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, 1999 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 February 29, 2000: $4,374,819,052
Common stock outstanding at February 29, 2000: 219,185,062 SHARES.
Documents incorporated by reference:
Part I -Annual Report to Stockholders for year ended December 31, 1999
Part II -Annual Report to Stockholders for year ended December 31, 1999
Part III -Definitive Proxy Statement to be filed with the Securities and
Exchange Commission except the Report on Executive Compensation
and Graph titled "Cumulative Total Return to Shareholders"
included therein.
Part IV -Annual Report to Stockholders for year ended December 31, 1999
<PAGE>
PART I
ITEM 1. BUSINESS
The information indicated below appears in the 1999 Annual Report to
Stockholders (Stockholders' Report) and is incorporated by reference:
Page of
Stockholders'
Report
-------------
Business operations:
Performance Polymers..................................... 6
Chemical Specialties..................................... 12
Electronic Materials..................................... 15
Salt..................................................... 19
Industry segment information for years 1997-1999........... 50
Foreign operations for years 1997-1999..................... 51
Employees.................................................. 62
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. Many 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
21. 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 specialty chemicals 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 specialty chemicals are sold to customers who
demand a high level of customer service and technical expertise from the
company and its sales force.
All areas in which the Salt segment operates are highly competitive.
Although the Company is a major factor in the salt industry, its market
share varies widely, depending on the geographic area and the type of
product involved. This segment uses price, quality, service, product
performance, and technical, advertising and promotional support as its
principal methods of competition.
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 $236 million, $207
million and $201 million in 1999, 1998 and 1997, respectively.
<PAGE>
Environmental Matters
A discussion of environmental matters is incorporated herein by
reference to pages 31 and 33 of the Stockholders' Report.
ITEM 2. PROPERTIES
The company, its subsidiaries and affiliates presently operate more
than 100 manufacturing facilities in 25 countries. A list identifying
those facilities is found on page 65 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 33 and 34 of the company's
Stockholders' Report and throughout the various business discussions of the
company's industry segments found on pages 6 through 21 of the
Stockholders' Report.
ITEM 3. LEGAL PROCEEDINGS
A discussion of legal proceedings is incorporated herein by reference
to pages 57 through 59 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 1999.
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 9,462 registered common
stockholders as of December 31, 1999. The 1999 and 1998 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 38 and 60
of the Stockholders' Report and are incorporated in this Form 10-K by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The company's summary of selected financial data and related notes for
the years 1995 through 1999 are incorporated in this Form 10-K by reference
to pages 62 through 64 of the Stockholders' Report.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of 1997 to 1999 results is
incorporated herein by reference to pages 26 through 38 of the
Stockholders' Report. These items should be read in conjunction with the
consolidated financial statements presented on pages 39 through 61 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 Eastern Europe and 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 and its Salt segment. These factors can
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
<PAGE>
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 31 through 33 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 37 of the Stockholders' Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1999, and 1998, and
the related consolidated statements of earnings, stockholders' equity and
cash flows for the years ended December 31, 1999 and 1998, together with the
report of PricewaterhouseCoopers LLP dated March 7, 2000 are incorporated in
this Form 10-K by reference to pages 39 through 61 of the Stockholders'
Report. The consolidated statements of earnings, stockholders' equity and
cash flows for the year ended December 31, 1997 together with the report of
KPMG LLP dated February 23, 1998 is included in this report on page 10.
Supplementary selected quarterly financial data is incorporated in this Form
10-K by reference to pages 38 and 60 of the Stockholders' Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K were filed during 1999 or 1998 relating to any
disagreements with accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
AND
<PAGE>
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, 1999, has been omitted, except for
the information presented below, because the company 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.
Bradley J. Bell, 47, senior vice president and chief financial officer
since 1999; vice president, chief financial officer and treasurer from 1997
to 1998; previously vice president and treasurer of Whirlpool Corporation
from 1987 to 1997.
Pierre R. Brondeau, 42, vice president and director of the electronic
materials business group since 1999; president and chief executive officer
of Shipley Company, LLC since 1999; president and chief operating officer of
Shipley Company LLC since 1998; vice president and chief operating officer of
Shipley Company LLC since 1997; director of research, sales and marketing of
Shipley Company LLC since 1995.
Patrick R. Colau, 54, senior vice president and director of the
performance polymers business group since 1999; vice president 1995 to
1998; director of polymers and resins from 1996 to 1998; previously chief
operating officer of Shipley Company LLC from 1993 to 1995.
Nance K. Dicciani, 52, senior vice president, director of chemical
specialties business group and director of the European regions since 1999;
vice president 1993 to 1998; director for monomers and chairman of RohMax
from 1996 to 1998; previously business unit director for petroleum
chemicals from 1991 to 1996.
J. Michael Fitzpatrick, 53, director since 1999; president and chief
operating officer since 1999; vice president since 1993; chief technology
officer from 1996 to 1998; previously director of research from 1993 to
1995.
Joseph J. Forish, 47, vice president and director of human resources
since 1999; previously vice president of human resources for a unit of
Bristol-Myers Squibb Corporation from 1989 to 1999.
<PAGE>
Rajiv L. Gupta, 54, director since 1999; chairman and chief executive
officer since 1999; vice chairman since 1999; vice president and regional
director of Asia-Pacific from 1993 to 1998.
William E. Johnston, 59, senior vice president and business group
director, salt and surface finishes since 1999; previously president and
chief operating officer of Morton International from 1995 to 1999.
Robert A. Lonergan, 54, vice president and general counsel since 1999;
previously senior vice president, general counsel and secretary of Pegasus
Gold, Inc. from 1993 to 1999.
Charles M. Tatum, 52, senior vice president and chief technology
officer since 1999; vice president from 1990 to 1998; director of plastics
additives from 1994 to 1998.
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 the definitive Proxy
Statement to be filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated in this Form 10-K
by reference to the definitive Proxy Statement to be filed with the
Securities and Exchange Commission.
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 39 through 61 of
the Stockholders' Report, a complete copy of which follows page xx of
this report, together with the report of PricewaterhouseCoopers LLP
dated March 7, 2000. The report of KPMG LLP dated February 23, 1998
is included on page 10 of this Form 10-K.
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 Accountants' Report on Financial
Statement Schedule....................................... 9
<PAGE>
Schedule submitted:
II - Valuation and qualifying accounts for the years
1999, 1998 and 1997 ..................................... 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. Agreement with J. Lawrence Wilson
and is filed as Exhibit (10) and is attached as pages 11 through 17 of
this Form 10-K.
Exhibit (12), Computation of Ratio of Earnings to Fixed Charges for
the company and subsidiaries, is attached as page 18 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 19
to 21 of this Form 10-K.
Exhibit (23), Consent of independent certified public accountants
(a) Consent of PricewaterhouseCoopers LLP, attached
as page 22 of this report
(b) Consent of KPMG LLP, attached as page 23
of this report
Exhibit (27), Financial Data Schedule
(b) On January 19, 2000 the company filed a Report on Form 8-K with the
Securities and Exchange Commission, reporting, under Item 5 of said
Report, an update of descriptions of the company's capital stock as
contained in previous public filings.
<PAGE>
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
Senior Vice President and
Chief Financial Officer
March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 27, 2000 by the following persons on behalf of
the registrant and in the capacities indicated.
- ------------------------------------------------------------------------------
Signature and Title Signature and Title
- ------------------------------------------------------------------------------
/s/ Rajiv L. Gupta
- ------------------------------------ -----------------------------------
Rajiv L. Gupta James A. Henderson
Director, Chairman of the Board Director
and Chief Executive Officer
/s/ Bradley J. Bell /s/ Richard L. Keyser
- ------------------------------------ -----------------------------------
Bradley J. Bell Richard L. Keyser
Senior Vice President and Director
Chief Financial Officer
/s/ William J. Avery /s/ John H. McArthur
- ------------------------------------ -----------------------------------
William J. Avery John H. McArthur
Director Director
/s/ James R. Cantalupo /s/ Jorge P. Montoya
- ------------------------------------ -----------------------------------
James R. Cantalupo Jorge P. Montoya
Director Director
/s/ J. Michael Fitzpatrick /s/ Sandra O. Moose
- ------------------------------------ -----------------------------------
J. Michael Fitzpatrick Sandra O. Moose
Director Director
/s/ Earl G. Graves /s/ Gilbert S. Omenn
- ------------------------------------ -----------------------------------
Earl G. Graves Gilbert S. Omenn
Director Director
/s/ David W. Haas /s/ Ronaldo H. Schmitz
- ------------------------------------ -----------------------------------
David W. Haas Ronaldo H. Schmitz
Director Director
/s/ Thomas W. Haas /s/ Alan Schriesheim
- ------------------------------------ -----------------------------------
Thomas W. Haas Alan Schriescheim
Director Director
/s/ Marna C. Whittington
-----------------------------------
Marna C. Whittington
Director
<PAGE>
SCHEDULE II
ROHM AND HAAS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
---- ---- ----
(millions of dollars)
Deducted from Accounts Receivable --
Allowances for losses:
Balance at beginning of year..... $12 $15 $14
Additions charged to earnings.... 6 3 3
Acquisitions .................... 22 -- --
Charge-offs, net of recoveries... (3) (6) (2)
--- --- ---
Balance at end of year........... $37 $12 $15
=== === ===
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and
Stockholders of Rohm and Haas Company
Our audits of the consolidated financial statements referred to in our
report dated March 7, 2000 appearing in the 1999 Annual Report to
Stockholders of Rohm and Haas Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report
on Form 10-K) also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 7, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
of Rohm and Haas Company:
We have audited the consolidated statements of earnings, stockholders'
equity and cash flows of Rohm and Haas Company and subsidiaries for the
year ended December 31, 1997. In connection with our audit of these
consolidated financial statements, we also have audited the related
financial statement schedule as listed in item 14 (a) (2) for the year
ended December 31, 1997. These consolidated financial statements and
financial statement schedule are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audit 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 misstatements. 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 audit provided a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of the operations
and cash flows of Rohm and Haas Company and subsidiaries as of December
31, 1997, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule for the
year ended December 31, 1997, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
February 23, 1998
EXHIBIT (10)
AGREEMENT
THIS AGREEMENT is between ROHM AND HAAS COMPANY, a Delaware Corporation
with offices at 100 Independence Mall West, Philadelphia, PA 19106, and its
subsidiaries, divisions or affiliates ("Rohm and Haas") and J. Lawrence
Wilson ("Mr. Wilson"), an individual residing at 209 Wakefield Road,
Rosemont, Pennsylvania 19010.
A. Background
----------
WHEREAS, Rohm and Haas may wish to use Mr. Wilson to provide certain
advice and services, and
WHEREAS, Mr. Wilson has certain expertise and experience in providing
such services and is willing to provide services for Rohm and Haas.
NOW, THEREFORE, intending to be legally bound hereby, Rohm and Haas and
Mr. Wilson agree as follows:
B. Services to be Provided
-----------------------
1. Mr. Wilson agrees to be available to provide Rohm and Haas advice on
any issue pertaining to the business or activities of Rohm and Haas.
C. Term of the Agreement
---------------------
2. The term of this Agreement shall be from October 1, 1999 to
September 30, 2004 ("the Agreement Period"). Mr. Wilson shall provide
advice from time to time during the Agreement Period whenever expressly
requested by a member of the Rohm and Haas Chairman's Committee.
3. Either party may terminate this Agreement at anytime with ninety
(90) days advanced written notice to the other party. Upon termination,
the provisions of this Agreement will become null and void with the
exception of the Intellectual Property, Confidentiality and Conflict of
Interest Provisions covered in sections F, G and K hereof, which will
remain in full force and effect.
D. Compensation
------------
4. Rohm and Haas shall pay Mr. Wilson a fee of $100 an hour for any
services actually performed. All services provided under this Agreement
shall be at the express request of a member of the Rohm and Haas Executive
Council.
5. Mr. Wilson shall provide Rohm and Haas with a detailed invoice of
all services rendered on an annual basis. Rohm and Haas will pay that
invoice within thirty (30) days of receipt thereof.
<PAGE>
AGREEMENT WITH MR. J. LAWRENCE WILSON PAGE 2
6. Rohm and Haas shall also reimburse Mr. Wilson for all reasonable and
necessary expenses incurred by Mr. Wilson in connection with providing
services under this Agreement. To obtain reimbursement, Mr. Wilson must
first submit to Rohm and Haas invoices, receipts or other appropriate
documentation of the expenses. Payment of such expenses shall be made by
Rohm and Haas within thirty (30) days of receipt of such documentation.
E. Restricted Stock
----------------
7. In connection with this Agreement, and as part of the consideration
therefore, Mr. Wilson agrees that, notwithstanding any contrary provision
of any Rohm and Haas benefit plan or policy, Mr. Wilson's retirement on
September 30, 1999 will not have the effect of eliminating any otherwise
applicable restriction on stock granted to him under any such plan or
policy. Rather, such restrictions shall continue to apply until they would
have lapsed had he remained employed by Rohm and Haas throughout the
original term of this Agreement, unless this Agreement is terminated by
Rohm and Haas prior to the end of the original term, in which case all such
restrictions shall lapse. If Mr. Wilson breaches any term of this
Agreement, he shall forfeit any such restricted stock which has not
otherwise vested.
F. Intellectual Property
---------------------
8. Mr. Wilson shall disclose promptly to Rohm and Haas all inventions,
discoveries and improvements, whether patentable or not, which relate to
the business or activities of Rohm and Haas and which are conceived or made
by Mr. Wilson in connection with the services provided under this Agreement
or which result from access to business or technology information of Rohm
and Haas. Mr. Wilson hereby assigns and shall assign Mr. Wilson's entire
interest in such inventions, discoveries and improvements to Rohm and Haas
or its nominee and shall execute all documents necessary to enable Rohm and
Haas or its nominee to secure patents in the United States or any foreign
country or otherwise to protect the interest of Rohm and Haas. These
obligations shall continue beyond the termination of this Agreement.
9. Any copyrightable work which Mr. Wilson authors or co-authors during
the course of, or in any way resulting from, this Agreement shall be
considered a work made for hire and shall be the exclusive property of Rohm
and Haas. The copyright in such work shall be assigned to Rohm and Haas.
Mr. Wilson shall not make any copies of such work or use such work other
than for the purposes of this Agreement without the prior written
permission of Rohm and Haas.
G. Confidentiality
---------------
11. Mr. Wilson recognizes that all Rohm and Haas business or trade
secrets, including secret processes of manufacture, and all other business
and technical information, including research records and procedures to
which Mr. Wilson has access under this Agreement, are the property of Rohm
and Haas. During the term of this Agreement and thereafter, Mr. Wilson
shall keep such information secret and confidential and not use such
information in any manner unless specifically authorized by this Agreement
or by Rohm and Haas in writing or until such information enters the public
domain by other means.
12. All written information, drawings, documents and materials
prepared by Mr. Wilson under this Agreement shall be the exclusive property
of Rohm and Haas and shall be delivered by Mr. Wilson to Rohm and Haas on
or before the termination of this Agreement. During the term of this
Agreement
<PAGE>
AGREEMENT WITH MR. J. LAWRENCE WILSON PAGE 3
and thereafter, Mr. Wilson shall keep such information secret and
confidential and not use such information in any manner unless specifically
authorized by this Agreement or by Rohm and Haas in writing or until such
information enters the public domain by other means.
13. Mr. Wilson shall, upon termination of this Agreement, return to
Rohm and Haas all papers, notes, books or other documents which contain or
refer to any business or technical information of Rohm and Haas, and all
copies of such documents, and all other property belonging to Rohm and Haas
or relating to its business.
H. Prior Agreements
----------------
14. The Employment Agreement (Exhibit A) and Departing Employee Notice
and Acknowledgment of Continuing Obligations and Acknowledgment and Records
Security Statement (Exhibit B) executed by Mr. Wilson prior to the
execution of this Agreement shall remain in full force and effect and shall
survive the execution of this Agreement.
I. Independent Contractor
----------------------
15. In providing service under this Agreement, Mr. Wilson shall act
as, and be deemed, an Independent Contractor and not an employee or agent
of Rohm and Haas. Mr. Wilson shall not make any representations to being
an employee or agent of Rohm and Haas and shall pay all federal, state and
local taxes which shall be become due on any money paid to Mr. Wilson by
Rohm and Haas under the terms of this Agreement.
J. Personal Performance of Work and Nonassignability
------------------------------------------------
16. The services provided under this Agreement shall all be provided
personally by Mr. Wilson. Mr. Wilson may not assign any rights or
performance obligations under this Agreement to any other party. Any
attempt to make such an assignment will be void.
K. Conflict of Interest
--------------------
17. During the original term of this Agreement and for a period of two
years thereafter, Mr. Wilson will not, directly or indirectly, for himself
or others, render competing services. Not withstanding the above, Mr.
Wilson may accept employment with a competitor whose business is
diversified, provided that he will not be employed in a competing capacity,
and provided that prior to his accepting such employment, Rohm and Haas
shall receive separate written assurances satisfactory to Rohm and Haas
from such competitor and Mr. Wilson, that Mr. Wilson will not render
services which are directly or indirectly in competition with Rohm and
Haas.
L. Compliance with Applicable Law
------------------------------
18. In providing services under this Agreement, Mr. Wilson shall
comply with all applicable federal, state and local laws, regulations,
obligations or governmental requests.
M. Notice
------
19. All notices given pursuant to this Agreement shall be directed to:
<PAGE>
AGREEMENT WITH MR. J. LAWRENCE WILSON PAGE 4
FOR MR. WILSON: FOR ROHM AND HAAS:
Mr. J. Lawrence Wilson Chief Executive Officer
209 Wakefield Road Rohm and Haas Company
Rosemont, PA 19010 100 Independence Mall West
Philadelphia, PA 19106
N. Miscellaneous Provisions
-------------------------
20. This Agreement contains the entire agreement of the parties
relating to the subject matter herein. It may be changed only by a written
agreement, signed by both parties.
21. The fact that any portion of this Agreement shall be found invalid
or unenforceable shall not effect the validity or enforceability of the
remainder of this Agreement.
22. This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
23. This Agreement may be executed in counterparts and will be valid
even though the signatures of all parties do not appear on the same page.
Dated: _________ _____________________________
J. LAWRENCE WILSON
Dated: __________ _____________________________
MARISA GUERIN
FOR ROHM AND HAAS
<PAGE>
EXHIBIT B
DEPARTING EMPLOYEE NOTICE AND
ACKNOWLEDGMENT OF CONTINUING OBLIGATIONS
As you terminate your employment with Rohm and Haas, it is important
that you are reminded of obligations about confidential information learned
during your employment, and as expressed in your employment agreement with
Rohm and Haas, and in agreements with former employers to the extent they
relate to confidential information acquired by Rohm and Haas or its
subsidiaries. It is in your best interest, and that of Rohm and Haas, to
have this reminder.
HANDLING OF CONFIDENTIAL INFORMATION
- ------------------------------------
Naturally, we will keep all originals and copies of tangible Rohm and
Haas property which was assigned to you or prepared by you. This includes
drawings, memos, reports, forecasts, estimates, plans, letters,
organization charts, pictures, invention records, notebooks, etc. However,
some of the information you necessarily carry away in your memory is also
considered Rohm and Haas property.
The purpose of this acknowledgment is to confirm your recognition of
your obligation not to use or disclose without prior consent any
confidential information as that term is defined in your employment
agreement, and especially "trade secrets." This kind of information is of
great value to a company, including Rohm and Haas, and its competitors. A
good general rule is to keep all information about Rohm and Haas' business
confidential until you know it has become publicly known. A company's
right to have such confidential information protected from dissemination
and/or use without its permission is well-recognized and enforced by the
courts since, in addition to your express obligations under your employment
agreements, the law includes as a part of every employment relationship an
implied agreement not to use or disclose this information. Thus, when you
accepted employment with Rohm and Haas, just as you would with any other
company, you accepted a legal and moral obligation not to use or disclose
confidential or "trade secret" or other proprietary information. This
obligation continues even after you terminate your employment.
While it is impossible to mention all items of confidential
information, a partial list includes marketing and advertising plans,
specific areas of research and development, project work, product
formulation, processing methods, assignments of individual employees,
testing and evaluation procedures, cost figures, construction plans and
special techniques or methods of any kind peculiar to Rohm and Haas, which
offer the opportunity for a competitive advantage. More specifically, Rohm
and Haas considers to be confidential information any non-public
information which could be used for a competitive advantage that you have
acquired during any tenure at Rohm and Haas. This would include without
limitation any and all unpublished information and knowledge relating to
the development, testing, formulation, manufacture and marketing of Rohm
and Haas products, as well as any and all methods, procedures and
operations relating to the business of Rohm and Haas.
Particular care may be needed to avoid accidental disclosure of
confidential information you have in these areas. Probably the safest
course is simply not to discuss Rohm and Haas information with anyone.
On the other hand, you certainly have the right to use much of the
general knowledge acquired as a Rohm and Haas employee. You can use any
general knowledge and skills you have acquired, so long as you do not use
or disclose confidential information (including trade secrets). You may
use your general creative talents on projects which differ from those with
which you became familiar at Rohm and
<PAGE>
Haas or your former employers, provided that you do not draw upon
confidential information in doing so. You may solve problems in new
projects by drawing upon your general knowledge and skills.
ASSIGNMENT OF EMPLOYEE INVENTIONS
- ---------------------------------
Under your employment agreement, Rohm and Haas is legally entitled to
all rights in inventions relating to its business which are made or
conceived by you during your employment. Such inventions include all types
of technical, artistic, or commercial creative work, whether or not they
are patentable. They include composition, process and apparatus
inventions, as well as computer programs, sales and promotion plans, copy,
art work, construction plans, etc. Rohm and Haas is entitled to receive a
prompt and full disclosure of such inventions and a worldwide assignment of
rights. Rohm and Haas is also entitled to your complete cooperation in
executing papers required for filing and prosecuting any patent
applications and for establishing Rohm and Haas ownership. If it is
necessary for you to do any of these things after termination, we will pay
out-of-pocket expenses and reasonable compensation for time spent in review
of papers or other aspects of such cooperation.
If at any time you have any questions dealing with your rights and
obligations in connection with any of the foregoing, please let us know.
Specifically, if you have a question about the confidentiality of any
information, please consult with us before using or disclosing that
information. To help avoid the possibility of any future misunderstanding,
please read and sign the following acknowledgment.
ROHM AND HAAS COMPANY
<PAGE>
ACKNOWLEDGMENT AND RECORDS SECURITY STATEMENT
No later than my last day worked at Rohm and Haas, I will return all
documents containing confidential or trade secret information, including
research notebooks, which I have had in my possession to Rohm and Haas.
A list of the types of documents currently in my possession, including
location of such documents, is provided below. I will retain no copies of
such documents in my possession. I have reread my Employment Agreement and
the Departing Employee Notice and Acknowledgment of Continuing Obligations,
and understand that my obligations, to which I had agreed earlier, except
as clarified by any clause in this Agreement and Release, continue beyond
the separation of my employment.
During my employment with Rohm and Haas, I have worked in the following
areas:
________________________________________________________________________
________________________________________________________________________
Documents and Location (please use reverse side if additional room is needed):
_____________________________
J. LAWRENCE WILSON
EXHIBIT (12)
ROHM AND HAAS COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
--------------------------------
(millions of dollars)
Earnings before income taxes .......... $464 $680 $611 $530 $441
Fixed charges ......................... 196 64 71 75 84
Capitalized interest adjustment ....... 4 5 3 (1) (5)
Undistributed earnings adjustment ..... (7) (2) (11) 12 (3)
---- ---- ---- ---- ----
Earnings ............................ $657 $747 $674 $616 $517
==== ==== ==== ==== ====
Ratio of earnings to fixed charges .... 3.4 11.7 9.5 8.2 6.2
==== ==== ==== ==== ====
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.
