Date: Thu, 20 Nov 1997 20:28:19 GMT Server: NCSA/1.5.1 Last-modified: Mon, 17 Feb 1997 14:22:40 GMT Content-type: text/html Content-length: 38435 4th Quarter Report 1996


Financial Highlights (Millions of dollars, except earnings per share)
Fourth Quarter Year
1996 1995 Percent
Change
1996 1995 Percent
Change
Net sales $ 965 $ 915 5 $3,982 $3,884 3
Net earnings 75 67 12 363 292 24
Net earnings per common share $1.16 $ .98 18 $ 5.45 $ 4.22 29

Sales by Business Location

Sales by Customer Location

CHAIRMAN’S LETTER

An excellent financial performance in the fourth quarter was the fitting end to a very good year for Rohm and Haas.

During the last three months of the year unit volume grew at double-digit rates, and earnings per share increased 18 percent. In short, ongoing profitable growth continues to be the story at Rohm and Haas.

Our performance for the year can best be summed up by recounting some of the milestones that marked our success:

As 1997 begins, we look forward to another good year for Rohm and Haas. We will keep a watchful eye on raw material costs and world economies, but we are convinced that we have the right building blocks for persistent success — a fine business portfolio, strong geographic reach and outstanding people.

Signature of J. Lawrence Wilson

J. Lawrence Wilson
Chairman

February 12, 1997

HIGHLIGHTS OF THE FOURTH QUARTER 1996
VERSUS FOURTH QUARTER 1995

Earnings in the fourth quarter of 1996 were $75 million, 12% higher than last year’s exceptionally strong results. Earnings per common share were $1.16, compared to $.98 in 1995. Sales increased 5% to $965 million, due to 14% higher volume, offset by 3% lower selling prices and a lower-priced product mix. Sales growth was also impacted by 2% weaker currencies in Europe and an 11% weaker Japanese yen. Earnings benefited from higher volume, 3% lower raw material prices, smooth plant operations and a lower effective tax rate. Regional results were exceptional in Latin America, where the company was able to take advantage of improved economic conditions. The 1996 results included a net after-tax charge of $.09 per common share for plant writedowns and restructuring charges, net of a gain on the sale of land.

Polymers, Resins and Monomers (PRM) earnings of $48 million increased 7% compared to the prior year. Sales grew 13% and volume rose 19%, excluding the reclassification of the Petroleum Chemicals business to PRM from Performance Chemicals due to the RohMax joint venture. All regions and businesses contributed to the volume growth. About $20 million of the sales growth was due to incremental acrylic monomer sales resulting from production difficulties at a competitor. Earnings benefited from increased volume and lower raw material prices. Lower selling prices and a $7 million after-tax charge for a plant writedown in the U.S. and restructuring costs in Japan reduced earnings in the quarter.

Performance Chemicals reported earnings of $18 million, up $3 million from last year’s earnings. Sales and volume increased 1%. Volume declined for Shipley in North America due to a slowdown in the electronics industry. Ion Exchange Resins had strong volume growth in Latin America. The earnings improvement is due to reduced losses for Ion Exchange Resins compared to last year’s fourth quarter, reflecting higher volume and reduced operating costs.

Plastics recorded earnings of $13 million, down $1 million from the 1995 period. Sales increased 6%, due to 14% higher volume, offset by lower selling prices and weaker currencies in Europe and Japan. Volume growth resulted from a double-digit increase in shipments of additives used in PVC applications in all regions and volume gains in North America for AtoHaas Americas. Earnings declined due to losses from AtoHaas Europe, reflecting weak market conditions compared to last year’s fourth quarter. Plastics earnings were also impacted negatively by after-tax charges totaling $6 million for the writedown of a plant in the U.S. and restructuring AtoHaas Europe’s operations.

Agricultural Chemicals earnings of $19 million were $8 million higher than the prior-year period. Sales jumped 8% as a result of 8% higher volume and a higher-priced product mix, offset by 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 benefited from higher volume, lower raw material prices and a $6 million after-tax gain from the sale of land in Japan, previously used for agricultural research.

The company’s gross profit margin for the fourth quarter was 33%, compared to 36% last year. Volume growth, 3% percent lower raw material prices and smooth plant operations improved margins, but 3% lower selling prices and charges to writedown a plant in the U.S. and restructure operations in Japan resulted in an overall decrease in the gross profit margin for the quarter.

Interest expense increased $2 million due to lower capitalization of interest cost as part of construction in progress. Affiliate losses were $3 million, compared to a $1 million loss in the fourth quarter of 1995. This was due to AtoHaas Europe who reported higher operating losses and also recorded a $4 million after-tax charge for restructuring costs in the current-year quarter. Other income, net, was $10 million, up from zero in 1995, due to a gain on the sale of land in Japan. The effective tax rate for the quarter was 29%, down from 34% last year due to U.S. tax credits and non-taxable currency gains.

