<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 1-3507
R O H M A N D H A A S C O M P A N Y
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1028370
- -------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 INDEPENDENCE MALL WEST, PHILADELPHIA, PENNSYLVANIA 19106
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 592-3000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Common stock outstanding at April 28, 2000: 217,528,442 SHARES
------------------
<PAGE>2
ROHM AND HAAS COMPANY AND SUBSIDIARIES
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1. Statements of Consolidated Earnings for the Quarter Ended
March 31, 2000 and 1999.
2. Statements of Consolidated Cash Flows for the Quarter Ended
March 31, 2000 and 1999.
3. Condensed Consolidated Balance Sheets as of March 31, 2000,
December 31, 1999 and March 31, 1999.
4. Notes to Consolidated Financial Statements.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK
Management's discussion of market risk is incorporated herein
by reference to Item 7a of the Form 10-K for the year ended
December 31, 1999, filed with the Securities and Exchange
Commission on March 27, 2000.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS (See pages 10 through 11)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit (27) Financial Data Schedule
Exhibit (99) Pro Forma Schedule
(b) Reports filed on Form 8-K during the quarter ended
March 31, 2000:
January 19, 2000: Reporting the description of capital stock
contained in the amended and restated certificate of
incorporation.
<PAGE>3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATE: May 12, 2000 ROHM AND HAAS COMPANY
------------ (Registrant)
BRADLEY J. BELL
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<PAGE>4
EXHIBIT INDEX
(Pursuant to Part 232.102(d) of Regulation S-T)
Exhibit
No. Description
- -------- ------------------------------------------------------------
(27) Financial Data Schedule
(99) Pro Forma Schedule
<PAGE>5
PART 1- FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (Unaudited)
- ------------------------------------------------------------------------
(Millions of dollars, except per-share amounts)
Quarter Ended
March 31,
-----------------
2000 1999
------ ------
Net sales $1,735 $ 940
Cost of goods sold 1,132 558
- ------------------------------------------------------------------------
Gross profit 603 382
Selling and administrative expense 261 163
Research and development expense 59 47
Interest expense 62 11
Amortization of goodwill and other intangibles 38 2
Share of affiliate net earnings (losses) 6 (7)
Provision for restructuring 13 -
Other income, net 12 24
- ------------------------------------------------------------------------
Earnings before income taxes 188 176
Income taxes 65 66
- ------------------------------------------------------------------------
Net earnings $ 123 $ 110
- ------------------------------------------------------------------------
Net earnings applicable to common shareholders $ 123 $ 109
- ------------------------------------------------------------------------
Earnings per common share (in dollars):
- Basic $ .56 $ .65
- Diluted .56 .64
Common dividends $ .19 $ .18
Average common shares outstanding (millions):
- Basic 219.2 167.7
- Diluted 221.1 171.4
See Notes to Consolidated Financial Statements.
<PAGE>6
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
- ----------------------------------------------------------------------------
Quarter Ended
March 31,
---------------------
2000 1999
-------- --------
(Millions of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 123 $ 110
Adjustments to reconcile net earnings to cash provided
by operating activities:
Depreciation 106 69
Amortization of goodwill and intangibles 38 2
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Deferred income taxes (40) (26)
Accounts receivable (94) (62)
Inventories 32 (20)
Accounts payable and accrued liabilities (159) (81)
Income taxes payable 42 76
Other, net (48) (18)
----- -----
Net cash provided by operating activities - 50
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses and affiliates,
net of cash acquired (324) (452)
Proceeds on sales of facilities and investments,
net of cash sold 175 -
Additions to land, buildings and equipment (72) (38)
----- -----
Net cash used for investing activities (221) (490)
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 361 427
Repayments of long-term debt (55) -
Net change in short-term borrowings (39) 95
Payment of dividends (42) (30)
Other, net - (7)
----- -----
Net cash provided by financing activities 225 485
- ----------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4 45
Cash and cash equivalents at beginning of period 57 16
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 61 $ 61
- ----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>7
<TABLE>
<CAPTION>
ROHM AND HAAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
- -------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C>
March 31, December 31, March 31,
2000 1999 1999
--------------------------------------
ASSETS
Current assets: --------------------------------------
Cash and cash equivalents $ 61 $ 57 $ 61
Accounts receivable, net 1,443 1,370 820
Inventories (note E) 869 899 476
Prepaid expenses and other assets 185 171 151
- -------------------------------------------------------------------------------------
Total current assets 2,558 2,497 1,508
- -------------------------------------------------------------------------------------
Land, buildings and equipment, net 3,436 3,496 1,928
Goodwill and other intangible assets, net 4,361 4,482 483
Other assets 1,073 781 443
- -------------------------------------------------------------------------------------
$11,428 $11,256 $4,362
- -------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 900 $ 931 $ 270
Accounts payable and accrued liabilities 1,252 1,407 616
Accrued income taxes payable 215 172 133
- -------------------------------------------------------------------------------------
Total current liabilities 2,367 2,510 1,019
- -------------------------------------------------------------------------------------
Long-term debt 3,428 3,122 834
Employee benefits 610 610 428
Other liabilities 1,429 1,520 411
Minority interest 19 19 28
Stockholders' equity:
$2.75 Cumulative convertible preferred stock - - 65
Common stock: shares issued - 242,078,367 605 605 492
Additional paid-in capital 1,946 1,942 145
Retained earnings 1,414 1,331 1,364
- -------------------------------------------------------------------------------------
3,965 3,878 2,066
Less: Treasury stock (note G) 220 224 281
Less: ESOP shares 123 125 130
Accumulated other comprehensive income (47) (54) (13)
- -------------------------------------------------------------------------------------
Total stockholders' equity 3,575 3,475 1,642
- -------------------------------------------------------------------------------------
$11,428 $11,256 $4,362
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
(A) These interim financial statements are unaudited, but, in the
opinion of management, all adjustments, which are of a normal recurring
nature, have been made to present fairly the company's financial
position, results of operations and cash flows. Certain prior year
amounts have been restated to conform to current year presentation.
