-----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, K5UhW8RLH7q9aLeJz7cKK/4doMu2PvSw2DDuHl0T4sZIczbwn87y4XKmwOap4xFw IKHerwzKS/buSRm9/CKsFA== 0000950117-98-001068.txt : 19980518 0000950117-98-001068.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950117-98-001068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 001-04654 FILM NUMBER: 98623123 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 March 31, 1998 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 April 30, 1998 ----- ----------------------------- Common Stock - $5 par value 57,598,352
WITCO CORPORATION FORM 10-Q For the quarterly period ended March 31, 1998
CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets at March 31, 1998 (unaudited) and December 31, 1997 2 Condensed consolidated statements of operations (unaudited) for the three months ended March 31, 1998 and 1997 3 Condensed consolidated statements of cash flows (unaudited) for the three months ended March 31, 1998 and 1997 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 12 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Index to Exhibits 16
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 1998 1997 (a) ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 23,432 $ 96,383 Accounts and notes receivable-net 376,811 383,758 Inventories Raw materials and supplies $ 79,056 $ 72,528 Finished goods 169,802 248,858 162,806 235,334 ----------- ----------- Deferred income taxes 47,776 47,036 Prepaid assets 24,226 27,128 ----------- ----------- TOTAL CURRENT ASSETS 721,103 789,639 ----------- ----------- PROPERTY, PLANT, AND EQUIPMENT - less accumulated depreciation of $729,083 and $766,241 802,166 780,390 GOODWILL AND OTHER INTANGIBLE ASSETS - less accumulated amortization of $163,008 and $157,703 614,396 621,619 DEFERRED INCOME TAXES 106 6,981 DEFERRED COSTS AND OTHER ASSETS 99,642 99,023 ----------- ----------- TOTAL ASSETS $ 2,237,413 $ 2,297,652 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes and loans payable $ 93,487 $ 52,834 Accounts payable and other current liabilities 413,454 515,531 ----------- ----------- TOTAL CURRENT LIABILITIES 506,941 568,365 ----------- ----------- LONG-TERM DEBT 640,435 645,101 DEFERRED CREDITS AND OTHER LIABILITIES 443,490 439,906 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 - 57,593 shares and 57,503 shares 287,963 287,516 Capital in excess of par value 160,501 157,980 Accumulated other comprehensive income and other (36,538) (31,352) Retained earnings 235,177 230,832 Treasury stock, at cost - 13 shares and 15 shares (562) (702) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 646,547 644,280 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,237,413 $ 2,297,652 =========== ===========
(a) The balance sheet at December 31, 1997 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 March 31 -------------------------- 1998 1997 --------- --------- (in thousands except per share data) Net Sales $ 507,374 $ 568,490 Cost of Goods Sold 380,220 432,165 --------- --------- Gross Profit 127,154 136,325 Operating Expenses Selling expense 25,712 24,518 General and administrative expenses 34,032 38,238 Research and development 17,885 17,386 Other expenses (income) - net 1,020 4,150 Restructuring charges 2,262 3,538 --------- --------- Total Operating Expenses 80,911 87,830 --------- --------- Operating Income 46,243 48,495 Other Expense (Income) - Net Interest expense 11,990 13,924 Interest income (1,320) (670) Other expense - net 921 864 --------- --------- Income before Income Taxes 34,652 34,377 Income Taxes 14,207 14,438 --------- --------- Net Income $ 20,445 $ 19,939 ========= ========= Net Income Per Common Share: Basic $ .36 $ .35 ========= ========= Average Number of Common Shares: Basic 57,443 56,832 ========= ========= Net Income Per Common Share: Diluted $ .35 $ .35 ========= ========= Average Number of Common Shares: Diluted 58,334 57,172 ========= ========= 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 ---------------------- 1998 1997 -------- -------- (In thousands) NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $(73,393) $ 19,100 -------- -------- INVESTING ACTIVITIES Expenditures for property, plant, and equipment (52,271) (25,433) Proceeds from dispositions 21,770 17,761 Other investing activities 6,256 -- -------- -------- Net Cash Used in Investing Activities (24,245) (7,672) -------- -------- FINANCING ACTIVITIES Proceeds from borrowings 55,288 40,555 Payments on borrowings (16,567) (61,154) Dividends paid (16,076) (15,948) Proceeds from exercise of stock options 2,771 7,090 Other financing activities -- 153 -------- -------- Net Cash Provided by (Used in) Financing Activities 25,416 (29,304) -------- -------- Effects of Exchange Rate Changes on Cash and Cash Equivalents (729) (2,958) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (72,951) (20,834) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 96,383 59,201 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,432 $ 38,367 ======== ========
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, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 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, 1997. The condensed consolidated financial statements at March 31, 1998, and for the three month periods ended March 31, 1998 and 1997, 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 -Comprehensive Income As of January 1, 1998, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 130, "Reporting Comprehensive Income". Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. Statement No. 130 requires foreign currency translation and minimum pension liability adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement No. 130. The components of comprehensive income, net of related tax, for the three-month periods ended March 31, 1998 and 1997 are as follows:
