products for
9
<PAGE>
[ID -- PHOTO]
10
<PAGE>
non-detergent markets. Early in 1998, Rohm and Haas announced its
intention to acquire Elf Atochem's interest in the NorsoHaas joint
venture.
Water treatment products sold well in 1997. Demand increased for
Acumer and Tamol dispersants used as scale inhibitors in cooling water
and boiler water sludge control. New traceable polymers for water
treatment should fuel growth in 1998. This immunoassay-based
technology, developed jointly with Strategic Diagnostics Inc. of
Delaware, gives customers accurate readings of polymer levels on-site
through a simple 10-minute test.
Sales of personal care products in North America and Europe
established a firm foundation for growth. An alliance formed with
International Specialty Products in July expands the reach for research,
marketing and sales for products which include thickeners for creams and
lotions, hair spray fixative resins and polymeric additives for
sunscreens.
Ceramic additives grew well, especially in the European and
Asia-Pacific regions. Rohm and Haas has a full complement of ceramic
binders, dispersants and rheology modifiers.
Slow overall growth in the paper and mining industries was tempered
by an above-par performance in Asia-Pacific.
Increased customer demand was fed by greater production capacity in
Taiwan. Good volume growth in Latin America continued for polymers that
disperse and stabilize mineral slurries.
[ID -- PHOTO]
Productivity gains continued to boost earnings. New bulk ordering
and robotic filling systems at the Knoxville plant and planned upgrades
of the Taiwan facilities are evidence of an ongoing commitment to
provide ingenious solutions to customer needs.
Safety remains a priority for Formulation Chemicals. With two
injuries in 1997, the business continues to build a strong record on
safety.
OUTLOOK
Expansions in key markets and an unwavering focus on the customer
should enable Formulation Chemicals to grow, especially in the
detergent, personal care and water treatment industries.
[ID -- CAPTION]
At left and opposite: High-tech products
developed by the Electronic Chemicals
business enable semiconductor manu-
facturers to build powerful, intricate cir-
cuitry on silicon chips no larger than a
human fingernail.
Productivity gains in all business segments should fuel
profitability and balance market downturns in Asia-Pacific. The new
alliances in personal care and water treatment markets hold the promise
for another good year.
PERFORMANCE CHEMICALS
ELECTRONIC CHEMICALS
Electronic Chemicals reported another year of strong growth. Since
1993, Shipley Company, the fundamental component of Electronic
Chemicals, has reported average annual sales growth of 10 percent.
Profitability has quintupled during that period. Sales in 1997 were
$399 million, compared with $358 million in 1996.
The injury rate for the business increased to 2 cases for every 100
full-time employees during the year, up from 1.7 cases in 1996.
11
<PAGE>
[ID -- PHOTO]
[ID -- CAPTION]
The right technology, product purity
and an ability to match customer formu-
lations exactly are essential to compet-
ing successfully in today's electronics
industry.
Shipley's Microelectronics business reported strong demand for
photoresist chemistry used to make high-powered semiconductor chips.
Cutting-edge technology -- advanced I-line and deep UV photoresists --
allows increasingly narrow beams of light to be used to draw more and
more intricate and fine patterns on silicon chips. Demand also remained
strong for more traditional G-line photoresists.
The company strengthened its position in the electronics industry
through the acquisition of a 26 percent interest in Rodel, Inc., a
company on the leading edge of chemical mechanical polishing (CMP), the
emerging technology of choice to fabricate multi-layered chips. Rodel
began contributing to Rohm and Haas earnings growth as soon as the
acquisition was completed at mid-year.
Shipley's Printed Wiring Board business reported excellent growth in
1997, for both its electroless and electrolytic plating products. The
acquisition of Pratta Electronic Materials further strengthened
Shipley's position as a world leader in wiring board technology.
Early in 1998, Shipley formed a joint venture with LG Chemical of
Korea. This venture expands Shipley's sales and distribution effort in
Korea and will lead to the construction of a manufacturing facility
before the end of the decade.
OUTLOOK
Nineteen ninety-eight should be a year of continued growth for
Electronic Chemicals. The economic troubles in Asia-Pacific are likely
to have a minimal impact on Shipley, since its technology is used in
products that are exported from the region to other parts of the world.
Ongoing demand in markets around the world for electronic appliances,
games, computers, home control systems, and more, should ensure strong
demand for Electronic Chemicals products in years to come.
[ID -- THREE BAR CHARTS ...
PERFORMANCE CHEMICALS VOLUME
SALES
EARNINGS]
ION EXCHANGE RESINS
Ongoing efforts to simplify operations and lower costs improved
profitability again in 1997. Higher overall volume and increased plant
efficiencies enabled Ion Exchange Resins to report higher earnings and
considerable cash for the company.
While business performance improved, safety took a step in the wrong
direction as the injury rate increased from 1.3 to 1.6 cases for every
100 full-time employees. The business is taking action to determine
the most effective means to improve safety at each location.
Ion exchange resins are used to purify water, food and beverages,
and to increase the efficiency of utility plant operations and chemical
processes. Special, high-grade resins are sold for use in
pharmaceutical applications, and to generate ultrapure water for
semiconductor manufacture.
Pharmaceutical-grade resins, which are made in Chauny, France, saw
good growth in 1997 in the U.S. for a variety of medications, including
those designed to reduce cholesterol, curb cigarette smoking and help
purify blood.
12
<PAGE>
Water-treatment applications remain important. On the industrial
side, the business demonstrated its ability to compete in a highly
competitive market. Sales of Amberpack resins were good in North
America, Latin America and parts of Europe, including Russia. These
systems improve the efficiency of power and chemical plants. Rohm and
Haas also increased sales of resins for ultrapure water to the world's
leaders in semiconductor manufacture.
Demand also continued from home water treatment systems. More and
more consumers in North America and Europe are using cartridge water
systems to filter drinking water. Rohm and Haas resins are a critical
component of these stand-alone units and the replacement cartridges. In
Europe, a new resin for the home water-softening market was introduced
in 1997, which enabled the business to recover market share in this
segment.
[ID -- PHOTO]
[ID -- CAPTION]
Rohm and Haas's ion exchange resins
ensure that the highest-quality water is
used to make pharmaceutical products.
Ion Exchange Resins also increased sales of resins used as catalysts
in the manufacture of gasoline and other chemical processes. Sales of
resins used in heavy metals mining and metal recovery were strong in
South Africa and Latin America.
OUTLOOK
Ion Exchange Resins will continue to find innovative ways to use
existing capacity and expand market share while making its processes
more efficient.
Geographic markets targeted for growth include South Africa, Russia
and the Middle East. A newly formed joint venture with Shanghai Resins
in China will enable Rohm and Haas to supply the local marketplace with
resins.
BIOCIDES
The Biocides business recorded sales of $131 million for 1997, down
14 percent from $152 million reported for 1996 when a joint venture for
bromine biocides was active. The sales decline was due to the absence
of the bromine sales after the termination of the venture. Adverse
exchange rates and higher manufacturing variances also affected
profitability.
Demand for newer products remained strong. Sea-Nine biocide, used
in marine applications, reported strong double-digit growth,
particularly in Japan. Sea-Nine's environmental benefits as an additive
for marine paints that prevents barnacles from attaching to the bottom
of ships, yet degrades quickly and harmlessly in sea water, continue to
be recognized around the world. Companion technology designed to
control fungus and bacteria in plastics also is taking traction in
key markets.
The business's core isothiazolone products more than held their own
in most markets and applications around the world, in spite of
increasing competition. Products used in water-treatment applications
saw double-digit growth at key customer accounts during the year.
Kathon CG continues to be the product of choice for use in consumer
toiletries and household cleaners because of its ability to control
bacteria effectively at extremely low use levels.
Unit volume grew at double-digit rates in the Asia-Pacific market,
with especially good growth in Japan, China and India. However, the
currency situation made it difficult to translate growth into sales
dollars. In Japan, for example, unit volume growth of almost 20 percent
had next to no impact on sales growth, thanks to the continuing
imbalance between the dollar and the yen.
Business in Latin America ran well ahead of 1996 levels, thanks to
strong demand for product across the board.
The manufacturing side made very good improvements in on-time
customer deliveries through the year, but plant variances were higher
than expected, particularly at the newer Biocides plant in Bayport,
Texas. Most of the causes of the manufacturing variances have been
corrected.
13
<PAGE>
[ID -- PHOTO]
14
<PAGE>
Biocides recorded more employee injuries in 1997 than the year
before, due to an increased number of incidents at the manufacturing
facilities. Efforts are underway to improve the safety culture
throughout the organization.
OUTLOOK
Biocides will continue to put special emphasis on increasing the
presence of its newer technology in the marine, wood and plastics
markets. The business also will emphasize continued geographic growth
in Eastern Europe, Asia-Pacific and Latin America for its more
traditional isothiazolone chemistry.
PLASTICS
PLASTICS ADDITIVES
Plastics Additives is a leading global supplier of impact modifiers
and processing aids for plastics. In 1997, the combined effects of an
ongoing shift in technology in a key end-use market, currency
translations and competitive pressures led to sales of $382 million,
down slightly from the year before.
[ID -- PHOTO]
[ID -- CAPTION]
Above: Plastics additives increase the
toughness and durability of everyday
products. Opposite: Sea-Nine biocide
controls the build up of barnacles on
ship hulls without harming sea life.
This business continues to make great strides in productivity. In
1997, it met or exceeded every operating target set.
Safety, however, continued to be a concern. In 1997, the collective
rate of injuries for the business and manufacturing sites owned by
Plastics Additives increased to 3.1 for every 100 employees. Concerted
efforts are under way to improve performance in this important area.
Products made by Plastics Additives improve the performance and
processing characteristics of polyvinyl chloride (PVC) and other
plastics and fall into three categories: acrylic processing aids,
acrylic impact modifiers and methyl methacrylate butadiene styrene (MBS)
impact modifiers. They are used in a variety of consumer, building,
packaging and industrial applications. In addition, the business has a
robust technology program under way to enable future advancements in the
use of PVC and other plastic resins.
In the packaging market, bottle makers are shifting to non-PVC
plastics, eliminating the need for Rohm and Haas technology. To offset
this, Plastics Additives has concentrated on increasing share in the
film and sheet packaging market, particularly in Europe. While these
efforts have been successful, the net effect in 1997 was low growth in
overall packaging applications.
[ID -- THREE BAR CHARTS ...
PLASTICS VOLUME
SALES
EARNINGS]
There was good growth in the construction and automotive markets.
In North America, demand for vinyl siding and vinyl windows was strong,
driven by larger new homes, remodeling to improve energy efficiency and
lessen maintenance, and improved performance features. In the
automotive area, Plastics Additives has seen a resurgence in demand for
engineering resin additives used in car bumpers and other specialty
applications.
15
<PAGE>
The partnership with Kureha remains strong, particularly in the
Asia-Pacific region. And, while there was some slowing in demand in
countries experiencing severe economic declines, demand in key markets
such as Taiwan and China held firm. The overall mix of products sold in
the region is good and demand is expected to remain steady, as long as
economic conditions do not change significantly.
OUTLOOK
While the environment for Plastics Additives remains extremely
competitive, the business expects to overcome competitive pressures by
shifting more attention to growing, profitable markets, burnishing an
already good record for operational excellence, introducing new products
and technology, improving its safety record and working closely with key
customers around the world.
[ID -- PHOTO]
[ID -- CAPTION]
One of the newer applications for
Plastics Additives resins can be found in
plastic lattice work, which enhances the
beauty of the home, yet all but elimi-
nates the maintenance involved with
wood products.
ATOHAAS
AtoHaas Americas volume, including exports from North America,
increased by 4 percent compared to 1996 levels. However, sales in Japan
and South East Asia were down due to unfavorable exchange rates and
Asia-Pacific's weaker economy.
Stronger market conditions in key segments contributed to AtoHaas
Americas' improved overall performance in 1997. Sales of $305 million
were about even with 1996 levels. Yet despite industry over-capacity
and limited success at raising prices, the business was able to maintain
profit margins through increased manufacturing productivity, a
streamlined materials management approach, and flat raw material,
selling, administrative and research costs. AtoHaas Americas' focus on
higher value, impact grade acrylic products also contributed to improved
business performance.
While AtoHaas Americas' safety record was equal to the previous
year, safety improvement remains a priority for the business.
Plexiglas acrylic sheet demand was higher compared to 1996 due to
improved market conditions. Illuminated signs, point-of-purchase
displays, and industrial applications were the primary contributors to
the volume growth. Performance improvements in impact grade sheet,
along with the business's concentration on higher value, specialty niche
markets, have helped improve profitability. Overall, acrylic resin
demand grew about 3 percent compared to 1996.
Sales in Asia-Pacific continued to be affected by crippled economies
and the weak yen. Nevertheless, the Asia-Pacific business team
continues to work on potential growth opportunities in the compact and
laser disc markets.
AtoHaas Europe completed its major restructuring in 1997, which
contributed to improved profitability compared to the previous year.
The effort, which included decommissioning old acrylic sheet production
lines and starting up a new, world-class production plant in Rho, Italy,
helped to reduce selling, administration, research and production costs
and reversed AtoHaas Europe's disappointing performance in 1996. Demand
for sheet products strengthened as Europe's economy improved. Resin
sales also increased, but at a slower pace compared to sheet products.
OUTLOOK
In January 1998, Rohm and Haas announced its intention to sell its
50-percent stake in AtoHaas to its partner, Elf Atochem.
After its formation in 1992, AtoHaas employees re-shaped
manufacturing, technology, marketing and sales into a dynamic
enterprise, the North American operations in particular. Rohm and Haas
thanks them for their contributions, and wishes them well as they head
toward an increasingly successful future.
16
<PAGE>
AGRICULTURAL CHEMICALS
In 1997, the Agricultural Chemicals business reported sales of $502
million, down 2 percent from 1996. Earnings of $41 million were 25
percent lower than 1996 results, after an adjustment for a one-time gain
in 1996 from a land sale in Japan.
Unfavorable currency swings in Western Europe and Japan,
weather-related lower demand for Dithane fungicide in all regions except
Latin America, and slower-than-anticipated growth for newer compounds
accounted for the decline.
[ID -- THREE BAR CHARTS ...
AGRICULTURAL CHEMICALS VOLUME
SALES
EARNINGS]
There also were successes during the year. An improved formulation
for Goal herbicide resulted in strong growth as it found use on expanded
acres of perennial crops in the western U.S., and new crop
registrations.
Sales of turf and ornamental products grew, most notably for
Dimension herbicide. Mach 2 insecticide, a molt accelerating compound
(MAC), developed by RohMid L.L.C. (a joint venture with American
Cyanamid), has been cleared by regulatory agencies in more than 40 U.S.
states and is poised for commercialization in 1998.
In 1997, the U.S. EPA classified Confirm insecticide as a
reduced-risk pesticide for use on nine new crops. Review of the pending
applications will be expedited, in keeping with the EPA's efforts to
accelerate the availability of safer pesticides, and could yield new
registrations in 1998 and 1999. Sales of Confirm outside the United
States increased in 1997, with significant increases in Australia,
Brazil, Canada and Italy.
