Date: Thu, 20 Nov 1997 20:28:34 GMT Server: NCSA/1.5.1 Last-modified: Wed, 14 May 1997 13:57:57 GMT Content-type: text/html Content-length: 33885
First Quarter
| |||
---|---|---|---|
1997 |
    1996 |
    Percent     Change |
|
Net sales | $986 | $994 | (1) |
Net earnings | 104 | 100 | 4 |
Net earnings per common share      | $1.62 | $1.46 | 11 |
Unit volume increased by 7 percent. Growth was especially strong in the acrylic businesses -- Polymers and Resins, Monomers, Plastics Additives and AtoHaas Americas -- which reported a collective 13 percent increase in volume over the same period in 1996. I can say with assurance that Rohm and Haas is back on its historic growth track of about 7 percent per year - the highest internal growth rate in the S&P chemical index.
Net earnings were up 4 percent. Earnings-per-common-share were up 11 percent. Excellent internal cost control and the share buyback program enabled Rohm and Haas to overcome the effects of negative currency swings in Europe and Japan, and a less-favorable product mix.
I was extremely disappointed about the ravaging of our stock price in March. The observation on March 19th that currency swings might cause first quarter earnings to fall below the consensus First Call estimate of $1.70 cost shareholders $1.3 billion in market value over the next two days.
And although the stock price has recovered somewhat since that time, it is my duty to do everything I can to see that the Rohm and Haas stock price more accurately reflects the true strength of this company as soon as possible. Shareholders who have been with us over the past year are still considerably ahead. From May 1, 1996 to May 2, 1997, the value of Rohm and Haas stock increased 26 percent.
The Board of Directors elected four new officers earlier this month. Brad Bell and Bill Andrews became vice presidents on May 5th. Mr. Bell recently joined us from the Whirlpool Corporation, and will become chief financial officer when Fred Shaffer retires later in the year. Mr. Andrews is the company's controller. Ed Liebert became assistant controller and Mac Sarreal was elected assistant treasurer at the same meeting.
J. Lawrence Wilson
May 12, 1997
Polymers, Resins and Monomers (PRM) earnings were $62 million, up 17% compared to the prior year. Excluding the Petroleum Chemicals business, now accounted for through the RohMax joint venture, sales were up 7%, reflecting 13% higher volume offset by lower selling prices and weaker currencies in both Europe and Japan. Polymers and Resins had strong volume increases in all regions. The earnings increase is primarily due to higher volume. Performance Chemicals recorded earnings of $21 million, down from last year's earnings of $24 million. Sales decreased 3% and volume was down 5%. The volume decline was primarily in Biocides due to the discontinuation of the joint venture with Dead Sea Bromine. Earnings decreased due to higher manufacturing costs, lower volume and weaker currencies in Europe and Japan.
Plastics reported earnings of $16 million, up 14% from the 1996 period. Sales increased 1%, reflecting 11% higher volume offset by lower selling prices and weaker European currencies. Volume gains were in North America and Europe. The earnings increase primarily resulted from break-even results for AtoHaas Europe compared to losses in 1996.
Agricultural Chemicals earnings of $19 million were 5% lower than the prior year period. Though volume was up 1%, sales of $140 million were 5% lower than 1996. The sales and earnings decrease was attributable to weaker currencies in Europe and Japan and a lower-priced product mix. Volume increased due to higher shipments of Dithane in Latin America.
Corporate expenses totaled $14 million in 1997, compared to $11 million in last year's first quarter due to higher interest expense.
Net sales were $986 million, down 1% from 1996. The first quarter gross profit margin was 37%, unchanged from the prior year period. Selling prices were down 2% and currency fluctuations were unfavorable, but were partially offset by 2% lower raw material prices and higher volume.
Selling, administrative and research (SAR) expenses were flat for the quarter reflecting weaker currencies, the absence of SAR expenses now included in the RohMax joint venture and good internal cost controls. Interest expense increased $3 million as a result of lower capitalization of interest cost due to lower capital spending. Affiliate earnings were $3 million compared to last year's losses of $3 million. This improvement was due to break-even results from AtoHaas Europe compared to losses in 1996 and to earnings from the RohMax joint venture.
The effective tax rate for the first quarter of 1997 was 33%, down from 35% for the first quarter of 1996. This decrease was a result of tax credits on research and export sales, and the effect of affiliate earnings, which are recorded on an after-tax basis.
Fixed asset additions during the first three months of 1997 totaled $58 million. Spending for the full year is estimated to be in the range of $350 million, and includes expenditures to expand emulsion facilities in Taiwan, Indonesia and Sweden, capacity expansion or acrylic acid at Houston, Texas and investment in electronic chemicals manufacturing in the Far East.
