-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M7IrtHYz1pUVo2EezmPrxaKw8CIpgfq74zibA3qj53dL580dfXNXU80FhvENd2jb cTkKr/FWjlMX2GeT/4YvJg== 0000891554-96-000275.txt : 19960517 0000891554-96-000275.hdr.sgml : 19960517 ACCESSION NUMBER: 0000891554-96-000275 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WITCO CORP CENTRAL INDEX KEY: 0000107889 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 131870000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04654 FILM NUMBER: 96565683 BUSINESS ADDRESS: STREET 1: ONE AMERICAN WAY CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2126053800 MAIL ADDRESS: STREET 1: ONE AMERICAN LANE CITY: GREENWICH STATE: CT ZIP: 06831 FORMER COMPANY: FORMER CONFORMED NAME: WITCO CHEMICAL CORP DATE OF NAME CHANGE: 19851117 FORMER COMPANY: FORMER CONFORMED NAME: WITCO CHEMICAL CO INC DATE OF NAME CHANGE: 19681203 10-Q 1 QUARTERLY REPORT 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 THE QUARTERLY PERIOD ENDED MARCH 31, 1996 Commission File Number 1-4654 WITCO CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-1870000 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One American Lane, Greenwich, Connecticut 06831-2559 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 552-2000 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of common stock outstanding is as follows: Class Outstanding at April 30, 1996 ----- ----------------------------- Common Stock - $5 par value 56,567,288 WITCO CORPORATION FORM 10-Q March 31, 1996 CONTENTS PAGE -------- ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets at March 31, 1996 and December 31, 1995 2 Condensed consolidated statements of income for the three months ended March 31, 1996 and 1995 3 Condensed consolidated statements of cash flows for the three months ended March 31, 1996 and 1995 4 Notes to condensed consolidated financial statements 5 Independent accountants' report on review of interim financial information 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 PART I.FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WITCO CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Per Share Data)
March 31, December 31, 1996 1995 (a) ------------ ------------ (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $120,054 $143,994 Accounts and notes receivable-net 444,768 406,486 Inventories Raw materials and supplies $115,910 $115,231 Finished goods 201,295 317,205 207,667 322,898 ---------- ---------- Prepaid and other current assets 67,221 70,667 ---------- ---------- TOTAL CURRENT ASSETS 949,248 944,045 ---------- ---------- PROPERTY, PLANT, AND EQUIPMENT - less accumulated depreciation of $596,946 and $586,595 820,460 811,667 GOODWILL AND OTHER INTANGIBLE ASSETS - less accumulated amortization of $69,767 and $62,450 723,390 728,124 OTHER ASSETS 120,365 118,182 NET ASSETS OF DISCONTINUED OPERATIONS 170,959 170,426 ---------- ---------- TOTAL ASSETS $2,784,422 $2,772,444 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes and loans payable $308,957 $309,171 Accounts payable and other current liabilities 387,669 385,294 ---------- ---------- TOTAL CURRENT LIABILITIES 696,626 694,465 ---------- ---------- LONG-TERM DEBT 681,167 683,830 DEFERRED INCOME TAXES 102,247 87,532 DEFERRED CREDITS AND OTHER LIABILITIES 285,338 302,500 SHAREHOLDERS' EQUITY $2.65 Cumulative Convertible Preferred Stock, par value $1 per share Authorized - 14 shares Issued and outstanding - 7 shares 7 7 Common Stock, par value $5 per share Authorized - 100,000 shares Issued - 56,554 shares and 56,435 shares 282,772 282,173 Capital in excess of par value 133,530 131,076 Equity adjustments: Foreign currency translation 19,014 17,222 Pensions (4,898) (4,898) Retained earnings 588,619 578,537 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 1,019,044 1,004,117 ========== ========== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,784,422 $2,772,444 ========== ==========
(a) The balance sheet at December 31, 1995, has been derived from the audited financial statements at that date. See accompanying notes. 2 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, ------------------------ (In thousands except per share data) 1996 1995 --------- --------- Net Sales $ 589,425 $ 517,952 Cost of Goods Sold 448,345 405,213 --------- --------- Gross Profit 141,080 112,739 Operating Expenses Selling expense 27,119 19,938 General and administrative expenses 35,427 30,439 Research and development 17,989 12,443 Other expenses (income) - net 1,281 (4,846) --------- --------- Total Operating Expenses 81,816 57,974 --------- --------- Operating Income from Continuing Operations 59,264 54,765 Other Expense (Income) - Net Interest expense 17,669 8,450 Interest income (2,468) (2,922) Other expense - net 973 1,206 --------- --------- Income from Continuing Operations before Income Taxes 43,090 48,031 Income Taxes 17,509 17,761 --------- --------- Income from Continuing Operations 25,581 30,270 Income (Loss) from Discontinued Operations - Net of Income Taxes (Benefit) of $283 and ($114) 340 (495) --------- --------- Net Income $ 25,921 $ 29,775 ========= ========= PER COMMON SHARE: PRIMARY Income from continuing operations $ .45 $ .54 Income (loss) from discontinued operations - net of income taxes .01 (.01) ========= ========= Net Income $ .46 $ .53 ========= ========= PER COMMON SHARE: FULLY DILUTED Income from continuing operations $ .44 $ .54 Income (loss) from discontinued operations - net of income taxes .01 (.01) --------- --------- Net Income $ .45 $ .53 ========= ========= Weighted average number of common shares and equivalents - primary 56,895 56,356 ========= ========= Dividends declared $ .28 $ .28 ========= ========= See accompanying notes. 