EXHIBIT 20
COPY OF QUARTERLY REPORT TO STOCKHOLDERS
ROHM AND HAAS COMPANY
SECOND QUARTER 1998
ID: COVER GRAPHIC
FINANCIAL HIGHLIGHTS (Millions of dollars, except earnings per share)
- --------------------------------------------------------------------------------
Second Quarter Six Months
----------------------- -----------------------
Percent Percent
1998 1997 Change 1998 1997 Change
----------------------- -----------------------
Net sales $ 990 $1,089 (9) $1,927 $2,075 (7)
Net earnings 170 117 45 279 221 26
Net earnings,
excluding non-
recurring items* 122 117 4 231 221 5
Net earnings per
common share:
-- Basic $ 2.78 $ 1.85 50 $ 4.54 $ 3.47 31
-- Diluted $ 2.72 $ 1.82 49 $ 4.46 $ 3.42 30
Net earnings per
common share,
excluding non-
recurring items:
-- Basic $ 1.99 $ 1.85 7 $ 3.75 $ 3.47 8
-- Diluted $ 1.95 $ 1.82 7 $ 3.69 $ 3.42 8
- -------------------------------------------------------------------------------
*non-recurring items include gains on the sale of joint venture interests in
AtoHaas and RohMax, asset write-downs, business realignment costs, and loss
on early extinguishment of debt during the quarter ended June 30, 1998.
SALES BY BUSINESS GROUP
Millions of dollars
- ---------------------------------------------------
PERFORMANCE POLYMERS $659
CHEMICAL SPECIALTIES $234 [PIE CHART]
ELECTRONIC MATERIALS $ 97
SALES BY CUSTOMER LOCATION
Millions of dollars
- ---------------------------------------------------
NORTH AMERICA $554
[PIE CHART] EUROPE $257
ASIA-PACIFIC $114
LATIN AMERICA $ 65
=======================
== CHAIRMAN'S LETTER ==
=======================
Rohm and Haas posted a good performance, for the second quarter in
spite of a difficult business environment. Demand for most of our
portfolio of specialty products was healthier than the industry's during
the second quarter. The company grew earnings per share by 7 percent from
the second quarter of 1997.
This good news is the result of focusing on customers' specialized
needs, maintaining our strong market positions, improving productivity,
and keeping our manufacturing facilities running smoothly. The earnings
per share growth was assisted by our continued share buy-back program.
Rohm and Haas's volume was flat for the second quarter compared with a
year ago, after adjusting for the sales of Rohm and Haas's stakes in
AtoHaas and RohMax. These divestitures were completed during the
quarter, and resulted in a pre-tax gain of $102 million, which was
partially offset by several other one-time items.
On a comparable basis, sales were down 4 percent. The lower sales
figure reflects the continued strength of the U.S. dollar.
After the quarter ended, Rohm and Haas made several important
announcements. President and Chief Operating Officer John P. Mulroney
has decided to retire at the end of this year. On July 27, the Board of
Directors named J. Michael Fitzpatrick, currently vice president and
chief technology officer of Rohm and Haas, to replace Jack effective
January 1, 1999.
I will retire by the end of 1999. The board also named Rajiv L. Gupta,
currently vice president for the Asia-Pacific Region and the Electronics
Materials group, to the new post of vice chairman, effective January 1,
1999. Raj will be named chairman and chief executive officer upon
my retirement.
In addition, the Board of Directors approved a recapitalization plan for
the company, a three-for-one stock split and a dividend increase of
8 percent.
Each of these announcements is evidence that Rohm and Haas continues to
refine its strategy for profitable growth. As long as economies
worldwide remain on their current path, I expect Rohm and Haas to report
a good performance for the year.
/s/ J. LAWRENCE WILSON
J. Lawrence Wilson
August 14, 1998
========================================
== MANAGEMENT DISCUSSION AND ANALYSIS ==
========================================
SECOND QUARTER 1998 VERSUS
SECOND QUARTER 1997
Earnings increased 45% in the second quarter of 1998 to $170 million
from $117 million in the second quarter of 1997. Diluted earnings per
common share for the quarter were $2.72 compared to $1.82 in 1997.
