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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2002 COMMISSION FILE NUMBER 1-3507
R O H M A N D H A A S C O M P A N Y
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1028370
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 INDEPENDENCE MALL WEST, PHILADELPHIA, PENNSYLVANIA 19106
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 592-3000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Common stock outstanding at July 31, 2002: 221,073,075 SHARES
ROHM AND HAAS COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1. Statements of Consolidated Earnings for the three and six months ended
June 30, 2002 and 2001.
2. Statements of Consolidated Cash Flows for the six months ended June
30, 2002 and 2001.
3. Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001.
4. Notes to Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK
Management's discussion of market risk is incorporated herein by
reference to Item 7a of its Form 10-K for the year ended December 31,
2001, filed with the Securities and Exchange Commission on March 26,
2002.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(unaudited)
- -------------------------------------------------------------------------------------------------------
(millions of dollars, except share and per-share amounts) Three Months Six Months
Ended Ended
June 30, June 30,
----------------------------------------
2002 2001 2002 2001
------- ------- ------- -------
Net sales $ 1,457 $ 1,408 $ 2,838 $ 2,980
Cost of goods sold 978 1,007 1,918 2,127
------- ------- ------- -------
Gross profit 479 401 920 853
Selling and administrative expense 219 209 425 430
Research and development expense 66 57 128 113
Interest expense 32 48 67 104
Amortization of goodwill and other intangibles (Note C) 16 40 34 78
Share of affiliate net (earnings) (4) (4) (5) (6)
Provision for restructuring and asset impairments (Note E) 17 330 16 330
Other (income) expense, net (5) 10 (7) 12
------- ------- ------- -------
Earnings (loss) from continuing operations before income
taxes, extraordinary item and cumulative effect of
accounting change 138 (289) 262 (208)
Income tax expense (benefit) 45 (81) 85 (48)
------- ------- ------- -------
Earnings (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change $ 93 $ (208) $ 177 $ (160)
------- ------- ------- -------
Discontinued operations:
Income from discontinued line of business, net of income
taxes -- 23 -- 40
Gain (loss) on disposal of discontinued line of business,
net of income taxes (3) 428 (3) 428
------- ------- ------- -------
Earnings before extraordinary item and cumulative
effect of accounting change $ 90 $ 243 $ 174 $ 308
Extraordinary loss on early extinguishment of debt, net of
income taxes (1) (1) (6) (1)
Cumulative effect of accounting change, net of income taxes -- -- (773) (2)
------- ------- ------- -------
Net earnings (loss) $ 89 $ 242 $ (605) $ 305
------- ------- ------- -------
Basic earnings (loss) per common share:
Continuing operations $ .42 $ (.94) $ .80 $ (.72)
Income from discontinued line of business -- .10 -- .18
Gain (loss) on disposal of discontinued line of business (.01) 1.94 (.01) 1.94
Extraordinary loss on early extinguishment of debt (.01) (.01) (.03) (.01)
Cumulative effect of accounting change -- -- (3.50) (.01)
------- ------- ------- -------
$ .40 $ 1.09 $ (2.74) $ 1.38
------- ------- ------- -------
Diluted earnings (loss) per common share:
Continuing operations $ .42 $ (.94) $ .80 $ (.72)
Income from discontinued line of business -- .10 -- .18
Gain (loss) on disposal of discontinued line of business (.01) 1.94 (.01) 1.94
Extraordinary loss on early extinguishment of debt (.01) (.01) (.03) (.01)
Cumulative effect of accounting change -- -- (3.49) (.01)
------- ------- ------- -------
$ .40 $ 1.09 $ (2.73) $ 1.38
------- ------- ------- -------
Common dividends $ 0.20 $ 0.20 $ 0.40 $ 0.40
Weighted average common shares outstanding (in millions):
Basic 220.9 220.2 220.8 220.1
Diluted 222.1 220.2 221.9 220.1
See Notes to Consolidated Financial Statements.
ROHM AND HAAS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------------------------------
(millions of dollars) Six Months Ended
June 30,
------------------
2002 2001
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (605) $ 305
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
(Gain) loss on disposal of discontinued line of business, net of income taxes 3 (428)
Provision for restructuring and asset impairment 16 330
Depreciation expense 194 214
Income from discontinued line of business, net of income taxes -- (40)
Amortization of goodwill and intangibles 34 78
Extraordinary loss on early extinguishment of debt, net of income taxes 6 1
Cumulative effect of accounting change, net of income taxes 773 2
Changes in assets and liabilities, net of acquisitions and divestitures:
Deferred income taxes (69) (16)
Accounts receivable, net (49) 3
Inventories -- 64
Prepaid expenses and other assets 30 (71)
Accounts payable and accrued liabilities (40) (332)
Accrued income taxes payable 42 (44)
Other, net 30 (28)
--------------------------------------------------------------------------------------- -------
Net cash provided by continuing operations 365 38
--------------------------------------------------------------------------------------- -------
Net cash provided by discontinued operations -- 42
--------------------------------------------------------------------------------------- -------
Net cash provided by operating activities 365 80
--------------------------------------------------------------------------------------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from/cash used for disposal of discontinued line of business (51) 1,015
Acquisitions/divestitures of businesses and affiliates (1) (108)
Additions to land, buildings and equipment (155) (171)
Proceeds from hedge of net investment in foreign subsidiaries 4 18
--------------------------------------------------------------------------------------- -------
Net cash (used in) provided by investing activities (203) 754
--------------------------------------------------------------------------------------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury shares (1) --
Proceeds from issuance of long-term debt 153 --
Repayments of long-term debt (126) (146)
Net change in short-term borrowings 31 (620)
Payment of dividends (88) (88)
--------------------------------------------------------------------------------------- -------
Net cash used in financing activities (31) (854)
--------------------------------------------------------------------------------------- -------
Net increase (decrease) in cash and cash equivalents 131 (20)
Cash and cash equivalents at beginning of period 92 92
------- -------
Cash and cash equivalents at end of period $ 223 $ 72
======= =======
See Notes to Consolidated Financial Statements.
ROHM AND HAAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------
(millions of dollars, except share amounts)
June 30, December 31,
2002 2001
-------- ---------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 223 $ 92
Receivables, net 1,283 1,220
Inventories (Note H) 725 712
Prepaid expenses and other assets 358 397
-------- --------
Total current assets 2,589 2,421
-------- --------
Land, buildings and equipment, net 2,905 2,916
Goodwill, net of amortization (Note C) 1,582 2,159
Other intangible assets, net of amortization (Note C) 1,946 2,257
Other assets 597 597
-------- --------
Total assets $ 9,619 $ 10,350
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 240 $ 178
Trade and other payables 475 520
Accrued liabilities 580 560
Accrued income taxes payable 282 340
-------- --------
Total current liabilities 1,577 1,598
-------- --------
Long-term debt 2,780 2,720
Employee benefits 601 613
Deferred income taxes 1,165 1,278
Other liabilities 255 282
Minority interest 18 18
Commitments and contingencies (Note F)
Stockholders' equity:
Common stock: shares issued - 242,078,367 605 605
Additional paid-in capital 1,967 1,961
Retained earnings 1,050 1,742
-------- --------
3,622 4,308
Less: Treasury stock (Note J) 201 208
Less: ESOP shares 110 113
Accumulated other comprehensive (loss) (88) (146)
-------- --------
Total stockholders' equity 3,223 3,841
-------- --------
Total liabilities and stockholders' equity $ 9,619 $ 10,350
======== ========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Rohm and Haas
Company (the Company) have been prepared on a basis consistent with accounting
principles generally accepted in the United States of America and are in
accordance with the Securities and Exchange Commission (SEC) regulations for
interim financial reporting. In the opinion of management, the financial
statements reflect all adjustments, which are of a normal and recurring nature,
which are necessary to present fairly the financial position, results of
operations and cash flows for the interim periods. Certain prior year amounts
have been reclassified to conform to current year presentation. These financial
statements should be read in conjunction with the financial statements,
accounting policies and the notes included in the Company's Annual Report filed
on Form 10-K with the SEC for the year ended December 31, 2001.
(A) NEW ACCOUNTING PRONOUNCEMENTS
o GOODWILL AND OTHER INTANGIBLE ASSETS
Refer to Footnote C for information related to Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets."
o ASSET RETIREMENT OBLIGATIONS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which requires
recognition of the fair value of liabilities associated with the retirement
of long-lived assets when a legal obligation to incur such costs arises as
a result of the acquisition, construction, development and/or the normal
operation of a long-lived asset. SFAS No. 143 requires that the fair value
of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset and subsequently allocated to
expense over the asset's useful life. SFAS No.143 is effective for fiscal
years beginning after December 15, 2002. Management is currently assessing
the impact of the new standard on the Company's financial statements.
o DEBT EXTINGUISHMENT, INTANGIBLE ASSETS OF MOTOR CARRIERS AND LEASE
ACCOUNTING
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement amends FASB Statement No. 13, "Accounting for
Leases," and other existing authoritative pronouncements in order to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions and also limits the classification
of debt extinguishments as extraordinary items. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002. Management is currently
assessing the impact of the new standard on the Company's financial
statements.
o ACCOUNTING FOR EXIT OR DISPOSAL ACTIVITIES
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities." This statement addresses the recognition, measurement
and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted
for pursuant to the guidance in Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The statement requires recording costs associated with
exit or disposal activities at their fair values when a liability has been
incurred. SFAS No. 146 is effective for disposal activities initiated after
December 31, 2002. Management is currently assessing the impact of the new
standard on the Company's financial statements.
(B) SEGMENT INFORMATION
Effective January 1, 2002, based on realignment of internal management
accountability, the Company changed its reportable business segments (hereafter
referred to as business segments) in accordance with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Results of operations
from prior years have been reclassified to conform to current year presentation.
The results for the year-ended December 31, 2001, as reported in the Company's
Annual Report filed on Form 10-K with the SEC, were presented in the previously
existing business segments. The following table provides a comparable view of
the business segments applicable to 2001 versus those presented in 2002.
BUSINESS SEGMENTS AT DECEMBER 31, 2001 | BUSINESS SEGMENTS AS OF JANUARY 1, 2002
- ------------------------------------------------------|------------------------------------------------------------
Performance Polymers | Coatings
Coatings | Architectural and Functional Coatings *
Adhesives and Sealants | Automotive Coatings *
Plastic Additives | Powder Coatings *
Monomers |
Surface Finishes | Adhesives and Sealants *
Automotive Coatings |
Powder Coatings | Electronic Materials
| Printed Wiring Board *
| Electronic and Industrial Finishes *
Chemical Specialties | Microelectronics *
Consumer and Industrial Specialties |
Inorganic and Specialty Solutions | Performance Chemicals
Ion Exchange Resins | Monomers *
| Plastic Additives *
Electronic Materials | Inorganic and Specialty Solutions *
Shipley Ronal | Consumer and Industrial Specialties *
Microelectronics | Ion Exchange Resins *
|
Salt | Salt *
|
| * Designates a reporting unit for SFAS No. 142 purposes
- -------------------------------------------------------------------------------------------------------------------
For additional information regarding the Company's segment information, refer to
the "Net Sales by Business Segment and Customer Location" and "Net Earnings from
Continuing Operations by Business Segment" tables within Management's Discussion
and Analysis of Financial Condition and Results of Operations.
(C) GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." In accordance with this statement, as of January 1, 2002,
the Company ceased amortization of goodwill and intangible assets deemed to have
indefinite lives, and reclassified certain intangible assets to goodwill, net of
deferred taxes. Under SFAS No. 142, goodwill and certain indefinite-lived
intangible assets are no longer amortized but instead are reviewed for
impairment at least annually and are written down only in periods in which it is
determined that their fair value is less than the book value.