3 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, ----------------------- 1996 1995 --------- --------- (In Thousands) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 20,440 $ 23,084 --------- --------- INVESTING ACTIVITIES Expenditures for property, plant, and equipment (43,334) (23,881) Proceeds from dispositions 13,650 24,090 Other investing activities (1,171) (1,836) --------- ---------- Net Cash Used in Investing Activities (30,855) (1,627) --------- --------- FINANCING ACTIVITIES Proceeds from borrowings 303,257 21 Payments on borrowings (302,953) (689) Dividends paid (15,806) (15,725) Other financing activities 3,052 1,206 --------- --------- Net Cash Used in Financing Activities (12,450) (15,187) --------- --------- Effects of Exchange Rate Changes on Cash and Cash Equivalents (1,075) 11,548 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (23,940) 17,818 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 143,994 197,173 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 120,054 $ 214,991 ========= ========= See accompanying notes. 4 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - Basis of Preparation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three month period ended March 31, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's annual report on Form 10-K/A for the year ended December 31, 1995. The condensed consolidated financial statements at March 31, 1996, and for the three month periods ended March 31, 1996 and 1995, have been reviewed in accordance with standards established by the American Institute of Certified Public Accountants, by independent accountants, Ernst & Young LLP, and their report is included herein. NOTE B - Income Statement Reclassifications Effective January 1, 1996, the company made the following revisions to its income statement format: o Depreciation expense is included in cost of goods sold, general and administrative expenses, selling expense and research and development. Amortization expense is included in other expenses (income) - net. Depreciation and amortization was previously classified separately. o Research and development, previously included in cost of goods sold, is now classified separately. o State income taxes, previously included in cost of goods sold, are now classified as income taxes. The condensed consolidated statement of income for the three months ended March 31, 1995 has been reclassified for these changes. NOTE C - Shareholder Rights Plan On March 2, 1995, the Board of Directors unanimously approved a Shareholder Rights Plan. The Plan was implemented by the issuance of one preferred stock purchase right for each share of common stock outstanding at the close of business on March 2, 1995, or issued thereafter until the rights become exercisable. Each right will entitle the holder in certain events to purchase one-one thousandth of a share of participating preferred stock at a purchase price of $110. Each one-one thousandth of a share of participating preferred stock is intended to represent the economic equivalent of one share of common stock. Under the Shareholder Rights Plan, 300,000 shares of Series A participating cumulative preferred stock without par value have been authorized. The rights currently are not exercisable. If a person or group acquires more than 15% of the outstanding common stock, or at the Board's election if a tender offer for more than 15% of the outstanding common stock is commenced, or if such person or group acquires the company in a merger or other business combination, each right (other than those held by the acquiring person) will entitle the holder to purchase stock of the company or stock or other property of the acquiring person having a value of twice the purchase price. The rights will expire on March 2, 2005, unless redeemed earlier by the company in whole, but not in part, at a price of $.01 per right. NOTE D - Discontinued Operations On September 11, 1995, the company announced its intention to divest its Lubricants Group. These operations are reflected as discontinued operations for all periods presented in the company's income statements and as net assets of discontinued operations in the company's balance sheets. Total revenues for the three month periods ended March 31, 1996 and 1995 were $87,179,000 and $84,499,000, respectively. 5 NOTE D - Discontinued Operations (continued) A summary of net assets of discontinued operations for the periods ended March 31, 1996 and December 31, 1995 are as follows: March 31, December 31, 1996 1995 ----------- ------------ Accounts and notes receivable - net $ 57,100 $ 61,633 Inventories 40,665 38,378 Property, plant, and equipment - net 111,824 112,639 Accounts payable and other current liabilities (37,187) (39,603) Other assets and liabilities - net (1,443) (2,621) --------- --------- Net assets of discontinued operations $ 170,959 $ 170,426 ========= ========= NOTE E - Other Matters At December 31, 1995, the company has $605 million of bank loans outstanding under a credit agreement with a consortium of banks. On February 12, 1996, the company issued $150 million of 6.125% Notes due 2006 and $150 million of 6.875% Debentures due 2026. The net proceeds of $297 