(in thousands of dollars) Three Months Ended March 31 1998 1997 -------- -------- Net income $ 20,445 $ 19,939 Foreign currency translation adjustments (5,176) (17,511) -------- -------- Comprehensive income $ 15,269 $ 2,428 ======== ========
The components of accumulated other comprehensive income and other, net of related tax, at March 31, 1998 and December 31, 1997 are as follows:
(in thousands of dollars) 1998 1997 -------- -------- Foreign currency translation adjustments $(32,557) $(27,381) Pension - minimum liability adjustments (1,990) (1,990) -------- -------- Accumulated other comprehensive income (34,547) (29,371) Other - restricted stock compensation (1,991) (1,981) -------- -------- Accumulated other comprehensive income and other $(36,538) $(31,352) ======== ========
Note C - Changes in Accounting Principles In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pension and Other Postretirement Benefits." This Statement revises the Company's annual disclosures for its employers' pension and other postretirement benefit plans. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. Restatement of disclosures for earlier periods is required. This Statement is effective for the Company's annual financial statements for the year ending December 31, 1998. 5 NOTE C - Changes in Accounting Principles (continued) In June of 1997, FASB issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information". Statement No. 131 is required to be adopted for fiscal years beginning after December 15, 1997 and will be reflected in the Company's 1998 Form 10K and annual report. Statement No. 131 will require the Company to disclose revenues, earnings and other financial information pertaining to the business segments by which the Company is managed, as well as what factors management used to determine these segments. The Company is currently evaluating the effects Statement No. 131 will have on its financial statements and related disclosures. NOTE D - Effective Tax Rate The effective tax rate of 41.0% and 42.0% for the three month periods ended March 31, 1998 and 1997, respectively, as compared to the federal statutory tax rate of 35%, is higher primarily as a result of state income taxes, goodwill amortization related to OSi Specialties, Inc. which is not deductible for income tax purposes and the effect of the mix between domestic and foreign earnings. Note E - Earnings Per Share The following is an illustration of the reconciliation of the numerators and denominators of basic and diluted EPS computations and other related disclosures.
(in thousands of dollars and shares, except per share amounts) Three Months Ended March 31 1998 1997 -------- -------- Numerator: Net income $ 20,445 $ 19,939 Convertible preferred stock dividends (4) (4) -------- -------- Numerator for basic earnings per share - income available to common shareholders 20,441 19,935 Effect of dilutive securities: Convertible preferred stock dividends 4 4 -------- -------- Numerator for diluted earnings per share - income available to common shareholders after assumed conversions $ 20,445 $ 19,939 ======== ======== Denominator: Denominator for basic earnings per share - weighted-average shares 57,443 56,832 Effect of dilutive securities: Employee stock options 711 172 Cumulative convertible preferred stock 103 109 Restricted shares 77 59 -------- -------- Dilutive potential common shares 891 340 -------- -------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 58,334 57,172 ======== ======== Basic Earnings Per Share $ 0.36 $ 0.35 ======== ======== Diluted Earnings Per Share $ 0.35 $ 0.35 ======== ========
NOTE F - Other Matters In May 1998, the Company announced that it would continue production at its Fort Worth, Texas, manufacturing facility rather than shift production to its Gretna, Louisiana, facility as previously announced in the 1996 restructuring initiatives. The Company is evaluating the effect of this decision on its previously recorded restructuring charge. NOTE G - 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 March 31, 1998, the Company was a PRP, or a defendant, in connection with 61 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 6 NOTE G - Litigation and Environmental (continued) Act ("CERCLA"), the federal Resource Conservation and Recovery Act ("RCRA") or similar state or local laws. With 23 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 March 31, 1998, the Company's reserves for environmental remediation and compliance amounted to $173,644,000, 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 March 31, 1998, $147,788,000 of the reserves are included in "Deferred Credits and Others Liabilities". 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 or liquidity. However, the Company's operating results or cash flow could be materially affected in future periods by the resolution of these contingencies. 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, 1998, and the related condensed consolidated statements of operations for the three-month periods ended March 31, 1998 and 1997, and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 1998 and 1997. 