-----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, SENxoiBFmZ4XDarbdWYLTvQpmaTdUmALS+X+6ypd/zAtDVgrtqAWYgiQp8I7gmLE yLa2aBF23FblfxtGfypxZg== 0000950117-97-001336.txt : 19970815 0000950117-97-001336.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950117-97-001336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660461 BUSINESS ADDRESS: STREET 1: ONE AMERICAN WAY CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2035522000 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 WITCO CORPORATION 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 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 1-4654 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) (203) 552-2000 (Registrant's telephone number, including area code) 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 July 31, 1997 ----- ---------------------------- Common Stock - $5 par value 57,318,849 WITCO CORPORATION FORM 10-Q For the quarterly period ended June 30, 1997
CONTENTS PAGE -------- ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets at June 30, 1997 (unaudited) and December 31, 1996 2 Condensed consolidated statements of operations (unaudited) for the three and six months ended June 30, 1997 and 1996 3 Condensed consolidated statements of cash flows (unaudited) for the six months ended June 30, 1997 and 1996 4 Notes to condensed consolidated financial statements (unaudited) 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 Vote on Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Index to Exhibits 17
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WITCO CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Per Share Data)
June 30, December 31 1997 1996 (a) ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 53,543 $ 59,201 Accounts and notes receivable-net 406,989 390,288 Inventories Raw materials and supplies $ 84,292 $ 99,112 Finished goods 164,874 249,166 185,388 284,500 -------- ---------- Deferred income taxes 81,485 92,490 Prepaid and other current assets 19,415 26,947 --------- ----------- TOTAL CURRENT ASSETS 810,598 853,426 --------- ---------- PROPERTY, PLANT, AND EQUIPMENT - less accumulated depreciation of $796,233 and $761,926 704,278 735,392 GOODWILL AND OTHER INTANGIBLE ASSETS - less accumulated amortization of $145,854 and $133,625 633,809 653,733 DEFERRED INCOME TAXES - 16,438 OTHER ASSETS 92,164 72,976 NET ASSETS OF DISCONTINUED OPERATIONS 48,190 59,740 ---------- ------------ TOTAL ASSETS $2,289,039 $2,391,705 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes and loans payable $ 44,786 $94,929 Accounts payable and other current liabilities 467,144 515,344 ----------- ---------- TOTAL CURRENT LIABILITIES 511,930 610,273 ----------- ---------- LONG-TERM DEBT 688,635 700,820 DEFERRED INCOME TAXES 10,357 -- DEFERRED CREDITS AND OTHER LIABILITIES 444,654 452,747 SHAREHOLDERS' EQUITY $2.65 Cumulative Convertible Preferred Stock, par value $1 per share Authorized - 14 shares Issued and outstanding - 6 shares 6 6 Common Stock, par value $5 per share Authorized - 100,000 shares Issued and outstanding - 57,187 shares and 56,763 shares 285,935 283,818 Capital in excess of par value 148,724 138,453 Equity adjustments: Foreign currency translation (16,262) 11,989 Pensions and other (6,521) (6,423) Retained earnings 221,581 200,022 ---------- ----------- TOTAL SHAREHOLDERS' EQUITY 633,463 627,865 ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,289,039 $2,391,705 ========== ==========
(a) The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date. See accompanying notes. 2 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- ------------------------------ (In thousands except per share data) 1997 1996 1997 1996 --------------- -------------- -------------- ------------- Net Sales $ 571,437 $ 571,458 $1,139,927 $1,160,883 Cost of Goods Sold 423,702 434,680 855,867 883,025 --------------- -------------- -------------- ------------- Gross Profit 147,735 136,778 284,060 277,858 Operating Expenses Selling expense 25,886 28,588 50,404 55,707 General and administrative expenses 39,611 36,480 77,849 71,907 Research and development 18,124 18,037 35,510 36,026 Other expenses (income) - net 6,767 5,507 10,917 6,788 Restructuring charge 3,220 - 6,758 - --------------- -------------- -------------- ------------- Total Operating Expenses 93,608 88,612 181,438 170,428 --------------- -------------- -------------- ------------- Operating Income from Continuing 54,127 48,166 102,622 107,430 Operations Other Expense (Income) - Net Interest expense 13,456 17,724 27,380 35,393 Interest income (1,317) (2,403) (1,987) (4,871) Other expense - net 1,347 901 2,211 1,874 --------------- -------------- -------------- ------------- Income from Continuing Operations before Income Taxes 40,641 31,994 75,018 75,034 Income Taxes 17,070 13,425 31,508 30,934 --------------- -------------- -------------- ------------- Income from Continuing Operations 23,571 18,519 43,510 44,100 Discontinued Operations: Income from Discontinued Operations - Net of Income Taxes of $ -, $ -, $ - and $283 - - - 340 Estimated Income (Loss) on Disposal - Net of Income Taxes (Benefit) of $6,274, $(43,612), $6,274 and $(43,612) 9,990 (68,253) 9,990 (68,253) --------------- -------------- -------------- ------------- Income (Loss) from Discontinued Operations 9,990 (68,253) 9,990 (67,913) --------------- -------------- -------------- ------------- Net