million, plus cash on hand, were used to repay $300 million of bank loans under the credit agreement. Immediately thereafter, the availability under the credit agreement, as amended, was reduced to $375 million of which $305 million was utilized at March 31, 1996. The statement of income for the three month period ended March 31, 1995, includes a gain of $5,918,000 or $.11 per common share, from the sale of the company's Battery Parts business. The pre-tax gain of $9,532,000 is included in the caption "Other expenses (income) - net". NOTE F - Effective Tax Rate The effective tax rate of 40.6% as compared to the statutory tax rate of 35% for the three month period ended March 31, 1996 is primarily the result of state income taxes and goodwill amortization related to OSi Specialties, which is not deductible for income tax purposes. NOTE G - Litigation and Environmental The company has been notified that it is a potentially responsible party ("PRP") or a defendant in a number of governmental (federal, state, and local) and private actions associated with the release, or suspected release, of contaminants into the environment. As a PRP, the company may be liable for costs associated with the investigation and remediation of environmental contamination, as well as various penalties, and damages to persons, property and natural resources. As of March 31, 1996, the company was a PRP, or a defendant, in connection with 67 sites at which it is likely to incur costs associated with environmental investigation or remedial actions which have been or will be executed pursuant to the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA'), the Resource Conservation and Recovery Act ("RCRA"), or similar state or local laws. With 21 exceptions, all of these sites involve one or more PRPs, and in most cases, there are numerous other PRPs in addition to the company. CERCLA, RCRA, and the state counterparts to these federal laws authorize governments to investigate and remediate actual or suspected damage to the environment caused by the release or suspected release of hazardous substances into the environment, or to order the responsible parties to investigate and/or remediate such environmental damage. The company evaluates and reviews environmental reserves for future remediation and other costs on a quarterly basis to determine appropriate reserve amounts. Inherent in this process are considerable uncertainties which effect the company's ability to estimate the ultimate costs of remediation efforts. Such uncertainties include the nature and extent of contamination at each site, evolving governmental standards regarding remediation requirements, changes in environmental regulations, widely varying costs of alternative cleanup methods, the number and financial condition of other potentially responsible parties at multi-party sites, innovations in remediation and restoration technology, and the identification of additional environmental sites. At March 31, 1996, the company's reserves for environmental remediation and compliance costs related to continuing operations amounted to $80,481,000 reflecting Witco's estimate of the costs which will be incurred over an extended period of time in respect of these matters which are reasonably estimable. 6 NOTE G - Litigation and Environmental (continued) The company is a defendant in four similar actions pending in California state courts, which arise out of the company's involvement in the polybutylene resin manufacturing business in the 1970's: East Bay Municipal Utility District v. Mobil Oil Co., et al., filed in November 1993, and pending in Superior Court for the County of San Mateo; City of Santa Maria v. Shell Oil Co., et al., filed in May 1994, and pending in Superior Court for the County of San Luis Obispo; Nipomo Community Services District v. Shell Oil Co., et al., filed in May 1995, and pending in Superior Court for the County of Santa Barbara; and, Alameda County Water District v. Mobil Oil Corporation, et al., filed April 4, 1996, and pending in Superior Court for the County of San Mateo. The actions generally allege that the company and several other defendants negligently misrepresented the performance of polybutylene pipe and fittings installed in water distribution systems. Other allegations include breach of warranty, fraud, strict liability, and breach of the California Unfair Practices Act. The company is a defendant in an action filed on May 15, 1992 in New Jersey state court styled Gordon et al. v. Witco Corporation, Superior Court of New Jersey Law Division - Morris County Docket No. MRS-L-2165-92 in which nine former employees of the company sought compensatory and punitive damages on the basis their termination of employment by the company violated the New Jersey age discrimination statute and caused loss of income and emotional harm. Prior to the trial of the action the company settled the claims of five of the plaintiffs. Following trial and while the jury deliberated, the company settled the claims of two of the remaining plaintiffs, but the jury was not informed of the settlements. On March 6, 1996 the jury in the action awarded three of the plaintiffs (including the two plaintiffs whose claims the company had settled while the jury deliberated) a total of $1.3 million in compensatory damages and $7.5 million in punitive damages, and rendered a verdict in favor of the company in respect of the fourth plaintiff. The one successful plaintiff not bound by a settlement is also entitled to reasonable attorney's fees, but no amount has been awarded to date. As a result of the settlements with two of the three plaintiffs to whom the jury awarded damages, the company's maximum exposure is for approximately $3 million of the total of approximately $9 million awarded by the jury and attorney's fees sought by the plaintiff. The company will appeal the verdict. The company is not a party to any legal proceedings, including environmental matters, which it believes will have a material adverse effect on its consolidated financial position. However, depending on the amount and timing of an unfavorable resolution of these contingencies, it is possible that the company's future results could be materially affected in a particular period. 