Note 18: Stockholders' Equity

The company has the authorization to issue up to 25 million shares of preferred stock. The outstanding preferred stock was issued in connection with the acquisition of Shipley Company in 1992. The company may issue up to an additional 124,535 of these preferred shares for the exercise of outstanding Shipley stock options. This preferred stock pays an annual cumulative dividend of $2.75 per share. It has antidilution protection against stock splits, stock dividends and certain issuances of additional securities and extraordinary dividends. This preferred stock is convertible at any time at the holder's option into Rohm and Haas common stock at the rate of .7812 shares of common stock for each share of preferred stock. Holders of the preferred stock are entitled to one vote per share. The company has the option to redeem the preferred stock on or after June 12, 1999, at a fixed redemption price of $50.62, payable in Rohm and Haas common stock. The redemption price reduces each year to a final price of $50 on or after June 12, 2002. Dividends paid on ESOP shares, used as a source of funds for meeting the ESOP financing obligation, were $11 million in 1997 and $10 million in 1996. These dividends were recorded at net of the related U.S. tax benefits. The number of ESOP shares not allocated to plan members at December 31, 1997 and 1996 were 4.7 million and 4.9 million, respectively. The company recorded compensation expense of $6 million in 1997, $6 million in 1996 and $5 million in 1995 for ESOP shares allocated to plan members. The company expects to record annual compensation expense at approximately this level over the next 23 years as the remaining $139 million of ESOP shares are allocated. The allocation of shares from the ESOP is expected to fund a substantial portion of the company's future obligation to match employees savings plan contributions as the market price of Rohm and Haas stock appreciates.

Purchases of treasury stock in 1997 totaled 2,552,151 shares, compared with 4,430,971 and 515,138 shares in 1996 and 1995, respectively. In October 1997, the company largely completed the repurchase of 3.5 million shares of common stock authorized under the second buyback program, and received board approval on October 24, 1997, for a third buyback program of another 3.0 million shares. The reconciliation from basic to diluted earnings per share is as follows:

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