2000 Annual Report - Master Text - 3/14/01
Cover - Under photo of man and son at the bathroom sink
Mornings are busy. Everyone's getting ready to meet the day. You might not
realize it, but Rohm and Haas is with you, too. . . .
Table of Contents
Financial Highlights........................... 1
Letter to Shareholders......................... 2
Running into the Future ....................... 5
Performance Polymers .......................... 6
Chemical Specialties........................... 12
Electronic Materials .......................... 16
Salt .......................................... 20
Corporate Responsibility ...................... 22
Directors and Officers ........................ 25
Financials .................................... 27 [Lift flap for index]
Shareholder Information ....................... 64
Company Locations ............................. inside back cover
Inside Cover Flap -- continuation of cover story (with photo of man and son
in bathroom)
6:14 a.m. Glance around the bathroom. Our products are in the shampoos you
use and in the hair sprays that keep you looking your best all day. We're
the essential ingredients in the caulks and sealants around the bath or
shower stall, and the adhesives that hold the tiles firmly to the wall.
As you read through this report, travel with us as we find Rohm and
Haas technology in use around the world - Quietly Improving the Quality of
Life(TM).
Inside Front Cover
Financial Contents:
Management Discussion and Analysis
27 Results of Operations (2000, 1999 and 1998)
27 Summary by Business Segment (2000, 1999, and 1998)
31 Liquidity, Capital Resources and Other Financial Data
38 Market Risk Discussion
39 Quarterly Stock Prices
Consolidated Financial Statements
39 Summary of Significant Accounting Policies
41 Statements of Consolidated Earnings
42 Statements of Consolidated Cash Flows
43 Consolidated Balance Sheets
44 Statements of Consolidated Stockholders' Equity
Notes to Consolidated Financial Statements
45 Note 1 Acquisitions and Dispositions of Assets
46 Note 2 Investments
46 Note 3 Purchased In-process Research and Development
47 Note 4 Provision for Restructuring
48 Note 5 Other Income (Expense), Net
48 Note 6 Financial Instruments
50 Note 7 Income Taxes
51 Note 8 Segment Information
52 Note 9 Pension Plans
53 Note 10 Employee Benefits
54 Note 11 Accounts Receivable, Net
54 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
55 Note 16 Other Assets
55 Note 17 Notes Payable
55 Note 18 Long-Term Debt
55 Note 19 Accrued Liabilities
55 Note 20 Other Liabilities
56 Note 21 Stockholders' Equity
56 Note 22 Stock Compensation Plans
57 Note 23 Leases
57 Note 24 Contingent Liabilities, Guarantees and Commitments
60 Note 25 Quarterly Results of Operations
61 Report on Financial Statements
61 Report of Independent Accountants
62 Eleven-Year Summary of Selected Financial Data
[The following tables were represented by pie charts in the printed material.]
Sales by Region
(millions of dollars)
North America $3988
Europe $1650
Asia-Pacific $908
Latin-America $333
Sales by Business Segment
(millions of dollars)
Performance Polymers $3401
Chemical Specialties $1408
Electronic Materials $1195
Salt $875
This report includes forward-looking statements, reflecting management's
current expectations, based on reasonable assumptions. Results could differ
materially, depending upon such factors as change in business climate,
economic and competitive uncertainties, raw material and energy costs,
foreign exchange rates, interest rates, acquisitions or divestitures, risks
in developing new products and technologies, changes in business
strategies, or the unanticipated costs of complying with environmental and
safety regulations. Further details about potential risks can be found
beginning on page 38 and in the company's 10-K filing with the U.S.
Securities and Exchange Commission.
Contact Information
Please contact us for additional information about Rohm and Haas:
Visit our website: www.rohmhaas.com
Call us at: 1-215-592-3000
Fax us at: 1-215-592-3377
Write to us at:
Rohm and Haas Company
100 Independence Mall West
Philadelphia, PA USA 19106-2399
USA
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FINANCIAL HIGHLIGHTS
Financial Highlights
Millions of dollars (except per-share amounts) 2000 1999
- --------------------------------------------------------------------------
For the year:
Net sales $6,879 $5,374
Pro forma net sales (1) -- 6,715
Net earnings 354 249
Net earnings, excluding non-recurring items (2),(4) 381 410
Pro forma net earnings (1) -- 388
EBITDA (3),(4) 1,471 1,179
Capital additions 391 323
Free cash flows (5) 213 352
- --------------------------------------------------------------------------
At year end:
Total assets $11,267 $11,256
Total debt 3,774 4,053
Stockholders' equity 3,653 3,475
- --------------------------------------------------------------------------
Ratios:
Return on capital employed (6) 9.2% 11.4%
Return on common stockholders' equity (7) 10.0 13.4
- --------------------------------------------------------------------------
Per common share:
Net earnings
Basic $1.61 $1.28
Diluted 1.61 1.27
Net earnings, excluding non-recurring items (2),(4)
Basic $1.73 $2.13
Diluted 1.73 2.09
Common dividends $ .78 $ .74
- --------------------------------------------------------------------------
(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 2000 include purchased in-process research and
development (IPR&D) in the Electronic Materials segment, restructuring
charges in the Chemical Specialties segment related to the Ion Exchange
Resins business and certain integration costs related to the Morton
acquisition. Non-recurring items for 1999 include: restructuring charges,
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 percent-owned
Rodel affiliate and gains related to environmental remediation related
insurance settlements.
(3) Earnings before interest, taxes, depreciation and amortization. EBITDA
excludes non-recurring items.
(4) EBITDA, and net earnings, excluding non-recurring items, are presented
to assist security analysis and others in evaluating the company's
performance and its ability to generate cash. EBITDA, cash earnings
per share 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. The company's definitions of
these measures may not be consistent with those used by other companies.
(5) Free cash flow is cash provided by operating activities less capital
asset spending and dividends.
(6) Net earnings plus after-tax amortization and interest expense divided
by average total assets less average non-interest bearing liabilities.
(7) Stockholders' equity is before reduction for the Employee Stock Option
Plan (ESOP) transaction. Excludes IPR&D charges.
[ID: BARCODE]
FINANCIAL HIGHLIGHTS
Chairman's Letter Spread - Pages 2-4
Captions to graphics in italics
Worldwide
(THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.)
Millions of Dollars 1996 1997 1998 1999 2000
Sales 3,982 3,999 3,720 5,374 6,879
Sales Pro Forma 6,503 6,715
Earnings 363 410 440 249 354
Earnings Pro Forma 311 388
*Pro forma results include Morton and LeaRonal as if these 1999 acquisitions
occurred on January 1, 1999.
Pro forma earning exclude non-recurring items.
Did you Know? (page 3) Rohm and Haas is one of the world's
leading specialty chemical companies. By definition, "specialty
chemistry" brings useful characteristics to end-use products.
Here are just a few examples of the benefits Rohm and Haas
technology brings: excellent conductivity to semiconductor chips
and printed wiring boards; flexibility to plastics; superior
performance to paints and coatings, consistency in preserving
shampoos and lotions, and purity in the processes used to make
pharmaceutical products.
Electronic Materials Montage Caption (POWER & SPEED) (PAGE 2)
Our footprint in the electronics industry is increasing, thanks to
chemistry essential to the design and production of computer chips and
circuit boards, keyboards and housings and the ultrapure water needed
to keep processes contaminant free.
Sunspheres technology sphere and sunscreen bottles shown (REFLECTING)
(page 3)
We see possibilities in technology that others do not. Several years
ago, our scientists invented a way to make tiny, hollow spheres
suspended in liquid emulsions. These microvoids refract, or bend,
light. We first brought this technology to coatings to make paint that
covers in one coat, then to papers to make high-quality, gloss stock.
The newest generations of these tiny spheres are being introduced in
sunscreens, where they help protect skin from the sun's harmful
ultraviolet rays.
Powder Coatings (Pen)
We continue to make great progress demonstrating the incomparable value
of powder coatings over liquid in uses as diverse as outdoor grills,
gift pens and kitchen cabinetry.
Photo of Raj L. Gupta, Chairman and CEO (page 2)
Photo of J. Michael Fitzpatrick, President and COO (page 3)
Chairman's Letter
To the Shareholders of Rohm and Haas Company:
Rohm and Haas recorded a solid performance in 2000, in spite of a
persistently difficult external environment. The breadth of our specialty
technologies, the global reach of our businesses and excellent internal
cost control allowed us to cope with ever-increasing raw material and
energy costs, a significantly weaker Euro, and declining demand associated
with slowing in the U.S. building, construction and automotive markets.
As the Year Began
Rohm and Haas began the year in fine form, with strong demand for our
products and technologies in markets around the world. There was some
concern about escalating costs for the raw materials used to make the
acrylic-based Performance Polymers products, but the affected businesses
had begun to implement price increases late in 1999 that were expected to
blunt what was then anticipated to be a temporary spike in costs.
By mid-year, what first appeared to be a manageable increase in raw
material costs turned into an upheaval in the external environment. Raw
material costs for acrylic-based materials - propylene, acetone, styrene,
vinyl acetate monomer, butanol - escalated above all expectations, running
up to levels 60 percent higher than the previous year.
Late in the second quarter, the Performance Polymers businesses saw a
sharp drop in demand fom the U.S. building, construction and related
markets. An escalation in energy-related costs soon followed. As the
second half of the year unfolded, the slowing in U.S. markets intensified.
In addition, a slide in the value of the Euro against the U.S. dollar cost
us nearly $160 million in reported sales for the year, though, thankfully,
we were successful in mitigating the bottom-line currency impact through
effective hedging efforts.
Although pro forma earnings adjusted for one-time items were only down from
$1.77 to $1.73 per share, our reported 2000 earnings were significantly
below our original expectations. We disappointed our shareholders and
ourselves.
Yet, even in adversity, the strength of our underlying business strategy
could clearly be seen. This strategy, first discussed in detail at our
annual meeting in June 1999, is outlined here:
A Balanced Portfolio
We have taken deliberate steps to improve our product portfolio by focusing
on newer, more profitable technologies which generate products that grow
considerably faster than average market rates. Simultaneously, we have shed
businesses whose products have become less unique and grow at slower rates.
For example, Rohm and Haas has made considerable investments in Electronic
Materials, including the increased stake in Rodel, and the Mitsubishi
photoresist business. The company also acquired Acima, which expanded the
breadth of preservative technology and brought formulation capability to
Consumer and Industrial Specialties. Divestitures during the year included
Industrial Coatings, the thermoplastic polyurethane portion of Adhesives
and Sealants, and the European salt businesses.
The benefits of a broader-based portfolio are evident when comparing the
performance of one individual business to another. While Coatings,
Adhesives and Sealants, and Plastics Additives struggled with the problems
of slower market growth and higher costs, the Electronic Materials business
thrived, thanks to unprecedented demand for photoresist, printed wiring
board materials and chemical mechanical planarization technologies used to
make electronic devices. And, at the end of the year, cold, snowy weather
in the Midwestern U.S. brought a tremendous sales surge for our Salt
businesses. We are committed to further broadening our technical expertise,
and focusing on the faster-growing segments of the markets we serve.
Improved Geographic Reach
In 2000, Rohm and Haas also improved its ability to serve customers around
the world. New or expanded manufacturing plants opened in China, Germany
and Argentina. Powder Coatings continued to integrate its U.S. and European
operations, and brought some of its newest technology to the European
market. And nearly all of the acquisitions and alliances formed by
Electronic Materials in 2000 had the added benefit of strengthening their
position in the Asia-Pacific region.
Focus on Operational Excellence
We maintained our focus on operational excellence. In 2000, we achieved
$300 million integration-related cost savings three months ahead of
schedule. The extent of ongoing internal cost control resulted in selling,
administrative and research costs that were 19 percent of sales for 2000,
compared with 21 percent in 1999. The vast majority of the company's
manufacturing plants ran smoothly during the year. However, we failed to
improve our overall safety record. The occupational illness and injury rate
(number of injuries per 200,000 hours worked) remained at 2.3. This is
unacceptable. We have renewed our resolve to continually improve the safety
of our operations until no one gets hurt while working at Rohm and Haas.
Outlook
It is clear that the external factors that challenged us in 2000 remain:
raw material costs remain high, and energy costs continue to rise. Slowing
growth that first appeared in the U.S. building and construction markets
has begun to extend into other regions, and can now be seen in the
electronics market. And, even though the Euro has strengthened a bit from
its low point last October, Rohm and Haas will continue to push against
external headwinds through most of 2001.
When the external environment will improve may be beyond our control, but
we have no doubt about our ability to navigate through it successfully. In
this environment, the traditional strengths of this organization - an
emphasis on operational excellence, tight cost control, commitment to
customers and our mutual long-term growth - are essential. We have seen
this part of the economic cycle before, we know which steps we need to
take, and we know how to execute a short-term strategy based on efficiency
and customer service without losing our long-term focus on growth. You can
count on Rohm and Haas to continue to make selected investments in
technology and products that will support profitable growth, help us expand
market share, and continue the transformation of a company whose chemistry
and technology will provide an ongoing profitable return to its
shareholders.
(signature) (signature)
Raj L. Gupta J. Michael Fitzpatrick
Chairman and CEO President and COO
March 26, 2001
Running Into the Future - Page 5
We are running into the future with a clear sense of purpose and direction.
The quality and breadth of our chemistry has been a hallmark of our
success, along with an ability to transform this knowledge into products
and services that enhance the success of our customers.
Here is a glimpse of just some of the creativity at work:
(photo of plant at night)
Better building blocks: We are already the world's largest producer of
acrylic acid - the basic building block used to make everything from baby
diapers and laundry detergents to water-
based paints and coatings. Today, these products are petroleum based, but
we're hard at work exploring new routes for making them, and finding
potential sources that are cleaner and more sustainable, yet just as
flexible and innovative as anything that has come before.
(photo of paint brush and paint can)
On-demand chemistry: Imagine paint that has no odor when you open the can
and, once applied, never cracks, peels or fades. Imagine adhesives that can
expand and contract with the surface they're on, yet never feel sticky to
the touch. Rohm and Haas scientists are today working in the lab with
materials that can be designed at the molecular level so that certain parts
function only when needed. This chemical analogy of living systems may one
day make life a little easier by providing paints and adhesives designed
from the molecule up.
(photo of printed wiring board and light connections)
Seeing (and using!) the light: Ever tap your mouse button because it felt
like your computer wasn't processing fast enough? Shipley scientists are
working with the same combination of chemistry and light that powers the
vast global internet and telecommunications grids - optoelectronics - to
one day move and process enormous amounts of information at incredible
speeds through the tiny semiconductor chips and circuit boards that are in
your home computers, entertainment systems, and high-tech wireless
appliances.
(photo of SAP logo)
Connecting at all levels
to increase customer satisfaction
During the past three years, people from Morton, LeaRonal, Rodel, Acima,
Silicon Valley Chemlabs, and LG Chemical have joined us through
acquisition; many more have joined as joint venture and alliance partners.
And while our brain trust is unsurpassed, our internal systems are an
amalgam of legacy equipment, software and processes. During the next three
years, Rohm and Haas will transform the way it works using web-based
systems, providing global standardization and end-to-end integration of
real-time data critical in managing and growing our businesses. Not only
will this new system strengthen our value chain with customers, partners
and suppliers, but it also is expected to increase customer satisfaction
and reduce operating costs.
Did you know?
In 2000, Rohm and Haas filed for 335 new patents around the world,
bringing the total to more than 6,000 valid patents - that's about one
for every three employees.
Performance Polymers - Pages 6-11
Captions for graphics in italics
Performance Polymers
(THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.)
Millions of Dollars 1996 1997 1998* 1999* 2000
Sales $2,549 $2,557 $2,254 $2,939 $3,401
Sales Pro Forma 3,521 3,551
Earnings 253 297 372 350 282
Earnings Pro Forma 351 388
*Pro forma results include Morton as if this 1999 acquisition occurred on
January 1, 1998.
Pro forma earnings exclude non-recurring items.
(photo of mother and daughter in kitchen at breakfast time)
page 6
8:37 a.m.
Corn flakes, orange juice and - technology? Absolutely. As the day
begins in Australia, you can find Rohm and Haas products in the
high-quality acrylic paint on your walls, the coatings on your cereal
box and the high-gloss finish on your kitchen cabinets. We help power
your microwave and help refine the sugar you put in your tea. We even
help put the finish on the textiles used to make your clothes. And when
breakfast is over, we'll help you clean up with dishwasher detergents
and cleaning cloths.
(photo of cabinet doors)
Did you know?
Kitchen Cabinet Doors- top of page 7
You may not think a lot about the finish on your kitchen cabinet doors.
We do. Longevity; color; humidity and stain resistance - these are only
a few of the things we worry about. As a result, we have an array of
technologies that can meet nearly any cabinet maker's need. Our acrylic
finishes give a hard finish to wood doors, yet let the beauty of the
wood grain shine through. Our innovative powder coatings are breaking
new ground for their cost and environmental advantages over traditional
laminates.
Photo of Paint cans (page 7)
Rohm and Haas is the world leader in acrylic emulsion technology. We
know how to manipulate this chemistry better and more effectively than
any other company in the world. Our customers get the full benefit of
our knowledge in products that are both environmentally friendly and
cost-effective. Homeowners get the benefit of top-quality water-based
paints and coatings that cover better, last longer, and brighten nearly
any part of the home.
Baby Diaper and montage of superabsorbent polymers (page 8)
Our acrylate chemistry is the starting point for a full range of
consumer products, including paints, plastics, and superabsorbent
materials - like baby diapers. Our customers transform our product into
material that can absorb more than ten times its weight in liquid - in
an instant.
10:14 a.m. (kids at computer keyboards in Hong Kong, China - page 9)
Mid-morning, and Rohm and Haas chemistry is working in schools around
the world. We make products used in the paper-making process, additives
that make keyboards durable, and electronic materials that make
computers faster and more powerful. Our technology even helps shine
school floors and helps insulate the fiberfill jackets worn to school
on cold days.
India Photo (in New Delhi, India, page 10)
11:33 a.m.
Building materials may be different around the world, but the desired
characteristics are the same - high quality, durability and a beautiful
appearance. Our technology for modifying cement and plasters improves
adhesion, strength and abrasion resistance for everything from thin-set
mortars and tile adhesives to patching compounds and finishing
plasters. Our emulsion polymers and powder systems help construction
experts ensure that their work will easily stand the test of time.