Income (Loss) $ 33,561 $ (49,734) $ 53,500 $ (23,813) =============== ============== ============== ============= PER COMMON SHARE: PRIMARY Income from continuing operations $ .41 $ .33 $ .76 $ .77 Discontinued operations: Income from discontinued operations - net of income taxes - - - .01 Estimated income (loss) on disposal - net of income taxes (benefit) .17 (1.20) .17 (1.20) --------------- -------------- -------------- ------------- Net Income (Loss) $ .58 $ (.87) $ .93 $ (.42) =============== ============== ============== ============= PER COMMON SHARE: FULLY DILUTED Income from continuing operations $ .41 $ .32 $ .75 $ .77 Discontinued operations: Income from discontinued operations - net of income taxes - - - - Estimated income (loss) on disposal - net of income taxes (benefit) .17 (1.19) .17 (1,19) --------------- -------------- -------------- ------------- Net Income (Loss) $ .58 $ (.87) $ .92 $ (.42) =============== ============== ============== ============= Weighted average number of common shares and equivalents - primary 57,790 56,990 57,412 56,943 =============== ============== ============== ============= Dividends declared $ .28 $ .28 $ .56 $ .56 =============== ============== ============== =============
See accompanying notes. 3 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 1997 1996 ----------- --------- (In Thousands) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 105,444 $ 74,485 --------- --------- INVESTING ACTIVITIES Expenditures for property, plant, and equipment (59,107) (77,910) Proceeds from dispositions 17,761 13,650 Other investing activities 5,917 (2,521) --------- --------- Net Cash Used in Investing Activitities (35,429) (66,781) --------- --------- FINANCING ACTIVITIES Proceeds from borrowings 71,739 303,831 Payments on borrowings (122,428) (306,698) Dividends paid (31,873) (31,643) Proceeds from exercise of stock options 11,342 4,944 Other financing activities -- 70 --------- --------- Net Cash Used in Financing Activities (71,220) (29,496) --------- --------- Effects of Exchange Rate Changes on Cash and Cash Equivalents (4,453) (2,550) --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (5,658) (24,342) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,201 143,994 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,543 $ 119,652 ========= =========
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 and six month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's annual report on Form 10-K for the year ended December 31, 1996. The condensed consolidated financial statements at June 30, 1997, and for the three and six month periods ended June 30, 1997 and 1996, 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 - 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 statements of operations and as net assets of discontinued operations in the company's balance sheets. Total revenues for the three and six month periods ended June 30, 1997 and 1996 were $18,916,000 and $50,325,000, and $92,036,,000 and $179,215,000, respectively. The components of net assets of discontinued operations at June 30, 1997 are as follows: June 30, In Thousands 1997 - ------------ -------- Accounts and notes receivable - net $11,515 Inventories - net of LIFO reserve of $9,899 5,434 Property, plant, and equipment - net 30,889 Other assets and liabilities - net 352 ------- Net assets of discontinued operations $48,190 ======= Additional liabilities (including environmental liabilities) of the Lubricants Group to be retained as of June 30, l997 are included in "Accounts payable and other current liabilities" ($36,835,000) and "Deferred Credits and Other Liabilities" ($42,200,000). The three and six month periods ended June 30, 1997 include an adjustment to the provision recorded in 1996 for the loss on disposal associated with the Lubricants Group. The adjustment of $9,990,000 (net of income taxes), or $.17 per common share, is primarily the result of revised estimates from the sale of various Lubricants businesses. The three and six month periods ended June 30, 1996 include a provision for estimated loss on disposal (net of income tax benefit) of $68,253,000, or $1.20 per common share, associated with the divestiture of the Lubricants Group. On July 16, 1997, the company sold certain assets of the Golden Bear Division to the Golden Bear Acquisition Corporation for approximately $50 million subject to certain post-closing adjustments. 5 NOTE C - Other Matters On March 31, 1997, the company entered into a new five year revolving credit agreement totaling $500,000,000 with various banks. Borrowings on this facility are at various rate options to be determined at the time of borrowing. The facility contains covenants which are customary in agreements of this nature. The company is required to pay a facility fee of .075 percent per year on the total commitment. On April 2, 1997, the company's previously existing credit facility was terminated. On April 23, 1997, shareholders approved a Shareholder Value Incentive Plan (the "SVIP") under which 200,000 shares of Convertible Preferred Stock may be issued to selected officers and employees of the company and its subsidiaries and affiliates. The shares are each convertible into 10 shares of Common Stock if either one of certain targets is achieved by March 4, 2002. The targets under the SVIP are that either (i) the price per share of Common Stock, as reported on the New York Stock Exchange, has remained at or above $75 5/8 for a period of ten consecutive trading days; or (ii) the earnings per share of the company for any year is at least $4.50. As of June 30, 1997, the company granted rights to certain officers and employees for 171,000 shares of Convertible Preferred Stock having no par value under the SVIP. On July 23, 1997, the company and Ciba Specialty Chemicals Inc. signed a letter of intent to exchange its epoxy systems and adhesives business and Ciba's PVC heat stabilizers business in a one-for-one transaction. In February 1997, the Financial Accounting Standards Board issued Statement No. 128. Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the company will be required to change the method currently used to compute earnings per share, and to restate all prior periods. Under the new requirements for calculating basic (primary) earnings per share, the dilutive effect of stock options will be excluded. Statement No. 128 would not materially impact basic or fully diluted earnings per share for the three and six month periods ended June 30, 1997 and 1996. Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE D - Effective Tax Rate The effective tax rate of 42% for the three and six month periods ended June 30, 1997, as compared to the federal statutory tax rate of 35%, is primarily the result of state income taxes, goodwill amortization related to OSi Specialties, Inc. which is not deductible for income tax purposes and the effect of a change in the mix between domestic and foreign earnings. The effective tax rate of 42% and 41.2% for the three and six month periods ended June 30, 1996, as compared to the statutory tax rate of 35%, are primarily the result of state income taxes and goodwill amortization related to OSi Specialties, Inc. NOTE E - Financial Instruments The company enters into foreign currency forward contracts, currency swaps and other financial market instruments to hedge the effect of foreign currency fluctuations on the financial statements. The company executes foreign currency forward contracts with major financial institutions that are designated and effective as hedges of recorded transactions (principally foreign currency trade receivables and payables) which otherwise would expose the company to foreign currency risk. Realized and unrealized gains and losses on foreign currency forward contracts (including open, matured, and terminated contracts) that are designated and effective as hedges of recorded transactions are recognized in earnings and offset the impact of valuing recorded foreign currency trade payables and receivables. Unrealized gains or losses are cumulatively measured as the differential between the spot exchange rate at the contract's inception and the spot exchange rate as of the balance sheet date. Discounts or premiums (the difference between the current spot exchange rate and the contract exchange rate at the inception of the contract) on a foreign currency contract designated and effective as a hedge of recorded transactions is amortized over the contracts life. Realized and unrealized gains and losses on foreign currency contracts that are not designated and effective as hedges are included in income as other expenses (income) -net. The net asset or liability representing the fair value of open positions are included in accounts and notes receivables - net. The company uses foreign exchange swap contracts (principally denominated in German marks, Spanish pesetas, French francs and British pounds) that are designed to reduce its exposure to foreign currency risk from its net investment (includes long-term intercompany loans) in its international subsidiaries. These same contracts also fix the interest rates on the underlying long-term intercompany loans. For foreign currency contracts that are designated and effective as hedges, discounts or premiums (the differences between the current spot exchange rate and the forward exchange rate at inception of the contract) and realized and unrealized gains and losses (including those from open, matured, and terminated contracts), net of related taxes, are included in the cumulative translation adjustment account in shareholders' equity (the deferral accounting method). The related amounts due to of from counterparties are included in accounts and notes receivable - net. The net interest rate differentials that are paid or received are reflected as adjustments to interest expense. 6 NOTE F - Litigation and Environmental The company 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 June 30, 1997, the company was a PRP, or a defendant, in connection with 68 sites at which it is likely to incur environmental response costs as a result of actions brought against the company pursuant to the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), the federal Resource Conservation and Recovery Act ("RCRA") or similar state or local laws. With 24 exceptions, all of these sites involve one or more other 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 affect 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 June 30, 1997, the company's reserves for environmental remediation and compliance costs amounted to $208,899,000, reflecting the company's estimate of the costs to be