As a result of the Company's impairment testing in connection with the adoption
of SFAS No. 142, a non-cash charge of $830 million ($773 million after-tax), was
reflected in the results for the six months ended June 30, 2002, as if this
charge had been recorded on January 1, 2002. In future financial statement
presentations, results for the three months ended March 31, 2002 will reflect
the impairment charge as though it had been recorded January 1, 2002. This
charge was reported as a Cumulative Effect of Accounting Change in the Statement
of Consolidated Earnings. Of the impairment, $668 million pertained to goodwill
and $162 million ($105 million after-tax) related to indefinite-lived
intangibles assets within the Salt segment. The after-tax charge is as follows:
Coatings - $42 million; Electronic Materials - $281 million; Performance
Chemicals - $230 million and Salt - $220 million. The impairment charges are
primarily the result of the economic downturn over the past two years affecting
growth assumptions in certain key markets. In addition, customer consolidation
in some areas has led to downward pressure on pricing and volume.
GOODWILL
SFAS No. 142 requires the transitional impairment review for goodwill, as well
as an annual impairment review, to be performed on a reporting unit basis. The
Company has identified each of its reporting units as designated in Note B. When
evaluating goodwill for impairment, SFAS No. 142 requires the Company to first
compare a reporting unit's book value of net assets, including goodwill, to its
fair value. Fair value was estimated based upon discounted cash flow analyses.
To the extent that the book value exceeded fair value, the Company was required
to perform a second step. In the second step, the Company determined "implied
goodwill" by determining the fair value for the assets and liabilities of its
reporting units. To the extent that a reporting unit's book value of goodwill
exceeded its implied fair value, impairment existed and was recognized.
The Company's previous business combinations were accounted for using the
purchase method of accounting. As of December 31, 2001, the net carrying amount
of goodwill was $2,159 million. Goodwill amortization expense for the year ended
December 31, 2001 was $64 million.
The changes in the carrying amount of goodwill for the six months ended June 30,
2002, by business segment, are as follows:
(in millions) Adhesives Electronic Performance
Coatings and Sealants Materials Chemicals Salt Total
-------- ------------ --------- --------- ---- -----
Balance as of January 1, 2002 $ 330 $ 458 $ 529 $ 393 $ 449 $ 2,159
Reclassification of workforce
intangible assets, net of
amortization 11 9 18 7 37 82
Impairment losses (42) -- (281) (230) (115) (668)
Currency gains 3 4 2 3 -- 12
Other (1) (1) 17 (17) (1) (3)
------- ------- ------- ------- ------- -------
Balance as of June 30, 2002 $ 301 $ 470 $ 285 $ 156 $ 370 $ 1,582
======= ======= ======= ======= ======= =======
OTHER INTANGIBLE ASSETS
Other intangible assets are presented in the Consolidated Balance Sheet, as
follows:
(in millions) June 30, 2002
-------------
Indefinite-lived intangible assets $ 360
Finite-lived intangible assets 1,586
-------------
Total $ 1,946
=============
Indefinite-lived Intangible Assets
- ----------------------------------
Indefinite-lived intangible assets, which are no longer subject to amortization,
were also reviewed by the Company in accordance with SFAS No. 142, in a one-step
process. Impairment was recognized if the carrying value of the asset exceeded
its fair value. The following table provides information regarding the Company's
indefinite-lived intangible assets, which all pertain to the Company's Salt
segment, as of June 30, 2002:
(in millions) Strategic
Tradename Location* Total
--------- -------- -----
Balance as of January 1, 2002 $ 408 $ 114 $ 522
Impairment loss (108) (54) (162)
--------- -------- -----
Balance as of June 30, 2002 $ 300 $ 60 $ 360
========= ======== ======
* Strategic location is a specific customer-related asset that recognizes the
intangible value of a customer's location to the Company's supply source
Finite-lived Intangible Assets
- ------------------------------
Finite-lived intangible assets are long-lived assets, other than investments,
goodwill and indefinite-lived intangible assets. They are depreciated over their
useful lives and are reviewed for impairment in accordance with SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." The Company
evaluated such finite-lived intangible assets and determined there to be no
change in circumstances that would indicate that the carrying value of any given
asset may not be recoverable. The following table provides information regarding
the Company's finite-lived intangible assets:
At June 30, 2002 At December 31, 2001
-------------------------------- ----------------------------------
(in millions) Gross Gross
carrying Accumulated carrying Accumulated
amount amortization Net amount amortization Net
------- ------------ ------ -------- ------------ -------
Customer list $1,030 $ (80) $ 950 $1,158 $ (83) $1,075
Tradename 211 (20) 191 649 (46) 603
Developed technology 439 (81) 358 451 (69) 382
Workforce -- -- -- 148 (24) 124
Patents, license agreements
and other 132 (45) 87 101 (28) 73
------ ----- ------ ------ ----- ------
Total $1,812 $(226) $1,586 $2,507 $(250) $2,257
====== ===== ====== ====== ===== ======
Amortization expense for finite-lived intangible assets was $34 million for the
six months ended June 30, 2002 compared to $78 million for the six months ended
June 30, 2001 for all intangible assets. Estimated amortization expense for 2002
and the five succeeding fiscal years will be approximately $68 million per year.
A reconciliation of reported earnings from continuing operations before
extraordinary item and cumulative effect of accounting change and reported net
earnings, as adjusted to reflect the adoption of SFAS No. 142 is as follows:
(in millions, except per share amounts) Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Reported earnings (loss) from continuing operations before
extraordinary item and cumulative effect of accounting change $ 93 $(208) $ 177 $(160)
Add-back amortization of goodwill and indefinite-lived intangibles -- 19 -- 38
---- ----- ------ -----
Adjusted earnings (loss) from continuing operations before
extraordinary item and cumulative effect of accounting change $ 93 $(189) $ 177 $(122)
==== ===== ====== =====
Reported net earnings (loss) $ 89 $ 242 $ (605) $ 305
Add-back amortization of goodwill and indefinite-lived intangibles -- 19 -- 38
---- ----- ------ -----
Adjusted net earnings (loss) $ 89 $ 261 $ (605) $ 343
==== ===== ====== =====
Reported basic and diluted earnings per common share from
continuing operations before extraordinary item and
cumulative effect of accounting change $.42 $(.94) $ .80 $(.72)
Add-back amortization of goodwill and indefinite-lived intangibles -- .08 -- .16
---- ----- ------ -----
Adjusted basic and diluted earnings per common share from
continuing operations before extraordinary item and
cumulative effect of accounting change $.42 $(.86) $ .80 $(.56)
==== ===== ====== =====
Reported basic earnings (loss) per common share $.40 $1.09 $(2.74) $1.38
Add-back amortization of goodwill and indefinite-lived intangibles -- .08 -- .16
---- ----- ------ -----
Adjusted basic earnings (loss) per common share $.40 $1.17 $(2.74) $1.54
==== ===== ====== =====
Reported diluted earnings (loss) per common share $.40 $1.09 $(2.73) $1.38
Add-back amortization of goodwill and indefinite-lived intangibles -- .08 -- .16
---- ----- ------ -----
Adjusted diluted earnings (loss) per common share $.40 $1.17 $(2.73) $1.54
==== ===== ====== =====
(D) ACQUISITIONS AND DIVESTITURES
The Company had no significant acquisitions or divestitures during the six
months ended June 30, 2002. The following acquisitions and divestitures were
completed in 2001:
In November 2001, the Company acquired the flexible packaging adhesives business
of Technical Coatings Co., a subsidiary of Benjamin Moore & Company. The
acquisition includes the development, production and distribution of a full line
of cold seal adhesives marketed under the COSEAL[registered trademark]
trademark. The primary application of such adhesives is in flexible packaging,
used mainly in the food and medical industries.
In September 2001, the Company acquired the Megum[trademark] rubber-to-metal
bonding business from Chemetall GmbH (Chemetall) of Frankfurt, Germany. The
acquisition included the corresponding activities of Chemetall subsidiaries in
Italy and Brazil, and included the acquired technology used for the production
of vibration absorption modules, used primarily in the automotive industry.
On June 1, 2001, the Company completed the sale of its Agricultural Chemicals
business (Ag) to Dow AgroSciences LLC (DAS), a wholly-owned subsidiary of the
Dow Chemical Company, for approximately $1 billion, subject to a purchase price
adjustment. The Company recorded a gain on the sale in the amount of $679
million pre-tax ($428 million or $1.94 per share, after-tax) in June 2001. The
purchase price adjustment was not finalized as of June 30, 2002, and the parties
are engaged in discussions to resolve the amount in dispute. The Company
recognized an adjustment to reduce the original gain on sale by $5 million
pre-tax ($3 million after-tax or $0.01 per share after-tax) in the three months
ended June 30, 2002. Under the terms of the agreement, the divestiture included
fungicides, insecticides, herbicides, trademarks, and license to all
agricultural uses of the Rohm and Haas biotechnology assets, as well as the
agricultural business-related manufacturing sites located in Brazil, Colombia,
France and Italy, the Company's share of the Nantong, China joint venture and
the Company's assets in Muscatine, Iowa. The Company recorded the sale of Ag as
discontinued operations in accordance with Accounting Principles Board (APB) No.
30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Ag had been a separate major line of business
previously reported as part of the Chemical Specialties segment and represented
the Company's entire line of agricultural chemical products. The Chemical
Specialties segment was previously reported as a separate segment until January
1, 2002, when the Company changed its business segments in accordance with SFAS
No. 131 due to realignment of management.
The operating results of Ag have been reported separately as discontinued
operations in the Statements of Consolidated Earnings for 2001. Net sales and
income from discontinued operations are as follows:
--------------------------------------------------------------
(in millions) Six Months
Ended
June 30, 2001
--------------------------------------------------------------
Net sales $ 230
Operating income 65
Income tax expense 25
Income from discontinued operations 40
--------------------------------------------------------------
(E) PROVISION FOR RESTRUCTURING AND ASSET IMPAIRMENTS
In June 2001, the Company launched a repositioning initiative to enable several
of its businesses to respond to structural changes in the global marketplace. In
connection with its repositioning initiatives, the Company recognized a $330
million restructuring and asset impairment charge in the second quarter of 2001.
The largest component of the charge related to the full and partial closure of
certain manufacturing and research facilities across all business groups and
included exit costs related to the Liquid Polysulfide Sealants business in
Adhesives & Sealants and part of the Dyes business in Performance Chemicals.
Approximately 75% of the asset write-downs were in the North American region.
Most severance costs are paid from the respective pension plans and as a result,
pension-related gains are recorded as a reduction to the original restructuring
charge and an increase to the pension assets when payments are made. Management
estimates that the majority of the efforts have been completed, with the
remaining initiatives to be finalized during the remainder of 2002.
The remaining restructuring reserves of $29 million are included in Accrued
Liabilities on the Consolidated Balance Sheet and details are presented in the
table below. The severance and employee benefit payments were largely funded
through the Company's domestic pension plans.
(in millions) Balance Balance
December 31, Changes to June 30,
2001 Repositioning 2001 estimates Payments 2002
- -------------------------------------------------------------------------------
Severance and employee $ 37 $ 2 $ (15) $ 24
benefit costs
Contract lease termination 6 2 (3) 5
and other costs
------------------------------------------------
$ 43 $ 4 $ (18) $ 29
------------------------------------------------
As the Company completes each of its 112 initiatives, actual dollars spent for
severance, contract lease termination and other costs are compared to the
corresponding liability established for each initiative at June 30, 2001. Any
resulting adjustment is recorded to Provision for Restructuring and Asset
Impairment in the Consolidated Statement of Earnings and the restructuring
liability in the Consolidated Balance Sheet is adjusted accordingly. In the
three and six months ended June 30, 2002, $1 million and $4 million,
respectively, were recorded as additional expense to Provision for Restructuring
and Asset Impairment as changes in estimates. In addition, net gains of $1
million and $5 million, respectively, were recorded similarly in the three and
six months ended June 30, 2002, offsetting the changes in estimates, primarily
related to the recognition of pension settlement gains. It is the Company's
policy to recognize settlement gains at the time an employee's pension liability
is settled.
