Date: Thu, 20 Nov 1997 20:29:32 GMT Server: NCSA/1.5.1 Last-modified: Tue, 04 Nov 1997 17:36:50 GMT Content-type: text/html Content-length: 87808 Financial Highlights 2ndQ96

Third Quarter REport

Financial Highlights

(Millions of dollars, except earnings per share)


Third Quarter


Nine Months



1997


1996

Percent
Change


1997


1996

Percent
Change



Net sales

$974

  $969

1

$3,049

  $3,017

1

Net earnings

91

87

5

312

288

8

Net earnings per
   common share

$1.45

$1.31

11

$4.92

$4.28

15



CHAIRMAN'S LETTER

Rohm and Haas had a terrific third quarter, one that reflects the continuation of trends seen all year:

Looking ahead, I expect to see the trends of the first three quarters continue through the end of the year, as long as there are no surprises in economic conditions or currency exchange rates during the fourth quarter.

Fred W. Shaffer, Vice President and Chief Financial Officer, retired at the end of August after 37 years of service. Fred's legacy can be seen in the strong financial structure that underpins the company's performance in 1997. On behalf of the Board of Directors and the employees of Rohm and Haas, I thank him for his excellent work over the years and wish him and his wife, Meriel, a happy retirement.

On October 24th, the Board of Directors authorized the repurchase of an additional 3 million shares of common stock, or approximately 5 percent of the 61 million shares outstanding as of September 30, 1997.

J. Lawrence Wilson, Chairman
November 3, 1997



MANAGEMENT DISCUSSION AND ANALYSIS

THIRD QUARTER 1997 VERSUS THIRD QUARTER 1996

Third quarter 1997 earnings were $91 million, up 5% from last year's earnings of $87 million. Earnings per common share of $1.45 rose 11% from $1.31 per common share in 1996. Volume increased 5% in the quarter as a result of strong demand in Polymers, Resins and Monomers and Performance Chemicals. The latter segment's performance was helped largely by the Electronic Chemicals businesses. Despite good volume growth, sales of $974 million were just 1% above the prior-year period, reflecting weaker currencies in Japan and in Europe and moderately lower selling prices. Earnings increased as a result of higher volume, smooth plant operations, earnings from affiliates and lower interest expense. In addition to higher earnings, the per-share increase reflects the impact of the company's common share repurchase program.

Polymers, Resins and Monomers earnings were $69 million, down 4% compared with the prior year. Sales increased 3% as a result of a 7% increase in volume offset by weaker currencies and slightly lower selling prices. Volume strength was evident in all regions, reaching double digits in Europe, Latin America and Asia-Pacific, with particularly strong contributions from products for the paper, adhesives and coatings markets. The decrease in earnings was driven largely by unfavorable currencies.

Performance Chemicals recorded earnings of $24 million, a 20% increase from last year's earnings on 9% higher volume and 6% higher sales. The Electronic Chemicals business reported strong sales and earnings increases in all regions in which they participate. Electronic Chemicals earnings were also helped by the contribution of Rodel, Inc., an affiliate acquired in the second quarter of 1997. Despite strong volume growth, sales and earnings in both Ion Exchange Resins and Biocides were essentially flat because of unfavorable currencies and selling prices.

Plastics reported earnings of $17 million up from $14 million reported for the same period in 1996. A volume decrease of 6%, combined with weaker currencies in Europe and lower overall selling prices, led to 8% lower sales. Though the volume decrease had a negative earnings impact, roughly break-even results in AtoHaas Europe (compared to losses in the 1996 period) allowed Plastics to show an earnings improvement.

Agricultural Chemicals recorded losses of $2 million compared with earnings of $2 million in the third quarter of 1996. Sales were 5% lower than 1996, which reflected 2% lower volume and the effect of weaker currencies in Europe and Japan. The volume decrease is the net effect of lower sales of Dithane in all regions, except Latin America, largely related to weather conditions. The earnings decrease is a result of lower volume and unfavorable currency impacts.

Corporate expenses of $17 million in 1997 were down $4 million from last year's third quarter due largely to lower interest expense resulting from lower average debt balances during the quarter.

Net sales were $974 million, up 1% from 1996. The third quarter gross profit margin was 35%, down from 36% for the 1996 period due to weaker currencies in Europe and Japan and slightly lower selling prices offset by higher volume.

Affiliate earnings for the quarter were $4 million, compared to a 1996 loss of $1 million. This increase reflects the contribution of Rodel, Inc., the RohMax joint venture and improved results in AtoHaas Europe.

The effective tax rate for the quarter was 32%, compared with 34% a year ago. This decrease is primarily a result of the effect of affiliate earnings, which are recorded on an after-tax basis.


