ROHM AND HAAS COMPANY
THIRD QUARTER '95
ID: COVER GRAPHIC
FINANCIAL HIGHLIGHTS (Millions of dollars, except earnings per share)
- --------------------------------------------------------------------------
Third Quarter Nine Months
------------------------ -----------------------
Percent Percent
1995 1994 Change 1995 1994 Change
------------------------ -----------------------
Net sales $ 942 $ 874 8 $2,969 $2,674 11
Net earnings 59 55 7 225 217 4
Net earnings per
common share $ .85 $ .78 9 $ 3.24 $ 3.12 4
- --------------------------------------------------------------------------
SALES BY BUSINESS GROUP
Millions of dollars
- -----------------------
Polymers, Resins and Monomers $460
Agricultural Chemicals $93
Performance Chemicals $223
Plastics $166
ID: GRAPHIC (PIE CHART)
SALES BY CUSTOMER LOCATION
Millions of dollars
- --------------------------
North America $531
Latin America $58
Europe $216
Pacific $137
ID: GRAPHIC (PIE CHART)
CHAIRMAN'S LETTER
The economic slowdown we saw in North America earlier in the year spread
to other parts of the world during the third quarter. Slower economies
translated into lower demand for our products. Unit volume was down 4
percent, 1 percent after adjustments were made for businesses we sold
earlier in 1995.
Sales were up for the quarter, reflecting a higher-priced product mix
and the beneficial effects of stronger currencies in Europe and Japan.
However, overall selling price increases of 4 percent were not enough to
compensate for raw material costs that were 24 percent higher than they
were during the third quarter of 1994. In contrast, internal cost
control efforts have been quite successful and enabled us to report a 9
percent increase in earnings for the quarter.
I continue to expect that Rohm and Haas's full-year 1995 earnings will
exceed those of last year. The extent of the improvement will depend
largely on the direction of worldwide economies and the degree of relief
we get through declining raw material costs.
(J. LAWRENCE WILSON)
J. Lawrence Wilson,
Chairman November 7, 1995
MANAGEMENT DISCUSSION AND ANALYSIS
THIRD QUARTER 1995 VERSUS
THIRD QUARTER 1994
Third quarter 1995 earnings were $59 million and earnings per common
share were $.85, up 7% and 9%, respectively, from last year's earnings
of $55 million and $.78 per common share. Net sales of $942 million
were up 8% from last year's results. Volume decreased 1%, excluding the
effect of the sale of the styrene butadiene latex business, due to
slowing economies around the world. Sales increased as a result of 4%
higher selling prices, a higher-priced product mix, 7% stronger European
currencies and a 10% stronger Japanese yen. Raw material prices were
24% higher than the prior-year period.
Polymers, Resins and Monomers earnings were $37 million, down 14% from
the prior-year period. Excluding the effect of the sale of the styrene
butadiene latex business, volume increased 1% and sales were up 8%. The
weakness in volume growth was due to slower economies in the U.S.,
Europe and Latin America. A higher-priced product mix, higher selling
prices and stronger currencies in Europe and Japan led to increased
sales. Earnings were lower than last year because of higher raw
material prices and production variances resulting from reduced
manufacturing levels.
Performance Chemicals recorded earnings of $16 million, up from $3
million in 1994. Excluding the sale of Plaskon, sales increased 11% due
to 4% higher volume, a higher-priced product mix and stronger currencies
in Europe and Japan. Shipley, the company's electronic chemicals
business, reported double-digit volume gains worldwide due to growth in
the semiconductor market. Ion Exchange Resins had volume gains in all
regions which resulted in reduced losses compared to last year's
quarter.
Plastics earnings of $12 million were 20% lower than the prior-year
quarter. Sales were flat on 15% lower volume, reflecting higher selling
prices and stronger European currencies. Higher raw material prices
hurt earnings. Demand for Plastics Additives products weakened in all
regions as a result of the economic slowdown, especially in the
construction markets. AtoHaas North America reported reduced shipments
in North America and Latin America. AtoHaas Europe had breakeven
results compared to a loss in the third quarter of 1994.
Agricultural Chemicals reported earnings of $2 million, up from
breakeven results in the third quarter of 1994. Sales were down from
the second quarter of 1995, reflecting a normal seasonal pattern, but
were up 33% compared to
2
1994, due to very strong sales of Mimic, a new, low-risk insecticide
used to control caterpillar infestations on cotton, fruit, vegetable and
nut crops.
