Date: Thu, 20 Nov 1997 20:28:52 GMT Server: NCSA/1.5.1 Last-modified: Thu, 28 Aug 1997 13:44:39 GMT Content-type: text/html Content-length: 86265
(Millions of dollars, except earnings per share)
|
|
Second Quarter |
|
Six Months | ||||
---|---|---|---|---|---|---|---|---|
|
|
|
|
Percent |
|
|
|
Percent |
|
|
|
|
| ||||
Net sales |
|
$1,089 |
$1,054 |
3 |
|
$2,075 |
$2,048 |
1 |
Net earnings |
|
117 |
101 |
16 |
|
221 |
201 |
10 |
Net earnings per |
|
$1.85 |
$1.50 |
23 |
|
$3.47 |
$2.96 |
17 |
Rohm and Haas reported an excellent second quarter:
These factors transcended the negative impact of weaker foreign currencies, a slowdown in Agricultural Chemicals and the absence of a tax credit that was booked in the second quarter of last year.
At a meeting at the end of July, the Board of Directors voted to increase the dividend on common shares by 11 percent. Nineteen ninety-seven marks the twentieth consecutive year of increases in the dividends paid on Rohm and Haas common stock.
There's no question that Rohm and Haas is off to a great start for the year. As long as external factors remain steady, I am confident the company will report an overall earnings improvement for the full year. I remind shareholders that Rohm and Haas had an unusually strong second half in 1996, so our comparative financial performance will not be as dramatic for the rest of 1997 as it was during the first half of the year. However, you will continue to see evidence of the underlying strength of our businesses, the ongoing demand for our technology and our commitment to profitable growth.
J. Lawrence Wilson
August 12, 1997
Second quarter 1997 earnings were $117 million, up 16% from last year's results of $101 million. Earnings per common share of $1.85 rose 23% from $1.50 per common share in 1996. Volume increased 10% in the quarter as a result of strong growth in Polymers, Resins and Monomers, Plastics and the Electronic Chemicals businesses. Sales of $1,089 million were 3% above the prior year period due to higher volume balanced by weaker currencies in Japan and in Europe, slightly lower selling prices and the exclusion of sales of businesses accounted for through joint ventures. Earnings increased as a result of higher volume and earnings from affiliates compared with losses in the prior year. Offsetting these increases were an increase in selling, administrative and research expenses and a non-recurring $10 million ($.15 per common share) retroactive tax credit on sales outside the United States recorded in the second quarter of 1996. 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 $80 million, up 45% compared with the prior year. Excluding the Petroleum Chemicals business, now accounted for through the RohMax joint venture, sales were up 12% on a 15% volume increase. The earnings increase was largely driven by volume. This increase in volume was neutralized, in part, by weaker currencies in Europe and Japan and slightly lower selling prices. Volume was strong in all regions, with growth of Polymers and Resins showing particular strength in Europe. The paper, adhesives and overall coatings segments all reported strong growth for the quarter.
Performance Chemicals recorded earnings of $22 million, up $2 million from last year's earnings. Sales essentially were unchanged, while volume increased 3%. Electronic Chemicals reported double-digit sales and earnings growth for the quarter. Biocides saw solid growth, though the comparison with last year suffers a bit because of the absence of the bromine biocide business and the impact of currencies. Ion Exchange Resins saw some increase in volume, but a lower priced product mix and the effect of currencies held back sales growth.
Plastics reported earnings of $16 million, up 23% from $13 million reported in the 1996 period. Sales increased 5% on volume growth of 12%. The strong worldwide volume growth had a favorable impact on earnings, but the impact on sales was mitigated by weaker currencies and lower overall selling prices. The absence of losses in AtoHaas Europe also increased Plastics' earnings.
Agricultural Chemicals earnings of $18 million were $2 million lower than the second quarter of 1996. Sales of $140 million were 4% lower than 1996, which reflected 6% lower volume and the effect of weaker currencies in Europe and Japan. The volume decrease was most significant in Europe where weather conditions had an unfavorable impact on Dithane shipments. Increased demand for this product in Latin America partially compensated for this decrease.
