ROHM AND HAAS COMPANY 2003 financial report and 10k UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-3507 ROHM AND HAAS COMPANY (Exact name of registrant as specified in its charter) DELAWARE 23-1028370 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 100 INDEPENDENCE MALL WEST, PHILADELPHIA, PA 19106 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 215-592-3000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered Common Stock of $2.50 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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 . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporat- ed by reference in Part III of this Form 10-K or any amendment to this Form 10-K X . Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No . The aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2003 was: $4,800,405,357. The number of shares outstanding of the registrant’s common stock as of February 27, 2004 was: 223,553,834. DOCUMENTS INCORPORATED BY REFERENCE Part III- Definitive Proxy Statement to be filed with the Securities and Exchange Commission, except the Report on Executive Compensation, Graph titled “Cumulative Total Return to Shareholders” and Audit Committee Report included therein. TABLE OF CONTENTS Page Part I Item 1. Business 3 Item 2. Properties 12 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Part II Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters 14 Item 6. Selected Financial Data 15 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7a. Quantitative and Qualitative Disclosures About Market Risk 39 Item 8. Financial Statements and Supplementary Data 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 42 Item 9A. Controls and Procedures 42 Part III Item 10. Directors and Executive Officers of the Registrant 42 Item 11. Executive Compensation 44 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 44 Item 13. Certain Relationships and Related Transactions 45 Item 14. Principal Accountant Fees and Services 45 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 45 Signatures 48 2. PART I we began to diversify our portfolio of • Growth through efficiency - leverag- product offerings to enhance our spe- ing technology in all forms, includ- Item 1. Business cialty chemical business by acquiring ing our Enterprise Resource Morton International’s Chemical and Planning system, and information Who Are We? Salt businesses, and complementing technology systems to control costs Rohm and Haas Company was incor- our Electronics Materials business and gain operational efficiencies. porated in 1917 under the laws of the through the acquisitions of LeaRonal Cash Generation State of Delaware. Our shares are and Rodel. With the acquisition of We will use our ability to generate cash traded on the New York Stock these and other important businesses flow from operating activities and our Exchange under the symbol “ROH.” in the past five years, we have doubled strong cash position to maintain flexi- our sales, balanced our portfolio sea- We are a global specialty materials bility in our balance sheet, while con- sonally, expanded our geographic company that began over 90 years ago tinuing the company’s long history of reach and product opportunities to when a chemist and a businessman increasing dividend payments. decided to form a partnership to meet market demand and enhanced make a unique chemical product for our cash generating abilities. Corporate Governance Our company was built and contin- the leather industry. That once tiny Our specialty chemical, electronic ues to rely on a strong foundation of firm, now known as Rohm and Haas materials and salt businesses will be core values. We believe that these Company, reported sales of $6.4 bil- discussed in more detail later in this values are the bedrock of our success. lion in 2003 on a portfolio of global section. businesses including specialty chemi- We strive to operate at the highest cals, electronic materials and salt. What is Our levels of integrity and ethics and in Today, we leverage science and tech- Focus? support of this, require that all nology in many different areas to In 2003, our focus was and will con- salaried employees, as well as the design materials and processes that tinue to be in 2004: members of our Board of Directors, receive compliance training and enable our customers’ products to • Organic Growth; annually certify their compliance work. We serve many different market • Cash Generation; and with our internal Code of Business places, the largest of which include: • Corporate Governance. construction and building; electron- Conduct and Ethics. We have identi- ics; household products and personal Organic Growth fied the following as our core values: To increase sales in our existing seg- care; packaging; food and retail; and • Ethical behavior; ments, we are focused on: automotive. To serve these markets, • Integrity in our business interac- we operate over 100 manufacturing • Marketing excellence - focusing our tions – with customers, suppliers and 30 research facilities in 27 coun- energies on the fastest growing and each other; and tries with approximately 17,300 market segments; cultivating our • Trust – trust that we will do what employees. Our geographic reach name recognition in the market- we promise to do. continues to expand with 53% of our place and differentiating our- Our Board of Directors has invested sales in North America, 27% in selves from our competitors; Europe, 17% in Asia-Pacific and 3% in substantial time in examining our Latin America. • Innovation - continually striving to business practices with regard to the bring new products to the market- norms of institutional integrity. Our Yet, despite the remarkable changes place; modifying our portfolio as Board is comprised of 14 Directors, our company has undergone since it needed to meet the changing mar- of whom 12 are non-employees. Our was founded by Otto Röhm, the scien- ketplace, while leveraging our Audit, Nominating and Compen- tist, and Otto Haas, the businessman, world class acrylic and electronic sation committees of the Board are Rohm and Haas remains remarkably materials technologies; all composed entirely of independ- true to the original vision of its ent directors. founders: to be a high quality suppli- • Geographic reach - leveraging our er of specialty materials that improve geographic footprint to take the quality of life. Over five years ago, advantage of market demand; and 3. What Businesses Do We Operate? Our portfolio of businesses is strong, seasonally diverse and well positioned overall for future growth. The table below summarizes our six reporting segments and sales recorded in 2003: Rohm and Haas Company (dollars in millions) 2003 Sales % 2002 Sales % Coatings $ 2,135 33% $ 1,866 33% Adhesives and Sealants 632 10% 592 10% Electronic Materials 1,079 17% 987 17% Performance Chemicals 1,382 22% 1,217 21% Salt 801 12% 706 12% Monomers 1,152 18% 970 17% Elimination of Intersegment Sales (760) (12%) (611) (10%) Total Sales $ 6,421 100% $ 5,727 100% COATINGS Coatings is our largest reportable segment and is comprised of three businesses: (dollars in millions) 2003 Sales % 2002 Sales % Architectural and Functional Coatings $ 1,704 80% $ 1,531 82% Powder Coatings 324 15% 226 12% Automotive Coatings 107 5% 109 6% Total Sales $ 2,135 100% $ 1,866 100% Products from our Coatings business- Our customer base includes well them to stick to the product. The es are sold globally, with approxi- known, high quality paint suppliers. product is later baked in an oven, mately 60% of sales in North In addition to the architectural and where the particles melt onto the America, 25% in Europe, 10% in decorative coatings markets, this seg- product to form the final coating. Asia-Pacific and 5% in Latin ment also offers products that serve a Powder coatings are more cost-effec- America. Sales for all three of these wide variety of coatings to: industrial tive than liquid coatings and provide businesses fluctuate depending on markets for use on metal, wood and similar or enhanced benefits, includ- the season and are sensitive to fluctu- in traffic paint; the building industry ing increased durability such as tem- ating raw material costs. for use in roofing materials, insula- perature and wear resistance. Our tion and cement markets; and con- powder coatings are used on a wide Architectural and Functional Coatings is sumer markets for use in paper, tex- variety of products, ranging from the largest of the businesses in the tiles and non-woven fibers, graphic door handles to patio and deck fur- Coatings segment.