NINE MONTHS 1997 VERSUS NINE MONTHS 1996

Earnings for the first nine months were $312 million, 8% higher than last year's earnings of $288 million. Earnings per common share were $4.92, up 15% from the 1996 period. Sales increased 1% to $3,049 million. Unit volume increased 8%. Sales growth was hindered by weaker currencies, the absence of Petroleum Chemicals sales now part of the RohMax joint venture, and slightly lower selling prices. Earnings for the first nine months were driven by higher volume and earnings from affiliates. In addition to higher earnings, the per-share increase reflects the impact of the company's common share repurchase program.

Polymers, Resins and Monomers earnings of $211 million were up 17% from 1996. Excluding the effect of the former Petroleum Chemicals business, sales were up 7% on an 11% volume increase. All regions reported strong volume growth, but the favorable impact on sales was offset, in part, by weaker currencies and slightly lower selling prices. Products for the paper, adhesives and coatings markets reported particularly strong volume growth versus 1996. Earnings increases are primarily a result of higher volume.

Performance Chemicals reported earnings of $67 million, a 5% increase over last year's number. Sales essentially were unchanged from 1996. Volume increased 3%. The volume increase did not result in sales growth because of weaker currencies in Europe and in the Asia-Pacific region. The extent of the volume increase was hindered by the discontinuation of the Biocides joint venture with Dead Sea Bromine. Higher volumes in Electronic Chemicals and in Ion Exchange Resins offset some of this decrease. The increased earnings reflect strong results reported by the Electronic Chemicals businesses, including a contribution from the recent investment in Rodel, Inc. This offset weaker results for Biocides and Ion Exchange Resins.

Plastics recorded earnings of $49 million, an increase from $41 million in 1996. Volume increased 5% while sales essentially were unchanged, due to lower selling prices and weaker currencies in Europe. Plastics reported 20% higher earnings due to modest results reported in the AtoHaas Europe business through nine months of 1997 versus losses in the same period of 1996.

Agricultural Chemicals earnings were $35 million, down $7 million from the same period of 1996. Sales were down 5% due to 2% lower volume and weaker currencies in Europe and Japan. The volume decrease was due primarily to weather-related lower Dithane shipments in all regions except Latin America. The 17% earnings decrease was a result of negative currency impacts and lower volume.

Corporate expenses of $50 million were $11 million higher than 1996. The 1996 period included a $10 million ($.15 per common share) retroactive tax credit on sales outside the United States.

The gross profit margin for the first nine months was 36%, unchanged from the prior-year period. Despite higher volume, margins were hindered by unfavorable currency impacts in Europe and Japan and lower selling prices.

Selling, administrative and research expenses largely were unchanged compared with 1996. This reflects weaker currencies and good overall cost control even as spending to support business growth has increased. Affiliate earnings were $10 million, compared to losses of $9 million last year. This improvement is due to the contribution of Rodel, Inc., the RohMax joint venture and earnings in AtoHaas Europe versus losses in 1996. Other expense, net, was $8 million, compared with $6 million in 1996 largely because of unfavorable currency fluctuations.

The effective tax rate for the first nine months was 33%, up slightly from 32% for the first nine months of 1996. The 1996 rate includes the effect of a $10 million third quarter 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 $33 million, up $22 million from the 1996 year-end balance. Accounts receivable were down $65 million versus year-end 1996. This decrease was due, in part, to the collection of $67 million of insurance proceeds during the first nine months of 1997, relating to settlements of environmental remediation cost claims against certain insurers. Inventories decreased $41 million reflecting tighter inventory management.

Higher cash flow from operations and lower capital spending enabled the company to lower short-term borrowings and decrease the debt-to-equity ratio while repurchasing two million shares of common stock at a cost of $169 million during the first nine months of 1997. The debt-to-equity ratio, calculated without the reduction to stockholders' equity for the ESOP transaction, was 32% at the end of September, compared with 38% at year-end 1996. On October 24, 1997 the Board of Directors authorized the additional repurchase of up to three million shares of common stock over the next two years. These shares, combined with .4 million previously-authorized shares, represent approximately 6% of the 61 million shares outstanding as of September 30, 1997. From year-end 1995 through the first nine months of 1997, the company repurchased 6.4 million shares, or approximately 10% of common shares outstanding, at a cost of $471 million.

Fixed asset additions during the first nine months of 1997 totaled $172 million. Spending for the full year is estimated to be approximately $270 million. Expenditures include new emulsion facilities outside of North America as well as capacity expansion for acrylic acid in Texas. Investment in electronic chemicals also is a factor.

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. Resolutions typically determine coverage for both past and future environmental spending. During the first nine months of 1997, environmental remediation expense of approximately $10 million was recorded, net of insurance recoveries, compared with $19 million for the first nine months of 1996.