Corporate expenses of $19 million in 1997 were up $12 million from last year's second quarter due to a non-recurring $10 million retroactive tax credit on sales outside of the United States recorded in 1996.
Net sales were $1,089 million, up 3% from 1996. The second quarter gross profit margin was 37%, up from 34% last year. Strong volume growth and slightly lower raw material prices outweighed the impact of weak currencies in Europe and Japan and lower selling prices.
Selling, administrative and research expenses increased 3%. This increase is a result of higher incentive compensation expense and costs related to spending on systems infrastructure. Affiliate earnings for the quarter were $3 million. This compared with a 1996 loss of $5 million. The 1997 earnings improvement is the result of a return to profitability for AtoHaas Europe and a strong performance by the RohMax joint venture. Other expense, net, was $6 million, compared with expense of $3 million in 1996, largely the result of unfavorable currency impacts.
The effective tax rate for the quarter was 33% compared with 28% a year ago. The prior-year period included a $10 million retroactive tax credit on sales outside of the United States. Absent this credit, the rates in the two periods were comparable.
Earnings for the first six months were $221 million, 10% higher than last year's earnings of $201 million. Earnings per common share were $3.47, up 17% from the 1996 period. Sales increased 1% to $2,075 million. 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 overall. Unit volume increased 9%. Earnings for the first six months were driven largely by higher volume, but also were improved by earnings from affiliates versus losses in 1996. 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 $142 million were up 31% from 1996. Excluding the effect of the former Petroleum Chemicals business, sales were up 9% on a 13% volume increase. Earnings increases primarily are a result of higher volume. Volume was strong in all regions, with the favorable impact outweighing weaker currencies and slightly lower selling prices. The paper, adhesives and overall coatings businesses reported particularly strong volume growth versus 1996.
Performance Chemicals reported earnings of $43 million, essentially unchanged from volume decreased 1%. The volume decrease was primarily the result of the discontinuation of the Biocides joint venture with Dead Sea Bromine. Higher volume reported by Shipley Company offset some of this decrease. Flat earnings reflect the strong performance of the Shipley electronics chemicals business, offset by a weaker performance for Biocides and Ion Exchange Resins.
Plastics recorded earnings of $32 million, an increase from $27 million in 1996. Volume increased 11% while sales increased 3%. This reflects both lower selling prices and weaker currencies in Europe. Despite the impact of these factors, the Plastics segment reported 19% higher earnings due to the absence of losses in the AtoHaas Europe business.
Agricultural Chemicals earnings were $37 million, down $3 million from the first half 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 lower Dithane shipments in Europe which were somewhat offset by higher shipments in Latin America.
Corporate expenses of $33 million were $15 million higher than 1996. The 1996 period included a $10 million ($.15 per common share) retroactive tax credit on sales outside the United States. Higher interest expense also increased 1997 expense versus prior year.
The gross profit margin for the first six months was 37%, an increase from 35% in the prior-year period. Margins improved largely due to higher volume. Negative impacts on margins resulted from lower selling prices and weaker currencies in Europe and Japan.
Selling, administrative and research expenses were up 2% compared with 1996 due, in part, to higher incentive compensation and costs relating to spending on systems infrastructure. Interest expense of $21 million was $4 million higher because of lower capitalized interest resulting from lower capital spending. Affiliate earnings of $6 million increased from losses of $8 million reported last year, due largely to the absence of losses in AtoHaas Europe. Other expense, net, was $6 million, compared with expense of $3 million in 1996 largely because of unfavorable currency fluctuations.
The effective tax rate for the first six months was 33%, up slightly from 32% for the first six months of 1996. The 1996 rate includes the effect of a $10 million second quarter retroactive tax credit on sales outside of the United States.
At the end of the quarter, cash and cash equivalents totaled $38 million, up $27 million from the 1996 year-end balance. Accounts receivable were up $100 million during the first six months, reflecting a normal seasonal pattern, while inventories decreased $35 million reflecting tighter inventory management.
The debt-to-equity ratio, calculated without the reduction to stockholders' equity for the ESOP transaction, was 44% at the end of June 1997, compared with 38% at year-end 1996. The increase in the debt-to-equity ratio is due to higher debt levels that are consistent with the company's seasonal borrowing pattern. During the first six months the company purchased 1.6 million shares of its common stock at a cost of $133 million.