[LOGO]
ROHM AND HAAS
Rohm and Haas Company
COMING TOGETHER TO GROW
Annual Report 1999
<PAGE>
ROHM AND HAAS
Annual Report 1999
Financial Highlights
Millions of dollars (except per-share amounts) 1999 1998
- -------------------------------------------------------------------------
For the year:
Net sales $5,339 $3,720
Pro forma net sales (1) 6,652 6,430
Net earnings 249 440
Net earnings, excluding non-recurring items (2), (4) 410 395
Pro forma net earnings (1) 391 307
EBITDA (3), (4) 1,179 1,015
Capital additions 323 229
Free cash flow (5) 352 328
- -------------------------------------------------------------------------
At year end:
Total assets $11,256 $3,648
Total debt 4,053 581
Stockholders' equity 3,475 1,561
- -------------------------------------------------------------------------
Ratios: (6)
Return on assets 4% 13%
Return on common stockholders' equity (7) 13 25
- -------------------------------------------------------------------------
Per common share:
Net earnings
Basic $1.28 $2.47
Diluted 1.27 2.45
Net earnings, excluding non-recurring items
Basic $2.13 $2.22
Diluted 2.09 2.20
Common dividends $ .74 $ .70
- -------------------------------------------------------------------------
(1) Pro forma results include Morton and LeaRonal as if these 1999
acquisitions had occurred on January 1, 1998. Pro forma earnings exclude
non-recurring items.
(2) Non-recurring items for 1999 include: restructuring charges, write-off of
purchased in-process research and development (IPR&D) related to the Morton
acquisition, charges related to 1998 joint venture dispositions, Electronic
Materials segment asset write-downs and other restructuring charges mostly
associated with the 48%-owned Rodel affiliate and gains related to
environmental remediation related insurance settlements. Non-recurring items
for 1998 include: gains on the sale of joint venture interests in AtoHaas and
RohMax, asset write-downs, business realignment costs, and loss on the early
extinguishment of debt.
(3) Earnings before interest, taxes, depreciation and amortization. For 1999,
EBITDA excludes the IPR&D charge.
(4) 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.
(5) Free cash flow is cash provided by operating activities less fixed asset
spending and dividends.
(6) 1999 excludes the IPR&D charge.
(7) Stockholders' equity is before reduction for the ESOP transaction.
Contents
Letter to Shareholders 1
Timeline 5
Performance Polymers 6
Chemical Specialties 12
Electronic Materials 15
Salt 19
Corporate Responsibility 22
Financial Index 25
Pro Forma Sales
by Business Segment
Millions of Dollars
[ID: BAR CHART]
$3,551 PERFORMANCE POLYMERS
$1,367 CHEMICAL SPECIALTIES
$ 885 ELECTRONIC MATERIALS
$ 849 SALT
Pro Forma Sales
By Region
Millions of Dollars
[ID: BAR CHART]
$3,921 NORTH AMERICA
$1,763 EUROPE
$ 674 ASIA-PACIFIC
$ 294 LATIN AMERICA
For additional information
about Rohm and Haas:
Visit our website: www.rohmhaas.com
Call us at: 1.215.592.3045
Write us at:
100 Independence Mall West
Philadelphia, PA 19106-2399
This report includes forward-looking statements, reflecting management's
current expectations, based on reasonable assumptions. Results could differ
materially depending upon such factors as changes in business climate,
economic and competitive uncertainties, the company's ability to complete the
integration of acquired companies, changes in strategies, risks in developing
new products and technologies, interest rates, environmental and safety
regulations, clean-up costs and foreign exchange rates. Further details about
potential risks can be found beginning on page 36 and in the company's 10-K
filings with the SEC.
<PAGE>
To the Shareholders of Rohm and Haas Company
Making a
good company
better
[ID: PHOTO WITH CAPTION]
Raj L. Gupta, Chairman and CEO
Rohm and Haas is a far different company today than it was at the
beginning of 1999. We've made dramatic changes in size, product
portfolio, and geographic perspective -- all with the aim of providing
better products and solutions for customer needs, and strong profitable
growth for the shareholders of Rohm and Haas.
Worldwide
[ID: SALES AND EARNINGS LINE CHARTS]
*Pro forma results include Morton and LeaRonal as if these 1999
acquisitions had occurred on January 1, 1998. Pro forma earnings
exclude non-recurring items.
The most visible changes occurred with the acquisitions of Morton
International and LeaRonal in 1999, and, early in 2000, increased
ownership of Rodel and Silicon Valley Chemlabs (80 percent each). These
acquisitions have brought new technology, new markets, new people and
new ideas to our organization. And even though they may have been less
visible, there have been transformational changes within the former Rohm
and Haas as well. Even before the end of the year, all were working
together to create a brand-new enterprise with the scale, geographic
reach, focused technologies, and leadership talent needed to succeed in
the new century. We are creating the new Rohm and Haas.
The 1999 financial performance of this brand-new company is notable. We
ended the year with $6.7 billion in sales on a pro forma* basis, which
places us among the very top of the world's specialty chemical
companies. A steady focus on bringing products to the marketplace,
along with an extremely smooth integration process and excellent
internal cost control, resulted in 1999 earnings per share of $2.09,
excluding net non-recurring items of $161 million, or $.82 per share for
integration and restructuring charges, in-process research and
development charges and gains on remediation-related insurance
recoveries.
*assuming the acquisitions completed before the end of 1999 had
occurred at the beginning of the year.
Yet the strength of our financial performance is just one indication
that our key stakeholders like what they see when they look at the new
Rohm and Haas.
[ID: PHOTO WITH CAPTION]
The Morton Umbrella Girl has been adorning
consumer salt cans since the early 1900s.
1
<PAGE>
[ID: PHOTO WITH CAPTION]
J. Michael Fitzpatrick
President and COO
Customers
Even though we were busy with integration-related activities, customers
remained our primary focus. This commitment was rewarded with pro forma
1999 sales of $6,652 million, a 3.5 percent increase over the comparable
pro forma figure for 1998. Reported sales for Rohm and Haas for the
full-year 1999 were $5,339 million. As you read through this report,
you will notice that we have organized our businesses into four segments
- -- Performance Polymers, Chemical Specialties, Electronic Materials and
Salt. They are grouped this way because, for the most part, they share
technologies, common markets or manufacturing facilities. In addition,
you will find that the businesses within each of these four groups also
have been given a strategic designation as either a "franchise" or
"niche" business. We believe that the franchise businesses offer the
greatest promise for fast-paced growth in Rohm and Haas. They have size
and global scale, are highly profitable, have the breadth of products
and services to support solutions selling, and the ability to develop
new technologies for market needs. These franchise businesses are
expected to grow at rates considerably faster than the markets in which
they compete. They also have first claim on new resources for
investment.
The franchise businesses include:
BUSINESS 1999 PRO FORMA SALES
Coatings $1,110 million
Electronic Materials $885 million
Adhesives and Sealants $737 million
Surface Finishes $507 million
Plastics Additives $490 million
Consumer and Industrial Specialties $374 million
In addition, we have strong niche businesses -- healthy, cash-generating
businesses that are meeting or exceeding the growth rates of the markets
they serve -- each with a strong technology, excellent market
reputations and contributing value for Rohm and Haas. These businesses
are:
BUSINESS 1999 PRO FORMA SALES
Salt $849 million
Agricultural Chemicals $534 million
Specialty Polymers $402 million
Monomers $305 million
Performance Chemicals $248 million
Ion Exchange Resins $211 million
Owners
Owners of the company -- the shareholders of Rohm and Haas -- also
responded positively to the new company. Proof can be found in the fact
that investors placed a valuation on Rohm and Haas (market
capitalization) of $9 billion at year end, nearly two times higher than
it was at the end of 1998. This represents a profound
[ID: PHOTO WITH CAPTION]
Our photoresists help create today's
semiconductor chips.
2
<PAGE>
vote of confidence in the strategy and direction of the company.
Another metric of success in 1999 is total return to shareholders -- the
combined effect of the change in the share price of the company's common
stock, plus dividends. From December 31, 1998 to December 31, 1999, the
total return to investors in Rohm and Haas increased by nearly 36
percent, compared to an increase of 21 percent for the Standard & Poor's
Index during the same period.
[ID: PHOTO WITH CAPTION]
Medical devices contain our plastic additives.
Employees
It has been a year of change for the workforce. We have been through a
significant amount of restructuring, and have asked people to shift
responsibilities as we transition to the new organization. It is with
great pride that we tell you that our workforce has been up to these
challenging tasks -- and has surpassed high expectations for innovative
ideas, commitment and integrity. We are especially pleased to note
that, even with all of the transitions the company
[ID: SIDEBAR]
A Tribute to Leadership
[ID: PHOTO WITH CAPTION]
J. Lawrence Wilson
J. LAWRENCE WILSON retired as chairman and CEO at the end of September
1999 -- ending a 34-year career with Rohm and Haas. When Larry began
his term as chairman in 1988, Rohm and Haas was a mid-sized chemical
company with about $2.5 billion in sales. When he stepped down in
September, Rohm and Haas had grown to be one of the largest specialty
chemical companies in the world with $6.7 billion in annual sales (on a
pro forma basis).
Larry's impact stretched far beyond the borders of Rohm and Haas.
Through the years, he had a tremendous influence on the chemical
industry through his association with the U.S. Chemical Manufacturers
Association (CMA). He sat on the CMA board of directors for many years
and served as chairman from June 1996 until June 1997. He was
instrumental in refining the Responsible Care program, initiating much
of the government advocacy done today, developing research programs
focusing on the health and environmental effects of chemicals, and
helping to globalize the chemical industry.
[ID: PHOTO WITH CAPTION]
S. Jay Stewart
S. JAY STEWART retired as vice chairman of Rohm and Haas at the end of
October 1999, after serving as CEO of Morton International from 1994
until June 1999 when Rohm and Haas acquired Morton.
During his distinguished career at Morton, Jay contributed to the growth
of the company, which had leadership positions in many of its
businesses. In 1997, Jay was instrumental in creating the largest
automobile occupant restraint company in the world when Morton's airbag
business merged with Autoliv. He also expanded Morton's salt business
and powder coatings business into Europe in 1997 and early 1998 with the
acquisition of Salins du Midi, the largest independent salt company in
Europe; and Pulverlac, the premier powder coatings company in Italy.
More than anyone else, these two men had the insight, courage and
ability to bring Morton and Rohm and Haas together and to begin to shape
the new Rohm and Haas that exists today. We applaud their leadership
and integrity and express our most sincere thanks for their years of
service to their respective companies. We wish them both well in future
endeavors.
3
<PAGE>
made during the year, we continued to improve our safety performance.
Fewer people were hurt on the job in 1999 than during the year before.
Yet we are not satisfied -- and will not be satisfied -- until no one is
hurt while working for Rohm and Haas.
Community
Rohm and Haas prides itself on having earned a good name in the
communities in which we operate. As a result of the acquisitions, we
now have nearly 150 sites -- almost triple what we operated a year ago.
Yet, no matter how large we become, we will continue efforts to earn and
maintain the public trust. Larger companies can, and should, be held to
a leadership standard that raises the bar for others. Our behavior must
ensure we meet or exceed the expectations of the public.
Process
We must have robust internal systems, dynamic processes and globally
integrated businesses and staff groups to compete for the long term.
Structural changes in the chemical industry (fewer and larger firms),
married with breakthrough changes in the way information is processed,
signal a new set of realities -- a need for tremendous access to
information and lightning-quick speed to share it within our
organization and with key customers; an ongoing need for extraordinary
organizational efficiency.
[ID: PHOTO WITH CAPTION]
All aspects of our electronic materials
technologies contribute to today's electronic devices.
The single most important metric of success in this area in 1999 has
been our ability to meet the integration cost-savings goals we set for
ourselves even before the acquisitions were completed. As of December
1999, Rohm and Haas had reduced its operating expense rate by more than
$150 million, well on the way to achieving a $300 million lower run rate
by the end of 2000.
We are committed to keeping operational excellence as a core competency
and will make further improvements in the future -- yet we have already
begun to build the internal processes that will facilitate strong growth
for Rohm and Haas going forward. We are incorporating best practices
from the acquired companies and building systems for leveraging the
power of the internet.
Going Forward
As we take this new company into the new century, we will maintain our
resolve and focus on the following key goals:
. to deliver on promised cost synergies of $300 million by the end of
the year;
. to implement growth strategies for the franchise businesses that will
drive consolidated revenue growth for the company in excess of 6 percent
in 2000, higher in ensuing years;
. to continue to satisfy all our stakeholder groups by meeting our
commitments to them; and
. to innovate with services, business processes and technology quickly
and flawlessly for the betterment of Rohm and Haas and its shareholders.
/s/ RAJ GUPTA /s/ J. MICHAEL FITZPATRICK
Raj Gupta J. Michael Fitzpatrick
Chairman and President and
Chief Executive Officer Chief Operating Officer
March 27, 2000
4
<PAGE>
A Time of Change and Growth
October 1998
Discussions are initiated to explore a possible business combination
transaction with Morton International.
December 11, 1998
Representatives of Morton and Rohm and Haas meet to discuss structure
and particulars of a possible business combination.
January 1, 1999
Mike Fitzpatrick becomes President and Chief Operating Officer of Rohm
and Haas.
January 18, 1999
Rohm and Haas increases its ownership in Rodel, Inc. (an electronic
materials company) to 48 percent.
January 22, 1999
Rohm and Haas completes its acquisition of LeaRonal, Inc. for $460
million, further expanding its position in electronic materials.
February 1, 1999
Rohm and Haas and Morton announce a definitive merger agreement.
April 21, 1999
The U.S. Federal Trade Commission gives the company clearance to
complete its acquisition of Morton.
June 10, 1999
Rohm and Haas announces a joint venture with Stockhausen to manufacture
acrylic acid monomer. Rohm and Haas also set to acquire Stockhausen's
monomer business in Europe.
June 21, 1999
Shareholders of both Rohm and Haas and Morton approve the merger
agreement creating the new company. The company expands its Board of
Directors. New members include:
. David Haas
. Thomas Haas
. Jay Stewart, vice chairman of Rohm and Haas and former CEO of Morton
. James Cantalupo, vice chairman of McDonald's Corporation
. Richard Keyser, chairman and CEO of W.W. Grainger, Inc.
September 30, 1999
Larry Wilson retires after 34 years with Rohm and Haas.
October 1, 1999
Raj Gupta becomes the new chairman and CEO of Rohm and Haas.
October 31, 1999
Jay Stewart, former CEO of Morton, retires after 25 years of service.
January 5, 2000
Rohm and Haas acquires 80 percent of Silicon Valley Chemlabs.
January 13, 2000
Rohm and Haas announces its intent to acquire Acima, a Swiss company
that specializes in biocidal formulations, polyurethane catalysts and
other specialty chemicals.
February 7, 2000
Rohm and Haas increases its stake in Rodel from 48 to 80 percent.
March 1, 2000
Industrial Coatings, a part of the Surface Finishes group, is sold to
BASF for approximately $175 million.
5
<PAGE>
Performance Polymers
[ID: PHOTO WITH CAPTION AND QUOTE]
Patrick R. Colau
"Our goal is to be among the leaders in all of the markets in which we
compete, maintain that position, and grow faster than the market. We
have achieved that in most elements of the Performance Polymers
businesses -- Coatings, Specialty Polymers, Plastics Additives and
Monomers. With the addition of Morton's adhesives product line, we now
also have a world-class Adhesives and Sealants business with plenty of
opportunity for growth."
-- Patrick R. Colau
Senior Vice President
Performance Polymers
Performance Polymers
[ID: SALES AND EARNINGS LINE CHARTS]
*Pro forma results include Morton as if this 1999
acquisition had occurred on January 1, 1998. Pro forma earnings
exclude non-recurring items.
Business Description
Performance Polymers is the company's largest business group and is the
home base for acrylic technology that has been a backbone strength of
the company for many years. The 1999 acquisitions have significantly
broadened the technologies underpinning the five businesses within this
group - Coatings, Adhesives and Sealants, Plastics Additives, Monomers
and Specialty Polymers. Though managed independently, the financial
performance of the Surface Finishes businesses are recorded as part of
Performance Polymers. A discussion about the business performance of
Surface Finishes businesses can be found toward the end of this section.
In total, Performance Polymers reported $3.6 billion in sales for 1999,
on a pro forma basis. This compares with $3.5 billion in pro forma
sales for the year before. Sales as reported were $2.9 billion for
1999, compared with $2.2 billion in 1998.
6
<PAGE>
Earnings on a pro forma basis, excluding the impact of non-recurring
items in both years were $410 million in 1999, compared with $367
million on the same basis for the year before. Earnings as reported for
Performance Polymers were $350 million in 1999; $372 million in 1998.
Business Discussion
Early in the year, spillover from the Asian economic crisis of 1998 plus
price erosion and the strong dollar subdued both revenue and volume
growth. Fortunately, increased demand showed up in the third quarter,
particularly for acrylic-based products, which restored sales levels for
Performance Polymers overall. However, rising oil prices drove up raw
material feedstock costs during this period of strong demand, making it
necessary to announce product price increases to offset the sharp run-up
in raw materials.
Coatings continued to see good demand for its acrylic emulsion polymers
and specialty additives used in paints, coatings and varnishes. Sales
growth of 6 percent for this $1.1 billion business was about twice as
strong as GDP growth during the period. Coatings benefited from an
extended painting season in North America, share gains in key markets,
outstanding demand in Latin America and Asia-Pacific, and an ongoing
solid performance in North America.
Coatings also added colorants to their product line as a result of the
Morton acquisition. Although currently small, colorants is considered a
stepping stone that will allow the company to provide a broader range of
products and services to customers.
[ID: PHOTO WITH CAPTION]
Rohm and Haas has an unparalleled reputation
for its acrylic chemistry used in paints and coatings.
A high point in the coatings business occurred when a new generation of
opaque polymers was brought to market in record time. It whizzed
through R&D and commercialization and was selling at significant volumes
within six months of commercialization. This was a direct result of
product development cycle time which has been cut in half. Coatings now
can bring products to market twice as fast as they could only two years
ago.
[ID: PHOTO WITH CAPTION]
Whether decorating houses or sealing food packages,
Rohm and Haas technology is there to help.
7
<PAGE>
[ID: PHOTO WITH CAPTION]
High-end laminating adhesives strengthen
state-of-the-art sails.
Rohm and Haas's new $737 million Adhesives and Sealants business is a
combination of the acrylic technology primarily used for
pressure-sensitive tapes and labels and a considerably larger Morton
packaging and laminating adhesives business, which includes varied
technologies used in food packaging, industrial applications and by the
automotive industry. Management intends to turn this business into a
powerful growth vehicle for the company.
Adhesives and Sealants saw higher demand from the tape market during the
year, as water-based technology continued to gain share worldwide.
Adhesives also saw new business in label adhesives and a stronger
performance in automotive adhesives.
Other products in the Adhesives and Sealants business include caulks and
sealants for construction, automotive adhesives, industrial adhesives
and thermoplastic polyurethanes.
Plastics Additives, a $490 million business, supplies impact modifiers
and processing aids, thermal stabilizers, waxes, lubricants and biocides
that are all used in the plastic manufacturing process. Rohm and Haas
has a leading position in impact modifiers.
Augmented by the Morton product line of lubricants and stabilizers, Rohm
and Haas is better able to be a one-stop shop to polyvinyl chloride
(PVC) compounders. In 1999, sales growth in Asia-Pacific, North America
and Latin America was strong enough to overcome sales declines in Europe
that were driven by pricing pressure in extremely competitive markets.
Specialty Polymers sells products used for graphic arts, paper,
textiles, nonwovens and leather. It is a $402 million business with
attractive growth opportunities in areas such as water-based resins used
in overprint varnishes and ink vehicles for the graphic arts industry,
and hollow sphere polymer technology for the paper industry.
The Monomers business is the world's largest manufacturer of acrylic
monomers. Although most of the production is used internally as raw
materials for its sister Performance Polymers businesses, Monomers also
sold $305 million of acrylates, methacrylates and specialty monomers to
external customers.
[ID: PHOTO WITH CAPTION]
Food packaging adhesives
8
<PAGE>
[ID: PHOTO WITH CAPTION]
Multilayered interior headliners improve the sound
insulating qualities of car roofs.
Early in 2000, Monomers acquired Stockhausen's European merchant monomer
business and established a 50-50 joint venture with the same firm, to be
called StoHaas Monomer. The joint venture will produce a total of
430,000 tons of acrylic acid annually by the end of 2003.
Outlook
The company is projecting stronger top-line growth next year as a result
of volume and improved price relative to 1999. On the manufacturing
side, over the next year Performance Polymers will rationalize all the
facilities that the combined company now operates.
That will include moving more production to Louisville, Kentucky;
closing all except one section of the Greenville, South Carolina, plant;
and closing the emulsions unit in Jarrow, England, and moving that
product to Dewsbury, England and other European emulsion plants.
Over the last two years, Performance Polymers forged its way through the
Asian economic crisis in 1998 and its partial recovery in 1999; and
threw its energies into the Morton integration in 1999. Now they expect
to reap the benefits of a stronger Asian economy, a strong U.S. economy
that they believe will stay healthy, and a better overall European
economy in 2000.
[ID: PHOTO WITH CAPTION]
"The most important thing I can do is work
closely with marketing to identify new
business opportunities. My part in this joint
effort is to develop a product that will provide
what the customer needs."
-- San Lee, employee
9
<PAGE>
Surface Finishes
Surface Finishes entails two strong surface coating formulator
businesses that are positioned further along the value chain than most
Rohm and Haas businesses -- Automotive Coatings and Powder Coatings --
which together have sales of approximately $400 million, At the time of
the Morton acquisition, these two groups along with Morton Industrial
Coatings composed Rohm and Haas's Surface Finishes group. In December
1999, Rohm and Haas announced plans to sell the Industrial Coatings
business to BASF Corporation for $175 million. This transaction was
completed on March 1st.
[ID: PHOTOS WITH CAPTIONS]
The ability to adhere or seal together
different materials has opened new possibilities
for building designs.
Innovative coatings are the products of
choice for use on plastic automotive components.
Automotive Coatings offers innovative coating solutions for plastic
automotive components. The business primarily operates in North America
and Europe and has two joint ventures with Nippon Paint Co. Ltd. Both
joint ventures supply the Japanese automotive market with paint for
plastic components.
Automotive Coatings increased sales by 12.5 percent over 1998's
financial results, due to strong North American sales performance in
1999. These solid results were fueled by new product innovations
introduced in the last two years, which accounted for 23 percent of
total sales. Some of the new products
[ID: PHOTO WITH CAPTION]
"To me, the term profitable growth means that you increase both your
sales and your profits. Sometimes, you can have more sales without
making any more money. So, along with selling more product, you have to
control your expenditures for things like raw materials. In some cases,
it may mean consolidating facilities."
-- Carol Rogers, employee
10
<PAGE>
[ID: PHOTO]
include a coating for plastic composite truck beds, a new line of
adhesion promoters that make paint adhere better to molded bumper
fascia, and a clear coating that reduces the potential for spotting on
car finishes caused by environmental etch agents such as acid rain and
bee pollen.
For this business, it is expected that growth will come from a continued
investment in research and development, a steadfast commitment to
staying close to the customer and expanded efforts in Europe and Latin
America to strengthen Automotive Coatings' geographic presence.
Powder Coatings produces the most comprehensive line of thermoset and
thermoplastic powder coatings for original equipment manufacturers and
metal finishers in the United States and Europe. Decorative thermoset
products for metals in various chemistries, color and textures represent
the majority of sales. Coatings for non-metallic substrates, primarily
wood and plastic, represent significant areas for growth with new
proprietary technology.
In 1999, Powder Coatings had 8 percent sales growth in North America and
6 percent sales growth in Europe -- its two primary regions of
operation. Growth was attributed to improved performance of its
European operation based in Italy, the commercialization of its wood
coatings (Lamineer(R)) and the increased global focus of the business.