These financial statements should be read in conjunction with the
financial statements, accounting policies and the notes included in the
company's annual report for the year ended December 31, 1999.
(B) On June 21, 1999, the company acquired Morton for cash of $3 billion
and the issuance of 45,121,227 shares of common stock, for a total
transaction value of approximately $4.9 billion, including the
assumption of $272 million of debt. Morton is a manufacturer of
specialty chemicals and a producer of salt for a variety of markets. The
cash portion of the acquisition was financed primarily through a
combination of commercial paper and the later issuance of longer term
instruments. As of March 31, 2000, $21 million had not yet been paid to
former Morton shareholders pending the tender of their shares. This is
reflected in accounts payable and accrued liabilities. Accounted for by
the purchase method, the financial statements reflect the allocation of
the purchase price based on estimated fair values at the date of
acquisition, pending final determination of the fair value of certain
contingent legal, environmental and other liabilities. The allocation as of
March 31, 2000 resulted in acquired goodwill of $1.8 billion, which is
being amortized on a straight-line basis over 40 years. Based on an
independent appraisal, $105 million of the purchase price was allocated
to in-process research and development, which was recorded as a charge
in the second quarter of 1999.
In late January 1999, the company acquired all of the outstanding shares
of LeaRonal for approximately $460 million. LeaRonal develops and
manufactures specialty chemicals used in the manufacture of printed
circuit boards, semiconductor packaging and for electronic connector
plating and also provides processes for metal-finishing applications.
The acquisition, financed primarily through commercial paper, was
accounted for using the purchase method. The financial statements
reflect the allocation of the purchase price based on estimated fair
values at the date of acquisition and later analysis of certain acquired
assets and liabilities. The final allocation resulted in acquired
goodwill of approximately $202 million, which is being amortized on a
straight-line basis over 40 years.
The results of both Morton and LeaRonal have been included in the
consolidated financial statements since the respective dates of
acquisition.
In the first quarter of 2000 the company sold its Industrial Coatings
business to BASF for approximately $175 million, subject to adjustment.
The Industrial Coatings business was acquired by the company in June
1999 as part of the acquisition of Morton International and was recorded
at its fair value; accordingly, no gain or loss was recorded on this
transaction.
In the second quarter of 1999, the company announced its intentions to
enter into a joint venture with Stockhausen GmbH & Co. KG
("Stockhausen") of Germany to form a global partnership for the
manufacture of acrylic acid. The company expects the transaction to
close by the end of 2000. In conjunction with the proposed joint
venture, the company acquired Stockhausen's merchant monomer business in
Europe in the first quarter of 2000.
During the first quarter of 2000 the company acquired 95% of Acima
A.G., a Swiss company specializing in biocidal formulations,
polyurethane catalysts and other specialty chemicals. In addition the
company acquired an 80% interest in Silicon Valley Chemical
Laboratories, Inc. (SVC), a privately-held supplier to high
technologies for the semiconductor industry. The combined cost for the
these two transactions was approximately $93 million.
<PAGE>9
Also during the first quarter of 2000, the company increased its
ownership in Rodel from 48% to almost 90% for a cost of approximately
$200 million. Rodel is a privately-held, Delaware-based leader in
precision polishing technology serving the semiconductor, memory disk
and glass polishing industries. Through March 31, 2000, the investment
has been accounted for on the equity method with the company's share of
earnings reported as equity in affiliates. The transaction with Rodel,
increasing the company's ownership to approximately 90%, will be
accounted for under the purchase method with results of operations
combined beginning in the second quarter of 2000.
The SVC transaction has been accounted for under the purchase method and
results of operations combined as of the date of acquisition. Due to
the unavailability of data as of March 31, 2000, the allocation of the
purchase price for the Acima and Rodel investments will be completed in
the second quarter of 2000. The financial statements will reflect the
allocation of the purchase price based on estimated fair values. These
investments, including excess purchase price, are included in Other
Assets as of March 31, 2000 and are not considered material for pro
forma presentation.