Fixed asset additions during the first half of 1997 totaled $116 million. Spending for the full year is estimated to be below $300 million. Expenditures include new emulsion facilities in Thailand, Indonesia and Sweden, capacity expansion for acrylic acid at Houston, Texas and investment in electronic chemicals manufacturing in the Far East. The estimated spending for the year was decreased from previous estimates based on savings achieved on certain projects and expected spending delays.
During the first half of 1997 environmental remediation expense of approximately $8 million was recorded compared with $15 million for the first half of 1996. Also, the company collected $56 million of previously recorded remediation-related settlements with insurance carriers. The company is in the midst of law suits in both Pennsylvania and New Jersey over insurance coverage for certain environmental liabilities. The trial judge in the Pennsylvania case has ruled that the company may recover from insurance carriers for certain of its claims.
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 will be accounted for on the equity basis with Rohm and Haas' share of earnings reported as equity in affiliates. Rodel's annual sales are approximately $150 million.
On July 21, 1997, the board of directors approved an 11% increase in the quarterly dividend on common shares from 45 cents to 50 cents per share. The board also declared a regular quarterly dividend of $.6875 per preferred share. Both dividends are payable September 1, 1997, to stockholders of record on August 8, 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.
Second Quarter 1997 and 1996
|
|
Polymers, |
|
|
|
|
|
|
|
| |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| |||||||||||||
|
|
1997 |
1996* |
|
1997 |
1996* |
|
1997 |
1996 |
|
1997 |
1996 |
|
1997 |
1996 |
| |||||||||||||||
North America |
|
$387 |
$356 |
|
$78 |
$ 72 |
|
$ 99 |
$95 |
|
$ 50 |
$49 |
|
$ 614 |
$572 |
Europe |
|
100 |
101 |
|
55 |
56 |
|
65 |
64 |
|
45 |
56 |
|
265 |
277 |
Asia-Pacific |
|
55 |
55 |
|
55 |
59 |
|
13 |
10 |
|
15 |
16 |
|
138 |
140 |
Latin America |
|
29 |
26 |
|
4 |
6 |
|
9 |
8 |
|
30 |
25 |
|
72 |
65 |
| |||||||||||||||
Total |
|
$571 |
$538 |
|
$192 |
$193 |
|
$186 |
$177 |
|
$140 |
$146 |
|
$1,089 |
$1,054 |
|
|
Polymers, |
|
|
|
|
|
|
|
| |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| |||||||||||||
|
|
1997 |
1996* |
|
1997 |
1996* |
|
1997 |
1996 |
|
1997 |
1996 |
|
1997 |
1996 |
| |||||||||||||||
North America |
|
$ 717 |
$ 673 |
|
$152 |
$145 |
|
$193 |
$183 |
|
$ 87 |
$ 87 |
|
$1,149 |
$1,088 |
Europe |
|
191 |
203 |
|
104 |
108 |
|
128 |
128 |
|
101 |
116 |
|
524 |
555 |
Asia-Pacific |
|
105 |
106 |
|
106 |
112 |
|
20 |
21 |
|
40 |
46 |
|
271 |
285 |
Latin America |
|
55 |
50 |
|
8 |
11 |
|
16 |
14 |
|
52 |
45 |
|
131 |
120 |
| |||||||||||||||
Total |
|
$1,068 |
$1,032 |
|
$370 |
$376 |
|
$357 |
$346 |
|
$280 |
$294 |
|
$2,075 |
$2,048 |
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 Six Months Relative to Year-Earlier Six 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 |
|
Six Months Ended | ||
---|---|---|---|---|---|---|
|
|
1997 |
1996* |
|
1997 |
1996* |
|
|
| ||||
Business Group |
|
| ||||
Polymers, Resins and Monomers |
|
$ 80 |
$ 55 |
|
$142 |
$108 |
Performance Chemicals |
|
22 |
20 |
|
43 |
44 |
Plastics |
|
16 |
13 |
|
32 |
27 |
Agricultural Chemicals |
|
18 |
20 |
|
37 |
40 |
Corporate |
|
(19) |
(7) |
|
(33) |
(18) |
|
|
| ||||
Total |
|
$117 |
$101 |
|
$221 |
$201 |
| ||||||
Customer Location |
|
|
|
|
|
|
North America |
|
$ 87 |
$ 60 |
|
$154 |
$113 |
Europe |
|
25 |
26 |
|
55 |
63 |
Asia-Pacific |
|
13 |
13 |
|
28 |
28 |
Latin America |
|
11 |
9 |
|
17 |
15 |
Corporate |
|
(19) |
(7) |
|
(33) |
(18) |
|
|
| ||||
Total |
|
$117 |
$101 |
|
$221 |
$201 |
*1996 earnings have been restated to reclassify the results of the Petroleum Chemicals business from Performance Chemicals to Polymers, Resins and Monomers. The Petroleum Chemicals business has been accounted for through the RohMax joint venture since July 1, 1996.