A formal distribution agreement was signed between Rohm and Haas and
Bayer for the marketing of crop protection chemicals in India, including
Dithane fungicide. Elsewhere in the Asia-Pacific region, Rohm and Haas
Japan and Sanyo Trading Company merged their agrochemical divisions into
a new entity known as AgLead. Rohm and Haas also introduced its newest
fungicide, thifluzamide, for commercial use on Korean rice.
[ID -- PHOTO]
[ID -- CAPTION]
Rohm and Haas products help
bring healthy fruit to market.
Karathane miticide was a consistent performer throughout Europe,
while Mimic insecticide continued to gain acceptance in the region's
southern markets. In Latin America, Goal herbicide showed good growth
for use on Brazilian cotton and sugarcane, and on Colombian rice.
During the year a work group was formed to study the global
implications of biotechnology, and to evaluate how Rohm and Haas can
bring value to this emerging field in research, alliances, and existing
product development.
Excellent progress was made toward achieving an injury-free
workforce. The Agricultural Chemicals business showed a 37 percent
improvement in its safety record, and exceeded the overall corporate
average.
17
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[ID -- PHOTO]
18
<PAGE>
The business also made great strides in areas of supply chain
management, which enhances customer satisfaction and enables the
business to manage its assets more efficiently.
OUTLOOK
Taking into account the potential for increased sales volume from
newly-registered products like Mach 2, growing demand for products such
as Goal and Dimension, and new products still in the pipeline, the
Agricultural Chemicals business is positioned to meet the company's
expectations for growth, and remains optimistic that 1998 can produce
improved earnings.
CORPORATE RESPONSIBILITY
Nineteen-ninety-seven marked a year of progress in all but one
aspect of Environmental Health and Safety (EHS) efforts. Highlights
included a reaffirmation of EHS principles, external reviews of
Responsible Care efforts, new milestones under ISO 14001, and continued
reduction of pollutants. An increase in workplace injuries and
illnesses marred the progress made in these areas.
PRINCIPLES THAT GUIDE OUR BEHAVIOR
Company President Jack Mulroney reaffirmed Environmental Health and
Safety Principles first articulated by Dr. F. Otto Haas in the 1960s.
In 1997, they were expanded to include the topics of sustainable
development and continuous improvement. A complete copy of the EHS
principles can be found on the company's website at www.rohmhaas.com.
EMPLOYEE HEALTH AND SAFETY
In 1997, the company's occupational injury and illness rate (OII) at
Rohm and Haas sites worldwide increased to 1.8 cases per 100 employees,
reversing a five-year trend toward a safer workplace.
Despite the setback in injury rates, there were two positive aspects
of the year's safety performance: Employees at 36 facilities worked
injury-free throughout the year, and lost-time injuries (LTIs), those
serious enough to impact an employee's ability to work, decreased by
twenty percent.
RESPONSIBLE CARE
Rohm and Haas was among the first companies to embrace the initial
Management Systems Verification (MSV) effort in 1996 and remains at the
forefront of chemical producers who invite reviews of its environmental,
health and safety, activities by teams composed of community
representatives.
Under the MSV program recommended by the U.S. Chemical
Manufacturers Association, internal and external verifiers conducted
product stewardship-focused reviews of the Polymers and Resins, Ion
Exchange and Agricultural Chemicals businesses. Additional businesses
will be reviewed during 1998.
[ID -- CAPTION]
Below: Rohm and Haas won't rest until
its safety record reaches its goal of
zero on-the-job injuries.
Opposite: Rohm and Haas's fungicides,
herbicides and insecticides help improve
the yield on niche crops -- everything
from roses and grapes to oranges and
wheat.
[ID -- PHOTO]
Evidence that the company remains at the forefront of Responsible
Care efforts include:
o The incorporation of Responsible Care goals as part of the
corporate leadership agreement and the expectation that Responsible Care
programs will be fully implemented worldwide by the end of 1999.
o A plan to conduct MSV reviews for three additional businesses
during 1998-1999;
o The completion of the sixth round of community surveys at six NAR
sites, in addition to those conducted in Europe, Latin America and
Asia-Pacific.
19
<PAGE>
o Open houses for the communities in the United States, Sweden,
Japan and Italy, and the addition of two community newsletters in Italy
and in Sweden, which brings the total number of newsletters to twelve.
NEW MILESTONES IN ISO 14001
Another indicator of how well a facility manages environmental
performance is the International Standards Organization's ISO 14001
Standard. Under ISO 14001, a rigorous review that can take several
years to complete may lead to certification congruent with international
standards.
In 1997, the Latin American region became the first to earn ISO
14001 certification at all of its facilities: Apizaco, Mexico;
Barranquilla, Colombia; and Jacarei, Brazil. The company's other ISO
14001-certified plants include Grangemouth, Scotland; Jarrow, England;
Landskrona, Sweden; Mozzanica, Italy; Tudela, Spain; and West Hill,
Canada. Numerous other Rohm and Haas facilities worldwide are moving
toward ISO 14001 certification.
POLLUTION PREVENTION
A report of environmental releases and off-site transfers of waste
from United States facilities for calendar year 1996 was given to the
U.S. Environmental protection Agency in August 1997. It confirmed that
the company met its voluntary goal of reducing air emissions by 75
percent from 1987 levels.
[ID -- GRAPHIC
ROHM AND HAAS WORLDWIDE OII RATE]
Moreover, it showed that Rohm and Haas reduced its overall impact on
the environment (emissions to air, water and land as well as off-site
transfers for disposal) by 69 percent between 1987 and 1996, a period
when production at its US facilities increased by 62 percent.
These efforts did not go unnoticed. Two Pennsylvania plants
(Bristol and Philadelphia) were among a number honored by Pennsylvania
Governor Tom Ridge with "The Governor's Award for Environmental
Excellence" for their pollution prevention efforts. In addition, the
company received its second "Environmental Champion Award" from the EPA
for its development of Sea-Nine marine antifoulant, a product of the
Biocides business.
OUTLOOK
The disappointing 1997 safety results demand that the company
redouble its efforts to regain the positive momentum of prior years.
Workplace accidents are simply unacceptable. The company is confident
it can move forward on its journey to an accident-free work environment.
The ongoing challenge of achieving environmental improvements
requires that we discover new ways to minimize our impact. One way to
achieve this is to focus future efforts on site-specific "Environmental
Improvement Objectives" developed by manufacturing facilities in concert
with the businesses and local communities. This approach has been
adopted to replace the former "percent-reduction" model.
Finally, the company is determined to remain in the forefront of
responsible corporate behavior. While the challenges are significant,
the resolve and determination of Rohm and Haas employees worldwide are
up to the challenge.
20
<PAGE>
1997 FINANCIAL REVIEW
CONTENTS
MANAGEMENT DISCUSSION AND ANALYSIS
Results of Operations (1997, 1996 and 1995) ........................... 22
Summary by Business Group (1997, 1996 and 1995) ....................... 22
Liquidity, Capital Resources and Other Financial Data ................. 27
Market Risk Discussion ................................................ 32
Quarterly Results of Operations ....................................... 33
CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies ............................ 35
Statements of Consolidated Earnings ................................... 36
Statements of Consolidated Cash Flows ................................. 37
Consolidated Balance Sheets ........................................... 38
Statements of Consolidated Stockholders' Equity ....................... 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Acquisitions and Dispositions of Assets ....................... 40
Note 2 Investments ................................................... 40
Note 3 Other Expense (Income), Net ................................... 40
Note 4 Financial Instruments ......................................... 40
Note 5 Income Taxes .................................................. 42
Note 6 Industry Segment Reporting and
Information about Foreign Operations .......................... 43
Note 7 Pension Plans ................................................. 45
Note 8 Employee Benefits ............................................. 46
Note 9 Accounts Receivable, Net ...................................... 47
Note 10 Inventories ................................................... 47
Note 11 Prepaid Expenses and Other Assets ............................. 47
Note 12 Land, Buildings and Equipment, Net ............................ 47
Note 13 Other Assets, Net ............................................. 47
Note 14 Notes Payable ................................................. 48
Note 15 Long-Term Debt ................................................ 48
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
1997, 1996 AND 1995
Volume growth in 1997 and 1996 and on-going productivity gains resulted in
double-digit earnings increases during the period. The strong free cash
flows that resulted were used to buy back common shares during 1997 and
1996, reducing total common shares outstanding by 11% and further enhancing
earnings per share and return on common stockholders' equity. Basic
earnings per share reached a new high each year during this three-year
period and the 1997 return on common stockholders' equity of 23% was the
highest since 1955.
Earnings in 1997 were $410 million, 13% higher than the $363 million
reported in 1996. Basic earnings per common share were $6.51, up 19% from
$5.45 the previous year. Despite 6% volume growth, sales of $3,999 million
were essentially unchanged from 1996 due to weaker currencies in Europe and
Asia-Pacific and the absence of Petroleum Chemicals sales which were part
of the RohMax joint venture during 1997. All business segments, except
Agricultural Chemicals, and all regions contributed to the higher volume,
with the European and Latin American regions maintaining strong momentum
throughout the year. In addition to volume growth within consolidated
operations, earnings in affiliates benefited from strong volume in RohMax
and Rodel, as well as reduced losses in AtoHaas Europe.
Earnings in 1996 were $363 million, 24% higher than the $292 million
reported in 1995. Basic 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.
Nineteen ninety-seven earnings include a gain of $16 million after tax, or
$.26 per common share, the net result of remediation settlements with
insurance carriers during the fourth quarter. Included in 1996 earnings
was 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.
Nineteen ninety-five earnings included a charge of $.25 for the clean-up of
the Whitmoyer waste site. Without these items, year-over-year per-share
earnings increases were 16%, 21% and 18% in 1997, 1996 and 1995
respectively. The repurchase of 2.6 million, 4.4 million and .5 million
common shares during 1997, 1996 and 1995, respectively, contributed
incrementally $.35 per share to 1997, $.18 to 1996 and an immaterial impact
on 1995.
These and other factors affecting earnings are discussed below. 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
summary chart at the beginning of this report.
POLYMERS, RESINS AND MONOMERS (PRM) reported 1997 earnings of $260 million,
up 14% from 1996. Excluding the effect of the former Petroleum Chemicals
business, sales were up 4% on an 8% volume increase. Volume growth was
evident in all regions and reflected strong performances in the paper,
adhesives and coatings markets. Earnings increased largely as a result of
volume. The positive effects, however, were held back by one percent lower
selling prices and weaker currencies, the dollar value of which declined an
average of 9% in Europe and 10% in Japan during the year.
PRM 1996 earnings of $228 million increased 23% over 1995. Sales increased
7% and volume grew 8%, excluding the impact of the Petroleum Chemicals
operations which became part of the RohMax joint venture on July 3, 1996
(see Liquidity section). Volume growth reflected strong performances in
the coatings and construction markets in all regions. Earnings increased
due to volume growth and lower raw material prices, but were reduced by
lower selling prices, startup expenses associated with a new emulsion
facility in Houston, Texas, a $7 million after-tax charge for a plant
writedown in the U.S., and restructuring costs in Japan.
PERFORMANCE CHEMICALS reported 1997 earnings of $91 million, up 11% from
1996 earnings of $82 million. Sales increased 2% on volume growth of 4%.
Because of weaker currencies in Europe and in the Asia-Pacific regions, the
volume increase did not result in comparable sales growth. Increased
earnings are a result of double-digit volume growth in Electronic
Chemicals, which includes a contribution from Rodel, Inc. a 1997
investment. Also contributing was volume growth and operating improvements
in Ion Exchange Resins. The discontinuation of the Biocides joint venture
with Dead Sea Bromine hurt sales and earnings.
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) 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North
America $1,357 $1,317 $1,277 $303 $288 $272 $383 $378 $384 $144 $139 $141 $2,187 $2,122 $2,074
Europe 363 378 369 209 207 204 235 252 238 152 169 165 959 1,006 976
Asia-
Pacific 216 221 205 229 226 245 39 44 47 89 101 100 573 592 597
Latin
America 115 107 102 18 23 19 30 27 24 117 105 92 280 262 237
---------------------- ------------------- ------------------ ------------------ ------------------------
Total $2,051 $2,023 $1,953 $759 $744 $740 $687 $701 $693 $502 $514 $498 $3,999 $3,982 $3,884
- -----------------------------------------------------------------------------------------------------------------------------
+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
to conform to current year presentation.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------
SUMMARY OF 1993-1997 RESULTS BY BUSINESS GROUP
- -------------------------------------------------------------------------
(Millions of dollars) 1997 1996 1995+ 1994+ 1993+
- -------------------------------------------------------------------------
NET SALES
Polymers, Resins
and Monomers $2,051 $2,023 $1,953 $1,816 $1,682
Performance Chemicals 759 744 740 644 599
Plastics 687 701 693 635 579
Agricultural Chemicals 502 514 498 439 409
----------------------------------------------
Total $3,999 $3,982 $3,884 $3,534 $3,269
- -------------------------------------------------------------------------
NET EARNINGS*
Polymers, Resins
and Monomers $ 260 $ 228 $ 185 $ 187 $ 137
Performance Chemicals 91 82 69 43 35
Plastics 62 54 67 61 1
Agricultural Chemicals 41 61 55 42 41
Corporate (44) (62) (84) (69) (88)
-----------------------------------------------
Total $ 410 $ 363 $ 292 $ 264 $ 126
- -------------------------------------------------------------------------
*Excludes charges for the cumulative effect of accounting changes
in 1993.
RONA
Polymers, Resins
and Monomers 16.0% 14.7% 11.7% 12.7% 10.1%
Performance Chemicals 10.9 9.8 8.6 5.2 4.4
Plastics 11.0 9.3 10.9 10.7 0.2
Agricultural Chemicals 10.5 15.1 14.7 11.6 14.1
Corporate (9.2) (11.2) (15.6) (11.0) (15.7)
---------------------------------------------
Total 11.2% 9.9% 8.1% 7.6% 4.3%
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
SUMMARY OF 1993-1997 RESULTS BY CUSTOMER LOCATION
- -------------------------------------------------------------------------
(Millions of dollars) 1997 1996 1995+ 1994+ 1993+
- -------------------------------------------------------------------------
NET SALES
North America $2,187 $2,122 $2,074 $1,967 $1,845
Europe 959 1,006 976 826 744
Asia-Pacific 573 592 597 514 458
Latin America 280 262 237 227 222
----------------------------------------------
Total $3,999 $3,982 $3,884 $3,534 $3,269
- -------------------------------------------------------------------------
NET EARNINGS*
North America $ 286 $ 235 $ 199 $ 198 $ 143
Europe 77 96 102 75 30
Asia-Pacific 58 62 58 43 24
Latin America 33 32 17 17 17
Corporate (44) (62) (84) (69) (88)
----------------------------------------------
Total $ 410 $ 363 $ 292 $ 264 $ 126
- -------------------------------------------------------------------------
*Excludes charges for the cumulative effect of accounting changes in
1993.