Restructuring reserve activity for the first quarter of 2000 was as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Millions of dollars
- ---------------------------------------------------------------------------------------------
Increases to Decreases to
Reserve Reserve
Reserve at -------------------------- ------------------------------------------- Reserve at
December 31, Charge Incr./(Decr.) Cash Reclass to Other March 31,
1999 to Earnings Goodwill Payments Pension Asset (2) Changes (3) 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Severance and other
employee related
charges (1) $ 58 $ 3 $ 6 $ (1) $ (53) $ (3) $ 10
Asset impairments - 15 - - - - 15
Pension related
gains - (5) - - - 5 -
Other 15 - - (1) - - 14
-----------------------------------------------------------------------------------------------
$ 73 $ 13 $ 6 $ (2) $ (53) $ 2 $ 39
-----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The "charge to earnings" includes a decrease to expense due to a
reclassification to "increase/(decrease) in goodwill" resulting from a
change in company identification (from acquiring company to acquired
company) for a number of employees expected to be terminated.
(2) Severance of the acquired company will be paid from the pension plan. It
is therefore reclassified for presentation purposes.
(3) Amounts in this column reflect the impact of the treatment of most
severance for U.S. employees. These costs will be paid from the respective
pension plans and not from cash, which also will result in pension-related
gains being recorded as increases to the pension asset.
<PAGE>10
(C) 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. Following
the 1999 acquisitions of Morton and LeaRonal, the company began a
process at acquired facilities to ensure company-wide uniformity in such
policies and practices.
In Wood-Ridge, New Jersey, the company and Velsicol Chemical Corporation
("Velsicol") have been held jointly and severally liable for the cost of
remediation necessary to correct mercury-related environmental problems
associated with a former mercury processing plant. At the date of
acquisition Morton had disclosed and accrued for certain ongoing
studies, which were expected to be completed by the end of 2000, with
regulatory decisions expected in 2001. In allocating the purchase price
of Morton, the company accrued for additional study costs at December
31, 1999 and additional remediation costs in the first quarter of 2000
based on the progress of the technical studies. A separate study of the
contamination in Berry's Creek, which runs near the plant site, and of
the surrounding wetlands area is expected, but on a timetable yet to be
determined; therefore, the results of this separate study will not be
considered in the allocation of the Morton purchase price. The
company's ultimate exposure will also depend upon the continued ability
of Velsicol and its indemnitor, Fruit of the Loom, Inc., which has filed
for protection under the bankruptcy laws, to contribute to the cost of
remediation and on the results of attempts to obtain contributions from
others believed to share responsibility. A cost recovery action against
other responsible parties is pending in federal court. Settlements have
been reached with those defendants considered de minimis for claims
associated with the Wood-Ridge plant site. Where appropriate, the
analysis to determine the company's liability, if any, with respect to
remedial costs at the above sites reflects an assessment of the
likelihood and extent of participation of other potentially responsible
parties.
During 1996, the EPA notified Morton of possible irregularities in water
discharge monitoring reports filed by the Moss Point, Mississippi plant
in early 1995. Morton retained an outside law firm to investigate.
Other environmental issues at the plant were identified, and the
investigation was expanded to address these additional issues. The
company has been provided a copy of a draft multi-count civil complaint
and was served with subpoenas and a request for information seeking
documents related to environmental compliance at Moss Point and other
Morton manufacturing sites. The company engaged in negotiations with
the EPA, the Department of Justice (DOJ) and the State of Mississippi
seeking resolution of these civil issues. The company also engaged in
related negotiations with the DOJ concerning potential criminal
sanctions against the Moss Point plant. Though at the date of
acquisition some remediation and legal costs had been accrued for, the
company revised these accruals, as part of the allocation of the
purchase price of Morton, based on the status of its discussions with
the authorities and on the information available as of December 31,
1999. As of March 31, 2000, the status of these discussions did not
warrant revisions to these accruals. As a result of the issues that
began with Moss Point, the company may be exposed to material fines,
penalties, and remedial expenses, but is unable to quantify the ultimate
exposure.
<PAGE>11
The amount charged to earnings before tax for environmental remediation
was $2 million in the first quarter of 2000 and $5 million in the first
quarter of 1999. The reserves for remediation were $213 million and $201
million at March 31, 2000 and December 31, 1999, respectively, and are
recorded as "other liabilities" (current and long-term). The company is
pursuing lawsuits over insurance coverage for environmental liabilities.
It is the company's practice to reflect environmental insurance
recoveries in 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. The company settled with several of its
insurance carriers for approximately $1 million in the first quarter of
2000 and for a total of $20 million in the first quarter of 1999.
There are pending lawsuits filed against Morton related to asbestos
exposure at a facility in Weeks Island, Louisiana with additional
lawsuits expected. The company expects that most of these cases will be
dismissed because they are barred under worker's compensation laws; but
cases involving asbestos-caused malignancies will not be barred under
Louisiana law. Subsequent to the acquisition, the company commissioned
medical studies to estimate possible future claims. No accruals were
recorded as of March 31, 2000 because the company is currently unable to
quantify its potential exposure.
(D) The company had been the 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. In the first quarter of 1999
the company reached a tentative settlement and agreed to pay $3 million
subject to further government approval. Such approval was received in
the first quarter of 2000. This tentative settlement was charged to
"other income (expense), net" in 1999.