The 2001 restructuring charge of $330 million included severance benefits for
1,860 employees. Employees receiving severance benefits include those affected
by plant closings or capacity reductions, as well as various personnel in
corporate, administrative and shared service functions. As of June 30, 2002, the
Company made minor revisions to the total number of positions to be affected by
the original initiatives; the total number of positions was reduced by 95, of
which approximately one-quarter represents positions included for the partial
closure of the Amersfoort plant, located in the Netherlands. This initiative was
delayed and is now outside of the 2001 repositioning efforts. An additional
restructuring charge for the full closure of Amersfoort was recorded in June
2002. The remaining decrease in positions to be eliminated reflects minor
modifications to original plans and estimates determined in June 2001.
The number of employees and sites affected by the 2001 repositioning efforts are
as follows:
- -----------------------------------------------------------------------------------------
Affected Positions Remaining to be
positions eliminated Adjustments eliminated
- -----------------------------------------------------------------------------------------
Number of employees 1,860 1,269 (95) 496
- -----------------------------------------------------------------------------------------
Sites closed at Sites remaining
Sites affected June 30, 2002 Adjustments(*) to be closed
- -----------------------------------------------------------------------------------------
Full shutdowns 9 5 (1) 3
Partial shutdowns 9 6 -- 3
*In the second quarter of 2002, the Company made the decision to maintain a
portion of Elk Grove, Illinois, one of the plants originally slated for full
closure, due to excessive, unexpected costs associated with relocation of a
particular product line. Accordingly, in the table presented above, this change
is reflected as an adjustment from full shutdown to partial shutdown. Offsetting
the adjustment of Elk Grove as a partial shutdown is the removal of the
Amersfoort plant due to delayed timing which is now outside of the 2001
repositioning efforts and part of the 2002 efforts.
In June 2002, the Company recognized a restructuring and asset impairment charge
of $17 million pre-tax for the full closure of two European plants, Amersfoort
and Robecchetto. The $17 million charge is comprised of $12 million of machinery
and equipment (representing the book value prior to write-down), which will
be partially offset by $3 million of estimated proceeds, and $8 million of
severance benefits for 134 employees. The majority of the employees receiving
severance are located in the plants.
(F) CONTINGENT LIABILITIES, GUARANTEES AND COMMITMENTS
ENVIRONMENTAL
There is a risk of environmental impact in chemical manufacturing operations.
The Company's environmental policies and practices are designed to ensure
compliance with existing laws and regulations and to minimize the possibility of
significant environmental impact.
The laws and regulations under which the Company operates require significant
expenditures for capital improvements, the operation of environmental protection
equipment and remediation. Future developments and even more stringent
environmental regulations may require the Company to make additional unforeseen
environmental expenditures. The Company's major competitors are confronted by
substantially similar environmental risks and regulations.
The Company is a party in various government enforcement and private actions
associated with former waste disposal sites, many of which are on the U.S.
Environmental Protection Agency's (EPA) National Priority List and has been
named a potentially responsible party at approximately 140 inactive waste sites
where remediation costs have been or may be incurred under the Federal
Comprehensive Environmental Response, Compensation and Liability Act and similar
state statutes. In some of these cases the Company may also be held responsible
for alleged property damage. The Company has provided for future costs at
certain of these sites. The Company is also involved in corrective actions at
some of its manufacturing facilities.
The Company considers a broad range of information when determining the amount
of its remediation accruals, including available facts about the waste site,
existing and proposed remediation technology and the range of costs of applying
those technologies, prior experience, government proposals for this or similar
sites, the liability of other parties, the ability of other principally
responsible parties to pay costs apportioned to them and current laws and
regulations. These accruals are assessed quarterly and updated as additional
technical and legal information becomes available. However, at certain sites,
the Company is unable, due to a variety of factors, to assess and quantify the
ultimate extent of its responsibility for study and remediation costs. Major
sites for which reserves have been provided are the non-company-owned Lipari,
Woodland and Kramer sites in New Jersey, Whitmoyer in Pennsylvania and
company-owned sites in Bristol and Philadelphia, Pennsylvania and Houston,
Texas. The Company's 1999 Morton acquisition introduced two major sites: Moss
Point, Mississippi and Wood-Ridge, New Jersey.
In Wood-Ridge, New Jersey, Morton and Velsicol Chemical Corporation (Velsicol)
have been held jointly and severally liable for the cost of remediation of
environmental problems associated with a mercury processing plant (Site)
subsequently acquired by Morton. As of the date of acquisition of Morton by the
Company, Morton had disclosed and accrued for certain ongoing studies related to
the Site. Additional data gathering has delayed completion of these studies
until 2003. In its allocation of the purchase price of Morton, the Company
accrued for additional study costs on December 31, 1999 and additional
remediation costs in 2000 based on the ongoing studies.
The Company's exposure at the Site will depend on the results of attempts to
obtain contributions from others believed to share responsibility. A cost
recovery action against certain parties is pending in federal court. This action
has been stayed pending future regulatory developments and the appeal of a
summary judgment ruling in favor of one of the defendants. Settlements have been
reached with some defendants for de minimis claims associated with the Site.
The Company's exposure will also depend upon the continued ability of Velsicol
and its indemnitor, Fruit of the Loom, Inc., which has filed for protection
under the bankruptcy laws, to contribute to remediation costs. In 2001, these
parties stopped paying their share of expenses. In May 2002, the bankruptcy
court approved a payment to the Company of approximately $1 million. Also in
2002, the Department of Justice requested approval by the bankruptcy court of a
settlement entered into with Velsicol, Fruit of the Loom, and other parties,
which would create a fund to be used to respond to the Velsicol liabilities at
several sites, including Wood-Ridge.
The Company is also in discussions with the EPA to fund up to $225,000 for a
workplan for a separate study of contamination in Berry's Creek, which runs near
the Site, and of the surrounding wetlands. The estimated costs of any resulting
remediation of Berry's Creek were not considered in the allocation of the Morton
purchase price. There is much uncertainty as to what will be required to address
Berry's Creek, but cleanup costs could be very high and the Company's share of
these costs could be material to the results of its operations, cash flows and
consolidated financial position.
During 1996, the EPA notified Morton of possible irregularities in water
discharge monitoring reports filed by its Moss Point, Mississippi plant in early
1995. Morton investigated and identified other environmental issues at the
plant. Though at the date of acquisition Morton had accrued for some remediation
and legal costs, the Company revised these accruals as part of the allocation of
the purchase price of Morton based on its discussions with the authorities and
on the information available as of June 30, 2000. In 2000, the Company reached
agreement with the EPA, the Department of Justice and the State of Mississippi,
resolving these historical environmental issues. The agreement received court
approval in early 2001. The final settlement included payment of $20 million in
civil penalties, which were paid in the first quarter of 2001, $2 million in
criminal penalties, which were paid in the fourth quarter of 2000, and $16
million in various Supplemental Environmental Projects. The accruals established
for this matter were sufficient to cover these and other related costs of the
settlement. In December 2001, the Company closed the chemicals portion of the
Moss Point facility.
The amount charged to earnings pre-tax for environmental remediation was $5
million and $18 million for the six months ended June 30, 2002 and 2001,
respectively. The reserves for remediation were $146 million and $156 million at
June 30, 2002 and December 31, 2001, respectively, and are recorded as Other
Liabilities (current and long-term) in the Consolidated Balance Sheet. These
reserves include amounts resulting from the allocation of the purchase price of
Morton. The Company is pursuing lawsuits over insurance coverage for
environmental liabilities. It is the Company's practice to reflect environmental
insurance recoveries in results of operations for the quarter in which the
litigation is resolved through settlement or other appropriate legal processes.
Resolutions typically resolve coverage for both past and future environmental
spending. The Company settled with several of its insurance carriers and
recorded income pre-tax of approximately $17 million and $4 million for the six
months ended June 30, 2002 and 2001, respectively.
In addition to accrued environmental liabilities, the Company had reasonably
possible loss contingencies related to environmental matters of approximately
$60 million and $73 million at June 30, 2002 and December 31, 2001,
respectively. Further, the Company has identified other sites, including its
larger manufacturing facilities, where additional future environmental
remediation may be required, but these loss contingencies cannot reasonably be
estimated at this time. These matters involve significant unresolved issues,
including the number of parties found liable at each site and their ability to
pay, the outcome of negotiations with regulatory authorities, the alternative
methods of remediation and the range of costs associated with those
alternatives. The Company believes that these matters, when ultimately resolved,
which may be over an extended period of time, will not have a material adverse
effect on the consolidated financial position or consolidated cash flows of the
Company, but could have a material adverse effect on consolidated results of
operations or cash flows in any given period.
OTHER LITIGATION
There has been increased publicity about asbestos liabilities faced by
manufacturing companies. As a result of the bankruptcy of most major asbestos
producers, plaintiffs' attorneys are increasing their focus on peripheral
defendants, including the Company. The Company believes it has adequate reserves
and insurance and does not believe its asbestos exposure is material.
There are pending lawsuits filed against Morton related to employee exposure to
asbestos at a manufacturing facility in Weeks Island, Louisiana with additional
lawsuits expected. The Company expects that most of these cases will be
dismissed because they are barred under worker's compensation laws; however,
cases involving asbestos-caused malignancies may not be barred under Louisiana
law. Subsequent to the Morton acquisition, the Company commissioned medical
studies to estimate possible future claims and recorded accruals based on the
results. Morton has also been sued in connection with the former Friction
Division of the former Thiokol Corporation, which merged with Morton in 1982.
Settlements to date total $350,000 and many cases have closed with no payment.
These cases are fully insured. In addition, like most manufacturing companies,
the Company has been sued, generally as one of many defendants, by non-employees
who allege exposure to asbestos on the Company premises.
The Company and its subsidiaries are also parties to litigation arising out of
the ordinary conduct of its business. Recognizing the amounts reserved for such
items and the uncertainty of the ultimate outcomes, it is the Company's opinion
that the resolution of all these pending lawsuits, investigations and claims
will not have a material adverse effect, individually or in the aggregate, upon
the results of operations, cash flows and the consolidated financial position of
the Company.
(G) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As discussed in the Company's Annual Report filed on Form 10-K with the SEC, the
Company adopted, as of January 1, 2001, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which establishes a model for
the accounting and reporting of derivative hedging instruments. Using market
valuations for derivatives held as of December 31, 2000, the Company, as of
January 1, 2001, recorded a $6 million after-tax cumulative income effect to
Accumulated Other Comprehensive (Loss) and a charge to Net Earnings (Loss) of $2
million after-tax, to recognize at fair value all derivative instruments.
The Company uses derivative financial instruments to reduce the impact of
changes in foreign exchange rates, interest rates and commodity raw material
prices on its earnings, cash flows and fair values of assets and liabilities.
The Company enters into derivative financial contracts based on analyses of
specific and known economic exposures. The Company does not use derivative
instruments for trading or speculative purposes, nor is it a party to any
leveraged derivative instruments or any instruments for which the values are not
available from independent third parties. The Company manages counterparty risk
associated with non-performance of counterparties by entering into derivative
contracts with major financial institutions of investment grade credit rating
and by limiting the amount of exposure with each financial institution.