Included in the 1998 results is a one-time gain of $48 million, or $.77
per share, net of non-recurring items. 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. (Earnings by business segment and by region excluding these
non-recurring items are presented in the tables on page 3.)
Volume decreased 2% for the quarter and sales decreased 9%. On a
comparable-business basis, volume was flat and sales decreased 4%.
In addition to the divestiture of two businesses, resulting in the
exclusion of AtoHaas' sales from 1998 results, the remaining 50% of
NorsoHaas was acquired and operations in China were consolidated in
1998. The sales decrease on flat volume was primarily a result of
weaker European and Asia-Pacific currencies and slightly lower selling
prices. Volume gains in Europe and Latin America, on a comparable
basis, were overcome by volume losses due to poor business conditions in
the Asia-Pacific region and flat volume in North America. In the Asia
Pacific region sales declined 16% on a 10% volume decrease. The
company's earnings increased 4%, excluding non-recurring items,
primarily as a result of lower raw material costs and efficient plant
operations. Diluted earnings per common share excluding non-recurring
items was $1.95 for the second quarter, up 7% versus 1997. The increase
in earnings per share also reflects the impact of the company's stock
repurchase program.
In the first quarter of 1998, the company changed its financial
reporting structure and, in August 1998, the related management
structure to better reflect its technical strengths and focus on key
markets. Rohm and Haas now reports by three business segments:
Performance Polymers, consisting of the Polymers and Resins, Monomers,
Formulation Chemicals and Plastics Additives businesses; Chemical
Specialties, consisting of the Agricultural Chemicals, Ion Exchange and
Biocides businesses; and Electronic Materials, consisting of Shipley and
Rodel, Inc., an affiliate. The 1997 presentation of sales and earnings
has been restated to reflect these changes. In the restatement, 1997
results of AtoHaas and RohMax are reported under Performance Polymers.
Performance Polymers earnings of $96 million, excluding non-recurring
items, were unchanged from the prior year. Sales were down 13% to $659
million from $757 million in the 1997 period, largely as a result of the
absence of AtoHaas sales. On a comparable basis volume decreased 1% and
sales decreased 6%. The sales decrease on slightly lower volume is
primarily a result of unfavorable currencies in Europe and Asia-Pacific
and lower selling prices in North America. In Asia-Pacific, volume and
sales were down, reflecting the generally unfavorable economic
conditions in the region. Earnings excluding non-recurring items were
unchanged, despite lower volume and weaker currencies in Europe and
Asia-Pacific, largely as a result of lower raw material prices and lower
plant operating costs.
Chemical Specialties earnings of $28 million for the second quarter of
1998, excluding non-recurring items, compared favorably to earnings of
$27 million in the prior-year period. A volume increase of 6% resulted
from strong demand in the Agricultural Chemicals business in North
America, largely driven by weather conditions favorable to sales of
fungicides such as Dithane and Systhane. Sales were flat despite the
volume growth, reflecting weaker currencies in Europe and Asia-Pacific.
The earnings increase was primarily the result of volume growth in
Agricultural Chemicals.
Electronic Materials earnings of $13 million, excluding non-recurring
items, were flat compared to the 1997 period. Sales were essentially
unchanged while volume increased 9%, reflecting pricing pressure in the
printed wiring board industry and the weakened economy in Asia-Pacific
where sales and earnings were down. Earnings decreases in Shipley
Company were largely offset by the contribution of Rodel, Inc., a
31%-owned affiliate acquired in June 1997.
