EXHIBIT 20
COPY OF QUARTERLY REPORT TO STOCKHOLDERS
ROHM AND HAAS COMPANY
FIRST QUARTER 1997
ID: COVER GRAPHIC
FINANCIAL HIGHLIGHTS
(Millions of dollars, except earnings per share)
- ----------------------------------------------------------
First Quarter
--------------------------
Percent
1997 1996 Change
--------------------------
Net sales $ 986 $ 994 (1)
Net earnings 104 100 4
Net earnings per common share $1.62 $1.46 11
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================================
== SALES BY BUSINESS GROUP ==
================================
Millions of dollars
- ---------------------------------------------------
Polymers, Resins and Monomers $497
[PIE CHART] Performance Chemicals $178
Plastics $171
Agricultural Chemicals $140
================================
== SALES BY CUSTOMER LOCATION ==
================================
Millions of dollars
- ---------------------------------------------------
North America $535
[PIE CHART] Europe $259
Asia-Pacific $133
Latin America $ 59
=======================
== CHAIRMAN'S LETTER ==
=======================
Rohm and Haas did well during the first quarter of 1997.
Unit volume increased by 7 percent. Growth was especially strong in the
acrylic businesses -- Polymers and Resins, Monomers, Plastics Additives
and AtoHaas Americas -- which reported a collective 13 percent increase
in volume over the same period in 1996. I can say with assurance that
Rohm and Haas is back on its historic growth track of about 7 percent
per year -- the highest internal growth rate in the S&P chemical index.
Net earnings were up 4 percent. Earnings-per-common-share were up 11
percent. Excellent internal cost control and the share buyback program
enabled Rohm and Haas to overcome the effects of negative currency
swings in Europe and Japan, and a less-favorable product mix.
I was extremely disappointed about the ravaging of our stock price in
March. The observation on March 19th that currency swings might cause
first quarter earnings to fall below the consensus First Call estimate
of $1.70 cost shareholders $1.3 billion in market value over the next
two days.
And although the stock price has recovered somewhat since that time, it
is my duty to do everything I can to see that the Rohm and Haas stock
price more accurately reflects the true strength of this company as soon
as possible. Shareholders who have been with us over the past year are
still considerably ahead. From May 1, 1996 to May 2, 1997, the value of
Rohm and Haas stock increased 26 percent.
The Board of Directors elected four new officers earlier this month.
Brad Bell and Bill Andrews became vice presidents on May 5th. Mr. Bell
recently joined us from the Whirlpool Corporation, and will become chief
financial officer when Fred Shaffer retires later in the year.
Mr. Andrews is the company's controller. Ed Liebert became assistant
controller and Mac Sarreal was elected assistant treasurer at the same
meeting.
/s/ J. LAWRENCE WILSON
J. Lawrence Wilson
May 12, 1997
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== MANAGEMENT DISCUSSION AND ANALYSIS ==
========================================
FIRST QUARTER 1997 VERSUS
FIRST QUARTER 1996
Earnings of $104 million in the first quarter of 1997 were up 4%
from last year's strong first quarter results of $100 million. Earnings
per common share were $1.62 compared to earnings of $1.46 per common
share in 1996. Though volume increased by 7%, sales of $986 million
were down 1% from last year's sales of $994 million because of weaker
currencies in Europe and Japan, 2% lower selling prices, lower-priced
product mix and the formation of the RohMax joint venture. Earnings
increased as a result of higher volume, 2% lower raw material costs,
good internal cost control and earnings from affiliates versus losses
in 1996.
Polymers, Resins and Monomers (PRM) earnings were $62 million, up
17% compared to the prior year. Excluding the Petroleum Chemicals
business, now accounted for through the RohMax joint venture, sales were
up 7%, reflecting 13% higher volume offset by lower selling prices and
weaker currencies in both Europe and Japan. Polymers and Resins had
strong volume increases in all regions. The earnings increase is
primarily due to higher volume.
Performance Chemicals recorded earnings of $21 million, down from
last year's earnings of $24 million. Sales decreased 3% and volume was
down 5%. The volume decline was primarily in Biocides due to the
discontinuation of the joint venture with Dead Sea Bromine. Earnings
decreased due to higher manufacturing costs, lower volume and weaker
currencies in Europe and Japan.
Plastics reported earnings of $16 million, up 14% from the 1996
period. Sales increased 1%, reflecting 11% higher volume offset by
lower selling prices and weaker European currencies. Volume gains were
in North America and Europe. The earnings increase primarily resulted
from break-even results for AtoHaas Europe compared to losses in 1996.