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, 1997, 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 February 2, 1998, 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, 1997, 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 May 11, 1998 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND FINANCIAL RESOURCES Cash and cash equivalents decreased $73.0 million during the first three months of 1998 primarily as a result of expenditures associated with the 1996 restructuring plan and other initiatives, which include capital expenditures. As of March 31, 1998 approximately $54.5 million, including $10.4 million in 1998, has been spent against reserves relating to this restructuring plan and other initiatives. The Company has a credit agreement with various banks in the amount of $500 million, of which $50 million has been utilized at March 31, 1998. The Company plans to utilize the facility periodically for its various operating requirements and planned capital investment program. It is the Company's belief that annual cash flows from operations, along with the flexibility provided by the credit agreement, will be sufficient to fund, for the foreseeable future, capital investments, dividend payments, commitments on environmental remediation projects, and operating requirements. CAPITAL INVESTMENTS AND COMMITMENTS Capital expenditures for the first three months of 1998 amounted to $52.3 million, primarily due to restructuring related projects, as compared to $25.4 million during the same period of 1997. The Company expects capital expenditures to be approximately $265 million for the year. The Company is currently in the process of addressing date sensitive systems issues associated with the Year 2000. In connection with the Company's 1996 restructuring initiative, the Company began a worldwide business process redesign and new technology implementation project (Project "EDGE") which is expected to be completed in mid-1999. It is anticipated that these new systems, which are Year 2000 compliant, will replace substantially all of the Company's business computer programs. The remaining business application programs will be made compliant through the efforts of internal resources and third party vendors. The cost of becoming Year 2000 compliant for these additional business application programs is not expected to be material to the Company's future cash flow or results of operations. The majority of the business applications addressed through the "EDGE" Project are scheduled to be completed by July 1999, with a few software programs scheduled to be replaced near the end of that year. The Company is also identifying and prioritizing critical suppliers and customers and will follow up with them concerning their plans and progress in addressing the Year 2000 problem. The total costs associated with Project "EDGE" are expected to be approximately $78 million (including $60 million of capital expenditures). Through March 31, 1998 approximately $41 million has been incurred ($31 million capitalized and $10 million expensed), including expenditures of $10 million in 1998 ($9 million capitalized and $1 million expensed). The Company has ascertained that failure to alleviate the Year 2000 problems within its application systems could result in possible system failure or miscalculations causing disruptions of operations, including, among other things, temporary inability to process transactions, send invoices, or engage in similar normal business activities. These problems could be substantially alleviated with manual processing. However, this would cause delays and possible lost production days. The Company is currently evaluating the Year 2000 readiness of its equipment with a comprehensive inventory of monitoring and control devices for plants, safety systems and other similar operating installations. Based on a preliminary review, the Company does not expect costs associated with "system" upgrades and modifications to have a material effect on its future cash flow or results of operations. 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 or liquidity. It is possible, however, that future cash flow or 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 G of Notes to Condensed Consolidated Financial Statements for additional details. 9 RESULTS FROM CONTINUING OPERATIONS First quarter 1998 net sales of $507.4 million were $61.1 million, or 11 percent, lower than the corresponding quarter of 1997. Of the total decline, approximately $28 million was expected and attributable to the absence of non-strategic, non-specialty products and product lines which were divested and/or exited during 1997. An additional $20 million was due to the comparatively stronger U.S. dollar and approximately $12 million to substantially weaker economic conditions in the Asia/Pacific region. The Company also experienced some softness in selected markets which was partially offset by a more favorable product sales mix in others. Volume was down approximately 13 percent from the prior year, which on a pro forma basis adjusted for the divested and/or exited products and product lines, declined approximately 5 percent. Net income for the first quarter of 1998 of $20.4 million was $.5 million greater than the first quarter of 1997. First quarter net income included the negative impact of approximately $6.0 million due to lower revenues in the Asia/Pacific region, the comparatively stronger U.S. dollar and the divestiture and/or exiting of non-strategic, non-specialty products and product lines. Offsetting these negative items were cost savings attributable to the Company's previously announced three-year restructuring program, a gain on the disposition of an investment, and lower net interest expense. SEGMENT INFORMATION Segment net sales and operating income for the first quarter of 1998 and 1997 are set forth in the following table.
