Date: Thu, 20 Nov 1997 20:27:59 GMT Server: NCSA/1.5.1 Last-modified: Fri, 15 Nov 1996 20:00:29 GMT Content-type: text/html Content-length: 52336 Financial Highlights 3rdQ96

Financial Highlights

(Millions of dollars, except earnings per share)


Third Quarter Nine Months

1996

1995
Percent
Change

1996

1995
Percent
Change
Net sales $969 $942 $3,017 2,969 2
Net earnings 87 59 47 288 225 28
Net earnings per
   common share

$1.31

$.85

54  

$ 4.28

$ 3.24

32


CHAIRMAN'S LETTER

Strong volume growth, good internal cost control and lower raw material costs enabled Rohm and Haas to report excellent earnings for the third quarter -- a 54 percent increase in earnings per common share.

Unit volume improved 8 percent overall, with our two largest acrylic businesses -- Polymers and Resins and Plastics Additives -- reporting volume improvements in nearly every geographic region for the second quarter in a row. Agricultural Chemicals, Formulation Chemicals, AtoHaas, Ion Exchange Resins and Biocides also reported volume increases. Clearly we have regained momentum, and our core acrylic businesses are back on a solid growth track.

Selling, administrative and research (SAR) costs remained essentially flat during the quarter. We've said since 1993 we would keep below-the-line costs flat -- and we've done it. We also intend to hold them steady in 1997. Obviously we can't keep the lid on SAR spending forever, but we can keep below-the-line costs growing at rates lower than inflation, and we intend to do so.

Raw material costs were down 10 percent for the quarter, compared to year-ago levels, and down slightly from the second quarter of this year. While the raw material cost decline was helpful, selling prices also were down 2 percent. As a result, we've seen an improvement in our overall selling price/raw material cost relationship, but we have not yet regained the balance we enjoyed before raw material prices skyrocketed in 1994.

We completed the repurchase of 3.5 million shares of our common stock in September. We continue to have strong cash flow and our debt-to-equity ratio was below 40 percent. Because of our strong cash position, the board of directors approved a second buyback program of another 3.5 million shares in mid-October.

The outlook for the remainder of 1996 is positive, though the fourth quarter comparison with last year will not be as favorable as it was for the third quarter. Our overall performance was quite strong in the fourth quarter of 1995, compared with a weak performance in the third quarter of last year.


J. Lawrence Wilson,
Chairman                                                   November 8, 1996


MANAGEMENT DISCUSSION AND ANALYSIS

THIRD QUARTER 1996 versus THIRD QUARTER 1995

Third quarter 1996 earnings were $87 million, up 47% from last year's results of $59 million. Earnings per common share increased 54% to $1.31 from $.85 in 1995. All regions and businesses, except Electronic Chemicals, had volume growth which resulted in an 8% increase in volume for the quarter. Sales of $969 million were 3% above the prior-year period due to higher volume, offset by a 17% weaker Japanese yen, 2% weaker European currencies, a lower-priced product mix and 2% lower selling prices. Earnings increased as a result of increased sales, 10% lower raw material prices, smooth plant operations and flat selling, administrative and research costs.

Polymers, Resins and Monomers (PRM) earnings of $72 million jumped 67% compared to the prior year. Excluding the impact of the Petroleum Chemicals reclassification (see Liquidity section), sales grew 9% and volume rose 10%. All regions and businesses contributed to the volume growth. Positive impacts on earnings included increased volume, lower raw material prices and smooth plant operations. Lower selling prices hurt earnings in the quarter.

Performance Chemicals reported earnings of $20 million, up 18% from last year's earnings of $17 million. Sales were up 1%, though volume declined 2%, due to a higher-priced product mix. Ion Exchange Resins reported profits again this quarter, compared to a loss in the prior-year quarter. Shipley Company had lower volume and earnings, reflecting sluggishness in the electronics industry, the weakness of the Japanese yen and accruals for restructuring costs in Europe.

Plastics recorded earnings of $14 million, up $1 million from the 1995 period. Volume was up 20% because additives used in PVC applications had double-digit volume growth in all regions and AtoHaas Americas had significant volume gains in North America. Plastics sales were up 8% because of higher volume, offset by lower selling prices and weaker European currencies. Plastics earnings benefited from declining raw material prices. Earnings growth was restrained by losses from AtoHaas Europe, due to weak market conditions manifested by lower volume, falling selling prices and higher raw material costs.

