Rohm and Haas Company Reports Third Quarter Results
PHILADELPHIA, Oct. 25, 2002; Rohm and Haas Company today reported third quarter net earnings of $73 million, or $.33 per share reflecting a 38 percent increase over $53 million or $.24 per share for the third quarter, 2001. Sales of $1,454 million, an 8 percent increase over the same period in 2001, reflect solid improvement in key market segments for the company, particularly Electronics, Coatings and the consumer-related markets of Performance Chemicals.Earnings from continuing operations, excluding unusual items, of $90 million, or $.41 per share, increased 25 percent over pro-forma earnings of $72 million, or $.33 per share, for the comparable period in 2001. The current consensus estimate, as reported by First Call, is $.41 per share. Unusual charges totaling $17 million, or $.08 per share for the quarter, include charges related to cost reduction initiatives announced in 2001, remediation related costs, insurance settlements, adjustments to working capital from the sale of the Agricultural Chemicals business in 2001, and purchased in-process research and development associated with a recent acquisition in the company's Powder Coatings business.
"Our sales growth continues to show solid year-over-year improvement, reflecting the strength of our portfolio to generate higher sales, despite these uncertain economic times," notes Raj Gupta, chairman and chief executive officer. "Leverage of this sales growth, combined with the implementation of our cost reduction initiatives, which are essentially complete, is demonstrated in solid earnings improvement."
Pro Forma*
3rd Qtr. 2002 3rd Qtr. 2001 3rd Qtr. 2001
Net sales $ 1,454 million $ 1,346 million $ 1,346 million
Net earnings $ 73 million $ 53 million $ 74 million
$ .33 per share $ .24 per share $ .34 per share
Excluding Unusual
Items
Earnings from $ 90 million $ 51 million $ 72 million
operations $ .41 per share $ .23 per share $ .33 per share
*excluding the amortization of goodwill and indefinite-lived intangibles
Business Updates:
The earnings comparisons below include presentations of prior-year periods on a pro-forma basis, excluding unusual items and amortization of goodwill and indefinite-lived intangibles in accordance with the new accounting pronouncement (SFAS No. 142). The current year presented below excludes unusual items.
Coatings:
Coatings reported sales of $489 million, 8 percent higher than the same period in 2001. Architectural and Functional Coatings, as well as Automotive Coatings, posted strong increases, driven by the continued demand in the consumer paint segment and higher automobile builds in North America. Products for the paper coatings market continued to show strong demand as catalogue and magazine publishers look to offset higher postal rates. Powder Coatings sales continue to be weak, reflecting little improvement in this industrial sector, particularly in North America. Coatings earnings of $51 million were flat with the comparable period in 2001, reflecting the gap between selling prices and recently escalating raw material costs, as well as higher costs related to the Methyl Methacrylate (MMA) outage at the company's Deer Park, Texas plant in August.
Electronic Materials:
Sales of $262 million for Electronic Materials were up 26 percent over the comparable period in 2001, with all segments in the business posting sales growth. The Printed Wiring Board business is strengthening in Asia, while North America and Europe continue to be sluggish. The Electrical and Industrial Finishing (EIF) and Semiconductor businesses were up significantly year-on-year, driven by an approximate 55 percent improvement in sales in the advanced technology product lines (Chemical Mechanical Planarization, Deep Ultraviolet Photoresists, Advanced Packaging Materials, and Anti-reflective Coatings). However, the electronics market is not experiencing the seasonal up-tick normally seen prior to the holiday season. Earnings for Electronic Materials of $26 million were significantly improved from the $3 million in the comparable period in 2001, due to the leverage of the sales growth, coming primarily from advanced technology products, and improved operating efficiency of the business on a much reduced base.
Adhesives and Sealants:
Sales of $146 million reflect an 8 percent decline over the comparable period; however, eliminating the effect of the exited liquid polysulfide business, sales are up 6 percent. The strong market demand in the second quarter of 2002 did not hold up through the third quarter; however, the business continues to gain share in transportation and packaging segments due to the acceptance of its water-based dry lamination and solvent-free adhesives. Earnings of $6 million are down from $9 million on a year-on-year comparison, due to the impact of the exited liquid polysulfide business and costs associated with the restructuring of the businesses manufacturing network.
Performance Chemicals
The $584 million in sales posted for the third quarter reflects a 10 percent increase over the same period a year ago. Plastics Additives and Monomers were significant factors in this improvement, reflecting continued strength in the building and construction sectors, as well as in consumer markets. The MMA facility, which experienced an outage in August at the Deer Park, Texas plant, is running well; however, inventories remain tight. Consumer and Industrial Specialties continues to experience strong demand for its biocides in personal care products, while Ion Exchange Resins demand is still weak, as industrial sectors hold back on capital spending. Inorganic and Specialties Solutions saw positive sales improvement, excluding the effect of exited businesses, as a result of strong borohydride demand, used in paper bleaching chemicals, attributed to hot, dry weather during the quarter in both North America and Europe. Earnings of $45 million for Performance Chemicals were up 7 percent over the comparable period in 2001.