During the quarter, the company recorded expense before tax of $2 million for environmental remediation compared to $6 million for the first quarter of 1996. There were charges of $27 million resulting largely from an unfavorable arbitration decision related to the Woodland sites. These charges were offset by a $25 million increase in insurance recoveries receivable resulting from agreements reached during the quarter with certain insurance carriers. Also during the quarter, the company collected $23 million of previously recorded remediation-related settlements with insurance carriers. Other carriers have denied coverage in most cases and the company had initiated legal action in New Jersey and Pennsylvania. The jury in the Pennyslvania action found in favor of the insurance carriers on certain issues but the company has filed post-trial motions seeking relief.
On May 5, 1997, the board of directors declared a regular quarterly dividend of $.45 per common share and $.6875 per preferred share, payable June 1, 1997, to stockholders of record on May 16, 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.
Polymers, Resins and Monomers* |
Performance Chemicals* |
Plastics |
Agricultural Chemicals |
Total |
||||||
---|---|---|---|---|---|---|---|---|---|---|
1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | |
North America | $330 | $317 | $ 74 | $ 73 | $ 94 | $ 88 | $ 37 | $ 38 | $535 | $516 |
Europe | 91 | 102 | 49 | 52 | 63 | 64 | 56 | 60 | 259 | 278 |
Asia-Pacific | 50 | 51 | 51 | 53 | 7 | 11 | 25 | 30 | 133 | 145 |
Latin America | 26 | 24 | 4 | 5 | 7 | 6 | 22 | 20 | 59 | 55 |
Total | $497 | $494 | $178 | $183 | $171 | $169 | $140 | $148 | $986 | $994 |
Business Group | Percent Change | Customer Location | Percent Change |
---|---|---|---|
Polymers, Resins and Monomers |   8  | North America | 8  |
Performance Chemicals |  (5) | Europe |  6  |
Plastics | 11  | Asia-Pacific |  2  |
Agricultural Chemicals |  1  | Latin America | 14  |
Worldwide |  7  | Worldwide |  7  |
Quarter Ended March 31, |
||
---|---|---|
1997 | 1996 | |
Business Group | (Millions of dollars) | |
Polymers, Resins and Monomers*       | $ 62 | $ 53 |
Performance Chemicals* | 21 | 24 |
Plastics | 16 | 14 |
Agricultural Chemicals | 19 | 20 |
Corporate | (14) | (11) |
Total | $104 | $100 |
Customer Location | ||
North America | $ 67 | $ 53 |
Europe | 30 | 37 |
Asia-Pacific | 15 | 15 |
Latin America | 6 | 6 |
Corporate | (14) | (11) |
Total | $104 | $100 |
* 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.
Gross Profit | $/Share (after-tax) |
|
---|---|---|
Selling prices | $(.19) | |
Physical volume and product mix | .13 | |
Raw material costs | .04 | |
Other manufacturing cost | .13 | Currency effect on gross profit | (.13) |
Decrease in gross profit | (.02) | |
Other Causes | ||
Interest expense | (.03) | |
Share of affiliate earnings (losses) | .09 | |
Reduction in outstanding shares of common stock | .10 | |
Other | .02 | |
Increase from other causes | .18 | |
Increase in per-share earnings | $ .16 |
Quarter Ended March 31, | ||
---|---|---|
1997 | 1996 | |
Current Earnings | (Millions of dollars) | |
Net sales | $  986 | $  994 |
Cost of goods sold | 625 | 631 |
Gross profit | 361 | 363 |
Selling and administrative expense | 154 | 153 |
Research and development expense | 45 | 46 |
Interest expense | 10 | 7 |
Share of affiliate net earnings (losses) | 3 | (3) |
Other expense, net | -- | -- |
Earnings before income taxes | 155 | 154 |
Income taxes | 51 | 54 |
Net earnings | $  104 | $  100 |
Less preferred stock dividends | 2 | 2 |
Net earnings applicable to common shareholders | $  102 | $    98 |
Per Common Share: | ||
Net earnings | $ 1.62 | $ 1.46 |
Dividends | $   .45 | $   .41 |
Average number of common shares outstanding (000's) | 62,976 | 67,099 |
Year Ended March 31, | ||
---|---|---|
1997 | 1996 | |
Cash Flows from Operating Activities | (Millions of dollars) | |
Net earnings | $ 104 | $ 100 |
Adjustments to reconcile net earnings to cash provided by operating activities: |
||
Depreciation | 65 | 60 |
Deferred income taxes | (4) | 3 |
Accounts receivable | (79) | (89) |
Inventories | 11 | 1 |