Agricultural Chemicals earnings of $19 million were 5% lower than
the prior year period. Though volume was up 1%, sales of $140 million
were 5% lower than 1996. The sales and earnings decrease was
attributable to weaker currencies in Europe and Japan and a lower-priced
product mix. Volume increased due to higher shipments of Dithane in
Latin America.
Corporate expenses totaled $14 million in 1997, compared to $11
million in last year's first quarter due to higher interest expense.
Net sales were $986 million, down 1% from 1996. The first quarter
gross profit margin was 37%, unchanged from the prior year period.
Selling prices were down 2% and currency fluctuations were unfavorable,
but were partially offset by 2% lower raw material prices and higher
volume.
Selling, administrative and research (SAR) expenses were flat for
the quarter reflecting weaker currencies, the absence of SAR expenses
now included in the RohMax joint venture and good internal cost
controls. Interest expense increased $3 million as a
2
result of lower capitalization of interest cost due to lower capital
spending. Affiliate earnings were $3 million compared to last year's
losses of $3 million. This improvement was due to break-even results
from AtoHaas Europe compared to losses in 1996 and to earnings from the
RohMax joint venture.
The effective tax rate for the first quarter of 1997 was 33%, down
from 35% for the first quarter of 1996. This decrease was a result of
tax credits on research and export sales, and the effect of affiliate
earnings, which are recorded on an after-tax basis.
LIQUIDITY, CAPITAL RESOURCES
AND OTHER FINANCIAL DATA
At the end of the quarter, cash and cash equivalents totaled $49
million, up $38 million from the 1996 year-end balance. Receivables
were up $79 million during the first three months, which reflects the
normal seasonal pattern. The debt-to-equity ratio, calculated without
the reduction to stockholders' equity for the ESOP transaction, was 39%
at the end of March, compared with 38% at year-end 1996. The company
continued its common stock repurchase program during the first quarter,
repurchasing 353,000 shares at a cost of $29 million.
Fixed asset additions during the first three months of 1997 totaled
$58 million. Spending for the full year is estimated to be in the range
of $350 million, and includes expenditures to expand emulsion facilities
in Taiwan, Indonesia and Sweden, capacity expansion for acrylic acid at
Houston, Texas and investment in electronic chemicals manufacturing in
the Far East.
During the quarter, the company recorded expense before tax of $2
million for environmental remediation compared to $6 million for the
first quarter of 1996. There were charges of $27 million resulting
largely from an unfavorable arbitration decision related to the Woodland
sites. These charges were offset by a $25 million increase in insurance
recoveries receivable resulting from agreements reached during the
quarter with certain insurance carriers. Also during the quarter, the
company collected $23 million of previously recorded remediation-
related settlements with insurance carriers. Other carriers have denied
coverage in most cases and the company had initiated legal action in New
Jersey and Pennsylvania. The jury in the Pennyslvania action found in
favor of the insurance carriers on certain issues but the company has
filed post-trial motions seeking relief.
On May 5, 1997, the board of directors declared a regular quarterly
dividend of $.45 per common share and $.6875 per preferred share,
payable June 1, 1997, to stockholders of record on May 16, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." Effective for year-end 1997,
the statement establishes guidance intended to simplify the computation
and presentation of earnings per share. The company does not expect
that the adoption of this standard will have a significant impact on its
reported earnings per share.
3
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== ROHM AND HAAS COMPANY AND SUBSIDIARIES ==
============================================
SALES BY BUSINESS GROUP AND CUSTOMER LOCATION (Millions of dollars)
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FIRST QUARTER 1997 AND 1996
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Polymers,
Resins and Performance Agricultural
Monomers* Chemicals* Plastics Chemicals Total
------------- ------------- ------------- ------------- -------------
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- ------- ------------- ------------- ------------- ------------- -------------
North
America $330 $317 $ 74 $ 73 $ 94 $ 88 $ 37 $ 38 $535 $516
- ------- ------------- ------------- ------------- ------------- -------------
Europe 91 102 49 52 63 64 56 60 259 278
- ------- ------------- ------------- ------------- ------------- -------------
Asia-
Pacific 50 51 51 53 7 11 25 30 133 145
- ------- ------------- ------------- ------------- ------------- -------------
Latin
America 26 24 4 5 7 6 22 20 59 55
- ------- ------------- ------------- ------------- ------------- -------------
Total $497 $494 $178 $183 $171 $169 $140 $148 $986 $994
- ------- ------------- ------------- ------------- ------------- -------------
*1996 sales have been restated to reclassify the results of the Petroleum
Chemicals business from Performance Chemicals to Polymers, Resins and
Monomers. The Petroleum Chemicals business has been accounted for through
the RohMax joint venture since July 1, 1996.
