To the Shareholders of Rohm and Haas Company
A Year of Major Change
Rohm and Haas entered 1998 with a successful record of profitable growth. In order to build upon our past strong performance, since the start of 1998 the company has announced
- a new generation of leaders
- a new corporate organization
- two important acquisitions
- two new initiatives to improve our cost structure, and
- the final stage of a major recapitalization.
In December, the Board of Directors elected Raj Gupta to the newly created office of Vice Chairman, effective January 1, 1999. Mr. Gupta will become Chairman and CEO of Rohm and Haas upon the retirement of Larry Wilson by the end of 1999. The Board also elected Mike Fitzpatrick the new President and Chief Operating Officer of Rohm and Haas. Messrs. Gupta and Fitzpatrick have each spent more than 20 years building markets and serving customers around the world for Rohm and Haas. Their combined focus on clear long-term strategies and unwavering operational excellence will drive the company's profitable growth in the years to come.
Throughout 1998, Messrs. Gupta and Fitzpatrick worked with other Rohm and Haas executives to design a new organizational structure. The resulting new business groups will continue the company's excellent customer focus while yielding greater production effectiveness and administrative efficiency (see New Business Groups page).
On February 1, 1999, the company announced a merger agreement between Rohm and Haas and Morton International, Inc. On February 5, 1999, Rohm and Haas commenced the first step of the transaction, a cash tender offer for two-thirds of the outstanding shares of Morton. We expect the acquisition of Morton to be completed within the second quarter of 1999. Upon completion, Rohm and Haas will be among the world's largest specialty chemical companies, with $6.5 billion in annual revenues.
On January 26, 1999, the company completed the acquisition of LeaRonal, a New York-based specialty chemical company that designs, produces and markets a range of products used by the printed wiring board, semiconductor and metal finishing industries. LeaRonal has been combined with the existing printed wiring board business of Rohm and Haas's Shipley subsidiary. The resulting division of Shipley, called Shipley Ronal, supplies a full line of products to printed wiring board makers.
In the second quarter of 1998, Rohm and Haas completed the divestitures of the company's stakes in two joint ventures: AtoHaas, a joint venture with Elf Atochem for the production of acrylic sheet; and RohMax, a joint venture with Röhm GmbH for the production of additives to petroleum products and other lubricants. Both of these businesses had made significant contributions to Rohm and Haas's financial performance and technology base over years. Both had become commodity-oriented, however, and thus were no longer suited to Rohm and Haas's specialty portfolio.
Rohm and Haas began two important programs to improve the company's work processes in 1998. The first of these has already resulted in significant cost saving the Performance Polymers supply chain. This effort encompasses each element of Performance Polymers manufacturing, from receiving raw materials to shipping our specialty acrylic products to customers. The supply chain initiative has already greatly improved Performance Polymers' ability to deliver those products at low cost while providing world class quality and service (see page 8). We expect additional progress on this front in 1999.
In November the company began a similar process to enhance its corporate and administrative processes, and thus to better support profitable growth throughout Rohm and Haas. Many senior Rohm and Haas managers are involved in this project, along with an outside consultant. We expect significant and lasting improvements, beginning in 1999.
During the year Rohm and Haas enacted the final stage of a major recapitalization program that included more than $1 billion in share repurchases since 1995. In 1998 the company repurchased 17.5 million shares of common stock (on a split-adjusted basis), or nearly 10% of the total shares previously outstanding, for about $562 million. In July the Board of Directors authorized a three-for-one stock split. Also during the year the company retired $130 million of high-coupon long-term debt ahead of schedule.
These efforts together accomplished the recapitalization goals the company had previously announced: The resulting capital structure more appropriately suits the company's current and future business portfolio; the trading characteristics of the company's stock are significantly improved; and the company maintained the financial capacity for the acquisitions discussed above.
Several executives retired at the end of 1998 after long and distinguished careers: John P. Mulroney, President and Chief Operating Officer (see nearby box); Basil Vassiliou, Senior Vice President and European Regional Director; and John F. Talucci, Vice President and Director of Agricultural Chemicals. Each of these executives devoted more than 35 of his life to Rohm and Haas, and the company has benefited immeasurably by their service. We wish them and their families long and happy retirements.
Daniel B. Burke, who has served on the Board of Directors since 1986, retires from the board following this year's Annual Meeting. Many thanks to Dan for 13 years of careful judgment on behalf of Rohm and Haas shareholders and management.
While 1998 was a year of major change for Rohm and Haas, we continued to concentrate on the safe, profitable and efficient operation of our businesses. The company's rate of occupational injuries and illnesses was 1.2 for the year-an outstanding performance that is evidence of the company's long-term improvements in worker protection (see page 22). Rohm and Haas will continue to devote the time, money and energy required to ensure that we continue to improve the company's safety, just as we continue to improve our profitability.
Rohm and Haas's 13% return on net asset in 1998 ranks as the company's best ever. That performance, along with our 25% return on common shareholders' equity for the year, made us perhaps the single most profitable specialty chemical company. Much hard work in a number of areas has produced this impressive result. In 1993 we set out to create better processes, control internal costs and improve the specialty nature of our portfolio. Now that the world economy is slowing somewhat, and commodity deflation has begun, we are seeing the positive results of Rohm and Haas's efforts in many areas.
In 1998 the company's employees maintained these outstanding results during a year that made many demands on their time and considerable talents. Any look back on 1998 would be incomplete without an expression of heartfelt gratitude for the work that our employees have done throughout the year. As we face the challenges ahead, Rohm and Haas's people will continue to be the company's greatest strength.
Global economic uncertainties continue into 1999. Rohm and Haas, however, has many reasons to look forward to another year of profitable growth.
J. Lawrence Wilson
Chairman and Chief Executive Officer
Rajiv L. Gupta
Vice Chairman
J. Michael Fitzpatrick
President and Chief Operating Officer
John P. Mulroney retired from Rohm and Haas on December 31, 1998. Mr. Mulroney, known as Jack to thousands of employees over the past four decades, was elected President and Chief Operating Officer in 1986. Since then he served as an important partner to Chairman and Chief Executive Officer Larry Wilson in shaping and implementing many of the company's most important initiatives.
Mr. Mulroney joined the company as a process engineer in 1958, launching what was to become the first of three successful phases in his Rohm and Haas career. As a researcher he assisted in the company's adoption of the propylene oxidation process used to make acrylic acid and its derivatives. The success of that process contributed to the construction of the production facility at Deer Park, Texas, the company's largest.
In 1971 Mr. Mulroney moved to Europe, beginning the second phase of his career. He held a number of positions in the region, and was named Director of European Operations in 1977. In 1978 the third phase began when he returned to the Home Office as Vice President responsible for several of the company's largest businesses. In 1983 he became Group Vice President and Corporate Business Director.
"I loved every job I ever had at Rohm and Haas," said Mr. Mulroney. "I certainly never set out to be president. I was perfectly happy in research. And I loved Europe. I was happy to come back to Philadelphia, since it is my home town. But I have always been focused on the job in front of me."
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