Corporate expenses totaled $25 million in the second quarter of 1998
compared to $19 million in the prior year period. The second quar-
2
EARNINGS BY BUSINESS GROUP AND CUSTOMER LOCATION
EXCLUDING NON-RECURRING ITEMS*
- ------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
----------------- ------------------
1998 1997 1998 1997
--------------------------------------
BUSINESS GROUP (Millions of dollars)
--------------------------------------
Performance Polymers $ 96 $ 96 $179 $174
Chemical Specialties 28 27 57 55
Electronic Materials 13 13 26 25
Corporate (15) (19) (31) (33)
- --------------------------------------------------------- ------------------
Total $122 $117 $231 $221
- --------------------------------------------------------- ------------------
CUSTOMER LOCATION
North America $ 97 $ 87 $180 $154
Europe 23 25 54 55
Asia-Pacific 9 13 15 28
Latin America 8 11 13 17
Corporate (15) (19) (31) (33)
- --------------------------------------------------------- ------------------
Total $122 $117 $231 $221
- --------------------------------------------------------- ------------------
*must be read in conjunction with presentation by business group and customer
location on page 8. Non-recurring items include gains on the sale of joint
venture interests in AtoHaas and RohMax, asset write-downs, business
realignment costs, and loss on early extinguishment of debt during the
quarter ended June 30, 1998.
ter of 1998 includes a $10 million after-tax extraordinary loss on the
early extinguishment of debt.
The second quarter gross profit margin of 41% was up from 37% in the
prior-year period, largely as a result of 10% lower raw material costs
which overcame selling prices and weaker European and Asia-Pacific
currencies.
Selling, administrative and research expenses decreased 2% for the
quarter versus the 1997 period, reflecting the net effect of higher
research expense and lower selling and administrative expense due to the
absence of AtoHaas costs. Interest expense was flat, while the absence
of earnings from RohMax and AtoHaas Europe resulted in a decrease of $3
million in affiliate earnings. Other income of $108 million reflects
the net before-tax gain on the non-recurring items discussed above,
excluding debt extinguishment. The most significant factor was the sale
of the AtoHaas and RohMax businesses, which resulted in a gain after-tax
of $102 million, offset by a charge of $15 million related to cumulative
translation adjustments and $11 million of asset write-downs and
business realignment costs.
The effective tax rate for the second quarter of 1998 was 39%, up from
33% for the second quarter of 1997, largely as a result of non-recurring
items for which there is no tax benefit, primarily the cumulative
translation adjustment associated with the AtoHaas divestiture and an
intangible asset write-off in Europe.
SIX MONTHS 1998 VERSUS
SIX MONTHS 1997
Earnings for the first six months of 1998 were $279 million, an increase
of 26% over last year's earnings of $221 million. Diluted earnings per
common share were $4.46 compared to $3.42 in 1997. As discussed above,
included in 1998 results are a second quarter one-time net gain of $48
million, or $.77 per share. (Earnings for the first six months of 1998
by business segment and by region excluding these non-recurring items
are presented in the tables above, which should be read in conjunction
with the presentation on page 8.) Sales decreased 7% and volume was
flat. On a comparable-business basis, sales decreased 3% on a 1% volume
increase. In addition to the divestiture of two businesses, resulting
in the exclusion of AtoHaas' sales from 1998, the remaining 50%
3
of NorsoHaas was acquired and operations in China were consolidated
during the year. The sales decrease on higher volume is primarily a result
of weaker European and Asia-Pacific currencies. Volume was strong in
Europe while an unfavorable business environment hurt volume in the
Asia-Pacific region. Volume in North America and Latin America was flat.
Through six months of 1998, on a comparable basis, Asia-Pacific region
sales declined 17% and volume decreased 9%. The company's earnings
increased 5% excluding non-recurring items primarily as a result of lower
raw material costs, higher volume and efficient plant operations. Earnings
per common share before non-recurring items were $3.69 for the first half
of 1998, up 8% versus 1997. The increase in earnings per share also
reflects the impact of the company's stock repurchase program.
Performance Polymers earnings, excluding non-recurring items, were $179
million compared to $174 million in the prior year, an increase of 3%.
Sales of $1,277 million were down 10% from $1,425 million in 1997,
largely as a result of the absence of AtoHaas sales. On a comparable
basis, volume was flat and sales decreased 4%. The decrease in sales
was a result of unfavorable currencies in Europe and Asia-Pacific and
lower selling prices in North America. Performance Polymer sales in the
Asia-Pacific region were down more than 25% from the prior year while
volume decreased 9%. Earnings increased excluding non-recurring items
largely as a result of lower raw material prices and Polymers and Resins
volume in North America.