7 Independent Accountants' Review Report The Board of Directors Witco Corporation We have reviewed the accompanying condensed consolidated balance sheet of Witco Corporation and Subsidiary Companies as of March 31, 1996, and the related condensed consolidated statements of income and cash flow for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Witco Corporation and Subsidiary Companies as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 29, 1996, except for Note 7, as to which the date is February 12, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/ ERNST & YOUNG LLP ERNST & YOUNG LLP Stamford, Connecticut May 10, 1996 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND FINANCIAL RESOURCES Cash and cash equivalents have decreased $23.9 million during the first quarter primarily due to an increase in accounts receivable and increased capital spending. The increase in accounts receivable is primarily a result of higher first quarter net sales as compared to the fourth quarter of 1995. Days sales outstanding at March 31 and December 31 were comparable. The increase in capital spending levels is primarily attributable to the OSi business which was acquired in October 1995. At December 31, 1995, the company had $605 million of bank loans outstanding under a credit agreement with a consortium of banks. On February 12, 1996, the company issued $150 million of 6.125% Notes due 2006 and $150 million of 6.875% Debentures due 2026. The net proceeds of $297 million, plus cash on hand, were used to repay $300 million of bank loans under the credit agreement. Immediately thereafter, the availability under the credit agreement, as amended, was reduced to $375 million. The company plans to repay the remaining $305 million with proceeds from the sale of the Lubricants Group, cash flow from operations or additional long-term financing. CAPITAL INVESTMENTS AND COMMITMENTS Capital expenditures during the first three months of 1996 amounted to $43.3 million, as compared to $23.9 million during the same period of 1995. Capital expenditures related to continuing operations as of March 31, 1996 and 1995 were $39.8 million and $19.1 million, respectively. The company anticipates that capital expenditures for 1996 related to continuing operations will be in excess of the 1995 amount of $98.3 million. CONTINGENCIES The company has been notified that it is a potentially responsible party ("PRP") or a defendant in a number of governmental (federal, state and local) and private actions associated with the release, or suspected release, of contaminants into the environment. As a PRP, the company may be liable for costs associated with the investigation and remediation of environmental contamination, as well as various penalties and damages to persons, property and natural resources. The company is not a party to any legal proceedings or environmental matters which it believes will have a material adverse effect on its consolidated financial position. It is possible, however, that future results of operations for any particular quarterly or annual period, could be materially affected by such legal proceedings or environmental matters. However, the company does not expect the results of such proceedings or environmental matters to materially affect its competitive position. RESULTS FROM CONTINUING OPERATIONS The company reported income from continuing operations of $25.6 million for the first quarter of 1996 compared to $30.3 million for the same period of 1995. A comparison of these periods is affected by a non-recurring gain from the sale of the Battery Parts business in 1995. The following table shows the effect of this non-recurring item on earnings.
(Unaudited - Millions Of Dollars Three Months Ended March 31, Except Per Share Data) 1996 1995 - ------------------------------------------- ---------------------------------------------------------------------------------- Pre-Tax Income Pre-Tax Income Income Income Per Share Income Income Per Share - ------------------------------------------- ---------------------------------------------------------------------------------- Continuing operations excluding non-recurring item $43.1 $25.6 $0.4 $38.5 $24.4 $.43 Gain on disposition of operations of a subsidiary -- -- -- 9.5 5.9 .11 - ------------------------------------------------------------------------------------------------------------------------------------ Continuing operations $43.1 $25.6 $0.4 $48.0 $30.3 $.54 - ------------------------------------------------------------------------------------------------------------------------------------