Salt
Sales of $139 million were down compared with the same period a year ago, reflecting lower early season ice control activity. Earnings of $4 million were higher than the comparable period in 2001, reflecting improved selling prices, as well as continued cost controls.
Currency, Capital Spending and Free Cash Flow
Currencies had a 3 percent positive impact on sales, and a $2 million after tax, or $.01 per share, favorable impact on the earnings in the third quarter, compared with the third quarter of 2001. Capital Spending through the third quarter is $261 million, below depreciation of $292 million. Year-to-date free cash flow, after dividends, is approximately $247 million.
Outlook
In providing an outlook for the remainder of the year, Gupta noted the global economy continues to recover, although it appears to be recovering more slowly than anticipated earlier this year. "While many of our businesses are showing solid year-on-year growth, we are now seeing evidence of this growth slowing in some key markets, like electronics and adhesives, and we are uncertain how our global customers in all our markets will manage inventories as we near year-end," he said. "At this time we expect the fourth quarter to generate continued favorable year-on-year comparisons with sales growth in the mid-single digit range, and significant earnings improvement as a result of new products and technologies, and the leverage from our cost reduction initiatives. We will provide further guidance in our normal update in December."
This release includes forward-looking statements. Actual results could vary materially, due to changes in current expectations. The forward-looking statements contained in this announcement concerning demand for products and services, sales and earnings growth, and actions that may be taken to improve financial performance, involve risks and uncertainties and are subject to change based on various factors, including the impact of raw materials and natural gas, as well as other energy sources, and the ability to achieve price increases to offset such cost increases, development of operational efficiencies, changes in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and services, the impact of competitive products and pricing, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. Further information about these risks can be found in the company's SEC 10-K filing of March 26, 2002.
Rohm and Haas is a Philadelphia-based specialty chemical company which makes products for the personal care, grocery, home and construction markets, and the electronics industry. The company has annual sales of approximately $5.7 billion and operations in more than 25 countries.
- Rohm and Haas Company and Subsidiaries
- Statements of Consolidated Earnings
- (millions of dollars, except share and per-share amounts)
- (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
Percent Percent
Change Change
2002 2001 2002 (1) 2001
Net sales $1,454 $1,346 8% $4,292 $4,326 -1%
Cost of goods sold 1,003 932 8% 2,921 3,059 -5%
Gross profit 451 414 9% 1,371 1,267 8%
Selling and
administrative expense 220 208 645 638
Research and development
expense 71 55 199 168
Interest expense 32 39 99 143
Amortization of goodwill
and other intangibles 17 40 51 118
Share of affiliate net
(earnings) (5) (3) (10) (9)
Provision for restructuring
and asset impairments - - 16 330
Other (income) expense, net 3 (11) (4) 1
Earnings (loss) from
continuing operations
before income taxes,
extraordinary item
and cumulative effect
of accounting change 113 86 375 (122)
Income tax expense
(benefit) 36 33 121 (15)
Earnings (loss) from
continuing operations
before extraordinary
item and cumulative
effect of accounting
change $77 $53 $254 $(107)
Discontinued operations:
Income from discontinued
line of business, net of
income taxes - - - 40
Gain (loss) on disposal
of discontinued line
of business, net of
income taxes (4) - (7) 428
Earnings before
extraordinary item
and cumulative effect
of accounting change $73 $53 $247 $361
Extraordinary loss on
early extinguishment of
debt, net of income taxes - - (6) (1)
Cumulative effect of
accounting change, net
of income taxes - - (773)(1) (2)
Net earnings (loss) $73 $53 $(532) $358
Basic earnings (loss) per
common share
(in dollars):
Continuing operations $0.35 $0.24 $1.15 $(0.48)
Income from discontinued
line of business - - - 0.18
Gain (loss) on disposal
of discontinued line
of business (0.02) - (0.03) 1.94
Extraordinary loss on
early extinguishment
of debt - - (0.03) (0.01)
Cumulative effect of
accounting change - - (3.50) (0.01)
$0.33 $0.24 $(2.41) $1.62
Diluted earnings (loss)
per common share
(in dollars):
Continuing operations $0.35 $0.24 $1.15 $(0.48)
Income from
discontinued line of
business - - - 0.18
Gain (loss) on disposal
of discontinued line
of business (0.02) - (0.03) 1.94
Extraordinary loss on
early extinguishment
of debt - - (0.03) (0.01)
Cumulative effect of
accounting change - - (3.49) (0.01)
$0.33 $0.24 $(2.40) $1.62
Average common shares
outstanding (millions):
- Basic 221.1 220.4 220.9 220.2
- Diluted 222.1 221.3 221.9 220.2
Notes:
(1) Results for the nine months ended September 30, 2002 include an
impairment charge for goodwill and indefinite-lived intangible assets
in accordance with SFAS No. 142, reported as a cumulative change in
accounting principle as of January 1, 2002. The after-tax charge of
$773M by segment is as follows: Coatings - $42M, Electronic
Materials - $281M, Performance Chemicals - $230M and Salt - $220M.