RONA
North America 16.5% 13.9% 12.2% 12.0% 9.6%
Europe 9.0 11.2 11.9 9.7 4.1
Asia-Pacific 9.2 9.8 8.4 6.8 4.2
Latin America 15.9 15.9 8.7 9.8 10.2
Corporate (9.2) (11.2) (15.6) (11.0) (15.7)
---------------------------------------------
Total 11.2% 9.9% 8.1% 7.6% 4.3%
- -------------------------------------------------------------------------
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, corporate exploratory research and fourth
quarter 1997 environmental insurance recoveries.
See page 30 for definition of RONA.
+ 1993-1995 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>
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, increased competition and higher operating costs in
Europe for Shipley Company.
PLASTICS earnings of $62 million in 1997 were up 15% from 1996, the
improvement largely a result of modest losses from AtoHaas Europe, compared
with significant losses reported in 1996. Though volume increased 4%,
sales decreased 2%, reflecting decreased selling prices and weaker
currencies in Europe. Continuing pricing pressure in most plastics sectors
also dampened Plastics' earnings recovery. In 1997 AtoHaas Europe was hurt
by a $4 million after-tax write-off of start-up expenses for a plant in
Italy.
Plastics 1996 earnings were $54 million, down 19% from 1995. Though volume
increased 6%, sales grew only 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 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.
AGRICULTURAL CHEMICALS earnings in 1997 were $41 million, 33% lower than
1996. Sales and volume decreased 2% from 1996. The volume decrease was
due primarily to weather-related lower Dithane fungicide shipments in all
regions except Latin America. Sales of other Agricultural Chemical product
lines showed growth. The earnings decrease was largely a result of lower
volume, weaker currencies in Europe and Japan and the absence of a $6
million after-tax gain from the sale of land in Japan in 1996.
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 and
Latin America. 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.
CORPORATE expenses totaled $44 million in 1997, compared with $62 million
in 1996 and $84 million in 1995. Included in the 1997 results is an
after-tax gain of $16 million, the net result of remediation settlements
with insurance carriers during the fourth quarter. 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 1997 compared to 1996 and 1995.
[ID -- LINE CHART GRAPHIC]
GROSS PROFIT, SAR, OPERATING EARNINGS*
24
<PAGE>
PHYSICAL VOLUME of shipments increased by 6% in both 1997 and 1996:
- -----------------------------------------------------------------
Percent change
BUSINESS GROUP 1997 VS 1996 1996 vs 1995
- -----------------------------------------------------------------
Polymers, Resins and Monomers* 7% 6%
Performance Chemicals 4 --
Plastics 4 6
Agricultural Chemicals (2) 7
===========================
Worldwide 6% 6%
- -----------------------------------------------------------------
Percent change
CUSTOMER LOCATION 1997 VS 1996 1996 vs 1995
- -----------------------------------------------------------------
North America 5% 4%
Europe* 8 6
Asia-Pacific 5 12
Latin America 12 6
===========================
Worldwide 6% 6%
- -----------------------------------------------------------------
*Polymers, Resins and Monomers volume would have increased 8% and Europe
would have increased 9% in 1996 versus 1995, excluding the impact of the
Petroleum Chemicals business, which was part of 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 basic per-share
basis on page 26.
[ID -- LINE CHART GRAPHIC]
SALES AND VOLUME INDICES
NET SALES of $3,999 million were essentially the same as in 1996, the net
result of 6% volume gains, one percent lower selling prices, 9% weaker
currencies in Europe, a 10% weaker Japanese yen and the absence of
Petroleum Chemicals sales which were part of the RohMax joint venture in
1997. Volume growth was strong in all regions, with all businesses
contributing except Agricultural Chemicals. Sales in 1996 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 1996 volume growth.
RAW MATERIAL PRICES remained stable in 1997. They declined throughout the
first three quarters of 1996, until natural gas and oil prices increased in
the fourth quarter of that year. Prices for raw materials, including
styrene, propylene, acetone and butanol, were down 1%, net, in 1997
compared to decreases of 7% in 1996 and increases of 18% in 1995, excluding
currency impacts. The 1995 increases were caused by tightness of
petrochemical supply which eased during 1996. 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.
GROSS PROFIT increased to $1,455 million in 1997, up 4% from 1996. The
gross profit margin was 36%, 35% and 34% in 1997, 1996 and 1995,
respectively. The gross profit margin increased in 1997 because of higher
volume but was negatively
[ID -- LINE CHART GRAPHIC]
RAW MATERIALS COST INDEX
25
<PAGE>
affected by one percent lower selling prices and unfavorable currency
impacts. Total gross profit increased in 1996 to $1,395 million, up 5%
from 1995. The gross profit margin increased in 1996 because of declining
raw material prices and higher volume. One percent lower selling prices, a
plant writedown in the U.S. and restructuring costs in Japan hurt margins
in 1996.
SELLING, ADMINISTRATIVE AND RESEARCH (SAR) EXPENSES in 1997 and 1996 were
up 3% each year, excluding the impact of currency movements and the effect
of the RohMax joint venture (see Liquidity section). Spending increased
due to higher selling expenses, higher bonus expense, insurance costs and
the cost of new product introductions.
INTEREST EXPENSE of $39 million in 1997 was flat compared to 1996
and 1995.
SHARE OF AFFILIATE NET EARNINGS were $11 million in 1997, compared to
losses of $12 million in 1996 and $5 million in 1995. Nineteen
ninety-seven earnings were a result of the RohMax joint venture, the
contribution of Rodel, Inc. and improved results from AtoHaas Europe.
During 1996, AtoHaas Europe experienced operating losses because of weak
market conditions characterized by lower volume, falling selling prices and
increasing raw material prices. The 1996 losses of the AtoHaas Europe
business also included $4 million of write-offs and costs related to the
restructuring of its operations.
OTHER INCOME, NET was $22 million, compared to net other income of $4
million in 1996 and expenses of $48 million in 1995. The current year
includes pre-tax income of $26 million, the net effect of remediation
settlements with insurance carriers during the fourth quarter. Nineteen
ninety-six 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 expense. 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 EFFECTIVE TAX RATES were 33% in 1997, 32% in 1996 and 34% in 1995. The
1996 period included a $10 million retroactive tax credit on sales outside
the United States.
ANALYSIS OF CHANGE IN BASIC PER-COMMON-SHARE
EARNINGS CURRENT YEAR RELATIVE TO YEAR EARLIER
- -----------------------------------------------------------------------
$/Common Share
(after tax)
---------------
1997 1996
- -----------------------------------------------------------------------
GROSS PROFIT
Selling prices $(.27) $(.33)
Raw material prices .10 .75
Physical volume and product mix .58 .73
Plant writedown and restructuring charges -- (.12)
Other manufacturing costs(1) .94 (.31)
Currency effect on gross profit (.74) (.12)
===============
Increase in gross profit .61 .60
- -----------------------------------------------------------------------
OTHER CAUSES
Selling, administrative and research expenses(2) (.20) (.08)
Share of affiliate earnings (losses),
excluding restructuring costs .35 (.20)
Asset dispositions and affiliate restructuring costs .01 .03
Certain net remediation settlements with
insurance carriers .26 --
Certain waste disposal site cleanup costs -- .25
Retroactive tax credit on sales outside of the U.S. (.15) .15
Reduction in outstanding shares of common stock .35 .18
Other (.17) .30
===============
Increase from other causes .45 .63
- -----------------------------------------------------------------------
Increase in basic per-common-share earnings $1.06 $1.23
- -----------------------------------------------------------------------
(1) Includes the favorable impact of higher production rates on unit
production costs.
(2) 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 1997 was $791 million. The
resulting free cash flow of $416 million was used to reduce debt, invest in
joint ventures and to fund the company's stock repurchase program. Free
cash flow is cash provided by operating activities less fixed asset
spending and dividends. The company has an "A" debt rating and adequate
financial resources available to provide cash required for future
operations.
FINANCING Total borrowings at year-end 1997 were $606 million, down $101
million from the prior year. At the end of 1997, the debt-to-equity ratio,
calculated without the reduction to stockholders' equity for the ESOP
transaction, was 31%, compared with 38% at the end of 1996 and 36% at the
end of 1995.
ENVIRONMENTAL There is a 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 the operation of
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 is also involved in corrective actions at some of its
manufacturing facilities. Accruals for expected future remediation costs
are in accordance with the provisions of the American Institute of
Certified Public Accountants' Statement of Position 96-1, "Environmental
Remediation Liabilities," adopted in 1997, 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, and
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,
net of insurance recoveries, were $27 million and $45 million in 1996 and
1995, respectively. Remediation related settlements with insurance
carriers, a $20 million charge resulting from an unfavorable arbitration
decision relating to the Woodlands sites, and other waste remediation
expenses resulted in a net gain of $13 million in 1997. 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
[ID -- LINE CHART GRAPHIC]
FREE CASH FLOW
[ID -- LINE CHART GRAPHIC]
ENVIRONMENTAL EXPENSES AND CAPITAL SPENDING
27
<PAGE>
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. 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, court-approved
arrangement is negotiated.
The reserves for remediation were $147 million and $139 million at December
31, 1997 and 1996, respectively, and are recorded as "other liabilities"
(current and long-term). 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 the litigation is resolved through
settlement or other appropriate legal process. Resolutions typically
resolve coverage for both past and future environmental spending.
Insurance recoveries receivable, included in accounts receivable, net, were
$19 million at December 31, 1997 and $48 million at December 31, 1996
resulting from collections of $88 million during 1997 and new settlements
of $59 million.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies related to environmental matters of
approximately $65 million at December 31, 1997 and 1996. Further, the
company has identified other sites, including its larger manufacturing
facilities in the United States, where 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 because of the company's obligation to record the full projected cost
of a project when such costs are probable and reasonably estimable.
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
and 1997, the plaintiffs withdrew property damage and personal injury
claims. The company believes it has substantial defenses to this lawsuit;
financial impact, if any, is indeterminable at this time.
Capital spending for new environmental protection equipment was $18 million
in 1997. Spending for 1998 and 1999 is expected to be approximately $28
million and $21 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 $37 million in
1997, $58 million in 1996 and $51 million in 1995. The expenditures for
remediation are charged against accrued remediation reserves. The cost of
operating and maintaining environmental facilities was $95 million, $104
million and $96 million in 1997, 1996 and 1995, respectively, and was
charged against current-year earnings.
DIVIDENDS Total common stock dividends paid in 1997 were $1.90 per share,
compared to $1.72 per share in 1996 and $1.56 per share in 1995. The
company's common stock dividend payout is targeted at approximately 35% of
trend-line 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 1997,
1996 and 1995.
ADDITIONS TO LAND, BUILDINGS AND EQUIPMENT Fixed asset additions in 1997
were $254 million, down $80 million from the prior year's spending level.
Additions in 1997 included new facilities in Europe and Asia, completion of
the capacity-
[ID -- LINE CHART GRAPHIC]
BASIC EARNINGS AND COMMON STOCK DIVIDENDS
28
<PAGE>
related projects at Houston, Texas and expansion in electronic chemicals.
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. The company has budgeted capital
expenditures in 1998 of approximately $325 million. Spending for
environmental protection equipment, which is included in several of the
categories on the chart shown below, was $18 million in 1997 and $32
million in 1996 and 1995.
Expenditures for the past three years, categorized by primary purpose of
project, were:
- ------------------------------------------------------------------
(Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------
Environmental, cost savings
and infrastructure $137 $167 $185
Capacity additions and new
products 87 134 198
Research facilities and
equipment 18 18 16
Capitalized interest cost 12 15 18
====================
Total $254 $334 $417
- ------------------------------------------------------------------
ACQUISITIONS AND DIVESTITURES In 1997, the company purchased a 26% interest
in Rodel, Inc. for approximately $68 million. Rodel is a privately held,
Delaware-based leader in precision polishing technology serving the
semiconductor, memory disk and glass polishing industries. The investment
is accounted for on the equity basis with Rohm and Haas's share of earnings
reported as equity in affiliates. The excess of the company's investment
in Rodel over its share in the related underlying equity in net assets is
being amortized on a straight-line basis over the estimated life of the
investment.
In December 1997 and January 1998, the company signed agreements in
principle to sell its 50% interest in the RohMax joint venture to its
partner, Rohm GmbH, and its 50% interest in the AtoHaas joint venture to
Elf Atochem. The pending sales, subject to negotiations, are expected to
result in a one-time after-tax gain of approximately $100 million.
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 1996.
STOCK REPURCHASES The 3.5 million share repurchase program approved in
October of 1996 by the board of directors was largely completed in October
of 1997. Since the company continued to have strong cash flow and a
debt-to-equity ratio below 40%, the board of directors approved an
additional buyback program in October 1997 authorizing the purchase of up
to 3 million shares of common stock over the next two years. These shares
represent approximately 5% of the 61 million shares outstanding as of
December 31, 1997. From year-end 1995 through year-end 1997, the company
repurchased 7 million shares, or approximately 11% of common shares
outstanding, at a cost of $518 million. During 1997, the company
repurchased 2,551,151 shares of its common stock at a total cost of $216
million, compared to 4,430,971 shares in 1996 at a cost of $302 million.
There were 60,875,649 and 63,144,751 common shares outstanding at December
31, 1997 and 1996, respectively.
WORKING CAPITAL (the excess of current assets over current liabilities) was
$547 million at year-end 1997, down $23 million from 1996. Accounts
receivable from customers decreased $27 million and inventory decreased $24
million. Days sales outstanding were 61 days, down from 64 days at the end
of 1996. Days cost of sales in ending inventory was 66 days, down from 68
days at the end of 1996. Details about two major components of working
capital at the end of 1997 and 1996 follow:
- ----------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------
INVENTORIES
Year-end balance $459 $483
Annual turnover 5.5x 5.4x
- ----------------------------------------------------------
CUSTOMER RECEIVABLES
Year-end balance $672 $699
Annual turnover 5.9x 5.7x
- ----------------------------------------------------------
[ID -- LINE CHART GRAPHIC]
CAPITAL ADDITIONS AND DEPRECIATION
29
<PAGE>
NET FIXED ASSETS Investment in net fixed assets is summarized below.
- ----------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------
Year-end balance $2,008 $2,066
Annual turnover 2.0x 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.
ASSET TURNOVER equals sales divided by year-end total assets. Asset
turnover has shown steady improvement, increasing from a low of .87 times
in 1992 to 1.0 in 1996 and 1997. The graph below shows asset turnover,
operating margin and return on net assets (RONA) for the past eleven years.
RETURN ON NET ASSETS (RONA) equals net earnings plus after-tax interest
expense, divided by year-end total assets. RONA was 11.2% in 1997, 9.9% in
1996 and 8.1% in 1995. The 1997 amount rounds to 10.8% when calculated
without the beneficial effects of fourth quarter 1997 environmental
insurance recoveries.
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 23% in
1997, 20% in 1996 and 17% in 1995.
The return on investment graph on page 31 shows these measures for the past
eleven years.
YEAR 2000 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. The
company expects a significant proportion of the total effort to 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
are expected to be incurred over the next two years. Through the end of
1997 the costs were immaterial. All of these costs, which are not expected
to exceed $15 million, will be charged to expense as incurred.