Agricultural Chemicals earnings of $2 million were $1 million less than the prior-year period. Sales decreased 1%, though volume grew 16%, due to a lower-priced product mix and weaker currencies in Europe and Japan. The volume gains were due to a significant increase of shipments of Dithane in all regions except North America. Earnings declined due to reduced sales of Mimic insecticide because the caterpillar infestation that hit the United States in 1995 did not reoccur this year. There also was higher selling, administrative and research expense to support new product introductions.

The company's gross profit margin for the third quarter was 36%, compared to 33% last year. The increase resulted from 8% volume growth, 10% percent lower raw material prices, smooth plant operations and higher production volumes.

Interest expense increased $1 million due to lower capitalization of interest cost as part of construction in progress. Affiliate losses were $1 million compared to earnings of $1 million in the third quarter of 1995 due to losses from AtoHaas Europe which has seen intense competition in the acrylic plastics business. Other expense, net, was $3 million, down from $12 million in 1995, due to higher royalty income and gains from foreign currency translations.


NINE MONTHS 1996 VERSUS NINE MONTHS 1995

Earnings for the first nine months of 1996 were $288 million, a 28% increase over last year's earnings of $225 million. Earnings per common share were $4.28, up 32% compared with the 1995 period. The 1996 earnings were increased by a $10 million retroactive tax credit on sales outside of the United States. 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 these items, earnings would have increased 15%. Sales increased 2% to $3,017 million due to 3% higher volume. Selling prices were essentially flat with last year. Earnings were helped by 8% lower raw material prices and volume growth.

Polymers, Resins and Monomers earnings of $180 million were up 29% from 1995. Sales and volume grew 5%, excluding the impact of the Petroleum Chemicals business. Architectural Coatings reported higher volume in North America and Latin America and Construction Products had volume gains in all regions. Earnings growth resulted from lower raw material prices and increased volume, partly offset by an increase in unit manufacturing costs, lower selling prices and higher selling, administrative and research costs.

Performance Chemicals earnings increased 19% to $64 million, from $54 million last year. Sales were up 4%, excluding the sale of a small electronic chemicals subsidiary in 1995, and volume increased 2%. Shipley Company's sales were up, but growth slowed due to weakening of the electronics industry. Biocides had lower sales, despite higher volume, reflecting weakening currencies in Europe and Japan and lower selling prices. Ion Exchange Resins reported earnings in 1996 compared to losses in 1995 due to operating costs which were below last year.

Plastics recorded earnings of $41 million, down from $53 million in 1995. Sales declined slightly, despite 3% higher volume, reflecting lower selling prices. Plastics Additives reported higher volume, but declining selling prices and weakening currencies in Europe and Japan resulted in lower sales and flat earnings. AtoHaas Americas had lower volume and higher manufacturing costs which were only partially offset by lower raw material prices. Earnings were hurt by significant losses from AtoHaas Europe due to weak market conditions in the acrylic plastics business.

Agricultural Chemicals earnings were $42 million, $2 million less than the first nine months of 1995. Sales were up 2%, due to 6% higher volume and a lower-priced product mix. The volume gain is due to increased shipments of Dithane in all regions, except North America. Earnings declined due toreduced sales of Mimic insecticide because the caterpillar infestationin the United States in 1995 did not reoccur this year. Earnings werealso dampened by higher selling, administrative and research expense to support development and introduction of new products.

Corporate expenses were $39 million, compared to $66 million in 1995. The 1995 period included an after-tax charge of $17 million for additional potential liability related to the cleanup of the Whitmoyer waste site. Other reasons for lower expense in 1996 included lower interest expense and a $10 million retroactive tax credit on sales outside of the U.S. The company's gross profit margin for the first nine months was 36%, compared to 34% in 1995. Margins improved due to 8% lower raw material prices, higher production volumes and smooth plant operations.

Selling, administrative and research expenses were up 2%, compared to 1995, to support business growth. Interest expense of $29 million was $2 million lower than 1995 because of lower interest rates. Affiliate losses were $9 million, compared to earnings of $6 million reported last year, due to losses from AtoHaas Europe, the result of weak market conditions. Other expense, net, was $6 million, compared to $48 million last year. The prior year included a $26 million charge for additional potential liability related to the Whitmoyer waste site and $4 million for the settlement of litigation. The current year includes higher royalty income and gains from foreign currency translations.