Three Months Ended March 31 (unaudited - in millions) 1998 1997 ------------- ------------- Net sales Oleochemicals & Derivatives $ 94.1 $106.8 Performance Chemicals 177.6 210.3 Polymer Chemicals 124.0 128.7 OrganoSilicones 111.7 122.7 ------------- ------------- Net sales $ 507.4 $568.5 ============= ============= Operating income Oleochemicals & Derivatives $ - $ 3.9 Performance Chemicals 20.0 16.6 Polymer Chemicals 17.8 16.4 OrganoSilicones 11.8 18.1 Corporate and unallocated (3.4) (6.5) ------------- ------------- Operating income $ 46.2 $ 48.5 ============= =============
OLEOCHEMICALS & DERIVATIVES Oleochemicals & Derivatives' first quarter 1998 net sales of $94.1 million were $12.7 million, or 12 percent, lower than the same quarter of 1997. The decrease in net sales was the result of: a 4 percent decline in volume, approximately half of which was attributable to the third quarter 1997 divestiture of the food emulsifiers business, the weak economic conditions in the Asia/Pacific region also significantly contributed to the lower volume; the comparatively stronger U.S. dollar; and a soft glycerin market. First quarter 1998 operating income for Oleochemicals & Derivatives was down $3.9 million compared to the corresponding quarter of 1997. This decline was attributable to the lower sales volume and the reduced market value of glycerin. PERFORMANCE CHEMICALS Performance Chemicals was the segment most affected by the divesting and/or exiting of non-strategic, non-specialty products and product lines. Net sales for the first quarter of 1998 of $177.6 million were $32.7 million, or 16 percent, less than the same period of 1997. This decrease was due to: the absence of revenue from pruned products and product lines; weak economic conditions in the Asia/Pacific region; the comparatively stronger U.S. dollar; and softness in selected markets. These negative items were partially offset by the recovery of sales lost in 1997 due to a fire at the Company's Petrolia, Pennsylvania plant. Volume was down approximately 20 percent from the prior year, of which approximately 12 percent was due to the divested and/or exited products and product lines. Performance Chemicals' operating income of $20.0 million for the first quarter of 1998 represented an increase of $3.4 million, or 20 percent, compared to the first quarter of 1997. Despite the decline in net sales, which included the absence of low margin products and product lines which were divested and/or exited, operating income rose primarily due to the absence of costs resulting from the 1997 Petrolia fire. Additionally, reductions in both restructuring charges and general and administrative expenses also contributed to the increase in operating income. 10 POLYMER CHEMICALS First quarter 1998 Polymer Chemicals' net sales of $124.0 million were down $4.7 million, or 4 percent, compared to the first quarter of 1997. This decline was due to the comparatively stronger U.S. dollar and the pruning of non-strategic low margin products and product lines. Shipments were approximately 6 percent below the previous year, of which all but 1 percent was attributable to the pruning of non-strategic low margin products and product lines. First quarter 1998 Polymer Chemicals' operating income of $17.8 million was $1.4 million, or 9 percent, above the first quarter of 1997. The higher operating income was mainly due to an improvement in product sales mix and higher prices, coupled with a reduction in general and administrative expenses. Partially offsetting these favorable items was the impact of the comparatively stronger U.S. dollar. ORGANOSILICONES OrganoSilicones' first quarter 1998 net sales declined $11.0 million, or 9 percent, to $111.7 million as compared to the first quarter of 1997. This decrease was due primarily to the comparatively stronger U.S. dollar, weak economic conditions in the Asia/Pacific region and softness in U.S. markets, partially offset by a more favorable product sales mix. Shipments were approximately 2 percent behind the prior year. Current quarter operating income for OrganoSilicones of $11.8 million was $6.3 million below the same period of 1997. This decline was primarily attributable to lower sales volume, the unfavorable impact of the comparatively stronger U.S. dollar and higher unit costs associated with lower production volume. OUTLOOK The Company is optimistic that results from continuing operations in 1998 will exceed 1997 results. The Company expects to meet the overall goals of the 1996 three year restructuring