incurred over an extended period of time in respect of those matters which are reasonably estimable. At June 30, 1997, $149,215,000 of the reserves are included in Deferred Credits and Other Liabilities on the Consolidated Balance Sheets. The company is a defendant in six similar actions arising out of the company's involvement in the polybutylene resin manufacturing business in the 1970's. Five of the following cases are currently pending in California state courts and one is pending in Texas state court: East Bay Municipal Utility District v. Mobil Oil Corporation, et al., filed in November 1993, and pending in Superior Court for the County of San Mateo, California; City of Santa Maria v. Shell Oil Company, et al., filed in May 1994, and pending in Superior Court for the County of San Luis Obispo, California; Nipomo Community Services District v. Shell Oil Company, et al., filed in May 1995, and pending in Superior Court for the County of Santa Barbara, California; Alameda County Water District v. Mobil Oil Corporation, et al., filed in April 1996, and Marin Municipal Water District v. Shell Oil Company, et al., filed in May 1996, both pending in Superior Court for the County of San Mateo; and City of Austin v. Shell Oil Company, et al., filed in June 1996, and pending in the District Court of Travis County, Texas. 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 in the California and Texas actions include breach of the California Unfair Practices Act and the Texas Deceptive Practices Act, respectively; breach of warranty, fraud and strict liability. It is possible that the company may be named as a defendant in future actions arising out of its past involvement in the polybutylene resin manufacturing business. 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, the company's results could be materially affected in future periods by the resolution of these contingencies. 7 INDEPENDENT ACCOUNTANTS' REVIEW REPORT To Board of Directors Witco Corporation We have reviewed the accompanying condensed consolidated balance sheet of Witco Corporation and Subsidiary Companies as of June 30, 1997, and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 1997 and 1996, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 1997 and 1996. 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, 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 31, 1997, except for Note 19, as to which the date is March 4, 1997, 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, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ ERNST & YOUNG LLP Stamford, Connecticut August 12, 1997 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND FINANCIAL RESOURCES Cash and cash equivalents decreased $5.7 million during the first six months of 1997 primarily as a result of the company's decision to pay down debt. During the fourth quarter of 1996, the company adopted a plan to restructure operations. In connection with the plan and other initiatives, the company recorded an after-tax charge of $310.6 million, of which approximately $130 million will require cash expenditures. As of June 30, 1997 approximately $16.8 million has been spent against reserves relating to this restructuring plan and other initiatives. On March 31, 1997, the company entered into a new five year credit agreement with various banks in the amount of $500 million. The new facility contains various covenants which are customary in agreements of this nature. Borrowings on this facility are at various rate options to be determined at the time of the borrowing. The company is required to pay a facility fee of .075 percent per year on the total commitment. The company plans to utilize the facility periodically for its various operating requirements and planned capital investment program. On April 2, 1997, the company's previously existing credit facility was terminated. As of June 30, 1997, $40,000,000 was outstanding on the new credit facility. On July 16, 1997, the company paid down the outstanding balance on the credit facility with proceeds from the sale of the Golden Bear Division of the Lubricants Group. CAPITAL INVESTMENTS AND COMMITMENTS Capital expenditures for the first six months of 1997 amounted to $59.1 million, as compared to $77.9 million during the same period of 1996. Capital expenditures related to continuing operations for the six months ended June 30, l997 and 1996 were $57 million and $70.8 million, respectively. The company expects capital expenditures during the remainder of the year will accelerate in conjunction with its restructuring plan and to be in the range of approximately $220 million for the year. CONTINGENCIES The company 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, cash flow or liquidity. 