A reconciliation of current period changes, net of applicable income taxes,
within Accumulated Other Comprehensive (Loss), due to the use of derivative and
non-derivative instruments qualifying as hedges, is as follows:
(in millions) Three Months Six Months
Ended Ended
------------------------
June 30, 2002
------------------------
Accumulated gain on derivatives at beginning of period $ 48 $ 37
Current period changes in fair value (70) (57)
Reclassification of income to earnings, net (1) (3)
------------------------
Accumulated loss on derivatives at June 30, 2002 $(23) $(23)
========================
Comprehensive Income (Loss) for the three and six month periods ended June 30,
2002 has been reconciled as detailed in Note I, and includes, as a component,
the results of the Company's hedging activities.
Additional disclosures required by SFAS No. 133, as amended, are provided in the
following paragraphs by respective hedging objective.
The Company utilizes foreign exchange option and forward contracts to reduce the
variability in the functional-currency-equivalent cash flows associated with
foreign currency denominated forecasted transactions. These foreign exchange
hedging contracts are designated as foreign currency cash flow hedges. Gains and
losses on these instruments are recorded as Accumulated Other Comprehensive
(Loss) until the underlying transactions are recorded into earnings. The amount
reclassified to earnings from Accumulated Other Comprehensive (Loss) was an
immaterial gain for the three months ended June 30, 2002 and a $4 million gain
after-tax for the six months ended June 30, 2002. At June 30, 2002, an
accumulated loss of $4 million after-tax was recorded within Accumulated Other
Comprehensive (Loss) and will be reclassified to earnings over the next four
quarters and will vary as a result of changes in market conditions.
The Company uses natural gas and propylene swap agreements for hedging purposes
to reduce the effects of changing raw material prices. These commodity swap
agreements are designated as cash flow hedges. Gains and losses on these
instruments are recorded as Accumulated Other Comprehensive (Loss) until the
underlying transactions are recorded into earnings. The amount reclassified to
earnings and recorded as Cost of Goods Sold was a $1 million gain after-tax for
the three months ended June 30, 2002 and a $1 million charge after-tax for the
six months ended June 30, 2002. At June 30, 2002, a $2 million gain after-tax
was included within Accumulated Other Comprehensive (Loss), which is expected to
be reclassified to earnings over the next three quarters. The actual amounts to
be reclassified to earnings will differ as a result of changes in market
conditions.
The Company uses cross-currency interest rate swaps, foreign exchange forward
and collar contracts and non-derivative instruments to hedge the foreign
currency exposures of the Company's net investments in foreign operating units.
The use of collar contracts commenced in the second quarter of 2002. These
transactions are designated as hedges of net investments. The effective portion
of changes in fair values of hedges, recorded within Accumulated Other
Comprehensive (Loss), amounted to a $21 million loss after-tax at June 30, 2002.
The amount excluded from the measure of effectiveness on these net investment
hedges increased interest expense by $1 million pre-tax for the six month period
ended June 30, 2002.
As of June 30, 2002, the Company maintained hedge positions that were effective
as hedges from an economic perspective but did not qualify for hedge accounting
under SFAS No. 133, as amended. Such hedges consisted primarily of emerging
market foreign currency option and forward contracts, and were marked-to-market
resulting in an immaterial impact on earnings.
(H) INVENTORIES
Inventories consist of the following:
- -----------------------------------------------------------------------------
(in millions) June 30, December 31,
2002 2001
- -----------------------------------------------------------------------------
Finished products and work in-process $554 $550
Raw materials 119 119
Supplies 52 43
---------------------------
Total $725 $712
===========================
(I) COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows:
(in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2002 2001 2002 2001
------------------ -----------------
Net earnings (loss) $ 89 $242 $(605) $ 305
Other comprehensive income, (loss) net of tax:
Foreign currency translation adjustment 118 (35) 115 (129)
Current period changes in fair value of derivative
and non-derivative instruments qualifying as hedges (70) (1) (57) 33
Cumulative effect of accounting change -- -- -- 6
---- ---- ----- -----
Comprehensive income (loss) $137 $206 $(547) $ 215
==== ==== ===== =====
(J) TREASURY SHARES
The number of common treasury shares held by the Company were:
June 30, 2002 21,046,296
December 31, 2001 21,651,545
(K) EARNINGS PER SHARE
The difference in common shares outstanding used in the calculation of basic and
diluted earnings per common share are primarily due to the effect of stock
options as reflected in the reconciliation that follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- ---------------------------------------
(in millions, except per-share amounts) Earnings Per- Earnings Per-
(Loss) Shares Share (Loss) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ----------------------------------------------------------------------------------- ---------------------------------------
2002
Earnings from continuing operations
before extraordinary item and cumulative
effect of accounting change (Basic) $ 93 220.9 $ 0.42 $ 177 220.8 $ 0.80
Dilutive effect of options (a) -- 1.2 -- 1.1
Earnings from continuing operations
before extraordinary item and cumulative ---------------------------- ---------------------------
effect of accounting change (Diluted) $ 93 222.1 $ 0.42 $ 177 221.9 $ 0.80
2001
Loss from continuing operations
before extraordinary item and cumulative
effect of accounting change (Basic) $(208) 220.2 $(0.94) $(160) 220.1 $(0.72)
Dilutive effect of options (a) -- -- -- --
Loss from continuing operations
before extraordinary item and cumulative ---------------------------- ---------------------------
effect of accounting change (Diluted) $(208) 220.2 $(0.94) $(160) 220.1 $(0.72)
(a) At June 30, 2002 and 2001, the Company had .7 million and 4.6 million,
respectively, of anti-dilutive options; the exercise price of these stock
options was greater than the average market price for the periods ended
June 30, 2002 and 2001.
(L) SUBSEQUENT EVENT
On August 2, 2002, the Company entered into an agreement to acquire the European
assets of Ferro Corporation's Powder Coatings business for approximately $60
million. Ferro Corporation's Powder Coatings business produces materials used
mostly by manufacturers of metal products to finish products like automotive
wheels, home appliances and window frames.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements for the year
ended December 31, 2001 and Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) included in the Company's 2001 Annual
Report filed on Form 10-K with the Securities and Exchange Commission (SEC).
Within the following discussion, unless otherwise stated, "quarter" and "six
month period," refers to the three and six month periods ended June 30, 2002,
respectively, and "prior period" refers to comparisons with the corresponding
period in the previous year, unless otherwise stated.
Earnings (losses) from continuing operations before extraordinary item and
cumulative effect of accounting change are abbreviated as "Earnings (losses)
from continuing operations" within the MD&A and "Notes to Consolidated Financial
Statements."
NON-RECURRING ITEMS
Non-recurring items represent gains or losses arising from events or
transactions that are unusual in nature, occur infrequently or satisfy the
definition of an extraordinary item in accordance with Accounting Principles
Board Opinion (APB) No. 30 "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." Unless otherwise indicated, the
impact of non-recurring items on operations within the context of the MD&A is
stated net of tax.
PRO FORMA RESULTS
Pro forma results are presented to reflect 2001 results of operations as if
Statement of Financial Accounting Standard (SFAS) No. 142 "Goodwill and Other
Intangible Assets" had been adopted on January 1, 2001, which ceased the
amortization of goodwill and indefinite-lived intangibles effective January 1,
2002. Pro forma results exclude amortization of goodwill and indefinite-lived
intangibles from prior year results of operations to provide meaningful
comparisons to current year results.
GOODWILL AND OTHER INTANGIBLE ASSETS
As a result of the Company's impairment testing in connection with the adoption
of SFAS No. 142, a non-cash charge of $830 million ($773 million after-tax), was
reflected in the results for the six months ended June 30, 2002, as if this
charge had been recorded on January 1, 2002. In future financial statement
presentations, results for the three months ended March 31, 2002 will reflect
the impairment charge as though it had been recorded January 1, 2002. The
after-tax charge of $773 million by segment is as follows: Coatings - $42
million; Electronic Materials - $281 million; Performance Chemicals - $230
million and Salt - $220 million.
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," the Company has identified the
critical accounting policies that are most important to the portrayal of the
Company's financial condition and results of operations. The policies set forth
below require management's most subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.
o LITIGATION AND ENVIRONMENTAL RESERVES
The Company is involved in litigation in the ordinary course of
business, including personal injury, property damage and environmental
litigation. The Company also expends significant funds for
environmental remediation of both company-owned and third party
locations. In accordance with Generally Accepted Accounting Principles
(GAAP), specifically SFAS No. 5, "Accounting for Contingencies" and
Statement of Position 96-1, "Environmental Remediation Liabilities,"
the Company records a loss and establishes a reserve for litigation or
remediation when it is probable that an asset has been impaired or a
liability exists and the amount of the liability can be reasonably
estimated. Reasonable estimates involve judgments made by management
after considering a broad range of information including:
notifications, demands, or settlements which have been received from a
regulatory authority or private party, estimates performed by
independent engineering companies and outside counsel, available
facts, existing and proposed technology, the identification of other
potentially responsible parties and their ability to contribute and
prior experience. These judgments are reviewed quarterly as more
information is received and the amounts reserved are updated as
necessary. However, the reserves may materially differ from ultimate
actual liabilities if the loss contingency is difficult to estimate or
if management's judgments turn out to be inaccurate. If management
believes no best estimate exists, the minimum loss is accrued in
accordance with GAAP.
o RESTRUCTURING
In June 2001, the Company recorded a $330 million restructuring and
asset impairment charge in connection with its 2001 repositioning
efforts, of which $82 million represented restructuring charges. The
repositioning effort consisted of 112 separate initiatives affecting
all business groups across the Company. As of June 30, 2002, the
majority of these efforts were complete, with the remainder to be
finalized before year-end 2002. The $82 million of restructuring
included $71 million of severance termination benefits for 1,860
employees affected by plant closings or capacity reductions, as well
as various personnel in corporate, administrative and shared service
functions. Severance termination benefits were based on various
factors including length of service, contract provisions and salary
levels. Management estimated the restructuring charge based on these
factors as well as projected final service dates.
Given the complexity of estimates and broad reaching scope of the 2001
repositioning effort, actual expenses could differ from management's
estimates. If actual results are different from original estimates,
the Company will continue to record additional expense or reverse
previously recorded expense through the Provision for Restructuring
and Asset Impairments line in the Statement of Consolidated Earnings.
As of June 30, 2002, the Company recognized a $5 million favorable net
change to the original estimate, due in part to changes in estimates
for severance expense and the recognition of settlement gains. It is
the Company's policy to recognize settlement gains at the time an
employee's pension liability is settled. Management will continue to
make adjustments if necessary as actions under the plan are
implemented.
o VALUATION OF LONG-LIVED ASSETS
The Company's long-lived assets include land, buildings, equipment,
long-term investments, goodwill, indefinite-lived intangible assets
and other intangible assets. Long-lived assets, other than
investments, goodwill and indefinite-lived intangible assets, are
depreciated over their estimated useful lives, and are reviewed for
impairment in accordance with SFAS No. 144 whenever changes in
circumstances indicate the carrying value may not be recoverable.
Goodwill and indefinite-lived intangible assets are reviewed annually
each May for impairment under the provisions of SFAS No. 142 "Goodwill
and Other Intangible Assets." In conjunction with the Company's 2001
repositioning efforts and the adoption of SFAS No. 142, $245 million
and $830 million ($773 million after-tax), respectively, in assets
were deemed impaired and written-off based on estimated fair value
assumptions. Fair values are estimated based upon forecasted cash
flows discounted to present value. If actual cash flows or discount
rate estimates change, the Company may have to record additional
impairment charges not previously recognized (see Note C).