Chemical Specialties earnings were $57 million for the first half of
1998, excluding non-recurring items, increasing 4% from $55 million in
1997. Sales of $453 million decreased 2% from 1997 sales of $461
million, largely because of weaker currencies in Europe and
Asia-Pacific. Volume increased 2% primarily as a result of strong
second quarter demand in the Agricultural Chemicals business. The
earnings increase was a result of improved results for Agricultural
Chemicals and improved earnings in the Biocides business.
Electronic Materials earnings of $26 million, excluding non-recurring
items, increased $1 million, or 4%, from the 1997 period. Sales
increased 4% on an increase in volume of 10%. Shipley Company volume
increased in all of its regions. Lower sales and earnings in
Asia-Pacific mitigated the effects of growth in Europe and North
America. Earnings also benefited from the contribution of Rodel, an
affiliate acquired in June 1997.
Corporate expenses of $41 million compared unfavorably to expenses of
$33 million in 1997. 1998 included a second quarter after-tax charge of
$10 million related to an extraordinary loss on the early extinguishment
of debt.
The gross profit margin for the first six months was 40%, up from 37% in
the prior-year period, largely as a result of 7% lower raw material
costs. Selling prices were down slightly while currency fluctuations in
Europe and Japan were unfavorable.
Selling, administrative and research expenses for the period were
essentially flat compared to the 1997 period, reflecting the net effect
of higher research expense and lower selling and administrative expense
due to the absence of AtoHaas costs. Interest expense was flat, while
affiliate earnings decreased to $2 million compared to 1997 earnings of
$6 million, due to the absence of affiliate earnings of RohMax and
AtoHaas Europe. Other income of $111 million reflects the net
before-tax gain on second quarter non-recurring items, including the
divestiture of the AtoHaas and RohMax businesses.
The effective tax rate for the first six months was 37%, up from 33% for
the first six months of 1997, largely as a result of the tax treatment
of the non-recurring items in the second quarter.
LIQUIDITY, CAPITAL RESOURCES
AND OTHER FINANCIAL DATA
In June 1998 the company sold its interest in the AtoHaas and RohMax
businesses for cash proceeds of $287 million resulting in a net
after-tax gain of $76 million, or $1.22 per share. Also in June, the
company retired $115 million of high interest long- term debt through a
tender offer. This debt retirement resulted in an after-tax
extraordinary loss of $10 million, or $.16 per share. The net cash
in-flows during the quarter included these transactions and resulted in
a $27 million increase in cash and cash equivalents versus year-end 1997.
4
Free cash flows for the first six months of 1998 versus the prior-year
period were as follows:
Six Months Ended
June 30,
----------------
1998 1997
----------------
Cash provided by
operating activities $194 $253
Capital additions (89) (116)
Dividends (62) (58)
----------------
Free cash flow $ 43 $ 79
----------------
The decrease in cash provided by operating activities is primarily a
result of the increase in Accounts Receivable, net, during the first
half of 1998 versus the 1997 period, in part a result of the strong
performance in Agricultural Chemicals in 1998. Fixed asset additions
during the first six months of 1998 totaled $89 million, compared to
$116 million in the prior year. The decrease reflects the absence of
significant projects that were active during the same period of 1997,
such as the completion of capacity expansion in Texas. Efforts to
improve asset utilization also contributed to the lower spending.
Spending for the full year is expected to be approximately $225 million,
and will include spending on emulsions capacity in Europe, ion exchange
resin and emulsions capacity in Asia-Pacific and further investment in
the Electronic Materials businesses.
On July 27, 1998, the board of directors approved a three-for-one stock
split, an increase in the quarterly dividend on common shares from 50
cents to 54 cents per common share and declared a regular quarterly
dividend of $.6875 per preferred share. The stock split will occur in
the form of a 200 percent common stock dividend paid on September 1,
1998 to shareholders of record on August 7, 1998. The common and
preferred dividends are payable September 1, 1998, to stockholders of
record on August 7, 1998. Had the stock split been effective for the
periods presented, the pro-forma diluted earnings per common share for
the second quarter of 1998 would have been $.91 compared to $.61 in
1997. For the first half of 1998, the pro-forma amounts would have been
$1.49 versus $1.14 for the prior year period.