9 RESULTS FROM CONTINUING OPERATIONS (continued) First quarter 1996 net sales from continuing operations of $589.4 million, the highest reported for any quarter in the company's history, was $71.5 million over net sales for the same period of 1995. The 14 percent improvement was attributable to the acquisition of OSi Specialties which added $112.8 million to current quarter sales, more than offsetting the $35.7 million decline in sales resulting from the disposition of the Diversified Products businesses. Current quarter sales attributable to the company's continuing operations, excluding OSi Specialties and Diversified Products, were $5.7 million lower than the first quarter of 1995. Although volume remained unchanged, the adverse effect of currency translation rates and changes in product sales mix caused these sales to decline. Income from continuing operations for the first three months of 1996 was $25.6 million compared to $24.4 million, before a non-recurring gain, for the corresponding period in 1995. The 5 percent increase in net income from continuing operations was primarily attributable to an increase in the company's first quarter 1996 margin performance. Gross profit margin rose 2.2 percent to approximately 24 percent, while operating income margin from continuing operations increased 1.3 percent to approximately 10 percent after adjusting for the gain on the sale of the Battery Parts business. The combination of the acquisition of OSi Specialties and the disposition of the Diversified Products businesses accounted for all but .5 percent of the higher gross profit and operating income margins. This .5 percent improvement is reflective of a stabilization of feedstock costs combined with higher selling prices within the chemical segment and cost reductions associated with productivity improvement programs initiated in 1995. Partially offsetting the favorable effect that higher margins had on net income from continuing operations, the financing of the acquisition of OSi Specialties and the assumption of OSi's debt caused current quarter interest expense to increase over the prior year. A 3.6 percent increase in the effective tax rate, mainly resulting from an increase in non-deductible goodwill amortization attributable to the OSi Specialties' acquisition, also adversely affected current quarter earnings. The company is planning to adopt the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting and Disclosure of Stock Based Compensation" in 1996. Accordingly, operating results will not be impacted by the adoption. SEGMENT INFORMATION Segment net sales and operating income for the first quarter of 1996 and 1995 are set forth in the following table. The Petroleum Segment consists solely of the Petroleum Specialties Group. This was a result of the company's decision to sell the Lubricants Group, the operating results of which have been recorded as discontinued operations. Three Months ended March 31, (Unaudited - In Millions) 1996 1995 ---------------------------- Net sales Chemical $377.7 $382.1 OSi Specialties 112.8 -- Petroleum 99.2 103.7 Diversified products -- 35.7 Intersegment elimination (.3) (3.5) ------ ------ Net sales $589.4 $518.0 ====== ====== Operating income from continuing operations Chemical $36.5 $33.9 OSi Specialties 17.7 -- Petroleum 6.6 8.1 Diversified products -- 15.5 Corporate and unallocated (1.5) (2.7) ------ ------ Operating income from continuing operations $59.3 $54.8 ====== ====== Shipments from the company's international operations accounted for 42 percent of net sales for the first quarter of 1996 compared to 37 percent for the same quarter of 1995. The acquisition of OSi Specialties and disposition of the Diversified Products businesses accounted for the 5 percent increase. International operations accounted for 41 percent of segment operating income from continuing operations, excluding the non-recurring gain from the sale of the Battery Parts business, for the first quarter of both years. Excluding OSi Specialties and Diversified Products, the company's international operations share of operating income would have risen 5 percent. 10 CHEMICAL SEGMENT Segment first quarter 1996 sales were down 1 percent to $377.7 million compared to the same quarter in 1995. Although each of the segment's operating groups managed to recoup a portion of the higher prices paid for raw material feedstocks in 1995 through increased sales prices, a 2 percent decline in volume and unfavorable foreign currency translations caused sales to decline. Operating income for the first three months of 1996 increased 8 percent to $36.5 million compared to the same period of the prior year. The segment benefited from improved product margins resulting from the stabilization of feedstock costs, productivity related cost reductions and higher sales prices. The segment's Polymer Additives and Oleo/Surfactants groups each reported improved operating earnings. Earnings were up in each of the Polymer Additives Group's strategic business units with Vinyls reporting the greatest improvement. Cost reductions resulting from productivity improvements, which included operating and procurement efficiencies, led to the group's improved operating results. Current quarter results were positive for most of the Oleo/Surfactants Group's strategic business units. The group benefited from Agricultural Surfactants' new product introductions and increased global penetration, a larger share of the European Surfactants market and a greater demand for