It is anticipated that profitable growth for this business will be
spurred by increased sales in Lamineer, the introduction of specialty
products in Europe and research in new applications. Some of the new
applications include low-temperature cure technologies for plastic and
assembled parts, coatings that lower applied costs for textured
products, high yield coatings for lower application costs and thin-film
technologies.
[ID: PHOTO WITH CAPTION]
Powder coatings applied
in one step offer cost and
environmental advantages over
traditional laminates and liquid paints.
11
<PAGE>
Chemical Specialties
[ID: PHOTO WITH CAPTION AND QUOTE]
Nance K. Dicciani
"Our charge in the Chemical Specialties Group (CSG) is not only to
develop businesses that meet or exceed all financial targets, but also
to put-together, add-on, combine, change and refocus our businesses --
whatever it takes -- to create new growth for the company. We have the
flexibility to make those changes now and in the future between the
Chemical Specialties business units and even with businesses outside of
our group."
-- Nance K. Dicciani
Senior Vice President
Chemical Specialties Group
Chemical Specialties
[ID: SALES AND EARNINGS LINE CHARTS]
*Pro forma results include Morton as if this 1999
acquisition had occurred on January 1, 1998. Pro forma earnings
exclude non-recurring items.
Business Description
Creativity and adaptability to change are Chemical Specialties' recipe
for success in the new millennium. By the nature of its diverse group
of businesses, CSG is able to provide the right atmosphere to incubate
new businesses and is already doing so. Rohm and Haas formed this group
to be a home for independent specialty chemical businesses, each with
its own technologies, customers and marketing strategies. In spite of
this individuality, all CSG businesses share the need to meet current
and future marketplace needs, achieve profitable growth and continue to
improve efficiencies.
Chemical Specialties sales reached $1.4 billion on a pro forma basis,
compared with $1.3 billion on a comparable basis for 1998. Reported
sales for 1999 were $1.2 billion, compared with $1.1 billion the year
before. Pro forma earnings were $135 million, up from $130 million in
1998. Earnings as reported were $115 million for 1999, compared with
$94 million the year before.
12
<PAGE>
[ID: PHOTO WITH CAPTION]
Marking dyes have many uses, including
ensuring that gasoline grades sold at the
pump can be accurately traced.
Market-Focused Businesses
In mid-1999, Chemical Specialties combined biocide, personal care,
detergent, and floor care products from several different businesses,
along with products designed to streamline industrial processing to
create a new, larger market-focused business called Consumer and
Industrial Specialties (CIS). The resulting business, which has $374
million in sales (on a pro forma basis), simplifies the customer
interface and has the technologies and global distribution systems to
bring both products and process solutions to customers around the globe.
Early in 2000, CIS announced it would acquire Acima, a Swiss company
specializing in biocidal formulations, polyurethane catalysts and other
specialty chemicals. This acquisition clearly fits with the CIS
strategy to maximize customer value and offer a wide range of solutions
for customer problems.
As an emerging franchise business, CIS is expected to see good sales
growth in 2000 and beyond.
Agricultural Chemicals, the largest of the Chemical Specialties
businesses, with $534 million in sales on a pro forma basis for 1999,
overcame challenges of a rapidly changing agrochemicals industry, some
unfavorable economic and currency conditions and uncooperative weather
and reported good sales growth, and double-digit earnings growth. A
dramatic turnaround in the Asia-Pacific region was most notable.
This business continues to make advances in research and technology that
create new products for the marketplace. One of the newest under
development is Ethylbloc technology, which extends the shelf life of cut
flowers and shows potential for slowing the ripening of fruits and
vegetables.
Ion Exchange Resins is focused on two key markets for its technology.
The first includes the more traditional water treatment customers, such
as local municipalities. The other is customers who need ion exchange
resins for high-end applications, including water purification for food
and pharmaceutical processes. In addition, Ion Exchange began a
restructuring of its global operations, including manufacturing
capacity, early in 2000, to further enhance profitability.
[ID: PHOTO WITH CAPTION]
Technology used to extend the shelf
life of flowers may also slow the
ripening of fruits and vegetables.
<PAGE>
[ID: PHOTO WITH CAPTION]
Consumers want products that make it easier
to clean and care for fabrics -- Rohm and Haas
technologies make it possible.
[ID: PHOTO WITH QUOTE]
"By optimizing our processes, I can help Rohm and Haas operate
efficiently. That way, when people deal with us, they know they're
working with a company that does business the right way: one that
supplies products that meet customer needs and that provides those
products at reasonable prices."
-- John Koegel, employee
Performance Chemicals combines Morton's sodium borohydride and dyes
businesses with Rohm and Haas's Primenes business. This group is adding
value to the marketplace by developing new customer/supplier
relationships. For example, Performance Chemicals recently installed
sodium borohydride processing units on-site at two of their customers'
plants. This gives Rohm and Haas full-service responsibility for
handling the entire borohydride operation for these customers, who can
now focus their energies in other areas of their operation.
All the Chemical Specialties businesses now operate globally, as does
TosoHaas, Rohm and Haas's joint venture with Tosoh Corp. TosoHaas
specializes in bioseparation and continues to be driven by rapid growth
in the pharmaceutical and biotechnology industries worldwide.
Outlook
In 2000, the collective Chemical Specialties businesses are focused on
serving markets and providing solutions will help them achieve sales
growth and greater operational efficiency.
14
<PAGE>
Electronic Materials
[ID: PHOTO WITH CAPTION AND QUOTE]
Pierre R. Brondeau
"An extraordinary series of events has allowed us to increase our size
and expand our product line in a very short time. I am pleased to say
that integration efforts related to the LeaRonal and Morton acquisitions
are going very smoothly. LeaRonal was fully integrated by the end of
1999, and Morton should be fully integrated by the second quarter
of 2000.
"The main thrust of the electronic materials industry continues to be
technology, technology, technology. We have benefited from the
acquisitions, and intend to stay at the forefront of the advanced
technologies for both printed wiring boards and microelectronics."
-- Pierre R. Brondeau
Vice President
Electronic Materials
President and CEO
Shipley Electronics
Business Description
Rohm and Haas's intense acquisition activity of the past year had the
greatest impact on the Electronic Materials business. Recent
acquisitions include LeaRonal and Morton International in 1999, an 80
percent share of Silicon Valley Chemlabs (SVC) and an increased
ownership in Rodel in early 2000 from 48 to 80 percent. The resulting
Electronics Materials business group is expected to have sales of
approximately $1.2 billion in 2000.
Electronic Materials
[ID: SALES AND EARNINGS LINE CHARTS]
*Pro forma results include Morton and LeaRonal as if these 1999
acquisitions had occurred on January 1, 1998. Pro forma earnings
exclude non-recurring items.
15
<PAGE>
[ID: PHOTO WITH CAPTION]
Rodel's expertise in pads and slurries makes
them a leader in chemical mechanical planarization
technology used to make integrated circuits.
Nineteen ninety-nine pro forma sales for Electronic Materials were $885
million, compared with $806 million on a comparable basis in 1998.
Reported sales were $755 million in 1999, $398 million for 1998. Pro
forma earnings were $67 million for 1999, compared with $59 million in
1998. Reported earnings for Electronic Materials were $57 million in
1999, compared to $45 million reported for 1998.
The centerpiece of the Electronic Materials business is Shipley Company,
a wholly owned subsidiary of Rohm and Haas based near Boston,
Massachusetts. Shipley, the recipient of the products and technology of
LeaRonal, Morton, and SVC, now operates as two divisions -- Shipley Ronal
and Shipley Microelectronics. Rodel, the leading supplier of materials
for chemical mechanical planarization will continue to operate as a
stand alone unit with strong coordination with Shipley Microelectronics.
Shipley Ronal, which accounts for more than half of annual sales, serves
the printed wiring board (PWB) industry and is a process and technology
provider to the semiconductor packaging, electronic and industrial
finishing industries. Shipley Microelectronics and Rodel address the
same market segments within the semiconductor industry with enabling
chemistry and processes used to manufacture integrated circuits,
sometimes called semiconductors.
Shipley Ronal
Shipley Ronal came into being in January 1999 with the completion of the
LeaRonal acquisition. It was further augmented with the addition of
dry-film photoresist capabilities brought by the Morton acquisition in
June. The Shipley Ronal division today is a full-line supplier of
process technologies and materials needed for the fabrication of printed
wiring boards (PWBs). Anyone who understands the complexity of today's
electronics industry knows how remarkable it is to have a comprehensive
product range available from a single supplier who also offers technical
expertise and a combined pool of R&D and technical service talent.
16
<PAGE>
Shipley Ronal's strengths include metallization and imaging processes
and technical service customized to PWB manufacturers' technology and
commercial requirements. Being a full line supplier allows Shipley
Ronal to respond to the complex issues that arise during the highly
complex PWB manufacturing process. Similar services are provided to the
electronic and industrial finishing industries and specialized plating
for semiconductor packages.
By the end of 1999, Shipley Ronal had met all cost synergy targets for
the new organization and had a streamlined global manufacturing and a
stronger technical service network nearly in place. It had
re-negotiated supplier contracts that will lead to better positioning of
its products including dry-film photoresist business. Most significant,
the concept of the full-line supplier has been well received by the
market -- indicated by double-digit sales growth for this segment of the
business.
Microelectronics
Shipley Microelectronics focuses on liquid photoresists, developers and
ancillary products used to create powerful semiconductors. In 1999, two
key product lines represented the fastest-growing portions of this
business -- deep UV photoresists, which help chip makers place
intricate, complicated patterns on tiny sections of silicon wafers using
ultraviolet light, and anti-reflective coatings, which enable the
circuitry to be put on the wafers with a clear, crisp pattern. For
Rodel, chemical mechanical planarization (CMP) was the fastest-growing
market segment.
[ID: PHOTO WITH CAPTION]
"I think the merger was inevitable due to the increasing globalization
of business. And the combination of three companies was a very
important step toward creating a corporation that can compete very
effectively in the marketplace."
-- Dagmar Kyewski, employee
During 1999, Shipley introduced a network of chemistries, processes and
services designed to meet the rigorous requirements of interconnect
fabrication, now and in the future. Marketed as MOSAIC (Metallization
and Organic Solutions for Advanced Integrated Circuits), this network is
built around advanced technologies -- each of which can be used at key
steps in the inter-connect process -- but are even more powerful for
customers who combine them as a full-service, fully compatible solution
for their interconnect needs.
[ID: PHOTO WITH CAPTION]
Finely polished silicon wafers are the first step
in making semiconductor chips.
17
<PAGE>
[ID: PHOTO WITH CAPTION]
Printed wiring boards rely on our chemistry.
MOSAIC leverages emerging technologies across the entire Electronic
Materials network: copper metallization acquired from LeaRonal, chemical
mechanical polishing (CMP) brought by Rodel, and a comprehensive
photoresist product line including deep ultraviolet (DUV) technology and
ancillaries developed by Shipley. These technologies will be expanded
to include dielectrics, which act as an insulator in microchips.
By themselves, these technologies are all significant growth drivers.
The MOSAIC combination is expected to be an even more powerful force as
the electronics industry pushes for faster circuitry and shifts from
aluminum to copper and other metals that will allow circuits to work
faster.
Microelectronics is involved in many other efforts to remain at the
forefront of technology. In addition to well-funded internal research
and development programs, strategic alliances have been created. The
most notable in 1999 was an agreement between 3M and Rodel for the
commercialization of slurry-free polishing of semiconductors and
precision polishing of memory disk products. Also, strong alliances
with equipment companies using copper technology are beyond the
development phase and now into the ramp-up phase of commercialization.
Outlook
With an aim to increase global coverage, Asia is a key area of focus for
Electronic Materials. Market recovery and a very strong response to
Rohm and Haas's full-product strategy of its PWB business has created
double-digit growth in 1999. The company expects this to continue in
2000. Microelectronics should also do well in 2000, as the company
continues its efforts to strengthen that business in the Asian region.
On the technology side, Electronic Materials will keep on doing what it
has been doing -- assisting customers at finding faster, smaller, cheaper
ways to manufacture more powerful electronic devices.
[ID: PHOTO WITH CAPTION]
Our technology was used to help create this multi-story flat panel
display in the heart of New York City.
18
<PAGE>
Salt Group
[ID: PHOTO WITH CAPTION AND QUOTE]
William E. Johnston
"The Morton Salt business and its sister companies are a welcome
addition to the Rohm and Haas portfolio. The brand-name reputation of
our products in global markets is second to none. Quality and service
are hallmarks of our operations, whether it's mining in Ojibway,
Ontario, evaporation ponds in the Camargue region of France or vacuum
pan production in Hutchinson, Kansas. We are an efficient, profitable
and growing part of this company that brings one of life's essential
elements to the world."
-- William E. Johnston
Senior Vice President
Salt and Surface Finishes
Business Description
When Rohm and Haas acquired Morton, we inherited one of the world's most
valuable, most widely recognized consumer brand names and product
symbols. The Morton Salt brand name is so powerful, for example, that
more than one out of every two salt round cans purchased by U.S.
consumers bears the image of the Umbrella Girl and the trademarked
slogan, "when it rains, it pours." The Salt Business Group also is
responsible for the leading table salt brands in Canada (Windsor),
France (La Baleine), Italy (Gemma) and Spain (Disal).
Yet even though the consumer side of the business is most well known,
the scope of the Salt Business extends far beyond the table and
specialty salt markets to water conditioning, highway/ice control, food
processing, chemical/industrial uses and agriculture.
SALT
[ID: SALES AND EARNINGS LINE CHARTS]
*Pro forma results include Morton as if this 1999
acquisition had occurred on January 1, 1998. Pro forma earnings
exclude non-recurring items.
19
<PAGE>
Salt's financial performance in 1999 was excellent. Pro forma sales for
the Salt Business Group were $849 million in 1999, up 11 percent over
pro forma sales for the year before. Pro forma earnings were $48
million for the year, compared with $30 million in 1998 on a comparable
basis.
On the Road
In the ice control market, severe winter weather creates a large demand
for highway salt. State and municipal highway departments are the
largest customers in this market. Extremely heavy storms in January
1999 in Morton's key ice control markets and a heavy storm in early
March enabled Morton to approach all-time sales records in North
America. European ice control sales also were strong, due to severe
weather in France and Northern Europe.
[ID: PHOTO WITH CAPTION]
La Baleine is the best-known brand of
table salt in France.
[ID: PHOTO WITH CAPTION]
Salt is an essential ingredient in more than
14,000 industrial and consumer products.
On the Table
Morton's table salt, known as the "Blue Package," saw modest share
growth in 1999. In other words, the Blue Package is holding its own
against competitive brands, and continues to perform very solidly. It
is clear that the consumer trusts, understands the quality, and sees the
value in the Morton brand.
For Water Conditioning
In the U.S., Morton sells water softening products through grocery and
home improvement stores, mass merchandisers and water conditioning
dealers. This business continues to benefit from new home construction,
endorsements from water softening unit manufacturers and, more
importantly, consumer confidence in the quality of the product.
Increased partnering with customers in areas such as vendor-managed
inventory services also contributed to a very solid performance in water
softening sales in 1999.
20
<PAGE>
In 1999, the Salt Group introduced a potassium-based water-softening
product. This premium-priced water softening product, which fills an
important niche, is gaining solid distribution in core accounts, and
gives consumers a range of water softening technologies from which to
choose.
Other Markets
Morton also has important markets in food processing,
chemical/industrial processing and agriculture.
The food processing market continues to grow right along with the
changing lifestyles of consumers, who are cooking at home less, and
relying more on prepared and processed foods to feed themselves and
their families.
And salt is an essential or desired ingredient in approximately 14,000
specific industrial and consumer products, including pharmaceuticals,
cosmetics, laundry and dishwashing detergents, herbicides and
pesticides.
[ID: PHOTO WITH CAPTION]
And salt is an essential ingredient for enjoying
one of Philadelphia's best-known snack traditions --
a soft pretzel with mustard.
[ID: PHOTO WITH QUOTE]
"I can help make sure that our customers get a quality product
that meets or exceeds their requirements and expectations. We have
an ISO-certified plant that enables us to address current customer
needs, and we focus on continuous product improvement to ensure
that we will satisfy their future needs as well."
-- Bill Krizman, employee
Agricultural salt is an important dietary supplement for livestock.
Salt blocks contain trace minerals such as zinc, iron and sulfur that
keep livestock healthy. Major customers include agricultural
cooperatives and farm stores.
On the Operational Side
Operational improvements include a reorganized sales force with
increased access to online information systems; new vacuum pan equipment
which supplements production capacity and increases production of
specialized grades of salt; and significantly improved operating margins
in Europe, due to process enhancements and improved efficiencies.
[ID: PHOTO WITH CAPTION]
Morton Salt has been used for years to make
electronic materials products at our Marlborough,
Massachusetts facility.
A Competitive Future
Consolidation of the salt industry and extreme pricing pressures are
forcing businesses to become more agile, especially in the ice control
sector. Nonetheless, the salt industry continues to stay healthy, and
Morton has an enviable position that through hard work continues to be
strengthened.
21
<PAGE>
Corporate Responsibility
The true test of governance is measured by a company's ability to
satisfy all stakeholders with a legitimate claim on the enterprise. At
Rohm and Haas, this includes the owner, customer, employee, community
and process -- and we listen to these voices when they speak. The rest
of this report provides an accounting to our owners for work we have
done on their behalf during the previous year.
Voice of the Employee
In 1999, the number of people working for Rohm and Haas increased from
about 11,000 to more than 21,500. Yet, even with all of the transitions
under way, the company continued to improve its safety performance.
SAFETY PERFORMANCE WORLDWIDE
[ID: BAR CHART AND CAPTION]
Rohm and Haas had an Occupational Injury
and Illness (OII) rate of 2.34 for 1999. This rate
implies that 116 fewer employees were injured in
1999 while on the job. The safety goal for 2000
is to have an OII rate of 2.0 or better.
All agree that the ultimate safety goal is to ensure that no one gets
hurt while working for Rohm and Haas. In 2000, all sites are being
asked to take a closer look at their safety performance, identify
current gaps and then set specific safety goals and a written plan for
how those goals will be achieved.
Voice of the Customer
There is ample evidence of the importance of the customer in other areas
of this report. One new initiative deserves mention in this space.
In 1999, the chairman formed an e-Business Council whose charter is to
quickly and efficiently launch Rohm and Haas into the mainstream of
global internet commerce. Considerable effort is being brought to bear
at all levels of the organization.
Voice of the Community
The only acceptable environmental goal for Rohm and Haas is to do no
harm as we strive to bring new technology and products to market and to
take swift action to correct mistakes wherever and whenever they occur.
Progress toward this goal can be measured by the ongoing commitment to
community advisory councils linked to manufacturing sites in more than
25 countries, and by high standards for the manufacturing operations
themselves. Today, more than 100 of the company's 124 manufacturing
sites worldwide are certified under ISO 9000 standards; 14 have been
certified under ISO 14000.
[ID: PHOTO WITH QUOTE]
"I can help ensure that safety issues don't get
overshadowed by production concerns."
-- Claudio Benitez, employee
Details of our environmental reporting can be found on page 31 of this
report.
Voice of the Process
One of the greatest challenges facing the larger Rohm and Haas is the
efficient and cost-effective integration of resources. In June, company
leadership promised that the integration of the acquired companies could
be completed in a manner that would result in $300 million lower
operating run rate for the organization by the end of 2000. As of
December 31st, the company had achieved more than $150 million in lower
costs. The company remains confident it will achieve the full potential
cost savings before the end of 2000.
This year, the company is committed to incorporating the best practices
from all corners of the new organization, and to building and enhancing
internal processes that facilitate growth, particularly in the areas of
e-business.
22
<PAGE>
Directors
WILLIAM J. AVERY
Chairman, Chief Executive Officer
and Director
Crown, Cork & Seal Company, Inc.
Mr. Avery, 59, has been a director
since 1997. (Committees: 4 (chair),6)
JAMES R. CANTALUPO
President & Vice Chairman
McDonald's Corporation
Mr. Cantalupo, 56, has been a director since 1999. (Committees: 1,5,6)
J. MICHAEL FITZPATRICK
President and Chief Operating Officer
Rohm and Haas Company
Dr. Fitzpatrick, 53, became a director January 1, 1999. (Committees: 2,4,5)
EARL G. GRAVES
President and Chief Executive Officer
Earl G. Graves, Ltd.
Chairman and Chief Executive Officer
Pepsi-Cola of Washington, D.C.
Publisher and Editor
Black Enterprise Magazine
Mr. Graves, 65, has been a director
since 1984. (Committees: 2,5 (chair),6)
RAJ L. GUPTA
Chairman and Chief Executive Officer
Rohm and Haas Company
Mr. Gupta, 54, became a director
January 1, 1999. (Committees: 3 (chair))
DAVID W. HAAS
Board Chairman
William Penn Foundation
Mr. Haas, 44, has been a director
since 1999. (Committees: 2,6)
THOMAS W. HAAS
Pilot and Flight Instructor
Mr. Haas, 44, has been a director
since 1999. (Committees: 4,6)
JAMES A. HENDERSON
Retired Chairman, Chief Executive Officer and Director
Cummins Engine Company, Inc.
Mr. Henderson, 65, has been a director since 1989. (Committees: 1,5,6)
RICHARD L. KEYSER
Chairman of the Board and
Chief Executive Officer
W.W. Grainger, Inc.
Mr. Keyser, 57, has been a director
since 1999. (Committees: 4,6)
JOHN H. MCARTHUR
Retired Dean
Harvard University Graduate School
of Business Administration
Mr. McArthur, 65, has been a director since 1977.
(Committees:1 (chair), 3,5,6)
JORGE P. MONTOYA
President, Global Food & Beverage
and Latin America
The Procter & Gamble Company
Mr. Montoya, 53, has been a director since 1996. (Committees: 4,6)
SANDRA O. MOOSE
Senior Vice President and Director
The Boston Consulting Group, Inc.