Automotive Coatings (truck montage - Page 11)
Bought a car or truck lately? Then you're probably driving around with
our chemistry. We know how to put color on plastic and match it
perfectly - for the bumper, wheels, side molding and more. You can also
find Rohm and Haas technology in on-board computers, in door and window
liners, sound dampening systems, windshield wipers and antennas - and
even in the paint used to mark the lines on the road.
Did you know? (page 11)
Rohm and Haas technology is in high-quality acrylic-backed carton
sealing tape used to seal products shipped all over the world. In 2000,
more than three million miles of acrylic-backed sealing tape was used -
enough tape to wrap the world 100 times!
Performance Polymers Business Discussion
Performance Polymers includes five businesses - Coatings, Adhesives and
Sealants, Plastics Additives, Specialty Polymers and Monomers - which make
products based primarily on acrylic, vinyl acetate, and other emulsion
technologies. Though managed independently, the financial performance of
the Surface Finishes businesses - Powder Coatings and Automotive Coatings -
also are recorded as a part of this group.
Sales for Performance Polymers were $3,401 million in 2000. Reported
earnings were $282 million in 2000, compared with $350 million reported in
1999. The decline reflects the impact of unfavorable currency translations
throughout the year, marked slowing in demand from the U.S. building,
construction and automotive industries during the second half of 2000, and
skyrocketing energy and raw material costs.
Coatings: Demand was up overall, with growth in all regions. Sales of $1.1
billion were flat on a pro forma basis with the year-ago period, due to the
negative currency impact. The business saw good increases in Asia, helped
by share gains in China, and in Latin America, where new products were
introduced. Unfavorable weather conditions dampened the expected success of
the painting season in the United States and in parts of Europe.
New products and technologies continue to gain good market acceptance in
consumer and do-it-yourself paint markets. Sales of new products -
including the latest generation of opaque polymers to improve the hiding
power of paint, and environmentally friendly, solvent-free binders -
accounted for 20 percent of 2000 sales. New manufacturing plants opened in
Zarate, Argentina, and Shanghai, China, during the year. Coatings will
continue to face a difficult external environment in 2001. However, with a
full range of binders, colorants, thickeners and a host of other additives,
this business remains committed to increasing its share of paint can
contents on store shelves around the world.
Adhesives and Sealants: Sales for the year were $707 million for this
business, which serves the packaging, pressure sensitive, industrial
laminating, transportation, and construction adhesive markets. Volume was
up slightly, led by good demand for pressure-sensitive label technology,
and good regional growth in Europe. This business also has a growing
reputation for acrylic-based chemistry used to make tape adhesives,
especially for a line of products that allow customers to run their
production operations 50 percent faster than before.
Most important, Adhesives and Sealants made excellent progress bringing new
products to both existing and new markets, with notable success in Latin
America. This business has refueled its technology pipeline for customers
with a host of new products, including energy-curable and reactive hot-melt
adhesives.
Plastics Additives: This business was hardest hit by slower demand from
U.S. building and construction markets. Sales in 2000 were $441 million.
Nevertheless, new products and technology were well received. Heat
stabilizer chemistry which replaces lead-based technology did well, as did
new additives for weatherable vinyl capstock which allows house siding to
be made in a broader range of colors. Sales of additives for use in plastic
pipe remained strong.
Plastics Additives is introducing technology for wood flour/polymer
composites used to make fencing and decks. This combination of natural and
man-made fibers represents one of the fastest-growing segments of the
building materials market.
Specialty Polymers: Sales were $395 million for the year. Specialty
Polymers sells emulsion polymers, resins and additives used in the graphic
arts, paper, textile and leather
markets worldwide. Good sales growth in Asia-Pacific and Latin America
could not overcome the impact of significant slowing in North America and
currency effects in Europe. This business did well with efforts to create
new business models for marketing and selling products to the paper
industry. Sales of products for the digital imaging market showed
encouraging growth.
Monomers: Sales for this business, which produces acrylic monomers for
captive use by Rohm and Haas and for sale to industrial users in the
merchant market, were $382 million in 2000. Monomers reported good demand
for most of the year. However, higher plant operating costs related to
energy prices and adverse volume variances affected profitability.
In 2000, Monomers entered the European market significantly with the
acquired Stockhausen business. This has enhanced the business's ability to
serve global customer needs. Work is underway to expand acrylic acid
capacity at the StoHaas joint venture's Marl, Germany, location by more
than 100,000 metric tons before the end of 2003. In September, Monomers
announced it will increase the capacity of its Houston, USA methyl
methacrylate (MMA) facility by 115,000 metric tons before the end of 2002
to meet both internal demand and increased requirements of Atofina, a key
customer.
SURFACE FINISHES:
Surface Finishes includes Automotive Coatings and Powder Coatings - two
strong formulating businesses which together reported sales of $373 million
in 2000.
AUTOMOTIVE COATINGS:
Automotive Coatings makes customized coatings for original equipment
manufacturers who make a range of plastic components for cars and trucks.
In 2000, Automotive Coatings reported good demand for its products until
mid-September, when U.S. car sales began to decline. Automotive Coatings
also closed a facility in Ontario and concentrated production at its
Lansing, Illinois, facility even as it improved efficiency and on-time
delivery to key customers in the U.S. and Canada.
Automotive Coatings has flexible chemistries which enable it to make
primers and paints for nearly every plastic vehicle component - from
bumpers and wheel covers to truck beds and exterior trim - that match every
consumer color preference and stand up to the rigors of the road. These
products are delivered "just-in-time" to nest in seamlessly with automotive
production cycles. Late in 2000, Automotive Coatings began installation of
custom automated dispensing equipment that will enable the business to
handle ever more demanding challenges for product in even less time.
POWDER COATINGS:
Powder Coatings produces a comprehensive line of thermoset and
thermoplastic coatings in various chemistries and in a wide range of colors
and textures. This powder technology is preferred by metal finishers and
original equipment manufacturers because it is the lowest-cost solution for
putting paint on metal. Because powder can be collected and reused, it is
economically efficient and more friendly to the environment than competing
liquid solvent technologies.
This business had a very good year overall, with strong demand for its
high-temperature products (used on backyard grills, for example) and
products that provide a textured look to the end product. Sales of an
ever-growing line of powder coatings for wood also were strong, boosted by
their selection for use by a major global office furniture manufacturer.
European business was outstanding as that market embraced new technologies
and higher-end products for the metal finishing market.
Chemical Specialties - Pages 12-15
Chemical Specialties
(THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.)
Millions of Dollars 1996 1997 1998* 1999* 2000
Sales $1,075 $1,043 $1,068 $1,241 $1,408
Sales Pro Forma 1,335 1,367
Earnings 133 105 94 115 116
Earnings Pro Forma 127 142
*Pro forma results include Morton as if this 1999 acquisition occurred on
January 1, 1998.
Pro forma earnings exclude non-recurring items.
(photo of couple at an outside sidewalk cafe in Paris, France, page 12)
12:37 p.m.
Stopping for lunch at a Paris cafe. Time for another snapshot of Rohm
and Haas. Our chemistry helps you look your best - sunscreens made with
our hollow-sphere technology increase skin protection with lower levels
of active ingredients; our preservatives keep shampoos, conditioners
and skin lotions in store-bought condition; and hair sprays made with
acrylic technology not only help you look good, but also have less of
an impact on the environment.
Bottle Photo (high-fructose corn syrup - page 13)
The taste of your soft drink is brought to you with a little help from
Rohm and Haas ion exchange resin technology which is used to process
the sweetener in most carbonated beverages.
Pill Photo (page 13)
Did you know?
Our ion exchange and adsorbent resin technology is used to help make
antibiotics and other pharmaceutical products. Some produces are used
in the medicines themselves to mask the bitter taste of some drugs, or
to help control the release of the medication.
Soccer Photo (man kicking soccer ball in San Jose, Costa Rica page 14)
2:14 p.m.
Playing to win requires an all-out effort. Rohm and Haas turf and
ornamental products ensure that playing fields and golf courses around
the world are also in tip-top shape.
Ship Montage (of ship, Sea-Nine molecule and barnacles, page 15)
When barnacles and algae collect on a ship bottom, it literally is a
drag. If not prevented, this buildup has to be overcome by the ship's
engines that push harder and consume far more fuel to propel the vessel
across the sea. Our antifoulant used in marine paints prevents the
buildup, and is better for the environment. This chemistry works hard
while it's part of the ship, but degrades in sea water within an hour.
Lotions Picture (page 15)
Did you know?
Lotions of all kinds are used to moisturize, soothe and comfort. Many
of the products today have their thick, creamy-like feel and appearance
thanks to chemistry from Rohm and Haas.
Chemical Specialties Business Discussion
Chemical Specialties is home to a number of specialty businesses, each with
their own technologies, customers and market strategies. Collectively, this
group reported $1,408 million in sales in 2000. Net earnings of $116
million were slightly ahead of reported earnings for 1999.
Agricultural Chemicals: This business reported $530 million in sales,
thanks to good growth in newer product lines, including
molt-accelerating-compounds which control pests at the larval stage without
harm to plants or beneficial insects.
Dithane fungicide sales were flat with year-ago levels, due primarily to
unfavorable weather conditions in key markets. However, customer demand
continues to make this the product-of-choice on crops around the world.
Early in 2001, a new plant was opened in Nantong, China, to meet regional
customer demand for fungicide products.
In March 2001, Rohm and Haas announced plans to sell its Agricultural
Chemicals business to Dow AgroSciences, LLC for approximately $1 billion,
including working capital. The transaction is expected to be completed
by mid-year.
Consumer and Industrial Specialties (CIS): The acquisition of Acima, a
Swiss-based maker and formulator of biocide products contributed to overall
sales of $406 million for this business in 2000.
Both Sea-Nine 211, used in marine paints, and Kathon biocide for industrial
uses, were important contributors to 2000 results. CIS also brought a
number of new technologies to market for personal care and household
products. New generations of thickeners, opacifiers and rheology modifiers
found good success for use in lotions, conditioners and moisturizers.
Working with its partner, ISP, CIS brought tiny hollow microspheres to
market in suntan lotions. This novel technology refracts light and improves
the skin protection factor (SPF) of suntan lotions without the need for
additional active ingredients. And CIS is working with global detergent
makers on the chemistry that holds powder detergents tightly together in
tablet form until they hit the water where they immediately dissolve in a
whoosh of bubbles. For consumers, this means easier-to-use, already
measured detergents that won't clump in the washer.
Performance Chemicals: Sales here were $248 million in 2000, flat with 1999
pro forma sales. Profitability was hurt by a series of one-time events,
including delayed sales, manufacturing variances and increased spending for
environmental improvements at two U.S. facilities.
The Inorganic and Specialty Solutions unit is concentrating on bringing
solutions to market needs. For example, they provide a reductive technology
based on sodium borohydride to generate bleaching agents that enhance
brightness for newsprint. Similar technology is used in the production of
pharmaceuticals.
Organic Specialties saw increasing customer interest in SpecTrace -
portable technology and equipment that can provide on-the-spot testing and
results for monitoring the level of markers in fuel and lubricant systems.
Ion Exchange Resins: This business reported $224 million in sales,
reflecting good growth over 1999 sales. Ion Exchange Resins is committed to
remaining the low-cost resins supplier that brings true technical
leadership and service to its customers.
During the year, new manufacturing facilities were opened in China and
Mexico to help support the water-treatment market in those countries. There
was also good growth in sales of chromatographic resins used in the
manufacture of antibiotics and in ultrapure water resins used to meet the
exacting needs of the electronics industry. Ion Exchange has re-focused its
research efforts to concentrate on bringing cleaner, more efficient fluid
process products with little or no waste, to the marketplace.
Electronic Materials - Pages 16-19
Electronic materials
(THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.)
Millions of Dollars 1996 1997 1998 1999 2000
Sales 358 399 398 755 1,195
Sales Pro Forma 806 867
Earnings 39 52 45 57 107
Earnings Pro Forma 62 64
*Pro forma results include Morton and LeaRonal as if these 1999 acquisitions
occurred on January 1, 1998. Pro forma earning exclude non-recurring items.
3:26 p.m. (photo of traders on New York Stock Exchange, p. 16)
Computers, laptops, personal organizers and cell phones have become
essential tools at the stock exchange. Rohm and Haas keeps itself at
the leading edge of the electronics industry through an ongoing
succession of technology breakthroughs, powerful strategic alliances,
and customer and industry partnerships.
Wire Board Photo (page 17)
We are a leading supplier of processes and chemistries used in the
manufacture of high-density printed circuit boards used worldwide in
computers, telecommunications equipment, automobiles, games, and more.
Did you know? (photo of a U.S. penny, page 17)
Have a U.S. penny? Then you're holding Rohm and Haas technology in your
hand. Our solutions are used to electroplate copper onto sheets of zinc
metal. These sheets are then punched and stamped into more than 13
billion pennies that go into circulation each year.
Polishing Montage (page 18)
Rodel has been at the frontier of chemical mechanical planarization
(CMP) technology since its invention and remains the market leader
today. CMP combines chemical action (slurries) and mechanical forces
(pads) to polish delicate layers of circuitry that are less than a
micron in size.
5:43 p.m. (photo of woman talking on cell phone, looking at a laptop in
Toronto, Canada page 19)
One last call to the customer before dinner. Rohm and Haas technology
is there, helping you make all the right connections.
Did You Know? (page 19)
About 50 years ago, the first computer - ENIAC - was 150 feet long,
used electrical wiring and vacuum tubes and could add 5,000 numbers in
a second. Today's electronic devices can be held in the palm of your
hand and have vastly greater computing power - thanks to the use of
semiconductor electronics and printed circuit boards - made, in part,
with technology from Rohm and Haas.
Electronic Materials Business Discussion
Electronic Materials: Rohm and Haas's Electronic Materials business offers
fully compatible, leading-edge chemistry used to make the semiconductor
chips and printed wiring boards found in today's most sophisticated
electronic devices. Electronic Materials also brings innovative technology
to the electroplating and metal finishing industries.
Electronic Materials had an outstanding year. Sales rose to $1.2 billion,
thanks to strong, across-the-board demand for products and an increased
ownership position in Rodel, the leader in polishing technology for
semiconductors. Earnings of $107 million were up 60 percent on a
same-business basis.
Microelectronics:
Microelectronics, which reported sales of $496 million in 2000, provides
technology which enables semiconductor manufacturers to put more
information into increasingly tinier spaces. Shipley photoresists are used
to put layers of circuitry on silicon chips no
larger than a fingernail. Rodel's chemical mechanical planarization (CMP)
technologies polish each layer with delicate pads and fine slurries. The
pathways and connections these chemistries create allow electrons to travel
lightning-quick through the chip. The final products are the most powerful
semiconductor chips available today.
In 2000, Microelectronics reported sales growth of nearly 50 percent for
Shipley's deep UV photoresists, products which use ultraviolet light to
make circuitry patterns, and anti-reflective coatings, which ensure that
the patterns are crisp and clear. Sales of Rodel's CMP-related products
increased more than 40 percent. With 80 percent market share, Rodel is the
world leader in creating pads with the exact technical requirements. They
also have a strong position in the slurry market which will grow as the
industry shifts to copper technology, where Rodel already has the leading
edge.
During the year, Shipley acquired the Mitsubishi photoresist business,
which enhanced its already strong position in Korea and Japan. Rodel
announced a number of alliances, including one with Vistek, which allows
them to offer vibration control technology that increases the productivity
of customers' operations. Early in 2001, Shipley announced a joint
development agreement with DuPont that will produce fully formulated 157
nanometer photoresists and anti-reflective coatings for future generations
of semiconductor chips.
Shipley Ronal:
Shipley Ronal reported sales of $699 million for the year, with
across-the-board increases for all product lines and processes used to make
printed wiring boards. In September, Shipley announced the formation of a
three-way joint venture with Rexam and Union Petrochemical Corporation
(UPC) to build the first dry-film photoresist manufacturing facility in
China for the supply of both local and regional needs. China is becoming a
focal point for the electronics device, equipment and assembly market for
personal computers, cellular phones and other electronic equipment.
During the year, the company created an Electronics and Industrial
Finishing (EIF) division to concentrate on materials used in the
metallization of components such as connectors, capacitors and
semiconductor packages, as well as the metallization of plastics and
decorative coatings for industrial finishing applications. This business
remains at the forefront of industry trends for lead-free products. Shipley
Ronal will now consist of two divisions, Shipley Ronal PWB and Shipley
Ronal EIF.
Excellent growth will continue for Electronic Materials in 2001, but at a
slightly slower pace. The company is anticipating excellent sales growth
for the year, although much publicized turbulence in end-use electronics
markets at the start of 2001 may impact growth.
Salt - Pages 20-21
Captions for graphics in italics
(THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.)
Millions of Dollars 1998 1999 2000
Sales 439 876
Sales Pro Forma 841 930
Earnings 10 24
Earnings Pro Forma 19 35
*Pro forma results include Morton as if this 1999 acquisition occurred on
January 1, 1998. Pro forma earning exclude non-recurring items.
Photo of two men in movie lobby with popcorn in Chicago USA (page 20)
Friends, movies and popcorn - great companions on any night. Morton
Salt is there, too, with a super-fine salt designed especially to
adhere to popcorn and other snack items.
Did you know?
You might not know that there are more than 14,000 other uses for
salt. Some are direct - as food seasoning, highway safety or the
preparation of medical saline solutions. Salt also plays a role in the
manufacture of steel, aluminum components, lubricants, seat covers,
vinyl tops, paint removers, soap, textiles, ceramics, inks and dyes.
Photo of highway salt melting ice on a road surface (page 21)
Also uncaptioned photos of Morton Salt containers
Salt Business Discussion
Salt: This business includes the leading consumer salt brands in the United
States - Morton Salt and the little Umbrella Girl - and the Windsor salt
brand in Canada. Salt also offers the full-range of products needed for
water conditioning, food processing, chemical/industrial processing,
agriculture, and highway ice control.
The Salt business reported $875 million in sales for 2000, thanks in part
to a record setting year for highway ice-control sales. In December, a
series of storms rolled through the Midwestern United States and Canada
which boosted ice control sales past the previous record quarter by nearly
$24 million or 33 percent. And, although weather provided the right
conditions, Morton's distribution production teams took full advantage of
their mine production to maximize delivery.