In addition, the company and its subsidiaries are parties to litigation
arising out of the ordinary conduct of its business. 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.
(E) Inventories consist of:
(millions of dollars)
Mar. 31, Dec. 31, Mar. 31,
2000 1999 1999
-------- -------- --------
Finished products and work in process $672 $707 $365
Raw materials and supplies 197 192 111
-------- -------- --------
Total inventories $869 $899 $476
-------- -------- --------
<PAGE>12
(F) The components of comprehensive income are as follows:
(millions of dollars)
Quarter Ended
March 31,
-------------
2000 1999
---- ----
Net earnings $123 $110
Other comprehensive income, net of tax:
Foreign currency translation
adjustment 7 (4)
---- ----
Comprehensive income $130 $106
---- ----
(G) The number of common treasury shares were:
March 31, 2000 22,727,512
December 31, 1999 23,097,178
March 31, 1999 28,855,363
(H) The difference in common shares outstanding used in the calculation
of basic and diluted earnings per common share is primarily due to the
effect of stock options.
(I) In 1998, the company adopted SFAS no. 131, "Disclosures about
Segments of an Enterprise and Related Information". For the company's
segment information, see page 13 within Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE>13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements for the year ended December 31, 1999 and Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's 1999 Annual Report on Form 10-K.
Within the following discussion, unless otherwise stated, "quarter"
refers to the quarter ended March 31, 2000. All comparisons are with the
corresponding period in the previous year, unless otherwise stated.
NET SALES BY BUSINESS SEGMENT AND REGION
- ----------------------------------------------------------------
Quarter Ended
March 31,
---------------------------------
Pro Forma
2000 1999 1999 (1)
-------- -------- ---------
(millions of dollars)
BUSINESS SEGMENT
Performance Polymers $ 882 $ 535 $ 864
Chemical Specialties 365 284 350
Electronic Materials 222 121 195
Salt 266 - 308
-------- -------- ---------
Total $1,735 $ 940 $ 1,717
-------- -------- ---------
CUSTOMER LOCATION
North America $1,042 $ 503 $ 1,044
Europe 443 254 474
Asia-Pacific 182 131 145
Latin America 68 52 54
-------- -------- ---------
Total $1,735 $ 940 $ 1,717
-------- -------- ---------
(1) Pro forma net sales include Morton and LeaRonal assuming acquisition
as of January 1, 1999.
NET EARNINGS BY BUSINESS SEGMENT
- ----------------------------------------------------------------
Quarter Ended
March 31,
--------------------
2000 1999
-------- --------
(millions of dollars)
BUSINESS SEGMENT
Performance Polymers $ 91 $ 77
Chemical Specialties 36 38
Electronic Materials 22 5
Salt 18 -
Corporate (2) (44) (10)
------- -------
Total $123 $110
------- -------
Per common share,
diluted (in dollars): $.56 $.64
------- -------
(2) Corporate includes non-operating items such as interest income and
expense, corporate governance costs, and corporate exploratory research.
Year 2000 reflects higher interest costs and in 1999, a gain on
remediation-related insurance recoveries.
NET EARNINGS BY BUSINESS SEGMENT, EXCLUDING NON-RECURRING ITEMS (3)
- -------------------------------------------------------------------
Quarter Ended
March 31,
---------------------------------
Pro Forma
2000 1999 1999
-------- -------- ---------
(millions of dollars)
BUSINESS SEGMENT
Performance Polymers $ 88 $ 77 $ 94
Chemical Specialties 48 38 42
Electronic Materials 22 12 10
Salt 18 - 25
Corporate (42) (23) (71)
------- ------- -------
Total $134 $104 $100
------- ------- -------
Per common share,
diluted (in dollars): $.61 $.61 $.46
------- ------- -------
(3) Segment earnings reflect after-tax operating results, net of
acquisition-related amortization of goodwill and other assets and
provision for restructuring.
<PAGE>14
FIRST QUARTER 2000 VERSUS FIRST QUARTER 1999
Earnings for the quarter increased 12% to $123 million from $110 million
in the prior period. Diluted earnings per common share was $.56
compared to $.64 in the 1999 period. Excluding non-recurring items,
diluted earnings per common share was $.61 in both the first quarter of
2000 and the first quarter of 1999. The quarter's non-recurring charges
of $11 million (after-tax), or $.05 per common share, were comprised of
restructuring charges of $8 million in addition to integration-related
consulting charges of $3 million. First quarter 1999 non-recurring items
of $6 million (after-tax) were comprised of a gain of $13 million as a
result of remediation-related insurance settlements and charges of $7
million due to asset write-downs, integration and other related costs
for a North American manufacturing facility owned by the company's Rodel
affiliate.
Sales for the company were $1,735 million in the quarter compared to
sales of $940 million in the prior year period. On a pro forma basis,
sales increased 1%. Sales increased 26% for both the Asia-Pacific and
Latin America regions, on a pro forma basis. North America sales were
relatively flat while weaker European currencies resulted in a 7%
decline in European sales, also on a pro forma basis. Pro forma results
consider the company's 1999 acquisitions of Morton and LeaRonal as if
they had occurred as of January 1, 1999.