RECENT ACCOUNTING STANDARDS 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
[ID -- LINE CHART GRAPHIC]
ASSETS
[ID -- LINE CHART GRAPHIC]
ASSET TURNOVER, PROFIT MARGIN AND RONA
30
<PAGE>
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 became effective in 1997. The statement provides
authoritative guidance regarding the recognition, measurement, display and
disclosure of environmental remediation liabilities. The company's
adoption of this accounting guidance in 1997 did not have a material impact
on the company's financial position or results of operations.
In 1997, the company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," which requires computation and presentation
of basic and dilutive earnings per share. Basic earnings per share (EPS)
excludes dilution and is computed by dividing net income available for
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted. For the years presented, the company's basic
earnings per share is equal to earnings per share reported under the
previous accounting standards. Dilutive earnings per share is slightly
lower than basic earnings per share, primarily due to the impact of
convertible preferred stock.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income as defined includes all changes
in equity (net assets) during a period from nonowner sources including net
income, foreign currency related items and unrealized gain/loss on certain
securities. The disclosures prescribed by this standard must be made
beginning in the first quarter of 1998. If this standard had been applied
in 1997, the company's 1997 comprehensive income would have been $23
million lower than net earnings primarily reflecting the foreign currency
translation adjustment resulting from reductions in the U.S. Dollar book
value of assets in Japan where the Japanese yen weakened 10% during
the year.
Also in June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for the reporting of information
about operating segments in annual financial statements. The company is
assessing its current business segment reporting to determine changes in
reporting required under this new standard. The disclosures prescribed by
the statement are required for the company's 1998 annual report with
application to interim periods permitted.
[ID -- LINE CHART GRAPHIC]
RETURN ON INVESTMENT
31
<PAGE>
MARKET RISK DISCUSSION
In the normal course of operations, the company is exposed to changes in
financial and commodity market conditions due to its business transactions
denominated in diverse foreign currencies and its ongoing manufacturing and
funding activities. As a result, future earnings, cash flows and fair
values of assets and liabilities are subject to uncertainty. The company
has established policies, procedures and internal processes governing its
management of uncertain market conditions, and uses both operational and
financial market actions in its risk management activities, which include
the use of derivative instruments. The company does not use derivative
instruments for trading purposes. The company only enters into derivative
contracts based on economic analysis of underlying exposures anticipating
that adverse impacts on future earnings, cash flows and fair values due to
fluctuations in foreign currency exchange rates, interest rates and
commodity prices will be offset by the proceeds from and changes in fair
value of the derivative instruments. The company does not hedge its
exposure to market risks in a manner that completely eliminates the effects
of changing market conditions on earnings, cash flows and fair values.
In evaluating the effects of changes in foreign currency exchange rates,
interest rate and commodity prices on the company's business operations,
the risk management system uses sensitivity analysis as a primary
analytical technique. The range of changes used for the purpose of this
market risk discussion reflects the company's view of changes which
are reasonably possible over a one-year period. Fair values are the
present value of projected future cash flows based on market rates and
prices chosen.
Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies.
The company covers known and anticipated operating exposures by using
purchased foreign currency exchange option and forward contracts. The
primary currencies for which the company has foreign currency exchange rate
exposure are the German deutsche mark, Italian lira and Japanese yen. In
response to the greater fluctuations in foreign currency exchange rates in
recent periods, the company has increased the degree of risk management
activities to minimize their impact on earnings in future periods.
The company conducted a sensitivity analysis on the fair value of its
foreign currency hedge portfolio assuming an instantaneous 10% change in
foreign currency exchange rates from their levels as of December 31, 1997,
with all other variables held constant. A 10% appreciation of the U.S.
dollar against foreign currencies would result in an increase of $9 million
in the fair value of foreign currency exchange hedging contracts. A 10%
depreciation of the U.S. dollar would result in a decrease of $6 million in
the fair value of foreign currency exchange hedging contracts. The
sensitivity in fair value of the foreign currency hedge portfolio
represents changes in fair values estimated based on market conditions as
of December 31, 1997 without reflecting the effects of underlying
anticipated transactions. When those anticipated transactions are
realized, actual effects of changing foreign currency exchange rates could
have a material impact on earnings and cash flows in future periods.
Long-term exposures to foreign currency exchange rate risks are managed
primarily through operational activities. The company manufactures its
products in a number of locations around the world; hence, has a cost base
in a number of different European and Asian currencies. This diverse base
of local currency costs serves to partially counterbalance the earnings
effect of potential changes in value of local currency denominated
revenues.
The company is exposed to changes in interest rates primarily due to its
borrowing and investing activities which include primarily short and
long-term debt used to maintain liquidity and fund its business operations.
The company's current strategic policy is to maintain from 20% to 40% of
floating rate debt, with a long-term average of 30%. A 100 basis point
move in interest rates would affect the value of the company's floating and
fixed rate instruments, including short and long-term debt and derivative
instruments, but would not have a material impact on earnings and changes
in their fair values would not have a material adverse effect on the
company's financial position. 100 basis points approximate 10% of the
company's weighted average rate on its worldwide debt.
The company purchases certain raw materials such as natural gas, propylene,
acetone, and butanol under short and long-term supply contracts. The
purchase prices are generally determined based on prevailing market
conditions. The company uses commodity derivative instruments to modify
some of the commodity price risks. Assuming a 10% change in the underlying
commodity price, the potential change in the fair value of commodity
derivative contracts held at December 31, 1997 would not be material when
compared with the company's earnings and financial position.
This market risk discussion and the estimated amounts presented are
forward-looking statements that assume certain market conditions. Actual
results in the future may differ materially from these projected results
due to developments in relevant financial markets, including Asia. The
methods used above to assess risk should not be considered projections of
expected future events or results.
32
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Earnings of $104 million in the first quarter of 1997 were up 4% from last
year's strong first quarter results of $100 million. Basic earnings per
common share were $1.62, compared to earnings of $1.46 per common share in
1996. Though volume increased by 7%, sales of $986 million were down 1%
from last year's sales of $994 million because of weaker currencies in
Europe and Japan, 2% lower selling prices, lower-priced product mix and the
formation of the RohMax joint venture. Earnings increased as a result of
higher volume, 2% lower raw material costs, good internal cost control and
earnings from affiliates versus losses in 1996. In addition to higher
earnings, the per-share increase reflects the impact of the company's
common share repurchase program in the first and all subsequent quarters
in 1997.
Second quarter 1997 earnings were $117 million, up 16% from last year's
results of $101 million. Basic earnings per common share of $1.85 rose 23%
from $1.50 per common share in 1996. Volume increased 10% in the quarter
as a result of strong growth in Polymers, Resins and Monomers, Plastics and
the Electronic Chemicals businesses. Sales of $1,089 million were 3% above
the prior year period, due to higher volume balanced by weaker currencies
in Japan and in Europe, slightly lower selling prices and the exclusion of
sales of businesses accounted for through joint ventures. Earnings
increased as a result of higher volume and earnings from affiliates
compared with losses in the prior year. Offsetting these increases were an
increase in selling, administrative and research expenses and the absence
of a non-recurring $10 million ($.15 per common share) retroactive tax
credit on sales outside the United States recorded in the second quarter
of 1996.
Third quarter 1997 earnings were $91 million, up 5% from last year's
earnings of $87 million. Basic earnings per common share of $1.45 rose 11%
from $1.31 per common share in 1996. Volume increased 5% in the quarter as
a result of strong demand in Polymers, Resins and Monomers and Performance
Chemicals. The latter segment's performance was helped largely by the
Electronic Chemicals businesses. Despite good volume growth, sales of $974
million were just 1% above the prior-year period, reflecting weaker
currencies in Japan and in Europe and moderately lower selling prices.
Earnings increased as a result of higher volume, smooth plant operations,
earnings from affiliates and lower interest expense.
Earnings in the fourth quarter of 1997 were $98 million, 31% higher than
last year's results. Basic earnings per common share were $1.59, compared
to $1.16 in 1996. Fourth quarter 1997 earnings include a gain of $16
million after tax, or $.26 per common share, the net result of remediation
settlements with insurance carriers. 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. Volume for the
quarter was essentially unchanged compared to the strong volume growth
reported in the 1996 period. Volume gains in Performance Chemicals and
Agricultural Chemicals were balanced by decreases in Plastics and in
Polymers, Resins and Monomers in the most recent period. Sales decreased
2% to $950 million, due to flat volume and unfavorable currency impacts
versus 1996. Regional earnings also were affected by 10% weaker currencies
in Europe and an 8% weaker Japanese yen.
[ID -- BAR CHART GRAPHIC]
QUARTERLY STOCK PRICES
33
<PAGE>
<TABLE>
<CAPTION>
1997 QUARTERLY RESULTS
- ---------------------------------------------------------------------------------------
1st 2nd 3rd 4th YEAR
(Millions of dollars) Quarter Quarter Quarter Quarter 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 986 $1,089 $ 974 $ 950 $3,999
Gross profit 361 401 342 351 1,455
Net earnings 104 117 91 98 410
- ---------------------------------------------------------------------------------------
Net earnings per common share, in dollars
-- Basic $1.62 $ 1.85 $1.45 $1.59 $ 6.51
-- Diluted 1.59 1.82 1.43 1.55 6.39
- ---------------------------------------------------------------------------------------
Cash dividends per common share, in dollars $ .45 $ .45 $ .50 $ .50 $ 1.90
- ---------------------------------------------------------------------------------------
Percentage change from prior year
Net sales (1)% 3% 1% (2)% 0%
Physical volume 7 10 5 0 6
- ---------------------------------------------------------------------------------------
Net earnings 4% 16% 5% 31% 13%
- ---------------------------------------------------------------------------------------
Basic net earnings per common share 11% 23% 11% 37% 19%
- ---------------------------------------------------------------------------------------
</TABLE>
<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
-- Basic $1.46 $ 1.50 $1.31 $1.16 $ 5.45
-- Diluted 1.44 1.48 1.30 1.14 5.37
- ---------------------------------------------------------------------------------------
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%
- ---------------------------------------------------------------------------------------
Basic 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
-- Basic $1.14 $ 1.26 $.85 $.98 $ 4.22
-- Diluted 1.13 1.25 .85 .96 4.19
- ---------------------------------------------------------------------------------------
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%
- ---------------------------------------------------------------------------------------
Basic net earnings per common share 19% (8)% 9% 44% 11%
- ---------------------------------------------------------------------------------------
</TABLE>
34
<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. 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.
EARNINGS PER SHARE Basic earnings per share is calculated by dividing net
earnings applicable to common shareholders by the average number of common
shares outstanding for the period. Diluted earnings per share is
calculated by adding the earnings impact of the dilutive effect of the
conversion of preferred stock to net earnings applicable to common
shareholders and dividing this amount by the average number of common
shares outstanding for the period adjusted for the assumed preferred stock
conversion and for the dilutive effect of an assumed exercise of all
options outstanding at the end of the period.
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 while 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.
35
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS
Years ended December 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------
(Millions of dollars, except per-share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------
CURRENT EARNINGS
- -------------------------------------------------------------------------------
Net sales $3,999 $3,982 $3,884
NOTE 10 Cost of goods sold 2,544 2,587 2,551
=======================
Gross profit 1,455 1,395 1,333
Selling and administrative expense 637 631 616
Research and development expense 201 187 194
NOTE 12 Interest expense 39 39 39
NOTE 2 Share of affiliate net earnings (losses) 11 (12) 5
NOTE 3 Other expense (income), net (22) (4) 48
=======================
Earnings before income taxes 611 530 441
NOTE 5 Income taxes 201 167 149
NET EARNINGS $ 410 $ 363 $ 292
=======================
NOTE 18 Less preferred stock dividends 7 7 7
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 403 $ 356 $ 285
=======================
EARNINGS PER COMMON SHARE
-- BASIC $ 6.51 $ 5.45 $ 4.22
-- DILUTED 6.39 5.37 4.19
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (in millions) 61.9 65.4 67.5
===============================================================================
See accompanying summary of significant accounting policies (page 35)
and notes to consolidated financial statements (pages 40-52).
36
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------
(Millions of dollars) 1997 1996 1995
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 410 $ 363 $ 292
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 279 262 242
Deferred income taxes (11) 37 27
Accounts receivable 88 (37) (77)
Inventories 24 11 (25)
Accounts payable (63) 5 26
Federal, foreign and other income taxes 12 (1) (3)
Gain on sale of facilities (4) (10) --
Provision for plant writedown and
restructuring charges -- 19 --
Other working capital changes, net 41 1 (25)
Other, net 15 56 56
=======================
Net cash provided by operating activities 791 706 513
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and equipment (254) (334) (417)
Investments in joint ventures, affiliates
and subsidiaries (80) (7) --
Proceeds from the sale of facilities
and investments 10 11 49
=======================
Net cash used by investing activities (324) (330) (368)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of treasury shares (216) (302) (29)
Proceeds from issuance of long-term debt 16 2 32
Repayments of long-term debt (44) (52) (126)
Net change in short-term borrowings (73) 68 2
Payment of dividends (121) (116) (109)
Other, net, primarily the effect of exchange
rate changes 1 (8) 2
=======================
Net cash used by financing activities (437) (408) (228)
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1) -- (1)
=======================
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 29 $ (32) $ (84)
===============================================================================
See accompanying summary of significant accounting policies (page 35)
and notes to consolidated financial statements (pages 40-52).
37
<PAGE>
Rohm and Haas Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
(Millions of dollars) 1997 1996
- -------------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 40 $ 11
NOTE 9 Accounts receivable, net 755 841
NOTE 10 Inventories 459 483
NOTE 11 Prepaid expenses and other assets 143 121
=====================
Total current assets 1,397 1,456
----------------------------------------------------------------------
NOTE 2 INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED
SUBSIDIARIES AND AFFILIATES 197 127
NOTE 12 LAND, BUILDINGS AND EQUIPMENT, NET 2,008 2,066
NOTE 13 OTHER ASSETS, NET 298 284
=====================
$3,900 $3,933
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
CURRENT LIABILITIES
NOTE 14 Notes payable $ 97 $ 145
NOTE 16 Accounts payable and accrued liabilities 669 669
Federal, foreign and other income taxes 84 72
=====================
Total current liabilities 850 886
----------------------------------------------------------------------
NOTE 15 LONG-TERM DEBT 509 562
NOTE 5 DEFERRED INCOME TAXES 126 137
NOTE 8 EMPLOYEE BENEFITS 410 405
NOTE 17 OTHER LIABILITIES 130 141
MINORITY INTEREST 78 74
----------------------------------------------------------------------
NOTE 18 STOCKHOLDERS' EQUITY
$2.75 cumulative convertible preferred stock;
authorized -- 2,846,061 shares; issued -- 1997:
2,522,926 shares; 1996: 2,631,822 shares 126 131
Common stock; par value -- $2.50; authorized --
100,000,000 shares; issued -- 78,652,380 shares 197 197
Additional paid-in capital 135 143
Retained earnings 2,325 2,036
=====================
2,783 2,507
Less: Treasury stock (1997 -- 17,776,731 shares;
1996 -- 15,507,629 shares) 820 629
Less: ESOP shares 138 145
Other equity adjustments (28) (5)
=====================
Total stockholders' equity 1,797 1,728
- -------------------------------------------------------------------------------
$3,900 $3,933
===============================================================================
See accompanying summary of significant accounting policies (page 35)
and notes to consolidated financial statements (pages 40-52).