Sales of water conditioning pellets sold to consumers through grocery and
home improvement stores, and mass merchandisers were sound. Morton Salt is
committed to remaining an active partner in its customers' success. In 2000
this commitment led to placing a staff of Morton people on site to help
manage inventory and sales for a large mass merchandiser and agricultural
dealer.
One out of every two cans of salt purchased in the United States continued
to have the Morton Salt logo and the famous slogan, "when it rains, it
pours" on the label. In 2000, strong demand from consumers and
restaurateurs alike resulted in excellent sales of Morton kosher salt, a
coarse flake salt used in gourmet cooking and in kosher meal preparation.
In October 2000, the company divested its European Salt division to a
management consortium led by Union d'Etudes et d'Investissements SA, a
wholly owned subsidiary of Credit Agricole.
Corporate Responsibility - Page 22
(photo of child sleeping, surrounded by three small pictures, two of
children, one of a woman and man looking at a turtle)
10:31 p.m.
The day may be over, but Rohm and Haas is still at work, Quietly
Improving the Quality of Life(TM).
Did You Know? (page 23)
As a matter of policy, Rohm and Haas states that it "strives to ensure
that its operations and products meet the needs of the present global
community without compromising the ability of future generations to
meet their needs. We will integrate economic growth, environmental
protection and social responsibility as important considerations into
business decisions."
Houston Plant Photo (page 24)
Innovative chemistry is transformed into consistently high-quality
products at more than 100 manufacturing sites around the world.
Montage - page 24
Alliances and partnerships have lead to creative ways of doing
business. Partnerships also work in the community. An employee
initiated a partnership with a 4H youth group and Rohm and Haas that
led to the creation of a special turtle habitat in a small Pennsylvania
zoo.
Responsible Care logo (page 24)
Rohm and Haas follows the principles of Responsible Care in its
operations all around the world.
[Safety Bar Chart Showing OII injury rates for past three years appears
in the printed text.]
1998 2.9
1999 2.3
2000 2.3
Rohm and Haas had an Occupational Injury and Illness (OII) rate of 2.3
again in 2000.
Corporate Responsibility Section
The value of an organization is measured in many ways. Financial metrics are
important, but progress should also be gauged by how responsibly a company
handles its technology, how safely it runs its operations, and by what it does
to make its environmental footprint smaller and its chemistry sustainable for
generations to come.
Environment
All Rohm and Haas sites are instituting eco-efficiency metrics so that, over
time, they can reduce the amount of energy and water used to make a pound of
product. In 2000, the Houston, Texas facility (our largest plant) achieved a 15
percent per pound reduction in energy consumed five years ahead of schedule. In
2000, Rohm and Haas joined the Pew Center on Global Climate Change and pledged
to work with others to find innovative ways to reduce emissions of greenhouse
gases.
The U.S. Environmental Protection Agency (EPA) included three Rohm and Haas
plants among the first to be recognized as sites whose performance and
management behavior goes beyond compliance with existing regulations to the
benefit of people and the local environment. Manufacturing sites in Hayward,
California; Kankakee, Illinois, and Marlborough, Massachusetts were honored.
In October, Rohm and Haas resolved certain historic environmental issues related
to the former Morton-owned facility in Moss Point, Mississippi with the U.S.
EPA, the U.S. Department of Justice and the state of Mississippi. The settlement
includes $22 million in fines, and an additional $16 million to be spent on
supplemental environmental projects in the plant and the local community.
Safety
The company's safety record did not improve during 2000. The Occupational
Illness and Injury (OII) rate, remained at 2.3 - on average 2.3 people were
injured for every 200,000 hours worked. Tragically, the 2000 safety record
included a fatality at the Moss Point plant.
Executive and business management are developing specific programs to
significantly improve the company's safety performance in 2001.
Sustainability
Each of our businesses has, or is in the process of developing, specific
Sustainability Improvement Objectives that will be incorporated into their
formal business plans. These objectives include better use of natural resources,
waste minimization and efforts to incorporate renewable raw materials into
product design.
Community
We continue to engage in open dialogue with community members through the
Community Advisory Committees(CAC) in place at our major facilities around the
world. In 2000, six of our U.S.-based CACs accepted the additional
responsibility for Community Partnership Initiatives. They identified a vital
community need, then awarded a total of $180,000 in charitable contributions to
local organizations that could help fill the identified needs.
Board of Directors
William J. Avery
Chairman and Retired Chief Executive Officer
Crown, Cork & Seal Company, Inc.
Mr. Avery, 60, has been a director since 1997.
(Committees: 3, 4 (chair), 6)
James R. Cantalupo
Vice Chairman and President
McDonald's Corporation
Mr. Cantalupo, 57, has been a director since 1999.
(Committees: 1 (chair), 5, 6)
J. Michael Fitzpatrick
President and Chief Operating Officer
Rohm and Haas Company
Dr. Fitzpatrick, 54, has been a director since 1999.
(Committees: 2, 3, 5)
Earl G. Graves, Sr.
Chairman and Chief Executive Officer
Earl G. Graves, Ltd.
Retired Chairman and Chief Executive Officer
Pepsi-Cola of Washington DC
Publisher and Editor
Black Enterprise Magazine
Mr. Graves, 66, 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, 55, has been a director since 1999.
(Committees: 3 (chair))
David W. Haas
Board Chairman
William Penn Foundation
Mr. Haas, 45, has been a director since 1999.
(Committees: 2, 6)
Thomas W. Haas
Pilot and Flight Instructor
Mr. Haas, 45, has been a director since 1999.
(Committees: 4, 6)
James A. Henderson
Retired Chairman and Chief Executive Officer
Cummins Engine Company, Inc.
Mr. Henderson, 66, has been a director since 1989.
(Committees: 4, 6)
Richard L. Keyser
Chairman of the Board and Chief Executive Officer
W.W. Grainger, Inc.
Mr. Keyser, 58, has been a director since 1999.
(Committees: 4, 6)
John H. McArthur
Dean Emeritus
Harvard Business School
Mr. McArthur, 66, has been a director since 1977.
(Committees: 2, 6)
Jorge P. Montoya
President, Global Food & Beverage and Latin America
The Procter and Gamble Company
Mr. Montoya, 54, has been a director since 1996.
(Committees: 4, 6)
Sandra O. Moose
Senior Vice President and Director
The Boston Consulting Group, Inc.
Dr. Moose, 59, has been a director since 1981.
(Committees: 1, 3, 5, 6 (chair))
Gilbert S. Omenn
Executive Vice President for Medical Affairs
University of Michigan
CEO, The University of Michigan Health System
Dr. Omenn, 59, has been a director since 1987.
(Committees: 2 (chair), 6)
Ronaldo H. Schmitz
Retired Member of the Executive Board
Deutsche Bank AG
Dr. Schmitz, 62, has been a director since 1992.
(Committees: 1, 5, 6)
Marna C. Whittington
Retired Chief Operating Officer
Morgan Stanley Institutional Investment Management
Dr. Whittington, 53, has been a Director since 1989.
(Committees: 1, 3, 5, 6)
Committees
1. Audit
2. Corporate Responsibility, Environment, Safety and Health
3. Executive
4. Executive Compensation
5. Finance
6. Nominating
Corporate Officers
Mark S. Adler
Assistant Secretary
Rob W. Andrew
Vice President
Business Director, Specialty Polymers
William C. Andrews
Vice President
Business Director, Monomers
Thomas L. Archibald
Vice President
Director, Operations and Manufacturing
Paul J. Baduini
Vice President
Director, Engineering
Alan E. Barton
Vice President
Business Director, Coatings
Walter W. Becky II
Vice President
Business Director, Salt
President, Morton Salt
Bradley J. Bell
Senior Vice President and 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 and Marketing Director, Morton Salt North America
Jacques M. Croisetiere
Vice President
Business Director, Ion Exchange Resins
Nance K. Dicciani
Senior Vice President
Business Group Director, Chemical Specialties
Director, European Region
David T. Espenshade
Vice President
Director, Purchasing
Carlos A. Estevez
Vice President
Business Director, Agricultural Chemicals
J. Michael Fitzpatrick
President and Chief Operating Officer
Joseph J. Forish
Vice President
Director, Human Resources
Michael S. Foster
Vice President
President, Shipley Ronal
Gail P. Granoff
Corporate Secretary
Thomas P. Grehl
Vice President
Director, Asia-Pacific Region
Raj L. Gupta
Chairman of the Board and Chief Executive Officer
Nicholas A. Gutwein
Vice President
Business Director, Adhesives and Sealants
Stanley J. Harmer
Assistant Secretary
Reginald M. Horne
Vice President
Business Director, Automotive Coatings
Lewis H. Johnston
Controller
Philip G. Lewis
Vice President
Director, Environmental Health and Safety
Edward E. Liebert
Treasurer
Robert A. Lonergan
Vice President
General Counsel
John F. McKeogh
Vice President
Director, Communications and Public Relations
Guillermo Novo
Vice President
Director, Latin American Region
Stephen J. Rauscher
Vice President
Director, Performance Polymers Operations
Stephen J. Robinson
Vice President
President, Shipley Microelectronics
Macario A. Sarreal
Assistant Secretary
James C. Swanson
Vice President
Business Director, Powder Coatings
Gerard E. Tarzia
Vice President
Business Director, Consumer and Industrial Specialties
Charles M. Tatum
Senior Vice President
Chief Technology Officer
David R. Underwood
Vice President
Business Director, Plastics Additives
James G. Vouros
Assistant Secretary
Anne M. Wilms
Vice President
Chief Information Officer
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. Details of these
transactions are discussed under "Liquidity, Capital Resources and Other
Financial Data" below. The results of these significant acquisitions 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 28 and in the Notes to Consolidated Financial Statements.
The LeaRonal and Morton acquisitions, accounted for using the purchase
method, significantly impact the comparability of 2000, 1999 and 1998
results. Accordingly, 1999 and 1998 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 these significant 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. Pro forma information is not
presented for the acquisition and divestiture activities occurring in 2000
because these were not material to the company's results of operations or
consolidated financial position.
Within the following discussion, unless otherwise stated, "year" and
"prior year" refer to 2000 and 1999, respectively. All comparisons are
with the previous year, unless otherwise stated.
Results of Operations 2000, 1999 and 1998
Earnings for 2000 were $354 million compared to prior year's earnings of
$249 million. As shown in the table on page 30, all years presented
include certain non-recurring items. Earnings excluding these items for
2000 were $381 million, compared to $388 million and $311 million on a pro
forma basis for 1999 and 1998, respectively. Sales for the company were
$6,879 million for the year, compared to sales of $5,374 million and pro
forma 1999 sales of $6,715 million. Diluted earnings per common share were
$1.61 compared to $1.27. Excluding non-recurring items, diluted earnings
per common share were $1.73 compared to $2.09 and $1.77 on a pro forma
1999 basis.
Earnings for 1999 were $249 million, compared to 1998 earnings of $440
million. Diluted earnings per common share were $1.27 compared to $2.45 in
1998. Earnings excluding these items for 1999 were $410 million, up 4%
from 1998 earnings of $395 million. Sales for 1999 increased to $5,374
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
$6,715 million from $6,503 million in 1998. Diluted earnings per common
share excluding non-recurring items were $2.09 versus $2.20 in 1998.
Non-recurring items for 2000 of $27 million (after-tax), or $.12 per
share, included a charge of $14 million for purchased in-process research
and development (IPR&D) and other one-time charges related to the Rodel
acquisition, and $13 million of restructuring and integration costs.
Nineteen ninety-nine includes non-recurring after-tax charges of $161
million, or $.82 per share, including a charge of $105 million for 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 gain of $17 million, or $.09 per share, were
recorded as other expenses for the other integration costs, primarily
outside consultants, and remediation related insurance recoveries,
respectively. The 1999 non-recurring items also include an after-tax
charge of $14 million, or $.07 per share, related to a loss on disposition
of the AtoHaas joint venture. 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 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 table showing a reconciliation from reported earnings to earnings
excluding non-recurring items by business segment for all years presented
is on page 30.)
Though an insignificant number of treasury shares were repurchased during
2000 and 1999, primarily related to the exercise of stock options, the
repurchase of 17.5 million common shares during 1998 contributed
incrementally $.13 per share to 1998 earnings per share.
Summary by Business Segment
(Refer to table on page 28)
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.
Net Sales by Business Segment and Region
Performance Chemical Electronic
Polymers Specialties Materials Salt Total
(Millions of ------------------------ ------------------------ -------------------- ------------ ------------------------
dollars) 2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
North America $2,082 $1,847 $1,456 $ 579 $ 486 $ 400 $ 578 $352 $180 $749 $326 $3,988 $3,011 $2,036
Europe 929 780 531 385 354 321 210 168 93 126 113 1,650 1,415 945
Asia-Pacific 242 197 167 259 224 176 407 235 125 -- -- 908 656 468
Latin America 148 115 100 185 177 171 -- -- -- -- -- 333 292 271
- ------------------------------------------------------------------------------------------------------------------------------------
Total $3,401 $2,939 $2,254 $1,408 $1,241 $1,068 $1,195 $755 $398 $875 $439 $6,879 $5,374 $3,720
====================================================================================================================================
Summary of 1996-2000 Results by Business Segment(1)
Actual Pro forma(2) Actual
-------------------------------- -------------------- --------------------
(Millions of dollars) 2000 1999 1998 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales
Performance Polymers $ 3,401 $ 2,939 $ 2,254 $ 3,551 $ 3,521 $ 2,557 $ 2,549
Chemical Specialties 1,408 1,241 1,068 1,367 1,335 1,043 1,075
Electronic Materials 1,195 755 398 867 806 399 358
Salt 875 439 -- 930 841 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 6,879 $ 5,374 $ 3,720 $ 6,715 $ 6,503 $ 3,999 $ 3,982
===================================================================================================================================
Net Earnings
Performance Polymers $ 282 $ 350 $ 372 $ 388 $ 351 $ 297 $ 253
Chemical Specialties 116 115 94 142 127 105 133
Electronic Materials 107 57 45 64 62 52 39
Salt 24 10 -- 35 19 -- --
Corporate(3) (175) (283) (71) (241) (248) (44) (62)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 354 $ 249 $ 440 $ 388 $ 311 $ 410 $ 363
===================================================================================================================================
Summary of 1996-2000 Net Sales by Region
Actual Pro forma(2) Actual
----------------------------------- --------------------- --------------------
(Millions of dollars) 2000 1999 1998 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales
North America $3,988 $3,011 $2,036 $3,906 $3,944 $2,187 $2,122
Europe 1,650 1,415 945 1,833 1,753 959 1,006
Asia-Pacific 908 656 468 677 527 573 592
Latin America 333 292 271 299 279 280 262
- -----------------------------------------------------------------------------------------------------------------------------------
Total $6,879 $5,374 $3,720 $6,715 $6,503 $3,999 $3,982
====================================================================================================================================
(1) 1996-1999 amounts have been restated to reflect the current financial
reporting structure and to conform with EITF 00-10 "Accounting for
Shipping and Handling Fees and Costs."
(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 2000 and 1999, it includes charges for purchased in-process research
and development costs associated with the Rodel and Morton acquisitions
and significant increases in interest expense associated with both the
Morton and LeaRonal acquisitions. (See "Management's Discussion and
Analysis.") In 1998 Corporate includes loss on early extinguishment of
debt.
Performance Polymers earnings for 2000 were $282 million, compared to $350
million. Excluding non-recurring items, earnings were $278 million,
compared to $352 million, and $388 million on a pro forma 1999 basis.
Sales increased to $3,401 million from $2,939 million and were a decrease
of 4% from pro forma 1999 sales of $3,551 million. Sales and earnings in
the year were impacted by an economic slowing in the U.S. building and
construction markets in the second half. These markets are served largely
by the Coatings, Adhesives and Sealants and Plastics Additives businesses.
Similar slowing in the automotive markets served by Surface Finishes was
also a factor. Sales were also affected by weaker European currencies. The
21% decrease in earnings, excluding non-recurring items, was a result of
these demand factors and by sharply higher hydrocarbon based raw material
costs and energy costs, particularly natural gas (see Gross Profit
discussion under "Summary of Consolidated Results" below). The Monomer
business continued to report strong growth in the year as a result of the
acquired Stockhausen merchant monomer business in Europe. Among the
Surface Finishes businesses, sales of Powder Coatings, on a pro forma
basis, continued to improve, but were offset by weaker sales in Automotive
Coatings driven by slowing in the U.S. automotive markets.
Performance Polymers earnings excluding non-recurring items increased to
$352 million for 1999 from $298 million in 1998. Pro forma earnings, which
exclude non-recurring items, increased 11% largely on higher volume, but
were also helped by lower raw material costs and smooth plant operations.
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 Plastics Additives
were strong, while Monomers sales decreased. Sales increased in all
regions with the exception of North America, where segment sales were
essentially flat.
Chemical Specialties earnings for 2000 were essentially unchanged at $116
million versus $115 million. Earnings, excluding non-recurring items, were
$129 million, increasing from earnings of $128 million, but down from pro
forma 1999 earnings of $142 million. Sales increased to $1,408 million
from sales of $1,241 million and pro forma 1999 sales of $1,367 million.
Sales increases were driven by Consumer and Industrial Specialties, helped
by the acquired Acima biocides business, with a contribution from Ion
Exchange Resins. These increases were offset by a decline in Agricultural
Chemicals sales due to unfavorable weather conditions in several regions.
Chemical Specialties earnings, on a pro forma 1999 basis, increased 12%
primarily because of Agricultural Chemicals, which benefited from
favorable weather conditions throughout most of 1999 and economic recovery
in several important markets. 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 1998.
Electronic Materials earnings for 2000 increased significantly to $107
million, from $57 million and $64 million on a pro forma 1999 basis.
Earnings were $109 million, excluding non-recurring items, and increased
significantly from $69 million. Sales of $1,195 million increased
significantly from prior year sales of $755 million and pro forma 1999
sales of $867 million. Increases in sales and earnings were evident in all
regions and markets within the Electronic Materials segment due to
continued demand for new technologies and contributions from Rodel, which
was consolidated in 2000, and from Shipley Ronal, part of which was
acquired in 1999. Results of operations for Rodel were consolidated during
the second quarter of the year, as a result of increasing the company's
ownership to approximately 90% from 48%.
Electronic Materials reported earnings, excluding non-recurring items,
increased to $69 million from $46 million in 1998, while 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 8% on
strength in both Microelectronics, 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.