Dr. Moose, 58, has been a director
since 1981. (Committees: 3,4,6 (chair))
GILBERT S. OMENN
Executive Vice President for
Medical Affairs
University of Michigan
CEO, The University of Michigan Health System
Dr. Omenn, 58, has been a director since 1987. (Committees: 2 (chair),6)
RONALDO H. SCHMITZ
Member of the Board of
Managing Directors
Deutsche Bank AG
Dr. Schmitz, 61, has been a director
since 1992. (Committees: 1,5,6)
MARNA C. WHITTINGTON
Chief Operating Officer
Morgan Stanley Institutional
Investment Management
Dr. Whittington, 52, has been a director since 1989. (Committees: 1,3,5,6)
[ID: PHOTO WITH CAPTION]
Committees
1. Audit
2. Corporate Responsibility,
Environment, Safety and Health
3. Executive
4. Executive Compensation
5. Finance
6. Nominating
23
<PAGE>
Officers
ROBERT ANDREW
Vice President
Business Director,
Specialty Polymers
WILLIAM C. ANDREWS
Vice President
Business Director,
Monomers
THOMAS L. ARCHIBALD
Vice President
Director, Operations
& Manufacturing
PAUL J. BADUINI
Vice President
Director, Engineering
ALAN E. BARTON
Vice President
Business Director,
Coatings
WALTER W. BECKY
Vice President
Business Director, Salt
BRADLEY J. BELL
Senior Vice President
Chief Financial Officer
PIERRE R. BRONDEAU
Vice President
Business Group Director,
Electronic Materials
President and CEO,
Shipley Company
A. WAYNE CARNEY
Vice President
President, Canadian Salt
Sales & Marketing Director,
Morton Salt, NAR
PATRICK R. COLAU
Senior Vice President
Business Group Director,
Performance Polymers
JACQUES M. CROISETIERE
Vice President
Business Director,
Ion Exchange Resins
NANCE K. DICCIANI
Senior Vice President
Business Group Director,
Chemical Specialties
Director, European Region
GERARD DUMONTEIL
Vice President
President & Director General,
Salins du Midi
ROBERT P. EDMONSTON
Vice President
Business Director,
Performance Chemicals
DAVID T. ESPENSHADE
Vice President
Director, Purchasing
CARLOS A. ESTEVEZ
Vice President
Business Director,
Agricultural Chemicals
J. MICHAEL FITZPATRICK
President
Chief Operating Officer
JOSEPH J. FORISH
Vice President
Director, Human Resources
MICHAEL S. FOSTER
Vice President
President, Shipley Ronal
RAJ L. GUPTA
Chairman
Chief Executive Officer
NICHOLAS A. GUTWEIN
Vice President
Business Director,
Adhesives & Sealants
WILLIAM E. JOHNSTON
Senior Vice President
Business Group Director,
Salt & Surface Finishes
TONY KHOURI
President & Chief Executive Officer, Rodel
PHILIP G. LEWIS
Vice President
Director, Environmental
Health & Safety
ROBERT A. LONERGAN
Vice President
General Counsel
FRANCIS T. MAHER
Vice President
Director, Asia-Pacific Region
JOHN F. MCKEOGH
Vice President
Director, Communications
& Public Relations
GUILLERMO NOVO
Vice President
Director, Latin American Region
STEPHEN J RAUSCHER
Vice President
Director, Performance Polymers
Supply Chain
STEPHEN J. ROBINSON
Vice President
President, Shipley
Microelectronics Division
JAMES C. SWANSON
Vice President
Business Director,
Powder Coatings
GERRY E. TARZIA
Vice President
Business Director, Consumer
& Industrial Specialties
CHARLES M. TATUM
Senior Vice President
Chief Technology Officer
DAVID R. UNDERWOOD
Vice President
Business Director,
Plastics Additives
ANNE M. WILMS
Vice President
Director,
Information Technology
WILLIAM A. WULFSOHN
Vice President
Business Director,
Automotive Coatings
24
<PAGE>
1999 Financial Review
[ID: PHOTO]
Contents:
Management Discussion and Analysis
Results of Operations (1999, 1998 and 1997) 26
Summary by Business Segment (1999, 1998 and 1997) 28
Summary of Consolidated Results 29
Liquidity, Capital Resources and Other Financial Data 30
Market Risk Discussion 37
Consolidated Financial Statements
Summary of Significant Accounting Policies 39
Statements of Consolidated Earnings 41
Statements of Consolidated Cash Flows 42
Consolidated Balance Sheets 43
Statements of Consolidated Stockholders' Equity 44
Notes to Consolidated Financial Statements
Note 1 Acquisitions and Dispositions of Assets 45
Note 2 Investments 46
Note 3 Purchased In-process Research and
Development 46
Note 4 Provision for Restructuring 47
Note 5 Other Income (Expense), Net 48
Note 6 Financial Instruments 48
Note 7 Income Taxes 49
Note 8 Segment Information 50
Note 9 Pension Plans 51
Note 10 Employee Benefits 53
Note 11 Accounts Receivable, Net 53
Note 12 Inventories 54
Note 13 Prepaid Expenses and Other Assets 54
Note 14 Land, Buildings and Equipment, Net 54
Note 15 Goodwill and Other Intangible Assets, Net 54
Note 16 Other Assets 54
Note 17 Notes Payable 54
Note 18 Long-Term Debt 55
Note 19 Accounts Payable and Accrued Liabilities 55
Note 20 Other Liabilities 55
Note 21 Stockholders' Equity 55
Note 22 Stock Compensation Plans 56
Note 23 Leases 57
Note 24 Contingent Liabilities, Guarantees and
Commitments 57
Note 25 Quarterly Results of Operations 60
Report on Financial Statements 61
Report of Independent Accountants 61
Eleven-Year Summary of Selected Financial Data 62
25
<PAGE>
Management Discussion and Analysis
In January 1999, the company acquired LeaRonal, Inc. (LeaRonal) an
electronic materials business and, in June of 1999, Morton
International, Inc. (Morton), a specialty chemicals producer. The
details of these transactions are discussed under "Liquidity, Capital
Resources and Other Financial Data" below. The results of LeaRonal and
Morton have been included in the consolidated financial statements since
the dates of acquisition. Unaudited pro forma information is presented
in both the table on page 27 and in the Notes to Consolidated Financial
Statements.
These acquisitions, accounted for using the purchase method,
significantly impact the comparability of 1999 results versus the prior
year. Accordingly, pro forma sales and earnings excluding non-recurring
items are provided in the results of operations discussions to
facilitate comparisons. The pro forma results include Morton and
LeaRonal as if the acquisitions had occurred on January 1, 1998. Pro
forma adjustments have been made primarily to reflect increased goodwill
and intangible amortization and interest expense. Cost savings from
integration efforts have not been reflected. Though useful for
comparison, pro forma results are not intended to reflect actual
earnings had the acquisitions occurred on the dates indicated and are
not a projection of future results or trends.
Recent acquisitions such as Rodel, the joint venture with Stockhausen and
the divestiture of Industrial Coatings are discussed under "Liquidity,
Capital Resources and Other Financial Data." The effects of these
activities are not reflected in the consolidated financial statements as of
December 31, 1999.
Within the following discussion, unless otherwise stated, "year" and
"prior year" refer to 1999 and 1998, respectively. All comparisons are
with the previous year, unless otherwise stated.
Results of Operations 1999, 1998 and 1997
Earnings for 1999 were $249 million compared to prior year's earnings of
$440 million. Diluted earnings per common share was $1.27 compared to
$2.45 in 1998. As shown in the table on page 29 both 1999 and 1998
include certain non-recurring items. Earnings excluding these items for
1999 were $410 million, up 4% from 1998 earnings of $395 million. Sales
for 1999 increased to $5,339 million from $3,720 million in 1998. The
increase in sales includes contributions from the acquired Morton and
LeaRonal businesses from the respective dates of acquisition. On a pro
forma basis sales grew 3% to $6,652 million from $6,430 million in 1998.
Diluted earnings per common share excluding non- recurring items was
$2.09 versus $2.20 in 1998.
Earnings for 1998 of $440 million increased 7% over 1997 earnings of
$410 million. Diluted earnings per common share was $2.45 compared to
$2.13 in 1997. Sales decreased 7% on a 1% volume increase. The company
sold its interest in the AtoHaas joint venture in 1998, affecting the
sales and volume comparison. In addition to the exclusion of AtoHaas's
sales from 1998, the remaining 50% of NorsoHaas was acquired and
operations in China were consolidated during the year. The
unconsolidated RohMax joint venture was also sold in 1998 but did not
affect the sales and volume comparisons. On a comparable-business
basis, sales decreased 3% while volume was flat. The sales decrease on
flat volume is largely a result of weaker currencies, primarily in
Asia-Pacific, and lower selling prices. Volume increased in Europe and
in Latin America while economic weakness hurt volume in the Asia-Pacific
region. Volume in North America was flat. On a comparable basis,
Asia-Pacific region sales declined 19% and volume decreased 12%. The
company's earnings for the year were flat, excluding non- recurring
items. Diluted earnings per common share excluding non-recurring items
were $2.20 in 1998, up 7% versus 1997. The increase in reported
earnings per share reflects the impact of the company's stock repurchase
program and earnings from non-recurring items discussed below.
Nineteen ninety-nine includes non-recurring after-tax charges of $161
million, or $.82 per share, including a charge of $105 million for
purchased in-process research and development (IPR&D) from the Morton
acquisition. Also included is an after-tax charge of $23 million, or
$.12 per share, for restructuring costs resulting both from the
integration of Morton and the company's redesign of its selling and
administrative infrastructure. The charge is primarily composed of
severance costs. In addition, an after-tax charge of $26 million, or
$.13 per share, and after-tax income of $17 million, or $.09 per share,
were recorded as other expense for other integration costs, primarily
outside consultants and for remediation-related insurance recoveries,
respectively. Included in 1998 results are a one-time net after-tax
gain of $45 million, or $.25 per share. This net gain affected all
segments and regions, except Latin America, and was the net result of
the sale of the
26
<PAGE>
<TABLE>
<CAPTION>
Net Sales by Business Segment and Customer Location
Performance Chemical Electronic
Polymers Specialties Materials Salt Total
- ----------------------------------------------------------------------------------------------------------------
(Millions of
dollars) 1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America $1,884 $1,456 $1,632 $ 486 $ 400 $ 377 $352 $180 $178 $291 $3,013 $2,036 $2,187
Europe 743 531 568 354 321 301 168 93 90 113 1,378 945 959
Asia-Pacific 197 167 232 224 176 210 235 125 131 -- 656 468 573
Latin America 115 100 125 177 171 155 -- -- -- -- 292 271 280
----------------------------------------------------------------------------------------------
Total $2,939 $2,254 $2,557 $1,241 $1,068 $1,043 $755 $398 $399 $404 $5,339 $3,720 $3,999
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summary of 1995-1999 Results by Business Segment (1)
Actual Pro forma(2)
------------------------------
(Millions of dollars) 1999 1998 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
Performance Polymers $2,939 $2,254 $3,551 $3,521 $2,557 $2,549 $2,482
Chemical Specialties 1,241 1,068 1,367 1,335 1,043 1,075 1,048
Electronic Materials 755 398 885 806 399 358 354
Salt 404 -- 849 768 -- -- --
------------------------------------------------------
Total $5,339 $3,720 $6,652 $6,430 $3,999 $3,982 $3,884
NET EARNINGS
Performance Polymers $ 350 $ 372 $ 410 $ 367 $ 297 $ 253 $ 225
Chemical Specialties 115 94 135 130 105 133 108
Electronic Materials 57 45 67 59 52 39 43
Salt 10 -- 48 30 -- -- --
Corporate (3) (283) (71) (269) (279) (44) (62) (84)
------------------------------------------------------
Total $ 249 $ 440 $ 391 $ 307 $ 410 $ 363 $ 292
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summary of 1995-1999 Net Sales by Region
Actual Pro forma
------------------------------
(Millions of dollars) 1999 1998 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
North America $3,013 $2,036 $3,921 $3,871 $2,187 $2,122 $2,074
Europe 1,378 945 1,763 1,753 959 1,006 976
Asia-Pacific 656 468 674 527 573 592 597
Latin America 292 271 294 279 280 262 237
------------------------------------------------------
Total $5,339 $3,720 $6,652 $6,430 $3,999 $3,982 $3,884
- --------------------------------------------------------------------------------
</TABLE>
(1) 1995-1998 amounts have been restated to reflect the current
financial reporting structure.
(2) Pro forma results include Morton and LeaRonal as if these 1999
acquisitions had occurred on January 1, 1998. Pro forma net
earnings exclude non-recurring items.
(3) Corporate includes non-operating items such as interest income and
expense, corporate governance costs, and corporate exploratory
research. In 1998, it includes loss on early extinguishment of
debt, and in 1999, a $105 charge for purchased in-process research
and development costs associated with the Morton acquisition and
significant increases in interest expense associated with both the
Morton and LeaRonal acquisitions. (See "Management's Discussion and
Analysis.")
27
<PAGE>
company's interest in the AtoHaas and RohMax joint ventures, an early
extinguishment of debt, the write-off of certain intangible assets in
Europe and business realignment costs primarily in Asia. (A
reconciliation from reported earnings to earnings excluding
non-recurring items by business segment for 1999 and 1998 is presented
in the table on page 29.) Earnings in 1997 included a gain of $16
million after tax, or $.09 per common share, the net result of
remediation settlements with insurance carriers.
Though an insignificant number of treasury shares were repurchased
during 1999, primarily related to the exercise of stock options, the
repurchase of 17.5 million and 7.7 million common shares during 1998 and
1997, respectively, contributed incrementally $.13 per share to 1998 and
$.12 per share to 1997.
Summary by Business Segment
(Refer to table on page 27)
The company's operations are organized by worldwide business segments.
A description of each business segment's operations is included in the
beginning of this Annual Report.
PERFORMANCE POLYMERS sales increased to $2,939 million in 1999 from
$2,254 million in 1998. Pro forma sales increased 1%. Despite
significant volume gains in Performance Polymers, lower selling prices
prevented comparable top line growth. Pro forma sales of Coatings,
Adhesives and Sealants and Plastic Additives were strong, while Monomers
sales decreased. Sales increased in all regions with the exception of
North America, where segment sales were essentially flat. Reported
earnings excluding non-recurring items increased to $365 million for
1999 from $298 million in the prior year. Pro forma earnings, which
exclude non-recurring items, increased 12% largely on higher volume but
was also helped by lower raw material costs and smooth plant operations.
Performance Polymers 1998 earnings, excluding non-recurring items, were
$298 million, or essentially unchanged from 1997. Sales were down 12%
to $2,254 million from $2,557 million in 1997, largely as a result of
the absence of 1997 AtoHaas sales of $305 million. Volume was flat and
sales decreased on a comparable- business basis. The decrease in sales
on flat volume was primarily a result of unfavorable currencies in
Europe and Asia-Pacific and lower selling prices. Performance Polymers
sales in the Asia-Pacific region were down significantly from the prior
year. Earnings increased slightly, excluding non-recurring items,
largely as a result of lower raw material prices and higher volume in
North America and Europe.
CHEMICAL SPECIALTIES sales increased to $1,241 million in 1999 from
sales of $1,068 million in 1998. Pro forma sales increased 2%, largely
due to sales of Agricultural Chemicals in Asia-Pacific and Europe with
North America sales showing a modest increase. The Consumer and
Industrial Specialties business contributed to sales growth,
particularly outside of North America. Earnings excluding non-recurring
items for 1999 increased 12% from the prior year period. On a pro forma
basis, earnings increased 4% primarily because of Agricultural
Chemicals, which benefited from favorable weather conditions throughout
most of the year and economic recovery in several important markets.
Chemical Specialties 1998 earnings were $109 million, excluding
non-recurring items, up 4% from $105 million in 1997. Sales of $1,068
million increased 2% from 1997 sales of $1,043 million despite weaker
currencies in Europe and Asia-Pacific. Strong mid-year demand in the
Agricultural Chemicals business and increased sales of Formulation
Chemicals led the sales increase, but were partially offset by decreased
comparative results for the Ion Exchange Resins business, particularly
in Asia and Eastern Europe. The earnings increase was driven by
strength in the Agricultural Chemicals and Consumer and Industrial
Specialties businesses, particularly in North America. Volume-driven
earnings decreases in the Ion Exchange Resins business in Asia offset
most of these increases.
ELECTRONIC MATERIALS sales increased to $755 million in 1999 from $398
million in 1998 as a result of the LeaRonal and Morton acquisitions in
1999. Pro forma sales increased 10% on volume in both Micro, the
specialty chemicals business serving the semiconductor industry, and
Shipley Ronal, which consists of the printed wiring board and metal
finishing businesses. A strong economic recovery in Asia-Pacific was a
contributing factor to this performance. Reported earnings, excluding
non-recurring items, increased to $70 million from $46 million in the
1998 period.
Electronic Materials produced earnings of $46 million in 1998, excluding
non-recurring items, a decrease of $6 million, or 12%, from the 1997
period. Sales were essentially flat. Sales increased in all regions,
except Asia- Pacific, which offset the other regions. The effects of
solid growth in North America and the 1998 contribution of Rodel, a
33%-owned affiliate acquired in 1997, were mitigated by lower sales and
earnings in Asia-Pacific.
SALT sales were $404 million in 1999. Included in results for the first
time due to the acquisition of Morton, this business
28
<PAGE>
includes salt for a variety of uses, such as table salt, food
processing, industrial processing, water softening and highway icing
control. Pro forma sales increased 11%, largely through growth in North
America, driven by weather-related demand early in the year. Sales in
Europe were also higher.
SUMMARY OF EARNINGS AS REPORTED TO EARNINGS
EXCLUDING NON-RECURRING ITEMS
A reconciliation of earnings as reported to earnings excluding
non-recurring items is presented below (in millions):
- ------------------------------------------------
1999 1998
- ------------------------------------------------
EARNINGS AS REPORTED $249 $440
IPR&D and other
acquisition-related charges 115 --
Joint venture dispositions 14 (76)
Remediation-related insurance
settlements (17) --
Provision for restructuring 23 --
Asset write-downs,
integration and other costs 26 18
Early retirements of debt -- 13
- ------------------------------------------------
EARNINGS, EXCLUDING
NON-RECURRING ITEMS $410 $395
- ------------------------------------------------
CORPORATE expenses totaled $283 million in 1999 compared to $71 million
in the prior year. Included in 1999 corporate expenses are
non-recurring items such as a $105 million non-cash charge for
in-process research and development, an after-tax charge of $14 million
to settle a matter related to the company's 1998 sale of the AtoHaas
joint venture, an after-tax gain of $17 million resulting from favorable
settlements with insurance carriers over certain environmental
remediation matters and integration costs for the acquisitions.
Excluding non-recurring items, corporate expenses increased primarily as
a result of higher interest expense. Corporate expenses decreased
almost 4% compared to 1998 on a pro forma basis.
Corporate expenses totaled $71 million in 1998, compared with $44
million in 1997. After-tax charges of $13 million related to
extraordinary losses on the early extinguishment of debt were included
in 1998 results while 1997 reflects an after-tax gain of $16 million,
the result of remediation settlements with insurance carriers during the
fourth quarter. Interest expense of $34 million in 1998 was down 13%
from 1997 interest expense because of 1998 debt retirements.
Summary of Consolidated Results
NET SALES for 1999 increased to $5,339 million from $3,720 million in
1998. The increase in sales includes contributions from the acquired
Morton and LeaRonal businesses from the respective dates of acquisition.
On a pro forma basis, sales grew 3%, to $6,652 million from $6,430
million in 1998. The company's reported earnings, excluding
non-recurring items, increased 4%. Diluted earnings per common share
excluding non-recurring items were $2.09 per share versus $2.20 in 1998.
In 1998, net sales decreased 7% on a 1% volume increase versus 1997. On
a comparable business basis, sales decreased 3% while volume was flat.
In addition to the divestiture of two businesses, resulting in the
exclusion of AtoHaas' sales from 1998, the remaining 50% of NorsoHaas
was acquired and operations in China were consolidated during 1998. The
1998 sales decrease on higher volume is largely a result of weaker
currencies, primarily in Asia-Pacific, and 2% lower selling prices.
Volume was strong in Europe and Latin America while the unfavorable
business environment hurt volume in the Asia-Pacific region. Volume in
North America was flat. On a comparable business basis, Asia-Pacific
region 1998 sales declined 19% and volume decreased 12% compared to
1997. Volume growth was strong in all regions during 1998, with all
businesses contributing except Agricultural Chemicals.
GROSS PROFIT of $1,965 in 1999 increased from $1,464 in 1998, but gross
profit margin decreased to 37% versus 39% in the prior year period.
This change reflects in large part the impact of former Morton
businesses which operated at lower margins. Also having an impact is
higher depreciation expense resulting from the step-up to fair value of
acquired assets and 3% unfavorable selling prices. Raw material prices
decreased 6% in 1999 with most of the decreases reflected in the first
half. During the second half of the year raw material prices began to
rise with year over year increases manifested in the fourth quarter.
Gross profit of $1,464 million increased 1% from 1997 to 1998, largely
as a result of 10% lower raw material costs and efficient plant
operations. Selling prices were 2% lower. Currency fluctuations in
Europe and Asia- Pacific were unfavorable. Raw material prices declined
throughout 1998 compared to 1997 largely as a result of lower prices in
North America benefiting the Performance Polymers segment.
SELLING, ADMINISTRATIVE AND RESEARCH (SAR) EXPENSES for 1999, excluding
the $105 million IPR&D charge, increased 32% compared to the 1998
period. Excluding expenses of Morton and LeaRonal, SAR decreased
approximately 3%.
SAR expenses for 1998 were essentially unchanged compared to the 1997
period, reflecting the net effect of higher
29
<PAGE>
research expense and lower selling and administrative expense due to the
absence of AtoHaas costs.
COST REDUCTION INITIATIVES 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 December 31, 1999 approximately half of this goal had
been reached through cost reductions in support services, procurement
and manufacturing. A restructuring charge resulting, in part, from
these activities was recorded in the year and is discussed below.
INTEREST EXPENSE increased to $159 million in 1999 from $34 million in
1998, due largely to higher debt levels resulting from 1999
acquisitions. Interest expense of $34 million in 1998 decreased 13%
from 1997 due to 1998 debt retirements.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT (IPR&D), in acquisitions
accounted for by the purchase method, represents the value assigned to
research and development projects of an acquired company where
technological feasibility had not yet been established at the date of
the acquisition, and which, if unsuccessful, have no alternative future
use. Amounts assigned to IPR&D are charged to expense at the date of
acquisition. Accordingly, the company has charged $105 million to
expense in 1999 related to the Morton acquisition. (See Note 3 in Notes
to Consolidated Financial Statements.)
SHARE OF AFFILIATE NET EARNINGS in 1999 of $7 million increased from
earnings of $2 million in 1998, but decreased compared to earnings of
$11 million in 1997. The 1999 earnings result largely from Rodel.
Affiliate earnings decreased in 1998 due to the absence of the affiliate
earnings of RohMax. In 1997, share of affiliate net earnings were a
result of the RohMax joint venture, the contribution of Rodel and
improved results from AtoHaas Europe.
PROVISION FOR RESTRUCTURING A restructuring reserve was established in
1999 for costs related both to the integration of Morton and the
company's redesign of its selling and administrative infrastructure. A
portion of these costs resulted in a before-tax charge of $36 million
($.12 per share after-tax) largely for severance costs for approximately
700 employees of Rohm and Haas, the acquiring company. The charge is
net of after-tax pension settlement and curtailment gains. Further
settlement gains will be realized over the next year. An additional $68
million largely severance-related reserve associated with staff
reductions of approximately 500 employees of the acquired company was
recorded in the allocation of the Morton purchase price. Most of the
approximately 1,200 employees affected were in support services,
including selling, technical and administrative staff functions,
approximately one-third of whom separated from the combined company
before December 31, 1999 with the balance scheduled to separate in the
first half of 2000. (See Note 4 in Notes to Consolidated Financial
Statements.) Further charges for restructuring are expected during 2000
as the company continues to evaluate and align its business portfolio
with its stated goals.
OTHER INCOME (EXPENSE), NET was $10 million in 1999 compared to expense
of $16 million in 1998 and other income of $28 million in 1997. Income
in 1999 and 1997 relates largely to remediation settlements with
insurance carriers during those years.
EFFECTIVE TAX RATE for 1999 was 46%, up from 35% from the prior year
period, largely as a result of the non- deductible write-off of IPR&D.
Excluding this charge, the effective tax rate was 38%. The 1999 rate
also reflects the effect of non-deductible amortization charges
resulting from the company's 1999 acquisition activities. The effective
tax rate was 33% in 1997. The 1998 increase compared to 1997 was
largely a result of the tax effect of 1998 non-recurring items,
primarily the gain on the divestiture of the AtoHaas and RohMax joint
ventures.
Liquidity, Capital Resources and Other Financial Data
CASH FLOW provided by operations for 1999 was $816 million compared to
$682 million in 1998. The resulting free cash flow of $352 million in
1999 and $328 million in 1998 was used largely in the company's
acquisitions activities. Free cash flow is cash provided by operating
activities less fixed asset spending and dividends.
FINANCING Total borrowings at year-end 1999 were $4.1 billion, compared
to $581 million at year-end 1998. At the end of 1999, the debt ratio
was 52% compared with 25% at the end of 1998. In 1998, the company
retired $130 million of high interest long-term debt through a tender
offer. These debt retirements resulted in an after- tax extraordinary
loss of $13 million, or $.07 per share.