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. The company, however, does not expect the results of such proceedings or environmental matters to materially affect its competitive position. See Note F of Notes to Condensed Consolidated Financial Statements for additional details. DISCONTINUED OPERATIONS On September 11, 1995, the Company announced its intention to divest its Lubricants Group (see Note B of Notes to Condensed Consolidated Financial Statements for addition details). RESULTS FROM CONTINUING OPERATIONS Second quarter 1997 net sales of $571.4 million were unchanged from the second quarter of 1996. The effect of a comparatively stronger U.S. dollar, which had an adverse effect on current quarter sales of approximately $13.0 million, was offset by a 1.5 percent increase in volume and a favorable product sales mix. Income from continuing operations in the second quarter of 1997 rose to $23.6 million from $18.5 million for the comparable 1996 period. Gross margin for the second quarter of 1997 increased by 2 percentage points to 25.9 9 percent compared to the same quarter of 1996. This improvement was primarily attributable to lower raw material costs and restructuring driven reductions in manufacturing costs, including a significant reduction in depreciation expense. Lower selling and general and administrative expenses, excluding greater expenses associated with incentive compensation plans, also contributed to the increase in income over 1996. These positive impacts were partially offset by second quarter restructuring charges of $2.0 million after-tax (primarily plant expenditures at sites scheduled for closure which otherwise would have been capitalized) and increased accruals of $3.2 million after-tax attributable to new performance based incentive compensation plans. Net sales for the first six months of 1997 of $1.1 billion were $21.0 million, or approximately 2 percent lower than those reported for the comparable 1996 period. The comparatively stronger U.S. dollar, which accounted for approximately $33 million of the decline, the absence of $12.1 million of revenue from Witco Israel, which was disposed of at the end of the first quarter of 1996, and an approximate 1 percent decrease in volume, excluding Witco Israel, were the primary causes of this decline. A favorable product sales mix, attributable to market demand and an increased concentration on high value products, partially offset the negative influences. For the six month period ended June 30, 1997, income from continuing operations was $43.5 million compared to $44.1 million for the same period of 1996. First half 1997 income from continuing operations was adversely affected by $4.1 million of after-tax restructuring charges (primarily plant expenditures at sites scheduled for closure which otherwise would have been capitalized), first quarter after-tax costs of approximately $2.6 million relating to a fire and resulting temporary shut-down of the company's Petrolia, Pennsylvania, plant and higher after-tax accruals of $5.9 million associated with the company's new incentive compensation plans. Despite the higher costs attributable to the Petrolia fire, restructuring driven savings initiatives in manufacturing costs, including a significant reduction in depreciation expense, and a continued focus on high margin products resulted in a 1 percent improvement in gross margin. Income from continuing operations was also favorably affected by a $3.1 million after-tax decrease in net interest expense due to reductions in bank debt. SEGMENT INFORMATION Segment net sales and operating income for the second quarter and six months of 1997 and 1996 are set forth in the following table. The " Other" Classification represents net sales of Witco Israel, disposed of at the end of the first quarter 1996. Prior period segment information has been restated to conform with the current periods newly constituted segments.
Three Months Ended June 30, Six Months Ended June 30, (Unaudited - millions of dollars) 1997 1996 1997 1996 - ----------------------------------- --------------------------- --------------------------- - ----------------------------------- ------------ ------------- ------------- ------------ Net sales Oleochemicals & Derivatives $ 107.6 $ 107.7 $ 214.3 $ 217.5 Performance Chemicals 203.7 213.9 414.0 438.5 Polymer Chemicals 139.0 136.6 267.7 266.6 OrganoSilicones 121.1 113.3 243.9 226.2 Other - -- - 12.1 - ----------------------------------- ------------ ------------- ------------- ----------- Net sales $ 571.4 $ 571.5 $ 1,139.9 $1,160.9 - ----------------------------------- ------------ ------------- ------------- ----------- Operating income from continuing operations Oleochemicals & Derivatives $ 7.5 $ 7.8 $ 11.3 $ 14.5 Performance Chemicals 19.1 16.8 35.7 38.6 Polymer Chemicals 21.5 13.5 37.9 28.6 OrganoSilicones 16.0 16.1 34.1 33.8 Other (10.0) (6.0) (16.4) (8.1) - ----------------------------------- ------------ ------------- ------------- ----------- Operating income from continuing operations $ 54.1 $ 48.2 $ 102.6 $ 107.4 - ----------------------------------- ------------ ------------- ------------- ------------
10 OLEOCHEMICALS & DERIVATIVES Oleochemicals & Derivatives' second quarter net sales of $107.6 million were down slightly from the corresponding quarter of 1996. An approximate 4 percent increase in volume was offset by the impact of the comparatively stronger U.S. dollar, a decrease in the market value of glycerin and competitive pressure in the basic oleochemical market. Second quarter operating income for Oleochemicals & Derivatives of $7.5 million was $.3 million below the same period of the prior year. Decreased operating income attributable to lower margins resulting from the competitive pressure in the basic oleochemical portion of the business and continued softness in the glycerin market was partially offset by the effect of an increase in shipment volume and restructuring driven reductions in operating