Performance Polymers quarter earnings increased 18% to $91 million from
prior period earnings of $77 million but decreased 6% on a pro forma
basis, reflecting increased raw material prices. Sales increased to $882
million from $535 million in 1999 and 2% from 1999 pro forma sales of
$864 million. Volume was strong in the first quarter of 2000, up 10%
from the prior year period. Sales increases were most notable within the
Coatings business, across all regions, as well as the Adhesive and
Sealants business where growth was most significant in Europe, Asia-
Pacific, and Latin America. These sales increases were offset by the
sale of the Industrial Coatings business to BASF during the quarter.
Chemical Specialties earnings of $36 million for the quarter were down
5% versus prior period earnings of $38 million. Earnings, excluding non-
recurring items, of $48 million were up 14% from pro forma 1999 earnings
of $42 million. Sales increased to $365 million in the quarter from
actual sales of $284 million and from pro forma sales of $350 million.
Sales growth, on a pro forma basis, was primarily driven by the Ion
Exchange Resins business group, and to a lesser extent, the Consumer and
Industrial Specialties business group. Most businesses contributed to the
increase in pro forma earnings, excluding non-recurring items.
Electronic Materials earnings of $22 million increased significantly
from reported earnings of $5 million in the 1999 period and pro forma
earnings of $10 million. Reported earnings in 1999 included a one-time
restructuring charge for a North American manufacturing facility owned
by the Rodel affiliate. Earnings, excluding this one-time charge, were
$12 million. Sales of $222 million increased from $121 million in the
previous period. On a pro forma basis, sales increased 14%. This growth
was led by both Microelectronics
<PAGE>15
and Shipley Ronal, due to demand for new technologies and strengthening
in the European and Asia-Pacific regions.
Salt earnings were $18 million in the first quarter of 2000 compared to
pro forma earnings of $25 million in the previous period. Sales
decreased to $266 million in the quarter compared to 1999 pro forma
sales of $308 million. The decreases in sales and earnings in the quarter were
attributable to a mild winter in 2000 in contrast with a severe winter in
1999.
Corporate expenses totaled $44 million in the quarter, compared to $10
million in the previous period. The first quarter of 2000 reflects
higher interest costs, associated primarily with the financing of
acquisitions. In 1999, the quarter included an after-tax gain of $13
million resulting from remediation-related insurance settlements. Pro forma
1999 corporate expenses were $71 million compared to $42 million in the
first quarter of 2000, excluding non-recurring items. The 2000 period
reflects both lower interest and corporate costs.
The quarter's gross profit margin was 35%, down from 41% from the prior
year period. This change reflects a 14% increase in raw material prices
over the prior quarter, former Morton businesses operating at lower
margins than most legacy Rohm and Haas businesses, higher depreciation
expense resulting from fair values assigned to acquired assets, and
unfavorable currencies. The company anticipates further increases in
hydrocarbon-based raw material prices based on supplier price nominations
for the second quarter of 2000. The impact is primarily in the Performance
Polymers business segment. The extent to which these prices will continue
to rise is uncertain, but the company has assumed that pricing will remain
elevated for most of the year. The company is responding by actively pursuing
increases in selling prices.
Selling, administrative and research expenses, on a pro forma basis,
decreased 4% during the quarter and declined as a percentage of sales
for the first quarter of 2000 to 18% from 19% in the same period of the
prior year.
In 1999 the company began implementing a planned redesign of its selling
and administrative infrastructure and instituted other cost saving
measures. The stated goal of these efforts was to reduce annual
procurement, SAR and other expenses by $300 million. As of March 31,
2000 approximately $200 million of this goal had been reached through
cost reductions in support services, procurement and manufacturing.
Interest expense increased to $62 million in 2000 from $11 million in
1999 due largely to higher debt levels resulting from 1999
acquisitions. Amortization of goodwill and other intangibles increased
significantly during the quarter to $38 million from $2 million in 1999
period, also attributable to the 1999 acquisitions.
A provision for restructuring was recognized in the quarter for $13
million ($8 million after-tax) related to Ion Exchange Resins business.
This charge is primarily related to the write-down of plant assets in
addition to severance costs for approximately 100 people, which is net
of certain pension settlement and curtailment gains. Further charges for
restructuring could arise during 2000 as the company continues to evaluate
and align its business portfolio with its stated goals.
Affiliate net earnings for the quarter were $6 million compared to
affiliate net losses of $7 million in the prior year period. The quarter
included earnings from Rodel in addition to earnings from Morton
businesses. Affiliate earnings in 1999 included a one-time restructuring
charge primarily for a North American manufacturing facility owned by
the Rodel affiliate.
Other income decreased to $12 million in the quarter from $24 million in
the prior year period as a result of the 1999 period including a gain
related to a favorable settlement with insurance carriers over certain
environmental remediation matters.