Accounts payable | (36) | (51) |
Income taxes payable | 35 | 28 |
Other working capital changes, net | (28) | (32) |
Other, net | 40 | 22 |
Net cash provided by operating activities | 108 | 42 |
Cash Flows from Investing Activities | ||
Additions to land, buildings and equipment | (58) | (73) |
Net cash used by investing activities | (58) | (73) |
Cash Flows from Financing Activities | ||
Proceeds from issuance of long-term debt | -- | 1 |
Purchases of treasury stock | (30) | (62) |
Repayments of long-term debt | (1) | (7) |
Net change in short-term borrowings | 52 | 128 |
Payment of dividends | (29) | (29) |
Other, net | (4) | (3) |
Net cash provided (used) by financing activities | (12) | 28 |
Effect of exchange rate changes on cash | -- | -- |
Net increase (decrease) in cash and cash equivalents | $  38 | $  (3) |
March 31, 1997 |
December 31, 1996 |
March 31, 1996 |
|
---|---|---|---|
Assets | (Millions of dollars) | ||
Current assets: | |||
Cash and cash equivalents | $    49 | $    11 | $    40 |
Receivables, net | 920 | 841 | 845 |
Inventories (note d) | 472 | 483 | 503 |
Prepaid expenses and other assets | 125 | 121 | 99 |
Total current assets | 1,566 | 1,456 | 1,487 |
Land, buildings and equipment | 4,364 | 4,327 | 4,221 |
Less accumulated depreciation | 2,317 | 2,261 | 2,166 |
Net land, buildings and equipment | 2,047 | 2,066 | 2,055 |
Other assets | 406 | 411 | 446 |
$4,019 | $3,933 | $3,988 | |
Liabilities and Stockholders' Equity | |||
Current liabilities: | |||
Notes payable | $   196 | $   145 | $   212 |
Accounts payable and accrued liabilities | 606 | 669 | 567 |
Accrued income taxes | 107 | 72 | 100 |
Total current liabilities | 909 | 886 | 879 |
Long-term debt | 559 | 562 | 603 |
Employee benefits | 409 | 405 | 359 |
Other liabilities | 371 | 352 | 318 |
Stockholders' equity: | |||
$2.75 Cumulative convertible | |||
preferred stock (note e) | 129 | 131 | 133 |
Common stock: shares issued | |||
--78,652,380 | 197 | 197 | 197 |
Additional paid-in capital | 138 | 143 | 146 |
Retained earnings | 2,111 | 2,036 | 1,860 |
2,575 | 2,507 | 2,336 | |
Less: Treasury stock (note f) | 646 | 629 | 397 |
Less: ESOP shares | 144 | 145 | 150 |
Other equity adjustments | (14) | (5) | 4 |
Total stockholders' equity | 1,771 | 1,728 | 1,793 |
$4,019 | $3,933 | $3,988 | |
(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 corrective actions at some of its manufacturing facilities. At March 31, 1997, the reserves for remediation were $160 million compared to $139 million at December 31, 1996. The probable insurance recovery asset was $50 million and $48 million at March 31, 1997 and December 31, 1996, respectively. During the quarter, the company recorded expense before tax of $2 million for environmental remediation compared to $6 million for the first quarter of 1996. There were charges of $27 million resulting largely from an unfavorable arbitration decision related to the Woodland sites. These charges were offset by a $25 million increase in insurance recoveries receivable resulting from agreements reached during the quarter with certain insurance carriers. Also during the quarter, the company collected $23 million of previously recorded remediation-related settlements with insurance carriers. Other carriers have denied coverage in most cases and the company had initiated legal
action in New Jersey and Pennsylvania. The jury in the Pennyslvania action found in favor of the insurance carriers on certain issues but the company has filed post-trial motions seeking relief. 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 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) |
Mar. 31, 1997 |
Dec. 31, 1996 |
Mar. 31, 1996 |
|
---|---|---|---|
Finished products and work in process | $372 | $375 | $378 |
Raw materials and supplies | 100 | 108 | 125 |
Total inventories | $472 | $483 | $503 |
(e) | The number of preferred shares issued and outstanding were: | |
March 31, 1997 | 2,579,842 | |
December 31, 1996 | 2,631,822 | |
March 31, 1996 | 2,653,591 | |
(f) | The number of common treasury shares were: | |
March 31, 1997 | 15,719,055 | |
December 31, 1996 | 15,507,629 | |
March 31, 1996 | 12,088,999 |