expenses. Oleochemicals & Derivatives net sales for the six months ended June 30, 1997 declined $3.2 million, or 1.5 percent, to $214.3 million compared to 1996. An increase in volume of approximately 3 percent was offset by the comparatively stronger U.S. dollar and an erosion of sales prices due to the soft glycerin market and competitive pressure in the basic oleochemical business. Operating income for the Oleochemicals & Derivatives segment for the six months ending June 30, 1997 of $11.3 million was $3.2 million less than the same period of 1996. The decline in operating income was primarily a result of a reduction in sales, as noted above, combined with higher incentive compensation plan accruals. PERFORMANCE CHEMICALS This segment's second quarter net sales of $203.7 million were down $10.2 million, or approximately 5 percent, compared to the prior year. The decline was due to lower selling prices in certain sectors of the business, the impact of the comparatively stronger U.S. dollar and an approximate 1 percent decrease in volume which was mainly attributable to the exiting of selected product lines and the residual effect of the Petrolia Plant fire. Second quarter operating income for Performance Chemicals of $19.1 million was adversely affected by $3.1 million of restructuring charges. Excluding these charges, operating income increased by $5.5 million compared to the second quarter of 1996. This increase was a result of continued reductions in raw material costs and restructuring driven declines in manufacturing costs, predominantly due to lower depreciation, and operating expenses. A continued focus on higher margin products also contributed to the improvement in segment operating income. For the first six months of 1997 Performance Chemicals reported net sales of $414.0 million, a decrease of $24.5 million, or 5.6 percent, compared to the same period of 1996. The lower sales were primarily a result of an approximate 5 percent decline in volume, mainly attributable to the Petrolia Plant fire and resulting temporary shut-down, the exiting of selected product lines and the comparatively stronger U.S. dollar. Operating income for Performance Chemicals for the six months ended June 30, 1997 of $35.7 million included a $6.1 million restructuring charge (primarily plant expenditures at sites scheduled for closure which otherwise would have been capitalized). Operating income excluding this charge was up $3.3 million, or approximately 9 percent, compared to the same period of the prior year mainly due to lower costs and a greater emphasis on high margin products. A reduction in raw material costs combined with restructuring related declines in manufacturing costs which was mainly due to lower depreciation, and lower operating expenses, resulted in a higher operating margin. These cost reductions were partially offset by increased expenses associated with the Petrolia Plant fire. POLYMER CHEMICALS Second quarter 1997 net sales for Polymer Chemicals of $139.0 million were $2.4 million ahead of 1996. The increase was attributable to a favorable product sales mix and an approximate 2 percent increase in volume, partially offset by the comparatively stronger U.S. dollar. This segment's second quarter 1997 operating income of $21.5 million was $8.0 million above 1996 mainly due to an improved gross margin. This improvement was a result of restructuring related manufacturing cost reductions, lower raw material costs and reduced sales of low margin products. 11 Polymer Chemicals' net sales for the first six months of 1997 of $267.8 million were comparable to the prior year. The effect of a favorable product sales mix and an approximate 2 percent increase in volume was offset by the comparatively stronger U.S. dollar. Operating income for the Polymer Chemicals segment for 1997 rose approximately 33 percent to $37.9 million from $28.6 million in 1996. An improvement in gross margin which was attributable to lower manufacturing costs resulting from restructuring initiatives, reduced raw material costs and the "pruning" of lower margin products, accounted for the increase in operating income. ORGANOSILICONES OrganoSilicones' second quarter 1997 net sales of $121.1 million rose $7.8 million, or 6.9 percent, compared to the same period of 1996. The increase was due to an approximate 18 percent increase in volume, partially offset by an unfavorable product sales mix and the comparatively stronger U.S. dollar. Second quarter 1997 operating income of $16.0 million was down $.1 million compared to the second quarter of 1996. The effect of an increase in shipment volume was offset by higher incentive compensation plan accruals, the comparatively stronger U.S. dollar and an unfavorable product sales mix. Net sales for the OrganoSilicones segment for the first six months of 1997 of $243.8 million were $17.6 million, or 7.8 percent, ahead of the same 1996 period. Sales were up on the strength of an approximate 13 percent increase in volume, the effect of which was partially offset by the comparatively stronger U.S. dollar and an unfavorable product sales mix. OrganoSilicones' operating income for the six months ended June 30, 1997 of $34.1 million was $.3 million above the operating income reported for the same period of the prior year. Although sales were up over the prior year on the strength of increased