Excluding a one-time effect of certain tax rate changes in Europe, the
effective tax rate for the first quarter of 2000 would have been 36%. The
effective tax rate for 1999 of 38% reflects the effect of affiliate losses,
which are recorded on an after-tax basis.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
On June 21, 1999, the company acquired Morton for cash of $3 billion and
the issuance of 45,121,227 shares of common stock, for a total
transaction value of approximately $4.9 billion, including the
assumption of $272 million of debt. Morton is a manufacturer of
specialty chemicals and a producer of salt for a variety of markets. The
cash portion of the acquisition was financed primarily through a
combination of commercial paper and the later issuance of longer term
instruments. As of March 31, 2000, $21 million had not yet been paid to
former Morton shareholders pending the tender of their shares. This is
reflected in accounts payable and accrued liabilities. Accounted for by
the purchase method, the financial statements reflect the allocation of
the purchase price based on estimated fair values at the date of
acquisition, pending final determination of the fair value of certain
contingent legal and environmental liabilities. The allocation as of
March 31, 2000, resulted in acquired goodwill of $1.8 billion, which is
<PAGE>16
being amortized on a straight-line basis over 40 years. Based on an
independent appraisal, $105 million of the purchase price was allocated
to in-process research and development, which was recorded as a charge
in the second quarter of 1999.
In late January 1999, the company acquired all of the outstanding shares
of LeaRonal for approximately $460 million. LeaRonal develops and
manufactures specialty chemicals used in the manufacture of printed
circuit boards, semiconductor packaging and for electronic connector
plating and also provides processes for metal-finishing applications.
The acquisition, financed primarily through commercial paper, was
accounted for using the purchase method. The financial statements
reflect the allocation of the purchase price based on estimated fair
values at the date of acquisition and later analysis of certain acquired
assets and liabilities. The final allocation as of March 31, 2000
resulted in acquired goodwill of approximately $202 million, which is
being amortized on a straight-line basis over 40 years.
The results of both Morton and LeaRonal have been included in the
consolidated financial statements since the respective dates of
acquisition.
In the first quarter of 2000 the company sold its Industrial Coatings
business to BASF for approximately $175 million, subject to adjustment.
The Industrial Coatings business was acquired by the company in June
1999 as part of the acquisition of Morton International and was recorded
at its fair value; accordingly, no gain or loss was recorded on this
transaction.
In the second quarter of 1999, the company announced its intentions to
enter into a joint venture with Stockhausen GmbH & Co. KG
("Stockhausen") of Germany to form a global partnership for the
manufacture of acrylic acid. The company expects the transaction to
close by the end of 2000. In conjunction with the proposed joint
venture, the company acquired Stockhausen's merchant monomer business in
Europe in the first quarter of 2000.
During the first quarter of 2000 the company acquired 95% of Acima A.G., a
Swiss company specializing in biocidal formulations, polyurethane
catalysts and other specialty chemicals. In addition the company
acquired an 80% interest in Silicon Valley Chemical Laboratories, Inc.
(SVC), a privately-held supplier to high technologies for the
semiconductor industry. The combined cost for the these two
transactions was approximately $93 million.
Also during the first quarter of 2000, the company increased its ownership in
Rodel from 48% to almost 90% for a cost of approximately $200 million.
Rodel is a privately-held, Delaware-based leader in precision polishing
technology serving the semiconductor, memory disk and glass polishing
industries. Through March 31, 2000, the investment has been accounted
for on the equity method with the company's share of earnings reported
as equity in affiliates. The transaction with Rodel, increasing the
company's ownership to approximately 90%, will be accounted for under
the purchase method with results of operations combined beginning in the
second quarter of 2000.
The SVC transaction has been accounted for under the purchase method and
results of operations combined as of the date of acquisition. Due to
the unavailability of data as of March 31, 2000, the allocation of the
purchase price for the Acima and Rodel investments will be completed in
the second quarter of 2000. The financial statements will reflect the
allocation of the purchase price based on estimated fair values. These
investments, including excess purchase price, are included in Other
Assets as of March 31, 2000 and are not considered material for pro
forma presentation.
Net cash in-flows during the first quarter of 2000 included these
transactions and resulted in a $4 million net increase in cash and cash
equivalents versus year-end 1999. Free cash flows for the first quarter
of 2000 versus 1999 were as follows:
<PAGE>17
Quarter Ended
March 31,
--------------------
2000 1999
--------- --------
Cash provided by operating activities $ - $ 50
Capital additions (72) (38)
Dividends (42) (30)
--------- --------
Free cash flow $(114) $(18)
--------- --------
Free cash outflows reflect seasonality and are not indicative of full
year free cash flows. Fixed asset additions during the first quarter of
2000 included Acrylic Acid and Acryloid expansions in the United States,
expansion of an emulsion plant in Argentina, and expansion of an Ion
Exchange plant in China. Spending for the full year of 2000, excluding
additions related to acquired companies, is expected to be approximately
$425 million.
The debt ratio was 53% at the end of the quarter, compared with 52% at
year-end 1999. (The debt ratio is total debt, net of cash, divided by
the sum of net debt, minority interest, shareholders' equity and ESOP
shares.)
In Europe on March 7, 2000, the company issued [eurodollars
symbol] 400 million (or $388 million) of 6.0% notes due 2007.