On July 6, 1999, the company issued $2 billion of long-term debt,
refinancing a portion of the commercial paper borrowings used as initial
financing for the Morton and LeaRonal
30
<PAGE>
acquisitions. These debt securities include $500 million of
five-year 6.95% notes, $500 million of ten-year 7.40% notes and $1
billion of thirty-year 7.85% debentures. Each series of securities will
mature on July 15 of its respective year of maturity with interest
payable semiannually on January 15 and July 15 of each year, beginning
January 15, 2000. The securities are senior unsecured obligations of
the company and will rank equally with all other senior unsecured
indebtedness. The securities contain restrictions similar to the
company's other long-term debt. There are no restrictions on the
payment of dividends. In Europe on March 7, 2000, the company issued
[eurodollars symbol] 400 million (or $388 million) of 6.0% notes due 2007.
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. 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.
The laws and regulations under which the company operates require
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 and has been named a potentially responsible party at approximately
140 inactive waste sites where remediation costs have been or may be
incurred under the Federal Comprehensive Environmental Response,
Compensation and Liability Act and similar state statutes. In some of
these cases the company may also be held responsible for alleged
personal injury or property damage. The company has provided for future
costs at certain of these sites.
The company is also involved in corrective actions at some of its
manufacturing facilities. The company considers a broad range of
information when determining the amount of its remediation accruals,
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; however, at certain
sites, the company is unable, due to a variety of factors, to assess and
quantify the
[ID - GRAPHIC: GROSS PROFIT, SAR, OPERATING EARNINGS*]
[ID - GRAPHIC: SELLING PRICE AND RAW MATERIALS COST INDICES*]
31
<PAGE>
ultimate extent of its responsibility for study and remediation costs.
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 Houston, Texas. The Morton acquisition
introduced two major sites: Moss Point, Mississippi and Wood-Ridge,
New Jersey.
In Wood-Ridge 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. Based
on the progress of the technical studies, the company expects to develop
a range of estimated liabilities in 2000 and revise the allocation of
the Morton purchase price; however, final determination of the liability
will not be made until regulatory decisions permit such determination.
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
[ID -- GRAPHIC: ASSET TURNOVER, OPERATING MARGIN AND ROA]
[ID -- GRAPHIC: RETURN ON INVESTMENT]
32
<PAGE>
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 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 $4 million in 1999, $10 million in 1998 and $46 million in 1997.
The 1997 expense includes a $20 million charge resulting from an
unfavorable arbitration decision relating to the Woodlands sites;
however, reflected in the 1999 charge is a favorable adjustment of $11
million resulting from formal approval received in 1999 of a less costly
remediation method.
The reserves for remediation were $201 million and $131 million at
December 31, 1999 and 1998, 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 in 1999 for a total of $28 million, which resulted in
after-tax income of approximately $17 million. These settlements were
recognized as income in 1999 and there were no insurance recoveries
receivable at December 31, 1999. Insurance recoveries receivable,
included in accounts receivable, net, were $2 million at December 31,
1998.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies related to environmental matters
of approximately $110 million and $65 million at December 31, 1999 and
1998, respectively. Further, the company has identified other sites,
including its larger manufacturing facilities, 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 costs 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 or cash flows in any given quarter.
Capital spending for new environmental protection equipment was $30
million in 1999 versus $17 million in 1998. Spending for 2000 and 2001
is expected to be approximately $29 million and $17 million,
respectively. Capital expenditures in this category include projects
whose primary purposes are pollution control and safety, as well as
environmental aspects of projects in other categories in the table under
"Additions to Land, Buildings and Equipment" below that 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 $27 million
in 1999, $26 million in 1998 and $37 million in 1997. The expenditures
for remediation are charged against accrued remediation reserves. The
cost of operating and maintaining environmental facilities was $107
million, $94 million and $95 million in 1999, 1998 and 1997,
respectively, and was charged against current-year earnings.
DIVIDENDS Total common stock dividends paid in 1999 were $.74 per share,
compared to $.70 per share in 1998. 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 1999, 1998 and 1997.
ADDITIONS TO LAND, BUILDINGS AND EQUIPMENT Fixed asset additions were
$323 in 1999 and $229 in 1998. Fixed asset additions during 1999
included acrylics expansion in Texas; Coatings expansion in Kentucky;
spending on emulsions plants in Spain and China and additional
investment in the Agricultural Chemicals business. Nineteen
ninety-eight spending focused on emulsions capacity in Europe, ion
exchange resin and emulsions capacity in Asia-Pacific and further
investment in the Electronic Materials businesses.
33
<PAGE>
The company has budgeted capital expenditures in 2000 of approximately
$400 million. Spending for environmental protection equipment, which is
included in several of the categories in the table shown below, was $30
million in 1999, $17 million in 1998 and $18 million in 1997.
Expenditures for the past three years, categorized by primary purpose of
project, were:
- -------------------------------------------------------
(Millions of dollars) 1999 1998 1997
- -------------------------------------------------------
Environmental, cost savings
and infrastructure $191 $133 $137
Capacity additions and new
products 98 60 87
Research facilities and
equipment 22 27 18
Capitalized interest cost 12 9 12
======================
Total $323 $229 $254
- -------------------------------------------------------
ACQUISITIONS AND DIVESTITURES 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 (see below). As of December 31, 1999, $26
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 December 31, 1999,
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 chemical processes 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, later analysis of
certain acquired assets and liabilities and the effects of plans now
under way to integrate the two companies, including asset write-downs
and severance costs. The allocation as of December 31, 1999 has
resulted in acquired goodwill of approximately $202 million, which is
being amortized on a straight-line basis over 40 years.
[ID -- GRAPHIC: DILUTED EARNINGS AND DIVIDENDS]
[ID -- GRAPHIC: FREE CASH FLOW]
34
<PAGE>
The results of both Morton and LeaRonal have been included in the
consolidated financial statements since the acquisition date.
In the first quarter of 2000 the company sold its Industrial Coatings
business to BASF for approximately $175 million. 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 will be recorded on this
transaction.
Also in the first quarter of 2000 the company announced its intention to
acquire Acima, 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 of high technologies for the
semi-conductor industry. The combined cost for these two transactions
will be approximately $90 million. The Acima and SVC transactions will
be accounted for under the purchase method and results of operations
combined as of the respective dates of acquisition. The financial
statements will reflect the allocation of the purchase price based on
estimated fair values at the date of acquisition.
In the second quarter of 1999, the company announced its intentions to
enter into a joint venture with Stockhausen GmbH and Company
("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 1998, the company increased its interest in Rodel to 33%, and in
early 1999, purchased an additional 15% interest. The total cost for
these investments was approximately $149 million. Rodel is a privately
held, Delaware-based leader in precision polishing technology serving
the semiconductor, memory disk and glass polishing industries. The
investment has been accounted for on the equity method with the
company's share of earnings reported as equity in affiliates. In the
first quarter of 2000, the company increased its ownership in Rodel,
Inc., from 48% to 80% for a cost of $164 million. Rodel will be
consolidated in the company's financial statements beginning in the
first quarter of 2000 and will be accounted for under the purchase
method with results of operations combined as of the date of
acquisition. The financial statements will reflect the allocation of
the purchase price based on estimated fair values at the date of the
transactions. The amortization period of the resulting goodwill will be
determined when the transaction is complete and a thorough review in
accordance with the company's policies of all relevant factors has been
completed.
The company sold its interest in the AtoHaas and RohMax businesses in
June 1998 for cash proceeds of $287 million, resulting in a net
after-tax gain of $76 million, or $.41 per share. Subsequent to the
sale of the AtoHaas joint venture, the buyer asserted a claim against
the company in late 1998
[ID -- GRAPHIC: CAPITAL ADDITIONS AND DEPRECIATION]
[ID -- GRAPHIC: ASSET TURNS]
35
<PAGE>
related to the value of certain joint venture assets. In 1999, the
company settled this matter for approximately $22 million ($14 million,
after-tax). In 1998, the company acquired the remaining 50% interest in
NorsoHaas, an affiliate acquired in 1997.
STOCK REPURCHASES For the four years ended December 31, 1999, the
company repurchased more than 38 million shares, or approximately 19% of
common shares outstanding, at a cost of approximately $1 billion. The
company repurchased an insignificant number of shares in 1999. During
1998 the company repurchased 17,459,435 shares of its common stock at a
total cost of $567 million and 7,653,453 shares in 1997 at a cost of
$216 million. Most of the shares obtained in 1998 were through an
accelerated stock repurchase program with a third party. Under the
terms of this program, the final cost to the company of $440 million
($62 million paid in 1999) reflected the average share price paid by the
third party in the market over an extended trading period. Through
December 31, 1999, the company had repurchased two-thirds of the 12
million shares of common stock authorized under the current buyback
program and received board approval in 1998 for another buyback program
of an additional 9 million shares. The company does not intend to buy
back a significant number of shares in the near future. There were
218,981,189 and 167,587,287 common shares outstanding at December 31,
1999 and 1998, respectively.
WORKING CAPITAL Accounts receivable from customers increased $643
million and inventory increased $472 million, both reflecting 1999
acquisitions. Days sales outstanding were 70 days, up from 63 days at
the end of 1998. Days cost of sales in ending inventory was 76 days, up
from 69 days at the end of 1998.
Details about two major components of working capital at the end of 1999
and 1998 follow:
- ----------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------
INVENTORIES
Year-end balance $ 899 $427
Annual turnover 4.8x 5.3x
- ----------------------------------------------
CUSTOMER RECEIVABLES
Year-end balance $1,285 $642
Annual turnover 5.2x 5.8x
- ----------------------------------------------
LAND, BUILDING AND EQUIPMENT, NET Investments in land, buildings and
equipment, net is summarized below:
- ----------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------
Year-end balance $3,496 $1,908
Annual turnover 1.9x 2.0x
- ----------------------------------------------
Annual turnover figures are calculated by dividing annual sales (for
customer receivables and land, buildings and equipment, net) or cost of
goods sold (for inventories) by the year-end balance. Pro forma annual
sales and cost of sales were used for the 1999 calculations. 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.
ASSET TURNOVER equals sales divided by year-end total assets. Asset
turnover was 1.0 in 1999, 1998 and 1997. The 1999 amount was calculated
using pro forma sales and assets.
RETURN ON ASSETS (ROA) equals net earnings plus after-tax interest
expense, divided by year-end total assets. ROA was 4.0% in 1999,
excluding the IPR&D charge, 12.7% in 1998 and 11.2% in 1997.
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 13%
in 1999, excluding the IPR&D charge, 25% in 1998 and 23% in 1997.
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. All of the company's centralized computer systems were
inventoried and assessed to determine their year 2000 readiness, and
remediation of all systems was completed in 1999. When the date change
occurred, the company experienced only minor computer-related failures,
none of which caused business interruption.
A significant proportion of the costs associated with the year 2000
effort represented the redeployment of existing information technology
resources. In addition, there were consulting and other expenses
related to software application and facilities enhancements necessary to
prepare the systems for the year 2000. The total cost of $19 million
was charged to expense as incurred over the duration of the project.
RECENT ACCOUNTING STANDARDS In 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (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
36
<PAGE>
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.
Market Risk Discussion
The company is exposed to market risk from changes in foreign currency
exchange rates, interest rates and commodity prices. This exposure
exists because the company denominates its business transactions in a
variety of foreign currencies. Also, it finances its operations through
long- and short-term borrowings and purchases raw materials at market
prices. As a result, future earnings, cash flows and fair values of
assets and liabilities are subject to uncertainty. The company's
operating and financing plans include actions to reduce this uncertainty
including, but not limited to, the use of derivative financial
instruments.
The company has established policies governing its use of derivative
instruments including counterparty risks. The company does not use
derivative instruments for trading or speculative purposes and only
enters into derivative contracts based on an economic analysis of
underlying exposures, in the expectation 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 risk 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 rates and commodity prices on the company's business
operations, the risk management system uses sensitivity analysis as a
primary analytical technique. The analysis assumes simultaneous shifts
in those rates and quantifies the impact of such shifts on the company's
earnings, cash flows, and fair values of assets and liabilities during a
one-year period. The range of changes used for the purpose of this
analysis reflects the company's view of changes that 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.
FOREIGN EXCHANGE RATE RISK 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 external transaction and operating exposures by using
foreign currency exchange option, forward and swap contracts. The
company's most significant foreign currency exposures relate to Western
European countries (primarily Germany, France, Italy, the United
Kingdom, Sweden and Spain), as well as Brazil, Mexico, Canada, Japan,
and Australia. 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, 1999, with all other variables held constant. A 10%
appreciation and depreciation of the U.S. dollar against foreign
currencies would result in an increase of $55 million and a decrease of
$33 million, respectively, 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, 1999, 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 risk 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 variety of European, Asian and Latin American currencies.
This diverse base of local currency costs serves to partially
counterbalance the impact of changing foreign currency exchange rates on
earnings, cash flows and fair values of assets and liabilities.
INTEREST RATE RISK The company is exposed to changes in interest rates
primarily due to its financing, investing and cash management
activities, which include long- and short-term debt 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%. An 80 basis point increase in interest
rates would reduce by $143 million the fair value of liabilities under
the company's floating and fixed rate instruments, including short- and
long-term debt and derivative contracts outstanding as of December 31,
1999. An 80 basis point decrease in interest rates will increase the
fair value of these liabilities by $164 million. In addition, the same
degree of
37
<PAGE>
increase in interest rates will reduce the company's after-tax annual
cash flows by approximately $7 million. An 80 basis point movement is
equivalent to approximately 10% of the company's weighted average rate
on its world-wide debt.
COMMODITY RATE RISK 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. Changing raw material prices have
historically had material impacts on the company's earnings and cash
flows, and will likely continue to have significant impacts on earnings
and cash flows in future periods. 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, 1999,
would not be material when compared with the company's earnings and
financial position.
FORWARD-LOOKING STATEMENTS 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.
[ID -- GRAPHIC: QUARTERLY STOCK PRICES]
38
<PAGE>
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the company and its subsidiaries. Investments
in affiliates (20-50%-owned) are recorded at cost plus equity in their
undistributed earnings, less dividends. Intercompany accounts,
transactions and unrealized profits and losses on transactions within
the consolidated group and with significant affiliates are eliminated in
consolidation, as appropriate.
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 approximately half of international
operations. Under this standard: (1) land, buildings and equipment and
related depreciation, inventories, 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 revenues, 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 other
comprehensive income. Foreign exchange adjustments, including
recognition of open 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
shares outstanding for the period. Diluted earnings per share is
calculated by adding the earnings impact of the conversion of preferred
stock to net earnings applicable to common shareholders and dividing
this amount by the average number of 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
of domestic inventories is primarily determined under the last-in,
first-out (LIFO) method.
LAND, BUILDINGS AND EQUIPMENT AND RELATED DEPRECIATION Land, buildings
and equipment are carried at cost. Assets are depreciated over their
estimated useful lives on the straight-line and accelerated methods.
Maintenance and repairs are charged to earnings; replacements and
betterments are capitalized. The cost and related accumulated
depreciation of buildings and equipment are removed from the accounts
upon retirement or other disposition with any resulting gain or loss
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. The company evaluates the
recoverability of goodwill and other intangible assets on an annual
basis, or when events or circumstances indicate a possible inability to
recover carrying amounts. Such evaluation is based on various analyses,
including cash flow and profitability projections. These analyses
necessarily involve significant management judgment.
39
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS The company assesses the recoverability
of its long-lived assets based on current and anticipated future
undiscounted cash flows. In addition, the company's policy for the
recognition and measurement of any impairment of such assets is to
assess the current and anticipated cash flows associated with the
impaired asset. An impairment occurs when the cash flows (excluding
interest) do not exceed the carrying amount of the asset. The amount of
impairment loss is the difference between the carrying amount of the
asset and its estimated fair value.
REVENUE RECOGNITION Revenues from product sales, net of applicable
allowances, are recognized upon shipment of product. Exceptions from
this practice include shipments of supplier-owned and managed inventory
(SOMI) arrangements. Revenue is recognized under SOMI arrangements when
usage of finished goods is reported by the customer, generally on a
weekly or monthly basis. Payments received in advance of revenue
recognition are recorded as deferred revenue.
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.
RECLASSIFICATIONS Certain reclassifications have been made to prior year
columns to conform with current year presentation.
40
<PAGE>
<TABLE>
<CAPTION>
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Earnings
Years ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------
(Millions of dollars, except per-share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT EARNINGS
Net sales $5,339 $3,720 $3,999
Cost of goods sold 3,374 2,256 2,544
========================
Gross profit 1,965 1,464 1,455
Selling and administrative expense 877 635 637
Research and development expense 236 207 201
Interest expense 159 34 39
Amortization of goodwill and other intangibles 83 5 6
Purchased in-process research and development 105 -- --
Provision for restructuring 36 -- --
Gain (loss) on disposition of joint ventures (22) 131 --
Share of affiliate net earnings 7 2 11
NOTE 5 Other income (expense), net 10 (16) 28
========================
Earnings before income taxes and extraordinary item 464 700 611
NOTE 7 Income taxes 215 247 201
========================
EARNINGS BEFORE EXTRAORDINARY ITEM $ 249 $ 453 $ 410
========================
NOTE 18 Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $6) -- 13 --
========================
NET EARNINGS $ 249 $ 440 $ 410
========================
NOTE 21 Less preferred stock dividends 2 6 7
========================
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS $ 247 $ 434 $ 403
========================
EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
-- BASIC $ 1.28 $ 2.55 $ 2.17
-- DILUTED 1.27 2.52 2.13
EARNINGS PER COMMON SHARE:
-- BASIC $ 1.28 $ 2.47 $ 2.17
-- DILUTED 1.27 2.45 2.13
- ------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(IN MILLIONS)
-- BASIC 192.6 175.6 185.8
-- DILUTED 195.7 179.7 192.4
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies (page 39) and
notes to consolidated financial statements (page 45).
41
<PAGE>
<TABLE>
<CAPTION>
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Cash Flows
Years ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------
(Millions of dollars) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 249 $ 440 $ 410
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Purchased in-process research and development 105 -- --
Depreciation 368 276 279
Amortization of goodwill and other intangibles 83 5 6
(Gain) loss, as adjusted, on sale of facilities
and investments 22 (76) (4)
Extraordinary loss on early extinguishment of debt,
net of tax -- 13 --
Changes in current assets and liabilities, net of
acquisitions and divestitures
Deferred income taxes (70) 36 (11)
Accounts receivable (104) (1) 88
Inventories (41) 1 24
Accounts payable, accrued interest and other
accrued liabilities 164 (15) --
Federal, foreign and other income taxes payable 25 (85) 12
Other, net 15 88 (13)
=======================
Net cash provided by operating activities 816 682 791
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses and affiliates, net of
cash acquired (3,394) (21) (80)
Proceeds from the sale of facilities and investments,
net of cash sold -- 287 10
Additions to land, buildings and equipment (323) (229) (254)
=======================
Net cash (used) provided by investing activities (3,717) 37 (324)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,564 44 16
Purchases of treasury shares (65) (567) (216)
Repayments of long-term debt (23) (205) (44)
Net change in short-term borrowings 608 108 (73)
Payment of dividends (141) (125) (121)
Other, net (1) 2 --
=======================
Net cash provided (used) by financing activities 2,942 (743) (438)
- ------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 41 $ (24) $ 29
====================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized $ 72 $ 36 $ 40
Income taxes, net of refunds received 202 237 181
Detail of acquisitions of businesses and affiliates:
Fair value of assets acquired $6,312 $ 21 $ 80
Liabilities assumed (1,216) -- --
Common stock issued (1,702) -- --
- ------------------------------------------------------------------------------------
Net cash paid for acquisitions $3,394 $ 21 $ 80
====================================================================================
</TABLE>
See accompanying summary of significant accounting policies (page 39) and
notes to consolidated financial statements (page 45).
42
<PAGE>
<TABLE>
<CAPTION>
Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and 1998
- ------------------------------------------------------------------------------
(Millions of dollars) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 57 $ 16
NOTE 11 Accounts receivable, net 1,370 711
NOTE 12 Inventories 899 427
NOTE 13 Prepaid expenses and other assets 171 133
=================
Total current assets 2,497 1,287
----------------------------------------------------------------------
NOTE 14 Land, buildings and equipment, net 3,496 1,908
NOTE 2 Investments in and advances to unconsolidated
subsidiaries and affiliates 282 142
NOTE 15 Goodwill and other intangible assets, net 4,482 92
NOTE 16 Other assets 499 219
=================
$11,256 $3,648
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
CURRENT LIABILITIES
NOTE 17 Notes payable $ 931 $ 172
NOTE 19 Accounts payable and accrued liabilities 1,407 653
Federal, foreign and other income taxes payable 172 50
=================
Total current liabilities 2,510 875
----------------------------------------------------------------------
NOTE 18 Long-term debt 3,122 409
NOTE 10 Employee benefits 610 432
NOTE 7 Deferred income taxes 1,231 168
NOTE 20 Other liabilities 289 184
Minority interest 19 19
NOTE 24 Commitments and contingencies
----------------------------------------------------------------------
NOTE 21 Stockholders' equity
$2.75 cumulative convertible preferred stock;
authorized--2,846,061 shares; issued--1999:
no shares; 1998: 1,457,956 shares -- 73
Common stock; par value--$2.50; authorized--
400,000,000 shares; issued--1999:
242,078,367 shares; 1998: 196,957,140 shares 605 492
Additional paid-in capital 1,942 139
Retained earnings 1,331 1,284
=================
3,878 1,988
Less: Treasury stock (1999--23,097,178 shares;
1998--29,369,853 shares) 224 286
Less: ESOP shares (1999--12,915,000;
1998--13,545,000) 125 132
Accumulated other comprehensive income (54) (9)
=================
Total stockholders' equity 3,475 1,561
- ------------------------------------------------------------------------------
$11,256 $3,648
==============================================================================
</TABLE>
See accompanying summary of significant accounting policies (page 39) and
notes to consolidated financial statements (page 45).
43
<PAGE>
<TABLE>
<CAPTION>
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------
(Millions of dollars) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NOTE 21 PREFERRED STOCK
----------------------------------------------------------------------------
Balance, beginning of year $ 73 $ 126 $ 131
Redemptions and conversion of shares to
common stock (73) (53) (5)
================================
Balance, end of year $ -- $ 73 $ 126
================================
COMMON STOCK
----------------------------------------------------------------------------
Balance, beginning of year $ 492 $ 590 $ 590
Shares issued in acquisitions 113 -- --
Retirements of treasury stock -- (98) --
================================
Balance, end of year $ 605 $ 492 $ 590
================================
ADDITIONAL PAID-IN CAPITAL
----------------------------------------------------------------------------
Balance, beginning of year $ 139 $ 135 $ 143
Effect of acquisitions 1,740 -- --
Shares issued to employees under bonus plan,
net of preferred conversions 63 4 (8)
================================
Balance, end of year $1,942 $ 139 $ 135
================================
RETAINED EARNINGS
----------------------------------------------------------------------------
Balance, beginning of year $1,284 $1,932 $1,643
Net earnings 249 440 410
Common stock dividends paid ($.74, $.70 and
$.63 per share in 1999, 1998, and 1997,
respectively) net of tax benefit of
$4 million in 1999, 1998 and 1997 related
to the ESOP (139) (119) (114)
Retirements of treasury stock (61) (963) --
Preferred stock dividends ($2.75 per share
in 1999, 1998 and 1997) (2) (6) (7)
================================
Balance, end of year $1,331 $1,284 $1,932
================================
NOTE 21 TREASURY STOCK, AT COST
----------------------------------------------------------------------------
Balance, beginning of year $ 286 $ 820 $ 629
Shares issued to employees under bonus plan (31) (17) (15)
Purchases 3 567 216
Retirements -- (1,061) --
Shares issued for conversion of preferred
stock (34) (23) (10)
================================
Balance, end of year $ 224 $ 286 $ 820
================================
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF TAX
----------------------------------------------------------------------------
Balance, beginning of year $ (9) $ (28) $ (5)
Net earnings 249 440 410
Foreign currency translation adjustments (47) 27 (26)
Minimum pension liability adjustment 2 (8) 3
================================
Other Comprehensive income (45) 19 (23)
================================
Comprehensive income 204 459 387
================================
Balance, end of year $ (54) $ (9) $ (28)
================================
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies (page 39) and
notes to consolidated financial statements (page 45).