Laundry Products. Although Personal Care Surfactants' current quarter operating income declined compared to the first quarter of 1995, the business recovered a portion of the market share lost during the last three quarters of 1995. The favorable results of cost saving initiatives begun in 1995, which exceeded increased expenses attributable to the severity of this year's winter weather, also added to the Oleo/Surfactants Group's higher reported earnings. The operating earnings of the segment's Resins Group was down compared to the prior year. A decline in shipments caused all three of the group's strategic business units to report lower operating earnings. The group's Epoxy/Hardeners unit was the business most adversely affected by stagnant European economies, particularly the portion of the business servicing the Coatings and Civil Engineering sectors. Additionally, extremely cold weather conditions added extra expense to current year results while contributing to reduced product demand. OSi SPECIALTIES SEGMENT The OSi Specialties business, which was acquired during the fourth quarter of 1995, added $112.8 million of net sales and $17.7 million of operating income, inclusive of acquisition related amortization expense, to first quarter 1996 reported results. Although not included in the company's first quarter 1995 results, a comparison of the two periods shows a 2 percent decline in sales. The segment reported an increase in operating income of approximately 22 percent as compared to 1995 on a pro forma basis, mainly as a result of lower cost contract manufacturing, manufacturing efficiency improvements, and reduced purchases of intermediates from outside sources. PETROLEUM SEGMENT Net sales for the first three months of 1996 of $99.2 million were 4 percent behind the same period of 1995. Despite an increase in shipments of approximately 4 percent, lower sales prices mainly attributable to product mix caused sales to decline. Segment operating earnings for the first quarter of 1996 declined $1.5 million to $6.6 million when compared to the same period of 1995. Higher operating costs associated with recent plant expansions in Gretna, Louisiana and Amsterdam, Holland, a 2 percent decline in material margin, and lower sales caused the earnings of the Specialty Products business unit to fall below prior year levels. The lower margin was due to a combination of market induced lower sales prices, product mix, and higher raw material feedstock costs. DIVERSIFIED PRODUCTS SEGMENT The divestiture of the Diversified Products Segment was completed during the second quarter of 1995. Operating income for the first quarter of 1995 included a non-recurring gain of $9.5 million attributable to the disposition of the Battery Parts business. 11 OUTLOOK The initiative announced in 1995 to consolidate plants is on schedule and the company continues to review the next phase of the consolidation program which is focused on the closure of less efficient facilities and moving production to more cost-effective sites. The company hopes to complete the disposition of the Lubricants Group no later than the third quarter of 1996. As the final phase of its three year divestiture program nears completion, the company is focusing its technical expertise in the areas of new product and application development, which is the next step in becoming a premier global specialty chemical and specialty petroleum producer. The acquisition of OSi Specialties has had a major effect on the company's margin performance during the first quarter of 1996. As this business is further integrated into the Witco organization and additional synergies are achieved, margins are expected to continue to rise. The company is optimistic that net income from continuing operations, excluding non-recurring items, will continue to improve throughout the remainder of 1996 when compared to 1995 results as a result of an anticipated continuation of the first quarter downward trend in raw material prices; a projected upturn in the European economy; the inclusion of OSi Specialties' operating results for a full year; and an expansion of the company's presence in the Pacific Rim. 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company has been notified that it is a potentially responsible party ("PRP") or a defendant in a number of governmental (federal, state, and local) and private actions associated with the release, or suspected release, of contaminants into the environment. As a PRP, the company may be liable for costs associated with the investigation and remediation of environmental contamination, as well as various penalties, and damages to persons, property and natural resources. As of March 31, 1996, the company was a PRP, or a defendant, in connection with 67 sites at which it is likely to incur costs associated with environmental investigation or remedial actions which have been or will be executed pursuant to the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA'), the Resource Conservation and Recovery Act ("RCRA"), or similar state or local laws. With 21 exceptions, all of these sites involve one or more PRPs, and in most cases, there are numerous other PRPs in addition to the company. CERCLA, RCRA, and the state counterparts to these federal laws authorize governments to investigate and remediate actual or suspected damage to the environment caused by the release or suspected release of hazardous substances into the environment, or