38
<PAGE>
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------
(Millions of dollars) 1997 1996 1995
- -------------------------------------------------------------------------------
NOTE 18 PREFERRED STOCK
----------------------------------------------------------------------
Balance, beginning of year $ 131 $ 133 $ 134
Conversion of shares to common stock (5) (2) (1)
=======================
Balance, end of year $ 126 $ 131 $ 133
=======================
COMMON STOCK
----------------------------------------------------------------------
Balance, beginning and end of year $ 197 $ 197 $ 197
=======================
ADDITIONAL PAID-IN CAPITAL
----------------------------------------------------------------------
Balance, beginning of year $ 143 $ 150 $ 151
Shares issued to employees under bonus plan (8) (7) (1)
=======================
Balance, end of year $ 135 $ 143 $ 150
=======================
NOTE 15 RETAINED EARNINGS
----------------------------------------------------------------------
Balance, beginning of year $2,036 $1,789 $1,606
Net earnings 410 363 292
Common stock dividends paid ($1.90, $1.72
and $1.56 per share in 1997, 1996 and
1995, respectively), net of tax benefit
of $4 million in 1997 and 1996 and
$3 million in 1995 related to the ESOP (114) (109) (102)
Preferred stock dividends ($2.75 per share
in 1997, 1996 and 1995) (7) (7) (7)
=======================
Balance, end of year $2,325 $2,036 $1,789
=======================
NOTE 18 TREASURY STOCK, AT COST
----------------------------------------------------------------------
Balance, beginning of year $ 629 $ 344 $ 323
Shares issued to employees under bonus plan (15) (16) (7)
Purchases 216 302 29
Shares issued for conversion of preferred
stock (10) (1) (1)
=======================
Balance, end of year $ 820 $ 629 $ 344
=======================
OTHER EQUITY ADJUSTMENTS
----------------------------------------------------------------------
Balance, beginning of year $ (5) $ 7 $ 11
Foreign currency translation (26) (12) (2)
Pension adjustment 3 -- (2)
=======================
Balance, end of year $ (28) $ (5) $ 7
===============================================================================
See accompanying summary of significant accounting policies (page 35)
and notes to consolidated financial statements (pages 40-52).
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACQUISITIONS AND DISPOSITIONS
OF ASSETS
In December 1997 and January 1998, the company signed agreements in
principle to sell its 50% interest in the RohMax joint venture to its
partner, Rohm GmbH, and its 50% interest in the AtoHaas joint venture to
Elf Atochem. The pending sales, subject to negotiations, are expected
to result in a one-time after-tax gain of approximately $100 million.
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 1996.
On June 6, 1997, the company purchased a 25% interest in Rodel, Inc., and
subsequently purchased an additional 1%, for a total of approximately $68
million. Rodel is a privately held, Delaware-based leader in precision
polishing technology serving the semiconductor, memory disk and glass
polishing industries. The investment is accounted for on the equity basis
with Rohm and Haas's share of earnings reported as equity in affiliates.
The excess of the company's investment in Rodel over its share in the
related underlying equity in net assets is being amortized on a
straight-line basis over the estimated life of the investment.
NOTE 2: INVESTMENTS
The company's investments in its affiliates (20-50%-owned) totaled $150
million and $81 million at December 31, 1997, and 1996, respectively. The
increase from 1996 relates primarily to a 26% investment in Rodel, Inc.
(see Note 1). This 1997 investment resulted in the company's total
investments in affiliates exceeding the equity in the underlying net assets
by approximately $41 million at December 31, 1997, which is being amortized
to earnings on a straight-line basis over the estimated life of the
investment. At December 31, 1996, the company's equity in net assets of
affiliates exceeded the amount of investments in affiliates by about $7
million primarily due to the company's interest in the AtoHaas affiliates.
NOTE 3: OTHER EXPENSE (INCOME), NET
- ---------------------------------------------------------------
(Millions of dollars) 1997 1996 1995*
- ---------------------------------------------------------------
Interest income $ (6) $ (7) $ (7)
Royalty expense (income), net (9) (6) 2
Foreign exchange gains (3) (4) (4)
Minority interest 5 5 8
Asset dispositions (2) (10) (4)
Amortization of intangibles and
purchased option premiums 6 10 10
Voluntary early retirement incentives,
severance, litigation settlements
and certain waste disposal site
cleanup costs 9 8 46
Environmental insurance recoveries (26) -- --
Other, net 4 -- (3)
======================
Total $(22) $ (4) $ 48
- ---------------------------------------------------------------
*Restated to conform to current-year presentation.
NOTE 4: FINANCIAL INSTRUMENTS
The company's consolidated results of operations are affected by changes
in foreign exchange rates, interest rates and prices of commodity raw
materials. The company uses non-leveraged derivative financial instruments
to reduce the impact on the company's earnings of specific, known exposures
to changes in exchange rates, interest rates and commodity prices. The
company does not use derivative 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 contracts it enters into with each
counterparty.
Foreign currency option and forward contracts are used to reduce foreign
exchange rate risk. Purchased option contracts are utilized to hedge
anticipated sales in foreign currencies by certain foreign subsidiaries.
Gains and losses on purchased option 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 32% and 25% of the total notional amount
outstanding at December 31, 1997 and 1996, are marked to market at each
balance sheet date. The notional amounts of currency option contracts
totaled $118 and $114 million at December 31, 1997, and 1996, respectively.
At December 31, 1997, these included $40 million in German deutsche mark,
$23 million in Italian lira, $38 million in Japanese yen and $17 million in
other currencies. The contracts outstanding at each balance sheet date
have maturities of less than eighteen months. At December 31, 1997 and
1996, net deferred unrealized gains were $4 million and $1 million,
respectively.
40
<PAGE>
Forward contracts are used to reduce the exchange rate risk of specific
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 underlying exchange rates. There
was one Japanese yen forward contract outstanding at December 31, 1997 with
a notional value of $5 million and a maturity of less than twelve months.
There were no forward contracts outstanding at December 31, 1996. At the
end of both years, net unrealized gains and losses were immaterial.
The company uses various interest rate derivative instruments to manage its
exposure to interest rate risk. At both December 31, 1997 and 1996, the
company held an interest rate floor expiring in 1999 to hedge $50 million
of its fixed-rate debt. The floor rate under this contract is 6%. The
premium paid for the option is being amortized to interest expense over the
option life. In early 1996, 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.
At both December 31, 1997 and 1996, the company was a party to 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.
At December 31, 1996, there were interest rate swap agreements outstanding
with total notional amounts of $50 million, which expired in February 1997
at an immaterial amount of loss. The net swap position at December 31,
1996 converted $50 million of fixed-rate debt to floating-rate debt. The
company was to receive fixed payments at 5.46% and pay at variable rates
based on the six-month LIBOR. The differential between the fixed and
floating rate amounts was accrued as an adjustment to interest expense. No
interest swap agreements were outstanding at December 31, 1997.
The company uses commodity swap agreements for hedging purposes to reduce
the effects of changing raw material prices. Gains and losses on the swap
agreements are deferred until settlement and recorded as a component of
underlying inventory costs when settled. The notional value of commodity
swap agreements totaled $9 million and $1 million at December 31, 1997 and
1996, respectively. The company recorded net gains of $1 million in both
1997 and 1996.
The fair value of financial instruments was 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 option contracts and swap agreements -- the fair value is
estimated based on quoted market prices of the same or similar issues
available.
Foreign currency option contracts -- the fair value is estimated based on
the amount the company would receive or pay to terminate the contracts.
Foreign currency forward contracts -- the carrying value approximates fair
value because these contracts are adjusted to their market value at the
balance sheet date.
Commodity swap agreements -- the fair value is estimated based on the
amount the company would receive or pay to terminate the contracts.
The carrying value and fair value of financial instruments at December 31,
1997, and 1996 are as follows:
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(Millions of dollars) AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------
Asset (Liability)
Long-term debt $(509) $(578) $(562) $(623)
Interest rate options
Purchased -- -- -- --
Written (8) (8) (5) (5)
Interest rate swap agreements -- -- -- --
Foreign currency options 5 8 4 5
Foreign currency forward
contracts -- -- -- --
Commodity swap agreements -- -- -- --
- -------------------------------------------------------------------------
41
<PAGE>
NOTE 5: INCOME TAXES
Earnings before income taxes earned within or outside the United States are
shown below:
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996 1995
- ----------------------------------------------------------------
United States
Parent and subsidiaries $446 $371 $266
Foreign
Subsidiaries 154 171 170
Affiliates 11 (12) 5
=======================
Earnings before income taxes $611 $530 $441
- ----------------------------------------------------------------
The provision for income taxes is composed of:
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996 1995
- ----------------------------------------------------------------
Taxes on U.S. earnings
Federal
Current $134 $ 56 $ 41
Deferred 7 58 40
=======================
141 114 81
=======================
State and other
Current 6 2 7
=======================
Total taxes on U.S. earnings 147 116 88
- ----------------------------------------------------------------
Taxes on foreign earnings
Current 77 69 73
Deferred (23) (18) (12)
=======================
Total taxes on foreign earnings 54 51 61
=======================
Total income taxes $201 $167 $149
- ----------------------------------------------------------------
Cash payments of income taxes were $181 million, $120 million and $111
million in 1997, 1996 and 1995, respectively.
Deferred income taxes reflect temporary differences between the valuation
of assets and liabilities for financial and tax reporting. Details at
December 31, 1997, and 1996 were:
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Deferred tax assets related to:
Compensation and benefit programs $203 $200
Alternative minimum tax credit carryforward 1 1
Research and foreign tax credit carryforwards 13 12
Accruals for waste disposal site remediation 54 34
Accruals for plant downsizing and writedowns 5 8
Inventories 33 34
All other 24 19
Valuation allowance (4) (5)
===============
Total deferred tax assets $329 $303
===============
Deferred tax liabilities related to:
Tax depreciation in excess of book
depreciation $289 $282
Pension 69 66
All other 8 3
===============
Total deferred tax liabilities $366 $351
===============
Net deferred tax liability $ 37 $ 48
- ----------------------------------------------------------------
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) 1997 1996
- ----------------------------------------------------------------
Prepaid expenses and other assets $ 87 $ 86
Other assets, net 3 4
Accounts payable and accrued liabilities 1 1
Non-current deferred income taxes 126 137
===============
Net deferred tax liability $ 37 $ 48
- ----------------------------------------------------------------
The valuation allowance was reduced by $1 million in 1997 and $2 million in
1996 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:
- ----------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
U.S. tax credits (1.5) (3.4) (0.9)
Asset dispositions -- (0.2) (0.3)
Effect of non-taxable
currency items 0.5 (0.5) (0.7)
Taxes on foreign earnings
and tax adjustments of
foreign subsidiaries (0.6) 0.3 0.2
Other, net (0.5) 0.3 0.5
=======================
Effective tax rate 32.9% 31.5% 33.8%
- ----------------------------------------------------------------
At December 31, 1997, the company had no research tax credit carryforwards.
Foreign tax credit carryforwards of $13 million are available to reduce
future U.S. income tax payments through 2002 and alternative minimum tax
credit carryforwards of $1 million 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 $3 million to offset future
foreign taxable income through 2002.
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
$366 million at December 31, 1997. 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.
42
<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 following tables
present information for the years 1995-1997 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 has been restated for the following
items:
1. Corporate governance costs, previously allocated to the businesses and
regions, 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 has been moved from
Performance Chemicals to Polymers, Resins and Monomers.
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996 1995
- ----------------------------------------------------------------
Sales to customers
Polymers, Resins and
Monomers $2,051 $2,023 $1,953
Performance Chemicals 759 744 740
Plastics 687 701 693
Agricultural Chemicals 502 514 498
=========================
Total $3,999 $3,982 $3,884
- ----------------------------------------------------------------
Operating profit
Polymers, Resins and
Monomers $ 389 $ 332 $ 272
Performance Chemicals 138 112 104
Plastics 94 90 97
Agricultural Chemicals 64 93 87
=========================
Total $ 685 $ 627 $ 560
- ----------------------------------------------------------------
Share of affiliate net earnings
(losses)
Polymers, Resins and
Monomers $ 9 $ 2 $ 2
Performance Chemicals 3 -- --
Plastics -- (14) 3
Agricultural Chemicals (1) -- --
=========================
Total $ 11 $ (12) $ 5
- ----------------------------------------------------------------
Identifiable assets at year end
Polymers, Resins and
Monomers $1,698 $1,750 $1,733
Performance Chemicals 799 811 847
Plastics 533 561 597
Agricultural Chemicals 411 425 391
=========================
Total $3,441 $3,547 $3,568
- ----------------------------------------------------------------
Investment in affiliates
Polymers, Resins and
Monomers $ 50 $ 43 $ 7
Performance Chemicals 72 -- --
Plastics 28 38 53
=========================
Total $ 150 $ 81 $ 60
- ----------------------------------------------------------------
Depreciation expense
Polymers, Resins and
Monomers $ 150 $ 130 $ 122
Performance Chemicals 45 44 38
Plastics 51 52 47
Agricultural Chemicals 21 21 21
Corporate 12 15 14
=========================
Total $ 279 $ 262 $ 242
- ----------------------------------------------------------------
Capital additions
Polymers, Resins and
Monomers $ 132 $ 187 $ 211
Performance Chemicals 51 50 81
Plastics 39 58 71
Agricultural Chemicals 17 22 35
Corporate 15 17 19
=========================
Total $ 254 $ 334 $ 417
- ----------------------------------------------------------------
43
<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) 1997 1996 1995
- ----------------------------------------------------------------
Sales to customers
United States $2,268 $2,228 $2,168
Canada 122 122 112
Europe 959 985 952
Asia-Pacific 445 453 483
Latin America 205 194 169
=========================
Total $3,999 $3,982 $3,884
- ----------------------------------------------------------------
Transfers between geographic areas
United States $ 434 $ 429 $ 337
Canada 36 41 47
Europe 101 154 116
Asia-Pacific 5 5 13
Latin America 25 27 26
Adjustments and eliminations (601) (656) (539)
=========================
Total $ -- $ -- $ --
- ----------------------------------------------------------------
Total sales
United States $2,702 $2,657 $2,505
Canada 158 163 159
Europe 1,060 1,139 1,068
Asia-Pacific 450 458 496
Latin America 230 221 195
Adjustments and eliminations (601) (656) (539)
=========================
Total $3,999 $3,982 $3,884
- ----------------------------------------------------------------
Operating profit (loss)
United States $ 620 $ 549 $ 421
Canada 15 9 15
Europe 48 72 115
Asia-Pacific 2 (2) 14
Latin America (2) -- 3
Adjustments and eliminations 2 (1) (8)
=========================
Total $ 685 $ 627 $ 560
- ----------------------------------------------------------------
Identifiable assets at year end
United States $2,308 $2,370 $2,383
Canada 41 47 52
Europe 737 751 731
Asia-Pacific 416 438 468
Latin America 156 151 133
Adjustments and eliminations (217) (210) (199)
=========================
Total $3,441 $3,547 $3,568
- ----------------------------------------------------------------
United States export sales to customers were $203 million in 1997, $230
million in 1996 and $206 million in 1995.