44
<PAGE>
Notes to Consolidated Financial Statements
Note 1: Acquisitions and Dispositions of Assets
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 (see Note 18). As of December 31, 1999, $26 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 December 31, 1999, 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 chemical processes 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, later analysis of
certain acquired assets and liabilities and the effects of plans now
under way to integrate the two companies, including asset write-downs
and severance costs. The allocation as of December 31, 1999 has
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 acquisition date.
The following unaudited pro forma information presents the results of
operations of the company as if the above acquisitions had taken place
on January 1, 1998 and excludes the write-off of purchased in-process
research and development of $105 million:
- --------------------------------------------------------------------
(In millions, except per share amounts) 1999 1998
- --------------------------------------------------------------------
Net sales $6,652 $6,430
Net earnings 447 352
Diluted earnings per share $ 2.04 $ 1.57
- --------------------------------------------------------------------
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions
occurred on the date indicated, or which may result in the future.
In the first quarter of 2000 the company sold its Industrial Coatings
business to BASF for approximately $175 million. 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 will be recorded on this
transaction.
Also in the first quarter of 2000 the company announced its intention to
acquire Acima, 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 of high
technologies for the semiconductor industry. The combined cost for the
these two transactions will be approximately $90 million. The Acima and
SVC transactions will be accounted for under the purchase method and
results of operations combined as of the respective dates of
acquisition. The financial statements will reflect the allocation of
the purchase price based on estimated fair values at the date of
acquisition.
In the second quarter of 1999, the company announced its intentions to
enter into a joint venture with Stockhausen GmbH and Company
("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.
45
<PAGE>
During 1998, the company increased its interest in Rodel to 33%, and in
early 1999, purchased an additional 15% interest. The total cost for
these investments was approximately $149 million. Rodel is a privately
held, Delaware-based leader in precision polishing technology serving
the semiconductor, memory disk and glass polishing industries. The
investment has been accounted for on the equity method with the
company's share of earnings reported as equity in affiliates. In the
first quarter of 2000, the company increased its ownership in Rodel,
Inc., from 48% to 80% for a cost of $164 million. Rodel will be
consolidated in the company's financial statements beginning in the
first quarter of 2000 and will be accounted for under the purchase
method with results of operations combined as of the date of
acquisition. The financial statements will reflect the allocation of
the purchase price based on estimated fair values at the date of the
transactions. The amortization period of the resulting goodwill will be
determined when the transaction is complete and a thorough review in
accordance with the company's policies of all relevant factors has been
completed.
The company sold its interest in the AtoHaas and RohMax businesses in
June 1998 for cash proceeds of $287 million, resulting in a net
after-tax gain of $76 million, or $.41 per share. Subsequent to the
sale of the AtoHaas joint venture, the buyer asserted a claim against
the company in late 1998 related to the value of certain joint venture
assets. In 1999, the company settled this matter for approximately $22
million ($14 million, after-tax). In 1998, the company acquired the
remaining 50% interest in NorsoHaas, an affiliate acquired in 1997.
Note 2: Investments
The company's investments in its affiliates (20-50%-owned) totaled $243
million and $118 million at December 31, 1999 and 1998, respectively.
The change from 1998 relates primarily to the addition of investments in
affiliates and unconsolidated subsidiaries acquired in the Morton
acquisition and to additional investment in Rodel in 1999.
Note 3: Purchased In-process Research and Development
In acquisitions accounted for by the purchase method, purchased
in-process research and development (IPR&D) represents the value
assigned to research and development projects of an acquired company
where technological feasibility had not yet been established at the date
of the acquisition, and which, if unsuccessful, have no alternative
future use. Amounts assigned to IPR&D are charged to expense at the
date of acquisition. Accordingly, the company has charged $105 million
to expense in 1999 related to the Morton acquisition. (See Note 1.)
Eight IPR&D projects were identified based upon discussions with Morton
personnel, analyses of the acquisition agreements, and analyses of data
provided by Morton. The two most significant research and development
projects are Passive Materials and Lamineer coating which together
represent more than 90% of the overall in-process research and
development value. The remaining value was assigned to six other in-
process projects.
The Passive Materials project is being developed by the Electronic
Materials product group, which principally manufactures dry film
photoresists sold to printed circuit board manufacturers. Passive
Materials will be, if successfully developed, a new form of film
materials. As of the date of acquisition, this project had been in
development since July 1996; however, it had not yet reached
technological feasibility and will not achieve technological feasibility
until all of the component technologies are each successfully developed.
The nature of the efforts necessary to complete the project relate to
completing the design and building of machinery and processes required
to manufacture the passive material and developing full-scale production
capabilities that can meet desired customer specifications. Management
estimates that this technology will be developed and technological
feasibility will be reached in 2000.
Lamineer coating is a new and innovative product for Morton's Powder
Coatings business and will be, if successfully developed, a family of
powder coatings used for a variety of wood applications. The technology
will provide manufacturers an alternative method for applying coatings
to wood at increased operating and manufacturing efficiencies. Lamineer
coating had been in development since early 1996. During this time, a
material portion of the Lamineer technology, the base resins, was
completely developed. This portion of technology was identified as
having an alternative future use and, therefore, was not classified as
IPR&D. The curing technologies, however, have been identified as IPR&D.
Related products are in the testing and trial stage of development. The
efforts required to complete the Lamineer coating project are developing
the necessary curing technologies and meeting customer specifications.
Management estimates that Lamineer product efforts will be generally
completed and will reach technological feasibility in 2000. The
estimated cost to complete both the Passive Materials and Lamineer
coatings projects is under $6 million.
46
<PAGE>
The fair values of the in-process completed portion of these research
and development projects, are as follows:
- --------------------------------------------------------------------
(Millions of dollars) Fair Value
- --------------------------------------------------------------------
Passive Materials $ 50
Lamineer Coating 48
All Others 7
========
Total $105
- --------------------------------------------------------------------
The valuation analysis of these projects was performed just prior to the
date of acquisition and was based on information available at that time.
The projects identified in the analysis were analyzed based primarily on
an evaluation of their status in the product development process, the
expected release dates, and the percentage completed.
The technique used in valuing each purchased research and development
project was the income approach, which includes an analysis of the
markets, cash flows, and risks associated with achieving these cash
flows. Significant appraisal assumptions include: The period in which
material net cash inflows from significant projects are expected to
commence; material anticipated changes from historical pricing, margins
and expense levels; and the risk adjusted discount rate applied to the
project's cash flows.
Material net cash inflows that are attributable to the completed IPR&D
are expected to begin in 2001 and expected to last through 2015 for both
Passive Materials and Lamineer coating. The forecast for both of these
in-process projects relied on sales estimates derived from targeted
market share, pricing estimates and expected product life cycles. Both
Passive Materials and Lamineer coating are expected to generate higher
profit margins, two to three times the margins of historical products in
their respective product groups. This is due to their new and
innovative characteristics, which allow pricing commensurate with their
performance. The discount rate used for the acquired in-process
technologies was estimated at 20% for Passive Materials and 25% for
Lamineer based upon Morton's weighted average cost of capital of 12%.
The discount rate used for the in- process technology was determined to
be higher than Morton's weighted average cost of capital because the
technology had not yet reached technological feasibility as of the date
of valuation. In using a discount rate greater than Morton's weighted
average cost of capital, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with
these projects, and because the in-process technology had not yet
reached technological feasibility as of the date of valuation.
The nature of the efforts required to develop the acquired in-process
technology into technologically feasible and commercially viable
products principally relate to the completion of all planning, designing
and testing activities that are necessary to establish a product or
service that can be produced to meet its design requirements, including
functions, features and technical performance requirements. The company
currently expects that the acquired in-process technology will be
successfully developed, but there can be no assurance that the
technological feasibility or commercial viability of these products will
be achieved.
Note 4: Provision for Restructuring
A restructuring reserve was established in 1999 for costs related both
to the integration of Morton and the company's redesign of its selling
and administrative infrastructure. A portion of these costs resulted in
a before- tax charge of $36 million ($.12 per share after-tax) largely
for severance costs for approximately 700 employees of Rohm and Haas,
the acquiring company. The charge is net of after-tax pension
settlement and curtailment gains. Further settlement gains will be
realized over the next year. An additional $68 million largely
severance- related reserve associated with staff reductions of
approximately 500 employees of the acquired company was recorded in the
allocation of the Morton purchase price. Most of the approximately
1,200 employees affected were in support services, including selling,
technical and administrative staff functions, approximately one-third of
whom separated from the combined company before December 31, 1999 with
the balance scheduled to separate in the first half of 2000. Further
charges for restructuring are expected during 2000 as the company
continues to evaluate and align its business portfolio with its stated
goals.
Restructuring reserve activity for 1999 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------------------------------
Increases to Decreases to
Reserve Reserve
Reserve at ------------------------- ------------------ Reserve at
Beginning Charged Incr./(Decr.) Cash Other End
of year to Earnings Goodwill Payments Changes* of year
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Severance and
other employee
related charges $ -- $ 56 $53 $(20) $(31) $58
Pension related
gains -- (24) -- -- 24 --
Other -- 4 15 (2) (2) 15
===================================================================
$ -- $ 36 $68 $(22) $ (9) $73
- ----------------------------------------------------------------------------------------
</TABLE>
*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.
(See Note 9.)
47
<PAGE>
Note 5: Other Income (Expense), Net
- --------------------------------------------------------------------
(Millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------
Interest income $ 13 $ 13 $ 6
Royalty income, net 10 6 9
Foreign exchange gains (losses), net 4 (13) 3
Minority interest (1) (2) (5)
Provision for write-down of assets -- (11) 2
Integration costs (28) -- --
Voluntary early retirement incentives,
severance, litigation settlements
and certain waste disposal
site cleanup costs (9) (8) (9)
Environmental insurance recoveries 28 -- 26
Other, net (7) (1) (4)
====================
Total $ 10 $(16) $28
- --------------------------------------------------------------------
Note 6: Financial Instruments
The company uses derivative financial instruments to reduce the impact
of changes in foreign exchange rates, interest rates and commodity raw
material prices on its earnings, cash flows and fair values of assets
and liabilities. The company enters into derivative financial contracts
based on analysis of specific and known economic exposures. The
company's policy prohibits holding or issuing derivative financial
instruments for trading or speculative purposes.
Credit risk associated with non-performance by counterparties is
mitigated by using major financial institutions with high credit
ratings. The company also limits the amount of derivative contracts it
enters into with each counterparty.
The company uses primarily purchased foreign exchange option contracts
to hedge anticipated sales in foreign currencies by foreign
subsidiaries. The option premiums paid are recorded as assets and
amortized over the life of the option. Gains and losses on purchased
option contracts generally are deferred and recorded in the period in
which the underlying sales transactions are recognized. At December 31,
1999 and 1998, net deferred unrealized gains were $9 million and $2
million, respectively.
The notional amounts of foreign exchange option contracts totaled $329
million and $326 million at December 31, 1999 and 1998, respectively.
The option contracts outstanding at each balance sheet date have
maturities of less than twelve months. The table below summarizes by
currency the notional value of foreign exchange option contracts in U.S.
dollars:
- ---------------------------------------------------------
(Millions of dollars) 1999 1998
- ---------------------------------------------------------
Euro $169 $161
British pound 30 38
Swedish krona 30 36
Canadian dollar 37 33
Australian dollar 31 31
Japanese yen 23 16
New Zealand dollar 9 11
- ---------------------------------------------------------
The company also uses foreign exchange forward and swap contracts to
reduce the exchange rate risk of specific foreign currency transactions.
These contracts generally require the exchange of a foreign currency for
U.S. dollars at a fixed rate at a future date. The maturities are
generally less than twelve months. The carrying amounts of these
contracts are adjusted to their market value at each balance sheet date
and recorded in other income and expenses. At December 31, 1999, the
open foreign exchange forward contracts totaled $532 million in notional
amounts, of which $353 million is to hedge the external transaction
exposures and $179 million is to hedge the intercompany loans
denominated in currencies other than U.S. dollars. Of the total open
foreign exchange forward contracts, $393 million is to exchange Euros
into U.S. dollars and $103 million is to exchange Euros into Canadian
dollars. At December 31, 1998, the open foreign exchange forward and
swap contracts totaled $96 million in notional amounts, of which $41
million is to hedge external transaction exposures and $55 million is to
hedge intercompany loans denominated in currencies other than the U.S.
dollar. Of the total open foreign exchange contracts, $41 million is to
exchange the U.S. dollars for Italian lira, $20 million for British
pounds, $20 million for German mark and $15 million for Japanese yen.
48
<PAGE>
At December 31, 1999 and 1998, the company was 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
at each balance sheet date.
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 $1 million and $5 million at
December 31, 1999 and 1998, respectively. The company recorded
immaterial related net losses in 1999 and 1998.
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.
Short and 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 or
similar remaining maturities and terms.
Interest rate option contracts -- 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 and swap agreements -- 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 amounts and fair values of material financial instruments
at December 31, 1999 and 1998 are as follows:
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(Millions of dollars) AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------
Asset (Liability)
Short-term debt $ (931) $ (933) $(172) $(172)
Long-term debt (3,122) (3,120) (409) (464)
Written interest rate options (5) (5) (10) (10)
Foreign currency options 4 13 4 7
Foreign exchange forward
contracts (1) (1) (1) (1)
- ------------------------------------------------------------------------
Note 7: Income Taxes
Earnings before income taxes earned within or outside the United States
are shown below:
- --------------------------------------------------------------------
(Millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------
United States
Parent and subsidiaries $144 $559 $446
Affiliates 2 1 7
Foreign
Subsidiaries 313 120 154
Affiliates 5 1 4
====================
Earnings before income taxes $464 $681 $611
- --------------------------------------------------------------------
Earnings before income taxes in 1998 include $19 million related to an
extraordinary loss on early extinguishment of debt.
The provision for income taxes is composed of:
- --------------------------------------------------------------------
(Millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------
Taxes on U.S. earnings
Federal
Current $ 96 $142 $134
Deferred 4 40 7
====================
100 182 141
====================
State and other
Current 5 8 6
====================
Total taxes on U.S. earnings 105 190 147
- --------------------------------------------------------------------
Taxes on foreign earnings
Current 133 68 77
Deferred (23) (17) (23)
====================
Total taxes on foreign earnings 110 51 54
====================
Total income taxes $215 $241 $201
- --------------------------------------------------------------------
Income taxes in 1998 include a $6 million tax benefit resulting from an
extraordinary loss on early extinguishment of debt.
Cash payments of income taxes were $202 million, $237 million and $181
million in 1999, 1998 and 1997, respectively.
49
<PAGE>
Deferred income taxes reflect temporary differences between the
valuation of assets and liabilities for financial and tax reporting.
Details at December 31, 1999 and 1998 were:
- ------------------------------------------------------------------------
(Millions of dollars) 1999 1998
- ------------------------------------------------------------------------
Deferred tax assets related to:
Compensation and benefit programs $ 282 $213
Accruals for waste disposal site remediation 57 47
Inventories 23 29
All other 79 49
================
Total deferred tax assets 441 338
================
Deferred tax liabilities related to:
Intangible assets 844 --
Tax depreciation in excess of book
depreciation 579 300
Pensions 113 80
All other 49 23
================
Total deferred tax liabilities 1,585 403
================
Net deferred tax liability $1,144 $ 65
- ------------------------------------------------------------------------
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) 1999 1998
- ------------------------------------------------------------------------
Prepaid expenses and other assets $ 81 $ 94
Other assets, net 6 10
Accounts payable and accrued liabilities -- 1
Non-current deferred income taxes 1,231 168
================
Net deferred tax liability $1,144 $ 65
- ------------------------------------------------------------------------
The effective tax rate on pre-tax income differs from the U.S. statutory
tax rate due to the following:
- ---------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
U.S. tax credits (2.5) (1.4) (1.5)
Charge for IPR&D 7.9 -- --
Amortization of non-deductible
goodwill 2.5 -- --
Asset write-downs and dispositions -- .5 --
Effect of non-taxable currency items 1.1 .1 .5
Gain on sale of facilities and
investments -- 1.5 --
State taxes, net of federal benefit .7 .3 .4
Taxes on foreign earnings 1.2 (.6) (.6)
Other, net .4 (.1) (.9)
=====================
Effective tax rate 46.3% 35.3% 32.9%
- ---------------------------------------------------------------------
At December 31, 1999, the company provided deferred income taxes for the
assumed repatriation of all unremitted foreign earnings. In prior
years, provision for U.S. income taxes, after applying statutory tax
credits, was made on the unremitted earnings of foreign subsidiaries and
affiliates which were not considered to be reinvested abroad
indefinitely. Total unremitted earnings, after provision for applicable
foreign income taxes, were approximately $416 million at December 31,
1999.
Note 8: Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The statement supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the industry segment approach with a management
approach. SFAS No. 131 designates the internal management
accountability structure as the source of the company's reportable
segments. The statement also requires disclosures about products and
services, geographic areas and major customers. The adoption of this
standard did not affect results of operations or financial position but
did affect the disclosure of segment information as presented below.
The company's business segment reporting under SFAS No. 131 is
consistent with the changes in its financial reporting structure
incorporated in the company's reporting since the first quarter of 1998
as revised subsequent to the Morton and LeaRonal acquisitions in 1999.
These changes, and concurrent changes to the management organization,
were made to better reflect the company's technical strengths and focus
on key markets. There are four business segments: Performance Polymers
consisting of Adhesives and Sealants, Coatings, Specialty Polymers,
Monomers, and Plastics Additives businesses; Chemical Specialties,
consisting of the Agricultural Chemicals, Ion Exchange, Consumer and
Industrial Specialties and Primenes businesses; Electronic Materials,
consisting of Shipley Micro, Shipley Ronal and Rodel, an affiliate as of
December 31, 1999 (see Note 1); and Salt, a business acquired with the
Morton acquisition. Corporate includes non-operating items such as
interest income and expense, corporate governance costs, corporate
exploratory research and, in 1999 $105 million of purchased IPR&D and in
1998 a loss on early extinguishment of debt.
50
<PAGE>
The 1998 and 1997 presentations have been restated to reflect these
changes. In the restatement, 1997 results of AtoHaas and RohMax are
reported under Performance Polymers.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Performance Chemical Electronic
1999 Polymers Specialties Materials Salt Corporate Consolidated
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to external
customers $2,939 $1,241 $755 $ 404 $ -- $ 5,339
Operating profit
after tax (1) 350 115 57 10 (283) 249
Share of affiliate net
earnings (losses) 6 1 2 -- (2) 7
Depreciation 215 61 23 25 44 368
Segment assets 4,413 2,012 1,520 2,708 603 11,256
Capital additions 195 65 22 33 8 323
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Performance Chemical Electronic
1998 Polymers Specialties Materials Salt Corporate Consolidated
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to external
customers $2,254 $1,068 $398 $ -- $ -- $ 3,720
Operating profit
after tax (2) 372 94 45 -- (71) 440
Share of affiliate net
earnings (losses) 2 -- 4 -- (4) 2
Depreciation 178 61 17 -- 20 276
Segment assets 1,819 891 511 -- 427 3,648
Capital additions 139 49 29 -- 12 229
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Performance Chemical Electronic
1997 Polymers Specialties Materials Salt Corporate Consolidated
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to external
customers $2,557 $1,043 $399 $ -- $ -- $ 3,999
Operating profit
after tax (3) 297 105 52 -- (44) 410
Share of affiliate net
earnings (losses) 9 (1) 3 -- -- 11
Depreciation 192 59 16 -- 12 279
Segment assets 2,097 864 457 -- 482 3,900
Capital additions 159 47 33 -- 15 254
- ---------------------------------------------------------------------------------------
</TABLE>
(1) In 1999 the company made significant acquisitions the results of
which have been included in the consolidated financial statements
since the dates the businesses were acquired. (See Note 1.) Also
in 1999, significant non-recurring items totaling $161 million
after-tax, or $.82 per share, were incurred including: a $105
million write-off of purchased IPR&D, a restructuring charge, a
charge related to 1998 joint venture dispositions and restructuring
charges in the Electronic Materials segment, Electronic Materials
segment asset write-downs and other restructuring charges mostly
associated with the 48%-owned Rodel affiliate and gains related to
environmental remediation related insurance settlements.
(2) Included in 1998 results are a one-time net gain of $45 million
after-tax. This net gain was the net result of the sale of the
company's interest in the AtoHaas and RohMax joint ventures, an
early extinguishment of debt, the write-off of certain intangible
assets in Europe and business realignment costs primarily in Asia.
(3) Includes a gain of $16 million after tax, the net result of
remediation settlements with insurance carriers during the fourth
quarter.
The tables below present sales and long-lived asset information by
geographic area as of and for the period ending December 31. Sales are
attributed to the United States and to all foreign countries combined
largely based on customer location and not on the geographic location
from which goods were shipped.
- -----------------------------------------------------------------------------
1999 United States Foreign Consolidated
- -----------------------------------------------------------------------------
Sales to external customers $2,459 $2,880 $5,339
Long-lived assets 5,138 3,122 8,260
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1998 United States Foreign Consolidated
- -----------------------------------------------------------------------------
Sales to external customers $1,754 $1,966 $3,720
Long-lived assets 936 1,206 2,142
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1997 United States Foreign Consolidated
- -----------------------------------------------------------------------------
Sales to external customers $1,890 $2,109 $3,999
Long-lived assets 1,059 1,263 2,322
- -----------------------------------------------------------------------------
Note 9: 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 pension plans for Morton employees are
included in the 1999 valuation. The following disclosures include
amounts for both the U.S. and significant foreign pension plans.
- -----------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
PENSION INCOME
Service cost $(52) $ (39) $ (39)
Interest cost (83) (64) (63)
Expected return on plan assets 148 108 101
Amortization of net gain existing at
adoption of SFAS No. 87 9 9 10
Other amortization, net 7 5 1
========================
Net periodic pension income $ 29 $ 19 $ 10
- -----------------------------------------------------------------------
Pension income 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.
51
<PAGE>
The early retirement and severance benefit programs resulted in a
pre-tax gain of $1 million, $3 million and $4 million in 1999, 1998 and
1997, respectively, as settlement gains from retirees electing lump-sum
distributions exceeded the cost of the special termination benefits. It
is the company's policy to recognize settlement gains at the time of
settlement. Special termination benefits are recognized when the
termination is probable and the amount of the benefit is calculable.
Plan activity and status as of and for the years ended December 31 were
as follows:
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
CHANGE IN PENSION OBLIGATION
Pension obligation at beginning of year $ 999 $ 943
Service cost, excluding expenses 45 34
Interest cost 83 64
Plan participants' contributions 1 1
Divestitures, curtailments and settlements (11) (35)
Special termination benefits 35 5
Actuarial (gain) loss (25) 75
Acquisitions 660 --
Foreign currency exchange rate changes (1) (1)
Benefits paid (171) (87)
================
Pension obligation at end of year $1,615 $ 999
- -----------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $1,462 $1,401
Actual return on plan assets 279 198
Contributions 3 2
Transfer to fund retiree medical expenses -- (14)
Trust expenses (6) (5)
Divestitures (5) (32)
Acquisitions 799 --
Foreign currency exchange rate changes -- (1)
Benefits paid (171) (87)
================
Fair value of plan assets at end of year $2,361 $1,462
- -----------------------------------------------------------------------
Funded status $ 746 $ 463
Unrecognized actuarial gain (434) (302)
Unrecognized prior service cost 15 15
================
Net amount recognized $ 327 $ 176
- -----------------------------------------------------------------------
Amounts recognized in the statement of
financial position consist of:
Prepaid pension cost $ 317 $ 146
Unrecognized transition asset 10 30
================
Net amount recognized $ 327 $ 176
- -----------------------------------------------------------------------
Net assets of the pension trusts, which primarily consist of common
stocks and debt securities, were measured at market value. Assumptions
used are as follows:
- -------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------
U.S. NON-U.S. U.S. Non-U.S.