to order the responsible parties to investigate and/or remediate such environmental damage. The company evaluates and reviews environmental reserves for future remediation and other costs on a quarterly basis to determine appropriate reserve amounts. Inherent in this process are considerable uncertainties which effect the company's ability to estimate the ultimate costs of remediation efforts. Such uncertainties include the nature and extent of contamination at each site, evolving governmental standards regarding remediation requirements, changes in environmental regulations, widely varying costs of alternative cleanup methods, the number and financial condition of other potentially responsible parties at multi-party sites, innovations in remediation and restoration technology, and the identification of additional environmental sites. The company is a defendant in four similar actions pending in California state courts, which arise out of the company's involvement in the polybutylene resin manufacturing business in the 1970's: East Bay Municipal Utility District v. Mobil Oil Co., et al., filed in November 1993, and pending in Superior Court for the County of San Mateo; City of Santa Maria v. Shell Oil Co., et al., filed in May 1994, and pending in Superior Court for the County of San Luis Obispo; Nipomo Community Services District v. Shell Oil Co., et al., filed in May 1995, and pending in Superior Court for the County of Santa Barbara; and, Alameda County Water District v. Mobil Oil Corporation, et al., filed April 4, 1996, and pending in Superior Court for the County of San Mateo. The actions generally allege that the company and several other defendants negligently misrepresented the performance of polybutylene pipe and fittings installed in water distribution systems. Other allegations include breach of warranty, fraud, strict liability, and breach of the California Unfair Practices Act. The company is a defendant in an action filed on May 15, 1992 in New Jersey state court styled Gordon et al. v. Witco Corporation, Superior Court of New Jersey Law Division - Morris County Docket No. MRS-L-2165-92 in which nine former employees of the company sought compensatory and punitive damages on the basis their termination of employment by the company violated the New Jersey age discrimination statute and caused loss of income and emotional harm. Prior to the trial of the action the company settled the claims of five of the plaintiffs. Following trial and while the jury deliberated, the company settled the claims of two of the remaining plaintiffs, but the jury was not informed of the settlements. On March 6, 1996 the jury in the action awarded three of the plaintiffs (including the two plaintiffs whose claims the company had settled while the jury deliberated) a total of $1.3 million in compensatory damages and $7.5 million in punitive damages, and rendered a verdict in favor of the company in respect of the fourth plaintiff. The one successful plaintiff not bound by a settlement is also entitled to reasonable attorney's fees, but no amount has been awarded to date. As a result of the settlements with two of the three plaintiffs to whom the jury awarded damages, the company's maximum exposure is for approximately $3 million of the total of approximately $9 million awarded by the jury and attorney's fees sought by the plaintiff. The company will appeal the verdict. On November 3, 1995, the United States filed suit against the company in United States District Court for the Central District of Illinois seeking up to $4.5 million in civil penalties for the alleged discharge of pollutants in violation of the Clean Water Act. In this action, the United States alleges that, at various times from 1990 to 1993, the company discharged pollutants into the Illinois River from its Mapleton, Illinois facility without first obtaining a National Pollutant Discharge Elimination System Permit. The company is not a party to any legal proceedings, including environmental matters, which it believes will have a material adverse effect on its consolidated financial position. However, depending on the amount and timing of an unfavorable resolution of these contingencies, it is possible that the company's future results could be materially affected in a particular period. 13 ITEM 4. Submission of Matters to a Vote of Security Holders (a) The company's Annual Meeting of Shareholders was held on April 24, 1996, at the offices of the company, One American Lane, Greenwich, Connecticut beginning at 2:00 p.m. (b) At the Annual Meeting, the company's shareholders elected three directors to serve a term expiring in 1999 as follows: Votes ------------------------------------------------------ For Withheld ------------------------- -------------------- Harry G. Hohn 50,423,618 872,667 Dan J. Samuel 50,359,653 936,632 Bruce F. Wesson 50,450,115 846,170 Directors who did not stand for election and continue in office until the 1997 Annual Meeting are: Simeon Brinberg, William R. Grant, Richard M. Hayden, and William R. Toller. Directors who did not stand for election and continue in office until the 1998 Annual Meeting are: William G. Burns, William E. Mahoney, L. John Polite, Jr., and William Wishnick. (c) In addition to the election of directors, at the Annual Meeting the company's shareholders: (i) Approved the adoption of the Witco Corporation Long Term Incentive Plan. Votes ---------------------------------------------------- For