Rohm and Haas Company and Subsidiaries
(millions of dollars)
(unaudited)
Net Sales by Business Segment and Region
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001(1) 2002 2001(1)
Business Segment
Coatings $ 489 $ 453 $ 1,422 $ 1,371
Adhesives
and Sealants 146 159 446 486
Electronic Materials 262 208 738 735
Performance Chemicals 584 529 1,650 1,663
Salt 139 144 489 546
Elimination
of Intersegment
Sales (166) (147) (453) (475)
Total $1,454 $1,346 $ 4,292 $ 4,326
Customer Location
North America $ 887 $ 828 $ 2,662 $ 2,681
Europe 333 305 965 985
Asia-Pacific 183 163 516 504
Latin America 51 50 149 156
Total $1,454 $1,346 $ 4,292 $ 4,326
Earnings (Loss) from Continuing Operations by Business Segment (2)
Three Months Ended Nine Months Ended
September 30, September 30,
Pro Forma Pro Forma
2002 2001(1) 2001(1,4) 2002(6) 2001(1) 2001(1,4)
Business Segment
Coatings $ 48 $ 48 $ 51 $ 166 $ 98 $ 107
Adhesives
and Sealants 3 6 9 (2) (68) (61)
Electronic
Materials 26 (3) 2 60 2 15
Performance
Chemicals 42 37 40 120 13 21
Salt 4 (2) 3 29 2 19
Corporate(3) (46) (33) (31) (119) (154) (149)
Total $ 77 $ 53 $ 74 $ 254 $(107) $ (48)
Earnings from Continuing Operations Before Interest, Taxes, Depreciation
and Amortization by Business Segment (5)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001(1) 2000 2001(1)
Business Segment
Coatings $ 94 $ 101 $ 314 $ 244
Adhesives and Sealants 15 19 25 (57)
Electronic Materials 54 17 138 68
Performance Chemicals 104 103 305 171
Salt 25 25 100 86
Corporate(3) (32) (1) (65) (68)
Total $ 260 $ 264 $ 817 $ 444
(1) Reclassified to conform to current year presentation.
(2) Before extraordinary items and cumulative effect of accounting change.
(3) Corporate includes non-operating items such as interest income and
expense and corporate governance costs.
(4) Pro forma results exclude amortization of goodwill and indefinite-
lived intangibles.
(5) Earnings from continuing operations before interest, taxes,
depreciation and amortization by business segment, is calculated as
above to facilitate comparisons between Rohm and Haas Company and its
competitors and eliminate distortions caused by depreciation,
amortization and interest expense related to acquisitions. It should
not be considered as an alternative to cash flow from operating
activities, as a measure of liquidity or as an alternative to net
income as an indicator of operating performance in accordance with
generally accepted accounting principles.
(6) Results for the nine months ended September 30, 2002 include an
impairment charge for goodwill and indefinite-lived intangible assets
in accordance with SFAS No. 142 reported as a cumulative change in
accounting principle as of January 1, 2002. The after-tax charge of
$773M by segment is as follows : Coatings - $42M, Electronic
Materials - $281M, Performance Chemicals - $230M and Salt - $220M.
Rohm and Haas Company and Subsidiaries Appendix I
(millions of dollars, except share and per-share amounts)
(unaudited)
Earnings from Continuing Operations by Business Segment, Excluding Unusual
Items (1,4)
Three Months Ended Nine Months Ended
September 30, September 30,
Pro Forma Pro Forma
2002 2001(2) 2001(2,3) 2002 2001(2) 2001(2,3)
Coatings $ 51 $ 48 $ 51 $ 171 $ 130 $ 139
Adhesives
and Sealants 6 6 9 17 15 22
Electronic
Materials 26 (2) 3 61 27 40
Performance
Chemicals 45 39 42 133 90 98
Salt 4 (2) 3 29 13 30
Corporate (42) (38) (36) (121) (128) (123)
Total $ 90 $ 51 $ 72 $ 290 $ 147 $ 206
Per common
share,
diluted $ 0.41 $0.23 $0.33 $ 1.31 $ 0.67 $ 0.93
(1) Segment earnings reflect after-tax operating results.
(2) Reclassified to conform to current year presentation.
(3) Pro forma results exclude amortization of goodwill and indefinite-
lived intangibles.
(4) Before extraordinary items and cumulative effect of accounting
change.