PLANS PLANS Plans Plans
- -------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31
Discount rate 6.75% 6.3% 6.5% 6.3%
Expected return on plan assets 8.6 7.8 8.5 7.9
Rate of compensation increase 4.0 4.2 4.0 4.3
- -------------------------------------------------------------------------
The company transferred excess pension plan assets of $14 million in
1998 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 $14 million in 1999, $11 million in
1998 and $6 million in 1997. Pension benefit payments for this plan
were $9 million in 1999, $4 million in 1998 and 1997.
The company has a nonqualified trust, referred to as a "rabbi" trust, to
fund benefit payments under this supplemental pension plan. Rabbi 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, 1999 and 1998 totaled $68 million and $30
million, respectively.
The status of this plan at year end was as follows:
- -----------------------------------------------------------
1999 1998
- -----------------------------------------------------------
CHANGE IN PENSION OBLIGATION
Pension obligation at beginning of year $ 91 $61
Service cost 2 1
Interest cost 7 6
Special termination benefits costs (3) 4
Actuarial loss 5 23
Acquisitions 33 --
Benefits paid (11) (4)
============
Pension obligation at end of year $124 $91
- -----------------------------------------------------------
Pension benefit obligations for this plan were determined from actuarial
valuations using an assumed discount rate of 6.75% and 6.5% at December
31, 1999 and 1998, respectively, and an assumed long-term rate of
compensation increase of 4% in 1999 and 1998.
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 is 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 contributes a notional
amount equal
52
<PAGE>
to 60% of the first 6% of the amount contributed by the participant.
The company's matching contributions are 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 $5 million and $2 million in 1999 and
1998, respectively.
Note 10: Employee Benefits
- -----------------------------------------------------------------
(Millions of dollars) 1999 1998
- -----------------------------------------------------------------
Postretirement health care and
life insurance benefits $465 $313
Postemployment benefits 29 19
Unfunded supplemental pension plan
(See Note 9) 80 74
Unfunded foreign pension liabilities 27 26
Other 9 --
==============
Total $610 $432
- -----------------------------------------------------------------
The company provides health care and life insurance benefits under
numerous plans 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) 1999 1998
- ---------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $269 $265
Service cost 7 5
Interest cost 23 17
Divestitures, curtailments and settlements -- (8)
Amendments 1 --
Special termination benefits 1 1
Actuarial loss 7 7
Restructuring charge 3 --
Acquisitions 148 --
Benefits paid (30) (18)
===============
Benefit obligation at end of year $429 $269
Unrecognized prior service cost 9 10
Unrecognized actuarial loss 45 53
===============
Total accrued postretirement benefit obligation $483 $332
- ---------------------------------------------------------------------
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) 1999 1998 1997
- -------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
POSTRETIREMENT COST
Service cost $ 7 $ 5 $ 5
Interest cost 23 17 17
Net amortization (3) (4) (4)
=====================
Net periodic postretirement cost $27 $18 $18
- -------------------------------------------------------------------
The calculation of the accumulated postretirement benefit obligation
assumes 5% annual rates of increase in the health care cost trend rate
for 1999 and 1998, 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.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have approximately
the following effects:
- -------------------------------------------------------------------
1-Percentage 1-Percentage
Point Increase Point Decrease
- -------------------------------------------------------------------
(Millions of dollars) 1999 1998 1999 1998
- -------------------------------------------------------------------
Effect on total of service and
interest cost components $ 1 $1 $ (1) $ (1)
Effect on postretirement
benefit obligation 16 9 (17) (11)
- -------------------------------------------------------------------
The weighted average discount rate used to estimate the accumulated
postretirement benefit obligation was 6.75% at December 31, 1999 and
6.5% at December 31, 1998.
Note 11: Accounts Receivable, Net
- -----------------------------------------------------------------
(Millions of dollars) 1999 1998
- -----------------------------------------------------------------
Customers $1,285 $642
Unconsolidated subsidiaries and affiliates 28 21
Employees 7 6
Other 87 54
===============
1,407 723
Less allowance for losses 37 12
===============
Total $1,370 $711
- -----------------------------------------------------------------
53
<PAGE>
Note 12: Inventories
- ----------------------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------------------
Finished products and work in process $707 $330
Raw materials 154 48
Supplies 38 49
==============
Total $899 $427
- ----------------------------------------------------------
Inventories amounting to $483 million and $391 million were valued using
the LIFO method at December 31, 1999 and 1998, respectively. The excess
of current cost over the stated amount for inventories valued under the
LIFO method approximated $86 million and $77 million at December 31,
1999 and 1998, respectively. Liquidation of prior years' LIFO inventory
layers in 1999, 1998 and 1997 did not materially affect cost of goods
sold in any of these years.
In 1999 approximately $15 million was charged to cost of sales as a
result of an increase to fair market value of FIFO inventories
associated with 1999 acquisitions.
Note 13: Prepaid Expenses and Other Assets
- ----------------------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------------------
Prepaid expenses $ 57 $ 29
Deferred tax benefits 81 94
Other current assets 33 10
==============
Total $171 $133
- ----------------------------------------------------------
Note 14: Land, Buildings and Equipment, Net
- ----------------------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------------------
Land $ 200 $ 44
Buildings and improvements 1,357 813
Machinery and equipment 4,354 3,276
Capitalized interest 240 229
Construction 198 109
================
6,349 4,471
Less: accumulated depreciation 2,853 2,563
================
Total $3,496 $1,908
- ----------------------------------------------------------
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
$999 million and $1,011 million at December 31, 1999 and 1998,
respectively. Assets depreciated by the straight-line method totaled
$4,952 million and $3,307 million at December 31, 1999 and 1998,
respectively.
In 1999, 1998 and 1997 respectively, interest costs of $12 million, $9
million and $12 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 $15 million in
1999 and 1998 and $14 million in 1997.
Note 15: Goodwill and Other Intangible Assets, Net
- ----------------------------------------------------------------
(Millions of dollars) Life (years) 1999 1998
- ----------------------------------------------------------------
Goodwill 40 $2,129 $ 92
Customer lists 40 1,163 --
Tradenames 40 739 --
Developed technology 13 to 18 381 --
Workforce 11 to 16.5 150 --
Other 65 55
===============
4,627 147
Less: accumulated amortization 145 55
===============
Total $4,482 $ 92
- ----------------------------------------------------------------
Goodwill and other intangible assets are primarily related to the
acquisition of Morton in 1999. See Note 1.
Amortization expense for goodwill and other intangibles was $83 million,
$5 million and $6 million for 1999, 1998 and 1997, respectively. All
intangibles are amortized on a straight-line basis.
Note 16: Other Assets
- ----------------------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------------------
Prepaid pension cost (see Note 9) $317 $146
Rabbi trust assets (see Note 9) 68 30
Assets held for disposal 54 --
Deferred tax benefits (see Note 7) 6 10
Other noncurrent assets 54 33
==============
Total $499 $219
- ----------------------------------------------------------
Note 17: Notes Payable
- ----------------------------------------------------------
(Millions of dollars) 1999 1998
- ----------------------------------------------------------
Short-term borrowings $827 $167
Current portion of long-term debt 104 5
==============
Total $931 $172
- ----------------------------------------------------------
Short-term borrowings include commercial paper and bank debt owed by
foreign subsidiaries. The weighted- average interest rate of short-term
borrowings was 6.3% and 6.5% at December 31, 1999 and 1998,
respectively.
At December 31, 1999, the company has revolving credit agreements
totaling $2 billion, of which $1.5 billion expire in 2000 and $500
million in 2004. These agreements, which carry various interest rates
and fees, are available to support commercial paper borrowings. Of the
total commercial
54
<PAGE>
paper outstanding, $500 million is classified as long-term since it is
supported by the company's revolving credit agreements expiring in 2004.
Several credit agreements permit foreign subsidiaries to borrow local
currencies. At December 31, 1999 and 1998, $222 million and $74
million, respectively, was outstanding under these agreements.
Note 18: Long-Term Debt
- --------------------------------------------------------------------
(Millions of dollars) 1999 1998
- --------------------------------------------------------------------
7.85% debentures due 2029 $1,000 $ --
6.95% notes due 2004 500 --
7.40% notes due 2009 500 --
Long-term commercial paper borrowings 500 --
9.34% debentures due 2020 244 --
9.80% notes due 2020 135 135
9.875% notes due 2000 -- 100
6.63% obligation due through 2012
(callable 2000 at 104.4%) 46 46
1.55% note due 2003 (yen denominated) 40 44
9.50% notes due 2021
(callable 2002 at 104.8%) 38 38
9.375% debentures due 2019
(callable 1999 at 104.7%) -- 22
Other 119 24
================
Total $3,122 $409
- --------------------------------------------------------------------
On July 6, 1999, the company issued $2 billion of long-term debt,
refinancing a portion of the commercial paper borrowings used as initial
financing for the Morton and LeaRonal acquisitions. These debt
securities include $500 million of five-year 6.95% notes, $500 million
of ten-year 7.40% notes and $1 billion of thirty-year 7.85% debentures.
Each series of securities will mature on July 15 of its respective year
of maturity with interest payable semiannually on January 15 and July 15
of each year, beginning January 15, 2000. The securities are senior
unsecured obligations of the company and will rank equally with all
other senior unsecured indebtedness. The securities contain
restrictions similar to the company's other long-term debt which contain
certain restrictions with respect to tangible net worth and maintenance
of working capital. There are no restrictions on the payment of
dividends. In Europe on March 7, 2000, the company issued [eurodollars
symbol] 400 million (or $388 million) of 6.0% notes due 2007.
In 1998, the company retired $130 million of high interest long-term
debt through a tender offer. These debt retirements resulted in an
after-tax extraordinary loss of $13 million, or $.07 per share. The $22
million 9.375% debentures were retired in 1999 for an immaterial loss.
Total cash used for the payment of interest expense, net of amounts
capitalized, was $72 million, $36 million and $40 million in 1999, 1998
and 1997, respectively.
Long-term debt maturing in the next five years is:
- ---------------------------------------------
(Millions of dollars)
- ---------------------------------------------
2000 $104 2003 $ 44
2001 21 2004 521
2002 20
- ---------------------------------------------
Note 19: Accounts Payable and Accrued Liabilities
- -----------------------------------------------------------------------
(Millions of dollars) 1999 1998
- -----------------------------------------------------------------------
Trade and other payables $ 599 $264
Salaries and wages 203 139
Interest 105 10
Reserve for restructuring (see Note 4) 73 --
Taxes, other than income taxes 81 29
Accrued acquisition costs 57 --
Employee benefits 44 25
Reserves for environmental remediation
(see Note 24) 39 45
Sales incentive programs and other selling accruals 68 55
Other 138 86
================
Total $1,407 $653
- -----------------------------------------------------------------------
Note 20: Other Liabilities
- -----------------------------------------------------------------------
(Millions of dollars) 1999 1998
- -----------------------------------------------------------------------
Reserves for environmental remediation
(see Note 24) $162 $ 86
Deferred revenue on supply contracts 49 56
Other 78 42
==============
Total $289 $184
- -----------------------------------------------------------------------
Note 21: Stockholders' Equity
Dividends paid on ESOP shares, used as a source of funds for meeting the
ESOP financing obligation, were $13 million in 1999 and $12 million in
1998. These dividends were recorded net of the related U.S. tax
benefits. The number of ESOP shares not allocated to plan members at
December 31, 1999 and 1998 were 12.9 million and 13.5 million,
respectively.
The company recorded compensation expense of $6 million in 1999, 1998
and 1997 for ESOP shares allocated to plan members. The company expects
to record annual compensation expense at approximately this level over
the next 21 years as the remaining $125 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.
55
<PAGE>
The company repurchased an insignificant number of shares in 1999.
During 1998 the company repurchased 17,459,435 shares of its common
stock at a total cost of $567 million and 7,653,453 shares in 1997 at a
cost of $216 million. Most of the shares obtained in 1998 were through
an accelerated stock repurchase program with a third party. Under the
terms of this program, the final cost to the company of $440 million
($62 million paid in 1999) reflected the average share price paid by the
third party in the market over an extended trading period.
In 1999, the company redeemed its $2.75 cumulative convertible preferred
stock under the terms of the issue.
The reconciliation from basic to diluted earnings per share is as
follows:
- -------------------------------------------------------------------------
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------
1999
Net earnings available to
common shareholders $247 192,586 $1.28
Effect of convertible preferred
stock 2 --
Effect of accelerated stock
repurchase program -- 1,316
Dilutive effect of options -- 1,819
=====================
Diluted earnings per share $249 195,721 $1.27
- -------------------------------------------------------------------------
1998
Net earnings available to
common shareholders $434 175,591 $2.47
Effect of convertible preferred
stock 6 3,417
Dilutive effect of options -- 693
=====================
Diluted earnings per share $440 179,701 $2.45
- -------------------------------------------------------------------------
1997
Net earnings available to
common shareholders $403 185,808 $2.17
Effect of convertible preferred
stock 7 5,913
Dilutive effect of options -- 717
=====================
Diluted earnings per share $410 192,438 $2.13
- -------------------------------------------------------------------------
Note 22: Stock Compensation Plans
As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company continues 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, $3
million and $1 million in 1999, 1998 and 1997, respectively. 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 $146 million in 1999, $437 million in 1998,
and $407 million in 1997. Diluted earnings per common share would have
been reduced to $.75, $2.43, and $2.12 in 1999, 1998 and 1997,
respectively.
1999 STOCK PLAN
Under this plan, the company may grant as options or restricted stock up
to 8 million shares of common stock with no more than 1 million of these
shares granted to any employee as options over a five-year period.
Awards under this plan may be granted only to employees of the company.
Options granted under this plan in 1999 and early 2000 were granted at
the fair market value on the date of grant and generally vest over three
years expiring within 10 years of the grant date.
NON-EMPLOYEE DIRECTORS' STOCK PLAN OF 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 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 were paid some or all of their bonuses in
shares of restricted stock instead of cash. Most shares vest after five
years. The plan covers an aggregate 450,000 shares of common stock.
Shares of restricted stock issued in 1999 totaled 73,105 at a
weighted-average grant-date fair value of $31 per share. In 1998 and
1997, 74,106 and 93,714 shares of restricted stock were granted at
weighted-average grant-date fair values of $34 and $28 per share,
respectively.
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 300,000 shares.
56
<PAGE>
The status of the company's stock options as of December 31 is presented
below:
- -----------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
- -----------------------------------------------------------------------------
Outstanding
at beginning
of year 2,417 $23.58 2,394 $20.63 2,283 $17.49
Granted 6,545 22.26 471 31.51 600 27.42
Canceled (709) 18.26 (10) 31.49 -- --
Exercised (2,834) 18.65 (438) 15.80 (489) 14.31
===== === ===
Outstanding
at end of year 5,419 25.26 2,417 23.58 2,394 20.63
===== ===== =====
Options exercisable
at year end 4,993 25.14 1,956 21.71 1,809 18.44
Weighted-average
fair value of
options granted
during the year $24.38 $ 8.40 $ 7.26
- -----------------------------------------------------------------------------
Options activity in 1999 increased compared to 1998 as a result of
acquisitions.
The Black-Scholes option pricing model was used to estimate the fair
value for each grant made under the Rohm and Haas plan during the year.
The following are the weighted-average assumptions used for all shares
granted in the years indicated:
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
Dividend yield 2.29% 2.52%
Volatility 31.46 25.07
Risk-free interest rate 4.99 5.52
Time to exercise 6 years 6 years
- ------------------------------------------------------------------------
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
- -----------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------------
Range Weighted- Weighted- Weighted-
of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices (000s) Life Price (000s) Price
- -----------------------------------------------------------------------
$11 to $15 323 1.6 years $12.22 323 $12.22
18 to 22 1,621 5.3 20.18 1,621 20.18
25 to 45 3,475 8.0 28.84 3,049 28.33
===== =====
5,419 4,993
===== =====
- -----------------------------------------------------------------------
Note 23: 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 $79 million in 1999, $57
million in 1998 and $62 million in 1997.
Total future minimum lease payments under the terms of non-cancellable
operating leases are as follows:
- ---------------------------------------------
(Millions of dollars)
- ---------------------------------------------
2000 $51 2003 $ 27
2001 44 2004 21
2002 39 Thereafter 344
- ---------------------------------------------
Note 24: Contingent Liabilities, Guarantees
and Commitments
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.
The laws and regulations under which the company operates require
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 and has been named a potentially responsible party at approximately
140 inactive waste sites where remediation costs have been or may be
incurred under the Federal Comprehensive Environmental Response,
Compensation and Liability Act and similar state statutes. In some of
these cases the company may also be held responsible for alleged
personal injury or property damage. The company has provided for future
costs at certain of these sites.
57
<PAGE>
The company is also involved in corrective actions at some of its
manufacturing facilities. The company considers a broad range of
information when determining the amount of its remediation accruals,
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; however, at certain
sites, the company is unable, due to a variety of factors, to assess and
quantify the ultimate extent of its responsibility for study and
remediation costs. 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 Houston, Texas. The Morton
acquisition introduced two major sites: Moss Point, Mississippi and
Wood-Ridge, New Jersey.
In Wood-Ridge 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. Based
on the progress of the technical studies, the company expects to develop
a range of estimated liabilities in 2000 and revise the allocation of
the Morton purchase price; however, final determination of the liability
will not be made until regulatory decisions permit such determination.
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 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 $4 million in 1999, $10 million in 1998 and $46 million in 1997.
The 1997 expense includes a $20 million charge resulting from an
unfavorable arbitration decision relating to the Woodlands sites;
however, reflected in the 1999 charge is a favorable adjustment of $11
million resulting from formal approval received in 1999 of a less costly
remediation method.
The reserves for remediation were $201 million and $131 million at
December 31, 1999 and 1998, 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
58
<PAGE>
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 in 1999 for a
total of $28 million, which resulted in after-tax income of
approximately $17 million. These settlements were recognized as income
in 1999 and there were no insurance recoveries receivable at December
31, 1999. Insurance recoveries receivable, included in accounts
receivable, net, were $2 million at December 31, 1998.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies related to environmental matters
of approximately $110 million and $65 million at December 31, 1999 and
1998, respectively. Further, the company has identified other sites,
including its larger manufacturing facilities, 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 costs 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 or cash flows in any given quarter.
Capital spending for new environmental protection equipment was $30
million in 1999 versus $17 million in 1998. Spending for 2000 and 2001
is expected to be approximately $29 million and $17 million,
respectively. Capital expenditures in this category include projects
whose primary purposes are pollution control and safety, as well as
environmental aspects of projects in other categories that 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 $27 million
in 1999, $26 million in 1998 and $37 million in 1997. The expenditures
for remediation are charged against accrued remediation reserves. The
cost of operating and maintaining environmental facilities was $107
million, $94 million and $95 million in 1999, 1998 and 1997,
respectively, and was charged against current-year earnings.
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 claim. No accruals were
recorded as of December 31, 1999 because the company was unable to
quantify its potential exposure.
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 1999 the company reached a
tentative settlement and agreed to pay $3 million subject to further
government approval. Such approval remains pending as of December 31,
1999. This non-tax deductible tentative settlement was charged to
"other income (expense), net" in 1999. In 1998, subsequent to the sale
of the AtoHaas joint venture, the buyer asserted a claim against the
company related to the value of certain joint venture assets. In 1999
the company settled this matter for approximately $22 million ($14
million, after-tax).
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.
At December 31, 1999, construction commitments totaled approximately
$65 million.
59
<PAGE>
Note 25: Quarterly Results of Operations (Unaudited)
1999 Quarterly Results
- ------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 1999
- ------------------------------------------------------------------------------
Net sales $940 $1,144 $1,577 $1,678 $5,339
Gross profit 382 449 550 584 1,965
Earnings (loss) before
extraordinary item 110 (9) 58 90 249
Net earnings (loss) 110 (9) 58 90 249
- ------------------------------------------------------------------------------
Earnings (loss) per common
share before extraordinary
item, in dollars
--Basic $.65 $ (.06) $ .27 $ .41 $ 1.28
--Diluted .64 (.06) .26 .41 1.27
Net earnings (loss) per
common share, in dollars
--Basic $.65 $ (.06) $ .27 $ .41 $ 1.28
--Diluted .64 (.06) .26 .41 1.27
Cash dividends per common share,
in dollars $.18 $ .18 $ .19 $ .19 $ .74
- ------------------------------------------------------------------------------
1998 Quarterly Results
- ------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 1998
- ------------------------------------------------------------------------------
Net sales $937 $ 990 $ 909 $ 884 $3,720
Gross profit 373 406 345 340 1,464
Earnings before extraordinary item 109 180 89 75 453
Net earnings 109 170 86 75 440
- ------------------------------------------------------------------------------
Earnings per common share before
extraordinary item, in dollars
--Basic $ .59 $ .98 $ .51 $ .44 $ 2.55
--Diluted .58 .96 .50 .44 2.52
Net earnings per common
share, in dollars
--Basic $ .59 $ .93 $ .49 $ .44 $ 2.47
--Diluted .58 .91 .48 .44 2.45
Cash dividends per common
share, in dollars $ .17 $ .17 $ .18 $ .18 $ .70
- ------------------------------------------------------------------------------
1997 Quarterly Results
- ------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 1997
- ------------------------------------------------------------------------------
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 $.54 $ .62 $ .48 $ .53 $ 2.17
--Diluted .53 .61 .48 .52 2.13
Cash dividends per common
share, in dollars $.15 $ .15 $ .16 $ .17 $ .63
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Reconciliation of Earnings as Reported to Earnings
Excluding Non-recurring Items (in millions)
- ---------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
- ---------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AS REPORTED $110 $109 $ (9) $170 $58 $86 $ 90 $75 $249 $440
IPR&D and other
acquisition-related charges -- -- 105 -- 7 -- 3 -- 115 --
Joint venture dispositions -- -- 14 (76) -- -- -- -- 14 (76)
Remediation-related insurance
settlements (13) -- -- -- -- -- (4) -- (17) --
Provision for restructuring -- -- -- -- 19 -- 4 -- 23 --
Asset write-downs,
integration and other costs 7 -- 6 18 5 -- 8 -- 26 18
Early retirements of debt -- -- -- 10 -- 3 -- -- -- 13
- ---------------------------------------------------------------------------------------------
EARNINGS, EXCLUDING
NON-RECURRING ITEMS $104 $109 $116 $122 $89 $89 $101 $75 $410 $395
- ---------------------------------------------------------------------------------------------
</TABLE>
60
<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
PricewaterhouseCoopers 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.
RAJIV L. GUPTA BRADLEY J. BELL
Chairman of the Board Senior Vice President
and Chief Executive Officer and Chief Financial Officer
Report of Independent Accountants
PRICEWATERHOUSECOOPERS LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103-4094
Telephone (215) 575 5000
To the Board of Directors and
Stockholders of Rohm and Haas Company
In our opinion, the accompanying consolidated balance sheets and the
related statements of consolidated earnings, stockholders' equity and
cash flows present fairly, in all material respects, the financial
position of Rohm and Haas Company and its subsidiaries at December 3l,
1999 and 1998, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States. 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
of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above. The financial statements of Rohm and Haas Company for the year
ended December 31, 1997 were audited by other independent accountants
whose report dated February 23, 1998 expressed an unqualified opinion on
those statements.