The fair values of the Company's long-term investments are dependent
on the performance of the entities in which the Company invests, as
well as volatility inherent in their external markets. In assessing
potential impairment for these investments, the Company will consider
these factors as well as the forecasted financial performance of its
investment entities. If these forecasts are not met, the Company may
have to record additional impairment charges not previously
recognized.
o PENSION AND OTHER EMPLOYEE BENEFITS
Certain assumptions are used in the calculation of the actuarial
valuation of the Company-sponsored defined benefit pension plans and
post-retirement benefits. These assumptions include the weighted
average discount rate, rates of increase in compensation levels,
expected long-term rates of return on assets and increases or trends
in health care costs. If actual results vary from those projected by
management, adjustments to the pension credit or additional expense
may be required in future periods. See Notes 10 and 11 in the "Notes
to Consolidated Financial Statements" of the Company's Annual Report
filed on Form 10-K with the SEC for additional information regarding
assumptions used by the Company.
o GAIN ON SALE OF THE AGRICULTURAL CHEMICALS BUSINESS
In June 2001, the Company completed the sale of its Agricultural
Chemicals business to Dow AgroSciences LLC (DAS), a wholly-owned
subsidiary of the Dow Chemical Company for approximately $1 billion,
subject to a purchase price adjustment. The purchase price adjustment
was not finalized as of June 30, 2002, and the parties are engaged in
discussions to resolve the amount in dispute. The Company recognized
an adjustment to reduce the original gain on sale by $5 million
pre-tax ($3 million after-tax or $0.01 per share after-tax) in the
three months ended June 30, 2002. Accordingly, the Company has
adjusted the receivable from DAS for the remaining amount of the
purchase price adjustment, which represents management's best estimate
of the final receivable. The Company's calculation of the purchase
price adjustment required estimates related to the valuation of
certain assets, principally accounts receivable, inventory, and rebate
liabilities transferred to DAS on June 1, 2001. If the final
receivable differs from management's current estimate, the Company
will record an additional adjustment to the gain on disposal of
discontinued line of business.
SALE OF THE AGRICULTURAL CHEMICALS BUSINESS
Following the sale of its Agricultural Chemicals business (Ag) in June 2001, the
Company reported the operating results as discontinued operations in accordance
with APB No. 30 "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Ag had been a separate major line of
business in the Chemical Specialties segment. The Chemical Specialties segment
was previously reported as a separate segment until January 1, 2002, when the
Company changed its business segments in accordance with SFAS No. 131 due to
realignment of management. For 2001, the operating results of Ag are reported
separately as discontinued operations.
FORWARD-LOOKING INFORMATION
This document contains forward-looking information so that investors will have a
better understanding of the Company's future prospects and make informed
investment decisions. Forward-looking statements within the context of the
Private Securities Litigation Reform Act of 1995 include statements anticipating
future growth in sales, earnings, EBITDA and cash flows. Words such as
"anticipates," "estimates," "expects," "projects," "intends," "plans,"
"believes," and similar language to describe prospects for future operations or
financial condition identify such forward-looking statements. Forward-looking
statements are based on management's assessment of current trends and
circumstances, which may be susceptible to uncertainty, change or any other
unforeseen development. Results could differ materially depending on such
factors as change in business climate, economic and competitive uncertainties,
raw material and energy costs, foreign exchange rates, interest rates,
acquisitions or divestitures, risks in developing new products and technologies,
changes in business strategies, or the unanticipated costs of complying with
environmental and safety regulations. As appropriate, additional factors are
contained in the Company's 2001 Annual Report filed on Form 10-K with the SEC on
March 26, 2002. The Company is under no obligation to update or alter its
forward-looking statements, as a result of new changes, information, future
events or otherwise.
BUSINESS SEGMENTS AS OF JANUARY 1, 2002
Effective January 1, 2002, based on realignment of internal management
accountability, the Company changed its reportable business segments in
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Results of operations from prior years have been
reclassified to conform to current year presentation.
The results for the year-ended December 31, 2001, as reported in the Company's
Annual Report filed on Form 10-K with the SEC, were presented in the previously
existing business segments. The following table provides a comparable view of
the business segments applicable to 2001 versus those presented in 2002.
BUSINESS SEGMENTS AT DECEMBER 31, 2001 | BUSINESS SEGMENTS AS OF JANUARY 1, 2002
- ----------------------------------------------------|---------------------------------------------------------
Performance Polymers | Coatings
Coatings | Architectural and Functional Coatings *
Adhesives and Sealants | Automotive Coatings *
Plastic Additives | Powder Coatings *
Monomers |
Surface Finishes | Adhesives and Sealants *
Automotive Coatings |
Powder Coatings | Electronic Materials
| Printed Wiring Board *
| Electronic and Industrial Finishes *
Chemical Specialties | Microelectronics *
Consumer and Industrial Specialties |
Inorganic and Specialty Solutions | Performance Chemicals
Ion Exchange Resins | Monomers *
| Plastic Additives *
Electronic Materials | Inorganic and Specialty Solutions *
Shipley Ronal | Consumer and Industrial Specialties *
Microelectronics | Ion Exchange Resins *
|
Salt | Salt *
|
| * Designates a reporting unit for SFAS No. 142 purposes
- --------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Net Sales by Business Segment and Customer Location
(in millions) Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
BUSINESS SEGMENT 2002 2001 (1) 2002 2001 (1)
---------------- ----------------
Coatings $ 508 $ 492 $ 933 $ 918
Adhesives and Sealants 153 159 300 327
Electronic Materials 257 230 476 527
Performance Chemicals 569 567 1,066 1,134
Salt 130 131 350 402
Elimination of Intersegment Sales (160) (171) (287) (328)
------ ------ ------ ------
Total $1,457 $1,408 $2,838 $2,980
====== ====== ====== ======
CUSTOMER LOCATION
North America $ 895 $ 882 $1,775 $1,853
Europe 332 322 632 680
Asia-Pacific 178 151 333 341
Latin America 52 53 98 106
------ ------ ------ ------
Total $1,457 $1,408 $2,838 $2,980
====== ====== ====== ======
Net Earnings (Losses) from Continuing Operations by Business Segment
(in millions) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------------
Pro Forma Pro Forma
BUSINESS SEGMENT 2002 2001(1) 2001 (1,3) 2002(4) 2001(1) 2001 (1,3)
--------------------------- ---------------------------------
Coatings $ 68 $ 23 $ 26 $ 118 $ 50 $ 56
Adhesives and Sealants (6) (76) (74) (5) (74) (70)
Electronic Materials 23 (22) (18) 34 5 13
Performance Chemicals 40 (47) (44) 78 (24) (19)
Salt 2 (14) (8) 25 4 16
Corporate (2) (34) (72) (71) (73) (121) (118)
---------------------------- ---------------------------------
Total $ 93 $(208) $(189) $ 177 $(160) $(122)
=========================== ================================
Net Earnings from Continuing Operations Excluding Non-Recurring Items (5)
(in millions) Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------------
Pro Forma Pro Forma
BUSINESS SEGMENT 2002 2001(1) 2001 (1,3) 2002 2001(1) 2001 (1,3)
---------------------------- ----------------------------------
Coatings $ 69 $ 55 $ 58 $120 $ 82 $ 88
Adhesives and Sealants 6 7 9 11 9 13
Electronic Materials 23 2 6 35 29 37
Performance Chemicals 48 28 31 88 51 56
Salt 2 (3) 3 25 15 27
Corporate (2) (38) (41) (40) (79) (90) (87)
---------------------------- ----------------------------------
Total $110 $ 48 $ 67 $200 $ 96 $134
============================ ==================================
(1) Reclassified to conform to current year presentation.
(2) Corporate includes non-operating items such as interest income and expense
and corporate governance costs.
(3) Pro forma results exclude amortization of goodwill and indefinite-lived
intangibles.
(4) Results for the six months ended June 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. The
impairment is reflected in the six months ended June 30, 2002 as though it
had been recorded January 1, 2002. The after-tax charge of $773 million by
segment is as follows: Coatings - $42 million; Electronic Materials - $281
million; Performance Chemicals - $230 million and Salt - $220 million.
(5) Table of Non-Recurring Items follows:
(in millions) Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
---------------------------------------
2002 Non-Recurring Items After- After-
- ------------------------ Pre-Tax Tax Pre-Tax Tax
---------------------------------------
Net earnings (loss) $131 $ 89 $(582) $(605)
NON-RECURRING ITEMS:
Gain from remediation-related insurance
settlements 11 7 16 10
Provision for restructuring and asset
impairments (17) (11) (16) (10)
Demolition, dismantlement and other
costs associated with restructuring (18) (13) (34) (23)
---------------------------------------
Impact on continuing operations (24) (17) (34) (23)
---------------------------------------
Loss on disposal of discontinued line of
business (5) (3) (5) (3)
Extraordinary loss on early
extinguishment of debt (2) (1) (9) (6)
Cumulative effect of accounting change -- -- (830) (773)
---------------------------------------
Total non-recurring items (31) (21) (878) (805)
---------------------------------------
Earnings excluding non-recurring items $162 $110 $ 296 $ 200
=======================================
(in millions) Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
---------------------------------------
2001 Non-Recurring Items After- After-
- ------------------------ Pre-Tax Tax Pre-Tax Tax
---------------------------------------
Net earnings $ 424 $ 242 $ 531 $ 305
NON-RECURRING ITEMS:
Remediation related charges, net of
insurance settlements (14) (8) (14) (8)
Provision for restructuring and asset
impairments (330) (233) (330) (233)
Asset write-downs, integration and other
restructuring (26) (15) (26) (15)
---------------------------------------
Impact on continuing operations (370) (256) (370) (256)
---------------------------------------
Income from discontinued line of
business 36 23 65 40
Gain on disposal of discontinued line of
business 679 428 679 428
---------------------------------------
Discontinued operations 715 451 744 468
---------------------------------------
Extraordinary loss on early
extinguishment (2) (1) (2) (1)
Cumulative effect of accounting change -- -- (3) (2)
---------------------------------------
Total non-recurring items 343 194 369 209
---------------------------------------
Earnings excluding non-recurring items $ 81 $ 48 $ 162 $ 96
=======================================
SECOND QUARTER 2002 VERSUS SECOND QUARTER 2001 - CONSOLIDATED
NET SALES
Consolidated net sales for the second quarter of 2002 were $1,457 million, a 3%
increase of $49 million from prior period net sales of $1,408 million.
Electronic Materials and Coatings accounted for 88% of the increase over the
prior period. Net sales from Electronic Materials increased by $27 million, or
12%, to $257 million from net sales of $230 million in the prior period, driven
by improved demand for new products and advanced technologies. Net sales from
Coatings increased $16 million, or 3%, to $508 million in the second quarter of
2002 due to higher demand in the paint sector, primarily in consumer markets and
stronger new car production in North America. Net sales for Performance
Chemicals and Salt remained flat compared to the prior period while sales for
Adhesives and Sealants decreased 4% to $153 million in the current period,
primarily due to the Company exiting the Liquid Polysulfide business at the end
of 2001.
NET EARNINGS
Net earnings as reported for the second quarter of 2002 were $89 million, a 63%
decline from prior period net earnings of $242 million. Earnings per share on a
diluted basis were $0.40 in the second quarter of 2002 compared to a $1.09 in
the prior period. Earnings from continuing operations before extraordinary item
and cumulative effect of accounting change were $93 million, or $0.42 per common
share, compared to a loss of $208 million or $0.94 per diluted share for the
prior period driven by a $330 million restructuring and asset impairment charge
in 2001. Improved earnings can be attributed to increased sales of higher margin
products, increased volumes and the positive impact of ongoing cost controls.