The debt-to-capital ratio, calculated without the reduction to
stockholders' equity for the ESOP transaction, was 19% at the end of the
quarter, compared with 23% at year-end 1997 and 30% at the end of the
second quarter of 1997. (Debt-to-capital is total debt divided by the sum
of total debt, minority interest, shareholders' equity and ESOP shares.)
During the first six months of 1998, the company repurchased 1,277,000
shares of common stock at a cost of $135 million. With 2 million shares
remaining in its most recent authorization, on July 27, 1998 the Board of
Directors authorized the purchase of an additional 4 million shares. The
company entered an agreement to repurchase 4 million shares on August 13,
1998. The company also held discussions with the Haas Family and related
trusts about converting 4 million common shares under their control to
convertible preferred stock. After careful evaluation, the company and the
family jointly decided it would be in the best interests of all the parties
to maintain the existing relationship.
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
comprehensive income and its components. The company adopted this
standard in the first quarter of 1998. As permitted under the standard,
the company will present the components of comprehensive income in its
Statement of Consolidated Stockholders' Equity. Because this Statement
is not part of the company's required interim reporting, comprehensive
income is disclosed in a note to the financial statements.
Also in 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" and, in 1998, SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
Both standards establish guidance for disclosure in annual financial
statements. The company expects its business segment reporting under SFAS
No. 131 will be consistent with the changes in its financial reporting
structure incorporated in the company's reporting since the first quarter
of 1998. The company will adopt the disclosures prescribed by both
statements in its 1998 annual report as required.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and
5
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 is effective for fiscal years beginning
after June 15, 1999. The company expects to adopt this standard as
required in fiscal year 2000 and has not yet fully assessed its potential
impact on financial position or results of operations.
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. To
date, all of the company's centralized internal computer systems have
been inventoried, and work has begun on investigation, remediation and
testing, which the company expects to have substantially completed by
June 1999. At this time, the company believes there may be risk to
itself and others in its industry presented by possible failure of
systems that are not under its direct control, such as those of
financial and government institutions, and transportation, utility and
some other suppliers. However, the company continues to actively
monitor the year 2000 readiness of such third parties and expects to
prepare contingency plans where appropriate. A significant proportion
of the costs associated with the year 2000 effort represent the
redeployment of existing information technology resources. In addition,
consulting and other expenses related to software application and
facilities enhancements necessary to prepare the systems for the year
2000 are expected to be incurred over the next eighteen months. All of
these costs, which are not expected to exceed $15 million, are charged
to expense as incurred.
This year 2000 discussion contains forward-looking statements based, in
part, on assumptions such as the following: that the manufacturers of
the company's computer systems and software have correctly represented
the year 2000 status of their products; that the company's suppliers and
customers will meet their stated year 2000 compliance obligations; and
that the company's own investigation, remediation and testing are
successful. This discussion, and other forward-looking statements made
in this quarterly report, are based on current expectations and are
subject to the risks and uncertainties detailed in the company's March
27, 1998, Form 10-K filing with the Securities and Exchange Commission.
Actual results in the future may differ from those projected.
6
============================================
== ROHM AND HAAS COMPANY AND SUBSIDIARIES ==
============================================
SALES BY BUSINESS GROUP AND CUSTOMER LOCATION (Millions of dollars)
- ------------------------------------------------------------------------------
SECOND QUARTER 1998 AND 1997
- ------------------------------------------------------------------------------
Performance Chemical Electronic
Polymers Specialties Materials Total
--------------- ----------- ---------- --------------
1998 1997* 1998 1997* 1998 1997* 1998 1997*
--------------- ----------- ---------- --------------
North America $ 423 $ 486 $ 87 $ 84 $ 44 $ 44 $ 554 $ 614
Europe 160 164 73 78 24 23 257 265
Asia-Pacific 45 69 40 38 29 31 114 138
Latin America 31 38 34 34 -- -- 65 72
--------------- ----------- ---------- --------------
Total $ 659 $ 757 $234 $234 $ 97 $ 98 $ 990 $1,089
--------------- ----------- ---------- --------------
- ------------------------------------------------------------------------------
FIRST SIX MONTHS 1998 AND 1997
- ------------------------------------------------------------------------------
Performance Chemical Electronic
Polymers Specialties Materials Total
--------------- ----------- ---------- --------------
1998 1997* 1998 1997* 1998 1997* 1998 1997*
--------------- ----------- ---------- --------------
North America $ 809 $910 $165 $155 $ 91 $ 84 $1,065 $1,149
Europe 317 318 153 162 47 44 517 524
Asia-Pacific 92 126 72 84 59 61 223 271
Latin America 59 71 63 60 -- -- 122 131
--------------- ----------- ---------- --------------
Total $1,277 $1,425 $453 $461 $197 $189 $1,927 $2,075
--------------- ----------- ---------- --------------
*Restated to reflect the 1998 change in financial reporting structure.