PricewaterhouseCoopers LLP
March 7, 2000
61
<PAGE>
Rohm and Haas Company and Subsidiaries
Eleven-Year Summary of Selected Financial Data (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars,
except per-share
amounts) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 5,339 $ 3,720 $ 3,999 $ 3,982 $ 3,884 $ 3,534 $ 3,269 $ 3,063 $ 2,763 $ 2,824 $ 2,661
Gross profit 1,965 1,464 1,455 1,395 1,333 1,267 1,095 1,049 902 930 841
Earnings before
interest and taxes 623 734 650 569 480 453 235 314 288 350 290
Earnings before
income taxes 464 700 611 530 441 407 194 261 240 313 251
EARNINGS BEFORE
EXTRAORDINARY ITEMS
AND CUMULATIVE
EFFECT OF
ACCOUNTING CHANGES $ 249 $ 453 $ 410 $ 363 $ 292 $ 264 $ 126 $ 174 $ 163 $ 207 $ 176
NET EARNINGS (LOSS) $ 249 $ 440 $ 410 $ 363 $ 292 $ 264 $ 107 $ (5) $ 163 $ 207 $ 176
EBITDA (1) $ 1,179 $ 1,015
As a percent of sales
Gross profit 36.8% 39.4% 36.4% 35.0% 34.3% 35.9% 33.5% 34.2% 32.6% 32.9% 31.6%
Selling and
administrative
expense 16.4 17.1 16.0 15.8 15.9 16.7 18.0 17.9 17.0 16.1 15.1
Research and
development
expense 4.4 5.6 5.0 4.7 5.0 5.7 6.3 6.5 6.6 6.3 6.6
Earnings before
extraordinary
items and
cumulative
effects 4.7 12.2 10.3 9.1 7.5 7.5 3.9 5.7 5.9 7.3 6.6
Return on assets (2) 4.0% 12.7% 11.2% 9.9% 8.1% 7.6% 4.3% 6.1% 6.8% 8.6% 8.3%
Return on common
stockholders'
equity (3) 13.4% 25.3% 22.7% 20.1% 16.6% 16.5% 8.1% 11.4% 11.2% 15.2% 14.0%
Ten-year compound
growth rate
Sales 7.2% 3.9% 6.1% 6.8% 6.6% 5.6% 5.7% 5.3% 3.9% 5.1% 5.3%
Basic earnings per
common share before
extraordinary items
and cumulative
effect of
accounting changes 3.8 8.3 8.6 10.5 7.7 5.4 (0.9) 8.6 7.4 9.9 7.1
Cash dividends per
common share 6.7 7.5 8.2 8.2 8.3 9.1 10.5 10.5 11.2 13.0 14.9
Wages and salaries $ 919 $ 643 $ 630 $ 627 $ 625 $ 632 $ 616 $ 589 $ 540 $ 520 $ 481
CASH FLOW DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by
operating activities $ 816 $ 682 $ 791 $ 706 $ 513 $ 524 $ 358 $ 401 $ 357 $ 336 $ 309
Additions to fixed
assets 323 229 254 334 417 339 382 283 265 412 385
Depreciation 368 276 279 262 242 231 226 203 183 159 150
Cash dividends 141 125 121 116 109 102 97 88 80 79 77
Free cash flow (4) 352 328 416 256 (13) 83 (121) 30 12 (155) (153)
Share repurchases 65 567 216 302 29 7 -- 1 1 213 --
Investments in joint
ventures, affiliates
and subsidiaries 3,394 21 80 7 -- -- -- 172 41 12 2
PER COMMON SHARE DATA
AND OTHER SHARE
INFORMATION (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings before
extraordinary items
and cumulative
effect of
accounting changes:
Basic $ 1.28 $ 2.55 $ 2.17 $ 1.82 $ 1.41 $ 1.26 $ .58 $ .84 $ .82 $ 1.03 $ .88
Diluted 1.27 2.52 2.13 1.79 1.40 1.26 .58 .84 .82 1.03 .88
Cash dividends per
common share $ .74 $ .70 $ .63 $ .57 $ .52 $ .48 $ .45 $ .43 $ .41 $ .41 $ .39
Common stock price
High $49-1/4 $38-7/8 $33-3/4 $27-1/2 $21-5/8 $22-13/16 $20-11/16 $19-7/8 $16-3/16 $12-5/16 $12-1/2
Low 28-1/8 26 23-9/16 18-5/16 16-1/2 17-3/4 15-3/4 14-1/4 10-15/16 8-1/16 10-5/16
Year-end close 40-11/16 30-1/8 31-15/16 27-3/16 21-7/16 19-1/16 19-13/16 17-13/16 14-1/2 11-5/8 11-9/16
Number of shares
repurchased, in
thousands 70 17,459 7,653 13,293 1,545 369 21 54 48 19,428 24
Average number of
shares outstanding
-- basic, in
thousands 192,586 175,591 185,808 196,122 202,566 203,121 202,857 199,188 192,309 198,654 199,779
AT YEAR END
- ----------------------------------------------------------------------------------------------------------------------------------
Gross fixed assets $ 6,349 $ 4,471 $ 4,492 $ 4,327 $ 4,158 $ 3,969 $ 3,696 $ 3,470 $ 3,015 $ 2,770 $ 2,396
Total assets 11,256 3,648 3,900 3,933 3,916 3,861 3,524 3,517 2,897 2,702 2,455
Total debt 4,053 581 606 707 696 786 773 800 753 679 531
Stockholders' equity 3,475 1,561 1,797 1,728 1,781 1,620 1,441 1,428 1,235 1,137 1,311
Debt ratio (6) 52% 25% 22% 26% 25% 26% 31% 30% 28% 32% 23%
Number of registered
common stockholders 9,462 4,451 4,352 4,492 4,721 4,907 5,120 5,653 5,796 6,088 5,816
Number of employees 21,512 11,265 11,592 11,633 11,670 12,211 12,985 13,619 12,872 12,920 13,040
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings before interest, taxes, depreciation and amortization. For
1999, EBITDA excludes the IPR&D charge. The company did not
calculate this measure prior to 1998.
(2) Net earnings plus after-tax interest expense, divided by year-end
total assets. 1999 excludes the IPR&D charge.
(3) Excluding ESOP adjustment and cumulative effect of accounting
changes. 1999 excludes the IPR&D charge.
(4) Cash provided by operating activities less fixed asset spending and
dividends.
(5) 1989 to 1997 earnings per share and share information has been
restated to reflect the 1998 three-for-one stock split.
(6) Total debt, net of cash, divided by the sum of net debt, minority
interest, stockholders' equity and ESOP shares.
See accompanying notes on page 64.
See 1999, 1998 and 1997 results in Management Discussion and Analysis on
pages 26 to 38.
62 63
<PAGE>
Notes on Eleven-Year Summary
A. In 1999 the company made significant acquisitions the results of
which have been included in the consolidated financial statements since
the dates the businesses were acquired. Also in 1999, significant non-
recurring items totaling $161 million after-tax, or $.82 per share, were
incurred including: a $105 million write-off of purchased IPR&D, a
restructuring charge, a charge related to 1998 joint venture
dispositions and restructuring charges in the Electronic Materials
segment, Electronic Materials segment asset write-downs and other
restructuring charges mostly associated with the 48%-owned Rodel
affiliate and gains related to environmental remediation related
insurance settlements.
B. Included in 1998 results are a one-time gain of $45 million, or $.25
per share. This net gain affected all segments and regions, except
Latin America, and was the net result of the sale of the company's
interest in the AtoHaas and RohMax joint ventures, an early
extinguishment of debt, the write-off of certain intangible assets in
Europe and business realignment costs primarily in Asia.
C. The 1997 earnings include a gain of $16 million after tax, or $.09
per common share, the net result of remediation settlements with
insurance carriers during the fourth quarter.
D. The 1996 earnings included a net gain of 2 cents per common share
from non-recurring items. This is the net effect of a 5 cent per common
share gain related to retroactive tax credits on sales outside of the
United States and a charge of 3 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.
E. Results in 1995 were reduced by a charge of 8 cents per common share
for additional potential liability related to the cleanup of the
Whitmoyer waste site in Myerstown, Pennsylvania.
F. Earnings in 1993 included charges of 16 cents per common share for
remediation of property near the Lipari landfill, 8 cents per common
share for cancelling construction of a plastics manufacturing facility
in England and 9 cents per common share for the writedown of the
imidized plastics production line in Kentucky. Results also included a
gain of 5 cents per common share for the sale of Supelco, Inc.
G. 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 9 cents per common share.
The impact on 1993 earnings was not material.
H. Results in 1992 included a 19 cents-per-common-share charge for the
estimated costs of downsizing a manufacturing site in Philadelphia.
I. 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 $.90 per common share. The impact on 1992 results was an after-tax
charge of 4 cents per common share.
Shareholder Information
Stock Exchange Listing
Rohm and Haas stock trades on the New York Stock Exchange (NYSE) under
the trading symbol ROH.
Transfer Agent and Registrar
EQUISERVE, L.P.
P.O. Box 8218
Boston, MA 02266-8218
(800) 633-4236
www.equiserve.com
Annual Meeting
of Stockholders
Rohm and Haas Company's Annual Meeting of Stockholders will be held on
May 1, 2000 at the American Philosophical Society's Ben Franklin Hall,
427 Chestnut Street, Philadelphia, PA at 10:30 a.m. Formal notice of
the meeting, the proxy statement and form of proxy will be mailed to
current shareholders on March 27, 2000.
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
30 South 17th Street
Philadelphia, PA 19103-4094
(215) 575-5000
10-K filing with the SEC
You can obtain a copy of Rohm and Haas's annual report to the U.S.
Securities and Exchange Commission (SEC) through:
The SEC EDGAR database at:
www.sec.gov
The Rohm and Haas website:
www.rohmhaas.com
The Rohm and Haas Investors
Line at: 1-800-ROH-0466
or by writing to:
Rohm and Haas Company
Public Relations Department
100 Independence Mall West
Philadelphia, PA 19106-2399
(215) 592-3045
64
<PAGE>
Rohm and Haas Company
Manufacturing Locations
ARGENTINA: Buenos Aires
AUSTRALIA: Geelong
BAHAMAS: Inagua
BRAZIL: Jacarei
CANADA: Ajax; Iles-De-La-Madeleine;
Lindbergh; Ojibway; Pugwash; Regina/
Belle Plaine; West Hill; Windsor
CHINA: Beijing; Dongguan; Hong Kong;
Songjiang
COLOMBIA: Barranquilla
FRANCE: Aigues-Mortes; Chauny; Dax;
Lauterbourg; Salin-de-Giraud; Semoy;
Varangeville; Villers-Saint-Paul
GERMANY: Bremen; Osnabruck;
Strullendorf
INDONESIA: Cilegon
ITALY: Garlasco; Mozzanica; Mozzate; Parona;
Robecchetto; Romano d'Ezzelino
JAPAN: Mie; Nagoya; Osaka; Sasagami;
Soma; Tokyo
MEXICO: Apizaco; Toluca
NETHERLANDS: Amersfoort; Delfzijl
NEW ZEALAND: Auckland
PHILIPPINES: Las Pinas
SINGAPORE: Singapore
SOUTH AFRICA: New Germany
SPAIN: Torrevieja, Tudela
SWEDEN: Landskrona
SWITZERLAND: Lucerne
TAIWAN: Chiayi Hsien; Ta Yuan; Taoyuan
Hsien; Thailand: Maptaphut
TUNISIA: Sfax; Sousse
UNITED KINGDOM: Buxton; Coventry;
Dewsbury; Grangemouth; Jarrow;
Warrington
UNITED STATES:
Arizona: Glendale; Phoenix; Scottsdale
California: Hayward; La Mirada;
Long Beach; Newark; Orange; Sunnyvale;
Tustin
Delaware: Newark
Florida: Cape Canaveral
Illinois: Chicago Heights; Elk Grove;
Kankakee; Lansing; Ringwood
Indiana: Warsaw
Iowa: Muscatine
Kansas: Hutchinson
Kentucky: Louisville
Louisiana: Weeks Island
Massachusetts: Marlborough;
North Andover
Michigan: Manistee
Mississippi: Moss Point
New Jersey: Paterson; Perth Amboy
New York: Freeport; Silver Springs
North Carolina: Charlotte
Ohio: Cincinnati; Fairport; Rittman;
West Alexandria
Pennsylvania: Bristol/Croydon;
Philadelphia; Reading
South Carolina: Greenville; Spartanburg
Texas: Bayport; Deer Park; Grand Saline;
Houston; Knoxville
Utah: Grantsville
Virginia: Wytheville
Washington: Elma
Research Facilities
Corporate Research Headquarters
Spring House, Pennsylvania USA
Other Research
and Technical Facilities
AUSTRALIA: Geelong
CHINA: Shanghai
FRANCE: Aigues-Mortes, Lauterbourg,
Semoy, Valbonne
GERMANY: Bremen, Mannheim, Osnabruck,
Strullendorf
ITALY: Mozzate, Parona, Robecchetto,
Romano d'Ezzelino
JAPAN: Omiya, Nara, Sasagami,
Washinomiya
NETHERLANDS: Amersfoort
SINGAPORE: Singapore
SWITZERLAND: Buchs, Lucerne
UNITED KINGDOM: Coventry, Dewsbury
UNITED STATES:
Arizona: Phoenix
Delaware: Newark
California: Tustin
Georgia: Chamblee
Illinois: Lansing, Woodstock
Massachusetts: Marlborough,
North Andover, Woburn
New Jersey: Paterson
New York: Freeport
North Carolina: Charlotte
Ohio: Cincinnati, West Alexandria
Pennsylvania: Bristol, Flying Hills
Texas: Houston
<PAGE>
ROHM AND
HAAS [LOGO]
www.rohmhaas.com
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT
--------------------------
NAME OF SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
- ------------------ ---------------------------------
AgLead K.K. Japan
Bee Chemical Company Illinois
Nippon Bee Chemical Co., Ltd Japan
(50% owned by Bee Chemical Company)
Morton Nippon Coatings Partnership Illinois
(50% owned by Bee Chemical Company)
Beijing Eastern Rohm and Haas Company, Limited China
Canadian Salt Company Limited (The) Canada
Charles Lennig and Company, Incorporated Pennsylvania
Compagnie des Salins du Midi et des Salines de l'Est France
Compagnie Italienne Des Sels S.A Italy
Union Salinera De Espana S.A Spain
Compagnie Commerciale Des Sals Marins S.A.R.L. France
Duolite Int. Ltd. England
Inagua General Store, Limited Bahamas
Japan Acrylic Chemical Company, Ltd. Japan
LeaRonal AG Germany
LeaRonal Asia Ltd.
LeaRonal Korea Korea
LeaRonal Taiwan Company, Ltd. Taiwan
LeaRonal Singapore Pte Ltd. Singapore
Dongguan LeaRonal Fine Chemicals Ltd. China
LeaRonal UK Ltd. England
LG-Shipley, Ltd. South Korea
Morton Bahamas Limited Bahamas
Morton International B.V Netherlands
Morton International Co., Ltd Japan
Morton International G.m.b.H Germany
IRO Chemie Germany
Morton International Limited England
Morton International Ireland Company Ireland
Morton International, Ltd Japan
Morton International S.A France
Morton S.A France
Morton International S.p.A Italy
Morton International Holding S.A.S. France
Morton International S.A. Belgium
Morton International, Incorporated Indiana
Morton-WKK, Ltd Bermuda
(50% owned by Morton International, Inc.)
Dongguan Kong King China
Morton-WKK, Ltd Hong Kong
Morton Service B.V. Netherlands
Nichigo-Morton Co., Ltd Japan
(50% owned by Morton International, Inc.) N.V.
Nippon Bee Chemical Company, Ltd. Japan
P.T. Rohm and Haas Company Indonesia Indonesia
Quimica Conosur Sociedad Anonima Uruguay
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 Commerce Incorporated Delaware
Rohm and Haas Credit Corporation Delaware
Rohm and Haas Denmark ApS Denmark
Rohm and Haas Denmark Finance A/S Denmark
Rohm and Haas Deutschland GmbH Germany
Rohm and Haas Deutschland Holding GmbH
Rohm and Haas European Holdings ApS Denmark
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 (UK) Holdings, Limited England
Rohm and Haas Investment Holdings, Incorporated Delaware
Rohm and Haas International SAS France
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
Rohm and Haas Puerto Rico, Incorporated Delaware
Rohm and Haas Quimica Ltda. Brazil
Rohm and Haas (Scotland) Limited England
Rohm and Haas Singapore (Pte.) Ltd. Singapore
Rohm and Haas Taiwan Inc. Taiwan
Rohm and Haas Texas Incorporated Texas
Rohm and Haas (UK) Limited England
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF REGISTRANT
--------------------------
NAME OF SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
- ------------------ ---------------------------------
Rohm and Haas Unison Holdings, Incorporated Delaware
SEI S.r.l. Italy
Shipley Company L.L.C. Massachusetts
Shipley Europe Limited England
Shipley Far East Limited Japan
Shipley Holdings, Inc. Delaware
Toyo-Morton Limited Japan
(50% owned by Morton International, Inc.)
TosoHaas Pennsylvania
Union Salinera De Espana S.A. Spain
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 (A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-14017 and 333-69541) and in the Registration
Statements on Form S-8 (Nos. 2-90736, 33-56842, 333-18879, 333-40877,
333-78993 and 333-73437) of Rohm and Haas Company of our report dated March
7, 2000 relating to the financial statements, which appears in the Annual
Report to Stockholders, which is incorporated by reference in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report dated March 7, 2000 relating to the financial statement schedules,
which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 23, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Rohm and Haas Company:
We consent to the incorporation by reference in the Registration Statements
on Form S-3 (Nos. 333-14017 and 333-69541) and in the Registration
Statements on Form S-8 (Nos. 2-90736, 33-56842, 333-18879, 333-40877,
333-78993 and 333-72437) of Rohm and Haas Company of our report dated
February 23, 1998, relating to the consolidated statements of earnings,
stockholders' equity, and cash flows and the related financial statement
schedule for the year ended December 31, 1997, which report appears in the
annual report on Form 10-K.
KPMG LLP
Philadelphia, Pennsylvania
March 23, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 1,285
<ALLOWANCES> 37
<INVENTORY> 899
<CURRENT-ASSETS> 2,497
<PP&E> 6,349
<DEPRECIATION> 2,853
<TOTAL-ASSETS> 11,256
<CURRENT-LIABILITIES> 2,510
<BONDS> 3,122
0
0
<COMMON> 605
<OTHER-SE> 2,870
<TOTAL-LIABILITY-AND-EQUITY> 11,256
<SALES> 5,339
<TOTAL-REVENUES> 5,339
<CGS> 3,374
<TOTAL-COSTS> 3,374
<OTHER-EXPENSES> 1,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 464
<INCOME-TAX> 215
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-BASIC> 1.28
<EPS-DILUTED> 1.27
<PAGE>
APPENDIX
APPENDIX TO ANNUAL REPORT TO STOCKHOLDERS
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
------- ---------------------------
Page 1 Line Charts for Rohm and Haas Company of:
Sales
1995 $3,884 million
1996 $3,982 million
1997 $3,999 million
1998 $3,720 million
1998 Pro Forma $6,430 million
1999 Pro Forma $6,652 million
Earnings
1995 $292 million
1996 $363 million
1997 $410 million
1998 $440 million
1998 Pro Forma $307 million
1999 Pro Forma $391 million
Page 6 Line Charts for Performance Polymers of:
Sales
1995 $2,482 million
1996 $2,549 million
1997 $2,557 million
1998 $2,254 million
1998 Pro Forma $3,521 million
1999 Pro Forma $3,551 million
Earnings
1995 $225 million
1996 $253 million
1997 $297 million
1998 $372 million
1998 Pro Forma $367 million
1999 Pro Forma $410 million
Page 12 Line Charts for Chemical Specialties of:
Sales
1995 $1,048 million
1996 $1,075 million
1997 $1,043 million
1998 $1,068 million
1998 Pro Forma $1,335 million
1999 Pro Forma $1,367 million
Earnings
1995 $108 million
1996 $133 million
1997 $105 million
1998 $ 94 million
1998 Pro Forma $130 million
1999 Pro Forma $135 million
Page 15 Line Charts for Electronic Materials of:
Sales
1995 $354 million
1996 $358 million
1997 $399 million
1998 $398 million
1998 Pro Forma $806 million
1999 Pro Forma $885 million
Earnings
1995 $43 million
1996 $39 million
1997 $52 million
1998 $45 million
1998 Pro Forma $59 million
1999 Pro Forma $67 million
Page 19 Line Charts for Salt of:
Sales
1998 Pro Forma $768 million
1999 Pro Forma $849 million
Earnings
1998 Pro Forma $30 million
1999 Pro Forma $48 million
Page 31 Line Chart of Gross Profit, Selling, Administrative and
Research Expense (SAR) and Operating Earnings as a percent
of sales:
Year Gross Profit SAR Operating Earnings
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
1998 39.4 22.6 12.4
1999 36.8 20.8 8.5
Line Chart of Selling Price and Raw Materials Cost Indices
1989 = 100
Selling Price Percent Raw Material Percent
Year Index Change Cost Index Change
1989 100 1 100 3
1990 103 3 100 0
1991 105 2 101 0
1992 104 (1) 92 (9)
1993 100 (4) 89 (3)
1994 100 0 93 4
1995 106 6 112 21
1996 105 (1) 104 (7)
1997 104 (1) 103 (1)
1998 103 (2) 93 (10)
1999 100 (3) 88 (6)
Page 32 Line Chart of Asset Turnover, Operating Margin and ROA
Year Asset Turnover Operating Margin (Percent) ROA (Percent)
1989 1.08 7.6 8.3
1990 1.05 8.2 8.6
1991 0.95 7.0 6.8
1992 0.87 6.8 6.1
1993 0.93 4.7 4.3
1994 0.92 8.3 7.6
1995 0.99 8.2 8.1
1996 1.01 9.8 9.9
1997 1.03 10.9 11.2
1998 1.02 12.4 12.7
1999 1.00 10.8 10.8
Line Chart of Return on Investment
Year ROE ROA
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
1998 25.3 12.7
1999 13.4 4.0
1999 Pro Forma 20.1 10.8
Page 34 Line Chart of Diluted Earnings and Dividends
Per Share
Year Diluted Earnings Common Dividends
1989 .88 .39
1990 1.03 .41
1991 .82 .41
1992 .84 .43
1993 .58 .45
1994 1.26 .48
1995 1.40 .52
1996 1.79 .57
1997 2.13 .63
1998 2.45 .70
1999 1.81 .74
Free Cash Flow
Year Cash Provided by Operating Activities Free Cash Flow
1989 $309 million $(153) million
1990 $336 million $(155) million
1991 $357 million $ 12 million
1992 $401 million $ 30 million
1993 $358 million $(121) million
1994 $524 million $ 83 million
1995 $513 million $ (13) million
1996 $706 million $ 256 million
1997 $791 million $ 416 million
1998 $684 million $ 328 million
1999 $816 million $ 352 million
Page 35 Capital Additions and Depreciation
Year Additions Depreciation
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
1998 $229 million $276 million
1999 $323 million $368 million
Asset Turns
Year Customer Receivables Inventories Fixed Assets
1989 7.2 5.2 2.3
1990 7.2 4.9 2.0
1991 6.5 5.4 1.9
1992 6.2 4.6 1.7
1993 6.0 5.5 1.8
1994 5.7 4.7 1.8
1995 5.9 5.1 1.9
1996 5.7 5.4 1.9
1997 5.9 5.5 2.0
1998 5.8 5.3 2.0
1999 5.2 4.8 1.9
Page 38 Quarterly Stock Prices
Dollars
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1997
High 31 5/8 30 7/16 33 3/4 32 1/8
Low 24 3/4 23 9/16 29 3/8 26 7/16
Close 24 15/16 30 32 31 15/16
1998
High 35 1/6 38 11/16 35 5/8 38 7/8
Low 26 15/16 32 7/16 26 26
Close 34 7/16 34 5/8 27 13/16 30 1/8
1999
High 34 15/16 49 1/4 46 7/16 41 7/8
Low 28 1/8 33 1/2 31 3/4 34 3/16
Close 33 9/16 42 7/8 36 1/8 40 11/16
</TABLE>