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) 1997 1996 1995
- ----------------------------------------------------------------
Total operating profit $ 685 $ 627 $ 560
Interest expense (39) (39) (39)
General corporate expense (46) (46) (85)
Share of affiliate net earnings
(losses) 11 (12) 5
=========================
Earnings before income taxes $ 611 $ 530 $ 441
- ----------------------------------------------------------------
Identifiable assets at year end $3,441 $3,547 $3,568
General corporate assets 309 305 288
Investment in affiliates 150 81 60
=========================
Total assets at year end $3,900 $3,933 $3,916
- ----------------------------------------------------------------
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. 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.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the reporting of information about
operating segments in annual financial statements. The company is
assessing its current business segment reporting to determine if changes in
reporting will be required in adopting this new standard. The disclosures
prescribed by the statement are required for the company's 1998 annual
report with application to interim periods permitted.
44
<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) 1997 1996 1995
- ----------------------------------------------------------------
Pension cost $(10) $(7) $(13)
Pension benefit payments 94 76 68
- ----------------------------------------------------------------
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) 1997 1996 1995
- ----------------------------------------------------------------------------
Service cost -- benefits earned
during the year $ 39 $ 38 $ 32
Interest cost on projected
benefit obligation 63 60 57
Return on plan assets
-- actual $(210) $(156) $(253)
-- less deferred 109 60 163
===== ===== =====
(101) (96) (90)
Other amortization, net (1) 2 (1)
Amortization of net gain
existing at adoption of
SFAS No. 87 (10) (11) (11)
==== ==== ====
Net pension cost $ (10) $ (7) $(13)
- ----------------------------------------------------------------------------
The early retirement and severance benefit programs resulted in a pre-tax
gain of $4 million, $2 million and $1 million in 1997, 1996 and 1995,
respectively, 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) 1997 1996
- ----------------------------------------------------------------
Actuarial present value of plan benefits
Vested $ 701 $ 666
Nonvested -- --
====================
Accumulated benefit obligation 701 666
Effect of projected future
compensation increase 242 241
====================
Projected benefit obligation 943 907
Plan assets at market value 1,401 1,306
====================
Plan assets in excess of projected
benefit obligation 459 399
Unrecognized net gain existing at
adoption of SFAS No. 87 (42) (54)
Other unrecognized net gain (289) (219)
====================
Prepaid pension cost $ 128 $ 126
- ----------------------------------------------------------------
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 1997 and 1996.
Pension benefit obligations were determined from actuarial valuations using
an assumed discount rate of 7% at December 31, 1997, and 1996, and an
assumed long-term rate of compensation increase of 5% in 1997 and 1996.
Non-U.S. plans assumed an average rate of return on trust assets of 9% in
1997 and 1996, an average discount rate for pension benefit obligations of
8% in 1997 and 8.3% in 1996, and an average long-term rate of compensation
increase of 6.2% in 1997 and 6.1% in 1996. The company transferred excess
pension plan assets of $13 million in 1997 and $13 million in 1996 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 $6 million in 1997, $7 million in 1996 and $6 million
in 1995. Pension benefit payments for this plan were $4 million in 1997,
$5 million in 1996 and $3 million in 1995.
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, 1997 and 1996 totaled $25 million and $21 million,
respectively.
45
<PAGE>
The status of this plan at year end was as follows:
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Actuarial present value of plan benefits
Vested $ 54 $ 51
Nonvested -- --
==================
Accumulated benefit obligation 54 51
Effect of projected future
compensation increase 7 2
==================
Projected benefit obligation 61 53
Unrecognized net loss existing at
adoption of SFAS No. 87 -- (1)
Other unrecognized loss (28) (22)
Adjusted minimum liability 21 21
==================
Accrued pension benefit obligation $ 54 $ 51
- ----------------------------------------------------------------
Pension benefit obligations were determined from actuarial valuations using
an assumed discount rate of 7% at December 31, 1997, and 1996, and an
assumed long-term rate of compensation increase of 5% in 1997 and 1996.
In 1997 the company instituted a nonqualified savings plan for eligible
employees in the United States. The purpose of the plan is to provide
additional retirement savings benefits beyond the otherwise determined
savings benefits provided by the Rohm and Haas Company Employee Stock
Ownership and Savings Plan (the "Savings Plan"). Each participant's
contributions will be notionally invested in the same investment funds as
the participant has elected for investment in his or her Savings Plan
account. For most participants, the Company will contribute a notional
amount equal to 60% of the first 6% of the amount contributed by the
participant. The Company's matching contributions will be allocated to
deferred stock units. At the time of distribution, each deferred stock
unit will be distributed as one share of Rohm and Haas Company common
stock. Contributions to this plan were immaterial in 1997.
NOTE 8: EMPLOYEE BENEFITS
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Postretirement health care and life
insurance benefits $323 $319
Postemployment benefits 16 18
Unfunded supplemental pension
plan (see Note 7) 50 48
Unfunded foreign pension liabilities 21 20
==================
Total $410 $405
- ----------------------------------------------------------------
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) 1997 1996
- ----------------------------------------------------------------
Accumulated postretirement benefit
obligation
Retirees $147 $175
Fully eligible active plan participants 39 43
Other active plan participants 79 85
==================
Total accumulated postretirement benefit
obligation 265 303
Unrecognized prior service cost 12 11
Unrecognized gains 62 20
==================
Total accrued postretirement benefit
obligation $339 $334
- ----------------------------------------------------------------
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) 1997 1996 1995
- ----------------------------------------------------------------
Service cost of benefits earned $ 5 $ 5 $ 4
Interest cost on accumulated
postretirement benefit
obligation 17 20 22
Net amortization (4) (1) (1)
=======================
Net periodic postretirement
benefit cost $18 $24 $25
- ----------------------------------------------------------------
The calculation of the accumulated postretirement benefit obligation
assumes 6% and 10% annual rates of increase in the health care cost trend
rate for 1997 and 1996, respectively. 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.
Increases in retiree health care costs in excess of these limits will be
assumed by retirees. The change in the annual rates of increase reflects
lower expected health care inflation, improved health care utilization and
lower per capita cost experience. This change resulted in a decrease of
approximately $8 million in 1997 postretirement and postemployment benefit
costs and a $28 million decrease in the 1997 accumulated postretirement
benefit obligation.
A one percentage point increase in the annual health care cost trend rate
would increase the accumulated postretirement benefit obligation by
approximately $7 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, 1997 and 1996.
46
<PAGE>
NOTE 9: ACCOUNTS RECEIVABLE, NET
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Customers $672 $699
Unconsolidated subsidiaries and affiliates 43 37
Employees 5 7
Insurance recoveries for environmental
remediation (see Note 21) 19 48
Other 31 64
==================
770 855
Less allowance for losses 15 14
==================
Total $755 $841
- ----------------------------------------------------------------
The $48 million of insurance recoveries for environmental remediation at
December 31, 1996 were collected in January 1997. It is expected that $17
million of the $19 million insurance recoveries balance at December 31,
1997 will be collected in 1998 with the remainder being collected in 1999.
NOTE 10: INVENTORIES
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Finished products and work in process $352 $375
Raw materials 49 55
Supplies 58 53
==================
Total $459 $483
- ----------------------------------------------------------------
Beginning inventories used in determining 1997 and 1996 cost of goods sold
were $483 million and $504 million, respectively. Inventories amounting to
$430 million and $440 million were valued using the LIFO method at December
31, 1997, and 1996, respectively. The excess of current cost over the
stated amount for inventories valued under the LIFO method approximated
$127 million and $135 million at December 31, 1997, and 1996, respectively.
Liquidation of prior years' LIFO inventory layers in 1997 and 1996 did not
materially affect cost of goods sold in either year.
NOTE 11: PREPAID EXPENSES AND OTHER ASSETS
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Prepaid expenses $ 36 $ 24
Deferred tax benefits 87 86
Notes receivable 4 1
Other current assets 16 10
==================
Total $143 $121
- ----------------------------------------------------------------
NOTE 12: LAND, BUILDINGS AND EQUIPMENT, NET
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Land $ 50 $ 49
Buildings and improvements 817 790
Machinery and equipment 3,307 3,113
Capitalized interest cost 220 209
Construction 98 166
====================
4,492 4,327
Less accumulated depreciation 2,484 2,261
====================
Total $2,008 $2,066
- ----------------------------------------------------------------
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
$1,115 million and $1,120 million at December 31, 1997, and 1996,
respectively. Assets depreciated by the straight-line method totaled
$3,320 million and $2,992 million at December 31, 1997, and 1996,
respectively.
In 1997, 1996 and 1995, respectively, interest costs of $12 million, $15
million and $18 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 1997 and 1996, and $13
million in 1995.
NOTE 13: OTHER ASSETS, NET
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Prepaid pension costs (see Note 7) $128 $126
Goodwill 110 100
Patents, trademarks, etc. 54 54
Rabbi trust assets (see Note 7) 25 21
Deferred tax benefits 3 4
Other noncurrent assets 26 21
==================
346 326
Less accumulated amortization
of intangible assets 48 42
==================
Total $298 $284
- ----------------------------------------------------------------
47
<PAGE>
NOTE 14: NOTES PAYABLE
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Short-term borrowings $49 $123
Current portion of long-term debt 48 22
=================
Total $97 $145
- ----------------------------------------------------------------
Short-term borrowings include commercial paper and bank debt owed by
foreign subsidiaries. The weighted-average interest rate of short-term
borrowings was 7.8% and 6.2% at December 31, 1997 and 1996, respectively.
The company has revolving credit agreements of $250 million which expire in
2002 and $100 million which expire in 1998. 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, 1997, $25 million was outstanding
under these agreements.
NOTE 15: LONG-TERM DEBT
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
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 17 47
6.60% obligation due through 2012
(callable 1997 at 102.6%) 48 50
5.67% notes due 1998 -- 30
7.81%-8.27% notes due through 1998 -- 5
Other 19 5
==================
Total $509 $562
- ----------------------------------------------------------------
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 $40 million, $39 million and $42 million in 1997, 1996 and
1995, respectively.
Long-term debt maturing in the next five years is:
- ----------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------
1998 $ 47 2001 $12
1999 5 2002 12
2000 110
- ----------------------------------------------------------------
NOTE 16: ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Trade payables $252 $319
Payables due to unconsolidated subsidiaries
and affiliates 9 13
Salaries, wages and accrued bonuses 117 71
Taxes, other than income taxes 38 50
Interest 13 13
Employee benefits 23 22
Reserves for environmental
remediation 47 28
Reserves for plant shutdowns 3 8
Sales incentive programs 41 42
Other 126 103
==================
Total $669 $669
- ----------------------------------------------------------------
NOTE 17: OTHER LIABILITIES
- ----------------------------------------------------------------
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------
Reserves for environmental remediation $100 $111
Reserves for plant shutdowns 1 6
Other 29 24
==================
Total $130 $141
- ----------------------------------------------------------------
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 $11 million in 1997 and $10 million in
1996. These dividends were recorded at net of the related U.S. tax
benefits. The number of ESOP shares not allocated to plan members at
December 31, 1997 and 1996 were 4.7 million and 4.9 million, respectively.
48
<PAGE>
The company recorded compensation expense of $6 million in 1997, $6 million
in 1996 and $5 million in 1995 for ESOP shares allocated to plan members.
The company expects to record annual compensation expense at approximately
this level over the next 23 years as the remaining $138 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 1997 totaled 2,551,151 shares, compared with
4,430,971 and 515,138 shares in 1996 and 1995, respectively. In October
1997, the company largely completed the repurchase of 3.5 million shares of
common stock authorized under the second buyback program, and received
board approval on October 24, 1997, for a third buyback program of another
3 million shares.
The reconciliation from basic to diluted earnings per share is as follows:
- ------------------------------------------------------------------
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
- ------------------------------------------------------------------
1997
Net earnings available to
common shareholders $403 61,936 $6.51
Convertible preferred stock 7 1,971
Dilutive effect of options -- 239
-------------------
Diluted earnings per share $410 64,146 $6.39
1996
Net earnings available to
common shareholders $356 65,374 $5.45
Convertible preferred stock 7 2,056
Dilutive effect of options -- 175
-------------------
Diluted earnings per share $363 67,605 $5.37
1995
Net earnings available to
common shareholders $285 67,522 $4.22
Convertible preferred stock 7 2,075
Dilutive effect of options -- 167
-------------------
Diluted earnings per share $292 69,764 $4.19
- ------------------------------------------------------------------
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,
1997, 1996 and 1995. 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 $407 million in 1997,
$361 million in 1996 and $291 million in 1995. Basic earnings per common
share would have been reduced to $6.46, $5.41 and $4.20 in 1997, 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. Non-employee directors could also elect to receive
their board and committee retainers in restricted stock. These shares are
immediately vested. In 1996, 1,413 shares at a weighted-average grant-date
fair value of $64.88 per share were granted in payment of board and
committee retainers. In 1997, no further shares were issued under this
Plan and, because of a change in directors' compensation, no further awards
are contemplated.
NON-EMPLOYEE DIRECTORS' STOCK PLAN OF 1997
Non-employee directors compensation was changed effective January 1, 1997.
Under the 1997 Non-Employee Directors Stock Plan, directors 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
49
<PAGE>
compensation into deferred stock. Annual compensation expense is
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 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. Most shares vest after 5 years. The
plan covers an aggregate 150,000 shares of common stock. Shares of
restricted stock issued in 1997 totaled 31,238 at a weighted-average
grant-date fair value of $84 per share. In 1996, 8,854 shares of
restricted stock were granted at a weighted-average grant-date fair value
of $69.94 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 most 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 grant
options for up to 2.5 million shares of common stock. The status of the
company's stock options is presented below:
- -----------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
---------------------------------------------------------
Outstanding at
beginning
of year 761 $52.48 777 $45.53 749 $41.84
Granted 200 82.26 201 64.30 139 56.24
Canceled -- -- (2) 64.44 -- --
Exercised (163) 42.92 (215) 38.28 (111) 33.97
=== === ===
Outstanding at
end of year 798 61.89 761 52.48 777 45.53
=== === ===
Options exercisable
at year-end 603 55.32 562 48.30 638 43.21
Weighted-average
fair value of
options granted
during the year $21.77 $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:
- ----------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------
Dividend yield 2.59% 2.59%
Volatility 20.74 21.52
Risk-free interest rate 6.46 5.69
Time to exercise 7 YEARS 7 years
- ----------------------------------------------------------------
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1997:
- ------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------------------
Range Weighted- Weighted- Weighted-
of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices (000) Life Price (000) Price
- ------------------------------------------------------------------------------
$32 to $36 72 2.6 years $34.77 72 $34.77
42 to 55 135 4.6 49.72 135 49.72
56 to 64 392 7.3 60.75 392 60.75
76 to 89 199 9.1 82.26 4 81.75
=== ===
798 603
=== ===
- ------------------------------------------------------------------------------
NOTE 20: LEASES
The company leases certain properties and equipment used in 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 $62 million in 1997, $63 million in 1996 and $81 million
in 1995.