PHYSICAL VOLUME CHANGE
CURRENT QUARTER RELATIVE TO YEAR-EARLIER QUARTER
- -----------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -----------------------------------------------------------------------
North America (4)
Performance Polymers (3) Europe 7
Chemical Specialties 6 Asia-Pacific (7)
Electronic Materials 9 Latin America (3)
- -----------------------------------------------------------------------
Worldwide (2) Worldwide (2)
- -----------------------------------------------------------------------
CURRENT SIX MONTHS RELATIVE TO YEAR-EARLIER SIX MONTHS
- -----------------------------------------------------------------------
Percent CUSTOMER Percent
BUSINESS GROUP Change LOCATION Change
- -----------------------------------------------------------------------
North America (2)
Performance Polymers -- Europe 12
Chemical Specialties 2 Asia-Pacific (5)
Electronic Materials 10 Latin America (5)
- -----------------------------------------------------------------------
Worldwide -- Worldwide --
- -----------------------------------------------------------------------
7
NET EARNINGS BY BUSINESS GROUP AND CUSTOMER LOCATION
- -------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1998 1997* 1998 1997*
--------------------------------------------
BUSINESS GROUP (Millions of dollars)
--------------------------------------------
Performance Polymers $170 $ 96 $253 $174
Chemical Specialties 13 27 42 55
Electronic Materials 12 13 25 25
Corporate (25) (19) (41) (33)
- --------------------------------------------------------- -------------------
Total $170 $117 $279 $221
- --------------------------------------------------------- -------------------
CUSTOMER LOCATION
North America $137 $ 87 $220 $154
Europe 47 25 78 55
Asia-Pacific 3 13 9 28
Latin America 8 11 13 17
Corporate (25) (19) (41) (33)
- --------------------------------------------------------- -------------------
Total $170 $117 $279 $221
- --------------------------------------------------------- -------------------
Corporate includes non-operating items such as interest income and expense,
corporate governance costs and corporate exploratory research expense.
* Restated to reflect the 1998 change in financial reporting structure.
ANALYSIS OF CHANGE IN BASIC PER-SHARE EARNINGS
CURRENT PERIOD RELATIVE TO YEAR-EARLIER PERIOD
- ----------------------------------------------------------------------
$/Share
(after-tax)
-----------------------------
SECOND FIRST
GROSS PROFIT QUARTER SIX MONTHS
------------ --------------
Selling prices $(.06) $(.05)
Physical volume and product mix (.16) (.09)
Raw material costs .29 .44
Other manufacturing costs .16 .28
Currency effect on gross profit (.18) (.40)
- ----------------------------------------------------- ---------------
Increase in gross profit .05 .18
- ----------------------------------------------------- ---------------
OTHER CAUSES
Gain on sale of facilities and
investments, net 1.22 1.22
Selling, administrative and
research expenses* .04 .01
Share of affiliate earnings (.05) (.06)
Extraordinary loss on early
extinguishment of debt (.16) (.16)
Provision for write-down of assets (.22) (.21)
Reduction in outstanding shares of
common stock .08 .14
Other (.03) (.05)
- ----------------------------------------------------- ---------------
Increase from other causes .88 .89
- ----------------------------------------------------- ---------------
Increase in basic per-share earnings $ .93 $1.07
- ----------------------------------------------------- ---------------
*Amounts shown are on a U.S. dollar basis and include the impact of
currency movements compared to the prior-year period.