In October 1997 the company reached an additional remediation-related insurance settlement with a number of insurance companies for a total of $34 million. As a result of settlements to date, cash flows from insurance proceeds during the next six months are expected to exceed spending for environmental remediation by approximately $25 million.

During the second quarter, the company purchased a 25% interest in Rodel, Inc. for approximately $65 million. Rodel is a privately held, Delaware-based leader in precision polishing technology serving the semiconductor, memory disk and glass polishing industries. The investment is accounted for on the equity basis with Rohm and Haas's share of earnings reported as equity in affiliates. Rodel's annual sales are approximately $150 million.

On October 24, 1997, the board of directors declared regular quarterly dividends of $.50 per common share and $.6875 per preferred share. Both dividends are payable December 1, 1997 to stockholders of record on November 7, 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.


ROHM AND HAAS COMPANY AND SUBSIDIARIES

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


Third Quarter 1997 and 1996

Polymers,
Resins and
Monomers


Performance
Chemicals



Plastics


Agricultural
Chemicals



Total


1997

1996

1997

1996

1997

1996

1997

1996

1997

1996


North America

$351

$340

$77

$ 73

$ 96

$99

$ 19

$22

$543

$534

Europe

89

90

52

50

53

62

21

21

215

223

Asia-Pacific

55

55

62

58

10

11

15

20

142

144

Latin America

31

28

5

4

6

7

32

29

74

68


  Total

$526

$513

$196

$185

$165

$179

$87

$92

$974

$969


First Nine Months 1997 and 1996

Polymers,
Resins and
Monomers


Performance
Chemicals



Plastics


Agricultural
Chemicals



Total


1997

1996

1997

1996

1997

1996

1997

1996

1997

1996


North America

$1,067

$1,013

$229

$218

$289

$282

$107

$109

$1,692

$1,622

Europe

281

293

156

158

180

190

122

137

739

778

Asia-Pacific

160

161

168

170

31

32

54

66

413

429

Latin America

86

78

13

15

22

21

84

74

205

188


  Total

$1,594

$1,545

$566

$561

$522

$525

$367

$386

$3,049

$3,017


Physical Volume Change
Current Quarter Relative to Year-Earlier Quarter


Business Group

Percent Change

Customer Location

Percent Change


Polymers, Resins and Monomers

  7

North America

 3

Performance Chemicals

  9

Europe

 6

Plastics

 (6)

Asia-Pacific

 9

Agricultural Chemicals

 (2)

Latin America

18


Worldwide

 5

Worldwide

 5

Current Nine Months Relative to Year-Earlier Nine Months


Business Group

Percent Change

Customer Location

Percent Change


Polymers, Resins and Monomers

 9

North America

 7

Performance Chemicals

 3

Europe

 8

Plastics

 5

Asia-Pacific

 8

Agricultural Chemicals

 (2)

Latin America

13


Worldwide

 8

Worldwide

 8


Net Earnings by Business Group and Customer Location

Quarter Ended
September 30,

Nine Months Ended
September 30,

1997

1996

1997

1996


Business Group

(Millions of dollars)

Polymers, Resins and Monomers

$ 69 

$ 72 

$211 

$180 

Performance Chemicals

24 

20 

67 

64 

Plastics

17 

14 

49 

41 

Agricultural Chemicals

( 2)

35 

42 

Corporate

(17)

 (21)

(50)

(39)


   Total

$ 91 

$ 87 

$312 

$288 


Customer Location

North America

$ 70 

$ 68 

$224 

$181 

Europe

17 

18 

72 

81 

Asia-Pacific

12 

14 

40 

42 

Latin America

26 

23 

Corporate

(17)

 (21)

(50)

(39)


   Total

$ 91 

$ 87 

$312 

$288 


Corporate includes non-operating items such as interest income and expense, corporate governance costs and corporate exploratory research expense.


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

$ (.05)

$ (.26)

Physical volume and product mix

  .09

  .40

Raw material prices

  (.01)

  .07

Other manufacturing costs

  .13

  .59

Currency effect on gross profit

  (.21)

  (.50)


    (Decrease) increase in gross profit

  (.05)

  .30


Other Causes

Selling, administrative and research expenses*

(.01)

(.08)

Interest expense

.03

(.01)

Share of affiliate earnings

.08

.29

Prior year retroactive tax credit on export sales

--

(.15)

Reduction in outstanding shares of common stock

.07

.28

Other

.02

.01


  (Decrease) increase in per-share earnings

.19

.34


Increase in per-share earnings

$ .14  

$ .64  


*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,

Nine Months Ended
September 30,

1997

1996

1997

1996


Current Earnings

(Millions of dollars, except per-share amounts)

Net sales

$ 974

$ 969

$3,049

$3,017

Cost of goods sold

632

622

1,945

1,944


   Gross profit

342

347

1,104

1,073

Selling and administrative expense

151

156

467

466

Research and development expense

50

44

145

138

Interest expense

9

12

30

29

Share of affiliate net earnings (losses)