Total future minimum lease payments under the terms of non-cancellable
operating leases are as follows:
- ----------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------
1998 $29 2002 $14
1999 23 2003-2007 36
2000 14 After 2007 27
2001 12
- ----------------------------------------------------------------
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 at
December 31, 1997 and 1996, 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 at December
31, 1997 and 1996, 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 the operation of 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 the American Institute of
Certified Public Accountants' Statement of Position 96-1, "Environmental
Remediation Liabilities," adopted in 1997, 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, and
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,
net of insurance recoveries, were $27 million and $45 million in 1996 and
1995, respectively. Remediation related settlements with insurance
carriers, a $20 million charge resulting from an unfavorable arbitration
decision relating to the Woodlands sites, and other waste remediation
expenses resulted in a net gain of $13 million in 1997. 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. 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, court-approved
arrangement is negotiated.
The reserves for remediation were $147 million and $139 million at December
31, 1997, and 1996, respectively, and are recorded as "other liabilities"
(current and long-term). 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 the litigation is resolved through
settlement or other appropriate legal process. Resolutions typically
resolve coverage for both past and future environmental spending.
Insurance recoveries receivable, included in accounts receivable, net, were
$19 million at December 31, 1997 and $48 million at December 31, 1996
resulting from collections of $88 million during 1997 and new settlements
of $59 million.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies related to environmental matters of
approximately $65 million at December 31, 1997 and 1996. Further, the
company has identified other sites, including its larger manufacturing
facilities in the United States, where 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 because of the company's obligation to record the full projected cost
of a project when such costs are probable and reasonably estimable.
51
<PAGE>
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
and 1997, the plaintiffs withdrew property damage and personal injury
claims. The company believes it has substantial defenses to this lawsuit;
financial impact, if any, is indeterminable at this time.
Capital spending for new environmental protection equipment was $18 million
in 1997. Spending for 1998 and 1999 is expected to be approximately $28
million and $21 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 $37 million in
1997, $58 million in 1996 and $51 million in 1995. The expenditures for
remediation are charged against accrued remediation reserves. The cost of
operating and maintaining environmental facilities was $95 million, $104
million and $96 million in 1997, 1996 and 1995, 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, 1997, construction commitments totaled approximately
$24 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/ Bradley J. Bell
J. LAWRENCE WILSON BRADLEY J. BELL
Chairman of the Board Vice President
and Chief Executive Officer and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP
The Board of Directors and Stockholders 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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 23, 1998
53
<PAGE>
<TABLE>
<CAPTION>
Rohm and Haas Company and Subsidiaries
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars,
except per-share amounts) 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volume of shipments in
millions of units 4,997 4,725 4,473 4,549 4,214 3,750 3,267 3,336 3,259 3,143 2,808
Net sales $ 3,999 $ 3,982 $ 3,884 $ 3,534 $ 3,269 $ 3,063 $ 2,763 $ 2,824 $ 2,661 $ 2,535 $ 2,203
Gross profit 1,455 1,395 1,333 1,267 1,095 1,049 902 930 841 889 773
Earnings before interest
and taxes 650 569 480 453 235 314 288 350 290 378 334
Earnings before
income taxes 611 530 441 407 194 261 240 313 251 346 303
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES $ 410 $ 363 $ 292 $ 264 $ 126 $ 174 $ 163 $ 207 $ 176 $ 230 $ 195
NET EARNINGS (LOSS) $ 410 $ 363 $ 292 $ 264 $ 107 $ (5) $ 163 $ 207 $ 176 $ 230 $ 195
As a percent of sales
Gross profit 36.4% 35.0% 34.3% 35.9% 33.5% 34.2% 32.6% 32.9% 31.6% 35.1% 35.1%
Selling and administrative
expense 16.0 15.8 15.9 16.7 18.0 17.9 17.0 16.1 15.1 15.0 15.2
Research and development
expense 5.0 4.7 5.0 5.7 6.3 6.5 6.6 6.3 6.6 6.2 6.4
Earnings before cumulative
effect of accounting
changes 10.3 9.1 7.5 7.5 3.9 5.7 5.9 7.3 6.6 9.1 8.9
Return on net assets (1) 11.2% 9.9% 8.1% 7.6% 4.3% 6.1% 6.8% 8.6% 8.3% 11.2% 11.0%
Return on common
stockholders' equity (2) 22.7% 20.1% 16.6% 16.5% 8.1% 11.4% 11.2% 15.2% 14.0% 20.4% 19.0%
Ten-year compound growth rate
Sales 6.1% 6.8% 6.6% 5.6% 5.7% 5.3% 3.9% 5.1% 5.3% 7.3% 7.0%
Basic earnings per common
share before cumulative
effect of accounting
changes 8.6 10.5 7.7 5.4 (0.9) 8.6 7.4 9.9 7.1 17.0 19.0
Cash dividends per
common share 8.2 8.2 8.3 9.1 10.5 10.5 11.2 13.0 14.9 16.1 15.1
Wages and salaries $ 630 $ 627 $ 625 $ 632 $ 616 $ 589 $ 540 $ 520 $ 481 $ 457 $ 420
CASH FLOW DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating
activities $ 791 $ 706 $ 513 $ 524 $ 358 $ 401 $ 357 $ 336 $ 309 $ 314 $ 291
Additions to fixed assets 254 334 417 339 382 283 265 412 385 338 222
Depreciation 279 262 242 231 226 203 183 159 150 128 112
Cash dividends 121 116 109 102 97 88 80 79 77 67 59
Free cash flow (3) 416 256 (13) 83 (121) 30 12 (155) (153) (91) 10
Share repurchases 216 302 29 7 -- 1 1 213 -- 10 72
Investments in joint
ventures, affiliates
and subsidiaries 80 7 -- -- -- 172 41 12 2 -- 40
PER COMMON SHARE DATA AND
OTHER SHARE INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings before
cumulative effect of
accounting changes
Basic $ 6.51 $ 5.45 $ 4.22 $ 3.79 $ 1.74 $ 2.53 $ 2.45 $ 3.10 $ 2.65 $ 3.46 $ 2.85
Diluted 6.39 5.37 4.19 3.77 1.74 2.53 2.45 3.10 2.65 3.46 2.85
Cash dividends $ 1.90 $ 1.72 $ 1.56 $ 1.44 $ 1.36 $ 1.28 $ 1.24 $ 1.22 $ 1.16 $ 1.02 $ .86
Common stock price
High $101-1/4 $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
Low 70-5/8 51-1/8 49-1/2 53-1/4 47-1/4 42-3/4 32-3/4 24-1/4 31 28 24
Year-end close 95-3/4 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
Number of shares repurchased
in thousands 2,551 4,431 515 123 7 18 16 6,476 8 310 2,421
Average number of shares
outstanding in thousands 61,936 65,374 67,522 67,707 67,619 66,396 64,103 66,218 66,593 66,561 68,578
AT YEAR-END
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital $ 547 $ 570 $ 593 $ 508 $ 499 $ 533 $ 606 $ 424 $ 434 $ 485 $ 486
Gross fixed assets 4,492 4,327 4,158 3,969 3,696 3,470 3,015 2,770 2,396 2,062 1,754
Total assets 3,900 3,933 3,916 3,861 3,524 3,517 2,897 2,702 2,455 2,242 1,954
Total debt 606 707 696 786 773 800 753 679 531 454 365
Stockholders' equity 1,797 1,728 1,781 1,620 1,441 1,428 1,235 1,137 1,311 1,207 1,053
Debt-to-equity ratio (4) 31.3% 37.5% 36.0% 44.3% 48.2% 50.1% 50.0% 48.0% 40.5% 37.6% 34.7%
Number of registered
common stockholders 4,352 4,492 4,721 4,907 5,120 5,653 5,796 6,088 5,816 5,695 5,864
Number of employees 11,592 11,633 11,670 12,211 12,985 13,619 12,872 12,920 13,040 12,444 12,021
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net earnings plus after-tax interest expense, divided by year-end total
assets.
(2) Excluding ESOP adjustment and cumulative effect of accounting changes.
(3) Cash provided by operating activities less fixed asset spending and
dividends.
(4) Excluding ESOP adjustment.
See accompanying notes on page 56.
See 1997, 1996 and 1995 results in Management Discussion and Analysis on
pages 22 to 34.
54 <------ TABLE SPANS FOLIOS ------> 55
<PAGE>
NOTES
A. The 1997 earnings include a gain of $16 million after tax, or $.26 per
common share, the net result of remediation settlements with insurance
carriers during the fourth quarter.
B. 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 Unites
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.
C. 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.
D. 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.
E. 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.
F. Results in 1992 included a 56 cents-per-common-share charge for the
estimated costs of downsizing a manufacturing site in Philadelphia.
G. 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>
STOCKHOLDER INFORMATION
1998 ANNUAL MEETING
The 1998 Annual Meeting of Stockholders will be held at the American
Philosophical Society's Ben Franklin Hall, 427 Chestnut Street,
Philadelphia, Pennsylvania, at 10:30 a.m. on Monday, May 4th. Formal
notice of the meeting, the proxy statement and form of proxy will be
mailed on March 27, 1998.
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 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
COMPANY INFORMATION
Internet World Wide Web users can access information about Rohm and
Haas at the following Web address: www.rohmhaas.com.
General information brochures about Rohm and Haas Company and about
its environmental, health and safety policies also are available upon
request to the Public Relations Department, Rohm and Haas Company,
100 Independence Mall West, Philadelphia, Pennsylvania, USA 19106-2399,
(215) 592-3045.
57
<PAGE>
B O A R D O F D I R E C T O R S
[ID -- PHOTO]
WILLIAM J. AVERY
Chairman, Chief Executive Officer and Director,
Crown, Cork & Seal Company, Inc.
Mr. Avery, 57, has been a director since 1997.
Committees: 2,4,6,7
[ID -- PHOTO]
GEORGE B. BEITZEL
Retired Senior Vice President and Director,
International Business Machines Corporation
Mr. Beitzel, 69, has been a director since 1983.
Committees: 1, 5 (Chairman), 6, 7
[ID -- PHOTO]
DANIEL B. BURKE
Retired Chief Executive Officer, President,
and Director, Captial Cities/ABC, Inc.
Mr. Burke, 69, has been a director since 1986.
Committees: 2, 4 (Chairman), 6, 7
[ID -- PHOTO]
EARL G. GRAVES
Chairman and Chief Executive Officer, Earl G.
Graves, Ltd.; Chairman and Chief Executive Officer
of Pepsi-Cola of Washington, D.C.; Publisher and
Editor of Black Enterprise Magazine
Mr. Graves, 63, has been a director since
1984. Committees: 2, 4, 6, 7 (Chairman)
[ID -- PHOTO]
JAMES A. HENDERSON
Chairman, Chief Executive Officer and Director,
Cummins Engine Company, Inc.
Mr. Henderson, 63, has been a director since 1989.
Committees 1, 5, 6, 7
[ID -- PHOTO]
JOHN H. MCARTHUR
Retired Dean, Harvard Business School
Dr. McArthur, 63, has been a director since 1977.
Committees: 1 (Chairman), 5, 6, 7
[ID -- PHOTO]
PAUL F. MILLER, JR.
Partner in Miller Associates
Mr. Miller, 70, has been a director since 1969.
Committees: 1, 3, 5, 6 (Chairman), 7
[ID -- PHOTO]
JORGE P. MONTOYA
Executive Vice President,
The Procter & Gamble Company;
President, Procter & Gamble Latin America
Mr. Montoya, 51, has been a director since 1996.
Committees: 2,4,6,7
[ID -- PHOTO]
SANDRA O. MOOSE
Senior Vice President and Director,
The Boston Consulting Group, Inc.
Dr. Moose, 56, has been a director since 1981.
Committees: 2 (Chairman), 3, 4, 6, 7
58
<PAGE>
[ID -- PHOTO]
JOHN P. MULRONEY
President and Chief Operating Officer,
Rohm and Haas Company
Mr. Mulroney, 62, has been a director since 1982.
Committees: 2, 3, 7
[ID -- PHOTO]
GILBERT S. OMENN
Executive Vice President for Medical Affairs,
The University of Michigan
Dr. Omenn, 56, has been a director since 1987.
Committees: 1, 5, 6, 7
[ID -- PHOTO]
RONALDO H. SCHMITZ
Member of the Board of Managing
Directors of Deutsche Bank, AG
Dr. Schmitz, 59, has been a director since 1992.
Committees: 1, 5, 6, 7
[ID -- PHOTO]
ALAN SCHRIESHEIM
Director Ermeritus of
Argonne National Laboratory
Dr. Schriesheim, 68, has been a director since 1989.
Committees: 2, 4, 6, 7
[ID -- PHOTO]
MARNA C. WHITTINGTON
Chief Operating Officer, Morgan Stanley
Institutional Investment Management
Dr. Whittington, 50, has been a director since 1989.
Committees: 1, 3, 5, 6, 7
[ID -- PHOTO]
J. LAWRENCE WILSON
Chairman of the Board and Chief Executive
Officer, Rohm and Haas Company
Mr. Wilson, 62, has been a director since 1977.
Committees: 3 (Chairman), 7
CHAIRMAN'S COMMITTEE:
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
OTHER OFFICERS
WILLIAM C. ANDREWS
Vice President, Controller
THOMAS L. ARCHIBALD
Vice President
PAUL J. BADUINI
Vice President
BRADLEY J. BELL
Vice President,
Chief Financial Officer,
Treasurer
ALBERT H. CAESAR
Vice President
A. WAYNE CARNEY
Vice President
PATRICK R. COLAU
Vice President
NANCE K. DICCIANI
Vice President
DAVID T. ESPENSHADE
Vice President
CARLOS A. ESTEVEZ
Vice President
MARISA L. GUERIN
Vice President
HOWARD C. LEVY
Vice President
PHILIP G. LEWIS
Vice President
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
GAIL P. GRANOFF
Secretary
MARC S. ADLER
Assistant Secretary
STANLEY J. HARMER
Assistant Secretary
BOARD COMMITTEES:
1 Audit
2 Corporate Responsibility
3 Executive
4 Executive Compensation
5 Finance
6 Nominating
7 Strategic Planning
59
<PAGE>
R O H M A N D H A A S C O M P A N Y L O C A T I O N S
CORPORATE HEADQUARTERS
ROHM AND HAAS COMPANY
100 Independence Mall West
Philadelphia, Pennsylvania USA 19106-2399
(215) 592-3000
(Delaware Corporation)
SUBSIDIARIES
AGLEAD
Tokyo, Japan
(60% owned)
ATOHAAS AMERICAS INC.*
Philadelphia, Pennsylvania, USA
(51% income ownership)
ATOHAAS CANADA INC.*
West Hill, Canada
(51% income ownership)
ATOHAAS DELAWARE INC.*
Wilmington, Delaware USA
ATOHAAS FOREIGN
SALES CORPORATION*
St. Thomas, U.S. Virgin Islands
ATOHAAS MEXICO INC.*
Matamoros, Mexico
(51% income ownership)
BEIJING EASTERN ROHM AND HAAS COMPANY, LIMITED
Beijing, China
(60% owned)
DUOLITE INT. LIMITED
Croydon, England
JAPAN ACRYLIC CHEMICAL
COMPANY, LTD.