Analysis of Change in Per-Share Earnings
Current Period Relative to Year-Earlier Period
|
$/Share | ||
---|---|---|---|
Gross Profit |
Second |
|
First |
Selling prices |
|
|
|
Physical volume and product mix |
|
|
|
Raw material prices |
|
|
|
Other manufacturing costs |
|
|
|
Currency effect on gross profit |
|
|
|
| |||
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 |
|
Six Months Ended | ||
---|---|---|---|---|---|
|
1997 |
1996 |
|
1997 |
1996 |
|
| ||||
Current Earnings |
| ||||
Net sales |
$ 1,089 |
$1,054 |
|
$2,075 |
$2,048 |
Cost of goods sold |
688 |
691 |
|
1,313 |
1,322 |
| |||||
Gross profit |
401 |
363 |
|
762 |
726 |
| |||||
Selling and administrative expense |
162 |
157 |
|
316 |
310 |
Research and development expense |
50 |
48 |
|
95 |
94 |
Interest expense |
11 |
10 |
|
21 |
17 |
Share of affiliate net earnings (losses) |
3 |
(5) |
|
6 |
(8) |
Other expense, net |
6 |
3 |
|
6 |
3 |
| |||||
Earnings before income taxes |
175 |
140 |
|
330 |
294 |
Income taxes |
58 |
39 |
|
109 |
93 |
| |||||
Net earnings |
$ 117 |
$101 |
|
$221 |
$201 |
Less preferred stock dividends |
2 |
2 |
|
4 |
4 |
| |||||
Net earnings applicable to |
|
|
|
|
|
| |||||
Per Common Share: |
|
|
|
|
|
Net earnings |
$ 1.85 |
$1.50 |
|
$3.47 |
$2.69 |
Common dividends |
$ .45 |
$ .41 |
|
$.90 |
$ .82 |
|
|
|
|
|
|
Average number of common |
62,174 |
65,990 |
|
62,523 |
66,542 |
Rohm and Haas Company and Subsidiaries
Statements of Consolidated Cash Flows (Subject to Year-end audit)
|
Six Months Ended | |
---|---|---|
|
1997 |
1996 |
| ||
Cash Flows from Operating Activities |
| |
Net earnings |
$ 221 |
$201 |
Adjustments to reconcile net earnings to cash
provided |
|
|
Depreciation |
135 |
125 |
Deferred income taxes |
(5) |
20 |
Accounts receivable |
(100) |
(169) |
Inventories |
35 |
27 |
Accounts payable |
(64) |
(33) |
Income taxes payable |
37 |
10 |
Other working capital changes, net |
(20) |
(36) |
Other, net |
14 |
35 |
| ||
Net cash provided by operating activities |
253 |
180 |
| ||
Cash Flows from Investing Activities |
|
|
Additions to land, buildings and equipment |
(116) |
(153) |
Investment in affiliate |
(65) |
-- |
Proceeds from the sale of facilities and investments |
5 |
-- |
| ||
Net cash used by investing activities |
(176) |
(153) |
| ||
Cash Flows from Financing Activities |
|
|
Purchases of treasury shares |
(133) |
(144) |
Proceeds from issuance of long-term debt |
5 |
1 |
Repayments of long-term debt |
(24) |
(21) |
Net change in short-term borrowings |
160 |
198 |
Payment of dividends |
(58) |
(57) |
Other, net |
1 |
(2) |
| ||
Net cash used by financing activities |
(49) |
(25) |
| ||
Effect of exchange rate changes on cash |
(1) |
-- |
| ||
Net increase (decrease) in cash and cash equivalents |
$ 27 |
$ 2 |
Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets (Subject to Year-end Audit)
|
June 30, |
|
December 31, |
|
June 30, |
---|---|---|---|---|---|
|
| ||||
Assets |
| ||||