Salt earnings for 2000 were $24 million, compared to $10 million in 1999
and pro forma 1999 earnings of $35 million. Sales decreased to $875
million from pro forma 1999 sales of $930 million. Despite strong
weather-related results in the fourth quarter of 2000, the change in sales
and earnings was largely attributable to the impact of a mild winter at
the beginning of 2000 on sales of ice control salt in contrast with a more
severe winter in early 1999. Also, sales were comparatively lower in 2000
in part due to the absence of fourth quarter European Salt sales following
the divestiture of that business.
Salt sales were $439 million in 1999. Included in results for the first
time due to the acquisition of Morton, this business includes salt for a
variety of uses, such as table salt, food processing, industrial
processing, water softening and highway ice 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.
Sales in the Salt segment for each year presented have been reclassified
as a result of the company's adoption in 2000 of EITF 00-10 "Accounting
for Shipping and Handling Fees and Costs." This new accounting guidance
became effective in the fourth quarter of 2000 and relates primarily to
the classification of certain costs in the company's statement of
consolidated earnings with reclassifications of prior reporting required.
The company reclassified a total of $88 million and $35 million in
shipping and handling costs to cost of sales from net sales in 2000 and
1999, respectively. For pro forma 1999 and 1998, the reclassification was
$81 million and $73 million, respectively. This new guidance did not
materially impact other business segments.
Corporate expenses totaled $175 million, compared to $283 million. The
years 2000 and 1999 included charges of $13 million for Rodel and $105
million for Morton, respectively, for IPR&D related to these acquisitions.
Corporate expenses totaled $283 million in 1999, compared to $71 million
in 1998. Included in 1999 corporate expenses are non-recurring items such
as a $105 million non-cash charge for IPR&D, 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.
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):
- -------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Earnings as reported $354 $ 249 $ 440
IPR&D and other one-time charges
related to acquisitions 14 115 --
Joint venture dispositions -- 14 (76)
Remediation related insurance
settlements -- (17) --
Provision for restructuring 8 23 --
Asset write-downs, integration
and other restructuring costs 5 26 18
Early retirement of debt -- -- 13
- -------------------------------------------------------------------------------
Earnings excluding
non-recurring items $381 $ 410 $ 395
- -------------------------------------------------------------------------------
Summary of Consolidated Results
Net Sales for the company were $6,879 million for 2000, compared to sales
of $5,374 million in 1999, and pro forma 1999 sales of $6,715 million. The
increase from pro forma 1999 sales was driven largely by an
acquisition-driven sales increase in the Electronic Materials segment and
to a lesser extent the Acima acquisition in the Chemical Specialties
segment. The effect of these acquisitions was partially offset by
unfavorable currency impacts. For 1999 net sales increased to $5,374
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
$6,715 million, from $6,503 million in 1998.
Gross Profit of $2,246 million for 2000 increased from $1,965 million, but
the gross profit margin was 33%, down from 37% from the prior-year period.
The change in gross profit margin is primarily the result of increased
hydrocarbon-based raw material prices in addition to higher energy costs
in the form of higher natural gas prices and increased freight costs due
to higher fuel prices. Overall raw material price increases of
approximately 18% for the year were not offset by overall selling price
increases of 1%. To a lesser extent, higher depreciation resulting from
fair values being assigned to acquired assets also contributed to the
change in gross profit margin. The impact of increased raw material prices
is primarily in the Performance Polymers business segment. The extent to
which these prices will continue to rise is uncertain, but the company has
assumed that costs will remain elevated into 2001. The company is
responding by actively pursuing increases in selling prices.
Gross profit of $1,965 million in 1999 increased from $1,464 million 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.
Selling, Administrative and Research (SAR) Expenses decreased to 19% of
net sales for 2000 from 20% on a pro forma 1999 basis. In 1999, the
company began implementing a redesign of its selling and administrative
infrastructure and instituted other cost saving measures associated with
the integration of the Morton and LeaRonal acquisitions. The stated goal
of these efforts was to reduce annual procurement, SAR and other expenses
by $300 million.
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 on a comparable basis by approximately 3%.
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 $13 million and $105
million to expense in 2000 and 1999, respectively, related to the Rodel
and Morton acquisitions. (See Note 3 in Notes to Consolidated Financial
Statements.)
Interest Expense increased to $241 million in 2000 from $159 million in
the prior year due to higher debt levels resulting from acquisitions. In
year 2000, a full year of interest at the higher debt levels is reflected
versus six months in the prior year. The interest expense increase to $159
million in 1999 from $34 million in 1998 is also due largely to increases
in debt resulting from 1999 acquisitions.
Amortization of Goodwill and Other Intangibles increased significantly
during the period to $159 million from $83 million in the prior year and
$5 million in 1998, attributable to significant 1999 acquisitions. Year
2000 reflects amortization for a full year, versus six months in 1999
related to these acquisitions.
Share of Affiliate Net Earnings of $19 million in 2000 increased from
earnings of $7 million in 1999 and earnings of $2 million in 1998. The
2000 earnings resulted from a full year of affiliates acquired in mid-1999
and from earnings of certain affiliated businesses of Rodel. Rodel was
consolidated in 2000. The 1999 earnings resulted largely from increases in
Rodel, which was an affiliate during that year.
Provision for Restructuring of $13 million before-tax ($.04 per share
after-tax) was recorded in the first half of 2000 in the Ion Exchange
Resins Business for the write-down of plant assets and severance costs for
approximately 100 people. These charges were net of certain pension
settlement and curtailment gains. Also in the first half of 2000, an
additional $46 million related largely to lease terminations was recorded
in the allocation of the Morton purchase price.
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) in 1999
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. 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 in 2000 and early 2001.
Other Income was $47 million for 2000 compared to $10 million in 1999. The
increase is largely from foreign currency gains resulting from risk
management activities. The 1999 period includes Morton integration costs
offset by a gain related to a favorable settlement with insurance carriers
over certain environmental remediation matters. The $22 million loss on
disposition of joint venture recorded in the 1999 period reflects the
pre-tax settlement related to the 1998 sale of AtoHaas.
Effective Tax Rate for 2000 and 1999 was 39% and 46%, respectively. The
effective tax rate excluding the non-tax deductible IPR&D charges was 38%
for both years. Rates also reflect the effect of certain non-tax
deductible amortization charges resulting from the company's acquisition
activities. The effective tax rate of 46% for 1999 was up from 35% in
1998, largely as a result of the non-deductible write-off of IPR&D.
Liquidity, Capital Resources
and Other Financial Data
Net cash in-flows during 2000, 1999 and 1998 resulted in net increases
(decreases) in cash and cash equivalents of $35 million, $41 million and
$(24) million, respectively. Each of these years included acquisition,
divestiture and financing activities having a significant effect on the
company's cash flows. (See Note 1 in Notes to Consolidated Financial
Statements.)
Free cash flow (which is cash provided by operating activities less
capital asset spending and dividends) for the year 2000 compared to 1999
and 1998 were as follows:
- -------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 1998
- -------------------------------------------------------------------------------
Cash provided by operating activities $ 771 $ 816 $ 682
Capital additions (391) (323) (229)
Dividends (167) (141) (125)
=============================
Free cash flow $ 213 $ 352 $ 328
- -------------------------------------------------------------------------------
Financing Total borrowings at year-end 2000 were $3,774 million, compared
to $4,053 million at year-end 1999. At the end of 2000, the debt ratio was
49%, compared with 52% at the end of 1999.
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. There are no restrictions on the payment
of dividends. In 2000, the company issued 400 million Euros (or $376
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. As of early 2001, these efforts
have largely been completed.
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 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
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, New Jersey, Morton 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 mercury processing plant on the site prior to its
acquisition by Morton. At the
Gross Profit, SAR, Operating Earnings*
Percent of Sales
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Selling, Administrative
Gross Profit and Research Operating Earnings
------------ ------------------------ ------------------
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%
2000 32.7% 19.0% 7.5%
- ----------
* Operating earnings are net earnings plus after-tax interest expense.
Excludes IPR&D charges.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Selling Price and Raw Material Indicies
1990=100
Selling Raw Material
Price Index Percent Change Cost Index Percent Change
----------- -------------- ---------- --------------
1990 100 3 100 0
1991 102 2 100 0
1992 101 (1) 91 (9)
1993 97 (4) 88 (3)
1994 97 0 92 4
1995 103 6 111 21
1996 102 (1) 104 (7)
1997 101 (1) 103 (1)
1998 100 (2) 93 (10)
1999 97 (3) 87 (6)
2000 98 1 103 18
date of acquisition Morton had disclosed and accrued for certain ongoing
studies, which are now expected to be completed during 2002, with
regulatory decisions expected by the end of 2002. In its allocation of the
purchase price of Morton, the company accrued for additional study costs
at December 31, 1999 and additional remediation costs in 2000 based on the
progress of the technical studies. A separate study of the contamination
in Berry's Creek, which runs near the plant site, and of the surrounding
wetlands area is expected, but on a timetable yet to be determined.
Therefore, the estimated costs of remediation that may result from this
separate study have not been 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 these responsible parties is pending in federal
court. Settlements have been reached with some defendants for claims
considered de minimis 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 investigated and identified other environmental issues
at the plant. Though at the date of acquisition Morton had accrued for
some remediation and legal costs, the company revised these accruals as
part of the allocation of the purchase price of Morton based on its
discussions with the authorities and on the information available as of
June 30, 2000. In 2000, the company reached agreement with the EPA, the
Department of Justice and the State of Mississippi, resolving these
historical environmental issues. The agreement received court approval in
early 2001. The final settlement includes payment of $20 million in civil
penalties, which were paid in the first quarter of 2001, $2 million in
criminal penalties, which were paid in the fourth quarter of 2000 and $16
million in various Supplemental Environmental Projects. The accruals
established for this matter were sufficient to cover these and other
related costs of the settlement.
The amount charged to earnings before tax for environmental remediation
were not material in 2000, $4 million in 1999 and $10 million in 1998. The
reserves for remediation were $185 million and $201 million at December
31, 2000 and 1999, respectively, and are recorded as "other liabilities"
(current and long-term). These reserves include amounts resulting from the
allocation of the purchase price of Morton. 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 processes. 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. Settlements occurring in 2000 were immaterial. There were no
insurance recoveries receivable on December 31, 2000 and 1999.
In addition to accrued environmental liabilities, the company had
reasonably possible loss contingencies related to environmental matters of
approximately $73 million and $110 million at December 31, 2000 and 1999,
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 cannot
reasonably be estimated 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 period.
Capital spending for new environmental protection equipment was $27
million in 2000, versus $30 million in 1999. Spending for 2001 and 2002 is
expected to be approximately $35 million and $23 million, respectively.
Capital expenditures in this category include
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
ROCE=(net earnings+after-tax interest
ROE=(net earnings-preferred and amortization expense)/
dividends)/average equity average capital employed
------------------------- ------------------------
1990 15.2% 13.0%
1991 11.2% 10.7%
1992 11.4% 10.9%
1993 8.1% 7.4%
1994 16.5% 13.5%
1995 16.6% 13.8%
1996 20.1% 16.3%
1997 22.7% 18.4%
1998 25.3% 20.8%
1999* 13.4% 11.4%
2000* 9.9% 9.2%
- ----------
* Excludes IPR&D charges.
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 $33 million in
2000, $27 million in 1999 and $26 million in 1998. The expenditures for
remediation are charged against accrued remediation reserves. The cost of
operating and maintaining environmental facilities was $114 million, $107
million and $94 million in 2000, 1999 and 1998, respectively, and was
charged against current-year earnings.
Dividends Total common stock dividends paid in 2000 were $.78 per share,
compared to $.74 per share in 1999. 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 since 1977.
Additions to Land, Buildings and Equipment Fixed asset additions were $391
million in 2000 and $323 million in 1999. Fixed asset additions during
2000 included acrylics expansion in Texas; spending on emulsions plants in
the United Kingdom and Argentina; Agricultural Chemicals investment in
China; facility expansion in Electronic Materials, particularly at the
Rodel facilities, and spending on the company's upgrade and consolidation
of its enterprise resource planning (ERP) infrastructure. Nineteen
ninety-nine additions 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.
Capital expenditures in 2001 are not expected to exceed depreciation
expense. Spending for environmental protection equipment, which is
included in several of the categories in the table shown below, was $27
million in 2000, $30 million in 1999 and $17 million in 1998.
Expenditures for the past three years, categorized by primary purpose of
project, were:
- --------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
Environmental, cost savings
and infrastructure $271 $191 $133
Capacity additions and new
products 78 98 60
Research facilities and
equipment 28 22 27
Capitalized interest cost 14 12 9
==========================
Total $391 $323 $229
- --------------------------------------------------------------------------------
Acquisitions and Divestitures The company completed the following
acquisition and joint venture activities in 2000:
- Entered into a joint venture with Stockhausen GmbH & Co. KG
(Stockhausen) of Germany to form a global partnership for the
manufacture of acrylic acid. In conjunction with the joint venture,
the company acquired Stockhausen's merchant monomer business in
Europe in the first quarter of 2000.
- Increased its ownership in Rodel from 48% to approximately 90% for a
cost of approximately $200 million. Rodel was a privately-held,
Delaware-based leader in precision polishing technology serving the
semiconductor, memory disk and glass polishing industries. Through
March 31, 2000, the investment had been accounted for on the equity
method with the company's share of earnings reported as equity in
affiliates. Beginning in the second quarter, the transaction with
Rodel, increasing the company's ownership to approximately 90%, was
accounted for using the purchase method with results of operations
combined during the second quarter. The remaining 10% is the subject
of on-going negotiations. The financial statements reflect the
allocation of the purchase price based on estimated fair values, and
resulted in acquired goodwill of $58 million, which is being
amortized on a straight-line basis over 30 years and identifiable
intangible assets of $224 million, which are being amortized over a
range of 10 to 30 years. Thirteen million dollars of the purchase
price was allocated to IPR&D related to chemical mechanical
planarization and surface preparation technologies under
development, and was recorded as a charge in the second quarter.
- Acquired 95% of Acima A.G. (Acima), a Swiss company specializing in
biocidal formulations, polyurethane catalysts and other specialty
chemicals, and also acquired an 80% interest in Silicon Valley
Chemical Laboratories, Inc. (SVC), a privately-held supplier of high
technology products for the semiconductor industry. These
transactions were accounted for using the purchase method.
- Acquired the photoresist business of Mitsubishi Chemical Corporation
in the second quarter. Mitsubishi Chemical is a leading producer of
G-line, I-line and deep UV photoresist chemistry used to make
semiconductor chips. The transaction was accounted for using the
purchase method.
In conjunction with the acquisitions of Acima, SVC and Mitsubishi
photoresist, the company recorded goodwill of $36 million which is being
amortized over a range of from 20 to 40 years.
The company completed the following divestitures in 2000:
- Sold its Industrial Coatings business to BASF Corporation in the
first quarter for approximately $175 million, subject to working
capital adjustments.
- Sold its Thermoplastic Polyurethane business to Huntsman Corporation
for $120 million in the third quarter, subject to working capital
adjustments.
- Sold its European Salt business, Salins-Europe, to a consortium,
which includes management, led by Union d'Etudes et
d'Investissements SA, a wholly-owned subsidiary of Credit Agricole,
in the fourth quarter for approximately $270 million.
These three businesses were acquired by the company in June 1999 as part
of the acquisition of Morton and were recorded at fair value. Accordingly,
no gain or loss was recorded on these transactions.
- Sold its 50% interest in TosoHaas to its joint venture partner,
Tosoh Corporation, in the fourth quarter.
Pro forma information is not presented, as the 2000 acquisitions and
divestitures were not material to the company's results of operations or
consolidated financial position. The results of operations of acquired
businesses are included in the company's consolidated financial statements
from the respective dates of acquisition, except as noted above.
In November 2000, the company commenced preliminary discussions with US
Salt Holdings LLC for the purpose of exploring a possible future business
alliance involving its North American Salt segment.
The company completed the following acquisitions in 1999:
- On June 21, 1999, the company acquired Morton for cash of $3 billion
and the issuance of 45.1 million 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. Accounted for by the purchase method, the
financial statements reflect the allocation of the purchase price
based on fair values at the date of acquisition. The final
allocation as of June 30, 2000 resulted in acquired goodwill of $1.7
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
(see Note 3 in Notes to Consolidated Financial Statements.). In
addition to goodwill and in-process research and development, the
purchase price was allocated to: customer lists and trade names
($1.6 billion), which are being amortized over 40 years, developed
technology and workforce ($434 million), which are being amortized
over approximately 18 years, and fixed assets ($724 million), which
are being amortized over approximately 12 years. Also during the
first half of 2000, adjustments totaling $220 million were made to
the purchase price allocation for resolution or adjustment of
pre-acquisition contingencies and valuations.
- 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 and later analysis of certain acquired assets and
liabilities. The final allocation resulted in acquired goodwill of
approximately $202 million, which is being amortized on a
straight-line basis over 40 years. In addition to goodwill, the
purchase price was allocated to:
Diluted Earnings and Dividends
Per Share
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Diluted Earnings Common Dividends
---------------- ----------------
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
2000* 1.61 .78
- ----------
* Diluted earnings per share in 1992 and 1993 are before cumulative effect
of accounting cahnges. 1999 and 2000 exclude IPR&D charges.
Free Cash Flow
Millions of Dollars
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Cash Provided by
Operating Activities Free Cash Flow
-------------------- --------------
1990 336 -155
1991 357 12
1992 401 30
1993 358 -121
1994 524 83
1995 513 -13
1996 706 256
1997 791 416
1998 684 328
1999 816 352
2000 771 213
Free cash flow is cash provided by operating activities less capital asset
spending and dividends.
customer lists and trade names ($129 million), which is being
amortized over 40 years, developed technology and workforce ($63
million), which is being amortized over 13 years, and fixed assets
($9 million), which is being amortized over approximately 20 years.
The results of both Morton and LeaRonal have been included in the
consolidated financial statements since the acquisition dates.
Change in Functional Currencies By December 31, 2000, the company
substantially completed the legal restructuring and business integration
of its foreign operations, primarily in Europe, following the Morton and
LeaRonal acquisitions in 1999. Based on these significant operational
changes on January 1, 2001, the company determined that the functional
currency of a majority of the company's foreign entities is their
respective local currency. This change, resulting in a one-time write-down
of fixed assets and inventories of approximately $40 million, will be
reflected in other comprehensive income to be reported in the first
quarter of 2001.