At the end of the quarter, cash and cash equivalents totaled $11 million, down $32 million from the 1995 year-end balance. The debt-to-equity ratio, calculated without the reduction to stockholders’ equity for the ESOP transaction, was 38% at the end of 1996, compared with 36% at year-end 1995. Total debt increased $11 million since the end of 1995. The increase in the debt-to-equity ratio was mainly due to the reduction in equity resulting from the company’s stock repurchase program. During the year, the company purchased 4.4 million shares of its common stock at a cost of $302 million.

Fixed asset additions in 1996 totaled $334 million and included expenditures for new emulsion facilities in Thailand, Indonesia and Houston, Texas, and capacity expansion for acrylic acid and butyl acrylate ester at Houston, Texas.

The company’s strong performance in 1996 resulted in a return on common stockholders’ equity (ROE) of 20% and a return on net assets (RONA) of 10%.

ROHM AND HAAS COMPANY AND SUBSIDIARIES

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

Fourth 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 $304 $282 $ 70 $ 68 $ 96 $ 93 $ 30 $ 26 $500 $469
Europe 85 86 49 51 62 58 32 34 228 229
Asia-Pacific 60 53 56 58 12 10 35 33 163 154
Latin America 29 27 8 5 6 5 31 26 74 63
Total $478 $448 $183 $182 $176 $166 $128 $119 $965 $915

Years 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 $1,317 $1,277 $288 $272 $378 $384 $139 $141 $2,122 $2,074
Europe 378 369 207 204 252 238 169 165 1,006 976
Asia-Pacific 221 205 226 245 44 47 101 100 592 597
Latin America 107 102 23 19 27 24 105 92 262 237
Total $2,023 $1,953 $744 $740 $701 $693 $514 $498 $3,982 $3,884

* 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
Polymers, Resins and Monomers* 15 North America 15
Performance Chemicals 1 Europe* 8
Plastics 14 Asia-Pacific 21
Agricultural Chemicals 8 Latin America 7
Worldwide 14 Worldwide 14

Current Year Relative to Prior Year

Business Group Percent
Change
Customer Location Percent
Change
Polymers, Resins and Monomers* 6 North America 4
Performance Chemicals Europe* 6
Plastics 6 Asia-Pacific 12
Agricultural Chemicals 7 Latin America 6
Worldwide 6 Worldwide 6

* Polymers, Resins and Monomers volume would have increased 19% for the quarter and 8% for the year and Europe would have increased 13% for the quarter and 9% for the year, 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
December 31,
Year Ended
December 31,
1996 1995* 1996 1995*
Business Group (Millions of dollars)
Polymers, Resins and Monomers $ 48 $ 45 $228 $185
Performance Chemicals 18 15 82 69
Plastics 13 14 54 67
Agricultural Chemicals 19 11 61 55
Corporate (23) (18) (62) (84)
Total $ 75 $ 67 $363 $292
Customer Location
North America $ 54 $ 47 $235 $199
Europe 15 16 96 102
Asia-Pacific 20 19 62 58
Latin America 9 3 32 17
Corporate (23) (18) (62) (84)
Total $ 75 $ 67 $363 $292

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 reported in the business and regional results, are now reported in Corporate.
  2. The operations of certain developing businesses, previously reported 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 affiliates through the RohMax joint venture.

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

$/Share (after-tax)
Gross Profit Fourth
Quarter
Twelve
Months
Selling prices $(.24) $(.33)
Raw material prices .07 .75
Physical volume and product mix .28 .73
Plant writedown and restructuring charges (.12) (.12)
Other manufacturing costs (.31)
Currency effect on gross profit (.04) (.12)
Increase (decrease) in gross profit (.05) .60
Other Causes
Selling, administrative and research expenses* .02 (.08)
Share of affiliate earnings (losses), excluding restructuring costs .03 (.20)
Asset dispositions and affiliate restructuring costs .03 .03
Certain waste disposal site cleanup costs .25
Retroactive tax credit on sales outside the U.S. .15
Reduction in outstanding shares of common stock .06 .18
Other .09 .30
Increase from other causes .23 .63
Increase in per-share earnings $ .18 $1.23

*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
December 31,
Year Ended
December 31,
1996 1995 1996 1995
Current Earnings (Millions of dollars, except per-share amounts)
Net sales $ 965 $ 915 $ 3,982 $ 3,884
Cost of goods sold 643 588 2,587 2,551
Gross profit 322 327 1,395 1,333