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ 38 |
|
$ 11 |
|
$ 45 |
Receivables, net |
941 |
|
841 |
|
925 |
Inventories (note d) |
448 |
|
483 |
|
477 |
Prepaid expenses and other assets |
128 |
|
121 |
|
116 |
| |||||
Total current assets |
1,555 |
|
1,456 |
|
1,563 |
| |||||
Land, buildings and equipment |
4,418 |
|
4,327 |
|
4,282 |
Less accumulated depreciation |
2,376 |
|
2,261 |
|
2,223 |
| |||||
Net land, buildings and equipment |
2,042 |
|
2,066 |
|
2,059 |
| |||||
Other assets |
477 |
|
411 |
|
438 |
| |||||
|
4,074 |
|
$3,933 |
|
4,060 |
| |||||
Liabilities and Stockholders' Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Notes payable |
$ 305 |
|
$ 145 |
|
$ 288 |
Accounts payable and accrued liabilities |
592 |
|
669 |
|
600 |
Accrued income taxes |
108 |
|
72 |
|
82 |
| |||||
Total current liabilities |
1,005 |
|
886 |
|
970 |
| |||||
Long-term debt |
543 |
|
562 |
|
583 |
Employee Benefits |
415 |
|
405 |
|
398 |
Other liabilities |
346 |
|
352 |
|
325 |
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
$2.75 Cumulative convertible |
127 |
|
131 |
|
132 |
Common stock: shares issued |
197 |
|
197 |
|
197 |
Additional paid-in capital |
136 |
|
143 |
|
146 |
Retained earnings |
2,199 |
|
2,036 |
|
1,933 |
| |||||
|
2,659 |
|
2,507 |
|
2,408 |
Less: Treasury stock (note f) |
743 |
|
629 |
|
477 |
Less: ESOP shares |
142 |
|
145 |
|
147 |
Other equity adjustments |
(9) |
|
(5) |
|
-- |
| |||||
Total stockholders' equity |
1,765 |
|
1,728 |
|
1,784 |
| |||||
|
$4,074 |
|
$3,933 |
|
4,060 |
|
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 June 30, 1997, the reserves for remediation were $142 million, compared to $139 million at December 31, 1996. The probable insurance recovery asset was $17 million and $48 million at June 30, 1997 and December 31, 1996, respectively. During the first half of 1997 environmental remediation expense of approximately $8 million was recorded compared with $15 million for the first half of 1996. Also, the company collected $56 million of previously recorded remediation- related settlements with insurance carriers. The company is in the midst of law suits in both Pennsylvania and New Jersey over insurance coverage for certain environmental liabilities. The trial judge in the Pennsylvania case has ruled that the company may recover from insurance carriers for certain of its claims. 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: |
|
June 30, |
|
June 31, |
|
June 30, |
---|---|---|---|---|---|
Finished products and work in process |
$347 |
|
$375 |
|
$349 |
Raw materials and supplies |
101 |
|
108 |
|
128 |
Total inventories |
$448 |
|
$483 |
|
$477 |
(e) |
The number of preferred shares issued and outstanding were: | |
|
June 30 1997 |
2,530,836 |
|
December 31, 1996 |
2,631,822 |
|
June 30, 1996 |
2,644,403 |
|
|
|
(f) |
The number of common treasury shares were: | |
|
June 30, 1997 |
16,935,690 |
|
December 31, 1996 |
15,507,629 |
|
June 30, 1996 |
13,291,530 |