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. Following
the 1999 acquisitions of Morton and LeaRonal, the company began a
process at acquired facilities to ensure company-wide uniformity in such
policies and practices.
In Wood-Ridge, New Jersey, the company and Velsicol Chemical Corporation
("Velsicol") have been held jointly and severally liable for the cost of
remediation necessary to correct mercury-related environmental problems
associated with a former mercury processing plant. At the date of
acquisition Morton had disclosed and accrued for certain ongoing
studies, which were expected to be completed by the end of 2000, with
regulatory decisions expected in 2001. In allocating the purchase price
of Morton, the company accrued for additional study costs at December
31, 1999 and additional remediation costs in the first quarter of 2000
based on the progress of the technical studies. A separate study of the
contamination in Berry's Creek, which runs near the plant site, and of
the surrounding wetlands area is expected, but on a timetable yet to be
determined; therefore, the results of this separate study will not be
considered in the allocation of the Morton purchase price. The
company's ultimate exposure will also depend upon the continued ability
of Velsicol and its indemnitor, Fruit of the Loom, Inc., which has filed
for protection under the bankruptcy laws, to contribute to the cost of
remediation and on the results of attempts to obtain contributions from
others believed to share responsibility. A cost recovery action against
other responsible parties is pending in federal court. Settlements have
been reached with those defendants considered de minimis for claims
associated with the Wood-Ridge plant site. Where appropriate, the
analysis to determine the company's liability, if any, with respect to
remedial costs at the above sites reflects an assessment of the
likelihood and extent of participation of other potentially responsible
parties.
<PAGE>18
During 1996, the EPA notified Morton of possible irregularities in water
discharge monitoring reports filed by the Moss Point, Mississippi plant
in early 1995. Morton retained an outside law firm to investigate.
Other environmental issues at the plant were identified, and the
investigation was expanded to address these additional issues. The
company has been provided a copy of a draft multi-count civil complaint
and was served with subpoenas and a request for information seeking
documents related to environmental compliance at Moss Point and other
Morton manufacturing sites. The company engaged in negotiations with
the EPA, the Department of Justice (DOJ) and the State of Mississippi
seeking resolution of these civil issues. The company also engaged in
related negotiations with the DOJ concerning potential criminal
sanctions against the Moss Point plant. Though at the date of
acquisition some remediation and legal costs had been accrued for, the
company revised these accruals, as part of the allocation of the
purchase price of Morton, based on the status of its discussions with
the authorities and on the information available as of December 31,
1999. As of March 31, 2000, the status of these discussions did not
warrant revisions to these accruals. As a result of the issues that
began with Moss Point, the company may be exposed to material fines,
penalties, and remedial expenses, but is unable to quantify the ultimate
exposure.
The amount charged to earnings before tax for environmental remediation
was $2 million in the first quarter of 2000 and $5 million in the first
quarter of 1999. The reserves for remediation were $213 million and
$201 million at March 31, 2000 and December 31, 1999, respectively, and
are recorded as "other liabilities" (current and long-term). The
company is pursuing lawsuits over insurance coverage for environmental
liabilities. It is the company's practice to reflect environmental
insurance recoveries in 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. The company settled with several of its
insurance carriers for approximately $1 million in the first quarter of
2000 and for $20 million in the first quarter of 1999.
There are pending lawsuits filed against Morton related to asbestos
exposure at a facility in Weeks Island, Louisiana with additional
lawsuits expected. The company expects that most of these cases will be
dismissed because they are barred under worker's compensation laws; but
cases involving asbestos-caused malignancies will not be barred under
Louisiana law. Subsequent to the acquisition, the company commissioned
medical studies to estimate possible future claims. No accruals were
recorded as of March 31, 2000 because the company is currently unable to
quantify its potential exposure.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
the accounting and reporting of derivative and hedging transactions.
The statement amends a number of existing standards and, as amended by
SFAS No. 137, is scheduled to be effective for fiscal years beginning
after June 15, 2000. The company expects to adopt this standard as
required in fiscal year 2001 and, because of continual business-driven
changes to its derivatives and hedging programs, has not fully assessed
its potential impact on its financial position or results of operations.
This report includes forward-looking statements, reflecting management's
current expectations, based on reasonable assumptions. Results could
differ materially depending on such factors as changes in business
climate, economic and competitive uncertainties, the company's ability
to integrate Morton and LeaRonal, changes in strategies, risks in
developing new products and technologies, interest rates, environmental
and safety regulations and clean-up costs and foreign exchange rates.
