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 Financial Highlights 2ndQ96

Financial Highlights

(Millions of dollars, except earnings per share)


Second Quarter


Six Months



1997


1996

Percent
Change


1997


1996

Percent
Change



Net sales

$1,089

  $1,054

3

$2,075

  $2,048

1

Net earnings

117

101

16

221

201

10

Net earnings per
   common share

$1.85

$1.50

23

$3.47

$2.96

17



CHAIRMAN'S LETTER

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


MANAGEMENT DISCUSSION AND ANALYSIS

SECOND QUARTER 1997 VERSUS SECOND QUARTER 1996

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.


SIX MONTHS 1997 VERSUS SIX MONTHS 1996

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.


LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA

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.


ROHM AND HAAS COMPANY AND SUBSIDIARIES

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


Second 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

$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


First Six 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

$ 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


*1996 sales 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.

Physical Volume Change
Current Quarter Relative to Year-Earlier Quarter


Business Group

Percent Change

Customer Location

Percent Change


Polymers, Resins and Monomers

11

North America

10

Performance Chemicals

 3

Europe

10

Plastics

12

Asia-Pacific

11

Agricultural Chemicals

 (6)

Latin America

 8


Worldwide

10

Worldwide

10

Current Six Months Relative to Year-Earlier Six Months


Business Group

Percent Change

Customer Location

Percent Change


Polymers, Resins and Monomers

10

North America

 9

Performance Chemicals

 (1)

Europe

 8

Plastics

11

Asia-Pacific

 7

Agricultural Chemicals

 (2)

Latin America

11


Worldwide

 9

Worldwide

 9


Net Earnings by Business Group and Customer Location

Quarter Ended
June 30,

Six Months Ended
June 30,

1997

1996*

1997

1996*


Business Group

(Millions of dollars)

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


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

*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
(after-tax)


Gross Profit

Second 
Quarter

First
Six Months

Selling prices

$ (.02)

$ (.21)

Physical volume and product mix

  .18

  .31

Raw material prices

  .04

  .08

Other manufacturing costs

  .33

  .46

Currency effect on gross profit

  (.16)

  (.29)


    Increase in gross profit

  .37

  .35


Other Causes

Selling, administrative and research expenses*

(.07)

(.07)

Interest expense

(.01)

(.04)

Share of affiliate earnings

.12

.21

Prior year retroactive tax credit on export sales

(.15)

(.15)

Reduction in outstanding shares of common stock

.11

.21

Other

(.02)

.00


  (Decrease) increase in per-share earnings

(.02)

.16


Increase in per-share earnings

$ .35 

$ .51 


*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
June 30,

Six Months Ended
June 30,

1997

1996

1997

1996


Current Earnings

(Millions of dollars, except per-share amounts)

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
   common shareholders


$115


$ 99


$217


$197


Per Common Share:

Net earnings

$ 1.85

$1.50

$3.47

$2.69

Common dividends

$ .45

$ .41

$.90

$ .82

Average number of common
   shares outstanding (000's)

62,174

65,990

62,523

66,542


See notes to consolidated financial statements.


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

Six Months Ended
June 30,

1997

1996


Cash Flows from Operating Activities

(Millions of dollars)

Net earnings

$ 221

$201

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

   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


See notes to consolidated financial statements.


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

June 30,
1997

December 31,
1996

June 30,
1996


Assets

(Millions of dollars)

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
     preferred stock (note e)

127

131

132

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

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



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 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:
(Millions of dollars)


June 30,
1997


June 31,
1996


June 30,
1996


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




Dithane is a trademark of Rohm and Haas Company

 

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