Reconciliation of Unusual Items
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
2002 Before Tax After Tax Before Tax After Tax
Net earnings
(loss) as-reported $107 $73 $(475) $(532)
Loss on disposal
of discontinued
line of business 6 4 11 7
Extraordinary loss
on early extinguishment
of debt - - 9 6
Cumulative effect
of accounting change - - 830 773
Earnings from continuing
operations before
extraordinary item and
cumulative effect
of accounting change 113 77 375 254
Remediation related charges 19 12 19 12
Remediation related
insurance settlements (16) (10) (32) (20)
Purchased in-process
research and development 3 2 3 2
Provision for restructuring
and asset impairments - - 16 10
Demolition, dismantlement
and other costs associated
with restructuring 15 9 49 32
Impact of unusuals
on continuing operations 21 13 55 36
Earnings excluding
unusual items $134 $90 $430 $290
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
2001 Before Tax After Tax Before Tax After Tax
Net earnings as-reported $ 86 $ 53 $ 617 $ 358
Income from discontinued
line of business - - (65) (40)
Gain on disposal of
discontinued line
of business - - (679) (428)
Extraordinary loss
on early extinguishment
of debt - - 2 1
Cumulative effect
of accounting change - - 3 2
Earnings (loss) from
continuing operations
before extraordinary
item and cumulative
effect of accounting
change 86 53 (122) (107)
Remediation related
charges, net of
insurance settlements (5) (3) 9 5
Provision for restructuring
and asset impairments - - 330 233
Asset write-downs,
integration and
other restructuring 2 1 28 16
Impact of unusuals
on continuing operations (3) (2) 367 254
Earnings excluding
unusual items $83 $51 $245 $147
Rohm and Haas Company and Subsidiaries Appendix II
(millions of dollars, except per share amounts)
(unaudited)
CONTINUING OPERATIONS EXCLUDING UNUSUAL ITEMS (1)
Third Second First Fourth Third Second First
Quarter Quarter Quarter Year Quarter Quarter Quarter Quarter
2002 2002 2002 2001 2001 2001 2001 2001
Net
sales $1,454 $1,457 $1,381 $5,666 $1,340 $1,346 $1,408 $1,572
Cost of
goods
sold 988 972 929 3,978 941 934 983 1,120
Gross
profit 466 485 452 1,688 399 412 425 452
Selling
and
administrative
expense 219 219 206 845 213 206 206 220
Research
and
development
expense 65 66 62 230 62 55 57 56
Interest
expense 32 32 35 182 39 39 48 56
Amortization
of goodwill
and other
intangibles 17 16 18 156 38 40 39 39
Share of
affiliate
net
earnings (5) (4) (1) (12) (3) (3) (4) (2)
Other expense
(income), net 4 (6) (2) (25) (16) (8) (3) 2
Earnings
before
income
taxes 134 162 134 312 66 83 82 81
Income
taxes 44 52 44 123 24 32 34 33
Net
earnings $90 $110 $90 $189 $42 $51 $48 $48
Pro forma
adjustment
to reflect
SFAS 142
adoption 79 20 21 19 19
Adjusted net earnings $268 $62 $72 $67 $67
Per common
share
(dil-
uted) $0.41 $0.49 $0.41 $1.21 $0.28 $0.33 $0.30 $0.30
Other Data:
Capital
spending $106 $87 $68 $401 $131 $99 $75 $96
Depreciation
expense $98 $97 $97 $406 $102 $99 $100 $105
(1) - Unusual items are detailed in Appendix I.
Rohm and Haas Company and Subsidiaries
Consolidated Balance Sheets
(millions of dollars, except share and per-share amounts)
September 30, December 31,
2002 2001
(Preliminary
Assets and Unaudited)
Current assets:
Cash and cash equivalents $252 $92
Receivables, net 1,248 1,220
Inventories 753 712
Prepaid expenses and other assets 373 397
Total current assets 2,626 2,421
Land, buildings and equipment, net 2,901 2,916
Goodwill and other intangible
assets, net of amortization 3,545 4,416
Other assets 597 597
$9,669 $10,350
Liabilities and Stockholders'
Equity
Current liabilities:
Notes payable $226 $178
Trade and other payables 466 520
Accrued liabilities 611 560
Accrued income taxes payable 313 340
Total current
liabilities 1,616 1,598
Long-term debt 2,755 2,720
Employee benefits 600 613
Other liabilities 1,449 1,560
Minority interest 19 18
Commitments and contingencies
Stockholders' equity:
Common stock: shares issued
- 242,078,367 605 605
Additional paid-in capital 1,969 1,961
Retained earnings 1,077 1,742
3,651 4,308
Less: Treasury stock 201 208
Less: ESOP shares 108 113
Accumulated other
comprehensive loss (112) (146)
Total stockholders'
equity 3,230 3,841
$9,669 $10,350