Additional factors contributing to the increase from prior period include
reduced interest expense in the amount of $11 million after-tax and the
cessation of amortization of goodwill and indefinite-lived intangibles in 2002,
which contributed $19 million after-tax.
On a pro forma basis, excluding non-recurring items, as well as amortization of
goodwill and indefinite-lived intangibles, earnings from continuing operations
in the second quarter of 2002 increased 64% to $110 million from $67 million in
the prior period. Improved earnings can be attributed to increased sales of
higher margin products, increased volumes and the positive impact of ongoing
cost controls.
GROSS PROFIT
Gross profit for the second quarter of 2002 was $479 million, a 19% increase
from $401 million in the prior period. The gross profit margin for the current
quarter was 33%, up from 28% in the prior period and can be attributed to higher
margin product mix and benefits from ongoing cost control efforts.
SELLING, ADMINISTRATIVE AND RESEARCH (SAR) EXPENSES
SAR expenses were $285 million in the second quarter of 2002, an increase of $19
million or 7% from $266 million in the second quarter of 2001. The continued
emphasis on investment in technology accounted for the increase in research and
development spending. Selling and administrative expenses increased by $10
million and is attributed to the impact of increased compensation, health
benefit expenses and lower pension credits.
INTEREST EXPENSE
Interest expense for the current quarter was $32 million, a 33% decline from $48
million in the prior period, primarily due to lower effective interest rates and
lower debt levels.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of goodwill and other intangible assets for the current quarter was
$16 million, a 60% decrease from $40 million in the prior period. The decrease
is a direct result of the Company's adoption of SFAS No. 142 "Goodwill and Other
Intangible Assets" on January 1, 2002, which ceased the amortization of goodwill
and indefinite-lived intangibles. Excluding amortization of goodwill and other
intangibles in accordance with SFAS No. 142, amortization expense would have
been $21 million in 2001 on a pro forma basis.
SHARE OF AFFILIATE NET EARNINGS
Share of affiliate net earnings remained flat at $4 million in the second
quarter of 2002 and 2001.
PROVISION FOR RESTRUCTURING AND ASSET IMPAIRMENTS
The Company recognized a $17 million restructuring and asset impairment charge
in the second quarter of 2002 for the full closure of two European plants,
Robechetto and Amersfoort. The $17 million charge is comprised of impairments of
$12 million of machinery and equipment (representing the book value prior to the
write-down) which will be partially offset by $3 million of estimated proceeds,
and $8 million of severance and employee benefit payments.
In connection with its 2001 repositioning initiatives, the Company recognized a
$330 million restructuring and asset impairment charge in the second quarter of
2001.
OTHER (INCOME) EXPENSE, NET
The Company reported net other income of $5 million for the current quarter
compared to net other expense of $10 million in the prior period. The current
period includes environmental-related insurance recoveries while the prior
period is primarily comprised of environmental remediation, insurance, legal and
other costs.
EFFECTIVE TAX RATE
The effective tax rate for earnings from continuing operations of $93 million
for the second quarter of 2002 was 33%. The loss from continuing operations of
$208 million for the second quarter of 2001 included a tax benefit of $81
million, a 28% effective tax rate. This reflects the impact of a 29% tax rate on
the $330 million loss provision for restructuring and asset impairment in 2001,
which included non-deductible restructuring expenses. Results of operations in
2001 also included non-deductible goodwill amortization expense, which ceased in
2002 with the adoption of SFAS No. 142 as of January 1, 2002.
SECOND QUARTER 2002 VERSUS SECOND QUARTER 2001 - BY BUSINESS SEGMENT
PRO FORMA RESULTS ARE PRESENTED BELOW TO EXCLUDE AMORTIZATION OF GOODWILL AND
INDEFINITE-LIVED INTANGIBLE ASSETS.
COATINGS
Net sales from Coatings were $508 million in the second quarter of 2002 an
increase of 3% from $492 million in the prior period with Architectural and
Functional Coatings and Automotive Coatings reporting increases from the prior
period of 4% and 7%, respectively. Net earnings from continuing operations were
$68 million for the current quarter, as compared to $23 million in the prior
period. The difference was driven primarily by restructuring and asset
impairment charges recognized in the prior period in connection with the 2001
repositioning efforts. Excluding non-recurring items, net earnings were $69
million for the current quarter, a 19% increase from $58 million on a pro forma
basis. Within Coatings, consumer markets in Architectural and Functional
Coatings continue to drive increased earnings. Architectural and Functional
Coatings saw strong demand in consumer paint sales with the launch of new
products, such as formaldehyde free insulation binder, as well as higher demand
for lightweight coated paper driven by increased advertising and printing of
catalogue inserts. Automotive Coatings experienced an increase in net sales
resulting from an increase in North American automotive production.
ADHESIVES AND SEALANTS
Adhesives and Sealants net sales for the second quarter were $153 million, a
decline of 4% from prior year net sales of $159 million. The decline in net
sales primarily relates to the Company exiting the Liquid Polysulfide business
at the end of 2001; on a comparable basis net sales increased 6% from the prior
period due to increased demand for flexible packaging, more environmentally
friendly adhesives and interior trim adhesives. Net losses from continuing
operations were $6 million in the second quarter of 2002, compared to a loss of
$76 million from the prior period. The difference was driven primarily by
restructuring and asset impairment charges recognized in the prior period in
connection with the 2001 repositioning efforts. Net earnings from continuing
operations excluding non-recurring items were $6 million for the current quarter
compared to $9 million on a pro forma basis. The decrease is primarily due to
research and engineering costs associated with the redesign of its manufacturing
and laboratory footprint.
ELECTRONIC MATERIALS
Electronic Materials net sales were $257 million for the current quarter,
compared to $230 million in the prior period, an increase of 12%. The increase
is attributable to demand for new products and advanced technologies, such as
chemical mechanical planarization, anti-reflective coatings, deep ultra-violet
photoresists and advanced packaging. Earnings from continuing operations were
$23 million in the second quarter, compared to a net loss of $22 million from
the prior period. The difference was primarily driven by restructuring and asset
impairment charges recognized in the prior period in connection with the 2001
repositioning efforts. Excluding non-recurring items, net earnings were $23
million for the current quarter compared to $6 million on a pro forma basis.
Earnings increased as a result of the increase in demand, an increase in
capacity utilization and improved internal cost control.
PERFORMANCE CHEMICALS
Performance Chemicals net sales for the second quarter of 2002 increased
slightly to $569 million from prior period net sales of $567 million. Net sales
from Plastics Additives increased by 14% from the prior period due to a
combination of factors including good demand in all regions and share gains due
to new product introduction. Net sales from Inorganic and Specialty Solutions
decreased from the prior period primarily from the Company's repositioning
efforts to discontinue the Organics business and restructure the Dyes business.
Net sales from Consumer and Industrial Specialties remain flat from the prior
period. Net earnings from continuing operations were $40 million for the current
period compared to a net loss of $47 million in the prior period. The difference
was primarily driven by restructuring and asset impairment charges recognized in
the prior period in connection with the 2001 repositioning efforts. Excluding
non-recurring items, net earnings were $48 million for the current quarter, a
55% increase on a pro forma basis. The earnings increase was driven primarily by
Plastic Additives, Monomers and Ion Exchange Resins due to operational leverage
on higher sales.
SALT
Salt net sales for the current period remained flat at $130 million compared to
$131 million in the prior period. Net earnings from continuing operations were
$2 million for the second quarter of 2002 an increase from a net loss of $14
million in the prior period due to charges incurred in the prior period in
connection with the 2001 repositioning efforts. Excluding non-recurring items,
net earnings were $2 million for the current quarter, a 33% decrease on a pro
forma basis. The earnings decrease is primarily due to manufacturing variances
attributable to high ice control inventory carry-over as a result of the mild
2001 winter.
CORPORATE
Corporate reported a loss from continuing operations in the second quarter of
2002 of $34 million, compared to a loss of $72 million as reported and a loss of
$71 million on a pro forma basis in the second quarter of 2001. The decrease is
primarily attributed to charges incurred in the prior period in connection with
the 2001 repositioning efforts. In addition, the decrease is due to a reduction
of $16 million in interest expense pre-tax and $11 million of non-recurring
insurance recoveries pre-tax compared to environmental remediation expense, net
of insurance recoveries of $14 million pre-tax in the prior period. This
decrease is partially tempered by a reduction in pension credits of $8 million
compared to the second quarter of 2001, due to transition assets which were
fully amortized as of December 31, 2001 and diminished economic returns from
pension assets.
SIX MONTHS 2002 VERSUS SIX MONTHS 2001 - CONSOLIDATED
NET SALES
Consolidated net sales for the first six months of 2002 were $2,838 million, 5%
below prior period net sales of $2,980 million. The decrease from the prior
period was driven by the loss of sales from exited businesses in 2001 and weak
global demand across all businesses during the first quarter of 2002 partially
offset period over period during the second quarter of 2002. Performance
Chemicals and Salt accounted for the majority of the total decline in net sales.
Performance Chemicals fell by $68 million, or 6%, to $1,066 million from net
sales of $1,134 million in the prior period. A decrease of $52 million in net
sales from the Salt business also contributed to the year-over-year decline due
to lower demand for highway ice control salt during a mild 2002 winter in the
United States and Canada. Electronic Materials fell by $51 million, or 10%, to
$476 million from net sales of $527 million in the prior period, because of
significant demand in the first quarter of 2001 across the product lines. Net
sales from Adhesives and Sealants fell by 8% to $300 million from net sales of
$327 million while Coatings increased by $15 million to $933 million from $918
million in the prior period.
NET EARNINGS (LOSS)
Net loss as reported for the first six months of 2002 was $605 million compared
to prior period earnings of $305 million. Loss per share on a diluted basis was
$2.73 in the current six month period of 2002 compared to earnings per share of
$1.38 in the prior period. The net loss in 2002 is wholly attributable to the
$773 million after-tax charge for the Cumulative Effect of Accounting Change for
the adoption of SFAS No. 142. Prior period results included a $233 million
after-tax restructuring charge and a $428 million after-tax gain for the Ag
sale.
Earnings from continuing operations before extraordinary item and cumulative
effect of accounting change were $177 million or $0.80 per common share,
compared to a loss of $160 million or a loss of $0.72 per diluted share for the
prior period. The improvement in earnings from continuing operations
year-over-year is due largely to the $330 million restructuring charge in the
2001 results, reduced interest expense and the cessation of amortization of
goodwill and indefinite-lived intangibles in 2002.
On a pro forma basis, excluding non-recurring items as well as amortization of
goodwill and indefinite-lived intangibles as if SFAS No. 142 "Goodwill and Other
Intangible Assets" had been adopted on January 1, 2001, earnings from continuing
operations for the six months of 2002 increased 108% to $200 million from $96
million in the prior period. On a pro forma basis excluding non-recurring items,
Coatings and Performance Chemicals reported the most significant increases due
to increasing demand and improved cost controls.
GROSS PROFIT
Gross profit for the six months of 2002 was $920 million, an 8% increase from
$853 million in the prior period. The gross profit margin for the current
quarter was 32%, up from 29% in the prior period and can be attributed to higher
margin product mix, benefits from ongoing cost control efforts and improvement
in the selling price and raw material relationship.
SELLING, ADMINISTRATIVE AND RESEARCH (SAR) EXPENSES
SAR expenses were $553 million during the current six month period, a 2%
increase from $543 million in the prior period. The continued emphasis on
investment in technology accounted for a 13% increase in research and
development spending with additional increases due to the impact of increased
health benefit expenses and lower pension credits. Offsetting this increase,
selling and administrative expenses decreased by $5 million.