The third quarter gross profit margin declined to 33% from 34% in 1994.
Selling prices increased 4%, but raw material prices were 24% higher
than last year as a result of capacity shortages for key commodity
chemicals, including acetone, butanol and propylene. The lower shipping
volumes reduced production levels resulting in higher unit manufacturing
costs, which also hurt margins.
Selling, administrative and research expenses were up 5%, due to
currency impacts, higher spending in the Pacific Region to support
business growth and certain credits in 1994 that were not repeated this
year. Affiliate earnings were $1 million compared to a loss of $1
million in the prior-year period due to reduced losses from the AtoHaas
affiliates.
NINE MONTHS 1995 VERSUS
NINE MONTHS 1994
Earnings for the first nine months were $225 million and $3.24 per
common share, up 4% from last year's earnings of $217 million and $3.12
per common share. The 1995 results were reduced by a $17 million
after-tax charge for additional potential liability related to the
cleanup of the Whitmoyer waste site. Absent this charge, earnings would
have increased 12%. Net sales of $2,969 million were 11% higher than
1994 due to 2% higher volume, excluding the sale of the styrene
butadiene latex business, 3% higher selling prices, a higher-priced
product mix, 10% stronger European currencies and a 14% stronger
Japanese yen. Earnings were hurt by 29% higher raw material prices.
Polymers, Resins and Monomers earnings of $123 million were down 9% from
1994. Sales increased 11% due to 3% higher volume, excluding the effect
of the sale of the styrene butadiene latex business, higher selling
prices, a higher-priced product mix and stronger foreign currencies.
Most business segments had good growth in Europe and Asia. Volume in
North America was hurt by the slowdown in the construction and
automotive markets. Higher raw material prices, costs associated with
monomer production problems earlier in the year, and negative production
variances due to lower manufacturing levels resulted in lower earnings.
Performance Chemicals reported earnings of $51 million, compared to $29
million in 1994. Sales increased 13%,
3
reflecting 4% higher volume, a higher-priced product mix and stronger
currencies in Europe and Japan. Shipley recorded double-digit increases
in volume, sales and earnings. Biocides had good volume growth in North
America and Europe. Petroleum Chemicals had lower volume in North
America due to the loss of a major customer in 1994. The Ion Exchange
Resins business reported significantly lower losses due to increased
volume and the strong Japanese yen. Selling prices remained depressed
and higher raw material prices hurt results for this business unit.
Plastics recorded earnings of $50 million, up 11% from $45 million in
1994. Sales were up 11%, though volume decreased 3%, reflecting higher
selling prices and stronger European currencies. Earnings were hampered
by increased raw material prices and higher manufacturing costs.
Plastics Additives reported lower volume in North America and Europe
caused by a production outage during the first quarter and the slowdown
in the construction market. AtoHaas North America reported increased
volume in the European and Pacific regions, but volume decreased in
North America due to a slowdown in the automotive market. AtoHaas
Europe reported strong earnings in 1995 compared to a small loss in
1994.
Agricultural Chemicals earnings were $41 million, up 11% versus 1994.
Sales were up 14%, though volume decreased 3%, due to increased sales of
newer, higher-priced insecticides and herbicides and stronger currencies
in Europe. The volume decline is due to lower shipments of Dithane
fungicide, primarily in Europe and Asia, caused by softness in demand
and increased competition. Earnings growth was restrained by higher raw
material prices and increased operating costs.
Corporate expenses totaled $40 million, compared to $29 million in 1994.
The 1995 period included an after-tax charge of $17 million for
additional potential liability related to the cleanup of the Whitmoyer
waste site. Interest expense was lower in 1995 due to higher
capitalization of interest as part of construction in progress.
The gross profit margin for the first nine months was 34% compared to
36% in the prior period. Margins declined due to 29% higher raw
material prices, higher unit manufacturing costs due to lower production
levels and costs associated with monomer production problems earlier in
the year.
Selling, administrative and research expenses were flat compared to
1994, excluding the effect of stronger curren-
4
cies, reflecting the benefit of continuing cost control efforts.
