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
(Millions of dollars, except earnings per share)
|
|
Third Quarter |
|
Nine Months | ||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
Percent |
|
|
|
Percent |
|
|
|
|
| ||||
Net sales |
|
$974 |
$969 |
1 |
|
$3,049 |
$3,017 |
1 |
Net earnings |
|
91 |
87 |
5 |
|
312 |
288 |
8 |
Net earnings per |
|
$1.45 |
$1.31 |
11 |
|
$4.92 |
$4.28 |
15 |
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
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.
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.
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.
Third Quarter 1997 and 1996
|
|
Polymers, |
|
|
|
|
|
|
|
| |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| |||||||||||||
|
|
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 |
|
|
Polymers, |
|
|
|
|
|
|
|
| |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| |||||||||||||
|
|
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 |
|
|
North America |
|
Performance Chemicals |
|
|
Europe |
|
Plastics |
|
|
Asia-Pacific |
|
Agricultural Chemicals |
|
|
Latin America |
|
| ||||
Worldwide |
|
|
Worldwide |
|
Current Nine Months Relative to Year-Earlier Nine Months
Business Group |
Percent Change |
|
Customer Location |
Percent Change |
---|---|---|---|---|
| ||||
Polymers, Resins and Monomers |
|
|
North America |
|
Performance Chemicals |
|
|
Europe |
|
Plastics |
|
|
Asia-Pacific |
|
Agricultural Chemicals |
|
|
Latin America |
|
| ||||
Worldwide |
|
|
Worldwide |
|
Net Earnings by Business Group and Customer Location
|
|
Quarter Ended |
|
Nine Months Ended | ||
---|---|---|---|---|---|---|
|
|
1997 |
1996 |
|
1997 |
1996 |
|
|
| ||||
Business Group |
|
| ||||
Polymers, Resins and Monomers |
|
$ 69 |
$ 72 |
|
$211 |
$180 |
Performance Chemicals |
|
24 |
20 |
|
67 |
64 |
Plastics |
|
17 |
14 |
|
49 |
41 |
Agricultural Chemicals |
|
( 2) |
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 |
|
9 |
8 |
|
26 |
23 |
Corporate |
|
(17) |
(21) |
|
(50) |
(39) |
|
|
| ||||
Total |
|
$ 91 |
$ 87 |
|
$312 |
$288 |
Analysis of Change in Per-Share Earnings
Current Period Relative to Year-Earlier Period
|
$/Share | ||
---|---|---|---|
Gross Profit |
Third |
|
First |
Selling prices |
|
|
|
Physical volume and product mix |
|
|
|
Raw material prices |
|
|
|
Other manufacturing costs |
|
|
|
Currency effect on gross profit |
|
|
|
| |||
(Decrease) increase in gross profit |
|
|
|
| |||
Other Causes |
|
|
|
Selling, administrative and research expenses* |
|
|
|
Interest expense |
|
|
|
Share of affiliate earnings |
|
|
|
Prior year retroactive tax credit on export sales |
|
|
|
Reduction in outstanding shares of common stock |
|
|
|
Other |
|
|
|
| |||
(Decrease) increase in per-share earnings |
|
|
|
| |||
Increase in per-share earnings |
|
|
|
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Earnings
(Subject to Year-end Audit)
|
Quarter Ended |
|
Nine Months Ended | ||
---|---|---|---|---|---|
|
1997 |
1996 |
|
1997 |
1996 |
|
| ||||
Current Earnings |
| ||||
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 |
|
|
|
|
|
| |||||
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 |
61,562 |
64,718 |
|
62,219 |
65,930 |
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Cash Flows (Subject to Year-end audit)
|
Nine Months Ended | |
---|---|---|
|
1997 |
1996 |
| ||
Cash Flows from Operating Activities |
| |
Net earnings |
$ 312 |
$288 |
Adjustments to reconcile net earnings to cash
provided |
|
|
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 |
1 |
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 |
1 |
-- |
| ||
Net increase in cash and cash equivalents |
$ 22 |
$ 7 |
Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets (Subject to Year-end Audit)
|
Sept. 30, |
|
December 31, |
|
Sept. 30, |
---|---|---|---|---|---|
|
| ||||
Assets |
| ||||
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 |
127 |
|
131 |
|
132 |
Common stock: shares issued |
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 |
|
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: |
|
Sept. 30, |
|
Dec. 31, |
|
Sept. 30, |
---|---|---|---|---|---|
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 |