4

(1)

10

(9)

Other expense, net

2

3

8

6


Earnings before income taxes

134

131

464

425

Income taxes

43

44

152

137


Net earnings

$ 91

$ 87

$312

$288

Less preferred stock dividends

2

2

6

6


Net earnings applicable to
   common shareholders


$ 89


$ 85


$306


$282


Per Common Share:

Net earnings

$ 1.45

$1.31

$4.92

$4.28

Common dividends

$ .50

$ .45

$1.40

$1.27

Average number of common
   shares outstanding (000's)

61,562

64,718

62,219

65,930


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,

1997

1996


Cash Flows from Operating Activities

(Millions of dollars)

Net earnings

$ 312 

$288 

Adjustments to reconcile net earnings to cash provided
   by operating activities:

   Depreciation

206 

192 

   Deferred income taxes

10 

28 

   Accounts receivable

67 

(55)

   Inventories

41 

39 

   Accounts payable

(66)

(29)

   Income taxes payable

17 

25 

   Other working capital changes, net

(12)

(17)

   Other, net

21 

33 


   Net cash provided by operating activities

596 

504 


Cash Flows from Investing Activities

Additions to land, buildings and equipment

(172)

(218)

Investment in joint ventures, affiliates and subsidiaries

(73)

(7)

Proceeds from the sale of facilities and investments

10 

-- 


   Net cash used by investing activities

(235)

(225)


Cash Flows from Financing Activities

Purchases of treasury shares

(169)

(230)

Proceeds from issuance of long-term debt

14 

Repayments of long-term debt

(38)

(38)

Net change in short-term borrowings

(56)

87 

Payment of dividends

(89)

(87)

Other, net

( 2)

( 5)


   Net cash used by financing activities

(340)

(272)


 Effect of exchange rate changes on cash

-- 


   Net increase in cash and cash equivalents

$  22 

$   7 


See notes to consolidated financial statements.


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

Sept. 30,
1997

December 31,
1996

Sept. 30,
1996


Assets

(Millions of dollars)

Current assets:

   Cash and cash equivalents

$   33

$    11

$   50

   Receivables, net

776

841

812

   Inventories (note d)

442

483

455

   Prepaid expenses and other assets

140

121

133


      Total current assets

1,391

1,456

1,450


Land, buildings and equipment

4,440

4,327

4,288

Less accumulated depreciation

2,429

2,261

2,245


   Net land, buildings and equipment

2,011

2,066

2,043


Other assets

481

411

480


$3,883

$3,933

$3,973


Liabilities and Stockholders' Equity

Current liabilities:

   Notes payable

$   74

$  145

$  167

   Accounts payable and accrued liabilities

625

669

628

   Accrued income taxes

88

72

99


      Total current liabilities

787

886

894


Long-term debt

551

562

574

Employee Benefits

411

405

402

Other liabilities

350

352

350

Stockholders' equity:

 $2.75 Cumulative convertible
     preferred stock (note e)

127

131

132

Common stock: shares issued
     --78,652,380

197

197

197

   Additional paid-in capital

134

143

146

   Retained earnings

2,259

2,036

1,990


2,717

2,507

2,465

   Less: Treasury stock (note f)

774

629

563

   Less: ESOP shares

140

145

146

   Other equity adjustments

(19)

(5)

(3)


      Total stockholders' equity

1,784

1,728

1,753


$3,883

$3,933

$3,973



See notes to consolidated financial statements.


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 remediations at some of its manufacturing facilities. At September 30, 1997, the reserves for remediation were $140 million, compared to $139 million at December 31, 1996. The company collected $67 million of previously recorded remediation-related settlements with insurance carriers during the first nine months of 1997. As a result, the insurance recovery receivable was $5 million at September 30, 1997, compared to $48 million at December 31, 1996. 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. Resolutions typically determine coverage for both past and future environmental spending. During the first nine months of 1997 environmental remediation expense of approximately $10 million was recorded, net of insurance recoveries, compared with $19 million for the first nine months of 1996. In October 1997 the company reached an additional remediation-related insurance settlement with a number of insurance companies for a total of $34 million.

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, 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)


Sept. 30,
1997


Dec. 31,
1996


Sept. 30,
1996


Finished products and work in process

$331

$375

$335

Raw materials and supplies

111

108

120

   Total inventories

$442

$483

$455

(e)

The number of preferred shares issued and outstanding were:

September 30 1997  

2,530,805

December 31, 1996

2,631,822

September 30, 1996  

2,642,894

(f)

The number of common treasury shares were:

September 30, 1997    

17,255,217

December 31, 1996 

15,507,629

September 30, 1996    

14,682,007




Dithane is a trademark of Rohm and Haas Company

 

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