Stock Repurchases For the five years ended December 31, 2000, 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 2000 and 1999; however,
during 1998 it repurchased 17.5 million shares of its common stock at a
total cost of $567 million and 7.7 million 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 reflected
the average share price paid by the third party in the market over an
extended trading period. Through December 31, 2000, 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. There were 220
million and 219 million common shares outstanding at December 31, 2000 and
1999, respectively.
Working Capital Accounts receivable from customers increased $74 million
and inventory increased $68 million. Days sales outstanding were 72 days
up from 70 days. Days cost of sales in ending inventory remained unchanged
at 74 days.
Details about two major components of working capital at the end of 2000
and 1999 follow:
(Millions of dollars) 2000 1999
- --------------------------------------------------------------------------------
Inventories
Year-end balance $ 967 $ 899
Annual turnover 4.8x 4.8x
- --------------------------------------------------------------------------------
Customer receivables
Year-end balance $1,359 $1,285
Annual turnover 5.1x 5.2x
- --------------------------------------------------------------------------------
Land, Building and Equipment, Net Investments in land, buildings and equipment,
net is summarized below:
(Millions of dollars) 2000 1999
- --------------------------------------------------------------------------------
Year-end balance $3,339 $3,496
Annual turnover 2.1x 1.9x
- --------------------------------------------------------------------------------
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 .6 in 2000 and 1.0 in 1999 and 1998. The 1999 amount was
calculated using pro forma sales and assets.
Return on Capital Employed (ROCE) equals net earnings plus after-tax
amortization and after-tax interest expense, divided by average total
assets less average non-interest bearing liabilities. ROCE was 9.2% in
2000, 11.4% in 1999, excluding IPR&D charges and 20.8% in 1998.
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 10.0%
in 2000, 13.4% in 1999, excluding the IPR&D charge, and 25.3% in 1998.
Information Systems 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 spent over the
duration of the project.
In 2000, the company announced plans to upgrade and consolidate its ERP
infrastructure to better support the growth of its businesses. As it is
implemented, this infrastructure is expected to enable more efficient
e-commerce connections among the company, its suppliers and customers. The
company has also engaged an implementation consultant to help install the
components of the new system as quickly and efficiently as possible and
has created an internal e-Transformation group to coordinate these efforts
so that the new electronic business tools and support systems can be in
place as rapidly as possible. Initial areas of concentration are expected
to include finance, human resources, customer relationship management,
materials management, production scheduling, procurement, maintenance,
sales and distribution.
New Accounting Pronouncements
Accounting for Derivative Instruments and Other Hedging Activities
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No.133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes a new model for the accounting and reporting of
derivative and hedging transactions. The statement amends a number of
existing standards and, as amended by SFAS No. 138, will be effective for
fiscal years beginning after June 15, 2000. As required, the company
adopted this standard as of January 1, 2001.
This standard requires that all derivative instruments be reported on the
balance sheet at fair value. For instruments designated as fair value
hedges, changes in the fair value of the instrument will largely be offset
on the income statement by changes in the fair value of the hedged item.
For instruments designated as cash flow hedges, the effective portion of
the hedge is reported in other comprehensive income until it is assigned
to earnings in the same period in which the hedged item has an impact on
earnings. For instruments designated as a hedge of net investment in
foreign operating units not using the U.S. Dollar as its functional
currency, changes in the fair value of the instrument will be offset in
other comprehensive income to the extent that they are effective as
economic hedges. Changes in the fair value of derivative instruments,
including embedded derivatives, that are not designated as a hedge will be
recorded each period in current earnings along with any ineffective
portion of hedges.
Using market valuations for derivatives held as of December 31, 2000, as
of January 1, 2001, the company recorded a $6 million after-tax cumulative
income effect to accumulated other comprehensive income, and a charge to
net income of $2 million, to recognize at fair value all derivative
instruments. With the adoption of SFAS No. 133, changes in the company's
derivative instrument portfolio or changes in the market values of this
portfolio could have a material effect on accumulated other comprehensive
income.
The company has concluded that the adoption of SFAS No. 133 will not
materially change management's risk policies and practices nor will
compliance with the standard materially impact the reported results of
operations.
Other Standards
The Securities and Exchange Commission issued Staff Accounting Bulletin
No. 101 in late 1999 which clarifies existing guidance on the recognition,
presentation and disclosure of revenue in the financial statements. Under
the standard, changes in revenue recognition, if any, resulting from
adopting its provisions are recorded as a one-time accounting change at
the time of implementation. The company adopted this standard during the
fourth quarter 2000 with no material effect on its financial position or
result of operations.
The Emerging Issues Task Force (EITF) of the FASB reached consensus in
2000 on EITF 00-10 "Accounting for Shipping and Handling Fees and Costs."
This new accounting guidance is effective for the fourth quarter of 2000
and relates primarily to the classification of certain costs in the
company's statement of consolidated earnings with restatements of prior
reporting required. The company reclassified a total of $88 million in
shipping and handling costs of its Salt segment to cost of sales from net
sales in 2000 and has reclassified all prior reported periods as a result
of adopting this standard. This new guidance did not materially impact
other business segments.
The EITF reached consensus on issue 00-14 "Accounting for Certain Sales
Incentives" during 2000. Like EITF 00-10, this standard addresses the
income statement classification of certain selling costs. For example, the
cost of consumer-focused coupon programs must be classified as a reduction
in sales and not as either selling expense or cost of sales. Effective
beginning in 2001 with prior period restatements required, the impact on
the company will largely be confined to the Salt segment, but is not
expected to result in a material reclassification in any period.
In 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation" an interpretation of
APB Opinion No. 25 (FIN 44) which generally applies prospectively to new
awards, exchanges of awards in a business combination, modifications to
outstanding awards, and changes in
grantee status that occur on or after July 1, 2000, except for the
provision related to repricings and the definition of an employee which
apply to awards issued after December 15, 1998. To the extent that events
covered by FIN 44 occur after the applicable date but prior to July 1,
2000, the effect of applying FIN 44 will be recognized on a prospective
basis. Accordingly, no adjustment will be made upon initial application of
FIN 44 to financial statements for periods prior to July 1, 2000.
Market Risk Discussion
The company is exposed to market risk from changes in foreign currency
exchange rates, interest rates and commodity prices since it denominates
its business transactions in a variety of foreign currencies, 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
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 economic analysis of underlying
exposures, anticipating that adverse impacts on future earnings, cash
flows and fair values due to fluctuations in foreign currency exchange
rates, interest rates and commodity prices will be offset by the proceeds
from and changes in fair value of the derivative instruments. The company
does not hedge its exposure to market 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 process 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, 2000, with
all other variables held constant. A ten percent appreciation and
depreciation of the U.S. dollar against foreign currencies would result in
an increase of $71 million and a decrease of $62 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, 2000, without reflecting the effects of underlying
anticipated transactions. The actual effects of changing foreign currency
exchange rates could have a material impact on earnings and cash flows in
future periods when those anticipated transactions are realized.
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, it 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%. A
75 basis point increase in interest rates would reduce by $153 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, 2000. A 75-basis-point decrease in interest
rates will increase the fair value by $170 million. However, such changes
in fair values would not have a material impact on earnings per share or
cash flows as the majority of the company's debt portfolio consists of
fixed rate instruments. A 75-basis-point movement is equivalent to
approximately 10% of the company's weighted average rate of its worldwide
debt.
Commodity Price 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 historically
have 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, 2000, would not be
material when compared with the company's earnings and financial position.
Forward-Looking Statements
The full Annual Report includes forward-looking statements, which reflect
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, unforeseen
developments in relevant financial markets, changes in strategies, future
acquisitions and divestitures, risks in developing new products and
technologies, foreign exchange and interest rates, costs of energy and raw
materials, environmental and safety regulations and clean-up costs. As
appropriate, additional factors are contained in the company's 2000 Form
10-K reports filed with the Securities and Exchange Commission.
Quarterly Stock Prices
Dollars
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High 35.0625 38.6875 35.6250 38.8750
Low 26.9375 32.4375 26.0000 26.0000
- -Close 34.4375 34.6250 27.8125 30.1250
1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High 34.9375 49.2500 46.4375 41.8750
Low 28.1250 33.5000 31.7500 34.1875
- -Close 33.5625 42.8750 36.1250 40.6875
2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High 47.6250 49.4375 37.5000 37.3125
Low 33.0000 32.8750 25.6875 24.3750
- -Close 44.6250 34.5000 29.0625 36.3125
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, and through December 31, 2000
the U.S. dollar was the functional currency for approximately half of
international operations. Under this standard for foreign entities using
the U.S. dollar as the functional currency: (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.
By December 31, 2000, the company substantially completed the legal
restructuring and business integration of its foreign operations,
primarily in Europe, following the Morton and LeaRonal acquisitions in
1999. Based on these significant operational changes on January 1, 2001
the company determined that the functional currency of a majority of the
company's foreign entities is their respective local currency.
This change, resulting in a one-time write-down of fixed assets and
inventories of approximately $40 million, will be reflected in other
comprehensive income to be reported in the first quarter of 2001.
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 processes.
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 inventory is primarily determined under the last-in, first-out
(LIFO) method.
Land, Buildings and Equipment and Related Depreciation Land, buildings and
equipment are carried at cost. Assets are depreciated over their estimated
useful lives on the straight-line and accelerated methods. Maintenance and
repairs are charged to earnings; replacements and betterments are
capitalized. The cost and related accumulated depreciation of buildings
and equipment are removed from the accounts upon retirement or other
disposition; any resulting gain or loss is reflected in earnings.
Intangible Assets The company amortizes identifiable intangible assets
such as patents and trademarks on the straight-line basis over their
estimated useful lives. Goodwill is amortized on the straight-line basis
over periods not greater than 40 years. 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.
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
amounts to conform with current year presentation.
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Earnings
Years ended December 31, 2000, 1999 and 1998
(Millions of dollars, except per-share amounts) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Current Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $6,879 $ 5,374 $ 3,720
Cost of goods sold 4,633 3,409 2,256
---------------------------------------
Gross profit 2,246 1,965 1,464
Selling and administrative expense 1,046 889 635
Research and development expense 259 224 207
Interest expense 241 159 34
Amortization of goodwill and other intangibles 159 83 5
Purchased in-process research and development 13 105 --
Provision for restructuring 13 36 --
Gain (loss) on disposition of joint ventures -- (22) 131
Share of affiliate net earnings 19 7 2
Note 5 Other income (expense), net 47 10 (16)
---------------------------------------
Earnings before income taxes and extraordinary items 581 464 700
Note 7 Income taxes 227 215 247
---------------------------------------
Earnings before extraordinary items 354 249 453
---------------------------------------
Note 18 Extraordinary loss on early extinguishment
of debt (net of income tax benefit of $6 million) -- -- 13
---------------------------------------
Net earnings 354 249 440
Note 21 Less preferred stock dividends -- 2 6
---------------------------------------
Net earnings applicable to common shareholders $ 354 $ 247 $ 434
---------------------------------------
Earnings per common share before extraordinary items:
- Basic $ 1.61 $ 1.28 $ 2.55
- Diluted 1.61 1.27 2.52
Earnings per common share:
- Basic $ 1.61 $ 1.28 $ 2.47
- Diluted 1.61 1.27 2.45
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding (in millions)
- Basic 219.5 192.6 175.6
- Diluted 220.5 195.7 179.7
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies (pages 39-40) and
notes to consolidated financial statements (pages 45-60).
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Cash Flows
Years ended December 31, 2000, 1999 and 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net earnings $ 354 $ 249 $ 440
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Purchased in-process research and development 13 105 --
Depreciation 454 368 276
Amortization of goodwill and other intangibles 159 83 5
(Gain) loss, as adjusted, on sale of facilities and investments -- 22 (76)
Extraordinary loss on early extinguishment of debt, net of tax -- -- 13
Changes in assets and liabilities, net of acquisitions and
divestitures:
Deferred income taxes (37) (70) 36
Accounts receivable (169) (104) (1)
Inventories (100) (41) 1
Accounts payable, accrued interest and other accrued liabilities 91 164 (15)
Federal, foreign and other income taxes payable 56 25 (85)
Other, net (50) 15 88
--------------------------------
Net cash provided by operating activities 771 816 682
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Acquisitions of businesses and affiliates, net of cash acquired (390) (3,394) (21)
Proceeds from the sale of businesses, net of cash sold 459 -- 287
Additions to land, buildings and equipment (391) (323) (229)
--------------------------------
Net cash provided (used) by investing activities (322) (3,717) 37
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 447 2,564 44
Repayments of long-term debt (204) (23) (205)
Net change in short-term borrowings (489) 608 108
Purchases of treasury shares (1) (65) (567)
Payment of dividends (167) (141) (125)
Other, net -- (1) 2
--------------------------------
Net cash provided (used) by financing activities (414) 2,942 (743)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 35 41 (24)
Cash and cash equivalents at the beginning of the year 57 16 40
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 92 $ 57 $ 16
===================================================================================================================================
Supplemental Cash Flow Information Cash paid during the year for:
Interest, net of amounts capitalized $ 239 $ 72 $ 36
Income taxes, net of refunds received 247 202 237
Detail of acquisitions of businesses and affiliates:
Fair value of assets acquired $ 537 $ 6,312 $ 21
Liabilities assumed (147) (1,216) --
Common stock issued -- (1,702) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash paid for acquisitions $ 390 $ 3,394 $ 21
===================================================================================================================================
See accompanying summary of significant accounting policies (pages 39-40) and
notes to consolidated financial statements (pages 45-60).
Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets
December 31, 2000 and 1999
- -----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 92 $ 57
Note 11 Receivables, net 1,479 1,370
Note 12 Inventories 967 899
Note 13 Prepaid expenses and other assets 243 171
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 2,781 2,497
- -----------------------------------------------------------------------------------------------------------------------------------
Note 14 Land, buildings and equipment, net 3,339 3,496
Note 2 Investments in and advances to unconsolidated subsidiaries and affiliates 126 282
Note 15 Goodwill and other intangible assets, net of amortization 4,596 4,482
Note 16 Other assets 425 499
- -----------------------------------------------------------------------------------------------------------------------------------
$ 11,267 $ 11,256
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Note 17 Notes payable $ 549 $ 931
Trade and other payables 662 555
Note 19 Accrued liabilities 746 852
Federal, foreign and other income taxes payable 237 172
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,194 2,510
- -----------------------------------------------------------------------------------------------------------------------------------
Note 18 Long-term debt 3,225 3,122
Note 10 Employee benefits 619 610
Note 7 Deferred income taxes 1,287 1,231
Note 20 Other liabilities 266 289
Minority interest 23 19
Note 24 Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------------------------
Note 21 Stockholders' equity
Common stock; par value--$2.50; authorized--400,000,000 shares;
issued--2000 and 1999: 242,078,367 shares 605 605
Additional paid-in capital 1,956 1,942
Retained earnings 1,518 1,331
- -----------------------------------------------------------------------------------------------------------------------------------
4,079 3,878
Less: Treasury stock (2000--22,141,494 shares; 1999--23,097,178 shares) 214 224
Less: ESOP shares (2000--12,622,000; 1999--12,915,000) 119 125
Accumulated other comprehensive income (loss) (93) (54)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,653 3,475
- -----------------------------------------------------------------------------------------------------------------------------------
$ 11,267 $ 11,256
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies (pages 39-40) and
notes to consolidated financial statements (pages 45-60).
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Compre- Total Total
Additional hensive Stock- Compre-
(Millions of dollars, Preferred Common Paid-in Retained Treasury Income holders' hensive
except per share amounts) Stock Stock Capital Earnings Stock ESOP (Loss) Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
1998
Balance January 1, 1998 $ 126 $ 590 $ 135 $1,932 $820 $138 $(28) $1,797
- --------------------------------------------------------------------------------------------------------------------------
Net earnings 440 $ 440
Cumulative translation adjustment 27 27
Minimum pension liability (8) (8)
------
Total comprehensive income $ 459
======
Common dividends ($.70 per share) (119)
Preferred dividends ($2.75 per share) (6)
Redemptions and conversion
of shares to common stock (53)
Common stock issued:
Conversion of preferred stock (23)
Under bonus plan, net of
preferred conversions 4 (17)
From ESOP (6)
Treasury stock:
Purchases 567
Retirements (98) (963) (1,061)
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $ 73 $ 492 $ 139 $1,284 $286 $132 $ (9) $1,561
- --------------------------------------------------------------------------------------------------------------------------
1999
Net earnings 249 $ 249
Cumulative translation adjustment (47) (47)
Minimum pension liability 2 2
------
Total comprehensive income $ 204
======
Common dividends ($.74 per share) (139)
Preferred dividends ($2.75 per share) (2)
Redemptions and conversion
of shares to common stock (73)
Common stock issued:
Acquisitions 113 1,740
Conversion of preferred stock (34)
Under bonus plan, net of
preferred conversions 63 (31)
From ESOP (7)
Treasury stock:
Purchases 3
Retirements (61)
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $ -- $ 605 $ 1,942 $1,331 $224 $125 $(54) $3,475
- --------------------------------------------------------------------------------------------------------------------------
2000
Net earnings 354 $ 354
Cumulative translation adjustment (37) (37)
Minimum pension liability (2) (2)
------
Total comprehensive income $ 315
======
Common dividends ($.78 per share) (167)
Common stock issued:
Under bonus plan 14 (10)
From ESOP (6)
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ -- $ 605 $ 1,956 $1,518 $214 $119 $(93) $3,653
- --------------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies (pages 39-40) and
notes to consolidated financial statements (pages 45-60).
Notes to Consolidated Financial Statements
Note 1: Acquisitions and Dispositions of Assets
The company completed the following acquisition and joint venture
activities in 2000:
- Entered into a joint venture with Stockhausen GmbH & Co. KG
(Stockhausen) of Germany to form a global partnership for the
manufacture of acrylic acid. In conjunction with the joint venture
the company acquired Stockhausen's merchant monomer business in
Europe in the first quarter of 2000.