8
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS (Subject to Year-end Audit)
- -------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ --------------------
1998 1997 1998 1997
------------------------ --------------------
CURRENT EARNINGS (Millions of dollars, except per share amounts)
-----------------------------------------------
Net sales $ 990 $ 1,089 $ 1,927 $ 2,075
Cost of goods sold 584 688 1,148 1,313
- -------------------------------------------------------- --------------------
Gross profit 406 401 779 762
Selling and administrative expense 156 162 306 316
Research and development expense 52 50 104 95
Interest expense 11 11 21 21
Share of affiliate net earnings -- 3 2 6
Other (income) expense, net (108) 6 (111) 6
- -------------------------------------------------------- --------------------
Earnings before income taxes and
extraordinary item 295 175 461 330
Income taxes 115 58 172 109
- -------------------------------------------------------- --------------------
EARNINGS BEFORE EXTRAORDINARY
ITEM $ 180 $ 117 $ 289 $ 221
Extraordinary loss on early
extinguishment of debt (net
of income tax benefit of $5) 10 -- 10 --
- -------------------------------------------------------- --------------------
NET EARNINGS $ 170 $ 117 $ 279 $ 221
Less preferred stock dividends 2 2 4 4
- -------------------------------------------------------- --------------------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 168 $ 115 $ 275 $ 217
- -------------------------------------------------------- --------------------
EARNINGS PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM:
-- Basic $ 2.95 $ 1.85 $ 4.70 $ 3.47
-- Diluted 2.88 1.82 4.61 3.42
NET EARNINGS PER COMMON SHARE:
-- Basic $ 2.78 $ 1.85 $ 4.54 $ 3.47
-- Diluted 2.72 1.82 4.46 3.42
Common dividends $ .50 $ .45 $ 1.00 $ .90
Average number of common shares
outstanding (000's) 60,415 62,174 60,578 62,523
- -------------------------------------------------------- --------------------
See notes to consolidated financial statements.
9
Rohm and Haas Company and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (Subject to Year-end Audit)
- ------------------------------------------------------------------------
Six Months Ended June 30,
---------------------------
1998 1997
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Millions of dollars)
---------------------------
Net earnings $ 279 $ 221
Adjustments to reconcile net earnings
to cash provided by operating activities,
net of the effects of acquisitions and
divestitures:
Depreciation 132 135
Deferred income taxes (15) (5)
Accounts receivable (145) (100)
Inventories (9) 35
Accounts payable and accrued liabilities (47) (73)
Income taxes payable 21 37
Gain on sale of facilities and investments (76) --
Extraordinary loss on early extinguishment
of debt, net of tax 10 --
Provision for the write-down of assets 16 --
Other working capital changes, net (9) (11)
Other, net 37 14
- ------------------------------------------------------------------------
Net cash provided by operating activities 194 253
- ------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sales of facilities and investments,
net of cash sold 287 5
Additions to land, buildings and equipment (89) (116)
Investments in affiliates, net of cash acquired (21) (65)
- ------------------------------------------------------------------------
Net cash provided by (used by)
investing activities 177 (176)
- ------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 7 5
Purchase of treasury stock (135) (133)
Repayments of long-term debt (169) (24)
Net change in short-term borrowings 20 160
Payment of dividends (62) (58)
Other, net (5) 1
- ------------------------------------------------------------------------
Net cash used by financing activities (344) (49)
- ------------------------------------------------------------------------
Effect of exchange rate changes on cash -- (1)
- ------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 27 $ 27
- ------------------------------------------------------------------------
See notes to consolidated financial statements.