The effective tax rate for the first nine months was 32%, down from 34% for the first nine months of 1995. The current year includes a $10 million retroactive tax credit on sales outside of the United States.


LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA

At the end of the quarter, cash and cash equivalents totaled $50 million, up $7 million from the 1995 year-end balance. Accounts receivable were up $56 million during the first nine months, reflecting a normal seasonal pattern. In early 1996, the company collected $24 million of insurance recoveries related to environmental remediation cost claims.

The debt-to-equity ratio, calculated without the reduction to stockholders' equity for the ESOP transaction, was 39% at the end of September, compared with 36% at year-end 1995. Total debt increased $45 million since year-end. The increase in the debt-to-equity ratio was mainly due to the reduction in equity resulting from the company's stock repurchase program, which was completed in September. During this time, the company purchased 3.5 million shares of its common stock at a cost of $229 million. On October 18, 1996, the board of directors approved a second stock buy-back program of another 3.5 million shares.

Fixed asset additions during the first nine months of 1996 totaled $218 million. Spending for the full year is estimated to be in the range of $350 million and includes expenditures for new emulsion facilities in Thailand, Indonesia and Houston, Texas, andcapacity expansion for acrylic acid at Houston, Texas.

On October 18, 1996, the board of directors declared regular quarterly dividends of $.45 per common share and $.6875 per preferred share. Both dividends are payable December 1, 1996, to stockholders of record on November 8, 1996.

During the quarter, the company completed the formation of RohMax, a 50-50 joint venture with Rohm GmbH for the research, manufacture and sale of petroleum additives. Effective July 3, 1996, the company's share of RohMax's earnings were reported as equity in affiliates. RohMax is expected to have annual sales of approximately $225 million, which will not be included in the consolidated sales of Rohm and Haas. However, the company will supply certain raw materials to the joint venture. On an annualized basis, the net impact is a reduction of $100 million in the company's sales, with an immaterial impact on earnings. The raw materials will be supplied by PRM, so for reporting purposes, the company has moved the results of the Petroleum Chemicals business from Performance Chemicals to PRM. The table below shows sales and earnings for the past six quarters restated for this change.


Sales and Earnings Restated for Reclassification of Petroleum Chemicals from Performance
Chemicals to Polymers, Resins and Monomers (Millions of dollars)

Polymers,
Resins and
Monomers
Performance
Chemicals

Restated

Previously
Reported

Restated

Previously
Reported

Sales

 

For the quarters ended:
March 31, 1995

$484

$445

$178

$217

June 30, 1995

521

480

197

238

September 30, 1995

500

460

183

223

December 31, 1995

448

412

182

218

March 31, 1996

494

453

183

224

June 30, 1996

538

499

193

232

         
Sales        
For the quarters ended:        
March 31, 1995

 $53

$51

$18

$20

June 30, 1995

44

41

19

22

September 30, 1995

43

40

17

20

December 31, 1995

45

42

15

18

March 31, 1996

53

49

24

28

June 30, 1996 55 52 20 23


ROHM AND HAAS COMPANY AND SUBSIDIARIES


Sales by Business Group and Customer Location (Millions of dollars)

Third Quarter 1996 and 1995*


Polymers,
Resins and
Monomers

Performance
Chemicals


Plastics

Agricultural
Chemicals


Total
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
North America $340 $336 $73 $68 $99 $94 $22 $33 $534 $531
Europe 90 90 50 49 62 55 21 22 223 216
Asia-Pacific 55 51 58 61 11 10 20 15 144 137
Latin America 28 23 4 5 7 7 29 23 68 58
   Total $513 $500 $185 $183 $179 $166 $92 $93 $969 $942

First Nine Months 1996 and 1995*


Polymers,
Resins and
Monomers

Performance
Chemicals


Plastics

Agricultural
Chemicals


Total
North America $1,013 $996 $218 $203 $282 $291 $109 $115 $1,622 $1,605
Europe 293 283 158 153 190 180 137 131 778 747
Asia-Pacific 161 152 170 187 32 37 66 67 429 443
Latin America 78 74 15 15 21 19 74 66 188 174
   Total $1,545 $1,505 $561 $558 $525 $527 $386 $379 $3.017 $2,969

* Sales have been restated for 1995 and the first 6 months of 1996 to move Petroleum Chemicals results from Performance Chemicals to Polymers Resins and Monomers.