INTEREST EXPENSE
Interest expense for the current six month period was $67 million, a 36% decline
from $104 million in the prior period, primarily due to lower effective interest
rates and lower debt levels.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles for the current six month period
was $34 million, a 56% decrease from $78 million in the prior period. The
decrease is a direct result of the Company's adoption of SFAS No. 142 "Goodwill
and Other Intangible Assets" on January 1, 2002, which ceased the amortization
of goodwill and indefinite-lived intangibles. Excluding amortization of goodwill
and other intangibles in accordance with SFAS No. 142, amortization expense
would have been $40 million in 2001 on a pro forma basis.
SHARE OF AFFILIATE NET EARNINGS
Share of affiliate net earnings decreased 17% from $6 million in the prior
period to $5 million for the current year six month period.
PROVISION FOR RESTRUCTURING AND ASSET IMPAIRMENTS
The Company recognized a $17 million restructuring and asset impairment charge
in the second quarter of 2002 for the closure of two European plants, Robechetto
and Amersfoort. The expense of $17 million recognized in the current quarter is
offset by a gain of $1 million which was reported in the three month period
ended March 31, 2002 and relates to the Company's 2001 repositioning
initiatives. In connection with its repositioning initiatives, the Company
recognized a $330 million restructuring and asset impairment charge in the
second quarter of 2001. The Company also records ongoing change in estimates to
these original estimates as they are identified.
OTHER (INCOME) EXPENSE, NET
The Company reported net other income of $7 million for the first six months of
2002 compared to net other expense of $12 million in the prior period. The
current period includes foreign currency gains and insurance recoveries. The
prior period expense is primarily composed of insurance, legal, foreign currency
losses and other costs.
EFFECTIVE TAX RATE
The effective tax rate for earnings from continuing operations of $177 million
for the six months ended June 30, 2002 was 32%. The loss from continuing
operations of $160 million for the six months ended June 30, 2001 includes a tax
benefit of $48 million, which computes to a 23% effective tax rate. This
reflects the impact of a 29% tax rate on the $330 million loss provision for
restructuring and asset impairment in 2001, which included non-deductible
restructuring expenses. Results of operations in 2001 also included
non-deductible goodwill amortization expense, which ceased in 2002 with the
adoption of SFAS No. 142 as of January 1, 2002.
SIX MONTHS OF 2002 VERSUS SIX MONTHS OF 2001 - BY BUSINESS SEGMENT
PRO FORMA RESULTS ARE PRESENTED BELOW TO EXCLUDE AMORTIZATION OF GOODWILL AND
INDEFINITE-LIVED INTANGIBLE ASSETS.
COATINGS
Net sales from Coatings were $933 million in the six months of 2002 compared to
$918 million in the prior period. Net earnings from continuing operations were
$118 million for the current six months, as compared to $50 million in the prior
period. The difference was driven by restructuring and asset impairment charges
recognized in the prior period in connection with the 2001 repositioning
efforts. Excluding non-recurring items, net earnings were $120 million for the
current six months, a 36% increase from $88 million on a pro forma basis. Within
Coatings, consumer markets in Architectural and Functional Coatings continue to
drive increased earnings. In addition, segment-wide cost reduction efforts and
improved raw material prices contributed to the positive performance. More
specifically, Architectural and Functional Coatings benefited from strong demand
in the consumer paint sales and the launch of new product lines, as well as
higher demand for lightweight coated paper driven by increased advertising and
printing of catalogue inserts. Automotive Coatings experienced an increase in
net sales resulting from an increase in North American automotive production.
ADHESIVES AND SEALANTS
Adhesives and Sealants net sales for the current six month period were $300
million, a decline of 8% from prior period sales of $327 million. The decline in
sales primarily relates to the Company exiting the Liquid Polysulfide business
at the end of 2001; on a comparable basis net sales increased 1% from the prior
period due to increased demand for flexible packaging, more environmentally
friendly adhesives and interior trim adhesives. Net losses from continuing
operations were $5 million in the six months of 2002, compared to a loss of $74
million from the prior period due to restructuring and asset impairment charges
recognized in the prior period in connection with the 2001 repositioning
efforts. Net earnings from continuing operations excluding non-recurring items
were $11 million for the current six months compared to $13 million on a pro
forma basis. The decrease in earnings is primarily due to research and
engineering costs associated with the redesign of its manufacturing and
laboratory footprint.
ELECTRONIC MATERIALS
Electronic Materials net sales were $476 million for the current six months,
compared to $527 million, a decline of 10% from the same period in 2001. The
change from prior year is exacerbated by comparison to record-level net sales in
the first quarter of 2001, which were driven by significant growth for
leading-edge products used to make high-end semiconductor chips. Business demand
fell precipitously beginning in the second quarter of 2001, and then persisted
at low levels for the remainder of the year. However, Electronic Materials
reported significantly increased demand in the second quarter of 2002. Earnings
from continuing operations were $34 million in the current six months compared
to $5 million from the prior year; the difference was driven by restructuring
and asset impairment charges recognized in the prior period in connection with
the 2001 repositioning efforts. Excluding non-recurring items, net earnings were
$35 million for the current six months, a 5% decrease from $37 million on a pro
forma basis.
PERFORMANCE CHEMICALS
Performance Chemicals net sales for the first six months of 2002 were $1,066
million, a decline of 6% from the prior period of $1,134 million. Net sales
decreased primarily in Monomers, Inorganic and Specialty Solutions and Consumer
and Industrial Specialties offset by increased sales for Plastics Additives. Net
sales from Inorganic and Specialty Solutions decreased from the prior period
primarily due to the impact of the Company's 2001 repositioning efforts, exiting
a portion of the Organic Specialties and Dyes businesses. Net earnings from
continuing operations were $78 million for the current period compared to a net
loss of $24 million in the prior period. The difference was driven by
restructuring and asset impairment charges recognized in the prior period in
connection with the 2001 repositioning efforts. Excluding non-recurring items,
net earnings were $88 million for the current six months, a 57% increase from
$56 million on a pro forma basis. The earnings increase was driven primarily by
Plastic Additives and Monomers.
SALT
Salt net sales for the current period were $350 million, a decline of 13% from
the prior period of $402 million. Milder winter weather was the primary cause
for the decline when compared to the prior period. Net earnings from continuing
operations were $25 million for the first six months of 2002 compared to $4
million from the prior period due to charges incurred in the prior period in
connection with the 2001 repositioning efforts. Excluding non-recurring items,
net earnings were $25 million for the current six months, a 7% decrease from $27
million on a pro forma basis. The earnings decrease is primarily due to
manufacturing variances attributable to high ice control inventory carry-over as
a result of the mild 2001 winter.
CORPORATE
Corporate reported a loss from continuing operations in the first six months of
2002 of $73 million, compared to a loss of $121 million as reported and a loss
of $118 million on a pro forma basis in the first six months of 2001. The
decrease is primarily attributed to charges incurred in the prior period in
connection with the 2001 repositioning efforts. In addition, the decrease is due
to a reduction of $37 million in interest expense and $16 million of
non-recurring insurance recoveries compared to environmental remediation
expense, net of insurance recoveries of $14 million in the prior period. This
decrease is partially tempered by a reduction in pension credits of $16 million
compared to the second quarter of 2001, due to transition assets which were
fully amortized as of December 31, 2001 and diminished economic returns from
pension assets.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
During the six months ended June 30, 2002, cash increased by $131 million as a
result of cash inflows from favorable operating activities. In contrast, cash
decreased by $20 million during the six months ended June 30, 2001, driven
primarily by a reduction of debt levels.
Net cash provided by operating activities from continuing operations was $365
million for the six months ended June 30, 2002, as compared to $38 million for
the six months ended June 30, 2001, a net increase in cash generated from
operating activities of $327 million. The primary difference in the six month
period from prior year was due to increased earnings from continuing operations
of $156 million (pre-tax, excluding the provision for restructuring and asset
impairments.) Also driving the increase in cash from operating activities is
reduced cash outflows for accounts payable, accrued liabilities and prepaid
expenses, due in part to cost-control efforts, offset by an increase in accounts
receivable on higher sales for the six months ended June 30, 2002.
Net cash used in investing activities of $203 million for the six months ended
June 30, 2002 was primarily used for additions to land, buildings and equipment
and tax payments related to the sale of the Agricultural Chemicals business. Net
cash provided by investing activities of $754 million in the six months ended
June 30, 2001 was due to $1 billion in cash proceeds from the sale of the
Agricultural Chemicals business in June 2001, offset by cash payments for
additions to land, buildings and equipment and $108 million paid for acquisition
related activities.
Net cash used in financing activities was $31 million for the six months ended
June 30, 2002 as compared to $854 million for the six months ended June 30,
2001. The primary use of cash in the six months ended June 30, 2001 was the
repayment of approximately $620 million of short-term borrowings and $146
million of long-term debt. Comparatively, net cash used in the six months ended
June 30, 2002 was driven by cash outlays for long-term debt repurchases of $126
million and dividends of $88 million offset by proceeds from the issuance of 20
billion Yen (approximately $149 million), 30 year 3.50% coupon notes via a
private placement in 2002.
The Company evaluates operating performance based upon several factors including
free cash flow which it defines as cash provided by operating activities less
capital asset spending and dividends. Free cash flows for the six months ended
June 30, 2002 and 2001 were as follows:
(in millions) Six Months Ended
June 30,
-----------------------
2002 2001
-----------------------
Cash provided by operating activities $ 365 $ 38
Capital asset spending (155) (171)
Dividends (88) (88)
Discontinued operations -- 42
-----------------------
Free cash flows $ 122 $(179)
=======================
Total borrowings were $3,020 million and $2,898 million at June 30, 2002 and
December 31, 2001, respectively.
On February 27, 2002, the Company issued 20 billion Yen (approximately $149
million) of 30 year 3.5% coupon notes due 2032, with interest payable
semiannually on March 29th and September 29th. The maturity date is March 29,
2032, callable annually after March 2012. The proceeds from the issuance of the
note were used for general corporate purposes.
During the first quarter of 2002 the Company exercised the call option, and on
April 1, 2002, redeemed $38.4 million of the 9.5% notes originally due April 1,
2021. As a result, a non-recurring loss of $2 million was recorded in the second
quarter of 2002.
The Company currently anticipates capital expenditures in 2002 to be
approximately $370 million. Such capital expenditures will be used primarily for
the ongoing Enterprise Resource Planning (ERP) system implementation, ongoing
capital projects at existing plants and construction of the Mumbai, India plant.
The Company's short-term, primary source of liquidity will be cash flows from
operations supplemented, as necessary, with commercial paper and, or bank
borrowings. The Company maintains an unused credit facility with a syndicated
group of banks of $500 million, committed until 2004. The commitment of this
facility is not contingent upon the Company's credit rating. Management believes
that the Company's financial resources will adequately meet its business
requirements during the next twelve months, including planned expenditures for
the improvement or expansion of its manufacturing capacity, working capital
requirements and the dividend program.
On July 22, 2002, the Company's Board of Directors approved a quarterly dividend
on common shares of 21 cents per common share payable September 1, 2002 to
stockholders of record on August 2, 2002, a 5% increase from the previous
quarter.
ENVIRONMENTAL
There is a risk of environmental impact in chemical manufacturing operations.
The Company's environmental policies and practices are designed to ensure
compliance with existing laws and regulations and to minimize the possibility of
significant environmental impact.