- Increased its ownership in Rodel from 48% to approximately 90% for a
cost of approximately $200 million. Rodel was a privately-held,
Delaware-based leader in precision polishing technology serving the
semiconductor, memory disk and glass polishing industries. Through
March 31, 2000, the investment had been accounted for on the equity
method with the company's share of earnings reported as equity in
affiliates. Beginning in the second quarter, the transaction with
Rodel, increasing the company's ownership to approximately 90%, was
accounted for using the purchase method with results of operations
combined during the second quarter. The remaining 10% is the subject
of on-going negotiations. The financial statements reflect the
allocation of the purchase price based on estimated fair values, and
resulted in acquired goodwill of $58 million, which is being
amortized on a straight-line basis over 30 years and identifiable
intangible assets of $224 million which are being amortized over a
range of 10 to 30 years. Thirteen million dollars of the purchase
price was allocated to IPR&D related to chemical mechanical
planarization and surface preparation technologies under development
and was recorded as a charge in the second quarter.
- Acquired 95% of Acima A.G.(Acima), a Swiss company specializing in
biocidal formulations, polyurethane catalysts and other specialty
chemicals and also acquired an 80% interest in Silicon Valley
Chemical Laboratories, Inc. (SVC), a privately-held supplier of high
technology products for the semiconductor industry. These
transactions were accounted for using the purchase method.
- Acquired the photoresist business of Mitsubishi Chemical Corporation
in the second quarter. Mitsubishi Chemical is a leading producer of
G-line, I-line and deep UV photoresist chemistry used to make
semiconductor chips. The transaction was accounted for using the
purchase method.
In conjunction with the acquisitions of Acima, SVC and Mitsubishi
photoresist, the company recorded goodwill of $36 million which is being
amortized over a range of from 20 to 40 years.
The company completed the following divestitures in 2000:
- Sold its Industrial Coatings business to BASF Corporation in the
first quarter for approximately $175 million, subject to working
capital adjustments.
- Sold its Thermoplastic Polyurethane business to Huntsman Corporation
for $120 million in the third quarter, subject to working capital
adjustments.
- Sold its European Salt business, Salins-Europe, to a consortium,
which includes management, led by Union d'Etudes et
d'Investissements SA, a wholly-owned subsidiary of Credit Agricole,
in the fourth quarter for approximately $270 million.
These three businesses were acquired by the company in June 1999 as part
of the acquisition of Morton and were recorded at fair value; accordingly,
no gain or loss was recorded on these transactions.
- Sold its 50% interest in TosoHaas to its joint venture partner,
Tosoh Corporation in the fourth quarter.
Pro forma information is not presented, as the 2000 acquisitions and
divestitures were not material to the company's results of operations or
consolidated financial position. The results of operations of acquired
businesses are included in the company's consolidated financial statements
from the respective dates of acquisition, except as noted above.
In November 2000, the company commenced preliminary discussions with US
Salt Holdings LLC for the purpose of exploring a possible future business
alliance involving its North American Salt segment.
The company completed the following acquisitions in 1999:
- On June 21, 1999, the company acquired Morton for cash of $3 billion
and the issuance of 45.1 million 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. Accounted for by the purchase method, the
financial statements reflect the allocation of the purchase price
based on fair values at the date of acquisition. The final
allocation as of June 30, 2000 resulted in acquired goodwill of $1.7
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
(see Note 3 in Notes to Consolidated Financial Statements). In
addition to goodwill and in-process research and development, the
purchase price
was allocated to: customer lists and trade names ($1.6 billion),
which are being amortized over 40 years, developed technology and
workforce ($434 million), which are being amortized over
approximately 18 years, and fixed assets ($724 million), which are
being amortized over approximately 12 years. Also during 2000,
adjustments totaling $220 million were made to the purchase price
allocation for resolution or adjustment of pre-acquisition
contingencies and valuations.
- 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 and later analysis of certain acquired assets and
liabilities. The final allocation resulted in acquired goodwill of
approximately $202 million, which is being amortized on a straight
line basis over 40 years. In addition to goodwill, the purchase
price was allocated to: customer lists and trade names ($129
million), which is being amortized over 40 years, developed
technology and workforce ($63 million), which is being amortized
over 13 years, and fixed assets ($9 million), which is being
amortized over approximately 20 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 $6,715 $6,503
Net earnings 332 356
Diluted earnings per share $ 1.52 $ 1.58
- --------------------------------------------------------------------------------
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.
On March 8, 2001, Rohm and Haas agreed to sell its Agricultural Chemicals
business to Dow AgroSciences LLC for approximately $1 billion, including
working capital. The purchase price is subject to a post-closing
adjustment for working capital. The completion of the sale is contingent
upon receipt of any required government approvals. The company ultimately
expects to recognize a gain on the divestiture of the business. After the
divestiture of this major line of business, Rohm and Haas expects to
classify Agricultural Chemicals as a discontinued operation.
Note 2: Investments
The company's investments in its affiliates (20-50%-owned) totaled $109
million and $243 million at December 31, 2000 and 1999, respectively. The
change from 1999 relates primarily to the consolidation of Rodel following
the acquisition of an additional 42% of this company in 2000. (See Note
1.)
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 $13 million and $105 million to
expense in 2000 and 1999, respectively, related to the Rodel and Morton
acquisition. (See Note 1.) The $13 million IPR&D charge in 2000 resulted
from the allocation of purchase price in the Rodel acquisition to projects
under development related to chemical mechanical planarization (CMP) and
surface preparation (SP) technologies which are expected to be
commercialized some time between 2001 and 2002.
In 1999, 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 each of
the component technologies are 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 2001.
Lamineer coating is a new and innovative product for Morton's Powder
Coatings business which was successfully developed subsequent to the
Morton acquisition. Lamineer is a new family of powder coatings used for a
variety of wood applications. The technology provides manufacturers with
an alternative method for applying coatings to wood at increased operating
and manufacturing efficiencies. Lamineer coating had been in development
since early 1996. Through June 1999, 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 at the date of the Morton
acquisition. The curing technologies, however, were identified as IPR&D.
Related products are in the testing and trial stage of development. The
efforts required to complete the Lamineer coating project were focused on
developing the necessary curing technologies and meeting customer
specifications. During 2000, Lamineer products were commercially
introduced and marketed through the company's Surface Finishes business.
The fair values of the in-process completed portion of these research and
development projects at the date of acquisition, were as follows:
- --------------------------------------------------------------------------------
(Millions of dollars) Fair Value
- --------------------------------------------------------------------------------
2000 1999
---------------------
Passive Materials $ -- $ 50
Lamineer Coating -- 48
CMP and SP technologies 13 --
All Others -- 7
=====================
Total $ 13 $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 included 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 were 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 provision for restructuring of $13 million before-tax ($.04 per share
after-tax) was recorded in the first half of 2000 in the Ion Exchange
Resins Business for the write-down of plant assets and severance costs for
approximately 100 people. These charges were net of certain pension
settlement and curtailment gains. Also in the first half of 2000, an
additional $45 million related largely to lease terminations was recorded
in the allocation of the Morton purchase price.
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) in 1999
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. 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 in 2000 and early 2001.
Restructuring reserve activity for 2000 was as follows:
- -----------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------
Increases to Decreases to
Reserve(1) Reserve
----------------------- -----------------------------------------
Reserve at Charged Incr./ Reclass to Reserve at
Beginning to (Decr.) Cash Pension Other End of
of year Earnings Goodwill Payments Asset(2) Changes(3) year
- -----------------------------------------------------------------------------------------------------------------------
Severance/other
employee
related
charges(1) $ 58 $ 6 $ 8 $ (9) $ (41) $ (9) $ 13
Pension related
gains -- (10) -- -- -- 10 --
Lease
terminations/
other 15 -- 37 (29) -- (3) 20
===================================================================================================
$ 73 $ (4) $ 45 $ (38) $ (41) $ (2) $ 33
- -----------------------------------------------------------------------------------------------------------------------
(1) The "charged to earnings" includes a decrease to expense due to a
reclassification to "increase (decrease) in goodwill" resulting from a
change in company identification (from acquiring company to acquired
company) for a number of employees expected to be terminated. It does not
include a $17 million before-tax charge for asset impairments.
(2) Severance of the acquired company will be paid from the pension plan.
Because this is no longer part of the reserve, but rather a reduction in
the company's pension asset, it is reclassified here for presentation
purposes.
(3) Amounts in this column reflect the impact of the treatment of most
severance for U.S. employees which will generally be paid from the pension
plans and not from corporate cash, which results in pension-related gains
being recorded as increases to the pension asset.
Note 5: Other Income (Expense), Net
- -------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 1998
- -------------------------------------------------------------------------------
Interest income $ 7 $ 13 $ 13
Royalty income, net 15 10 6
Foreign exchange gains (losses), net 27 4 (13)
Minority interest 5 (1) (2)
Provision for write-down of assets -- -- (11)
Integration costs (8) (28) --
Voluntary early retirement incentives,
severance, litigation settlements and
certain waste disposal site cleanup costs (2) (9) (8)
Environmental insurance recoveries -- 28 --
Other, net 3 (7) (1)
=========================
Total $ 47 $ 10 $(16)
- -------------------------------------------------------------------------------
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 were recorded as assets and amortized over the life
of the option. Gains and losses on purchased option contracts were
generally deferred and recorded in the period in which the underlying
sales transactions were recognized. At December 31, 2000 and 1999, net
deferred unrealized gains were $3 million and $9 million, respectively.
The notional amounts of foreign exchange option contracts totaled $268
million and $329 million at December 31, 2000, and 1999, 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) 2000 1999
- --------------------------------------------------------------------------------
Euro $180 $169
British pound 19 30
Swedish krona -- 30
Canadian dollar -- 37
Australian dollar 18 31
Japanese yen 46 23
New Zealand dollar 5 9
- --------------------------------------------------------------------------------
The company also uses foreign exchange forward contracts 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 were adjusted to their market value at each balance sheet date
and the related gain or loss was recorded in other income and expense. At
December 31, 2000, the open foreign exchange forward and swap contracts
totaled $288 million in notional amounts, of which $244 million is to
hedge intercompany loans denominated in currencies other than U.S. dollars
and $44 million to hedge external transaction exposures. Of the total open
foreign exchange forward and swap contracts, $91 million is to exchange
Canadian dollars into U.S. dollars, $79 million is to exchange yen into
Euros and $118 million is to exchange other foreign currencies into U.S.
dollars. At December 31, 1999, open foreign exchange forward and swap
contracts totaled $532 million in notional amounts, of which $353 million
is to hedge external transaction exposures and $179 million is to hedge
intercompany loans denominated in currencies other than U.S. dollars. Of
the total open foreign exchange forward and swap contracts, $393 million
is to exchange Euros into U.S. dollars and $103 million is to exchange
Euros into Canadian dollars.
The company also uses cross currency interest rate swap contracts to hedge
the foreign currency exposures of the company's net investment in foreign
subsidiaries. The currency effects of these hedges are reflected in the
foreign currency translation adjustments within accumulated other
comprehensive income. Net interest
settlements are recognized in interest expense. At December 31, 2000, open
cross currency interest rate swap contracts totaled $445 million in
notional amounts, of which $203 million is to hedge net investments
denominated in Euro and $242 million in Japanese yen.
At December 31, 1999, 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 was required to pay the company variable interest payments
based on six-month LIBOR. The written option has been marked to market at
December 31, 1999. During 2000, the company closed out the written
interest rate option contract and recorded an immaterial net loss.
The company uses natural gas swap agreements for hedging purposes to
reduce the effects of changing raw material prices. Gains and losses on
the swap agreements were deferred until settlement and recorded as a
component of underlying inventory costs when settled. The notional value
of natural gas swap agreements totaled $3 million and $1 million at
December 31, 2000 and 1999, respectively. The company recorded an
after-tax gain of $1 million in 2000 and immaterial losses in 1999.
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.
Natural gas 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, 2000 and 1999 are as follows:
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Millions of dollars) Amount Value Amount Value
- --------------------------------------------------------------------------------
Asset (Liability)
Short-term debt $ (549) $ (549) $ (931) $ (933)
Long-term debt (3,225) (3,279) (3,122) (3,120)
Written interest rate options -- -- (5) (5)
Foreign currency options 7 10 4 13
Foreign exchange forward
and swap contracts 2 2 (1) (1)
Natural gas swap agreements -- 3 -- --
- --------------------------------------------------------------------------------
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No.133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes a new model for the accounting and reporting of
derivative and hedging transactions. The statement amends a number of
existing standards and, as amended by SFAS No. 138, will be effective for
fiscal years beginning after June 15, 2000. As required, the company
adopted this standard as of January 1, 2001.
Using market valuations for derivatives held as of December 31, 2000, as
of January 1, 2001, the company recorded a $6 million after-tax cumulative
income effect to accumulated other comprehensive income and a charge to
net income of $2 million, to recognize at fair value all derivative
instruments. With the adoption of SFAS No. 133, changes in the company's
derivative instrument portfolio or changes in the market values of this
portfolio could have a material effect on accumulated other comprehensive
income.
The company has concluded that the adoption of SFAS No. 133 will not
materially change management's risk policies and practices nor will
compliance with the standard materially impact the reported results of
operations.
Note 7: Income Taxes
Earnings before income taxes earned within or outside the United States
are shown below:
- --------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 1998
- --------------------------------------------------------------------------------
United States
Parent and subsidiaries $222 $144 $559
Affiliates 7 2 1
Foreign
Subsidiaries 340 313 120
Affiliates 12 5 1
==============================
Earnings before income taxes $581 $464 $681
- --------------------------------------------------------------------------------
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) 2000 1999 1998
- -------------------------------------------------------------------------------
Taxes on U.S. earnings
Federal
Current $ 95 $ 96 $ 142
Deferred (2) 4 40
===============================
93 100 182
===============================
State and other
Current 6 5 8
===============================
Total taxes on U.S. earnings 99 105 190
- -------------------------------------------------------------------------------
Taxes on foreign earnings
Current 141 133 68
Deferred (13) (23) (17)
===============================
Total taxes on foreign earnings 128 110 51
===============================
Total income taxes $ 227 $ 215 $ 241
- -------------------------------------------------------------------------------
Income taxes in 1998 includes a $6 million tax benefit resulting from an
extraordinary loss on early extinguishment of debt.
Cash payments of income taxes were $247 million, $202 million and $237
million in 2000, 1999 and 1998, respectively.
Deferred income taxes reflect temporary differences between the valuation
of assets and liabilities for financial and tax reporting. Details at
December 31, 2000 and 1999 were:
- --------------------------------------------------------------------------------
(Millions of dollars) 2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets related to:
Compensation and benefit programs $ 262 $ 282
Accruals for waste disposal site remediation 67 57
Inventories 21 23
All other 100 79
===================
Total deferred tax assets 450 441
===================
Deferred tax liabilities related to:
Intangible assets 854 844
Tax depreciation in excess of book depreciation 522 579
Pension 121 113
All other 89 49
===================
Total deferred tax liabilities 1,586 1,585
===================
Net deferred tax liability $1,136 $1,144
- --------------------------------------------------------------------------------
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) 2000 1999
- --------------------------------------------------------------------------------
Prepaid expenses and other assets $ 149 $ 81
Other assets, net 3 6
Accrued liabilities 1 --
Non-current deferred income taxes 1,287 1,231
======================
Net deferred tax liability $1,136 $1,144
- --------------------------------------------------------------------------------
The effective tax rate on pre-tax income differs from the U.S. statutory
tax rate due to the following:
- --------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
U.S. tax credits (2.2) (2.5) (1.4)
Charge for IPR&D .8 7.9 --
Amortization of non-deductible
goodwill 3.5 2.5 --
Asset write-downs and dispositions -- -- .5
Effect of non-taxable currency items 1.9 1.1 .1
Gain on sale of facilities and investments -- -- 1.5
State taxes, net of federal benefit .7 .7 .3
Taxes on foreign earnings and tax
adjustments of foreign subsidiaries (.8) 1.2 (.6)
Other, net .2 .4 (.1)
================================
Effective tax rate 39.1% 46.3% 35.3%
- --------------------------------------------------------------------------------
At December 31, 2000 and 1999, the company provided deferred income taxes
for the assumed repatriation of all unremitted foreign earnings. In years
prior to 1999, 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 applicable foreign income
taxes, were approximately $361 million and $416 million at December 31,
2000 and 1999, respectively.
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, Plastics Additives
and Surface Finishes businesses; Chemical Specialties, consisting of the
Agricultural Chemicals, Ion Exchange, Consumer and Industrial Specialties
and Performance Chemicals businesses; Electronic Materials, consisting of
Shipley Ronal and Microelectronics, which includes Rodel, an affiliate at
December 31, 1999 which became a fully consolidated subsidiary during 2000
(see Note 1); and Salt, a business acquired in conjunction with the Morton
acquisition. Corporate includes non-operating items such as interest
income and expense, corporate governance costs, corporate exploratory
research and, in 2000 and 1999 $13 million and $105 million of purchased
in process research and development and in 1998 a loss on early
extinguishment of debt.
(Millions of dollars)
- -----------------------------------------------------------------------------------------
Performance Chemical Electronic
2000 Polymers Specialties Materials Salt Corporate Consolidated
- -----------------------------------------------------------------------------------------
Sales to external
customers $3,401 $1,408 $1,195 $ 875 $ -- $ 6,879
Operating profit
after tax (1) 282 116 107 24 (175) 354
Share of affiliate
earnings 10 -- 9 -- -- 19
Depreciation 249 72 31 85 17 454
Segment assets 4,474 1,951 1,919 2,052 871 11,267
Capital additions 180 33 67 38 73 391
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Performance Chemical Electronic
1999 Polymers Specialties Materials Salt Corporate Consolidated
- -----------------------------------------------------------------------------------------
Sales to external
customers $2,939 $1,241 $ 755 $ 439 $ -- $ 5,374
Operating profit
after tax (2) 350 115 57 10 (283) 249
Share of affiliate
earnings 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
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Performance Chemical Electronic
1998 Polymers Specialties Materials Salt Corporate Consolidated
- -----------------------------------------------------------------------------------------
Sales to external
customers $2,254 $1,068 $ 398 $ -- $ -- $ 3,720
Operating profit
after tax (3) 372 94 45 -- (71) 440
Share of affiliate
earnings 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
- -----------------------------------------------------------------------------------------
(1) In 2000 non-recurring items totaling $27 million after-tax, or $.12 per
share, were incurred including a $13 million write-off of purchased IPR&D
and certain restructuring charges.
(2) 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 in-process
research and development, 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.
(3) 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.
The tables below present sales and long-lived asset information by
geographic area as of and for the periods ending December 31. Sales are
attributed to the United States and to all foreign countries combined
based on customer location and not on the geographic location from which
goods were shipped.