shipments, higher corporate charges, the most predominant being incentive compensation plan accruals, resulted in operating income rising a modest 1 percent. OUTLOOK The company is optimistic that results from continuing operations in 1997 will exceed 1996 results. The principal reason for this optimism is the anticipated successful implementation of the 1997 portion of the 1996 restructuring plan, which will reduce the company's fixed and variable costs. While the full extent of the reductions will not be realized until 2000, positive reductions in the company's cost structure are expected in 1997. The company will continue to aggressively pursue implementation of the 1996 restructuring plan, and, following its completion, the company believes it will achieve its long-term financial goals: revenues of up to $3.0 billion within five years; gross margins to exceed 30%; operating margins in the mid-teens; earnings per share growth sufficient to maintain return on equity greater than 20%; debt to total capitalization of 30-45%; and, a return on capital employed greater than the company's cost of capital so that shareholder value will increase. Statements made in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section are "forward looking statements" that involve certain risks and uncertainties. The factors that could cause actual results to differ materially from those presented herein include, without limitation, the company's ability to generate appropriate cash flows, the cost and timing of the implementation of certain capital improvements, the cost and timing associated with the planned reduction in production facilities and workforce, the impact of cost savings initiatives, the company's ability to effectively divest certain assets, the cost of environmental remediation and compliance efforts, technological or competitive changes in any of the company's businesses, inability to reach agreement with third parties on planned business arrangements, certain global and regional economic conditions and other factors listed from time to time in the company's other Securities and Exchange Commission filings. 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company 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 June 30, 1997, the company was a PRP, or a defendant, in connection with 68 sites at which it is likely to incur environmental response costs as a result of actions brought against the company pursuant to the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), the federal Resource Conservation and Recovery Act ("RCRA") or similar state or local laws. With 24 exceptions, all of these sites involve one or more other 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 affect 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 six similar actions arising out of the company's involvement in the polybutylene resin manufacturing business in the 1970's. Five of the following cases are currently pending in California state courts and one is pending in Texas state court: East Bay Municipal Utility District v. Mobil Oil Corporation, et al., filed in November 1993, and pending in Superior Court for the County of San Mateo, California; City of Santa Maria v. Shell Oil Company, et al., filed in May 1994, and pending in Superior Court for the County of San Luis Obispo, California; Nipomo Community Services District v. Shell Oil Company, et al., filed in May 1995, and pending in Superior Court for the County of Santa Barbara, California; Alameda County Water District v. Mobil Oil Corporation, et al., filed in April 1996, and Marin Municipal Water District v. Shell Oil Company, et al., filed in May 1996, both pending in Superior Court for the County of San Mateo; and City of Austin v. Shell Oil Company, et al., filed in June 1996, and pending in the District Court of Travis County, Texas. 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 in the California and Texas actions include breach of the California Unfair Practices Act and the Texas Deceptive Practices Act, respectively; breach of warranty, fraud and strict liability. It is possible that the company may be named as a defendant in future actions arising out of its past involvement in the polybutylene resin manufacturing business. 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, the company's results could be materially affected in future periods by the resolution of these contingencies. 13 ITEM 4. Submission of Matters to Vote of Security Holders (a) The company's Annual Meeting of Shareholders was held on April 23, 1997, at the offices of the company. One American Lane, Greenwich, Connecticut beginning at 10:30 a.m. (b) At the Annual Meeting, the company's shareholders elected three directors to serve a term expiring in 2000 as follows:
Votes For Withheld ----------------- ---------------- Simeon Brinberg 47,491,712 654,870 William R. Grant 47,402,286 744,296 Richard H. Hayden 47,562,761 583,821