Tokyo, Japan
MAQUILADORA GENERAL DE MATAMOROS, S.A. DE C.V.*
Matamoros, Mexico
(51% income ownership)
POLYTRIBO, INC.
Bristol, Pennsylvania USA
(60% owned)
QUIMICA CONOSUR
SOCIEDAD ANONIMA
Montevideo, Uruguay
P.T. ROHM AND HAAS 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, Pennyslvania
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 PUERTO RICO INC.
Wilmington, Delaware
ROHM AND HAAS QUIMICA LTDA.
Sao Paulo, Brazil
RANDH 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 TAIWAN INC.
Taipei, Taiwan
ROHM AND HAAS TEXAS INCORPORATED
Houston, Texas USA
ROHM AND HAAS (UK) LIMITED
Croydon, England
ROHMAX ADDITIVES GMBH*
Darmstadt, Germany
ROHMAX CANADA*
West Hill, Canada
ROHMAX FRANCE*
Paris, France
ROHMAX USA*
Philadelphia, Pennsylvania USA
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)
RODEL, INC.
Newark, Delaware
(26% 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*
INDONESIA: Cilegon
ITALY: Mozzanica; Rho*
JAPAN: Nagoya; Sasagami; Soma
MEXICO: Apizaco; Matamoros*
NETHERLANDS: Leeuwarden*
NEW ZEALAND: Auckland
PHILIPPINES: Las Pinas
SCOTLAND: Grangemouth
SINGAPORE: Singapore
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 - Marlborough
North Carolina - Charlotte
Pennsylvania - Bristol; Montgomeryville; Philadelphia
Tennessee - Knoxville
Texas - Bayport; Houston
*These subsidiaries or
manufacturing sites are
associated with the RohMax
and AtoHaas joint ventures.
Rohm and Haas has announced
its intention to sell its 50
percent interest in these
companies in 1998. See the
Letter to Shareholders,
beginning on page 2,
for details.
60
<PAGE>
RESEARCH LABORATORIES
CORPORATE RESEARCH HEADQUARTERS
Spring House, Pennsylvania
Bristol, Pennsylvania
OTHER RESEARCH AND
TECHNICAL FACILITIES
Campinas, Brazil
Charlotte, North Carolina
Chauny, France
Houston, Texas
Marlborough, Massachusetts
Newtown, Pennsylvania
Waller County, Texas
Washinomiya, Japan
West Hill, Canada
SALES OFFICES
In major cities around 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 Company at the
following web address:
http://www.rohmhaas.com/
General information brochures about Rohm
and Haas Company and about its
environmental, health and safety
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,
Indar, Kathon, Mimic, Primene, Pulsor,
Ropaque, Sea-Nine, Systhane, Visor are
trademarks of Rohm and Haas Company.
Plexiglas is a trademark of
Rohm and Haas Company in
North and South America.
Responsible Care is a trademark of the
Chemical Manufacturers Association.
[LOGO]
Rohm and Haas is a Responsible Care(r) Company.
[LOGO]
Printed on recycled paper
<PAGE>
[ID -- PHOTO]
Rohm and Haas [LOGO]
<PAGE>
APPENDIX TO ANNUAL REPORT TO STOCKHOLDERS
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- ------- ---------------------------
Cover Graphic with a photograph of a hand underneath four floating
spheres representing the company's four business groups.
Within the spheres are photographs of a piece of fruit, a
printed computer board, a painted window frame and shutter and
a roadway with painted traffic markings.
Page 1 Pie charts
Sales by Business Group
-----------------------
Polymers, Resins and Monomers $2,051 million
Performance Chemicals 759 million
Plastics 687 million
Agricultural Chemicals 502 million
Sales by Customer Location
--------------------------
North America $2,187 million
Europe 959 million
Asia-Pacific 573 million
Latin America 280 million
Page 2 Photograph of:
J. Lawrence Wilson, Chairman and
John P. Mulroney, President
Page 3 Photographs of a piece of fruit, a printed computer board, a
painted window frame and shutter and a roadway with painted
traffic markings.
Page 4 Bar Charts for Rohm and Haas Company of:
Volume
------
1993 4,214 million units
1994 4,549 million units
1995 4,473 million units
1996 4,725 million units
1997 4,997 million units
Sales
-----
1993 $3,269 million
1994 $3,534 million
1995 $3,884 million
1996 $3,982 million
1997 $3,999 million
Earnings, before cumulative effect of accounting change
--------
1993 $126 million
1994 $264 million
1995 $292 million
1996 $363 million
1997 $410 million
Page 5 Photographs of a piece of fruit, a printed computer board, a
painted window frame and shutter and a roadway with painted
traffic markings.
Page 6 Photograph of a hand holding two playing cards. One card is a
photograph of a painted gazebo with caption "At left: Winners
of the "Prettiest Painted Places" contest held by Rohm and
Haas's Paint Quality Institute in 1997 demonstrate that latex
paints are beautiful, durable and the ideal choice for homes
around the world. Opposite: Rohm and Haas's unparalleled
expertise in acrylic emulsion technology is used to make
high-quality paper coatings, water-based stains and sealants,
adhesives, latex paints and many other products."
Page 7 Graphic with a photograph of two hands, a magician's table and
photographs of a house, a can of paint, rolls of colored paper,
rolls of adhesive tape and a bottle of floor polish.
Page 8 Photographs of:
A wine bottle with caption "Water-based adhesives dry clear,
making them the ideal product for today's wine bottle labels."
A woman using hair spray with caption "Acrylic fixatives for
hair sprays reduce the emission of compounds to the air that
contribute to ground smog."
Page 9 Bar Charts for Polymers, Resins and Monomers Business Group of:
Volume*
-------
1993 3,229 million units
1994 3,493 million units
1995 3,408 million units
1996 3,615 million units
1997 3,858 million units
Sales*
------
1993 $1,682 million
1994 $1,816 million
1995 $1,953 million
1996 $2,023 million
1997 $2,051 million
Earnings*
---------
1993 $137 million
1994 $187 million
1995 $185 million
1996 $228 million
1997 $260 million
* Restated for RohMax JV and a change in cost allocations
Photograph of a roadway with painted traffic markings with
caption "Water-based traffic paints are replacing solvent-based
compounds on roadways around the world."
Page 10 Graphic with a photograph of two hands, a magician's table and
hat with printed computer boards emerging. Background
photographs of computer screens.
Page 11 Photograph of a hand holding two playing cards. One card is a
photograph of slurries and polishing pads used in the
electronics industry with caption "At left and opposite:
High-tech products developed by the Electronic Chemicals
business enables semiconductor manufacturers to build powerful,
intricate circuitry on silicon chips no larger than a human
fingernail."
Page 12 Photograph of printed computer board with caption "The right
technology, product purity and an ability to match customer
formulations exactly are essential to competing successfully in
today's electronics industry."
Bar Charts for Performance Chemicals Business Group of:
Volume*
-------
1993 220 million units
1994 230 million units
1995 270 million units
1996 272 million units
1997 278 million units
Sales*
------
1993 $599 million
1994 $644 million
1995 $740 million
1996 $744 million
1997 $759 million
Earnings*
---------
1993 $ 35 million
1994 $ 43 million
1995 $ 69 million
1996 $ 82 million
1997 $ 91 million
* Restated for RohMax JV and a change in cost allocations
Page 13 Photograph of an aspirin with caption "Rohm and Haas's ion
exchange resins ensure that the highest quality water is used
to make pharmaceutical products."
Page 14 Graphic with a photograph of two hands holding a handkerchief
with a photograph of a cruise ship. Also includes two other
photographs of ships and a fish bowl with a photograph of a
tropical fish.
Page 15 Photographs of a blender with caption "Above: Plastics
additives increase the toughness and durability of everyday
products. Opposite: Sea-Nine biocides controls the build up of
barnacles on ship hulls without harming sea life."
Bar Charts for Plastics Business Group of:
Volume
------
1993 580 million units
1994 638 million units
1995 605 million units
1996 640 million units
1997 663 million units
Sales
-----
1993 $579 million
1994 $635 million
1995 $693 million
1996 $701 million
1997 $687 million
Earnings*
---------
1993 $ 1 million
1994 $61 million
1995 $67 million
1996 $54 million
1997 $62 million
* Restated for a change in cost allocations
Page 16 Photographs of an outside stair way and deck with caption "One
of the newest applications for Plastics Additives resins can be
found in plastic lattice work, which enhances the beauty of the
home, yet all but eliminates the maintenance involved with wood
products."
Page 17 Photograph of oranges with caption "Rohm and Haas products help
bring healthy fruit to market."
Bar charts for the Agricultural Chemicals Business Group
Volume
------
1993 185 millions of units
1994 188 millions of units
1995 188 millions of units
1996 201 millions of units
1997 198 millions of units
Sales
-----
1993 $409 million
1994 $439 million
1995 $498 million
1996 $514 million
1997 $502 million
Earnings*
---------
1993 $41 million
1994 $42 million
1995 $55 million
1996 $61 million
1997 $41 million
* Restated for a change in cost allocations
Page 18 Graphic with photograph of a hand and of roses, grapes and
wheat held in newspapers.
Page 19 Photograph of a hand holding two playing cards. One card is a
photograph of a man working in the chemical production
environment with caption "Below: Rohm and Haas won't rest until
its safety record reaches its goal of zero on-the-job injuries.
Opposite: Rohm and Haas's fungicides, herbicides and
insecticides help improve the yield on niche crops -- everything
from roses and grapes to oranges and wheat."
Page 20 Line chart of Rohm and Haas worldwide occupational injury and
illness average rate vs. U.S. chemical industry.
Average number of injuries for every 100 full-time employees:
U.S. chemical
Rohm and Haas industry
------------- ----------------
1993 3.7 2.9
1994 2.5 2.8
1995 2.0 2.6
1996 1.5 2.2
1997 1.8 2.0
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
---- ------------ --- ------------------
1987 35.1 21.7 9.8
1988 35.1 21.2 9.9
1989 31.6 21.6 7.6
1990 32.9 22.4 8.2
1991 32.6 23.6 7.0
1992 34.2 24.4 6.8
1993 33.5 24.3 4.7
1994 35.9 22.4 8.3
1995 34.3 20.9 8.2
1996 35.0 20.5 9.8
1997 36.4 21.0 10.9
Page 25 Line Chart of Sales and Volume Indices
1987 = 100
Year Sales Dollars Physical Volume
---- ------------- ---------------
1987 100 100
1988 115 112
1989 121 116
1990 128 119
1991 125 116
1992 139 134
1993 148 150
1994 160 162
1995 176 159
1996 181 168
1997 182 178
Line Chart of Raw Material Cost Index
1987 = 100
Year Index Percentage Change
---- ----- -----------------
1987 100 5
1988 113 13
1989 117 3
1990 117 0
1991 118 0
1992 107 (9)
1993 103 (3)
1994 108 4
1995 131 21
1996 122 (7)
1997 121 (1)
Page 26 Line Chart of Selling Price Index
1987 = 100
Year Index Percentage Change
---- ----- -----------------
1987 100 3
1988 105 5
1989 106 1
1990 109 3
1991 112 2
1992 111 (1)
1993 106 (4)
1994 106 0
1995 113 6
1996 112 (1)
1997 111 (1)
Page 27 Line chart of Free Cash Flow
Cash provided by operating activities
-------------------------------------
1987 $291 million
1988 314 million
1989 309 million
1990 336 million
1991 357 million
1992 401 million
1993 358 million
1994 524 million
1995 513 million
1996 706 million
1997 791 million
Free cash flow
--------------
1987 $ 10 million
1988 (91) million
1989 (153) million
1990 (155) million
1991 12 million
1992 30 million
1993 (121) million
1994 83 million
1995 (13) million
1996 256 million
1997 416 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
1997 95 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
1997 18 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
1997 46 million
Page 28 Line Chart of Basic Earnings and Common Dividends
Dollars per Share
Year Basic Earnings* Common Dividends
---- --------------- ----------------
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
1997 6.51 1.90
*Basic earnings per share in 1992 and 1993 are before the
cumulative effect of accounting changes
Page 29 Line Chart of Capital Additions and Depreciation
Year Additions Depreciation
---- ------------ ------------
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
1997 254 million 279 million
Page 30 Line Chart of Assets as a Percent of Sales
Year Fixed Assets Receivables Inventories
---- ------------ ----------- -----------
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
1997 50.2 18.9 11.5
Dual-axis line chart of Asset Turnover, Operating Margin
and RONA
Year Asset Turnover RONA Operating Margin
---- -------------- ---- ----------------
1987 1.13 turns 11.0% 9.8%
1988 1.13 11.2 9.9
1989 1.08 8.3 7.6
1990 1.05 8.6 8.2
1991 .95 6.8 7.0
1992 .87 6.1 6.8
1993 .93 4.3 4.7
1994 .92 7.6 8.3
1995 .99 8.1 8.2
1996 1.01 9.9 9.8
1997 1.03 11.2 10.9
Page 31 Line chart of Return on Investment
Year ROE RONA
---- --- ----
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
1997 22.7 11.2
Page 33 High-Low Chart of Quarterly Stock Prices in Dollars
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
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
1997
----
High 94-7/8 91-3/8 101-1/4 97-7/16
Low 74-1/2 70-5/8 88-1/8 79-1/4
Close 74-7/8 90-1/16 95-15/16 95-3/4
Pages 58
and 59 Photograph of member of the Board of Directors
William J. Avery
George B. Beitzel
Daniel B. Burke
Earl G. Graves
James A. Henderson
John H. McArthur
Paul F. Miller, Jr.
Jorge P. Montoya
Sandra O. Moose
John P. Mulroney
Gilbert S. Omenn
Ronaldo H. Schmitz
Alan Schriesheim
Marna C. Whittington
J. Lawrence Wilson
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT
--------------------------
NAME OF SUBSIDIARY STATE OR COUNTRY 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
RandH RohMax Holdings Inc. Delaware
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
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT
--------------------------
NAME OF SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
- ------------------ ---------------------------------
Rohm and Haas Quimica Ltda. Brazil
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
Shipley Holdings, Inc. Delaware
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.
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, No.
333-18879 and 333-40877 on Form S-8 and Registration Statement No.
333-14017 on Form S-3 of Rohm and Haas Company of our reports dated
February 23, 1998, relating to the consolidated balance sheets of Rohm and
Haas Company and subsidiaries as of December 31, 1997 and 1996, 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, 1997, which reports appear or are incorporated by
reference in the December 31, 1997 Annual Report on Form 10-K of Rohm and
Haas Company and subsidiaries.
Philadelphia, Pennsylvania /s/ KPMG PEAT MARWICK LLP
March 23, 1998 ---------------------
KPMG PEAT MARWICK LLP
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