plan, which will reduce the Company's fixed and variable costs. In addition, the Company will begin a transition during 1998 to focus on growth as well as cost reduction. While the full extent of the cost reductions will not be realized until 2000, the Company's implementation plan is progressing well. In 1997, the Company met its initial goal of achieving 50%, on a run rate basis, of its three year savings objective. The capital spending portion of the plan, however, is somewhat behind schedule, primarily as a result of an increased emphasis on proper scope definition and enhanced upfront planning. Capital spending in 1997 was below plan, but will be made up in 1998 and 1999 to keep the restructuring plan on track. Primarily as a result of this shift in the timing of the capital spending, it is expected that total debt at the end of 1998 will be above the year-end 1997 level. The Company will continue to aggressively pursue implementation of the restructuring plan and, following its completion, the Company believes it will achieve its long-term financial goals. 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. 11 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 March 31, 1998, the Company was a PRP, or a defendant, in connection with 61 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 23 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 or liquidity. However, the Company's operating results or cash flow could be materially affected in future periods by the resolution of these contingencies. 12 ITEM 4. Submission of Matters to a Vote of Security Holders (a) The Company's Annual Meeting of Shareholders was held on April 22, 1998, 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 six directors to serve terms expiring in 2001, except for Roger Sharp's term which will expire in 2000, as follows:
Votes ------------------------------------- For Withheld ----------------- ---------------- Bruce R. Bond 51,080,280 1,121,401 William G. Burns 51,906,608 295,073 E. Gary Cook 51,934,053 267,628 Louise Goeser 51,444,832 756,849 Roger L. Sharp 51,937,966 263,715 William Wishnick 51,811,510 390,171
Directors who did not stand for election and continue in office until the 1999 Annual Meeting are: Donald L. Blankenship, Harry G. Hohn, Dan J. Samuel and Bruce F. Wesson. Directors who did not stand for election and continue in office until the 2000 Annual Meeting are: Simeon Brinberg, William Grant, Richard Hayden and Nicholas Pappas. (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 1998.
Votes ------------------------------------------------------- For Against Abstain ----------------- ----------------- ----------------- 52,117,512 33,707 50,462
13 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 15 Letter re unaudited interim financial information 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed one Current Report on Form 8-K, dated January 7, 1998 and filed with the Securities and Exchange Commission on that date, pertaining to a change in accounting for third party or internally generated costs associated with projects, that combine business process reengineering activities and information technology transformation. 14 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/ Brian J. Dick Date: May 15, 1998 ----------------------------------------- Brian J. Dick Controller - Chief Accounting Officer /s/ Dustan E. McCoy Date: May 15, 1998 ----------------------------------------- Dustan E. McCoy Senior Vice President, General Counsel and Corporate Secretary 15 WITCO CORPORATION INDEX TO EXHIBITS
Exhibit No. Description ----------- -------------------------------------------------------------- 15 Letter re unaudited interim financial information 27 Financial Data Schedule
16 EX-15 2 EXHIBIT 15 EXHIBIT 15 LETTER RE: UNAUDITED FINANCIAL INFORMATION ACKNOWLEDGMENT LETTER May 11, 1998 The Board of Directors Witco Corporation We are aware of the incorporation by reference in the Registration Statement (Form S-3, No.E33-45865) 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), the 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 May 11, 1998 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, 1998. 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 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 23,432 0 389,812 13,001 248,858 721,103 1,531,249 729,083 2,237,413 506,941 640,435 287,963 0 6 358,578 2,237,413 507,374 507,374 380,220 380,220 0 444 11,990 34,652 14,207 20,445 0 0 0 20,445 .36 .35
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