Against Abstain ---------- --------- ------- 44,775,728 6,352,715 167,842 (ii) Approved the amendment of the 1995 Stock Option Plan for Employees of Witco Corporation and its Subsidiaries. Votes ---------------------------------------------------- For Against Abstain ---------- --------- ------- 43,198,164 7,916,533 181,288 (iii) Ratified the appointment of Ernst & Young LLP as the company's independent auditors for 1996. Votes ---------------------------------------------------- For Against Abstain ---------- --------- ------- 50,774,062 463,388 58,835 (iv) Defeated a shareholder proposal requesting diversity on the Board of Directors. Votes ---------------------------------------------------- Against For Abstain ---------- --------- ------- 40,346,495 7,719,426 882,062 14 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 2 Not applicable 4 Not applicable 10 (i) Not applicable 11 Statement re computation of per share earnings 15 Letter re unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27 Financial Data Schedule (b) Reports on Form 8-K The company filed two Current Reports on Form 8-K, the first dated January 18, 1996, pertained to a charge against earnings in the fourth quarter ended December 31, 1995, related to plant consolidation, environmental remediation and litigation, and the second dated February 12, 1996 pertained to the company entering into a First Supplemental Indenture with the Chase Manhattan Bank, N.A., and Fleet National Bank of Connecticut appointing them as trustees for debentures and notes, respectively, issued on that date. 15 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. WITCO CORPORATION (Registrant) /s/ Michael D. Fullwood Date: May 10, 1996 ---------------------------------------------------- Michael D. Fullwood Executive Vice President and Chief Financial Officer /s/ Dustan E. McCoy Date: May 10, 1996 ---------------------------------------------------- Dustan E. McCoy Vice President - General Counsel and Corporate Secretary EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 WITCO CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF PER SHARE EARNINGS (Unaudited) Three Months Ended March 31, ------------------------ 1996 1995 --------- -------- (In Thousands Except Per Share Data) PRIMARY Income from Continuing Operations $25,581 $30,270 Dividend requirements of preferred stock (5) (5) ------- ------- Total 25,576 30,265 Income (loss) from Discontinued Operations - net of income taxes 340 (495) ------- ------- Net Income $25,916 $29,770 ======= ======= Weighted average shares outstanding 6,483 56,161 Assumed conversions: Stock options 412 195 ------- ------- Total 56,895 56,356 ======= ======= Per share amounts: Income from Continuing Operations $.45 $.54 Income (loss) from Discontinued Operations - net of income taxes .01 (.01) ------- ------- Net Income $.46 $.53 ======= ======= FULLY DILUTED Income from Continuing Operations $25,581 $30,270 Income (loss) from Discontinued Operations - net of income taxes 340 (495) ------- ------- Net Income $25,921 $29,775 ======= ======= Weighted average shares outstanding 56,483 56,161 Assumed conversions: Stock options 540 243 Preferred stock 115 122 ------- ------- Total 57,138 56,526 ======= ======= Per share amounts: Income from Continuing Operations $.44 $.54 Income (loss) from Discontinued Operations - net of income taxes .01 (.01) ------- ------- Net Income $.45 $.53 ======= ======= EX-15 3 FINANCIAL INFO LETTER EXHIBIT 15 LETTER RE: UNAUDITED FINANCIAL INFORMATION ACKNOWLEDGMENT LETTER May 10, 1996 The Board of Directors Witco Corporation We are aware of the incorporation by reference in the Registration Statement (Form S-3, No. 33-45865) and the Post-effective Amendment No. 2 to the Registration Statement (Form S-3, No. 33-58066), each pertaining to the issuance of debentures, the Post-effective Amendment No. 1 to the Registration Statement (Form S-3, No. 33-58120), pertaining to the issuance of common stock, the Registration Statement (Form S-3, No. 33-65203), pertaining to the issuance of notes and debentures, the Posteffective Amendment No. 2 to the Registration Statement (Form S-8, No. 33-10715), Post-effective Amendment No. 1 to the Registration Statements (Form S-8, Nos. 33-30995 and 33-45194), each pertaining to stock option plans of Witco Corporation, the Registration Statement (Form S-8, No. 33-48806), pertaining to an employee benefit plan of Witco Corporation, and the Registration Statement (Form S-8, No. 33-60755), pertaining to the 1995 Stock Option Plan for Employees of Witco Corporation and its Subsidiaries, of our report dated May 10, 1996 relating to the unaudited condensed consolidated interim financial statements of Witco Corporation and Subsidiary Companies which is included in its Form 10-Q for the quarter ended March 31, 1996. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not part of the registration statements prepared or certified by accountants within the meaning of Sections 7 or 11 of the Securities Act of 1933. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Stamford, Connecticut EX-27 4 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1,000 3-MOS DEC-31-1996 MAR-31-1996 120,054 0 453,254 8,486 317,205 949,248 1,417,406 596,946 2,784,422 696,626 681,167 0 7 282,772 736,265 2,784,422 589,425 589,425 448,345 448,345 0 710 17,669 43,090 17,509 25,581 340 0 0 25,921 .46 .45
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