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