Physical Volume Change
Current Quarter Relative to Year-Earlier Quarter

Business Group Percent Change Customer Location Percent Change
Performance Chemicals (2) Europe 14        
Polymers, Resins and Monomers

 7

North America

 5

       
Plastics 20 Asia-Pacific 17        
Agricultural Chemicals 16 Latin America 15        
Worldwide 8 Worldwide 8        


Current Nine Months Relative to Year-Earlier Nine Months

Business Group Percent Change Customer Location Percent Change
Performance Chemicals (1) Europe 6        
 Polymers, Resins and Monomers

 3

 North America

 1

       
Plastics 3 Asia-Pacific 8        
Agricultural Chemicals 6 Latin America 6        
Worldwide 3 Worldwide 3        

* Polymers, Resins and Monomers volume would have increased 10% for the quarter and 5% for the nine months, excluding the impact of the Petroleum Chemicals business, now accounted for through the RohMax joint venture.


Net Earnings by Business Group and Customer Location

Quarter Ended
September 30,
Nine Months Ended
September 30,

1996

1995*

1996

1995*

Business Group (Millions of dollars)
Polymers, Resins and Monomers $72 $43 $180 $140
Performance Chemicals 20 17 64 54
Plastics 14 13 41 53
Agricultural Chemicals 2 3 42 44
Corporate (21) (17) (39) (66)
   Total $87 $59 $288 $225
         
Customer Location        
North America $68 $45 $181 $152
Europe 18 19 81 86
Asia-Pacific 14 8 42 39
Latin America 8 4 23 14
Corporate (21) (17) (39) (66)
   Total $87 $59 $288 $225


Corporate includes non-operating items such as interest income and expense, corporate governance costs and the operations of certain developing businesses.

* 1995 amounts have been restated for the following items:

1. Corporate governance costs, previously allocated to the businesses and regions, are now reported in Corporate.

2. The operations of certain developing businesses, previously reporte in Performance Chemicals and North America, are now reported in Corporate.

3. The operations of the Petroleum Chemicals business have been moved from Performance Chemicals to Polymers, Resins and Monomers. Effective July 1, 1996, the results of the Petroleum Chemicals business, previously fully consolidated, are now included in equity in affiliate through the RohMax joint venture.


Analysis of Change in Per-Share Earnings
Current Period Relative to Year-Earlier Period

$/Share
(after-tax)
     
Gross Profit

Third Quarter

First Nine Months      
Selling prices $ (.10) $.01      
Physical volume and product mix .23 .44      
Raw material prices .31 .68      
Other manufacturing costs (.03) (.43)
   Increase in gross profit .38 .64      
 Currency effect on gross profit

 .03

 .06

     
Other Causes          
Selling, administrative and
   research expenses*

(.01)

(.10)
     
Share of affiliate earnings(losses) (.03) (.22)      
Certain waste disposal site cleanup costs -- .25      
Retroactive tax credit on sales outside the U.S. -- .15      
Reduction in outstanding shares of common stock .05 .11      
Other

.05

.21

   
Increase from other causes .08 .40      
Increase in per-share earnings $ .46 $ 1.04      


*The amounts shown are on a U.S. dollar basis and include the impact of currency movements as compared to the prior-year period.


Rohm and Haas Company and Subsidiaries
Statements of Consolidated Earnings (Subject to Year-end Audit)

Quarter Ended
September 30,
Year Ended
September 30,

1996

1995

1996

1995

Current Earnings
(Millions of dollars, except per-share amounts)
Net sales $ 969 $ 942 $ 3017 $ 2969
Cost of goods sold 622 634 1,944 1963
   Gross profit 347 308 1,073 1,006
       
Selling and administrative expense 156 154 466 455
Research and development expense 44 47 138 139
Interest expense 12 11 29 31
Share of affiliate net earnings (losses) (1) 1 (9) 6
Other expense, net 3 12 6 48
       
Earnings before income taxes 131 85 425 339
Income taxes 44 26 137 114
       
Net earnings $ 87 $ 59 $ 288 $ 225
Less preferred stock dividends 2 2 6 6
       
Net earnings applicable to
   common shareholders

$ 85

 

$ 57

 

$ 282

 

$219

       
Per Common Share:        
Net earnings $ 1.31 $.85 $4.28 $3.24
Common dividends $.45 $41 $ 1.27 $ 1.15
       
Average number of common
   shares outstanding (000's)
64,718 67,466 65.930 67,587


See notes to consolidated financial statements.