PHYSICAL VOLUME CHANGE
CURRENT QUARTER RELATIVE TO YEAR-EARLIER QUARTER
- -----------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -----------------------------------------------------------------------
Polymers, Resins and Monomers 8 North America 8
Performance Chemicals (5) Europe 6
Plastics 11 Asia-Pacific 2
Agricultural Chemicals 1 Latin America 14
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Worldwide 7 Worldwide 7
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4
NET EARNINGS BY BUSINESS GROUP AND CUSTOMER LOCATION
- -----------------------------------------------------------
Quarter Ended March 31,
---------------------------
1997 1996
---------------------------
BUSINESS GROUP (Millions of dollars)
---------------------------
Polymers, Resins and Monomers* $ 62 $ 53
Performance Chemicals* 21 24
Plastics 16 14
Agricultural Chemicals 19 20
Corporate (14) (11)
- -----------------------------------------------------------
Total $104 $100
- -----------------------------------------------------------
CUSTOMER LOCATION
North America $ 67 $ 53
Europe 30 37
Asia-Pacific 15 15
Latin America 6 6
Corporate (14) (11)
- -----------------------------------------------------------
Total $104 $100
- -----------------------------------------------------------
Corporate includes non-operating items such as interest income and
expense, corporate governance costs and corporate exploratory research.
*1996 earnings have been restated to reclassify the results of the Petroleum
Chemicals business from Performance Chemicals to Polymers, Resins and
Monomers. The Petroleum Chemicals business has been accounted for through
the RohMax joint venture since July 1, 1996.
ANALYSIS OF CHANGE IN PER-SHARE EARNINGS
CURRENT PERIOD RELATIVE TO YEAR-EARLIER PERIOD
- ------------------------------------------------------------
$/Share
GROSS PROFIT (after-tax)
-------------
Selling prices $(.19)
Physical volume and product mix .13
Raw material costs .04
Other manufacturing cost .13
Currency effect on gross profit (.13)
- ------------------------------------------------------------
Decrease in gross profit (.02)
- ------------------------------------------------------------
OTHER CAUSES
Interest expense (.03)
Share of affiliate earnings (losses) .09
Reduction in outstanding shares of common stock .10
Other .02
- ------------------------------------------------------------
Increase from other causes .18
- ------------------------------------------------------------
Increase in per-share earnings $ .16
- ------------------------------------------------------------
5
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS (Subject to Year-end Audit)
- --------------------------------------------------------------------
Quarter Ended March 31,
-------------------------
1997 1996
-------------------------
CURRENT EARNINGS (Millions of dollars)
-------------------------
Net sales $ 986 $ 994
Cost of goods sold 625 631
- --------------------------------------------------------------------
Gross profit 361 363
Selling and administrative expense 154 153
Research and development expense 45 46
Interest expense 10 7
Share of affiliate net earnings (losses) 3 (3)
Other expense, net -- --
- --------------------------------------------------------------------
Earnings before income taxes 155 154
Income taxes 51 54
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NET EARNINGS $ 104 $ 100
Less preferred stock dividends 2 2
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NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 102 $ 98
- --------------------------------------------------------------------
PER COMMON SHARE:
Net earnings $ 1.62 $ 1.46
Dividends $ .45 $ .41
Average number of common shares
outstanding (000's) 62,976 67,099
- --------------------------------------------------------------------
See notes to consolidated financial statements.
6
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (Subject to Year-end Audit)
- ------------------------------------------------------------------------
Quarter Ended March 31,
---------------------------
1997 1996
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Millions of dollars)
---------------------------
Net earnings $ 104 $ 100
Adjustments to reconcile net earnings
to cash provided by operating activities:
Depreciation 65 60
Deferred income taxes (4) 3
Accounts receivable (79) (89)
Inventories 11 1
Accounts payable (36) (51)
Income taxes payable 35 28
Other working capital changes, net (28) (32)
Other, net 40 22
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Net cash provided by
operating activities 108 42
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and equipment (58) (73)
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Net cash used by investing activities (58) (73)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 1
Purchases of treasury stock (30) (62)
Repayments of long-term debt (1) (7)
Net change in short-term borrowings 52 128
Payment of dividends (29) (29)
Other, net (4) (3)
- ------------------------------------------------------------------------
Net cash provided (used) by
financing activities (12) 28
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Effect of exchange rate changes on cash -- --
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 38 $ (3)
- ------------------------------------------------------------------------
See notes to consolidated financial statements.