As appropriate, additional factors are contained in the company's 1999
Form 10-K report filed with the Securities and Exchange Commission on
March 27, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 61
<SECURITIES> 0
<RECEIVABLES> 1,351
<ALLOWANCES> 38
<INVENTORY> 869
<CURRENT-ASSETS> 2,558
<PP&E> 8,252
<DEPRECIATION> 4,816
<TOTAL-ASSETS> 11,428
<CURRENT-LIABILITIES> 2,367
<BONDS> 3,428
0
0
<COMMON> 605
<OTHER-SE> 3,360
<TOTAL-LIABILITY-AND-EQUITY> 11,428
<SALES> 1,735
<TOTAL-REVENUES> 1,735
<CGS> 1,132
<TOTAL-COSTS> 1,132
<OTHER-EXPENSES> 359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 188
<INCOME-TAX> 65
<INCOME-CONTINUING> 123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.56
</TABLE>
[LEGEND] THE TABLES BELOW ARE PRESENTED TO ASSIST COMPARISONS WITH
2000 QUARTERLY RESULTS AS THE YEAR PROGRESSES. CERTAIN
RECLASSIFICATIONS HAVE BEEN MADE FROM PREVIOUSLY REPORTED
AMOUNTS TO CONFORM TO CURRENT PERIOD PRESENTATION.
<TABLE> EXHIBIT (99)
<CAPTION>
ROHM AND HAAS COMPANY AND SUBSIDIARIES (Unaudited)
- ----------------------------------------------------------------------------------------
PRO FORMA SALES BY BUSINESS SEGMENT AND REGION (1)
Quarter Ended Quarter Ended
---------------------------------------- -------------
March 31, June 30, Sept. 30, Dec. 31, Full Year March 31,
1999 1999 1999 1999 1999 2000
--------- -------- --------- -------- --------- -------------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Performance Polymers $ 864 $ 931 $ 899 $ 857 $3,551 $ 882
Chemical Specialties 350 369 305 343 1,367 365
Electronic Materials 195 208 210 254 867 222
Salt 308 154 163 224 849 266
--------- -------- --------- -------- --------- --------
Total $1,717 $1,662 $1,577 $1,678 $6,634 $1,735
--------- -------- --------- -------- --------- --------
North America $1,044 $ 986 $ 936 $ 935 $3,901 $1,042
Europe 474 440 399 444 1,757 443
Asia-Pacific 145 161 162 209 677 182
Latin America 54 75 80 90 299 68
--------- -------- --------- -------- --------- --------
Total $1,717 $1,662 $1,577 $1,678 $6,634 $1,735
--------- -------- --------- -------- --------- --------
PRO FORMA NET EARNINGS, EXCLUDING NON-RECURRING ITEMS BY BUSINESS SEGMENT
Performance Polymers $ 94 $ 109 $ 100 $ 85 $ 388 $ 88
Chemical Specialties 42 42 28 30 142 48
Electronic Materials 10 11 14 29 64 22
Salt 25 1 1 8 35 18
Corporate (2) (71) (65) (54) (51) (241) (42)
--------- -------- --------- -------- --------- --------
Total $ 100 $ 98 $ 89 $ 101 $ 388 $ 134
--------- -------- --------- -------- --------- --------
PRO FORMA EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
(EBITDA) (EXCLUDING NON-RECURRING ITEMS) BY BUSINESS SEGMENT (3)
Performance Polymers $ 222 $ 245 $ 228 $ 204 $ 899 $ 211
Chemical Specialties 94 94 70 75 333 99
Electronic Materials 29 27 35 63 154 46
Salt 73 34 35 47 189 63
Corporate (22) (17) (5) (6) (50) (7)
--------- -------- --------- -------- --------- --------
Total $ 396 $ 383 $ 363 $ 383 $1,525 $ 412
--------- -------- --------- -------- --------- --------
</TABLE>
- -------------------
(1) - Pro forma net sales include Morton and LeaRonal assuming
acquisition as of January 1, 1998. Periods ending September 30, 1999,
December 31, 1999 and March 31, 2000 are actual results.
(2) - Includes non-operating items such as interest income and expense,
corporate governance costs, and corporate exploratory research.
(3) - EBITDA and net earnings, excluding non-recurring items, are
presented to assist security analysts and others in evaluating the
company's performance and its ability to generate cash. EBITDA and net
earnings, excluding non-recurring items, should not be considered as
alternatives to cash flow from operating activities, as a measure of
liquidity or as alternatives to net income as an indicator of the
company's operating performance in accordance with generally accepted
accounting principles.
- -------------------------------------------------------------------------------
<TABLE>
|--------------------------------------------------------------------------------------------|
| NET EARNINGS, EXCLUDING NON-RECURRING ITEMS BY BUSINESS SEGMENT |
| |
| Quarter Ended Quarter Ended |
| ---------------------------------------- ------------- |
| March 31, June 30, Sept. 30, Dec. 31, Full Year March 31, |
| 1999 1999 1999 1999 1999 2000 |
| --------- -------- --------- -------- --------- ------------- |
| (millions of dollars) |
| <S> <C> <C> <C> <C> <C> <C> |
| Performance Polymers $ 77 $ 90 $100 $ 85 $ 352 $ 88 |
| Chemical Specialties 38 32 28 30 128 48 |
| Electronic Materials 12 14 14 29 69 22 |
| Salt - - 1 8 9 18 |
| Corporate (23) (20) (54) (51) (148) (42) |
| ---- ---- ---- ---- ---- ---- |
| Total $104 $116 $ 89 $101 $410 $134 |
| ---- ---- ---- ---- ---- ---- |
|--------------------------------------------------------------------------------------------|
</TABLE>