Selling and administrative expense 165 161 631 616
Research and development expense 49 55 187 194
Interest expense 10 8 39 39
Share of affiliate net earnings (losses) (3) (1) (12) 5
Other expense (income), net (10) (4) 48
Earnings before income taxes 105 102 530 441
Income taxes 30 35 167 149
Net earnings $ 75 $ 67 $ 363 $ 292
Less preferred stock dividends 1 1 7 7
Net earnings applicable to
common shareholders
$ 74 $ 66 $ 356 $ 285

Per Common Share:
Net earnings $ 1.16 $ .98 $ 5.45 $ 4.22
Common dividends $ .45 $ .41 $ 1.72 $ 1.56

Average number of common
shares outstanding (000’s)
63,633 67,319 65,374 67,522

See notes to consolidated financial statements.

Rohm and Haas Company and Subsidiaries

Statements of Consolidated Cash Flows (Subject to Year-end Audit)

Year Ended
December 31,
1996 1995
Cash Flows from Operating Activities (Millions of dollars)
Net earnings $ 363 $ 292
Adjustments to reconcile net earnings
to cash provided by operating activities:
Depreciation 262 242
Deferred income taxes 37 27
Accounts receivable (37) (77)
Inventories 11 (25)
Accounts payable 5 26
Income taxes payable (1) (3)
Gain on sale of facilities (10)
Provision for plant writedown and
restructuring charges
19
Other working capital changes, net 1 (25)
Other, net 56 56
Net cash provided by operating activities 706 513
Cash Flows from Investing Activities
Additions to land, buildings and equipment (334) (417)
Long-term investments and joint ventures (7)
Proceeds from the sale of facilities and investments 11 49
Net cash used by investing activities (330) (368)
Cash Flows from Financing Activities
Purchase of treasury shares (302) (29)
Proceeds from issuance of long-term debt 1 32
Repayments of long-term debt (43) (126)
Net change in short-term borrowings 68 2
Payment of dividends (116) (109)
Other, net (16) 2
Net cash used by financing activities (408) (228)
Effect of exchange rate changes on cash (1)
Net decrease in cash and cash equivalents $ (32) $ (84)

See notes to consolidated financial statements.

Rohm and Haas Company and Subsidiaries

Consolidated Balance Sheets (Subject to Year-end Audit)

December 31,
1996
December 31,
1995
Assets (Millions of dollars)
Current assets:
Cash and cash equivalents $ 111 $ 43
Receivables, net 841 756
Inventories (note d) 483 504
Prepaid expenses and other assets 121 118
Total current assets 1,456 1,421
Land, buildings and equipment 4,327 4,158
Less accumulated depreciation 2,261 2,110
Net land, buildings and equipment 2,066 2,048
Other assets 411 447
$3,933 $3,916
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable $ 145 $ 90
Accounts payable and accrued liabilities 669 666
Accrued income taxes 72 72
Total current liabilities 886 828
Long-term debt 562 606
Other liabilities 757 701

Stockholders’ equity:
$2.75 Cumulative convertible preferred stock (note e) 131 133
Common stock: shares issued — 78,652,380 197 197
Additional paid-in capital 143 150
Retained earnings 2,036 1,789
2,507 2,269
Less: Treasury stock (note f) 629 344
Less: ESOP shares 145 151
Other equity adjustments (5) 7
Total stockholders’ equity 1,728 1,781
$3,933 $3,916

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements


  1. 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. 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.

  2. The company is a party in various government enforcement and private actions associated with former waste disposal sites. The company is also involved in potential corrective actions at some of its manufacturing facilities. The amounts charged to earnings before tax for environmental remediation were $27 million and $45 million for the years ended December 31, 1996 and 1995, respectively. The charge in the 1995 period included additional accruals related to the Whitmoyer waste site. At December 31, 1996, the reserves for remediation were $139 million and probable insurance recoveries were $48 million. In late 1996 and early 1997, the company negotiated settlements with certain insurers totaling $61 million; $56 million will be collected in 1997 and the remaining $5 million in 1998 and 1999. The excess of the settlements over the probable insurance recovery asset will be recognized as income when the settlements are collected.

    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.

  3. 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.

  4. Inventories consist of:
    (Millions of dollars)
December 31,
1996
December 31,
1995
Finished products and work in process $375 $377
Raw materials and supplies 108 127
Total inventories $483 $504
  1. The number of preferred shares issued and outstanding were:
    December 31, 1996 — 2,631,822
    December 31, 1995 — 2,656,153

  2. The number of common treasury shares were:
    December 31, 1996 — 15,507,629
    December 31, 1995 — 11,327,357

Dithane is a trademark of Rohm and Haas Company.



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