10
Rohm and Haas Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Subject to Year-end Audit)
- -----------------------------------------------------------------------------
JUNE 30, December 31, June 30,
1998 1997 1997
------------------------------------
ASSETS (Millions of dollars)
------------------------------------
Current assets:
Cash and cash equivalents $ 67 $ 40 $ 38
Receivables, net 855 755 941
Inventories (note d) 437 459 448
Prepaid expenses and other assets 149 143 128
- -----------------------------------------------------------------------------
Total current assets 1,508 1,397 1,555
- -----------------------------------------------------------------------------
Land, buildings and equipment 4,373 4,492 4,418
Less accumulated depreciation 2,484 2,484 2,376
- -----------------------------------------------------------------------------
Net land, buildings and equipment 1,889 2,008 2,042
- -----------------------------------------------------------------------------
Other assets 434 495 477
- -----------------------------------------------------------------------------
$3,831 $3,900 $4,074
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 84 $ 97 $ 305
Accounts payable and accrued
liabilities 616 669 592
Accrued income taxes 157 84 108
- -----------------------------------------------------------------------------
Total current liabilities 857 850 1,005
- -----------------------------------------------------------------------------
Long-term debt 402 509 543
Employee benefits 408 410 415
Other liabilities 290 334 346
Stockholders' equity:
$2.75 Cumulative convertible preferred
stock (note f) 110 126 127
Common stock: shares
issued -- 78,652,380 197 197 197
Additional paid-in capital 118 135 136
Retained earnings 2,542 2,325 2,199
- -----------------------------------------------------------------------------
2,967 2,783 2,659
Less: Treasury stock (note g) 934 820 743
Less: ESOP shares 135 138 142
Other comprehensive income (24) (28) (9)
- -----------------------------------------------------------------------------
Total stockholders' equity 1,874 1,797 1,765
- -----------------------------------------------------------------------------
$3,831 $3,900 $4,074
- -----------------------------------------------------------------------------
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. Certain
prior year amounts in the Statements of Cash Flows have been
restated to conform to current year presentation. These financial
statements should be read in conjunction with the financial
statements, accounting policies and the notes included in the
company's annual report for the year ended December 31, 1997.
(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 remediations at some of its manufacturing
facilities. At June 30, 1998, the reserves for remediation were
$140 million, compared to $147 million at December 31, 1997.
Insurance recoveries receivable were $2 million at June 30, 1998 and
$19 million at December 31, 1997, the change resulting largely from
collections in the first half of 1998. The company is in the midst
of lawsuits over insurance coverage for environmental liabilities.
It is the company's practice to reflect environmental insurance
recoveries in the results of operations for the quarter in which
litigation is resolved through settlement or other appropriate legal
process. Recoveries typically determine coverage for both past and
future environmental spending. The amounts charged to earnings
before tax for environmental remediation, net of insurance, were $7
million in the first half of 1998 and $8 million in the first half
of 1997. In the 1997 period, 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 that quarter with certain insurance
carriers. The 1998 charge includes the aggregation of smaller
environmental accruals.
In addition to accrued environmental liabilities, the company has
reasonably possible loss contingencies relating to environmental
matters of approximately $65 million. The company has also
identified other sites, including its larger manufacturing
facilities in the United States, 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)
JUNE 30, Dec. 31, June 30,
1998 1997 1997
--------- -------- ---------
Finished products and work in process $334 $352 $347
Raw materials and supplies 103 107 101
---- ---- ----
Total inventories $437 $459 $448
---- ---- ----
(E) The components of second quarter and first half 1998
comprehensive income are as follows (millions of dollars):
June 30, 1998
-------------
Qtr. YTD
---- ----
Net income $180 $289
Other comprehensive income,
net of tax: Foreign
currency translation
adjustment (6) (10)
---- ----
Comprehensive income $174 $279
---- ----
(F) The number of preferred shares issued and outstanding were:
June 30, 1998 2,199,842
December 31, 1997 2,522,926
June 30, 1997 2,530,836
(G) The number of common treasury shares were:
June 30, 1998 18,846,969
December 31, 1997 17,776,731
June 30, 1997 16,935,690
Dithane and Systhane are trademarks of Rohm and Haas Company.
12
[LOGO]
RESPONSIBLE CARE(R)
A PUBLIC COMMITMENT
[LOGO]
ROHM AND HAAS
APPENDIX TO EXHIBIT 20
(Pursuant to Part 232.304(a) of Regulation S-T)
Graphic Description/Cross Reference
- ----------- -----------------------------------------------------------
Cover An illustration of a chemical molecule and words
"Second Quarter 1998"
Pie Charts Description included in introduction to Exhibit 20
(not incorporated by reference)