Rohm and Haas Company and Subsidiaries
Statements of Consolidated Cash Flows (Subject to Year-end audit)

Nine Months Ended

September 30,

1996

1995

Cash Flows from Operating Activities

(Millions of dollars)
Net earnings $ 288 $ 225
Adjustments to reconcile net earnings to cash provided
   by operating activities:
   
   Depreciation 192 178
   Deferred income taxes 28 23
   Accounts receivable (55) (77)
   Inventories 39 28
   Accounts payable (29) (42)
Income taxes payable 25 (12)
   Other working capital changes, net (17) (17)
   Other, net 33 37
   
   Net cash provided by operating activities 504 343
   
Cash Flows from Investing Activities    
Additions to land, buildings and equipment (218) (269)
Long term investments and joint ventures (7) --
 Proceeds form the sale of facitities and investments -- 49
   
   Net cash used by investing activities (225) (219)
   
Cash Flows from Financing Activities    
Purchases of treasury shares (230) (25)
Proceeds from issuance of long-term debt 1 25
Repayments of long-term debt (38) (112)
Net change in short-term borrowings 87 (2)
Payment of dividends (87) (81)
Other, net (5) 4
   Net cash used by financing activities (272) (191)
   
   Net increase (decrease) in cash and cash equivalents $ 7 $(67)


See notes to consolidated financial statements.


Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets (Subject to Year-end Audit)

Sept 30,
1996
December 31,
1995
Sept 30,
1995

Assets

(Millions of dollars)
Current assets:      
   Cash and cash equivalents $50 $ 43 $60
   Receivables, net 812 756 755
   Inventories (note d) 455 504 451
   Prepaid expenses and other assets 133 118 156

      Total current assets 1,450 1,421 1,422

Land, buildings and equipment 4,288 4,158 4,060
Less accumulated depreciation 2,245 2,110 2,076

   Net land, buildings and equipment 2,043 2,048 1,984

Other assets 480 447 476

$3,972 $3,916 $3,882

Liabilities and Stockholders' Equity

     
Current liabilities:      
   Notes payable $167 $ 90 $81
   Accounts payable and accrued liabilities 628 666 630
   Accrued income taxes 99 72 63

      Total current liabilities 894 828 774

Long-term debt 574 606 619
Other liabilities 752 701 740
     
Stockholders' equity:      
   $2.75 Cumulative convertible      
      preferred stock (note e) 132 133 133
   Common stock: shares issued      
      --78,652,380 197 197 197
   Additional paid-in capital 146 150 151
   Retained earnings 1,990 1,789 1,750

2,465 2,269 2,231
   Less: Treasury stock (note f) 563 344 342
   Less: ESOP shares 146 151 153
   Other equity adjustments (3) 7 13

      Total stockholders' equity 1,753 1,781 1,749

$3,973 $3,916 $3,882

See notes to consolidated financial statements.


Notes to Consolidated Financial Statements


(a) These interim financial statements are unaudited, but, in theopinion 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, 1995.
(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 it manufacturing facilities. The amounts charged to earnings before tax for environmental remediation were $19 million and $32 million for the nine months ended September 30, 1996 and 1995, respectively. The charge in the 1995 period includes additional accruals in the first quarter related to the Whitmoyer waste site. At September 30, 1996, the reserves for remediation were $151 million and probable insurance recoveries were $48 million.
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 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,
1996
Dec. 31,
1995
Sept. 30,
1995
Finished products and work in process $335 $376 $318
Raw materials and supplies 120 128 133
   Total inventories $455 $504 $451

(e) The number of preferred shares issued and outstanding were:
September 30, 1996  2,642,894
December 31, 1995  2,656,153
September 30, 1995 2,659,268
   
(f) The number of common treasury shares were:
September 30, 1996 14,682,007
December 31, 1995  11,327,357
September 30, 1995     11,302,069


Dithane is a trademark of Rohm and Haas Company

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