Interest expense of $31 million was $6 million lower than last year, due
to higher capitalization of interest as part of construction in
progress. Affiliate earnings of $6 million reflect a substantial
improvement from breakeven results reported last year, primarily due to
earnings from the AtoHaas affiliates in 1995 compared to a small loss in
1994. Other expense, net, was $48 million, up from $18 million last
year. The current year includes charges of $26 million for additional
potential liability related to the Whitmoyer waste site and $4 million
for the settlement of litigation.
LIQUIDITY, CAPITAL RESOURCES
AND OTHER FINANCIAL DATA
At the end of the quarter, cash and cash equivalents totaled $60
million, down $67 million from the 1994 year-end balance, primarily due
to the repayment of debt. Accounts receivable were up $76 million
during the first nine months, reflecting higher sales. The
debt-to-equity ratio, calculated without the reduction to stockholders'
equity for the ESOP transaction, was 37% at the end of September,
compared with 44% at year-end 1994.
Fixed asset additions during the first nine months of 1995 totaled $268
million and included spending for the new acrylic acid expansion at
Houston, Texas, a new Biocides production facility at Bayport, Texas and
the Lone Star emulsion facility at Houston, Texas. Spending for the
full year is estimated to be in the range of $400 million.
On October 19, 1995, the board of directors declared regular quarterly
dividends of $.41 per common share and $.6875 per preferred share. Both
dividends are payable December 1, 1995, to stockholders of record on
November 3, 1995.
5
ROHM AND HAAS COMPANY AND SUBSIDIARIES
SALES BY BUSINESS GROUP AND CUSTOMER LOCATION (Millions of dollars)
- ----------------------------------------------------------------------------
THIRD QUARTER 1995 AND 1994
- ----------------------------------------------------------------------------
Polymers,
Resins and Performance Agricultural
Monomers Chemicals Plastics Chemicals Total
----------- ----------- ----------- ------------ -----------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- ------- ----------- ----------- ----------- ------------ -----------
North
America $312 $301 $ 92 $ 84 $ 94 $ 95 $ 33 $ 16 $531 $496
- ------- ----------- ----------- ----------- ------------ -----------
Europe 77 67 62 55 55 51 22 18 216 191
- ------- ----------- ----------- ----------- ------------ -----------
Pacific 48 39 64 63 10 11 15 15 137 128
- ------- ----------- ----------- ----------- ------------ -----------
Latin
America 23 26 5 4 7 8 23 21 58 59
- ------- ----------- ----------- ----------- ------------ -----------
Total $460 $433 $223 $206 $166 $165 $ 93 $ 70 $942 $874
FIRST NINE MONTHS 1995 AND 1994
- ----------------------------------------------------------------------------
North
America $ 927 $ 893 $272 $255 $291 $278 $115 $ 90 $1,605 $1,516
- ------- ------------- ----------- ----------- ----------- --------------
Europe 243 195 193 162 180 148 131 116 747 621
- ------- ------------- ----------- ----------- ----------- --------------
Pacific 143 107 196 167 37 30 67 66 443 370
- ------- ------------- ----------- ----------- ----------- --------------
Latin
America 72 72 17 15 19 19 66 61 174 167
- ------- ------------- ----------- ----------- ----------- --------------
Total $1,385 $1,267 $678 $599 $527 $475 $379 $333 $2,969 $2,674
- ------- ------------- ----------- ----------- ----------- --------------
6
PHYSICAL VOLUME CHANGE
CURRENT QUARTER RELATIVE TO YEAR-EARLIER QUARTER
- -------------------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -------------------------------------------------------------------------------
Polymers, Resins and Monomers (3) North America (4)
Performance Chemicals 3 Europe (2)
Plastics (15) Pacific 5
Agricultural Chemicals 13 Latin America (9)
- -------------------------------------------------------------------------------
Worldwide (4) Worldwide (4)
- -------------------------------------------------------------------------------
CURRENT NINE MONTHS RELATIVE TO YEAR-EARLIER NINE MONTHS
- -------------------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -------------------------------------------------------------------------------
Polymers, Resins and Monomers (1) North America (5)
Performance Chemicals 4 Europe 5
Plastics (3) Pacific 17
Agricultural Chemicals (3) Latin America 1
- -------------------------------------------------------------------------------
Worldwide (1) Worldwide (1)
- -------------------------------------------------------------------------------
7
NET EARNINGS BY BUSINESS GROUP AND CUSTOMER LOCATION
- -------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1995 1994 1995 1994
------------------- --------------------
BUSINESS GROUP (Millions of dollars)
----------------------------------------------
Polymers, Resins and Monomers $37 $43 $123 $135
Performance Chemicals 16 3 51 29
Plastics 12 15 50 45
Agricultural Chemicals 2 -- 41 37
Corporate (8) (6) (40) (29)
- ------------------------------------------------------- ----------------------
Total $59 $55 $225 $217
- ------------------------------------------------------- ----------------------
CUSTOMER LOCATION
North America $39 $40 $135 $145
Europe 17 9 81 58
Pacific 8 8 37 30
Latin America 3 4 12 13
Corporate (8) (6) (40) (29)
- ------------------------------------------------------- ----------------------
Total $59 $55 $225 $217
- ------------------------------------------------------- ----------------------
Corporate includes non-operating items such as interest income and expense.