Directors who did not stand for election and continue in office until the 1998 Annual Meeting are: William G. Burns, E. Gary Cook, and William Wishnick. Directors who did not stand for election and continue in office until the 1999 Annual Meeting are: Harry G. Hohn, Dan J. Samuel and Bruce F. Wesson. At a meeting of the Board of Directors held on April 23, 1997. Bruce R. Bond, President and Chief Executive Officer of ANS, an America Online Company, was named to the company's board of Directors for a term expiring in 1998. (c) In addition to the election of directors, at the Annual Meeting the company's shareholders: (i) Ratified the appointment of Ernst & Young LLP as the company's independent auditors for 1997. Votes For Against Abstain -------------------------- --------------------------- ------------------- 48,080,827 39,092 26,663 (ii) Approved the adoption of the Witco Corporation Shareholder Value Incentive Plan. Votes For Against Abstain -------------------------- --------------------------- ------------------- 39,254,620 6,488,514 147,801 (iii) Approved the adoption of the Witco Corporation 1997 Stock Incentive Plan. Votes For Against Abstain -------------------------- --------------------------- ------------------- 37,748,831 7,976,419 164,685 (iv) Approved the adoption of the Witco Corporation Officers' Annual Incentive Plan. Votes For Against Abstain -------------------------- --------------------------- ------------------- 39,819,326 5,879,485 192,124 14 ITEM 6. Exhibits and Reports on Form 8-K (a)Exhibits 11 Statement re computation of per share earnings 15 Letter re unaudited interim financial information 27 Financial Data Schedule (b)Reports on Form 8-K The company filed a Current Report on Form 8-K on June 25, 1997 pertaining to the company revising its business segments into four groups, thereby reclassifying its segment reporting for net sales and operating income (loss) from continuing operations for the quarters ended March 31, 1996, June 30, 1996, September 30, 1996 and December 31, 1996, respectively, and for the year ended December 31, 1996. 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/ PETER J. BIANCOTTI Date: August 14, 1997 ______________________________________ Peter J. Biancotti Controller - Chief Accounting Officer /s/ DUSTAN E. MCCOY Date: August 14, 1997 ______________________________________ Dustan E. McCoy Senior Vice President, General Counsel and Corporate Secretary 16 WITCO CORPORATION INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ----------------- ------------------------------------------------- 11 Statement re computation of per share earnings 15 Letter re unaudited interim financial information 27 Financial Data Schedule 17 EX-11 2 EXHIBIT 11 EXHIBIT 11 WITCO CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF PER SHARE EARNINGS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (In Thousands Except Per Share Data) PRIMARY Income from Continuing Operations $ 23,571 $ 18,519 $ 43,510 $ 44,100 Dividend requirements of preferred stock (4) (4) (8) (9) -------- -------- -------- -------- Total 23,567 18,515 43,502 44,091 Income (Loss) from Discontinued Operations 9,990 (68,253) 9,990 (67,913) -------- -------- -------- -------- Net Income (Loss) $ 33,557 $(49,738) $ 53,492 $(23,822) ======== ======== ======== ======== Weighted average shares outstanding $ 57,101 $ 56,585 $ 56,977 $ 56,534 Assumed conversions: Stock options 689 405 435 409 -------- -------- -------- -------- Total $ 57,790 $ 56,990 $ 57,412 $ 56,943 ======== ======== ======== ======== Per share amounts: Income from Continuing Operations $ .41 $ .33 $ .76 $ .77 Income (Loss) from Discontinued Operations .17 (1.20) .17 (1.19) -------- -------- -------- -------- Net Income (Loss) $ .58 $ (.87) $ .93 $ (.42) ======== ======== ======== ======== FULLY DILUTED Income from Continuing Operations $ 23,571 $ 18,519 $ 43,510 $ 44,100 Income (Loss) from Discontinued Operations 9,990 (68,253) 9,990 (67,913) -------- -------- -------- -------- Net Income (Loss) $ 33,561 $(49,734) $ 53,550 $(23,813) ======== ======== ======== ======== Weighted average shares outstanding $ 57,101 $ 56,585 $ 56,977 $ 56,534 Assumed conversions: Stock options 731 462 765 475 Preferred stock 108 114 108 115 -------- -------- -------- -------- Total $ 57,940 $ 57,161 $ 57,850 $ 57,124 ======== ======== ======== ======== Per share amounts: Income from Continuing Operations $ .41 $ .32 $ .75 $ .77 Income (Loss) from Discontinued Operations .17 (1.19) .17 (1.19) -------- -------- -------- -------- Net Income (Loss) $ .58 $ (.87) $ .92 $ (.42) ======== ======== ======== ========
EX-15 3 EXHIBIT 15 EXHIBIT 15 LETTER RE: UNAUDITED FINANCIAL INFORMATION ACKNOWLEDGMENT LETTER August 12, 1997 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 Post-effective 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, the Registration Statement (Form S-8, No. 33-60755), pertaining to the 1995 Stock Option Plan for Employees of Witco Corporation and its Subsidiaries, the Post-effective Amendment No. 1 to the Registration Statement (Form S-8, No. 333-05509), pertaining to the 1995 Stock Option Plan for Employees of Witco Corporation and its Subsidiaries, and the Registration Statement (Form S-8, No. 333-33221) pertaining to the Witco Corporation 1997 Stock Incentive Plan of our report dated August 12, 1997 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 June 30, 1997. 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 Stamford, Connecticut EX-27 4 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 53,543 0 425,450 18,461 249,166 810,598 1,500,511 796,233 2,289,039 511,930 688,635 285,935 0 6 347,522 2,289,039 1,139,927 1,139,927 855,867 855,867 0 1,296 27,380 75,018 31,508 43,510 9,990 0 0 53,500 .93 .92 -----END PRIVACY-ENHANCED MESSAGE-----