- --------------------------------------------------------------------------------
2000 (Millions of dollars) United States Foreign Consolidated
- --------------------------------------------------------------------------------
Sales to external customers $2,989 $3,890 $6,879
Long-lived assets 5,951 2,110 8,061
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1999 (Millions of dollars) United States Foreign Consolidated
- --------------------------------------------------------------------------------
Sales to external customers $2,494 $2,880 $5,374
Long-lived assets 5,138 3,122 8,260
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998 (Millions of dollars) United States Foreign Consolidated
- --------------------------------------------------------------------------------
Sales to external customers $1,754 $1,966 $3,720
Long-lived assets 936 1,206 2,142
- --------------------------------------------------------------------------------
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 and 2000 valuations. The following disclosures include amounts
for both the U.S. and significant foreign pension plans.
- -------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 1998
- -------------------------------------------------------------------------------
Components of net periodic
pension income
Service cost $ (58) $ (52) $ (39)
Interest cost (103) (83) (64)
Expected return on plan assets 191 148 108
Amortization of net gain existing at
adoption of SFAS No. 87 8 9 9
Other amortization, net 11 7 5
==============================
Net periodic pension income $ 49 $ 29 $ 19
- -------------------------------------------------------------------------------
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.
The early retirement and severance benefit programs resulted in a pre-tax
gain of $7 million, $1 million and $3 million in 2000, 1999 and 1998,
respectively, as settlement gains from retirees electing lump-sum
distributions exceeded the cost of the special termination benefits. Most
of the 2000 gains, shown here net of termination costs, were reported in
the Provision for Restructuring (see Note 4.). 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:
- -------------------------------------------------------------------------------
(Millions of dollars) 2000 1999
- -------------------------------------------------------------------------------
Change in pension obligation
Pension obligation at beginning of year $ 1,615 $ 999
Service cost, excluding expenses 51 45
Interest cost 103 83
Plan participants' contributions 1 1
Divestitures, curtailments and settlements (28) (11)
Special termination benefits 57 35
Actuarial gain (109) (25)
Acquisitions -- 660
Foreign currency exchange rate changes (5) (1)
Benefits paid (121) (171)
======================
Pension obligation at end of year $ 1,564 $ 1,615
- -------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 2,361 $ 1,462
Actual return on plan assets 10 279
Contributions 4 3
Transfer to fund retiree medical expenses (26) --
Trust expenses (4) (6)
Divestitures (29) (5)
Acquisitions -- 799
Foreign currency exchange rate changes (6) --
Benefits paid (121) (171)
======================
Fair value of plan assets at end of year $ 2,189 $ 2,361
- -------------------------------------------------------------------------------
Funded status $ 625 $ 746
Unrecognized actuarial gain (322) (434)
Unrecognized prior service cost 13 15
======================
Net amount recognized $ 316 $ 327
- -------------------------------------------------------------------------------
Amounts recognized in the statement of financial position consist of:
Prepaid pension cost $ 305 $ 317
Unrecognized transition asset 11 10
======================
Net amount recognized $ 316 $ 327
- -------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans
- --------------------------------------------------------------------------------
Weighted-average assumptions
as of December 31
Discount rate 7.5% 6.4% 6.8% 6.3%
Expected return on plan assets 8.9 7.9 8.6 7.8
Rate of compensation increase 4.0 4.5 4.0 4.2
- --------------------------------------------------------------------------------
The company transferred excess pension plan assets of $26 million in 2000
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 $15 million in
2000, $14 million in 1999 and $11 million in 1998. Pension benefit
payments for this plan were $7 million in 2000, $9 million in 1999 and $4
million in 1998.
The company has a nonqualified trust, referred to as a "rabbi" trust, to
fund benefit payments under this 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, 2000 and 1999 totaled $64 million and $68 million,
respectively.
The status of this plan at year end was as follows:
---------------------------------------------------------
(Millions of dollars) 2000 1999
---------------------------------------------------------
Change in pension obligation
Pension obligation at beginning of year $ 124 $ 91
Service cost 2 2
Interest cost 9 7
Special termination benefits costs -- (3)
Actuarial loss 7 5
Acquisitions -- 33
Benefits paid (10) (11)
===============
Pension obligation at end of year $ 132 $ 124
---------------------------------------------------------
Pension benefit obligations for this plan were determined from actuarial
valuations using an assumed discount rate of 7.5% and 6.75% at December
31, 2000 and 1999, respectively, and an assumed long-term rate of
compensation increase of 5% and 4% in 2000 and 1999, respectively.
In 1997, the company instituted a non-qualified savings plan for eligible
employees in the United States. The purpose of the plan is to provide
additional retirement savings benefits beyond the otherwise determined
savings benefits provided by the Rohm and Haas Company Employee Stock
Ownership and Savings Plan (the "Savings Plan"). Each participant's
contributions will be notionally invested in the same investment funds as
the participant has elected for investment in his or her Savings Plan
account. For most participants, the company will contribute a notional
amount equal to 60% of the first 6% of the amount contributed by the
participant. The company's matching contributions will be allocated to
deferred stock units. At the time of distribution, each deferred stock
unit will be distributed as one share of Rohm and Haas company common
stock. Contributions to this plan were $2 million and $5 million in 2000
and 1999, respectively.
Note 10: Employee Benefits
---------------------------------------------------------
(Millions of dollars) 2000 1999
---------------------------------------------------------
Postretirement health care and
life insurance benefits $447 $465
Postemployment benefits 28 29
Unfunded supplemental pension plan
(see Note 9) 84 80
Unfunded foreign pension liabilities 24 27
Other 36 9
============
Total $619 $610
---------------------------------------------------------
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) 2000 1999
-----------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 429 $ 269
Service cost 7 7
Interest cost 27 23
Divestitures, curtailments and settlements (6) --
Amendments (1) 1
Special termination benefits 1 1
Actuarial (gain) loss (25) 7
Restructuring charge -- 3
Acquisitions -- 148
Benefits paid (38) (30)
===============
Benefit obligation at end of year $ 394 $ 429
Unrecognized prior service cost 8 9
Unrecognized actuarial loss 66 45
===============
Total accrued postretirement benefit obligation $ 468 $ 483
-----------------------------------------------------------------
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) 2000 1999 1998
-----------------------------------------------------------
Components of net periodic
postretirement cost
Service cost $ 7 $ 7 $ 5
Interest cost 27 23 17
Net amortization (3) (3) (4)
=====================
Net periodic postretirement cost $ 31 $ 27 $ 18
-----------------------------------------------------------
The calculation of the accumulated postretirement benefit obligation
assumes 5% annual rates of increase in the health care cost trend rate for
2000 and 1999. 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) 2000 1999 2000 1999
------------------------------------------------------------------
Effect on total of service and
interest cost components $ 1 $ 1 $ (1) $ (1)
Effect on postretirement
benefit obligation 12 16 (13) (17)
------------------------------------------------------------------
The weighted average discount rate used to estimate the accumulated
postretirement benefit obligation was 7.5% at December 31, 2000 and 6.75%
at December 31, 1999.
Note 11: Accounts Receivable, Net
------------------------------------------------------------
(Millions of dollars) 2000 1999
------------------------------------------------------------
Customers $1,359 $1,285
Unconsolidated subsidiaries and affiliates 38 28
Employees 10 7
Other 115 87
===============
1,522 1,407
Less: allowance for losses 43 37
===============
Total $1,479 $1,370
------------------------------------------------------------
Note 12: Inventories
---------------------------------------------------
(Millions of dollars) 2000 1999
---------------------------------------------------
Finished products and work in process $771 $707
Raw materials 155 154
Supplies 41 38
===========
Total $967 $899
---------------------------------------------------
Inventories amounting to $600 million and $483 million were valued using
the LIFO method at December 31, 2000 and 1999, respectively. The excess of
current cost over the stated amount for inventories valued under the LIFO
method approximated $58 million and $86 million at December 31, 2000 and
1999, respectively. Liquidation of prior years' LIFO inventory layers in
2000, 1999 and 1998 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. Such charges related to 2000 acquisitions were not
material.
Note 13: Prepaid Expenses and Other Assets
-----------------------------------
(Millions of dollars) 2000 1999
-----------------------------------
Prepaid expenses $ 83 $ 57
Deferred tax benefits 149 81
Other current assets 11 33
===========
Total $243 $171
-----------------------------------
Note 14: Land, Buildings and Equipment, Net
------------------------------------------------
(Millions of dollars) 2000 1999
------------------------------------------------
Land $ 140 $ 200
Buildings and improvements 1,420 1,357
Machinery and equipment 4,703 4,354
Capitalized interest 255 240
Construction 226 198
===============
6,744 6,349
Less: accumulated depreciation 3,405 2,853
===============
Total $3,339 $3,496
------------------------------------------------
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
$854 million and $999 million at December 31, 2000 and 1999, respectively.
Assets depreciated by the straight-line method totaled $5,524 million and
$4,952 million at December 31, 2000 and 1999, respectively.
In 2000, 1999 and 1998 respectively, interest costs of $14 million, $12
million and $9 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 2000, 1999 and 1998.
Note 15: Goodwill and Other Intangible Assets, Net
-----------------------------------------------------------------
(Millions of dollars) Life (years) 2000 1999
-----------------------------------------------------------------
Goodwill 40 $2,343 $2,129
Customer lists 40 1,152 1,163
Tradename 40 649 739
Developed technology 13 to 18 451 381
Workforce 11 to 16.5 148 150
Patents, license agreements
and other 127 65
===================
4,870 4,627
Less: accumulated amortization 274 145
===================
Total $4,596 $4,482
-----------------------------------------------------------------
Amortization expense for goodwill and other intangibles was $159 million,
$83 million and $5 million for 2000, 1999 and 1998, respectively. All
intangibles are amortized on a straight-line basis.
Note 16: Other Assets
------------------------------------------------
(Millions of dollars) 2000 1999
------------------------------------------------
Prepaid pension cost (see Note 9) $305 $317
Rabbi trust assets (see Note 9) 64 68
Assets held for disposal -- 54
Deferred tax benefits (see Note 7) 3 6
Other noncurrent assets 53 54
===========
Total $425 $499
------------------------------------------------
Note 17: Notes Payable
-----------------------------------------------
(Millions of dollars) 2000 1999
-----------------------------------------------
Short-term borrowings $545 $827
Current portion of long-term debt 4 104
===========
Total $549 $931
-----------------------------------------------
Short-term borrowings include commercial paper and bank debt owed by
foreign subsidiaries. The weighted-average interest rate of short-term
borrowings was 6.2% and 6.3% at December 31, 2000 and 1999, respectively.
At December 31, 2000, the company has revolving credit agreements totaling
$1.25 billion, of which $750 million expire in 2001 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
paper outstanding, $350 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, 2000 and 1999, $137 million and $222 million,
respectively, was outstanding under these agreements.
Note 18: Long-Term Debt
----------------------------------------------------------------
(Millions of dollars) 2000 1999
----------------------------------------------------------------
7.85% debentures due 2029 $ 1,000 $1,000
6.95% notes due 2004 500 500
7.40% notes due 2009 500 500
6.0% notes due 2007 (denominated in Euros) 376 --
Long term commercial paper borrowings 350 500
9.25% debentures due 2020 170 244
9.80% notes due 2020 132 135
6.63% obligation due through 2012
(callable 2000 at 104.4%) 45 46
9.50% notes due 2021 (callable 2002 at 104.8%) 38 38
1.55% note due 2003 (denominated in yen) 33 40
Other 81 119
===============
Total $3,225 $3,122
----------------------------------------------------------------
On March 7, 2000, the company issued 400 million Euros (or $376 million)
of 6.0% notes due 2007 with interest payable annually on March 9,
beginning March 9, 2001.
In 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 transactions. 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.
The various loan agreements contain certain restrictions with respect to
tangible net worth and maintenance of working capital. There are no
restrictions on the payment of dividends.
In 2000, the company retired $74 million of 9.25% debentures and $22
million of 9.375% debentures in 1999, respectively.
Total cash used for the payment of interest expense, net of amounts
capitalized, was $239 million, $72 million and $36 million in 2000, 1999
and 1998, respectively.
Long-term debt maturing in the next five years is:
--------------------------------------------
(Millions of dollars)
--------------------------------------------
2001 $ 4 2004 $518
2002 19 2005 11
2003 45
--------------------------------------------
Note 19: Accrued Liabilities
----------------------------------------------------------------
(Millions of dollars) 2000 1999
----------------------------------------------------------------
Salaries and wages $173 $203
Interest 106 105
Reserve for restructuring (see Note 4) 33 73
Taxes, other than income taxes 60 81
Accrued acquisition costs 12 31
Employee benefits 50 44
Reserve for environmental remediation
(see Note 24) 40 39
Sale incentive programs and other selling accruals 94 68
Insurance and legal 37 56
Other 141 152
===========
Total $746 $852
----------------------------------------------------------------
Note 20: Other Liabilities
--------------------------------------------------------------
(Millions of dollars) 2000 1999
--------------------------------------------------------------
Reserves for environmental remediation (Note 24) $145 $162
Deferred revenue on supply contracts 42 49
Other 79 78
===========
Total $266 $289
--------------------------------------------------------------
Note 21: Stockholders' Equity
Dividends paid on ESOP shares, used as a source of funds for meeting the
ESOP financing obligation, were $13.2 million in 2000 and $12.9 million in
1999. 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,
2000 and 1999 were 12.3 million and 12.9 million, respectively.
The company recorded compensation expense of $6 million in 2000, 1999 and
1998 for ESOP shares allocated to plan members. The company expects to
record annual compensation expense at approximately this level over the
next 20 years as the remaining $119 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.
The company repurchased an insignificant number of shares in 2000 and
1999. During 1998 the company repurchased 17.5 million shares of its
common stock at a total cost of $567 million. Most of the shares obtained
in 1998 were through an accelerated stock repurchase program with a third
party. Under the terms of this purchase, the final cost to the company of
$440 million 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 million cumulative convertible
preferred stock under the terms of the issue.
The reconciliation from basic to diluted earnings per share is as follows:
---------------------------------------------------------------------
(In millions, except Earnings Shares Per-Share
per share amounts) (Numerator) (Denominator) Amount
---------------------------------------------------------------------
2000
Net earnings available to
common shareholders $ 354 219,535 $ 1.61
Dilutive effect of options -- 996
Diluted earnings per share $ 354 220,531 $ 1.61
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
Shareholders' Rights Plan:
In 2000 the company adopted a shareholders' rights plan underwhich the
Board of Directors declared a dividend of one preferred stock purchase
right ("right") for each outstanding share of the company's common stock
held of record as of the close of business on November 3, 2000. The rights
initially are deemed to be attached to the common shares and detach and
become exercisable only if (with certain exceptions and limitations) a
person or group has obtained or attempts to obtain beneficial ownership of
15% or more of outstanding shares of the company's common stock or is
otherwise determined to be an "acquiring person" by the Board of
Directors. Each right, if and when it becomes exercisable, initially will
entitle holders of the rights to purchase one one-thousandth (subject to
adjustment) of a share of Series A Junior Participating Preferred Stock
for $150 per one one-thousandth of a Preferred Share, subject to
adjustment. Each holder of a right (other than the acquiring person) is
entitled to receive a number of share of the company's common stock with a
market value equal to two times the exercise price, or $300.00. The rights
expire, unless earlier exercised or redeemed, on December 31, 2010.
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 $2 million, $1 million and
$3 million in 2000, 1999 and 1998, 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
$345 million in 2000, $146 million in 1999, and $437 million in 1998.
Basic earnings per common share would have been reduced to $1.57, $.75,
and $2.45 in 2000, 1999 and 1998, respectively. Diluted earnings per
common share would have been reduced to $1.57, $.75, and $2.43 in 2000,
1999 and 1998, 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 2000 and 1999 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. Shares of restricted stock issued in
2000 totaled 219,134 at a weighted average grant-date fair value of $30.29
per share. The Board of Directors, subject to shareholder
approval in May 2001, have amended this plan to increase by 11 million the
number of shares which may be granted and has allowed for the issuance of
shares to Directors. No more than 50% of shares in this plan can be issued
as restricted stock.
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. In
1999 and 1998, 73,105 and 74,106 shares of restricted stock were granted
at weighted-average grant-date fair values of $31 and $34 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. No further grants can be made under either plan.
The status of the company's stock options as of December 31 is presented
below:
----------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000s) Price (000s) Price (000s) Price
----------------------------------------------------------------------------------
Outstanding
at beginning
of year 5,419 $ 25.26 2,417 $ 23.58 2,394 $ 20.63
Granted 1,061 40.64 6,545 22.26 471 31.51
Canceled (51) 34.65 (709) 18.26 (10) 31.49
Exercised (733) 20.39 (2,834) 18.65 (438) 15.80
==== ===== ====== ====
Outstanding
at end of year 5,696 28.56 5,419 25.26 2,417 23.58
===== ===== =====
Options
exercisable
at year end 4,655 25.86 4,993 25.14 1,956 21.71
Weighted-average
fair value of
options granted
during the year $12.62 $24.38 $8.40
----------------------------------------------------------------------------------
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:
--------------------------------------------
2000 1999
--------------------------------------------
Dividend yield 1.89% 2.29%
Volatility 28.85 31.46
Risk-free interest rate 6.59 4.99
Time to exercise 6 years 6 years
--------------------------------------------
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:
- --------------------------------------------------------------------------------
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 $16 245 8.1 years $13.77 245 $13.77
18 to 25 1,870 6.9 21.61 1,870 21.61
27 to 45 3,581 8.1 33.19 2,540 30.15
===== =====
5,696 4,655
===== =====
- --------------------------------------------------------------------------------
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 $80 million in 2000, $79 million in 1999 and
$57 million in 1998.
Total future minimum lease payments under the terms of non-cancellable
operating leases are as follows:
------------------------------------------
(Millions of dollars)
------------------------------------------
2001 $52 2005 $ 22
2002 43 Thereafter 236
2003 31
2004 26
------------------------------------------
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. As of early 2001, these efforts have largely been
completed.
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 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
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, New Jersey, Morton 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 mercury processing plant on the site prior to its
acquisition by Morton. At the date of acquisition Morton had disclosed and
accrued for certain ongoing studies, which are now expected to be
completed during 2002, with regulatory decisions expected in by the end of
2002. In its allocation of the purchase price of Morton, the company
accrued for additional study costs at December 31, 1999 and additional
remediation costs in 2000 based on the progress of the technical studies.
A separate study of the contamination in Berry's Creek, which runs near
the plant site, and of the surrounding wetlands area is expected, but on a
timetable yet to be determined. Therefore, the estimated costs of
remediation that may result from this separate study have not been
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
these responsible parties is pending in federal court. Settlements have
been reached with some defendants for claims considered de minimis
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 investigated and identified other environmental issues
at the plant. Though at the date of acquisition Morton had accrued for
some remediation and legal costs, the company revised these accruals as
part of the allocation of the purchase price of Morton based on its
discussions with the authorities and on the information available 58as of
June 30, 2000. In 2000, the company reached agreement with the EPA, the
Department of Justice and the State of Mississippi, resolving these
historical environmental issues. The agreement received court approval in
early 2001. The final settlement includes payment of $20 million in civil
penalties, which were paid in the first quarter of 2001, $2 million in
criminal penalties, which were paid in the fourth quarter of 2000 and $16
million in various Supplemental Environmental Projects. The accruals
established for this matter were sufficient to cover these and other
related costs of the settlement.
The amount charged to earnings before tax for environmental remediation
were not material in 2000, $4 million in 1999 and $10 million in 1998. The
reserves for remediation were $185 million and $201 million at December
31, 2000 and 1999, respectively, and are recorded as "other liabilities"
(current and long-term). These reserves include amounts resulting from the
allocation of the purchase price of Morton. 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 processes. 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. Settlements occurring in 2000
were immaterial. There were no insurance recoveries receivable at December
31, 2000 and 1999.
In addition to accrued environmental liabilities, the company had
reasonably possible loss contingencies related to environmental matters of
approximately $73 million and $110 million at December 31, 2000 and 1999,
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 cannot
reasonably be estimated 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 period.
Capital spending for new environmental protection equipment was $27
million in 2000, versus $30 million in 1999. Spending for 2001 and 2002 is
expected to be approximately $34 million and $23 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 $33 million in
2000, $27 million in 1999 and $26 million in 1998. The expenditures for
remediation are charged against accrued remediation reserves. The cost of
operating and maintaining environmental facilities was $114 million, $107
million and $94 million in 2000, 1999 and 1998, respectively, and was
charged against current-year earnings.
There are pending lawsuits filed against Morton related to employee
exposure to asbestos at a manufacturing 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 the company may be liable for cases involving
asbestos-caused malignancies as these cases may not be barred under
Louisiana law. Subsequent to the acquisition, the company commissioned
medical studies to estimate possible future claims. Accruals were recorded
at June 30, 2000, as part of the purchase price of Morton based on the
results of these studies.
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. The company paid a settlement of $3 million
in 1999. This non-tax deductible 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. Accruals for a
number of such cases associated with Morton were recorded at June 30,
2000, as part of the purchase price of Morton.
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, 2000, construction commitments totaled approximately $139
million.
Note 25: Quarterly Results of Operations (Unaudited)
- -------------------------------------------------------------------------------------------------------
2000 Quarterly Results
- -------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 2000
- -------------------------------------------------------------------------------------------------------
Net sales $ 1,765 $ 1,771 $ 1,693 $ 1,650 $ 6,879
Gross profit 603 573 558 512 2,246
Net earnings 123 77 84 70 354
- ------------------------------------------------------------------------------------------------------
Net earnings per common
share, in dollars
--Basic $ .56 $ .35 $ .38 $ .32 $ 1.61
--Diluted .56 .35 .38 .32 1.61
Cash dividends per common share,
in dollars $ .19 $ .19 $ .20 $ .20 $ .78
- ------------------------------------------------------------------------------------------------------
1999 Quarterly Results
- ------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th Year
(Millions of dollars) Quarter Quarter Quarter Quarter 1999
- ------------------------------------------------------------------------------------------------------
Net sales $ 940 $ 1,144 $ 1,591 $ 1,699 $ 5,374
Gross profit 382 449 550 584 1,965
Net earnings (loss) 110 (9) 58 90 249
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
- ------------------------------------------------------------------------------------------------------
Reconciliation of Earnings as Reported to Earnings Excluding
Non-recurring Items, Net of Tax
- ------------------------------------------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year
- ------------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars) 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings as reported $ 123 $ 110 $ 77 $ (9) $ 84 $ 58 $ 70 $ 90 $ 354 $ 249
IPR&D and other acquisition
-related charges -- -- 14 105 -- 7 -- 3 14 115
Joint venture dispositions -- -- -- 14 -- -- -- -- -- 14
Remediation-related
insurance settlements -- (13) -- -- -- -- -- (4) -- (17)
Provision for restructuring 8 -- -- -- -- 19 -- 4 8 23
Asset write-downs, integration
and other costs 3 7 2 6 -- 5 -- 8 5 26
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings, excluding
non-recurring items $ 134 $ 104 $ 93 $ 116 $ 84 $ 89 $ 70 $ 101 $ 381 $ 410
- ------------------------------------------------------------------------------------------------------------------------------------
1
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 accountants, 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 accountants, approves their fees and
considers the scope of their audits, audit results, the adequacy of the
company's internal accounting control systems and compliance with the
company's code of business conduct.
/s/ Raj L. Gupta
Raj L. Gupta
Chairman of the Board and Chief Executive Officer
/s/ Bradley J. Bell
Bradley J. Bell
Senior Vice President and Chief Financial Officer
Report of Independent Accountants
PricewaterhouseCoopers LLP
Two Commerce Square
2001 Market Street
Suite 1700
Philadelphia, PA 19103
Telephone (267) 330-3000
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 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
March 8, 2001
Rohm and Haas Company and Subsidiaries
Eleven-Year Summary of Selected Financial Data (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars, except per-share amounts) 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 6,879 $ 5,374 $ 3,720 $ 3,999
Gross profit 2,246 1,965 1,464 1,455
Earnings before interest and taxes 822 623 734 650
Earnings before income taxes 581 464 700 611
Earnings before extraordinary items and cumulative
effect of accounting changes $ 354 $ 249 $ 453 $ 410
Net earnings (loss) $ 354 $ 249 $ 440 $ 410
EBITDA(1) $ 1,471 $ 1,179 $ 1,015
As a percent of sales
Gross profit 32.7% 36.6% 39.4% 36.4%
Selling and administrative expense 15.2 16.5 17.1 16.0
Research and development expense 3.8 4.2 5.6 5.0
Earnings before extraordinary items and cumulative effects 5.2 4.6 12.2 10.3
Return on capital employed(2) 9.2% 11.4% 20.8% 18.4%
Return on common stockholders' equity(3) 10.0% 13.4% 25.3% 22.7%
Ten-year compound growth rate
Sales 9.3% 7.2% 3.9% 6.1%
Basic earnings per common share before extraordinary items
and cumulative effect of accounting changes 4.5 3.8 8.3 8.6
Cash dividends per common share 6.5 6.7 7.5 8.2
Wages and salaries $ 1,196 $ 919 $ 643 $ 630
Cash Flow Data
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities $ 771 $ 816 $ 682 $ 791
Additions to fixed assets 391 323 229 254
Depreciation 454 368 276 279
Cash dividends 167 141 125 121
Free cash flow(4) 213 352 328 416
Share repurchases 1 65 567 216
Investments in joint ventures, affiliates and subsidiaries 390 3,394 21 80
Per Common Share Data and Other Share Information(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary items and cumulative effect of accounting
changes:
Basic $ 1.61 $ 1.28 $ 2.55 $ 2.17
Diluted 1.61 1.27 2.52 2.13
Cash dividends per common share $ .78 $ .74 $ .70 $ .63
Common stock price
High $49.4375 49.2500 $38.8750 $33.7500
Low 24.3750 28.1250 26.0000 23.5625
Year-end close 36.3125 40.6875 30.1250 31.9375
Number of shares repurchased, in thousands -- 70 17,459 7,653
Average number of shares outstanding - basic, in thousands 219,535 192,586 175,591 185,808
At Year End
- -----------------------------------------------------------------------------------------------------------------------------------
Gross fixed assets 6,744 6,349 4,471 4,492
Total assets 11,267 11,256 3,648 3,900
Total debt 3,774 4,053 581 606
Stockholders' equity 3,653 3,475 1,561 1,797
Debt ratio(6) 49% 52% 25% 22%
Number of registered common stockholders 9,226 9,462 4,451 4,352
Number of employees 18,474 21,512 11,265 11,592
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars, except per-share amounts) 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 3,982 $ 3,884 $ 3,534 $ 3,269
Gross profit 1,395 1,333 1,267 1,095
Earnings before interest and taxes 569 480 453 235
Earnings before income taxes 530 441 407 194
Earnings before extraordinary items and cumulative
effect of accounting changes $ 363 $ 292 $ 264 $ 126
Net earnings (loss) $ 363 $ 292 $ 264 $ 107
EBITDA(1)
As a percent of sales
Gross profit 35.0% 34.3% 35.9% 33.5%
Selling and administrative expense 15.8 15.9 16.7 18.0
Research and development expense 4.7 5.0 5.7 6.3
Earnings before extraordinary items and cumulative effects 9.1 7.5 7.5 3.9
Return on capital employed(2) 16.3% 13.8% 13.5% 7.4%
Return on common stockholders' equity(3) 20.1% 16.6% 16.5% 8.1%
Ten-year compound growth rate
Sales 6.8% 6.6% 5.6% 5.7%
Basic earnings per common share before extraordinary items
and cumulative effect of accounting changes 10.5 7.7 5.4 (0.9)
Cash dividends per common share 8.2 8.3 9.1 10.5
Wages and salaries $ 627 $ 625 $ 632 $ 616
Cash Flow Data
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities $ 706 $ 513 $ 524 $ 358
Additions to fixed assets 334 417 339 382
Depreciation 262 242 231 226
Cash dividends 116 109 102 97
Free cash flow(4) 256 (13) 83 (121)
Share repurchases 302 29 7 --
Investments in joint ventures, affiliates and subsidiaries 7 -- -- --
Per Common Share Data and Other Share Information(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary items and cumulative effect of accounting
changes:
Basic $ 1.82 $ 1.41 $ 1.26 $ .58
Diluted 1.79 1.40 1.26 .58
Cash dividends per common share $ .57 $ .52 $ .48 $ .45
Common stock price
High $27.5000 $ 21.6250 $22.8125 $ 20.6875
Low 18.3125 16.5000 17.7500 15.7500
Year-end close 27.1875 21.4375 19.0625 19.8125
Number of shares repurchased, in thousands 13,293 1,545 369 21
Average number of shares outstanding - basic, in thousands 196,122 202,566 203,121 202,857
At Year End
- ------------------------------------------------------------------------------------------------------------------------------------
Gross fixed assets 4,327 4,158 3,969 3,696
Total assets 3,933 3,916 3,861 3,524
Total debt 707 696 786 773
Stockholders' equity 1,728 1,781 1,620 1,441
Debt ratio(6) 26% 25% 26% 31%
Number of registered common stockholders 4,492 4,721 4,907 5,120
Number of employees 11,633 11,670 12,211 12,985
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(Millions of dollars, except per-share amounts) 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 3,063 $ 2,763 $ 2,824
Gross profit 1,049 902 930
Earnings before interest and taxes 314 288 350
Earnings before income taxes 261 240 313
Earnings before extraordinary items and cumulative
effect of accounting changes $ 174 $ 163 $ 207
Net earnings (loss) $ (5) $ 163 $ 207
EBITDA(1)
As a percent of sales
Gross profit 34.2% 32.6% 32.9%
Selling and administrative expense 17.9 17.0 16.1
Research and development expense 6.5 6.6 6.3
Earnings before extraordinary items and cumulative effects 5.7 5.9 7.3
Return on capital employed(2) 10.9% 10.7% 13.0%
Return on common stockholders' equity(3) 11.4% 11.2% 15.2%
Ten-year compound growth rate
Sales 5.3% 3.9% 5.1%
Basic earnings per common share before extraordinary items
and cumulative effect of accounting changes 8.6 7.4 9.9
Cash dividends per common share 10.5 11.2 13.0
Wages and salaries $ 589 $ 540 $ 520
Cash Flow Data
- -------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities $ 401 $ 357 $ 336
Additions to fixed assets 283 265 412
Depreciation 203 183 159
Cash dividends 88 80 79
Free cash flow(4) 30 12 (155)
Share repurchases 1 1 213
Investments in joint ventures, affiliates and subsidiaries 172 41 12
Per Common Share Data and Other Share Information(5)
- -------------------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary items and cumulative effect of accounting
changes:
Basic $ .84 $ .82 $ 1.03
Diluted .84 .82 1.03
Cash dividends per common share $ .43 $ .41 $ .41
Common stock price
High $ 19.8750 $16.1875 $ 12.3125
Low 14.2500 10.9375 8.0625
Year-end close 17.8125 14.5000 11.6250
Number of shares repurchased, in thousands 54 48 19,428
Average number of shares outstanding - basic, in thousands 199,188 192,309 198,654
At Year End
- -------------------------------------------------------------------------------------------------------------------------
Gross fixed assets 3,470 3,015 2,770
Total assets 3,517 2,897 2,702
Total debt 800 753 679
Stockholders' equity 1,428 1,235 1,137
Debt ratio(6) 30% 28% 32%
Number of registered common stockholders 5,653 5,796 6,088
Number of employees 13,619 12,872 12,920
- -------------------------------------------------------------------------------------------------------------------------
(1) Earnings before interest, taxes, depreciation and amortization. EBITDA
excludes non-recurring items and is presented to assist security analysts
and others in evaluating the company's performance and its ability to
generate cash. EBITDA should not be considered an alternative to cash flow
from operating activities as a measure of liquidity or as an alternative
to net income as an indicator of the company's operating performance in
accordance with generally accepted accounting principles. The company's
definition of EBITDA may not be consistent with that used by other
companies. The company did not calculate this measure prior to 1998.
(2) Net earnings plus after-tax amortization and interest expense divided by
average total assets less average non-interest bearing liabilities. 2000
and 1999 exclude the IPR&D charges.
(3) Excluding ESOP adjustment and cumulative effect of accounting changes.
2000 and 1999 exclude the IPR&D charges.
(4) Cash provided by operating activities less capital asset spending and
dividends.
(5) 1990 to 1997 earnings per share and share information have 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 2000, 1999 and 1998 results in Management Discussion and Analysis on pages
27 to 39.
Notes to 11-Year Summary
A. Included in 2000 results are non-recurring items of $27 million, or
$.12 after-tax, including $14 million for IPR&D and other one-time charges
related to the Rodel acquisition and $13 million of restructuring and
integration costs.
B. 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.
C. Included in 1998 results is 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.
D. 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.
E. The 1996 earnings included a net gain of $.02 per common share from
non-recurring items. This is the net effect of a $.05 per common share
gain related to retroactive tax credits on sales outside of the United
States and a charge of $.03 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.
F. Results in 1995 were reduced by a charge of $.08 per common share for
additional potential liability related to the cleanup of the Whitmoyer
waste site in Myerstown, Pennsylvania.
G. Earnings in 1993 included charges of $.16 per common share for
remediation of property near the Lipari landfill, $.08 per common share
for canceling construction of a plastics manufacturing facility in England
and $.09 per common share for the writedown of the imidized plastics
production line in Kentucky. Results also included a gain of $.05 per
common share for the sale of Supelco, Inc.
H. 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 $.09 per common share. The impact
on 1993 earnings was not material.
I. Results in 1992 included a $.19 per common share charge for the
estimated costs of downsizing a manufacturing site in Philadelphia.
J. 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 $.04
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
Annual Meeting of Shareholders
Rohm and Haas Company's Annual Meeting of Shareholders will be held on May
7, 2001 at the Loews Philadelphia Hotel, 1200 Market Street, Philadelphia,
PA USA 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 26, 2001.
Independent Accountants
PricewaterhouseCoopers LLP
Two Commerce Square
2001 Market Street
Suite 1700
Philadelphia, PA USA 19103
(267) 330-3000
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 USA 19106-239964
Manufacturing Locations
Argentina: Zarate
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; Shanghai; Songjiang
Colombia: Barranquilla
France: Chauny; Lauterbourg; Semoy; Villers-Saint-Paul
Germany: Bremen; Strullendorf
Indonesia: Cilegon
Italy: Garlasco; Mozzanica; Mozzate; Parona; Robecchetto; Romano d'Ezzelino
Japan: Nagoya; Nara; Osaka; Sasagami; Soma; Tokyo
Mexico: Azipaco; Toluca
Netherlands: Amersfoort; Delfzijl
New Zealand: Auckland
Philippines: Las Pinas
Singapore: Singapore
South Africa: New Germany
Spain: Tudela
Sweden: Landskrona
Switzerland: Buchs; Lucerne
Taiwan: Chiayi Hsien; Ta Yuan; Taoyuan Hsien
Thailand: Maptaphut
United Kingdom: Coventry, Dewsbury; Grangemouth; Jarrow; Warrington
United States:
Arizona: Glendale, Phoenix
California: Hayward, La Mirada, Long Beach, Newark, Tustin, Sunnyvale
Delaware: Newark
Florida: Cape Canaveral
Illinois: Chicago, Chicago Heights, Elk Grove, Kankakee, Lansing, Ringwood
Indiana: Warsaw
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, Grand River, Rittman, West Alexandria
Pennsylvania: Bristol/Croydon, Philadelphia, Reading
South Carolina: Greenville, Spartanburg
Tennessee: Knoxville
Texas: Bayport, Deer Park, Grand Saline, Houston
Utah: Grantsville
Virginia: Wytheville
Research and Technical Facilities
Australia: Geelong
Brazil: Campinas
China: Shanghai
France: Chauny; Lauterbourg; Semoy; Valbonne
Germany: Bremen; Strullendorf
Italy: Mozzate; Parona; Robecchetto; Romano d'Ezzelino
Japan: Nara; Sasagami; Washinomiya
Netherlands: Amersfoort
Singapore: Singapore
Switzerland: Buchs; Lucerne
United Kingdom: Coventry, Dewsbury
United States:
Arizona: Phoenix
Delaware: Newark
California: Sunnyvale, Tustin
Illinois: Lansing, Woodstock
Louisiana: Weeks Island
Massachusetts: Marlborough, North Andover, Woburn
Michigan: Rochester Hills
North Carolina: Charlotte
Ohio: Cincinnati, West Alexandria
Pennsylvania: Bristol, Reading, Spring House, Newtown
South Carolina: Greenville
Texas: Houston, Waller