ANALYSIS OF CHANGE IN PER-SHARE EARNINGS
CURRENT PERIOD RELATIVE TO YEAR-EARLIER PERIOD
- -----------------------------------------------------------------------
$/Share
(after-tax)
----------------------------------
THIRD FIRST
GROSS PROFIT QUARTER NINE MONTHS
--------------- -----------------
Selling prices $ .41 $1.02
Raw material prices (.45) (1.61)
Physical volume and product mix .10 .49
Other manufacturing costs (.04) .07
Currency effect on gross profit .08 .41
- ---------------------------------------------------- -----------------
Increase in gross profit .10 .38
- ---------------------------------------------------- -----------------
OTHER CAUSES
Selling, administrative and
research expenses* (.09) (.16)
Interest expense -- .06
Share of affiliate earnings .03 .09
Certain waste disposal site cleanup costs -- (.25)
Other .03 --
- ---------------------------------------------------- -----------------
Decrease from other causes (.03) (.26)
- ---------------------------------------------------- -----------------
Increase in per-share earnings $ .07 $ .12
- ---------------------------------------------------- -----------------
*The amounts shown are on a U.S. dollar basis and include the impact of
currency movements as compared to the prior-year period.
8
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS (Subject to Year-end Audit)
- -------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1995 1994 1995 1994
----------------------- ------------------------
CURRENT EARNINGS (Millions of dollars, except per share amounts)
--------------------------------------------------
Net sales $ 942 $ 874 $ 2,969 $ 2,674
Cost of goods sold 634 576 1,963 1,708
- ---------------------------------------------------- -----------------------
Gross profit 308 298 1,006 966
Selling and administrative
expense 154 144 455 435
Research and development
expense 47 48 139 142
Interest expense 11 11 31 37
Share of affiliate net
earnings (losses) 1 (1) 6 --
Other expense, net 12 11 48 18
- ---------------------------------------------------- -----------------------
Earnings before income taxes 85 83 339 334
Income taxes 26 28 114 117
- ---------------------------------------------------- -----------------------
NET EARNINGS $ 59 $ 55 $ 225 $ 217
Less preferred stock dividends 2 2 6 6
- ---------------------------------------------------- -----------------------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 57 $ 53 $ 219 $ 211
- ---------------------------------------------------- -----------------------
PER COMMON SHARE:
Net earnings $ .85 $ .78 $ 3.24 $ 3.12
Common dividends $ .41 $ .37 $ 1.15 $ 1.07
Average number of common
shares outstanding (000's) 67,466 67,743 67,587 67,710
- ---------------------------------------------------- ------------------------
See notes to consolidated financial statements.
9
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (Subject to Year-end audit)
- -------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------
1995 1994
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Millions of dollars)
---------------------------
Net earnings $ 225 $ 217
Adjustments to reconcile net earnings
to cash provided by operating activities:
Depreciation 178 171
Deferred income taxes 23 34
Accounts receivable (77) (112)
Inventories 28 (39)
Accounts payable (42) 7
Other working capital changes, net (29) 58
Other, net 37 33
- -------------------------------------------------------------------------------
Net cash provided by operating activities 343 369
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and equipment (268) (211)
Proceeds from the sale of facilities and investments 49 3
- -------------------------------------------------------------------------------
Net cash used by investing activities (219) (208)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of treasury shares (25) --
Proceeds from issuance of long-term debt 25 34
Repayments of long-term debt (112) (12)
Net change in short-term borrowings (2) (38)
Payment of dividends (81) (76)
Other, net 4 17
- -------------------------------------------------------------------------------
Net cash used by financing activities (191) (75)
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash -- 1
- -------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $ (67) $ 87
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
10
Rohm and Haas Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Subject to Year-end Audit)
- -------------------------------------------------------------------------------
SEPT. 30, December 31, Sept. 30,
1995 1994 1994
-----------------------------------------
ASSETS (Millions of dollars)
-----------------------------------------
Current assets:
Cash and cash equivalents $ 60 $ 127 $ 122
Receivables, net 755 679 716
Inventories (note d) 451 487 433
Prepaid expenses and other assets 156 147 170
- -------------------------------------------------------------------------------
Total current assets 1,422 1,440 1,441
- -------------------------------------------------------------------------------
Land, buildings and equipment 4,060 3,969 3,896
Less accumulated depreciation 2,076 2,009 1,976
- -------------------------------------------------------------------------------
Net land, buildings and equipment 1,984 1,960 1,920
- -------------------------------------------------------------------------------
Other assets 476 461 452
- -------------------------------------------------------------------------------
$3,882 $3,861 $3,813
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 81 $ 157 $ 50
Accounts payable and accrued
liabilities 630 699 630
Accrued income taxes 63 76 45
- -------------------------------------------------------------------------------
Total current liabilities 774 932 725
- -------------------------------------------------------------------------------
Long-term debt 619 629 723
Other liabilities 740 680 772
Stockholders' equity:
$2.75 Cumulative convertible
preferred stock (note e) 133 134 135
Common stock: shares issued
--78,652,380 197 197 197
Additional paid-in capital 151 151 151
Retained earnings 1,750 1,606 1,585
- -------------------------------------------------------------------------------
2,231 2,088 2,068
Less: Treasury stock (note f) 342 323 322
Less: ESOP shares 153 156 158
Other equity adjustments 13 11 5
- -------------------------------------------------------------------------------
Total stockholders' equity 1,749 1,620 1,593
- -------------------------------------------------------------------------------
$3,882 $3,861 $3,813
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(A) These interim financial statements are unaudited, but, in the opinion of
management, all adjustments, which are of a normal recurring nature, have
been made to present fairly the company's financial position, results of
operations and cash flows. It is suggested that these financial
statements be read in conjunction with the financial statements,
accounting policies and the notes included in the company's annual report
for the year ended December 31, 1994.
(B) The company is a party in various government enforcement and private
actions associated with former waste disposal sites. The company is also
involved in potential corrective actions at some of its manufacturing
facilities. The amounts charged to earnings before tax for environmental
remediation were $32 million and $17 million for the nine months ended
September 30, 1995 and 1994, respectively. The charge in the 1995 period
includes additional accruals in the first quarter related to the Whitmoyer
waste site. At September 30, 1995, the reserves for remediation were $171
million and probable insurance recoveries were $72 million.
In addition to accrued environmental liabilities, the company has reasonably
possible loss contingencies relating to environmental matters of
approximately $80 million. The company has also identified other sites
where future environmental remediation expenditures may be required, but
these expenditures are not reasonably estimable at this time. The company
believes that these matters, when ultimately resolved, which may be over
the next decade, will not have a material adverse effect on the
consolidated financial position of the company, but could have a material
adverse effect on consolidated results of operations in any given year.
(C) The company and its subsidiaries are parties to litigation arising out of
the ordinary conduct of its business. Recognizing the amounts reserved
for such items and the uncertainty of the outcome, it is the company's
opinion that the resolution of all pending lawsuits and claims will not
have a material adverse effect, individually or in the aggregate, upon the
results of operations and the consolidated financial position of the
company.
(D) Inventories consist of:
(Millions of dollars)
SEPT. 30, Dec. 31, Sept. 30,
1995 1994 1994
--------- -------- ---------
Finished products and
work in process $318 $378 $327
Raw materials and supplies 133 109 106
---- ---- ----
Total inventories $451 $487 $433
---- ---- ----
(E) The number of preferred shares issued and outstanding were:
September 30, 1995 2,659,268
December 31, 1994 2,676,515
September 30, 1994 2,691,029
(F) The number of common treasury shares were:
September 30, 1995 11,302,069
December 31, 1994 10,960,614
September 30, 1994 10,940,637
12
APPENDIX TO EXHIBIT 20
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- --------------------- -------------------------------------------------
Cover Company name with globe and words
"Third Quarter 1995"
Pie Charts Description included in introduction to Exhibit 20
(not incorporated by reference)