7
Rohm and Haas Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Subject to Year-end Audit)
- -----------------------------------------------------------------------------
MARCH 31, December 31, March 31,
1997 1996 1996
------------------------------------
ASSETS (Millions of dollars)
------------------------------------
Current assets:
Cash and cash equivalents $ 49 $ 11 $ 40
Receivables, net 920 841 845
Inventories (note d) 472 483 503
Prepaid expenses and other assets 125 121 99
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Total current assets 1,566 1,456 1,487
- -----------------------------------------------------------------------------
Land, buildings and equipment 4,364 4,327 4,221
Less accumulated depreciation 2,317 2,261 2,166
- -----------------------------------------------------------------------------
Net land, buildings and equipment 2,047 2,066 2,055
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Other assets 406 411 446
- -----------------------------------------------------------------------------
$4,019 $3,933 $3,988
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 196 $ 145 $ 212
Accounts payable and accrued
liabilities 606 669 567
Accrued income taxes 107 72 100
- -----------------------------------------------------------------------------
Total current liabilities 909 886 879
- -----------------------------------------------------------------------------
Long-term debt 559 562 603
Employee benefits 409 405 395
Other liabilities 371 352 318
Stockholders' equity:
$2.75 Cumulative convertible preferred
stock (note e) 129 131 133
Common stock: shares
issued -- 78,652,380 197 197 197
Additional paid-in capital 138 143 146
Retained earnings 2,111 2,036 1,860
- -----------------------------------------------------------------------------
2,575 2,507 2,336
Less: Treasury stock (note f) 646 629 397
Less: ESOP shares 144 145 150
Other equity adjustments (14) (5) 4
- -----------------------------------------------------------------------------
Total stockholders' equity 1,771 1,728 1,793
- -----------------------------------------------------------------------------
$4,019 $3,933 $3,988
- -----------------------------------------------------------------------------
See notes to consolidated financial statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
(A) These interim financial statements are unaudited, but, in the
opinion of management, all adjustments, which are of a normal
recurring nature, have been made to present fairly the company's
financial position, results of operations and cash flows. These
financial statements should be read in conjunction with the
financial statements, accounting policies and the notes included in
the company's annual report for the year ended December 31, 1996.
(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. At March 31, 1997, the reserves for
remediation were $160 million compared to $139 million at December
31, 1996. The probable insurance recovery asset was $50 million and
$48 million at March 31, 1997 and December 31, 1996, respectively.
During the quarter, the company recorded expense before tax of $2
million for environmental remediation compared to $6 million for the
first quarter of 1996. There were charges of $27 million resulting
largely from an unfavorable arbitration decision related to the
Woodland sites. These charges were offset by a $25 million increase
in insurance recoveries receivable resulting from agreements reached
during the quarter with certain insurance carriers. Also during the
quarter, the company collected $23 million of previously recorded
remediation-related settlements with insurance carriers. Other
carriers have denied coverage in most cases and the company had
initiated legal action in New Jersey and Pennsylvania. The jury in
the Pennyslvania action found in favor of the insurance carriers on
certain issues but the company has filed post-trial motions seeking
relief.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies relating to environmental
matters of approximately $50 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. The company is also a
subject of an investigation by U.S. Customs into the labeling of
some products imported into the U.S. from some of the company's
non-U.S. locations. Recognizing the amounts reserved for such items
and the uncertainty of the 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)
MAR. 31, Dec. 31, Mar. 31,
1997 1996 1996
--------- -------- ---------
Finished products and
work in process $372 $375 $378
Raw materials and
supplies 100 108 125
---- ---- ----
Total inventories $472 $483 $503
---- ---- ----
(E) The number of preferred shares issued
and outstanding were:
March 31, 1997 2,579,842
December 31, 1996 2,631,822
March 31, 1996 2,653,591
(F) The number of common treasury shares were:
March 31, 1997 15,719,055
December 31, 1996 15,507,629
March 31, 1996 12,088,999
Dithane is a trademark of Rohm and Haas Company.
9
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RESPONSIBLE CARE(R)
A PUBLIC COMMITMENT
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ROHM AND HAAS
APPENDIX TO EXHIBIT 20
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- ----------- ----------------------------------------------------------
Cover A flask with a globe inside and words "First Quarter 1997"
Pie Charts Description included in introduction to Exhibit 20
(not incorporated by reference)