The laws and regulations under which the Company operates require significant
expenditures for capital improvements, the operation of environmental protection
equipment and remediation. Future developments and even more stringent
environmental regulations may require the Company to make additional unforeseen
environmental expenditures. The Company's major competitors are confronted by
substantially similar environmental risks and regulations.
The Company is a party in various government enforcement and private actions
associated with former waste disposal sites, many of which are on the U.S.
Environmental Protection Agency's (EPA) National Priority List and has been
named a potentially responsible party at approximately 140 inactive waste sites
where remediation costs have been or may be incurred under the Federal
Comprehensive Environmental Response, Compensation and Liability Act and similar
state statutes. In some of these cases the Company may also be held responsible
for alleged property damage. The Company has provided for future costs at
certain of these sites. The Company is also involved in corrective actions at
some of its manufacturing facilities.
The Company considers a broad range of information when determining the amount
of its remediation accruals, including available facts about the waste site,
existing and proposed remediation technology and the range of costs of applying
those technologies, prior experience, government proposals for this or similar
sites, the liability of other parties, the ability of other principally
responsible parties to pay costs apportioned to them and current laws and
regulations. These accruals are assessed quarterly and updated as additional
technical and legal information becomes available. However, at certain sites,
the Company is unable, due to a variety of factors, to assess and quantify the
ultimate extent of its responsibility for study and remediation costs. Major
sites for which reserves have been provided are the non-company-owned Lipari,
Woodland and Kramer sites in New Jersey, Whitmoyer in Pennsylvania and
company-owned sites in Bristol and Philadelphia, Pennsylvania and Houston,
Texas. The Company's 1999 Morton acquisition introduced two major sites: Moss
Point, Mississippi and Wood-Ridge, New Jersey.
In Wood-Ridge, New Jersey, Morton and Velsicol Chemical Corporation (Velsicol)
have been held jointly and severally liable for the cost of remediation of
environmental problems associated with a mercury processing plant (Site)
subsequently acquired by Morton. As of the date of acquisition of Morton by the
Company, Morton had disclosed and accrued for certain ongoing studies related to
the Site. Additional data gathering has delayed completion of these studies
until 2003. In its allocation of the purchase price of Morton, the Company
accrued for additional study costs on December 31, 1999 and additional
remediation costs in 2000 based on the ongoing studies.
The Company's exposure at the Site will depend on the results of attempts to
obtain contributions from others believed to share responsibility. A cost
recovery action against certain parties is pending in federal court. This action
has been stayed pending future regulatory developments and the appeal of a
summary judgment ruling in favor of one of the defendants. Settlements have been
reached with some defendants for de minimis claims associated with the Site.
The Company's exposure will also depend upon the continued ability of Velsicol
and its indemnitor, Fruit of the Loom, Inc., which has filed for protection
under the bankruptcy laws, to contribute to remediation costs. In 2001, these
parties stopped paying their share of expenses. In May 2002, the bankruptcy
court approved a payment to the Company of approximately $1 million. Also in
2002, the Department of Justice requested approval by the bankruptcy court of a
settlement entered into with Velsicol, Fruit of the Loom, and other parties,
which would create a fund to be used to respond to the Velsicol liabilities at
several sites, including Wood-Ridge.
The Company is also in discussions with the EPA to fund up to $225,000 for a
workplan for a separate study of contamination in Berry's Creek, which runs near
the Site, and of the surrounding wetlands. The estimated costs of any resulting
remediation of Berry's Creek were not considered in the allocation of the Morton
purchase price. There is much uncertainty as to what will be required to address
Berry's Creek, but cleanup costs could be very high and the Company's share of
these costs could be material to the results of its operations, cash flows and
consolidated financial position.
During 1996, the EPA notified Morton of possible irregularities in water
discharge monitoring reports filed by its Moss Point, Mississippi plant in early
1995. Morton investigated and identified other environmental issues at the
plant. Though at the date of acquisition Morton had accrued for some remediation
and legal costs, the Company revised these accruals as part of the allocation of
the purchase price of Morton based on its discussions with the authorities and
on the information available as of June 30, 2000. In 2000, the Company reached
agreement with the EPA, the Department of Justice and the State of Mississippi,
resolving these historical environmental issues. The agreement received court
approval in early 2001. The final settlement included payment of $20 million in
civil penalties, which were paid in the first quarter of 2001, $2 million in
criminal penalties, which were paid in the fourth quarter of 2000, and $16
million in various Supplemental Environmental Projects. The accruals established
for this matter were sufficient to cover these and other related costs of the
settlement. In December 2001, the Company closed the chemicals portion of the
Moss Point facility.
The amount charged to earnings pre-tax for environmental remediation was $5
million and $18 million for the six months ended June 30, 2002 and 2001,
respectively. The reserves for remediation were $146 million and $156 million at
June 30, 2002 and December 31, 2001, respectively, and are recorded as Other
Liabilities (current and long-term) in the Consolidated Balance Sheet. These
reserves include amounts resulting from the allocation of the purchase price of
Morton. The Company is pursuing lawsuits over insurance coverage for
environmental liabilities. It is the Company's practice to reflect environmental
insurance recoveries in results of operations for the quarter in which the
litigation is resolved through settlement or other appropriate legal processes.
Resolutions typically resolve coverage for both past and future environmental
spending. The Company settled with several of its insurance carriers and
recorded income pre-tax of approximately $17 million and $4 million for the six
months ended June 30, 2002 and 2001, respectively.
In addition to accrued environmental liabilities, the Company had reasonably
possible loss contingencies related to environmental matters of approximately
$60 million and $73 million at June 30, 2002 and December 31, 2001,
respectively. Further, the Company has identified other sites, including its
larger manufacturing facilities, where additional future environmental
remediation may be required, but these loss contingencies cannot reasonably be
estimated at this time. These matters involve significant unresolved issues,
including the number of parties found liable at each site and their ability to
pay, the outcome of negotiations with regulatory authorities, the alternative
methods of remediation and the range of costs associated with those
alternatives. The Company believes that these matters, when ultimately resolved,
which may be over an extended period of time, will not have a material adverse
effect on the consolidated financial position or consolidated cash flows of the
Company, but could have a material adverse effect on consolidated results of
operations or cash flows in any given period.
NEW ACCOUNTING PRONOUNCEMENTS
GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." In accordance with this statement, as of January 1, 2002,
the Company ceased amortization of goodwill and intangible assets deemed to have
indefinite lives, and reclassified certain intangible assets to goodwill. Under
SFAS No. 142, goodwill and certain indefinite-lived intangible assets are no
longer amortized but instead are reviewed for impairment at least annually and
are written down only in periods in which it is determined that the fair value
is less than the book value.
As a result of the Company's impairment testing in connection with the adoption
of SFAS No. 142, a non-cash charge of $830 million ($773 million after-tax), was
reflected in the results for the six months ended June 30, 2002, as if this
charge had been recorded on January 1, 2002. In future financial statement
presentations, results for the three months ended March 31, 2002 will reflect
the impairment charge as though it had been recorded January 1, 2002. This
charge was reported as a Cumulative Effect of Accounting Change in the Statement
of Consolidated Earnings. Of the impairment, $668 million pertained to goodwill
and $162 million ($105 million after-tax) related to indefinite-lived
intangibles assets within the Salt segment. The after-tax charge is as follows:
Coatings - $42 million; Electronic Materials - $281 million; Performance
Chemicals - $230 million and Salt - $220 million. The impairment charges are
primarily the result of the economic downturn over the past two years affecting
growth assumptions in certain key markets. In addition, customer consolidation
in some areas has led to downward pressure on pricing and volume.
SFAS No. 142 requires the transitional impairment review for goodwill, as well
as an annual impairment review, to be performed on a reporting unit basis. The
Company has identified each of its reporting units to be those identified in the
table presented on page 20. When evaluating goodwill for impairment, SFAS 142
requires the Company to first compare a reporting unit's book value of net
assets, including goodwill, to its fair value. Fair value was estimated based
upon discounted cash flow analyses. To the extent that the book value exceeded
fair value, the Company was required to perform a second step. In the second
step, the Company determined "implied goodwill" by determining the fair value
for the assets and liabilities of its reporting units. To the extent that a
reporting unit's book value of goodwill exceeded its implied fair value,
impairment existed and was recognized.
Long-lived assets, other than investments, goodwill and indefinite-lived
intangible assets are depreciated over their useful lives and are reviewed for
impairment in accordance with SFAS No. 144. The Company evaluated its
finite-lived intangible assets and determined there to be no change in
circumstances that would indicate that the carrying value of any given asset may
not be recoverable.
ASSET RETIREMENT OBLIGATIONS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting for Asset Retirement Obligations," which requires recognition
of the fair value of liabilities associated with the retirement of long-lived
assets when a legal obligation to incur such costs arises as a result of the
acquisition, construction, development and/or the normal operation of a
long-lived asset. SFAS No. 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the asset's useful
life. SFAS No.143 is effective for fiscal years beginning after December 15,
2002. Management is currently assessing the impact of the new standard on the
Company's financial statements.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement provides new
guidance on the recognition of impairment losses on long-lived assets to be held
and used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. Management has assessed the impact
of the new standard and determined there to be no material impact to the
financial statements.
DEBT EXTINGUISHMENT, INTANGIBLE ASSETS OF MOTOR CARRIERS AND LEASE ACCOUNTING
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement amends FASB Statement No. 13 "Accounting for Leases" and other
existing authoritative pronouncements in order to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions and also limits the classification of debt extinguishments as
extraordinary items. SFAS No. 145 is effective for fiscal years beginning after
May 15, 2002. Management is currently assessing the impact of the new standard
on the Company's financial statements.
ACCOUNTING FOR EXIT OR DISPOSAL ACTIVITIES
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." This statement addresses the recognition, measurement and reporting
of costs that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for pursuant to the
guidance in Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The statement
requires recording costs associated with exit or disposal activities at their
fair values when a liability has been incurred. SFAS No. 146 is effective for
disposal activities initiated after December 31, 2002. Management is currently
assessing the impact of the new standard on the Company's financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK
Management's discussion of market risk is incorporated herein by reference
to Item 7a of the Form 10-K for the year ended December 31, 2001, filed
with the Securities and Exchange Commission on March 26, 2002.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information related to Legal Proceedings, see Notes to Consolidated
Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's 84th annual meeting of stockholders was held on May 6,
2002, in Philadelphia, Pennsylvania.
(b) The following is a tabulation of the results of voting by security
holders for the election of directors:
Nominees Votes For Votes Withheld
------------------------------ --------------------- -------------------
William J. Avery 190,929,445 2,950,285
James R. Cantalupo 189,873,140 4,006,590
J. Michael Fitzpatrick 190,866,780 3,012,950
Earl G. Graves 191,145,397 2,734,333
Raj L. Gupta 190,808,834 3,070,896
David W. Haas 190,702,058 3,177,672
Thomas W. Haas 190,683,332 3,196,399
James A. Henderson 191,097,310 2,782,420
Richard L. Keyser 191,253,998 2,625,732
John H. McArthur 191,008,166 2,871,564
Jorge P. Montoya 190,153,538 3,726,192
Sandra O. Moose 189,829,568 4,050,163
Gilbert S. Omenn 191,214,378 2,665,353
Ronaldo H. Schmitz 175,034,845 18,844,886
Marna C. Whittington 189,879,747 3,999,984
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(99.1) Certification Pursuant to 18 U.S.C. Section 1350 As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2) Statement Under Oath of Principal Executive Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings.
(99.3) Statement Under Oath of Principal Financial Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings.
(b) Reports filed on Form 8-K during the quarter ended June 30, 2002:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 13, 2002 ROHM AND HAAS COMPANY
- --------------------- (Registrant)
BRADLEY J. BELL
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER