-----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, GnQaRlzB9etVUXMDV9c3M5j14JTIy33+w7uQbaj6bOnQrULlv4mUBYJUscfIC5jk 2jBmtkjenVzKwJk2LtESgw== 0000950117-97-000438.txt : 19970507 0000950117-97-000438.hdr.sgml : 19970507 ACCESSION NUMBER: 0000950117-97-000438 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WITCO CORP CENTRAL INDEX KEY: 0000107889 STANDARD INDUSTRIAL CLASSIFICATION: 2860 IRS NUMBER: 131870000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-04654 FILM NUMBER: 97560568 BUSINESS ADDRESS: STREET 1: ONE AMERICAN WAY CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2126053800 MAIL ADDRESS: STREET 1: ONE AMERICAN LANE CITY: GREENWICH STATE: CT ZIP: 06831 FORMER COMPANY: FORMER CONFORMED NAME: WITCO CHEMICAL CORP DATE OF NAME CHANGE: 19851117 FORMER COMPANY: FORMER CONFORMED NAME: WITCO CHEMICAL CO INC DATE OF NAME CHANGE: 19681203 10-K405 1 WITCO CORPORATION FORM 10-K405 ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) ONE AMERICAN LANE 06831-2559 GREENWICH, CONNECTICUT (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 552-2000 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - - ----------------------------------------------------------------------- ------------------------ Common Stock -- $5 Par Value New York Stock Exchange Rights to Purchase Series A Participating New York Stock Exchange Cumulative Preferred Stock
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 ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] As of February 28, 1997, the aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price on February 28, 1997, on the New York Stock Exchange for the Registrant's Common Stock, was $1.75 billion. There were 56,920,255 shares of the Registrant's Common Stock outstanding on February 28, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's definitive Proxy Statement for its April 23, 1997, Annual Meeting of Shareholders are incorporated by reference into Part III. ________________________________________________________________________________ PART I ITEM 1--BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Witco Corporation (the 'Company' or 'Witco'), established in 1920, is a global manufacturer and marketer of specialty chemical and petroleum products for use in a wide variety of industrial and consumer applications. Most of the Company's products are sold to industrial customers for use as additives and intermediates which impart particular characteristics to such customers' end products. On December 31, 1996, the Company had approximately 7,220 employees worldwide. In 1992, the Company completed the acquisition of the Industrial Chemicals and Natural Substances divisions of Schering AG Berlin. As a result of the acquisition, the Company's international presence expanded with the addition of a large chemical manufacturing base in Germany and operations in Spain, the United Kingdom, France and Italy. On October 19, 1995, Witco completed the acquisition of OSi Specialties Holding Company ('OSi Specialties' or 'OSi'), an entity engaged in the manufacture of silicone surfactants, amine catalysts, organofunctional silanes and specialty fluids with manufacturing and blending facilities in West Virginia, Europe, South America and Asia. In 1995, the Company completed the disposition of its Battery Parts and Carbon Black operations. These dispositions completed the Company's previously announced plan to dispose of all of the businesses of the Company's Diversified Products segment. In September 1995, Witco announced its intention to divest its Lubricants Group. In November 1996, the Company disposed of its grease gun and motor oil portions of its Lubricants business. The Company plans to complete the disposition of the Lubricants business by mid 1997. As of December 31, 1996, the Company's operations were divided among three business segments: Chemical, OSi Specialties and Petroleum which are described in Section (c) below. In connection with the Company's 1996 restructuring plan, on January 28, 1997, the Company announced the reorganization of its business into four groups; Oleochemicals and Derivatives, Polymer Chemicals, Performance Chemicals and OrganoSilicones. The Oleochemicals and Derivatives Group, which contains the Oleochemical assets of the former Oleo/Surfactants Group, produces basic oleochemicals--fatty acids, plastic lubricants and oleochemical derivatives. The Polymer Chemicals Group, includes assets of the former Polymer Additives Group and certain assets of the former Resins Group. This group focuses on the production of additives and initiators in addition to metal organics, coatings and adhesives. The Performance Chemicals Group consists of the former Petroleum Specialties Group, certain assets of the old Oleo/Surfactants and Resins Groups and Baxenden, a joint venture headquartered in the United Kingdom. The group focuses on producing petroleum specialties, sulfonation and ethoxylation operations, and urethane chemicals. The fourth segment, the OrganoSilicones Group, which consists of the former OSi Specialties Group, produces silanes, specialty fluids and urethane additives. On December 12, 1996, the Company announced a $600 million three-year capital spending plan for new capacity, modernization, environmental and safety compliance and information systems. The Company also plans to increase investment in research and development. The Company intends to reduce the number of its manufacturing facilities from 46 to 31 while consolidating related distribution, research and development and administrative centers. The Company also announced its intent to reduce its work force by 1,800 employees. The Company was incorporated in 1958 under the laws of Delaware as Witco Chemical Company, Inc., at which time it succeeded by merger to the business of Witco Chemical Company, an Illinois corporation formed in 1920. Its executive offices are located at One American Lane, Greenwich, Connecticut 06831-2559, telephone (203) 552-2000. 1 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Reference is made to Note 17 of Notes to Financial Statements. See Item 8--Financial Statements and Supplementary Data following Part IV of this report. (c) NARRATIVE DESCRIPTION OF BUSINESS As of December 31, 1996, the Company's operations were divided among three business segments: Chemical, OSi Specialties and Petroleum Products. Chemical Products Oleo/Surfactants Witco offers one of the broadest lines of surfactants and oleochemicals in the chemical industry, providing 'one-stop shopping' for its customers on a global basis. These products are sold to a range of industries, including cosmetics and pharmaceuticals; personal care, soap and detergent; agricultural; rubber; food; paint and protective coatings; and textiles. Surfactants change the surface tension of liquids. They include agricultural emulsifiers, which are used to break up pesticides into small particles, thereby increasing dispersion and improving penetration, and food emulsifiers, which impart particular characteristics (such as consistency) to certain foods. In addition, surfactants are used in personal care products, fabric softeners, and detergents to improve penetration and cleaning capability. These products complement those offered by the Petroleum Specialties Group of the Company's Petroleum Products segment in this area. Oleochemicals are derived from natural fats and oils, and include fatty acids, fatty amines, esters and glycerines. Oleochemicals modify surfaces either as direct lubricants, or as components of ingredients that modify surfaces. Examples of their diverse applications include acting as lubricants in plastics; imparting mold release features for the rubber industry; and acting as curing systems for rubber. The Company is a worldwide producer of cationic and amphoteric surfactant products. These materials are major ingredients in fabric softener, hair conditioner and other personal care products. Polymer Additives Witco is a worldwide supplier of additives and catalysts for the polymer industry. It manufactures stabilizers, lubricants, plasticizers, and peroxide catalysts used in the manufacture of polyvinyl chloride (PVC) resin for such applications as pipes, fittings, siding and packaging materials. The Company is also a supplier of lubricants, antioxidants and peroxide catalysts to polyolefin/polystyrene manufacturers. These resins are used extensively in a broad spectrum of applications ranging from packaging film to small appliance housings. The Company is a global producer of aluminum alkyls, used as cocatalysts in the production of polyolefins (including polyethylene and polypropylene, which are among the world's largest volume plastics used in packaging, cars, furniture and appliances) and produces organotin compounds for the production of PVC stabilizers and biocides for marine paints. Resins The Resins Group, based in Germany, serves Witco's diverse global customer base for polyurethane intermediates, epoxy resins and hardeners with manufacturing facilities in the U.S., France, U.K., Germany, Italy, Denmark and Singapore. Witco has been developing water-based and high solids technologies to replace solvent-based systems. This has increased the number of new products and Witco's market share among multi-product customers. Witco is continually developing technical applications for these products in new markets. Examples include new water-based breathable textile coatings; patented dimethyl puyrazol (DMP) blocked polyurethane high performance coatings; low fogging polyesters for flexible polyurethane foam for the European market; polyurethane systems for footwear; and water-based epoxy coating systems developed for the global market. 2 Customers The Company markets its specialty chemical products directly through its own sales force and through an organized distribution program to more than 6,000 customers in the United States and more than 80 foreign countries operating in a broad range of industries. Its chemical business is not dependent upon any single customer or a few customers. During the year ended December 31, 1996, no customer accounted for more than 4.4% of Chemical Segment sales, and sales to the ten largest customers accounted for approximately 19.5% of Chemical Segment sales. Competition Competition in the Company's specialty chemicals business is based primarily on product consistency, quality and performance, customer service, and the technological resources necessary to develop and deliver new products that meet customer needs. Several factors constitute barriers to entry for new participants in many of the Company's markets: the need to make significant capital and research and development expenditures; the need for an extensive distribution network; the high level of expertise needed to solve technical problems for customers; manufacturing and product formulation knowledge; the lengthy product development process; and customers' general aversion to contracting with unproven suppliers of specialty chemical products. Competition is fragmented, with no one competitor offering products across all of the Company's chemical product lines. OSi Specialties OSi Specialties manufactures and sells over 500 silicone-based chemical intermediate products to manufacturers of fiberglass, reinforced plastics, polyurethane foam, textiles, coatings, automotives, adhesives, rubber, pharmaceuticals, thermoplastics, sealants and agricultural, electrical and personal care products throughout the world. In 1958, the OSi organization invented the use of silicone surfactants in the manufacture of urethane foam. This fundamental technological advance facilitated a lower-cost, continuous manufacturing method, resulting in accelerated growth in the urethane foam industry. OSi was also a pioneer in the silanes industry, and was instrumental in developing key technology for the reinforcement of plastics. Regardless of form, most silicones share a combination of properties, including electrical resistance, ability to maintain performance across a broad range of temperatures, resistance to aging, water repellence, lubricating characteristics and relative chemical and physiological inertness. The versatility of silicone-based intermediates has led to a wide variety of applications across a broad spectrum of industries in all major countries. Examples of OSi's products include catalysts, surfactants, coupling agents, process aids and other silicone-based specialty chemicals. Catalysts promote the process of urethane foam and polymer formation. Surfactants promote the mixing of reactants, control cell size and stabilize urethane foam. Surfactants also serve as wetting agents in a broad spectrum of applications and are used in personal care products (hair conditioning) and coatings (for flow control and leveling). Coupling agents bond inorganic and organic materials and enhance the physical, mechanical and adhesion properties of a variety of products, including fiberglass, sealants, rubber and coatings. Process aides include foam control agents, which inhibit foam formation or reduce foam in such diverse applications as antacid tablets, fountain soda and pulp and paper processing. Raw Materials The principal raw materials for the OSi Specialties Segment's products are trichlorosilane, polyether fluids and diethyl siloxane hydrolyzate. The Segment purchases, in the aggregate, more than 40.7% of its raw materials from Dow Corning Corporation and Union Carbide Corporation under various long-term agreements, which terms expire at various times through 2000. The Segment purchases other raw materials from a variety of domestic and international suppliers, and these products are readily available from other suppliers. 3 Customers The Company markets its OSi Specialties products through direct distribution using a trained sales force, and through distributor sales in the United States and foreign locations. During the year ended December 31, 1996, no customer accounted for more than 6.7% of OSi Specialties Segment sales, and sales to the ten largest customers accounted for approximately 24.5% of OSi Specialties Segment sales. Competition The OSi Specialties Segment competes with most of the global silicones companies, but typically in product or market niches. Competition is based primarily on product consistency, quality and performance, customer service and the technological resources necessary to develop and deliver new products that meet customer needs. Several factors constitute barriers to entry in many of the OSi Specialties Segment's markets: the need to make significant capital and research and development expenditures; the need for an extensive distribution network; the high level of expertise needed to solve technical problems for customers; manufacturing and product formulation knowledge; the lengthy product development process; and customers' general aversion to contracting with unproven suppliers of specialty chemical products. Petroleum Products Petroleum Specialties Witco is an important manufacturer and marketer of white mineral oils, petrolatums, refrigeration oils and telecommunication cable filling compounds, as well as natural and synthetic petroleum sulfonates. White mineral oils and petrolatums are extensively refined, high purity petroleum products suitable for food grade, pharmaceutical and cosmetic applications. They are inert and non-reactive, and impart emolliency, moisture resistance, lubrication and insulation properties. These products are marketed in coordination with the Oleo/Surfactants Group of the Company's Chemical Segment. In addition to personal care and food applications, white mineral oils and petrolatums are used in plastics, agriculture, textiles and chemical processing. Petroleum sulfonates are oil soluble, surface active agents derived from both synthetic and natural petroleum feedstocks. They provide properties of emulsification, dispersion, wetting of solids, and rust and corrosion inhibition, and are used in lubricant additives and metalworking fluids. The Company is also a supplier of fully refined, FDA-quality microcrystalline waxes, which are primarily used in paper lamination and packaging applications including cheese coatings. Lubricants In September 1995, Witco announced its intention to divest its Lubricants Group. In 1996, Witco sold its Kendall/Amalie, private label grease and grease gun manufacturing businesses. In addition, Witco sold its Bradford, PA refinery in March 1997. Witco continues to operate as a supplier of specialty naphthenic oils, which are marketed to the rubber, plastics, ink and agricultural industries, and asphalt and specialty road and surface treatment products, which are sold primarily for highway construction and maintenance through its Golden Bear refinery. It is anticipated that the Golden Bear refinery, the remaining business of the Lubricants Group, will be sold in 1997. Results of its Lubricants Group are currently reported as discontinued operations. Customers The Company's petroleum products are marketed directly through its own sales force and through distributors and agents. During the year ended December 31, 1996, no customer accounted for more than 6.3% of continuing Petroleum Segment sales, and sales to the ten largest customers accounted for approximately 24.1% of continuing Petroleum Segment sales. 4 Competition Many of the specialty petroleum products produced by Witco, like its specialty chemical products, are characterized by a need for a high degree of manufacturing competence and technical service. The petroleum products market is highly competitive with the Company's products competing primarily on the basis of pricing, quality and service. The Company believes its technical expertise, reputation for quality products gives it advantages in the marketplace. International Operations Sales of Witco's continuing non-U.S. operations were $935.4 million, or 41.3% of total sales for continuing operations, for the year ended December 31, 1996. Witco's manufacturing and producing operations outside the United States are in Belgium, Brazil, Canada, Denmark, England, France, Germany, Hong Kong, Indonesia, Italy, Korea, Malaysia, Mexico, the Netherlands, Singapore, Spain and Thailand. Patents and Trademarks The Company owns and controls patents, trade secrets, trademarks, trade names, copyrights and confidential information, which in the aggregate, are of material importance to its business. However, the Company is not materially dependent upon any single patent or trademark. The Company's trademarks are registered in the United States and in a number of foreign countries, with renewable terms of registration expiring generally between 1996 and 2006. The Company intends to renew in a timely fashion those trademarks that are renewable and deemed important to its continuing business operations. Additionally, the Company currently has approximately 3,200 patents and pending patent applications worldwide related to its continuing business operations. The Company intends to continue to file patent applications on new and emerging technologies. Backlog The nature of the Company's business is such that customer orders are usually filled within 30 days. Accordingly, backlog is not significant to the Company's business. Research and Development The Company is actively engaged in research and development programs designed to develop new products, manufacturing processes, systems and technologies to enhance existing products and processes. The Company believes its investments in research and development have been an important factor in establishing and maintaining its competitive position. Witco expended approximately $73.1 million in 1996, $52.9 million in 1995 and $40.7 million in 1994 on research and development of new products and services for its continuing operations, and for improvements and new applications of existing products and services for its continuing operations. During 1997 the Company will be consolidating its U.S. research and development facilities into three primary locations. Environmental Matters The industries in which Witco operates have experienced increased operating costs and capital investments due to statutes and regulations at the federal, state and local levels for the protection of the environment and the health and safety of employees and others. Witco believes that expenditures for compliance with these statutes and regulations will continue to have a significant impact upon the conduct of its business. The trend for greater environmental awareness and more stringent environmental regulations is likely to continue and while Witco cannot accurately predict how this trend will affect future operations and earnings, Witco does not believe its costs will vary significantly from those of its competitors in the chemical and petroleum industries. 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. 5 Such uncertainties include the nature and extent of contamination at each site, evolving governmental standards regarding remediation requirements, 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. In 1996, the Company completed a comprehensive study of its environmental remediation and compliance issues throughout the organization. This study resulted in an increase to environmental reserves by $83.4 million. Reserves for environmental remediation and compliance costs at December 31, 1996 amounted to $219.7 million (including $64.2 million associated with environmental expenses of the Lubricants Group), which reflects management's assessment of future remediation and compliance costs in light of currently available information. Of these reserves, $77.6 million are associated with plants to be shut-down or sold as part of the 1996 and 1995 restructuring plans. Remediation expenditures charged to those reserves were $14.7 million in 1996 and include expenditures currently mandated as well as those not initiated by any regulatory authority or third party. The Company anticipates 1997 expenditures to be approximately $60 million. Capital expenditures for air, water and solid waste control equipment and facilities amounted to $12.6 million in 1996. The Company estimates that approximately $20.0 million will be expended on similar capital projects in 1997. The Company is continuing its efforts to reduce hazardous waste and emissions generated by its operations. Through improved operating efficiencies, installation of additional environmental control equipment and utilization of the latest innovations in waste treatment technology, management believes that direct recurring operating costs associated with managing hazardous substances and pollution can be maintained at or slightly above current levels. Such costs amounted to approximately $38 million in 1996. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Witco's foreign subsidiaries generally manufacture products similar to the principal products manufactured domestically. Subsidiaries in the Netherlands and Canada manufacture petroleum specialty products; subsidiaries in Belgium, Brazil, Canada, Denmark, England, France, Germany, Italy, Mexico and Spain manufacture chemical products. In early 1996, the Company acquired a resins manufacturing plant in Singapore. In addition, OSi Specialties operates producing and other facilities in Korea, Hong Kong, Malaysia, Thailand and Indonesia. In accord with normal market conditions, sales made outside the United States are generally made on longer terms of payment than would be normal within the United States. Foreign operations are subject to certain risks inherent in carrying on international business, including currency devaluations and controls, export and import restrictions, inflationary factors, product supply, economic controls, nationalization and expropriation. The likelihood of such occurrences varies from country to country and is not predictable. However, the Company's primary foreign operations are based in Western Europe and other stable areas, and, therefore, the Company does not believe these risks will have a significant impact upon the Company. Reference is made to Note 17 of Notes to Financial Statements. See Item 8--Financial Statements and Supplementary Data following Part IV of this report. ITEM 2--PROPERTIES At December 31, 1996, Witco conducted its operations for its continuing businesses in 57 manufacturing plants and other facilities, owned in fee or occupied under lease, of which 25 are in the United States and 32 in other countries. Of these facilities, 29 are utilized for Chemical product manufacturing; 10 are utilized for OSi Specialties product manufacturing; 7 are utilized for Petroleum product manufacturing; and 11 are utilized for administrative and research purposes. All of the facilities are in good operating condition. 6 PRINCIPAL MANUFACTURING PLANTS AND OTHER IMPORTANT PHYSICAL PROPERTIES RELATED TO CONTINUING OPERATIONS--LOCATIONS BY INDUSTRY SEGMENT (OWNED IN FEE EXCEPT WHERE PARENTHETICAL DATES REFER TO LEASE EXPIRATION) CHEMICAL SEGMENT FACILITIES United States Blue Island, Illinois* Chicago, Illinois* Mapleton, Illinois -- 2 Plants Harahan, Louisiana* Taft, Louisiana Perth Amboy, New Jersey Brooklyn, New York* Memphis, Tennessee Fort Worth, Texas* Houston, Texas La Porte, Texas* Marshall, Texas Janesville, Wisconsin International Brantford, Canada* St. Amour, France Montreal, Canada* Bergkamen, Germany (2091) Oakville, Canada* Steinau, Germany Soro, Denmark (2005) Gambolo, Italy Accrington, England Cuatitlan, Mexico Droitwich, England Singapore Flimby, England Granollers, Spain Elbeuf, France OSI SPECIALTIES SEGMENT FACILITIES United States Sistersville, West Virginia International Antwerp, Belgium (2019) Itatiba, Brazil Termoli, Italy Lerma, Mexico* PETROLEUM SEGMENT FACILITIES United States Gretna, Louisiana Petrolia, Pennsylvania* Trainer, Pennsylvania* International West Hill, Canada Haarlem, the Netherlands Amsterdam, the Netherlands Koog Aan De Zaan, the Netherlands - - ------------ * Manufacturing plants, for which public announcements have been made regarding the Company's intention to close or sell as part of its asset consolidation plan. 7 OTHER FACILITIES United States Greenwich, Connecticut (2014) World Headquarters--Principal Executive, Administrative and Sales Office Los Angeles, California (2001) Administrative and Sales Office Tarrytown, New York (1997) Research Oakland, New Jersey Research Dublin, Ohio Research Houston, Texas Administrative and Research S. Charleston, West Virginia (1997) Administrative and Research International Paris, France (1999) Administrative and Sales Office Frankfurt, Germany (1997) Principal European Executive and Administrative Office Singapore (1999) Administrative and Research Meyrin, Switzerland (2007) Administrative and Research In addition, OSi Specialties operates producing and other facilities in Korea, Hong Kong, Malaysia, Thailand and Indonesia. ITEM 3--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 December 31, 1996, the Company was a PRP, or a defendant, in connection with 76 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 27 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 8 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 operating results could be materially affected in future periods by the resolution of these contingencies. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter ended December 31, 1996. 9 EXECUTIVE OFFICERS OF THE COMPANY The following sets forth information regarding executive officers of the Company as of March 1, 1997, and is included in Part I in accordance with Instruction 3 of Item 401(b) of Regulation S-K.
SERVED IN PRESENT POSITION PRIOR BUSINESS EXPERIENCE NAME AND PRESENT TITLE SINCE (WITHIN LAST FIVE YEARS) AGE - - --------------------------------------------- --------- ------------------------------------------------ --- Peter J. Biancotti .......................... 1983 53 Vice President and Controller E. Gary Cook ................................ 1996 President and COO of Albermarle 52 Chairman of the Board, Corporation--March 1994 to June 1996. President and CEO President--Chemicals of Ethyl Corp.--January 1992 to March 1994. Bruce G. Davis .............................. 1995 Vice President Purchasing and Logistics, 48 Vice President, Purchasing and Logistics Standard Products--1993 to 1995. Manager of Materials, Sourcing and Support Operations, GE Transportation Systems--1990 to 1993. Camillo J. DiFrancesco ...................... 1996 Vice President of Investor Relations--March 47 Senior Vice President and Chief Financial 1996 to September 1996. Vice President and Officer CFO, OSi Specialties, Inc.--July 1993 to March 1996. Senior Vice President and CFO, Roberston CECO Corporation--March 1991 to May 1992. Ronald Edelstein ............................ 1995 Vice President, Information Systems--April 47 Chief Information Officer, Vice President, 1992 to December 1995. General Manager of Information Systems Information Systems--October 1991 to April 1992. Nirmal Jain ................................. 1996 Group Vice President, Polymer Additives--1993 59 Group Vice President, Polymer Chemicals to 1996. Vice President and General Manager, Argus Division prior to January 1993. Gerald Katz ................................. 1996 Senior Vice President of Corporate 59 Senior Vice President, Performance Development--1995 to 1996. Group Vice Chemicals President and Senior Managing Director, Witco Europe--1992 to 1994. Group Vice President of the Chemical Group prior to 1992. Yuan-Hu (Dick) Liu .......................... 1995 President, Du Pont China Holding Co. Ltd.--1993 59 Group Vice President, Asia/Pacific to 1995. Group Manager/ Director Greater China, Du Pont China Ltd.--1987 to 1993. Peter Loewrigkeit ........................... 1996 Group Vice President of the Resins business 58 Group Vice President, Special Assignment unit--1994 to 1995. Vice President, Polyurethane/Polyesters business unit--1993 to 1994. Vice President and Business Manager, Urethane business unit--1991 to 1993. Dustan E. McCoy ............................. 1996 Vice President, General Counsel and Corporate 47 Senior Vice President, General Counsel and Secretary--April 1993 to October 1996. Corporate Secretary Associate General Counsel, Ashland, Inc.--1990 to 1993. Clifford E. Montgomery ...................... 1997 Vice President Human Resources, Quaker Chemical 49 Vice President, Human Resources Corporation--January 1990 to December 1996.
(continued on next page) 10 (continued from previous page)
SERVED IN PRESENT POSITION PRIOR BUSINESS EXPERIENCE NAME AND PRESENT TITLE SINCE (WITHIN LAST FIVE YEARS) AGE - - --------------------------------------------- --------- ------------------------------------------------ --- Eric R. Myers ............................... 1996 Vice President of Investor Relations-- 50 Group Vice President, Corporate September 1996 to November 1996. Vice Restructuring/Implementation President and General Manager, Lubricants Business--May 1993 to September 1996. Vice President and General Manager, Kendall/Amalie Division--January 1993 to April 1993. Vice President and General Manager, Richardson Battery Parts Division--May 1991 to December 1992. President and General Manager, Bridgeport--Piedmont Manufacturing Co. (Division of Bridge Products, Inc.) prior to May 1991. James M. Rutledge ........................... 1990 44 Vice President and Treasurer Roger L. Sharp .............................. 1996 Vice President of Operations (Global Nylon) Du 54 Senior Vice President, Global Operations Pont Corporation--prior to September 1996. Frederick A. Shinners ....................... 1996 Group Vice President of Oleo/ Surfactants--June 54 Group Vice President, Managing Director, 1994 to December 1996. Vice President and Europe General Manager of GE Silicones--August 1990 to June 1994. Georg Urban ................................. 1996 Managing Director of Witco's European 50 Group Vice President, Oleochemicals & Surfactants business--1993 to 1996. COO and Derivatives Group Executive, Pfaudler--Europe prior to 1993. David Verner ................................ 1996 Vice President, Urethane Additives business 49 Group Vice President, OrganoSilicones unit--October 1995 to April 1996. Vice President, Urethane Additives, OSi Specialties, Inc.--July 1993 to October 1995. Business Director of Union Carbide Corporation prior to July 1993. Donald E. Weinberg .......................... 1986 61 Vice President, General Manager, Golden Bear
PART II ITEM 5--MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Witco's Common Stock is listed on the New York Stock Exchange. The following table reflects the high and low sales prices, as reported on such exchange for each quarterly period during the past two years:
1996 1995 ------------------ ---------------- QUARTER HIGH LOW HIGH LOW - - ------------------------------------------ ------- ------- ------ ------ First..................................... $36.25 $29.13 $29.38 $24.25 Second.................................... $37.38 $31.88 $33.13 $27.25 Third..................................... $34.63 $28.13 $35.63 $31.50 Fourth.................................... $33.50 $29.50 $35.13 $27.50
11 The approximate number of holders of record of Common Stock as of February 28, 1997, was 4,506. Dividends on the Common Stock have been declared quarterly during the past two years as follows:
PER SHARE ------------ QUARTER 1996 1995 - - ---------------------------------------------------------------------- ---- ---- First................................................................. $.28 $.28 Second................................................................ $.28 $.28 Third................................................................. $.28 $.28 Fourth................................................................ $.28 $.28
ITEM 6--SELECTED FINANCIAL DATA The data for this item are submitted as a separate section following Part IV of this report. ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The data for this item are submitted as a separate section following Part IV of this report. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data of the Company and its subsidiaries are included in a separate section following Part IV of this report. ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS (a) Identification of Directors Reference is made to pages 3 through 5 of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997. (b) Identification of Executive Officers Reference is made to Part I of this Form 10-K. (c) Business Experience Reference is made to pages 3 through 5 of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997 and Part I of this Form 10-K. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Reference is made to page 9 of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997. ITEM 11--EXECUTIVE COMPENSATION Reference is made to the information set forth under the captions 'Compensation of Directors' and 'Executive Compensation' on pages 7 and 10, respectively, of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information with respect to beneficial ownership of the Company's voting securities, and rights thereto, reference is made to the information set forth under the captions 'Ownership of Securities by Directors and Officers' and 'Security Ownership of Certain Beneficial Owners' on pages 8 and 10, respectively, of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others Reference is made to the information set forth under the caption 'Compensation of Directors' and 'Transactions with Management' on pages 7 and 19, respectively, of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997. (b) Certain Business Relationships Reference is made to the information set forth under the captions 'Certain Business Relationships' on page 8 and 'Compensation Committee Interlocks and Insider Participation' on page 8 of the Proxy Statement to be filed pursuant to Regulation 14A no later than March 31, 1997. 13 PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 and 2--The response to this portion of Item 14 is submitted as a separate section of this report. (a) 3--Exhibits:
EXHIBIT NO. - - ------- 3(i) --Restated Certificate of Incorporation.(1) 3(ii) --By-laws, as amended.(1) 4 --Instruments defining the rights of security holders, including indentures. (i) --Rights Agreement dated as of March 2, 1995, between Witco Corporation and First Chicago Trust Company of New York.(2) (iii) --Pursuant to Regulation S-K, Item 601(b)(4)(iii), no debt or other security instrument represents 10% of the total assets of the Registrant, and accordingly such instruments are not filed herewith. Registrant agrees to furnish a copy of any such agreement to the Commission upon request. 10 --Material Contracts. (i) --1. Agreement and Plan of Merger dated as of September 10, 1995, among Witco Corporation, Witsel Corporation and OSi Specialties Holding Company.(3) --2. Amendment dated as of October 18, 1995, to the Agreement and Plan of Merger dated as of September 10, 1995, among Witco Corporation, Witsel Corporation and OSi Specialties Holding Company.(4) --3. Credit Agreement dated as of October 18, 1995.(5) --4. Amended and Restated Credit Agreement dated as of October 11, 1996.(6) --5. Amendment No. 1 to Amended and Restated Credit Agreement dated as of December 23, 1996. (iii)(A)--Executive Compensation Plans and Arrangements Required to be Filed: -- 1. 1986 Stock Option Plan for Employees, as amended.(7) -- 2. 1989 Stock Option Plan for Employees.(8) -- 3. 1992 Stock Option Plan for Employees.(9) -- 4. 1995 Stock Option Plan for Employees.(10) -- 5. Amendment No. 1 to 1995 Stock Option Plan for Employees.(11) -- 6. Consultancy Agreement Between the Company and William Wishnick.(12) -- 7. Employment Agreement, dated June 12, 1996, by and between Witco Corporation and E. Gary Cook.(13) -- 8. Witco Corporation 1994 Deferred Compensation Plan.(14) -- 9. Supplemental Executive Retirement Plan of Witco Corporation as amended and restated effective December 5, 1995.(15) 11 --Statement re Computation of Per Share Earnings. 21 --Subsidiaries of the Registrant. 23 --Consent of Independent Auditors. 24 --Power of Attorney.(16) 27 --Financial Data Schedule.
(b) Reports on Form 8-K. (i) A report on Form 8-K dated December 12, 1996, was filed during the quarter ended December 31, 1996, responding to Item 5 in connection with the Company's announcement of a merger restructuring plan including a fourth quarter pre-tax change to earnings related to the restructure and other matters. (c) The Exhibits filed with this report are listed in response to Item 14(a)3. (d) The response to this portion of Item 14 is submitted as a separate section of this report. (footnotes on next page) 14 (footnotes from previous page) (1) This Exhibit was included as an exhibit to the quarterly report on Form 10-Q for the quarter ended March 31, 1994, and such Exhibit is hereby incorporated by reference. (2) This Exhibit was included as an exhibit to the Registration Statement on Form 8A filed with the Securities and Exchange Commission on March 3, 1995, and such Exhibit is hereby incorporated by reference. (3) This Exhibit was included as Exhibit 2(a) to Form 8-K filed with the Securities and Exchange Commission on September 25, 1995, and such Exhibit is hereby incorporated by reference. (4) This Exhibit was included as Exhibit 2(c) to Form 8-K filed with the Securities and Exchange Commission on October 31, 1995, and such Exhibit is hereby incorporated by reference. (5) This Exhibit was included as an exhibit to the Form 8-K filed with the Securities and Exchange Commission on October 31, 1995, and such Exhibit is hereby incorporated by reference. (6) This Exhibit was included as an exhibit to the quarterly report on Form 10Q for the quarter ended September 30, 1996, and such Exhibit is hereby incorporated by reference. (7) The 1986 Stock Option Plan, as amended, was filed as an Exhibit to the Registration Statement on Form S-8, registration number 33-10715, Post-Effective Amendment No. 1 to Form S-8 effective October 3, 1988, and Post-Effective Amendment No. 2 to Form S-8 effective June 23, 1992. Such Exhibit is incorporated herein by reference. (8) The 1989 Stock Option Plan was filed as an Exhibit to the Registration Statement on Form S-8, registration number 33-30995 effective October 2, 1989, and Post-Effective Amendment No. 1 to Form S-8 effective June 23, 1992, and such Exhibit is hereby incorporated by reference. (9) The 1992 Stock Option Plan was filed as an Exhibit to the Registration Statement on Form S-8, registration number 33-48806, effective June 23, 1992, and such Exhibit is hereby incorporated by reference. (10) The 1995 Stock Option Plan was filed as an Exhibit to the Registration Statement on Form S-8, registration number 33-60755, effective June 30, 1995, and such Exhibit is hereby incorporated by reference. (11) Amendment No. 1 to the 1995 Stock Option Plan for employees was filed as an Exhibit to the Registration Statement on Form S-8, registration number 33-05509, effective June 7, 1996, and such Exhibit is hereby incorporated by reference. (12) This Exhibit was included as an exhibit to the annual report on Form 10-K for the fiscal year ended December 31, 1992, and such Exhibit is hereby incorporated by reference. (13) This Exhibit was included as an exhibit to the quarterly report on Form 10-Q for the quarter ended September 30, 1996, and such Exhibit is hereby incorporated by reference. (14) This Exhibit was included as an exhibit to the annual report on Form 10-K for the fiscal year ended December 31, 1994, and such Exhibit is hereby incorporated by reference. (15) This Exhibit was included as an exhibit to the annual report on Form 10-K for the fiscal year ended December 31, 1995, and such Exhibit is hereby incorporated by reference. (16) The Power of Attorney appears on the Signature Page. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on the 21 day of March, 1997. WITCO CORPORATION By /s/ E. GARY COOK ................................... E. GARY COOK CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints E. GARY COOK, CAMILLO DIFRANCESCO, OR DUSTAN E. MCCOY, acting severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE - - ------------------------------------------ -------------------------------------------- ------------------- PRINCIPAL EXECUTIVE OFFICERS: /s/ E. GARY COOK Chairman of the Board, President and Chief March 21, 1997 ......................................... Executive Officer E. GARY COOK PRINCIPAL FINANCIAL OFFICER: /s/ CAMILLO DIFRANCESCO Senior Vice President and Chief Financial March 21, 1997 ......................................... Officer CAMILLO DIFRANCESCO DIRECTORS: /s/ E. GARY COOK Director March 21, 1997 ......................................... E. GARY COOK /s/ SIMEON BRINBERG Director March 21, 1997 ......................................... SIMEON BRINBERG /s/ WILLIAM G. BURNS Director March 21, 1997 ......................................... WILLIAM G. BURNS /s/ WILLIAM R. GRANT Director March 21, 1997 ......................................... WILLIAM R. GRANT
16
NAME TITLE DATE - - ------------------------------------------ -------------------------------------------- ------------------- /s/ RICHARD M. HAYDEN Director March 21, 1997 ......................................... RICHARD M. HAYDEN /s/ HARRY G. HOHN Director March 21, 1997 ......................................... HARRY G. HOHN /s/ L. JOHN POLITE, JR. Director March 21, 1997 ......................................... L. JOHN POLITE, JR. /s/ DAN J. SAMUEL Director March 21, 1997 ......................................... DAN J. SAMUEL /s/ WILLIAM R. TOLLER Director March 21, 1997 ......................................... WILLIAM R. TOLLER /s/ BRUCE F. WESSON Director March 21, 1997 ......................................... BRUCE F. WESSON /s/ WILLIAM WISHNICK Director March 21, 1997 ......................................... WILLIAM WISHNICK
17 ANNUAL REPORT ON FORM 10-K ITEM 6, ITEM 7, ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d) INDEX OF FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1996 WITCO CORPORATION GREENWICH, CONNECTICUT INDEX ANNUAL REPORT ON FORM 10-K ITEM 6, ITEM 7, ITEM 8, ITEM 14(a)(1) AND (2), AND ITEM 14(d) DECEMBER 31, 1996
PAGE NO. -------- ITEM 6--SELECTED FINANCIAL DATA........................................................................ 1 ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 2 ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA--SEE ITEM 14(a)(1) AND (2) BELOW.
ITEM 14(a)(1) AND (2) AND ITEM 14(d) The following consolidated financial statements of Witco Corporation and subsidiary companies, for the year ended December 31, 1996, are included in Item 8:
PAGE NO. -------- Report of Independent Auditors.................................................................... F-1 Consolidated Balance Sheets -- December 31, 1996 and 1995......................................... F-2 Consolidated Statements of Operations Years Ended December 31, 1996, 1995 and 1994................ F-3 Consolidated Statements of Cash Flows -- Years Ended December 31, 1996, 1995 and 1994............. F-4 Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 1996, 1995 and 1994... F-5 Notes to Financial Statements..................................................................... F-6 Quarterly Financial Data For Continuing Operations (unaudited).................................... F-23
The following consolidated financial statement schedule of Witco Corporation and subsidiary companies is included in Part IV, Item 14(d):
PAGE NO. -------- Schedule II--Valuation and Qualifying Accounts.................................................... S-1
All other schedules (Nos. I, III, IV and V) for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Financial statements (and summarized financial information) of 50% or less owned persons accounted for by the equity method have been omitted because they do not, considered individually or in the aggregate, constitute a significant subsidiary. WITCO CORPORATION AND SUBSIDIARY COMPANIES
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA - - ---------------------------------------------- ----------- ----------- ---------- ----------- ---------- (in millions except per share data) 1996(a) 1995(b)(e)(f) 1994(e) 1993(c)(e) 1992(d)(e)(g) ----------- ----------- ---------- ----------- ---------- SELECTED STATEMENT OF OPERATIONS DATA Net sales $2,263.3 $1,985.1 $1,841.4 $1,763.1 $1,342.0 Gross profit 503.0 416.3 407.1 381.3 268.7 Operating income (loss) from continuing (262.1) 201.3 173.4 76.1 71.7 operations Income (loss) from continuing operations before income taxes (325.8) 169.1 149.8 47.2 62.6 Income (loss) from continuing operations (247.2) 100.3 94.4 25.1 38.3 Income (loss) from discontinued operations - net of income taxes (67.9) 4.1 12.7 (5.3) 15.5 Net income (loss) $ (315.1) $ 104.4 $ 107.1 $ 19.8 $ 39.2 Per Common Share: Income (loss) from continuing operations $ (4.35) $ 1.78 $ 1.70 $ 0.56 $ 0.88 Income (loss) from discontinued operations - net of income taxes (1.19) 0.07 0.22 (0.10) 0.02 ----------- ----------- ---------- ----------- ---------- Net income (loss) $ (5.54) $ 1.85 $ 1.92 $ 0.46 $ 0.90 =========== =========== ========== =========== ========== SELECTED BALANCE SHEET DATA Working capital $ 243.2 $ 249.6 $ 551.6 $ 451.2 $ (21.6) Property, plant and equipment expenditure (including acquisitions) $ 161.2 $ 343.0 $ 107.4 $ 103.7 $ 322.8 Property, plant and equipment - net $ 735.4 $ 789.8 $ 720.0 $ 696.5 $ 721.2 Total assets $2,391.7 $2,750.6 $1,919.3 $1,839.0 $1,811.8 Long-term debt $ 700.8 $ 683.8 $ 346.5 $ 496.3 $ 173.1 Total shareholders' equity $ 627.9 $1,004.1 $ 940.0 $ 713.4 $ 614.3 Book value per common share $ 11.05 $ 17.78 $ 16.73 $ 14.12 $ 13.80 ----------- ----------- ---------- ----------- --------- SELECTED OTHER FINANCIAL DATA Number of shareholders (record holders) - at 4,563 4,990 5,194 5,253 5,262 year end Weighted average number of common shares outstanding (in thousands) 56,900 56,549 56,378 54,866 49,801 Dividends paid per share - common stock $ 1.12 $ 1.12 $ 1.03 $ 0.94 $ 0.92 Dividends declared per share - common stock $ 1.12 $ 1.12 $ 1.06 $ 0.96 $ 0.92 Market price to the nearest dollar, per common share on New York Stock Exchange (high-low) $ 37-28 $ 36-24 $ 35-24 $ 32-24 $ 25-20 - - ---------------------------------------------- ----------- ----------- ---------- ----------- -----------
(a) Includes charges of $345.1 ($239.3 after-tax or $4.21 per common share) related to a restructuring of the Company's operations and $91.0 ($71.3 after-tax or $1.25 per common share) for non-recurring items related to provisions for litigation, environmental remediation costs and other costs. (b) Includes gains of $55.1 ($33.7 after-tax or $.59 per common share) as a result of settlements with certain of the Company's insurers, net of related legal and other costs and $54.0 ($33.0 after-tax or $.59 per common share) from the disposition of businesses. Also includes a restructuring charge of $33.8 ($20.6 after-tax or $.36 per common share) related to a write-down of property, plant and equipment and other costs and $18.1 ($11.0 after-tax or $.20 per common share) related to environmental remediation costs and litigation. (c) Includes a charge of $68.9 ($42.0 after-tax or $.77 per common share) for environmental remediation costs, disposition of a business, work force reduction and other matters. (d) Includes a charge of $20.1 ($12.5 after-tax or $.25 per common share) for consolidation of offices. (e) Reclassified to conform to 1996 presentation. (f) Includes the results of operations of OSi Specialties for the three months ended December 31, 1995. (g) Net income (loss) includes a cumulative effect of accounting change of $(14.6). 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - -------------------------------------------------------------------------------- LIQUIDITY AND FINANCIAL RESOURCES Certain 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 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 Securities and Exchange Commission filings. Liquidity refers to the ability to generate adequate amounts of cash to satisfy the financial needs of an enterprise. Cash flow from operations, a major source of the Company's liquidity, provided funds of $470 million over the past three years. Cash generated through operations during this time period was sufficient to support the Company's internal capital investment program. Additionally, with proceeds received from dispositions, the Company was able to sustain an increasing amount of dividends paid to shareholders. Additional details regarding operating, investing and financing activities can be found in the Consolidated Statements of Cash Flows. During the fourth quarter of 1996, the Company's Board of Directors approved the 1996 restructuring plan. This was the result of a review undertaken by the Company's management to improve profitability, increase productivity and maximize shareholder value. In connection with the plan and other initiatives, the Company recorded total charges of $436.1 million ($310.6 million after-tax) during the fourth quarter of 1996. Included therein is a restructuring charge of $345.1 million, principally consisting of severance, environmental closure and demolition costs, and write-downs of fixed assets and goodwill. In addition, other charges of $91 million were recorded to provide for legal matters, environmental remediation and compliance and other items. Approximately $130 million of the $310.6 million after-tax charge will be expended as cash. These funds will be expended primarily over a three year period. The principal actions in the restructuring involve the closure or sale of fifteen production facilities and consolidation of support infrastructure. This will result in the elimination of approximately 1,800 positions worldwide by 1999. The Company estimates annual savings from the restructuring to be approximately $200 million by the end of 1999 with no anticipated reduction in revenues. During the fourth quarter of 1995, a restructuring plan was initiated which addressed the shut-down of five facilities. This plan is expected to be completed in 1997. On October 18, 1995, the Company entered into a one year credit agreement totaling $675 million with a consortium of banks for the purpose of financing the acquisition of OSi Specialties Holding Company and its wholly owned subsidiary OSi Specialties, Inc. (collectively "OSi Specialties," or "OSi") and to prepay OSi's 11.50% Senior Secured Discount Debentures due 2004 and OSi Specialties' 9.25% Senior Subordinated Notes due 2003. On February 12, 1996, the Company issued $150 million of 6.125% Notes due 2006 and $150 million of 6.875% Debentures due 2026. The net proceeds of $297 million, plus cash on hand, were used to repay $300 million of bank loans under the credit agreement. Immediately thereafter, the availability of funds under the credit agreement was reduced to $375 million. On October 11, 1996, the credit agreement was amended and the term of the facility was extended until October 10, 1997. The interest rate at December 31, 1996, was approximately 5.77%. During 1996, proceeds received from the sale of certain of the Company's Lubricants Group businesses and cash on hand were used to reduce the amount outstanding under the credit agreement to $90 million at December 31, 1996. The Company anticipates that the balance of the bank loan will be repaid with proceeds from the sale of the remaining Lubricants Group businesses and/or excess cash. The Company is currently negotiating a new five-year $500 million revolving credit agreement with various banks which will replace its current credit agreement. It is the Company's belief that annual cash flows from operations, along with the flexibility provided by the 2 - - -------------------------------------------------------------------------------- new credit agreement, will be sufficient to fund, for the foreseeable future, capital investments, dividend payments, commitments on environmental remediation projects, and operating requirements. As the Company continues to focus on global expansion, it has, through certain of its international subsidiaries, arrangements with various banks for lines of credit. At December 31, 1996, these lines of credit aggregated $41.8 million, of which $2.2 million was utilized at year-end. The Company has also entered into certain long-term hedging arrangements to protect against possible adverse currency exchange and interest rate fluctuations. The Company utilizes forward contracts to hedge foreign currency risk on trade accounts receivable and payables. These forward contracts are generally outstanding for 30 days and are primarily denominated in German marks, Italian lire, Swiss and French francs, and British pounds (see Note 15 of Notes to Financial Statements for additional details). Currently, the Company's primary international operations are based in Western Europe. Although there are certain risks inherent in carrying on international business, including currency devaluations and controls, export and import restrictions, inflationary factors, product supply, economic controls, and nationalization and appropriation, the Company does not believe these factors will significantly affect its operations. The Company periodically evaluates, and periodically reviews with the Finance Committee of the Board of Directors, its liquidity requirements, capital needs and availability of external funds. As a result of this process, the Company has in the past and may in the future seek to restructure indebtedness, raise additional capital or take such other steps to increase or manage its liquidity and financial resources. CAPITAL INVESTMENTS AND COMMITMENTS In connection with the aforementioned 1996 restructuring plan and other initiatives, the Company intends to invest more than $600 million of internally generated funds over the next three years. $250 million will be invested in new capacity to support future growth. An additional $200 million will be allocated to modernize plants and replace capacity at closed facilities. Further expenditures include $100 million for environmental, safety and other items, and $50 million to upgrade worldwide information systems. These amounts are in addition to approximately $130 million in cash, which is required for matters reserved for in connection with the 1996 restructuring charge and for other initiatives as discussed in Liquidity and Financial Resources. In 1996, the Company continued to upgrade existing facilities and to expand capacity to meet changing market demands. Total capital expenditures for 1996 were $161.2 million. Capital expenditures related to continuing operations were $149.3 million, bringing the total for the past three years to $337.5 million. The capital investment program in 1997, which will include the aforementioned 1996 restructuring plan, will continue to focus on capacity expansion and market share growth and is expected to approximate $250 million in 1997. Investments in the form of research and development, quality initiatives and marketing alliances will also continue in all key product lines. ENVIRONMENTAL MATTERS The Company operates in an industry subject to extensive regulations related to the protection of the environment and the health and safety of employees and others. Domestic operations are subject to a myriad of environmental statutes and regulations at the federal, state and local levels. The Company's international production facilities operate in an environmental regulatory framework in which governmental authorities typically are granted broad discretionary powers which require manufacturing facilities to obtain operating permits to continue operations. The Company believes that expenditures for compliance with these statutes, regulations and permits will continue to have a significant impact upon the conduct of its business. The trend toward greater environmental awareness and more stringent environmental regulations is likely to continue, and while the Company cannot accurately predict how this will affect future operations and earnings, the Company does not believe its costs will significantly vary from those of its competitors. Consistent with the Company's concern for the protection and improvement of the environment worldwide, the Company continually monitors the environmental impact of past and present operating practices in light of changing environmental standards. Where remedial action is indicated, the Company assesses the probability and scope of potential remediation costs. To determine the appropriate reserve amounts, management reviews, on a quarterly basis, currently available infor- 3 - - -------------------------------------------------------------------------------- mation pertaining to each environmental site. Inherent in this process are considerable uncertainties which affect the Company's ability to estimate the ultimate costs of remediation. 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. As a result, as remediation efforts proceed at existing sites and new sites are assimilated into the review process, charges against income for environmental reserves could have a material effect on results of operations in a particular quarter or year. However, such charges are not expected to have a material adverse effect on the Company's consolidated financial position, cash flow or liquidity. In connection with the 1996 restructuring plan, the Company completed a comprehensive study of its environmental remediation and compliance issues throughout the organization. This study resulted in an increase to environmental reserves of $83.4 million. Reserves for environmental remediation and compliance costs at December 31, 1996, amounted to $219.7 million (including $64.2 million associated with environmental expenses of the Lubricants Group), which reflects management's assessment of future remediation and compliance costs in light of currently available information. Of these total reserves, $77.6 million are associated with plants to be shut-down or sold as part of the 1996 and 1995 restructuring plans. Remediation expenditures charged to environmental reserves were $14.7 million in 1996 and include expenditures currently mandated as well as those not initiated by any regulatory authority or third party. The Company anticipates 1997 remediation expenditures to approximate $60 million. Capital expenditures for air, water and solid waste control equipment and facilities amounted to $12.6 million in 1996. The Company estimates that approximately $20 million will be expended on similar capital projects in 1997. The Company is continuing its efforts to reduce hazardous waste and emissions generated by its operations. Through improved operating efficiencies, installation of additional environmental control equipment and utilization of the latest innovations in waste treatment technology, management believes that direct recurring operating costs associated with managing hazardous substances and pollution can be maintained at or slightly above current levels. Such costs amounted to approximately $38 million in 1996. 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. However, the Company does not expect the results of such proceedings or environmental matters to materially affect its competitive position. DISCONTINUED OPERATIONS On September 11, 1995, the Company announced its intention to divest its Lubricants Group (see Note 18 of Notes to Financial Statements). RESULTS OF CONTINUING OPERATIONS The Company reported a loss from continuing operations in 1996 of $247.2 million compared to income of $100.3 million and $94.4 million in 1995 and 1994, respectively. The three-year period included several non-recurring items which affect comparison. The following table shows the effect of these non-recurring items on continuing operations. 4 - - -------------------------------------------------------------------------------- SUMMARY OF NON-RECURRING ITEMS
- - --------------------------------------------------------------------------------------------------- (millions of dollars 1996 1995 except per share data) --------------------------------- ---------------------------------- PRE-TAX AFTER-TAX INCOME Pre-Tax After-Tax Income INCOME INCOME (LOSS) Income Income (Loss) (LOSS) (LOSS) PER SHARE (Loss) (Loss) Per Share --------------------------------- ---------------------------------- Continuing operations excluding non-recurring $ 110.3 $ 63.4 $ 1.11 $111.9 $ 65.2 $1.16 items Restructuring charge (a) (345.1) (239.3) (4.21) (33.8) (20.6) (.36) Other charges (b) (91.0) (71.3) (1.25) (18.1) (11.0) (.20) Insurance settlements (c) - - - 55.1 33.7 .59 Gain on disposition of operations of - - - 54.0 33.0 .59 subsidiaries (d) ---------- ----------- ---------- ----------- ---------- ----------- Continuing operations $(325.8) $(247.2) $(4.35) $169.1 $100.3 $1.78 ----------------------------- ---------- ----------- ---------- ----------- ---------- -----------
The only non-recurring item in 1994 was a gain of $5.1 ($3.1 after-tax or $.06 per common share) from the disposition of the metal finishing and metalworking operations of a subsidiary. (a) Included in the restructuring charge of $345.1 ($239.3 after-tax or $4.21 per common share) for the year ended December 31, 1996 are severance and related costs of $104.5, a writedown of property, plant and equipment of $96.9, environmental closure costs of $53.3, a writedown of goodwill and intangibles of $40.0, demolition costs of $26.2, and other costs of $24.2. In addition, the year ended December 31, 1995, includes a restructuring charge (previously classified as other expense (income)-net) of $33.8 ($20.6 after-tax or $.36 per common share) related to a writedown of property, plant and equipment of $21.8 and other costs of $12.0. (b) The year ended December 31, 1996, includes other non-recurring charges of $91.0 ($71.3 after-tax or $1.25 per common share). The charges include provisions for litigation of $34.7, environmental remediation costs of $30.1, and other matters of $26.2. In addition, the year ended December 31, 1995, includes other non-recurring charges of $18.1 ($11.0 after-tax or $.20 per common share) related to provisions for environmental remediation costs and litigation. (c) The year ended December 31, 1995, includes gains of $55.1 ($33.7 after-tax or $.59 per common share) as a result of settlements with certain of the Company's insurers, net of related legal and other costs. (d) The year ended December 31, 1995, includes a gain of $9.5 ($5.9 after-tax or $.11 per common share) from the disposition of the Battery Parts business, and a gain of $44.5 ($27.1 after-tax or $.48 per common share) from the disposition of the Carbon Black business. 1996 VS. 1995 Current year consolidated net sales from continuing operations of $2.3 billion were 14 percent greater than 1995. The increase was attributable to the inclusion of OSi Specialties in 1996 for a full year which more than covered the loss in sales resulting from the disposition of businesses in 1996 and 1995. Consolidated net sales, adjusted to exclude sales attributable to OSi Specialties for the first nine months of 1996 and dispositions for both years, rose 1 percent over 1995. This increase was driven by higher sales prices, partially offset by the unfavorable impact of a comparatively stronger U.S. dollar, while volume was essentially unchanged. Income from continuing operations, excluding non-recurring items, was $63.4 million in 1996 compared to $65.2 million in 1995. The adverse effect on income of higher interest expense, the loss of earnings attributable to the sale of businesses and lower interest income was largely offset by the inclusion of a full year of OSi Specialties' higher margin operations. The increase in interest expense was attributable to financing the acquisition of OSi Specialties and the assumption of OSi Specialties' debt, while the decline in interest income was due to a reduction in funds available for short term investing resulting from the acquisition of OSi Specialties and payment of bank loans. Other major income and expense categories appearing on the Consolidated Statements of Operations, adjusted for the acquisition and dispositions, were comparable to 1995 on a percentage of net sales basis. The effective tax benefit rate of 24.1% for the year ended December 31, 1996, differs from the U.S. statutory tax rate of 35% primarily due to foreign income taxes in excess of statutory rates, non-deductible goodwill amortization related to OSi Specialties, state income taxes and the write-down of non-deductible goodwill and intangibles (see Note 12 of Notes to Financial Statements). 5 - - -------------------------------------------------------------------------------- SEGMENT INFORMATION As a result of the Company's decision to sell the Lubricants Group, the operating results of which have been recorded as discontinued operations, the Petroleum Segment consists solely of the Petroleum Specialties Group. The Company's operating income from continuing operations for both 1996 and 1995 included several non-recurring items which affect comparison. Excluding these items, operating income from continuing operations was $174.1 million in 1996 compared to $144.0 million in 1995. The following table shows the effect of these non-recurring items on operating income from continuing operations by industry segment.
-------------------------------------------------- (millions of dollars) 1996 -------------------------------------------------- OSI CORPORATE & CHEMICAL SPECIALTTIES PETROLEUM UNALLOCATED TOTAL -------------------------------------------------- Operating income (loss) from continuing operations excluding non-recurring items $ 113.4 $58.4 $ 23.6 $(21.3) $ 174.1 Restructuring charge (197.7) - (94.0) (53.4) (345.1) Other charges (24.4) - (17.3) (49.3) (91.0) Insurance settlements - - - - - Gain on disposition of subsidiaries - - - - - --------------------------------------------------- Operating income (loss) from continuing operations $(108.7) $58.4 $(87.7) $(124.0) $(262.0)
(millions of dollars) 1995 ----------------------------------------------------------- OSI DIVERSIFIED CORPORATE & CHEMICAL SPECIALTIES PETROLEUM PRODUCTS UNALLOCATED TOTAL ----------------------------------------------------------- Operating income (loss) from continuing operations excluding non-recurring items $109.6 $7.4 $36.1 $10.2 $(19.3) $144.0 Restructuring charge (33.1) - (0.7) - - (33.8) Other charges (12.9) - (1.4) (1.5) (2.3) (18.1) Insurance settlements - - - - 55.1 55.1 Gain on disposition of subsidiaries - - - 54.0 - 54.0 ----------------------------------------------------------- Operating income (loss) from continuing operations $ 63.6 $7.4 $34.0 $62.7 $ 33.5 $201.2 - - ----------------------------------------------------------- The only non-recurring item in 1994 was a gain of $5.1 ($3.1 after-tax or $.06 per common share) from the disposition of the metal finishing and metalworking operations of a subsidiary (Diversified Products).
CHEMICAL SEGMENT Segment 1996 net sales of $1.4 billion were essentially equal to 1995. The effect of a 3 percent decline in volume, mainly due to the disposition of the Company's interest in an Israeli manufacturer and the strengthening of the U.S. dollar against key global currencies, offset the impact of a favorable product sales mix and higher prices in certain business sectors. Chemical segment 1996 operating income, excluding non-recurring charges from both years, rose from $109.6 million in 1995 to $113.4 million in 1996. The 3 percent improvement was attributable to higher earnings reported by the segment's Polymer Additives Group. The group reported higher sales benefiting from an upturn in the construction and automotive markets. Sales and operating earnings were particularly strong in the Vinyl portion of the group's business where market share was gained. The consumption of rigid vinyl in house siding, window frames and pipe resulted in strong sales of organotin heat stabilizers and lubricants. Packaging film applications for polyolefins also provided a strong market for amide lubricants and stearates. Despite higher sales, the Oleo/Surfactants Group's 1996 income was down from 1995. Global demand for the group's agricultural surfactants was up dramatically in 1996 driven by the introduction of a new product into the pesticides market. Group earnings were adversely affected by higher raw material costs and the loss of certain high margin volume in a sector of the group's business, a soft glycerin market, and higher expenses attributable to the current year's severe winter weather. The Resins Group's 1996 sales and operating income decreased compared to 1995. Despite excellent growth in its specialty products area of aqueous epoxy hardeners, aqueous urethanes, breathable textile coatings and blocked isocyanate systems, the group was adversely affected by a shrinkage of the U.S. polyester polyurethanes foam market and the resulting lower prices. Higher costs associated with the severity of the 1996 winter weather in both the United States and Europe also adversely affected the Resins Group's earnings. OSI SPECIALTIES Current year operating income for this segment included a full year of operations as compared to three months in 1995. OSi Specialties added $448.6 million to net sales in 1996 compared to $101.3 million in 1995. The segment's 1996 operating income of $58.4 million was $51 million greater than the income reported in 1995. Sales for the fourth quarter, the comparable period of ownership, were up 10 percent over 1995 due to greater volume and favorable product mix. Operating income for this comparable period increased from $7.4 million to $13 million as a result of efficiencies and reductions in non-manufacturing costs achieved primarily through acquisition related synergies. 6 PETROLEUM SEGMENT The segment's current year net sales of $381.6 million were 2 percent behind 1995. Although benefiting from a 1 percent increase in volume, competitive pricing pressures and the unfavorable impact of a comparatively stronger U.S. dollar caused segment sales to decline. Operating income, excluding non-recurring charges, was $23.6 million in 1996 compared to $36.1 million in 1995. The segment was burdened during 1996 by increased depreciation and manufacturing costs resulting from the under-utilization of manufacturing capacity attributable to 1995 expansions at facilities in the U.S. and Holland. Lower than anticipated demand precluded recovery of these costs. 1996 earnings were also adversely affected by a weakening of sales prices due to market conditions and increased costs attributable to higher U.S. utility rates and severe winter weather related expenditures. 1995 VS. 1994 Consolidated 1995 net sales from continuing operations rose $143.7 million or 8 percent compared to 1994 levels. The inclusion of OSi's fourth quarter sales of $101.3 million offset an $80.6 million decline in sales resulting from the disposition of the Diversified Products Segment. Of the remaining increase, 55 percent was attributed to higher sales prices and product mix and 40 percent to favorable currency exchange rates, while 5 percent resulted from increased volume. Income from continuing operations, excluding non-recurring charges and gains, was $65.2 million in 1995, compared to $91.3 million in 1994. Although contributing $7.4 million to operating income, OSi, acquired in the fourth quarter of 1995, generated a loss of $3.6 million, net of an income tax benefit, goodwill amortization and associated financing costs. Excluding OSi Specialties' fourth quarter results, an overall erosion in gross profit margins of 2 percent accounted for approximately 85 percent of the current year's decline in income from continuing operations, excluding non-recurring items. Each of the Company's segments reported 1995 earnings that were below 1994 levels, primarily as a result of the inability to fully recoup higher raw material feedstock costs through increased sales prices. Also adversely affecting 1995 results was a 3.7 percent increase in the effective tax rate principally attributable to a greater proportion of earnings in higher tax jurisdictions and an increase in non-deductible goodwill amortization. Adding to earnings, interest income rose during 1995 as a result of higher interest rates and the investment of additional funds generated from the sale of the Diversified Products businesses. Remaining changes in income and expense categories appearing on the Consolidated Statements of Income were primarily attributable to the OSi Specialties acquisition. Effective January 1, 1995, the Company changed its method of inventory valuation under dollar value LIFO from LIFO double extension to LIFO link chain. Management believes that the LIFO link chain method is preferable because it is the predominate method used in the industry and will mitigate the dollar impact of volume fluctuations on results of operations. It is not possible to determine the effect of the change on retained earnings as of January 1, 1995, or on income as previously reported for the years ended December 31, 1994 or 1993. This change did not have a material effect on 1995 net income. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective January 1, 1995. SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS No. 121 did not have a material impact on the Company's financial position or results of operations other than its effect on the 1995 restructuring charge (see Note 2 of Notes to Financial Statements). SEGMENT INFORMATION A comparison of operating income from continuing operations for 1995 and 1994 is affected by the inclusion of non-recurring items in both periods. Operating income from continuing operations, excluding non-recurring items, declined to $144 million in 1995, from $168.6 million in 1994. CHEMICAL SEGMENT Chemical Segment 1995 net sales of $1.4 billion were $105 million, or 8 percent, over the prior year. Higher sales prices accounted for 60 percent of the increase 7 with the balance due to the favorable impact of a weaker U.S. dollar, while volume was unchanged. Although each of the segment's businesses reported unit sales prices that surpassed 1994 levels, competitive pricing pressures precluded increases sufficient to cover higher raw material feedstock costs. This segment's operating income, excluding non-recurring charges, of $109.6 million in 1995 was $15.9 million, or 13 percent, lower than 1994. Each of the segment's three business groups reported comparable percentage declines in operating earnings. The Oleo/Surfactants Group, the largest contributor to segment sales and operating income, experienced a year in which product margins eroded as a result of the inability to fully recover increased feedstock costs due to competitive pricing restraints. This was most evident in the group's line of products that reach the consumer market, where shipment volume was also down 12 percent from the prior year. Additionally, the Oleo/Surfactants Group's 1995 earnings were adversely affected by the need to purchase intermediate products as a result of equipment renovations. The renovations have been completed and production returned to normal levels during the fourth quarter. An increase in reserves for insurance claims accounted for a substantial portion of the Polymer Additives Group's decline in operating income. The group's earnings were also adversely affected by a downturn in the housing and construction markets, and lower product margins in specific lines of business. Shipment volume was down 4 percent in the Vinyl Business Unit, reflecting fewer housing and construction starts. Tin stabilizer margins were off from the prior year due to higher raw material costs, while the substitution of environmentally friendly barium and zinc based stabilizers for those containing cadmium resulted in a further erosion of margins. The shift was a result of a June 1994 decision to cease domestic production of cadmium based stabilizers and exit the U.S. market. With approximately 80 percent of the Resins Group's business originating in Europe, the slowdown in the European economy experienced during the latter part of the year had a great influence on the group's reported 1995 fourth quarter results. The poor fourth quarter caused full year operating earnings to be below the prior year. A decline in product margins also contributed to the lower earnings. Each of the group's business units reported increases in raw material costs that resulted in margins that were below the prior year. Additionally, increased effluent control costs attributable to a shared, non-owned wastewater treating plant in Germany adversely affected 1995 operating results. OSI SPECIALTIES The Company acquired OSi Specialties, a high margin leading global producer of organofunctional silane and other specialty silicone derivative products, on October 19, 1995. The newly acquired business, which traditionally experiences a "soft" fourth quarter, added $101.3 million to sales and $7.4 million to operating income, which included the amortization of intangibles generated by the acquisition. PETROLEUM SEGMENT Net sales for the Petroleum Segment of $388.9 million in 1995 exceeded the previous year by $20.1 million, or 5 percent. One-half of the increase in sales was attributable to favorable currency rates of exchange, particularly against the Dutch guilder, with the bulk of the balance resulting from higher sales prices and product mix. Rising 1 percent, shipment volume was comparable with the prior year. Petroleum Segment operating income, excluding non-recurring charges, was $36.1 million, a decline of $8.1 million compared to 1994. The segment was impacted by higher feedstock costs throughout 1995 due to periodic shortages and market conditions. The scarcity of key feedstocks created the need to purchase higher priced, sometimes lower yield, alternatives and resulted in lost sales. Lower than anticipated production volume, and additional costs attributed to the start-up of the group's recently completed Extracted Sulfonic Acid Unit in the U.S. and Calcium Sulfonates Plant in Holland, also adversely affected 1995 operating results. DIVERSIFIED PRODUCTS SEGMENT The sale of the Carbon Black and Battery Parts businesses during the first half of 1995 completed the divestiture of the Diversified Products segment. Reported segment operating earnings for 1995 and 1994 included gains of $54 million and $5.1 million, respectively, attributable to the sale of the segment's businesses. OUTLOOK The Company is optimistic that results from continuing operations in 1997 will exceed 1996 results. Several factors contribute to this optimism. The successful im- 8 plementation of the 1997 portion of the 1996 restructuring plan will reduce the Company's fixed and variable costs in 1997. While the full extent of the reductions will not be realized until 2000, these reductions will positively influence the Company's cost structure in 1997. During 1997, the Company will initiate activities to improve yields at its manufacturing facilities which will remain open following completion of the 1996 restructuring plan, and while the most significant results from this initiative will not likely occur until after 1997, results in 1997 will be positively affected by the initiative. The Company is attempting through innovative and aggressive activities with its raw material suppliers to reduce its raw material costs and believes that 1997 results will be improved by the results of these activities. The recent reorganization of the Company's corporate structure creating four business groups from the five that existed in 1996, along with the reduction in the number of total business units within these groups from 18 to 11, should, along with redirected pricing and marketing strategies, permit the Company's businesses to attain higher margins in 1997 than in 1996, favorably influencing 1997 results. The Company will continue to aggressively pursue implementation of the 1996 restructuring plan, and, following the completion of the restructuring envisioned in the 1996 restructuring plan, the Company believes it will achieve the following 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 "Outlook" 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 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 Securities and Exchange Commission filings. 9 - - -------------------------------------------------------------------------------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders Witco Corporation We have audited the accompanying consolidated balance sheets of Witco Corporation and Subsidiary Companies as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Witco Corporation and Subsidiary Companies at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 to the financial statements, in 1995 the Company changed its method of accounting for inventory valuation under dollar value LIFO from LIFO double extension to LIFO link chain. As discussed in Note 1 to the financial statements, in 1995 the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." /s/ ERNST & YOUNG LLP Stamford, Connecticut January 31, 1997, except for Note 19, as to which the date is March 4, 1997 F-1 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS - - --------------------------------------------------------------------------------
(in thousands of dollars except per share data) - - ------------------------------------------------------------------------------------------------- DECEMBER 31 1996 1995 ----------- ----------- ASSETS Current Assets Cash and cash equivalents $ 59,201 $ 143,994 Accounts and notes receivable, less allowance of $14,201 and $ 7,104 390,288 406,486 Inventories 284,500 322,898 Deferred income taxes 92,490 47,784 Prepaid and other current assets 26,947 22,883 ----------- ----------- Total Current Assets 853,426 944,045 ----------- ----------- Property, Plant and Equipment, less accumulated depreciation of $761,926 and $608,435 735,392 789,827 Goodwill and Other Intangible Assets, less accumulated amortization of $133,625 and $62,450 653,733 728,124 Deferred Income Taxes 16,438 -- Deferred Costs and Other Assets 72,976 118,182 Net Assets of Discontinued Operations 59,740 170,426 ----------- ----------- TOTAL ASSETS $ 2,391,705 $ 2,750,604 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes and loans payable $ 94,929 $ 309,171 Accounts payable and other current liabilities 515,344 385,294 ----------- ----------- Total Current Liabilities 610,273 694,465 ----------- ----------- Long-term Debt 700,820 683,830 Deferred Income Taxes -- 87,532 Deferred Credits and Other Liabilities 452,747 280,660 Shareholders' Equity $2.65 Cumulative Convertible Preferred Stock, par value $1 per share: authorized - 14 shares, issued and outstanding 6 7 - 6 and 7 shares Common Stock, par value $5 per share: authorized - 100,000 shares, issued and outstanding - 56,763 and 56,435 shares 283,818 282,173 Capital in excess of par value 138,453 131,076 Equity adjustments: Foreign currency translation 11,989 17,222 Pensions and other (6,423) (4,898) Retained earnings 200,022 578,537 ----------- ----------- Total Shareholders' Equity 627,865 1,004,117 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,391,705 $ 2,750,604 - - ---------------------------------------------------------------------- ----------- -----------
See accompanying notes F-2 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS - - --------------------------------------------------------------------------------
(in thousands of dollars except per share data) - - ----------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994 ------------- -------------- ------------- Net Sales $2,263,327 $1,985,077 $1,841,414 Cost of Goods Sold 1,760,320 1,568,822 1,434,330 ------------- -------------- ------------- Gross Profit 503,007 416,255 407,084 Operating Expenses Selling expense 106,261 83,829 77,740 General and administrative expenses 152,186 121,425 112,318 Research and development 73,088 52,907 40,717 Other expenses (income) - net 88,400 (76,998) 2,924 Restructuring charge 345,130 33,842 - ------------- -------------- ------------- Total Operating Expenses 765,065 215,005 233,699 ------------- -------------- ------------- Operating Income (Loss) from Continuing Operations (262,058) 201,250 173,385 Other Expense (Income) - Net Interest expense 69,334 43,689 29,674 Interest income (9,114) (15,104) (10,032) Other expense - net 3,531 3,525 3,951 ------------- -------------- ------------- Income (Loss) from Continuing Operations before Income Taxes (325,809) 169,140 149,792 Income Taxes (Benefit) (78,635) 68,794 55,372 ------------- -------------- ------------- Income (Loss) from Continuing Operations (247,174) 100,346 94,420 Income from Discontinued Operations - Net of Income Taxes of $283, $3,034 and $7,685 340 4,099 12,647 Estimated Loss on Disposal - Net of Income Tax Benefit of $43,612 (68,253) - - ------------- -------------- ------------- Income (Loss) from Discontinued Operations (67,913) 4,099 12,647 ------------- -------------- ------------- Net Income (Loss) $ (315,087) $ 104,445 $ 107,067 ============= ============== ============= Net Income (Loss) Per Common Share: Primary Income (loss) from continuing operations $(4.35) $1.78 $1.70 Income (loss) from discontinued operations - net of income taxes (1.19) .07 .22 ------------- -------------- ------------- NET INCOME (LOSS) PER COMMON SHARE: PRIMARY $(5.54) $1.85 $1.92 ============= ============== ============= Net Income (Loss) Per Common Share: Fully Diluted Income (loss) from continuing operations $(4.35) $1.77 $1.69 Income (loss) from discontinued operations - net of income taxes (1.19) .07 .22 ------------- -------------- ------------- NET INCOME (LOSS) PER COMMON SHARE: FULLY DILUTED $(5.54) $1.84 $1.91 - - --------------------------------------------------------------------------------------- -------------
See accompanying notes. F-3 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS - - --------------------------------------------------------------------------------
(in thousands of dollars) - - --------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994 --------- --------- --------- OPERATING ACTIVITIES Net income (loss) $(315,087) $ 104,445 $ 107,067 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 128,793 119,571 105,120 Provision (benefit) for deferred income taxes (159,311) (6,884) 17,666 Pension cost 15,154 10,130 12,378 Gain on disposition of operations of subsidiaries (412) (51,183) (4,820) Estimated loss on disposal of Lubricants Group 111,865 -- -- Provision for environmental remediation and compliance 30,077 15,348 -- Provision for litigation 34,733 9,500 -- Restructuring charge 345,130 33,842 -- Changes in operating assets and liabilities: Accounts and notes receivable 13,089 (26,609) (51,639) Inventories 36,672 (12,849) (23,750) Prepaid and other current assets 4,956 9,866 (3,791) Accounts payable and other current liabilities (76,286) (41,709) (5,492) Other 17,927 (28,548) (5,007) --------------------------------- Net Cash Provided by Operating Activities 187,300 134,920 147,732 --------------------------------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (161,163) (115,845) (107,438) Proceeds from dispositions 136,941 146,026 24,194 Acquisitions of businesses, net of cash acquired -- (481,431) -- Other 1,769 (2,443) 1,732 --------------------------------- Net Cash Used in Investing Activities (22,453) (453,693) (81,512) --------------------------------- FINANCING ACTIVITIES Dividends paid (63,351) (63,026) (55,013) Payments on borrowings (526,378) (367,541) (8,398) Proceeds from borrowings 335,565 681,551 954 Proceeds from exercise of stock options 7,084 6,523 2,734 Other -- -- (63) --------------------------------- Net Cash Provided by (Used in) Financing Activities (247,080) 257,507 (59,786) --------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2,560) 8,087 7,689 --------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (84,793) (53,179) 14,123 --------------------------------- Cash and Cash Equivalents at Beginning of Year 143,994 197,173 183,050 --------------------------------- Cash and Cash Equivalents at End of Year $ 59,201 $ 143,994 $ 197,173 - - ---------------------------------------------------------------------------------------------
See accompanying notes F-4 WITCO CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands of dollars) - - ----------------------------------------------------------------------------------------------------------------------------------- Capital Foreign Pensions Treasury Preferred Common Excess of Currency and Retained Stock Stock Stock Par Value Translation Other Earnings at Cost Total ----------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993 $ 9 $ 254,089 $ 6,123 $ (23,723) $ (6,548) $ 488,241 $ (4,776) $ 713,415 Net Income 107,067 107,067 Cash Dividends Declared: Preferred stock (20) (20) Common stock (58,089) (58,089) Common Stock Issued: Conversion of convertible debentures 27,472 121,037 148,509 Employee plans 739 1,995 2,734 Conversions (2) (256) 304 46 Equity Adjustments 22,242 4,102 26,344 ----------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 7 281,561 127,643 (1,481) (2,446) 537,199 (2,477) 940,006 Net Income 104,445 104,445 Cash Dividends Declared: Preferred stock (18) (18) Common stock (63,089) (63,089) Common Stock Issued: Employee plans 607 3,535 2,380 6,522 Conversions 5 (102) 97 -- Equity Adjustments 18,703 (2,452) 16,251 ----------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 7 282,173 131,076 17,222 (4,898) 578,537 -- 1,004,117 Net Income (Loss) (315,087) (315,087) Cash Dividends Declared: Preferred stock (18) (18) Common stock (63,410) (63,410) Common Stock Issued: Employee plans 1,319 5,814 7,133 Conversions (1) 30 (25) 4 Restricted stock 296 1,588 (1,884) -- Equity Adjustments (5,233) 359 (4,874) ----------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 $ 6 $283,818 $138,453 $11,989 $(6,423) $200,022 $ -- $627,865 -----------------------------------------------------------------------------------------------------
See accompanying notes F-5 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION: Witco Corporation is a worldwide manufacturer of high quality specialty chemical products. The Company's products are used primarily as intermediates by other manufacturers in industries such as personal care and household products, agricultural, automotive, housing and construction, packaging, food and textiles. PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES: The consolidated financial statements include the accounts of all majority owned subsidiaries after the elimination of inter-company transactions. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform with the current year presentation. CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined on either the Last-In, First-Out (LIFO) or First-In, First-Out (FIFO) basis. Effective January 1, 1995, the Company changed its method of inventory valuation under dollar value LIFO from LIFO double extension to LIFO link chain. Management believes that the LIFO link chain method is preferable because it is the predominate method used in the industry and will mitigate the impact of volume fluctuations on results of operations. The change in accounting method had no material effect on income for the year ended December 31, 1995. It is not possible to determine the effect of the change on retained earnings as of January 1, 1995, or income as previously reported for the year ended December 31, 1994. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost and depreciation is provided principally using the straight-line method based on estimated useful lives. LONG-LIVED ASSETS AND INTANGIBLE ASSETS: The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective January 1, 1995. SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS No. 121 did not have a material impact on the Company's financial position or results of operations. As indicated in Note 2 of Notes to Financial Statements, the Company recognized impairment losses associated with the restructuring plans in 1996 and 1995. Intangible assets primarily include goodwill, the excess of purchase price over the estimated fair value of net assets acquired, and are being amortized over periods not in excess of forty years. The Company periodically evaluates the carrying value of intangible assets in relation to the estimated cash flows of the underlying businesses. An impairment loss may be recognized if the expected cash flow is less than book value. The Company recognized an impairment loss on certain intangible assets, as disclosed in Note 2 of Notes to Financial Statements, as part of the 1996 restructuring plan. RESEARCH AND DEVELOPMENT COSTS: The Company's research and development costs are charged to expense as incurred. These charges to continuing operations amounted to $73,088,000 (1996), $52,907,000 (1995), and $40,717,000 (1994). ENVIRONMENTAL REMEDIATION COSTS: Environmental remediation costs are charged to expense if the remediation is the result of past practices or events and the expenditures are not expected to benefit future operations. Projected costs are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. Accruals are recorded at undiscounted amounts without regard to any third party recoveries, and are regularly adjusted as environmental assessments and remediation efforts proceed. STOCK BASED COMPENSATION: The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock options granted since the exercise price of the option was the same as the market value of the F-6 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- Company's common stock. As prescribed under SFAS No. 123, "Accounting for Stock Based Compensation," the Company has disclosed in Note 10 of Notes to Financial Statements, the pro forma effects on net income (loss) and earnings (loss) per share of recording compensation expense for the fair value of the options granted. INCOME TAXES: Income taxes have been provided using the liability method in accordance with SFAS No. 109 "Accounting for Income Taxes." COMMON SHARE DATA: Net income (loss) per common share is based upon net income (loss) adjusted for interest (net of tax) on the 5.50% Convertible Subordinated Debentures through March 1994 and the preferred stock dividend requirements. The weighted average number of common shares outstanding during each year includes dilutive common stock equivalents, principally shares issuable in connection with the 5.50% Convertible Subordinated Debentures through March 1994 and the Company's stock option plans. Fully diluted net income (loss) per common share additionally reflects the assumed conversion of the outstanding convertible preferred stock if dilutive. NOTE 2 RESTRUCTURING In December 1996, in connection with management's plan to reduce costs and improve operating efficiencies, the Company recorded a restructuring charge of approximately $345,130,000. The principal actions in the 1996 restructuring plan involve the closure or sale of 15 production facilities (13 included in the Chemical Segment and 2 included in the Petroleum Segment) and consolidation of support infrastructure. This restructuring, which will result in the elimination of approximately 1,800 corporate staff and manufacturing positions, will be completed by 1999. In addition, the year ended December 31, 1995, included a restructuring charge of $33,842,000 related to plant consolidation. The shut-down of the five facilities (principally in the Chemical Segment) addressed by the 1995 initiative is expected to be completed during 1997. The major components of the restructuring charges are as follows: - - -------------------------------------------------------------------------------- (thousands of dollars)
DESCRIPTION 1996 1995 - - -------------------------------------------------------------------------------- Severance and related costs $104,456 $ 1,900 Write-down of property, plant and equipment 96,879 21,840 Environmental remediation and compliance 53,298 2,090 Write-down of goodwill and intangibles 40,000 1,856 Demolition costs 26,200 4,605 Other 24,297 1,551 ------------------- $345,130 $ 33,842 - - --------------------------------------------------------------------------------
NOTE 3 ACQUISITION AND DISPOSITIONS On October 19, 1995, the Company acquired OSi Specialties Holding Company and OSi Specialties, Inc. (collectively "OSi") from an investor group led by DLJ Merchant Banking Partners, L.P. in a cash transaction for approximately $486,000,000. OSi manufactures a full line of silicone surfactants, amine catalysts, organofunctional silanes and specialty fluids at key manufacturing facilities in the United States, Belgium, Italy and Brazil. The acquisition was accounted for as a purchase and accordingly, the results of operations have been included in the consolidated financial statements from the date of acquisition. An allocation of the purchase price resulted in an excess over the estimated fair value of net assets acquired (goodwill) of approximately $517,000,000. This is being amortized on a straight line basis over forty years. F-7 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- The pro forma unaudited results of operations for the years ended December 31, 1995 and 1994, assuming the acquisition of OSi had been consummated as of January 1, 1994, are as follows:
- - -------------------------------------------------------------------------------------- (in thousands of dollars except per share data) 1995 1994 ------------------------- Net sales $2,322,216 $2,235,736 ------------ ------------ Income from continuing operations $101,119 $84,547 Income from discontinued operations - net of income taxes 4,099 12,647 ------------ ------------ Net income $105,218 $ 97,194 ------------ ------------ Net income per common share: primary Income from continuing operations $1.79 $1.52 Income from discontinued operations - net of income taxes .07 .22 ------------ ------------ Net income per common share: primary $1.86 $1.74 - - --------------------------------------------------------------------------------------
On September 11, 1995, the Company announced its intention to divest its Lubricants Group. On November 1, 1996, the Company sold certain assets of its Kendall/ Amalie business to Sun Company Inc. for $74,386,000. Also on November 1, the Company sold certain assets of its grease gun manufacturing business to Epicor Industries, a wholly owned subsidiary of Stant Corporation, for $11,019,000 and certain assets of its grease business to Exxon Company, U.S.A. for $35,284,000. All amounts are subject to certain post-closing adjustments (see Note 18 of Notes to Financial Statements for more information regarding discontinued operations). On June 30, 1995, the Company sold the operations of its Continental Carbon subsidiary to China Synthetic Rubber Corporation for $121,900,000, resulting in a gain of $27,073,000, or $.48 per common share. Continental Carbon manufactures carbon black which is used primarily in the tire and rubber industry. On March 24, 1995, the Company sold the operations of its Battery Parts business to Acro Products, Inc. for $24,100,000, resulting in a gain of $5,918,000, or $.11 per common share. Battery Parts manufactures rubber and plastic battery containers, covers and parts and custom injection molded parts. The operating results individually and in the aggregate of the 1995 dispositions were not significant to the consolidated results of operations. NOTE 4 INVENTORIES Inventories are classified as follows:
- - -------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ------------- -------------- Raw materials and supplies $ 99,112 $115,231 Finished goods 185,388 207,667 ------------- -------------- $284,500 $322,898 - - -------------------------------------------------------------------------------- Work in progress included above is not significant.
Inventories valued on a LIFO basis, at December 31, 1996 and 1995, amounted to $107,524,000 and $118,774,000, respectively. Inventories would have been $40,964,000 and $41,499,000 higher than reported at December 31, 1996 and 1995, respectively, if the FIFO method (which approximates current cost) had been used by the Company for all inventories. F-8 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- NOTE 5 PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment follows:
- - ------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ------------------------------ Land $ 34,597 $ 35,259 Buildings and improvements 172,695 186,904 Machinery, fixtures, and equipment 1,202,449 1,114,452 Assets under construction 87,577 61,647 ------------------------------ 1,497,318 1,398,262 Less accumulated depreciation 761,926 608,435 ------------------------------ $ 735,392 $ 789,827 - - -------------------------------------------------------------------------------
Depreciation expense, including amortization of assets under capital lease obligations, from continuing operations amounted to $99,676,000 (1996), $81,766,000 (1995), and $71,830,000 (1994). At December 31, 1996 and 1995, buildings and improvements included approximately $14,500,000 and $17,000,000, respectively, related to an office/laboratory facility under a capital lease. The decrease from 1995 was the result of foreign currency translation. NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets consist of the following:
- - -------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ----------------------------- Goodwill $660,853 $666,880 Patents and licenses 59,912 58,561 Other 66,593 65,133 ----------------------------- 787,358 790,574 Less accumulated amortization 133,625 62,450 ----------------------------- $653,733 $728,124 - - -------------------------------------------------------------------------------
Amortization expense from continuing operations amounted to $29,117,000 (1996), $20,805,000 (1995), and $16,833,000 (1994). NOTE 7 ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Components of accounts payable and other current liabilities consist of the following:
- - --------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ------------------------ Trade accounts payable $155,130 $166,688 Other accruals 154,696 126,139 Reserves for environmental remediation and compliance 68,776 23,597 Reserve for restructuring 46,244 2,583 Payroll related liabilities 39,713 54,015 Reserve for disposition of Lubricants Group 31,438 - Income taxes 19,347 12,272 ------------------------ $515,344 $385,294 - - ---------------------------------------------------------------------------------
F-9 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- NOTE 8 INDEBTEDNESS On October 18, 1995, the Company entered into a one year credit agreement totaling $675,000,000 with a consortium of banks for the purpose of financing the OSi acquisition and to prepay OSi's 11.50% Senior Secured Discount Debentures due 2004 and OSi Specialties' 9.25% Senior Subordinated Notes due 2003. On February 12, 1996, the Company issued $150,000,000 of 6.125% Notes due 2006 and $150,000,000 of 6.875% Debentures due 2026. The net proceeds of $297,000,000, plus cash on hand, were used to repay $300,000,000 of bank loans under the credit agreement. Immediately thereafter, the availability of funds under the credit agreement was reduced to $375,000,000, $90,000,000 of which was utilized at December 31, 1996. On October 11, 1996, the credit agreement was amended and the term of the facility was extended until October 10, 1997. The interest rate at December 31, 1996, was approximately 5.77%. At December 31, 1995, the Company had $605,000,000 outstanding under the credit agreement, including $305,000,000 in the Notes and Loans Payable caption of the Company's Balance Sheet. The interest rate at December 31, 1995 was approximately 6.1%.
Following is a summary of long-term debt: - - ------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 --------------------------- Short-term bank loan (refinanced) $ - $300,000 6.125% Notes due 2006 150,000 - 6.875% Debentures due 2026 150,000 - 6.60% Notes due 2003 165,000 165,000 7.75% Debentures due 2023 110,000 110,000 7.325% Notes due 1998 46,242 49,210 6.47% Bank Loan due 2000 20,976 21,838 Capital Lease Obligation 14,449 17,822 6.30% Bank Loan due 2001 14,420 - 5.85% Pollution Control Revenue Bonds due 2023 10,000 10,000 8.20% Bank Loan due 2006 9,879 - Industrial Development Revenue Bond due 2014 8,500 8,500 Other 2,723 3,945 --------------------------- 702,189 686,315 Less amounts included in notes and loans payable 1,369 2,485 --------------------------- $700,820 $683,830 - - -------------------------------------------------------------------------------------
The Company has arrangements with various banks for lines of credit for its international subsidiaries aggregating $41,845,000, of which $2,216,000 was utilized at December 31, 1996. The weighted average interest rates on international short-term borrowings outstanding were 4.33% (1996) and 6.36% (1995). Principal maturities of long-term debt including capital lease obligations through the year 2001 at December 31, 1996 are $1,369,000 (1997), $47,752,000 (1998), $2,517,000 (1999), $23,639,000 (2000), and $17,239,000 (2001). Following is a summary of interest from continuing operations:
- - ------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ------------------------------------------ Interest expense $69,334 $43,689 $29,674 Capitalized interest 1,503 1,429 2,214 ------------------------------------------ Total interest incurred $70,837 $45,118 $31,888 ------------------------------------------ Total interest payments $62,593 $47,016 $34,190 - - -------------------------------------------------------------------------------
NOTE 9 SHAREHOLDERS' EQUITY On March 2, 1995, the Board of Directors unanimously approved a Shareholder Rights Plan (the "Plan"). The Plan was implemented by the issuance of one preferred stock purchase right for each share of common stock outstanding at the close of business on March 2, 1995, or issued thereafter until the rights become exercisable. Each right entitles the holder in certain events to purchase one-one thousandth of a share of participating preferred stock at a purchase price of $110. Each one-one thousandth of a share of participating preferred F-10 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- stock is intended to represent the economic equivalent of one share of common stock. Under the Plan, 300,000 shares of participating cumulative preferred stock without par value have been authorized. The rights currently are not exercisable. If a person or group acquires more than 15% of the outstanding common stock, or at the Board of Directors election if a tender offer for more than 15% of the outstanding common stock is commenced, or if such person or group acquires the Company in a merger or other business combination, each right (other than those held by the acquiring person) will entitle the holder to purchase stock of the Company or stock or other property of the acquiring person having a value of twice the purchase price. The rights will expire on March 2, 2005, unless redeemed earlier by the Company in whole, but not in part, at a price of $.01 per right. Each share of $2.65 Cumulative Convertible Preferred Stock is entitled to one vote and has a minimum liquidating preference of $66 per share. Each share is subject to redemption at the Company's option at $66 per share and is convertible into 16.8075 shares of the Company's common stock. At December 31, 1996, unissued common stock of the Company was reserved for issuance in accordance with the $2.65 Cumulative Convertible Preferred Stock (109,000 shares). The Company has authorized 8,300,000 shares of series preferred stock, which, when issued, will have such rights, power, and preferences as shall be fixed by the Company's Board of Directors. Dividends declared per share on the Company's common stock amounted to $1.12 (1996), $1.12 (1995), and $1.06 (1994). Common and preferred stock transactions were as follows:
- - ------------------------------------------------------------------------------- (thousands of shares) 1996 1995 1994 -------------------------------- Convertible Preferred Stock Outstanding at beginning of year 7 7 9 Conversions (1) - (2) -------------------------------- Outstanding at End of Year 6 7 7 Common Stock Issued at beginning of year 56,435 56,312 50,818 Net shares issued under employee plans 263 122 - Conversions 6 1 - Restricted stock 59 - - Conversion of convertible debentures - - 5,494 -------------------------------- Issued at End of Year 56,763 56,435 56,312 Treasury Stock In treasury at beginning of year - 165 318 Net shares issued under employee plans - (159) (133) Conversions - (6) (20) -------------------------------- In Treasury at End of Year - - 165 - - -------------------------------------------------------------------------------
NOTE 10 STOCK BASED COMPENSATION PLANS The Company has two fixed option plans for certain employees. Under the 1992 Incentive Stock Option Plan, the Company may grant options to its employees for up to 161,000 shares of common stock. Under the 1995 Incentive Stock Option Plan, the Company may grant options to its employees for up to 1,183,000 shares of common stock. These plans provide that shares granted come from the Company's authorized but unissued or reacquired common stock. The price of the options granted pursuant to these plans will not be less than 100 percent of the fair market value of the shares on the date of grant. These options are exercisable in installments within a period not to exceed ten years from the date of grant. The options outstanding at December 31, 1996 and 1995, expire on various dates through June 2006. At December 31, 1996 and 1995, unissued common stock of the Company reserved for issuance in accordance with the stock option plans are 5,627,000 and 4,893,000 shares, respectively. In 1996, restricted stock awards were granted to two key employees pursuant to certain employment agreements between the Company and such employees. The restricted stock will vest for two awards totaling 40,000 shares if certain performance-based criteria are met. F-11 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- Unless these performance criteria are met, these restricted stock awards shall terminate on either September 9, 2001, or June 13, 2002, according to the terms of the awards. An award of 19,186 shares of restricted common stock will vest over time through 1998. The Company has elected to follow Accounting Principals Board Opinion (APB) No. 25 "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its employee stock options. Under APB No. 25, the Company does not recognize compensation expense since the exercise price of the options granted is equal to the market value of the Company's common stock at the date of grant. Statement of Financial Accounting Standard No. 123 "Accounting for Stock Based Compensation" (SFAS 123) requires the Company to disclose the pro forma impact on net income (loss) and earnings (loss) per share as if compensation expense associated with employee stock options had been calculated under the fair value method of SFAS 123 for employee stock options granted subsequent to December 31, 1994. The fair value of each option grant is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively; dividend yield of 4%; expected volatility of .214 and .215; risk-free interest rates of 6.1% and 6.05%; and weighted-average expected lives of 5.5 and 6.5 years. The weighted-average fair value of the restricted stock on the date of grant was $32 with a weighted-average remaining contractual life of 4.6 years. The Company's net income (loss) and net income (loss) per common share have been adjusted to the pro forma amounts indicated below. These pro forma effects may not be representative of the effects on future years because of the subjective assumptions used in the fair value estimate calculated under the Black-Scholes model and that new grants are generally made each year.
- - ------------------------------------------------------------------------------------ (in thousands of dollars except per share data) 1996 1995 ----------------------------- Net income (loss) As reported $(315,087) $104,445 Pro forma $(317,658) $104,105 Net income (loss) per common As reported $(5.54) $1.85 share: primary Pro forma $(5.58) $1.84 Net income (loss) per common As reported $(5.54) $1.84 share: fully diluted Pro forma $(5.58) $1.84 - - ------------------------------------------------------------------------------------
Because SFAS 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1999 since options vest over five years. A summary of the Company's stock option activity and related information for the years ended December 31 follows:
- - ------------------------------------------------------------------------------------------------------- (shares in thousands) 1996 1995 1994 ---------------------------------------------------------------- WEIGHTED- Weighted- Weighted- AVERAGE Average Average EXERCISE Exercise Exercise PRICE Price Price SHARES Shares Shares ---------- --------- ---------- ---------- ---------- ---------- Options outstanding, beginning of year 2,619 $28 2,054 $27 1,472 $23 Granted 2,182 33 879 28 780 32 Exercised (267) 25 (300) 20 (149) 18 Forfeited (251) 30 (14) 29 (49) 27 ---------- --------- ---------- ---------- ---------- ---------- Options outstanding, end of year 4,283 $30 2,619 $28 2,054 $27 Options exercisable at end of year 1,827 $29 808 $27 720 $24 Weighted-average fair value of options granted during the year $6.35 $5.66 $ - - - -------------------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 1996, ranged from $21.38 to $33.25. The weighted-average remaining contractual life of these options is 8.5 years. F-12 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- NOTE 11 OTHER EXPENSES (INCOME) - NET The components of other expenses (income) - net from continuing operations are as follows:
- - ----------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ----------------------------------- Provision for litigation $34,733 $ - $ - Provision for environmental remediation and compliance 30,077 13,800 - Amortization of intangibles 29,117 20,805 16,833 Settlements with certain of the company's insurers - (55,149) - Gain on disposition of operations of subsidiaries - (54,079) - Other - net (5,527) (2,375) (13,909) ----------------------------------- $88,400 $(76,998) $ 2,924 - - -----------------------------------------------------------------------------------------------------
NOTE 12 INCOME TAXES The components of income (loss) from continuing operations before income taxes are:
- - ----------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ----------------------------------- Domestic $(335,609) $113,308 $ 91,387 Foreign 9,800 55,832 58,405 ----------------------------------- $(325,809) $169,140 $149,792 - - -----------------------------------------------------------------------------------------------------
The provision for income taxes from continuing operations consists of the following:
- - ----------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ----------------------------------- Current Federal $(14,514) $49,675 $25,115 State 735 8,336 4,630 Foreign 38,564 16,004 9,870 Deferred Federal (85,750) (6,361) 6,824 State (11,771) (800) 1,000 Foreign (5,699) 2,588 8,916 Investment tax credit amortization (200) (648) (983) ----------------------------------- $(78,635) $68,794 $55,372 - - -----------------------------------------------------------------------------------------------------
The effective income tax rate from continuing operations varied from the statutory federal income tax rate as follows:
- - ----------------------------------------------------------------------------------------------------- 1996 1995 1994 ----------------------------------- Statutory federal income tax rate (35.0)% 35.0% 35.0% Foreign income taxes in excess of statutory rate 8.1 - - Non-deductible goodwill and intangibles write-down 3.9 - - State income taxes - net (3.4) 4.5 3.8 Non-deductible goodwill amortization 1.8 1.1 .3 Amortization of investment tax credits - (.4) (.6) Other .5 .5 (1.5) ----------------------------------- (24.1)% 40.7% 37.0% - - -----------------------------------------------------------------------------------------------------
The components of deferred income taxes are as follows:
- - ----------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ------------------------- Current Deferred Tax (Assets) Liabilities: Reserve for environmental remediation and compliance $(27,339) $ (12,208) Accrual items (19,698) (20,451) Reserve for disposition of Lubricants Group (12,260) - Inventories 3,905 202 Other - net (37,098) (15,327) ========================= $(92,490) $ (47,784) ========================= Non-current Deferred Tax (Assets) Liabilities: Depreciation $110,396 $138,381 Reserve for environmental remediation and compliance (56,734) (23,548) Net operating loss carryforward (21,239) (36,059) Postretirement benefits other than pensions (20,469) (14,744) Other - net (28,392) 23,502 ------------------------- $(16,438) $ 87,532 - - -----------------------------------------------------------------------------------------------------
F-13 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- No federal or state income taxes have been provided on approximately $154,438,000 of unremitted earnings of the Company's international subsidiaries at December 31, 1996. As a result of the availability of foreign tax credits, based on current rates, no significant federal or state income taxes would be payable if these earnings were distributed. At December 31, 1996, the Company has federal net operating losses of approximately $48,800,000 which are subject to certain limitations and expire as follows: $1,600,000 (2008), $32,200,000 (2009), and $15,000,000 (2010). The Company has foreign net operating losses of approximately $6,600,000 with no expiration date. Cash payments for income taxes amounted to $24,716,000 (1996), $59,505,000 (1995), and $45,108,000 (1994). NOTE 13 PENSION PLANS The Company has various non-contributory defined benefit pension plans covering substantially all of its domestic employees and certain international employees. Benefits are primarily based upon levels of compensation and/or years of service. The Company's funding policy is based upon funding at the minimum annual amounts required by applicable federal laws and regulations plus such additional amounts as the Company may determine to be appropriate from time to time. Plan assets consist of publicly traded securities and investments in commingled funds administered by independent investment advisors. Certain union employees of the Company participate in multi-employer plans and the Company makes contributions primarily based upon hours worked. These plans provide defined benefits to these employees. Employees of international subsidiaries are covered by various pension benefit arrangements, some of which are considered to be defined benefit plans for financial reporting purposes. Assets of the plans are comprised primarily of insurance contracts and equity securities. Benefits under these plans are primarily based upon levels of compensation. Funding policies are based on legal requirements, tax considerations and local practices. Net pension cost includes the following components:
- - ---------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ----------------------------------------------------------------------- DOMESTIC INTERNATIONAL Domestic International Domestic International ----------------------------------------------------------------------- Service cost for benefits earned during the period $ 10,456 $ 4,600 $ 6,561 $ 3,823 $ 8,284 $ 3,722 Interest cost on the projected benefit obligation 25,997 7,154 24,337 6,478 22,652 5,516 Actual (gain) loss on plan assets (39,145) (1,046) (63,453) (7,486) 7,287 (2,576) Net amortization and deferral 9,883 (2,745) 35,206 4,180 (32,743) (314) Curtailment loss 44,547 - - - - - ----------------------------------------------------------------------- Total Pension Cost 51,738 7,963 2,651 6,995 5,480 6,348 Multi-employer plans 473 - 411 - 421 - Other international plans - 68 - 73 - 129 ----------------------------------------------------------------------- Net Pension Cost 52,211 8,031 3,062 7,068 5,901 6,477 Less pension cost of discontinued operations 10,292 - 15 - 1,009 - ----------------------------------------------------------------------- Net Pension Cost from Continuing Operations $ 41,919 $ 8,031 $ 3,047 $ 7,068 $ 4,892 $ 6,477 - - ----------------------------------------------------------------------------------------------------------
The domestic curtailment loss of $44,547,000 is reflected in the Consolidated Statement of Operations as follows: $35,047,000 is included in the restructuring charge and $9,500,000 is included in Loss from Discontinued Operations. F-14 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- The weighted average assumptions used to calculate costs were as follows:
- - ------------------------------------------------------------------------------------------------------- 1996 1995 1994 -------------------------------------------------------------------- DOMESTIC INTERNATIONAL Domestic International Domestic International -------------------------------------------------------------------- Discount rate 7.0% 7.0% 8.5% 7.1% 7.0% 6.9% Rate of increase in compensation level 4.5% 4.3% 4.5% 4.3% 4.5% 4.3% Expected long-term rate of return on assets 10.0% 7.9% 10.0% 8.0% 10.0% 8.0% - - -------------------------------------------------------------------------------------------------------
The discount rate used to calculate domestic pension cost was changed from 8.5% in 1995 to 7.0% in 1996 which increased pension cost by approximately $4,900,000. The funded status and amounts recognized in the Company's Consolidated Balance Sheets at December 31, 1996 and 1995, for the domestic plans were as follows:
- - ------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 --------------------------------------------------------- PLANS IN WHICH: Plans in which: --------------------------------------------------------- ASSETS ACCUMULATED Assets Accumulated EXCEED BENEFITS Exceed Benefits ACCUMULATED EXCEED ASSETS Accumulated Exceed Assets BENEFITS Benefits --------------------------------------------------------- Actuarial present value of: Vested benefits $(267,946) $ (82,112) $(259,114) $(70,936) Nonvested benefits (4,995) (10,341) (6,358) (2,166) --------------------------------------------------------- Accumulated Benefit Obligation (272,941) (92,453) (265,472) (73,102) Effect of anticipated future compensation levels (9,713) (18,224) (22,489) (20,922) --------------------------------------------------------- Projected Benefit Obligation (282,654) (110,677) (287,961) (94,024) Plan assets at fair value 294,264 49,756 291,165 38,213 --------------------------------------------------------- Plan Assets in Excess of (Less than) Projected Benefit Obligation 11,610 (60,921) 3,204 (55,811) Unrecognized prior service cost 10,764 6,205 28,915 6,294 Unrecognized net transition (asset) obligation (8,522) 286 (11,636) 637 Unrecognized net loss 13,530 12,396 45,621 12,823 Adjustment required to recognize minimum - (13,395) - (14,596) liability --------------------------------------------------------- Noncurrent Pension Asset (Liability) $ 27,382 $ (55,429) $ 66,104 $(50,653) - - -------------------------------------------------------------------------------------------------------
The assumptions used to calculate December 31, 1996 and 1995, obligations for domestic plans were as follows:
- - ------------------------------------------------------------------------------------------------------- 1996 1995 ------------------------- Discount rate 7.5% 7.0% Rate of increase in compensation level 4.5% 4.5% - - -------------------------------------------------------------------------------------------------------
The revised domestic discount rate of 7.5% resulted in a decrease of approximately $17,300,000 and $20,900,000 in the 1996 accumulated and projected benefit obligation, respectively. F-15 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- The funded status and amounts recognized in the Company's Consolidated Balance Sheets at December 31, 1996 and 1995, for the international plans were as follows:
- - ------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 --------------------------------------------------------- PLANS IN WHICH: Plans in which: --------------------------------------------------------- ASSETS ACCUMULATED Assets Accumulated EXCEED BENEFITS Exceed Benefits ACCUMULATED EXCEED ASSETS Accumulated Exceed Assets BENEFITS Benefits --------------------------------------------------------- Actuarial present value of: Vested benefits $(34,802) $(46,579) $(31,122) $(41,227) Nonvested benefits (1,717) (8,366) (1,620) (2,483) --------------------------------------------------------- Accumulated Benefit Obligation (36,519) (54,945) (32,742) (43,710) Effect of anticipated future compensation levels (7,065) (23,822) (7,387) (18,497) --------------------------------------------------------- Projected Benefit Obligation (43,584) (78,767) (40,129) (62,207) Plan assets at fair value 48,819 196 47,567 289 --------------------------------------------------------- Plan Assets in Excess of (Less than) Projected Benefit Obligation 5,235 (78,571) 7,438 (61,918) Unrecognized prior service cost 1,309 14 1,597 15 Unrecognized net transition (asset) obligation (5,473) 2,711 (5,787) (21) Unrecognized net loss (gain) 1,963 5,915 (795) 1,280 --------------------------------------------------------- Noncurrent Pension Asset (Liability) $ 3,034 $(69,931) $ 2,453 $(60,644) - - -------------------------------------------------------------------------------------------------------
The assumptions used to calculate December 31, 1996 and 1995, obligations for international plans were as follows:
- - ------------------------------------------------------------------------------------------------------- 1996 1995 ------------------------- Discount rate 6.6% 7.1% Rate of increase in compensation level 3.9% 4.3% - - -------------------------------------------------------------------------------------------------------
The Company sponsors a defined contribution savings plan, the Witco Corporation Employee Retirement Savings Plan, which is organized under sections 401(k) and 401(a) of the Internal Revenue Code. The Plan allows salary and hourly non-bargaining employees to contribute up to a maximum of 15% of their base pay with the Company providing a matching contribution of 50 cents for each dollar up to 6%. In addition, the Company sponsors the OSi Specialties, Inc. 401(k) Savings and Investment Plan which covers all full time employees of OSi. The Plan allows employees to contribute a maximum of 17.5% of eligible compensation and the Company provides a matching contribution of 50% up to 7.5%. The Plans permit employees to make contributions on both a pre-tax and after-tax basis. Participants are immediately vested in their contributions and become fully vested in the matching contribution upon meeting certain service requirements. Union employees' participation, provisions, contributions and employer match are based upon terms of their respective collective bargaining agreement. The Company's matching contributions were $4,200,000 (1996), $3,900,000 (1995) and $4,300,000 (1994). NOTE 14 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides health and life insurance to certain domestic retired employees, most of whom contribute to its cost. Substantially all employees presently become eligible for retiree benefits after reaching retirement age while working for the Company. The cost of the retiree medical plan is provided by retiree contributions that are adjusted annually to reflect current health costs. For domestic employees subject to collective bargaining arrangements, the cost is shared by the Company in accordance with the bargained agreements. Life insurance benefits for certain retired employees are provided with the Company assuming the cost. The Company's policy is to fund the plans at the discretion of management. F-16 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- Postretirement benefit obligations at December 31, 1996 and 1995, are as follows:
- - ----------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ---------------------------- Accumulated Postretirement Benefit Obligation: Retirees $43,134 $29,359 Active plan participants fully eligible for benefits 8,250 9,535 Other active plan participants 7,362 12,086 ---------------------------- Total Accumulated Postretirement Benefit Obligation 58,746 50,980 Unrecognized net (loss) (262) (7,010) ---------------------------- Accrued Postretirement Benefit Liability $58,484 $43,970 - - -----------------------------------------------------------------------------------------------------
Net periodic postretirement benefit costs include the following components:
- - ----------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ------------------------------------------ Service cost of benefits earned $ 637 $ 486 $ 591 Interest cost on accumulated postretirement benefits 3,082 2,938 2,634 Curtailment loss 13,443 - - Net amortization 21 (747) 275 ------------------------------------------ Net Periodic Postretirement Benefit Costs $17,183 $2,677 $3,500 - - -----------------------------------------------------------------------------------------------------
For measuring the expected postretirement benefit obligation, a 8% and 8.5% annual rate of increase in the per capita claims cost was assumed for 1996 and 1995, respectively. The rate was assumed to decrease by 1% per year to 5% in 1999 and remain at that level thereafter. The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for 1996 and 7% for 1995. The discount rates used in determining the net periodic postretirement benefit costs were 7% (1996), 8.3% (1995) and 7% (1994). In 1996, a curtailment charge of $13,443,000 was recognized in connection with the 1996 restructuring plan. The effect of a 1% increase in the health care cost trend rate would increase the present value of the accumulated postretirement benefit obligation at December 31, 1996, by approximately $4,900,000 and the net periodic postretirement benefit cost for 1996 by approximately $500,000. Certain union employees of the Company participate in multi-employer plans that provide defined postretirement health and life insurance benefits. The net periodic postretirement benefit cost for these employees is not distinguishable. The Company's costs associated with these plans on a cash basis is not significant. NOTE 15 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 foreign exchange contracts are accounted for as hedges of net investments and transaction hedges. Gains and losses on hedges of net investments are recognized as a component of shareholders' equity. Gains and losses on transaction hedges are recognized in income and offset the foreign exchange gains and losses on the related transaction. At December 31, 1996 and 1995, the Company had outstanding swap contracts with aggregate notional amounts of approximately $197,000,000 for each year to hedge its foreign net investments and also to fix the interest rates on the same amount of indebtedness at a weighted average interest rate of approximately 8%. The net interest rate differentials that are paid or received are reflected currently as adjustments to interest expense. The foreign currency contracts are primarily in German marks and expire in March 2003. At December 31, 1996 and 1995, the Company had outstanding forward contracts with aggregate notional amounts of approximately $137,000,000 and $164,000,000, respectively, to hedge foreign currency risk on accounts receivable and payable. These forward contracts are generally outstanding for 30 days and are primarily denominated in German marks, Italian lire, Swiss and French francs, and British pounds. All contracts have been entered into with major financial institutions. The risk associated with these F-17 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- transactions is the cost of replacing, at current market rates, agreements in the event of default by the counterparties. Management believes the risk of incurring such losses is remote. The following summarizes the major methods and assumptions used in estimating the fair values of financial instruments. CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value due to the short maturity of these instruments. NOTES RECEIVABLE: The fair value is estimated by discounting the future cash flows using the interest rates at which similar loans would be made under current conditions. LONG-TERM DEBT (INCLUDING SHORT-TERM PORTION): The fair value for the 6.60% and the 6.125% Notes in addition to the 7.75% and the 6.875% Debentures were based on quoted market values. For all other long-term debt which have no quoted market price, the fair value is estimated by discounting projected future cash flows using the Company's incremental borrowing rate. FOREIGN CURRENCY/INTEREST RATE SWAP CONTRACTS: The fair value is the amount at which the contracts could be settled based on quotes provided by investment banking firms. FAIR VALUES OF FINANCIAL INSTRUMENTS: The following table presents the carrying amounts and estimated fair values of material financial instruments used by the Company in the normal course of its business.
- - ------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 --------------------------------------------------------- CARRYING Carrying AMOUNT FAIR VALUE Amount Fair Value --------------------------------------------------------- Cash and cash equivalents $ 59,201 $59,201 $143,994 $143,994 Notes receivable $ 24,422 $24,449 $ 26,387 $ 26,366 Long-term debt $ 700,820 $666,847 $686,315 $696,193 Off-balance sheet financial instruments: Unrealized loss on foreign currency/interest rate swap contracts $ - $(35,775) $ - $(41,895) - - -------------------------------------------------------------------------------------------------------
NOTE 16 COMMITMENTS AND CONTINGENCIES OPERATING LEASES: At December 31, 1996, minimum rental commitments related to continuing operations under noncancelable operating leases amounted to $19,954,000 (1997), $12,854,000 (1998), $11,378,000 (1999), $8,374,000 (2000), $8,243,000 (2001), and $85,440,000 (2002 and thereafter). Rental expenses under operating leases from continuing operations were $22,725,000 (1996), $16,597,000 (1995) and $16,758,000 (1994). CAPITAL LEASE: The Company has a capital lease for an office/laboratory facility located in Meyrin, Switzerland. The lease contains purchase options and expires in 2007. Future minimum lease payments at December 31, 1996, were as follows: -------------------------------------------------- (thousands of dollars) 1997 $ 1,964 1998 1,964 1999 1,964 2000 1,964 2001 1,964 2002 and thereafter 11,786 ---------- Total minimum lease payments 21,606 Amounts representing interest (7,157) ---------- Present value of net minimum lease 14,449 payments Current portion (869) ---------- Long-term obligation $13,580 -------------------------------------------------- The lease contains a sublease agreement for one third of the facility over the length of the lease with the lessee providing a pro rata share of the minimum lease payments. CAPITAL COMMITMENTS: At December 31, 1996, the estimated costs to complete authorized projects under construction related to continuing operations amounts to $82,024,000. F-18 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- LITIGATION, CLAIMS AND 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. As of December 31, 1996, the Company was a PRP, or a defendant, in connection with 76 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 27 exceptions, all of these sites involve one or more PRPs, and in most cases there are numerous other PRPs in addition to the Company. CERCLA, RCRA and the state counterparts to these federal laws authorize governments to investigate and remediate actual or suspected damage to the environment caused by the release, or suspected release, of hazardous substances into the environment, or to order the responsible parties to investigate and/or remediate such environmental damage. The Company evaluates and reviews environmental reserves for future remediation and other costs on a quarterly basis to determine appropriate reserve amounts. Inherent in this process are considerable uncertainties which 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 December 31, 1996 and 1995, the Company's reserves for environmental remediation and compliance costs (including $64,224,000 at December 31, 1996, of both current and long-term environmental liabilities for the Lubricants Group and $77,649,000 at December 31, 1996, of both current and long-term environmental liabilities for plants to be either sold or closed) amounted to $219,697,000 and $106,182,000 (including $22,536,000 for the Lubricants Group), respectively, 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 December 31, 1996 and 1995, $150,921,000 and $60,049,000, respectively, 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 operating results could be materially affected in future periods by the resolution of these contingencies. F-19 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- NOTE 17 OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA The following is a summary of the Company's operations by industry segment and geographic area:
- - -------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 -------------------------------------------- Net Sales Chemical $ 1,435,852 $ 1,442,320 $ 1,336,907 OSi Specialties 448,592 101,312 -- Petroleum 381,621 388,872 368,747 Diversified products -- 61,412 141,995 Intersegment elimination (2,738) (8,839) (6,235) -------------------------------------------- Net Sales $ 2,263,327 $ 1,985,077 $ 1,841,414 -------------------------------------------- Operating Income Chemical $ (108,687) $ 63,611 $ 125,459 OSi Specialties 58,351 7,385 -- Petroleum (87,746) 33,955 44,240 Diversified products -- 62,689 17,714 Corporate and unallocated (123,976) 33,610 (14,028) -------------------------------------------- Operating income (loss) from continuing operations (262,058) 201,250 173,385 -------------------------------------------- Other expense - net (3,531) (3,525) (3,951) Interest income (expense) - net (60,220) (28,585) (19,642) -------------------------------------------- Income (loss) from continuing operations before income taxes $ (325,809) $ 169,140 $ 149,792 -------------------------------------------- Assets Chemical $ 915,604 $ 1,090,837 $ 1,101,519 OSi Specialties 969,620 966,501 -- Petroleum 209,154 246,259 507,848 Diversified products -- -- 107,376 Net assets of discontinued operations 59,740 170,426 -- Corporate (principally cash, cash equivalents and 237,587 276,581 202,602 deferred pension costs) -------------------------------------------- Assets $ 2,391,705 $ 2,750,604 $ 1,919,345 - - --------------------------------------------------------------------------------------------------------
The following table presents a reconciliation of operating income (loss) from continuing operations on a segment basis detailing unusual or infrequently occurring items which affect comparability between years:
- - ------------------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 ------------------------------------------------------------------------- OSi CORPORTAE & CHEMICAL SPECIALTIES PETROLEUM UNALLOCATED TOTAL ------------------------------------------------------------------------- Operating income (loss) from continuing operations on a comparative basis $ 113,398 $ 58,351 $ 23,582 $ (21,273) $ 174,058 Restructuring charge (197,724) -- (94,031) (53,375) (345,130) Other charges (24,361) -- (17,297) (49,328) (90,986) Insurance settlements -- -- -- -- -- Gain on disposition of subsidiaries -- -- -- -- -- ------------------------------------------------------------------------- Operating income (loss) from continuing operations $(108,687) $ 58,351 $ (87,746) $(123,976) $(262,058) ------------------------------------------------------------------------- - - ------------------------------------------------------------------------------------------------------------------- (thousands of dollars) 1995 ----------------------------------------------------------------------------------------- OSi Diversified Corporated & Chemical Specialties Petroleum Products Unallocated Total ----------------------------------------------------------------------------------------- Operating income (loss) from continuing operations on a comparative basis $ 109,603 $ 7,385 $ 36,105 $ 10,160 $ (19,289) $ 143,964 Restructuring charge (33,092) -- (750) -- -- (33,842) Other charges (12,900) -- (1,400) (1,550) (2,250) (18,100) Insurance settlements -- -- -- -- 55,149 55,149 Gain on disposition of subsidiaries -- -- -- 54,079 -- 54,079 ----------------------------------------------------------------------------------------- Operating income (loss) from continuing operations $ 63,611 $ 7,385 $ 33,955 $62,689 $ 33,610 $ 201,250 - - -----------------------------------------------------------------------------------------------------------------------------------
The only unusual item in 1994 was a gain of $5,070 from the disposition of the metal finishing and metalworking operations of a subsidiary (Diversified Products). F-20 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 1994 ------------------------------------------- Depreciation and Amortization Chemical $ 67,312 $ 69,917 $ 62,795 OSi Specialties 37,865 9,439 -- Petroleum 19,110 16,758 14,568 Diversified products -- 3,719 9,351 Corporate 4,506 2,738 1,949 ------------------------------------------- Depreciation and amortization from continuing $ 128,793 $ 102,571 $ 88,663 operations ------------------------------------------- Capital Expenditures (exclusive of acquisitions) Chemical $ 74,230 $ 53,134 $ 44,323 OSi Specialties 40,477 12,400 -- Petroleum 16,641 16,755 25,647 Diversified products -- 4,388 5,623 Discontinued operations 11,844 17,557 17,502 Corporate 17,971 11,611 14,343 ------------------------------------------- Capital Expenditures $ 161,163 $ 115,845 $ 107,438 ------------------------------------------- Net Sales United States $ 1,450,996 $ 1,247,287 $ 1,225,062 Western Europe 775,078 662,099 541,060 Other International 217,447 163,636 137,855 Inter-area elimination (180,194) (87,945) (62,563) ------------------------------------------- Net Sales $ 2,263,327 $ 1,985,077 $ 1,841,414 ------------------------------------------- Operating Income United States $ (280,774) $ 131,604 $ 102,017 Western Europe 22,153 55,324 54,184 Other International (3,437) 14,322 17,184 ------------------------------------------- Operating income (loss) from continuing operations $ (262,058) $ 201,250 $ 173,385 ------------------------------------------- Assets United States $ 1,580,470 $ 1,491,188 $ 1,211,125 Western Europe 640,265 884,139 604,342 Other International 111,230 204,851 103,878 Net assets of discontinued operations (United States) 59,740 170,426 -- ------------------------------------------- Assets $ 2,391,705 $ 2,750,604 $ 1,919,345 - - -------------------------------------------------------------------------------------------------------
Intersegment and inter-area sales are accounted for on the same basis used to price sales to similar non-affiliated customers and such sales are eliminated in arriving at consolidated amounts. The Company does not allocate income and expenses that are of a general corporate nature to industry segments in computing operating income. These include general corporate expenses, interest income and expense, and certain other income and expenses not directly attributable to a specific segment. In 1996, corporate and unallocated includes charges of $53,375,000 related to a restructuring of the Company's operations and $49,328,000 of non-recurring items related to provisions for litigation and other matters. 1995 corporate and unallocated includes income of $55,149,000 as a result of settlements with certain of the Company's insurers, net of related legal and other costs. Foreign currency translation and transaction gains and losses included in net income are not significant. OSi Specialties purchases, in the aggregate, approximately 40% of its raw materials from Dow Corning Corporation and Union Carbide Corporation under various long-term agreements which terms expire at various times through 2000. NOTE 18 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. Net sales for discontinued operations amounted to $332,930,000 (1996), $373,363,000 (1995) and $383,255,000 (1994). During 1996, the Company recorded an estimated net loss on disposal of $68,253,000, F-21 WITCO CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS - - ------------------------------------------------------------------------------- or $1.20 per common share, associated with the divestiture of the Lubricants Group. The loss is based upon events and information which resulted in management's revised estimate of the net realizable value of the Lubricants Group. This revised estimate is based upon contract negotiations, lower than anticipated bids for portions of the group and amendments to the Company's plan of disposal, including plant closures, which resulted in a write-down of certain assets and a provision for associated costs. On November 1, 1996, the Company sold certain assets of its Kendall/Amalie business and certain assets of its grease and grease gun manufacturing businesses for approximately $120,689,000, subject to certain post-closing adjustments. The components of net assets of discontinued operations included in the Company's Consolidated Balance Sheets at December 31, 1996 and 1995, are as follows:
- - -------------------------------------------------------------------------------- (thousands of dollars) 1996 1995 ------------------------- Accounts and notes receivable - net $19,331 $ 61,633 Inventories 10,781 38,378 Property, plant and equipment - net 30,756 112,639 Accounts payable and other current liabilities (2,000) (39,603) Other assets and liabilities - net 872 (2,621) ------------------------- $59,740 $170,426 - - -------------------------------------------------------------------------------
Additional liabilities of the Lubricants Group to be retained by the Company as of December 31, 1996, amounted to $66,634,000 included in the Accounts Payable and Other Current Liabilities caption of the Company's Balance Sheet including $31,438,000 related to the reserve for disposition of the business, $18,611,000 for environmental remediation and compliance costs and $16,585,000 for current payables and accruals. Additionally, $45,613,000 is included in the Deferred Credits and Other Liabilities caption for environmental remediation and compliance costs. Under generally accepted accounting principles, a provision for loss on discontinued operations has been included based on management's best estimates of the amounts expected to be realized on the sale of the remaining portions of the Lubricants Group. While estimates are based on an analysis of the facilities, including appraisals by investment bankers, there have been limited recent sales of comparable properties to consider in preparing such valuations. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the loss anticipated on disposal of the discontinued operations. NOTE 19 SUBSEQUENT EVENTS DISCONTINUED OPERATIONS Effective February 28, 1997, the Company sold its refinery in Bradford, Pennsylvania to American Refining Group, Inc. for approximately $17,000,000. On March 4, 1997, the Company signed a letter of intent to sell its Golden Bear Division, the remaining business of the Lubricants Group. The Company anticipates no additional losses will be incurred as a result of these transactions. F-22 WITCO CORPORATION AND SUBSIDIARY COMPANIES QUARTERLY FINANCIAL DATA FROM CONTINUING OPERATIONS (UNAUDITED) - - --------------------------------------------------------------------------------
(in thousands of dollars except per share data) - - ------------------------------------------------------------------------------------------------------------------ 1996 1995 -------------------------------------------------- ------------------------------------------------ INCOME Income INCOME (LOSS) Income (Loss) (LOSS) FROM (Loss) from COST OF FROM CONTINUING Cost of from Continuing NET GOODS CONTINUING OPERATIONS Net Goods Continuing Operations QUARTER SALES SOLD OPERATIONS PER SHARE(f) Sales Sold Operations Per Share(f) - - ------------------------------------------------------------------------------------------------------------------- First $ 589,425 $ 448,345 $25,581 $ .45 $517,952 $405,213 $30,270 (a) $ .54 (a) Second 571,458 434,680 18,519 .33 489,231 390,634 69,021 (b) 1.22 (b) Third 562,049 437,952 11,928 .21 441,902 352,554 19,444 (c) .34 (c) Fourth 540,395 439,343 (303,202)(e) (5.33)(e) 535,992 420,421 (18,389)(d) (.32)(d) ------------------------------------------------------------------------------------------------------ $2,263,327 $1,760,320 $(247,174) $(4.35) $1,985,077 $1,568,822 $100,346 $1.78 - - --------------------------------------------------------------------------------------------------------------------
(a) Includes a gain of $5,918, or $.11 per common share, from the disposition of the Company's Battery Parts business. (b) Includes a gain of $27,073, or $.48 per common share, from the disposition of the Company's Carbon Black business, and a gain of $23,032, or $.40 per common share, as a result of settlements with certain of the Company's insurers, net of related legal and other costs. (c) Includes a gain of $4,410, or $.08 per common share, as a result of settlements with certain of the Company's insurers, net of related legal and other costs. (d) Includes a restructuring charge of $20,644, or $.36 per common share; other non-recurring charges of $11,041, or $.20 per common share, related to provisions for environmental remediation costs and litigation; and a gain of $6,236, or $.11 per common share, as a result of settlements with certain of the Company's insurers, net of related legal and other costs. (e) Includes a restructuring charge of $239,270, or $4.21 per common share, and other non-recurring charges of $71,336, or $1.25 per common share, related to provisions for litigation, environmental remediation costs and other costs. (f) Per share amounts for the quarter are computed independently; and, due to the computation formula, the sum of the quarters may not equal the year-to-date period. RESPONSIBILITY FOR FINANCIAL STATEMENTS Witco is responsible for the integrity of the financial data reported by it and its subsidiary companies. This requires preparing financial statements and other financial data which fairly reflect Witco's consolidated financial position and results of operations in accordance with generally accepted accounting principles, including certain data that is based on management's best estimates and judgment. In the preparation of its financial data and to safeguard its assets against unauthorized acquisition, use, or disposition, Witco establishes and maintains accounting and reporting systems supported by internal accounting controls. Witco believes that a high level of internal accounting control is maintained by the selection and training of qualified personnel, by appropriate delegation of authority and division of responsibilities, by the establishment and communication of accounting and business policies, and by conducting internal audits including follow-up procedures that require responsive action by management. In establishing systems of internal accounting control, Witco weighs the cost of such systems against the benefits that it believes can be derived. Ernst & Young LLP, independent auditors, are engaged to audit and render an opinion as to whether Witco's financial statements present fairly Witco's consolidated financial position and operating results. Their audits are conducted in accordance with generally accepted audited standards, and their report is included herein. The Audit Committee of the Board of Directors, consisting of four non-employee directors, reviews Witco's accounting and auditing policies, practices and the services to be performed by the independent auditors. The Audit Committee meets with management, with the internal auditors and with the independent auditors in the exercise of its responsibilities. F-23 SCHEDULE II WITCO CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS (THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - - --------------------------------------------------- -------- ------------------------ -------- -------- ADDITIONS ------------------------ BALANCE AT CHARGED TO CHARGED TO BALANCE - - -------------------------------------------------- BEGINNING COSTS AND OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - - -------------------------------------------------- ---------- ---------- ---------- ---------- -------- Year ended December 31, 1996: Valuation and qualifying accounts deducted from assets to which they apply: Allowances for doubtful receivables-trade..................... $7,104 $8,235 $ 3,036(a) $4,174(b) $14,201 ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ---------- -------- Year ended December 31, 1995: Valuation and qualifying accounts deducted from assets to which they apply: Allowances for doubtful receivables-trade..................... $8,863 $2,615 $ (3,197)(c) $1,177(b) $ 7,104 ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ---------- -------- Year ended December 31, 1994: Valuation and qualifying accounts deducted from assets to which they apply: Allowances for doubtful receivables-trade..................... $6,821 $2,209 $ 821 $ 988(b) $ 8,863 ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ---------- --------
- - ------------ Notes: (a) Amount represents a reclassification. (b) Uncollectible receivables charged against the allowance provided. (c) Amount principally consists of the allowance for doubtful accounts of $2.2 million from the Lubricants Group, which is reflected on the Balance Sheet as net assets of discontinued operations. S-1 WITCO CORPORATION INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - - -------- ----------- 10(i)(5). -- Amendment No. 1 to Amended and Restated Credit Agreement dated as of December 23, 1996. 11. -- Statement re Computation of Per Share Earnings. 21. -- Subsidiaries of the Registrant. 23. -- Consent of Independent Auditors. 27. -- Financial Data Schedule.
EX-10 2 EXHIBIT 10.I5 EXHIBIT 10(i)(5) AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT dated as of December 23, 1996 to the Amended and Restated Credit Agreement dated as of October 11, 1996 (the 'Agreement') among WITCO CORPORATION and the BANKS listed on the signature pages hereof. WITNESSETH: WHEREAS, the parties hereto desire to amend the Agreement to provide for the change in the debt covenant specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to 'hereof', 'hereunder', 'herein' and 'hereby' and each other similar reference and each reference to 'this Agreement' and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended and restated hereby. SECTION 2. Amendment of Section 5.07. Section 5.07 of the Agreement is amended to replace '120%' with '175%'. SECTION 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by the Company and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. WITCO CORPORATION By /S/ JAMES M. RUTLEDGE ................................... Title: Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /S/ ROBERT BOTTAMEDI ................................... Title: Vice President THE CHASE MANHATTAN BANK By /S/ ROBERT T. SACKS ................................... Title: Vice President ABN AMRO BANK N.V., NEW YORK BRANCH By /S/ GEORGE M. DUGAN ................................... Title: Vice President By /S/ JOHN M. KINNEY ................................... Title: A.V.P. BANK OF AMERICA ILLINOIS By /S/ WENDY L. LORING ................................... Title: Vice President CITIBANK, N.A. By /S/ MARY W. CORKRAN ................................... Title: Vice President COMMERZBANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCH By /S/ ROBERT J. DONOHUE ................................... Title: Vice President By /S/ ANDREW R. CAMPBELL ................................... Title: Assistant Cashier DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCH By /S/ JOHN AUGSBURGER ................................... Title: Vice President By /S/ LYDIA ZAININGER ................................... Title: Vice President MELLON BANK, N.A. By /S/ JOHN SABROSKE ................................... Title: Vice President 2 FLEET NATIONAL BANK By /S/ ROBERT C. RUBINO ................................... Title: Vice President THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By /S/ YOSHINORI KAWAMURA ................................... Title: Joint General Manager 3 EX-11 3 EXHIBIT 11 EXHIBIT 11 WITCO CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 --------- -------- -------- PRIMARY Income (loss) from continuing operations............................... ($247,174) $100,346 $ 94,420 Interest on convertible subordinated debentures (net of tax)........... -- -- 1,109 Adjustment for dividend requirements of preferred stock................ (18) (19) (20) --------- -------- -------- (247,192) 100,327 95,509 Income (loss) from discontinued operations............................. (67,913) 4,099 12,647 --------- -------- -------- Total............................................................. ($315,105) $104,426 $108,156 --------- -------- -------- --------- -------- -------- Weighted average shares outstanding.................................... 56,900 56,312 54,812 Assumed conversions: Convertible subordinated debentures.................................. -- -- 1,266 Stock options........................................................ -- 237 300 --------- -------- -------- Total............................................................. 56,900 56,549 56,378 --------- -------- -------- --------- -------- -------- Net Income (Loss) Per Common Share: Income (loss) from continuing operations............................. $ (4.35) $ 1.78 $ 1.70 Income (loss) from discontinued operations........................... (1.19) 0.07 0.22 --------- -------- -------- Net Income (Loss).................................................... $ (5.54) $ 1.85 $ 1.92 --------- -------- -------- --------- -------- -------- FULLY DILUTED Income (loss) from continuing operations............................... ($247,174) $100,346 $ 94,420 Interest on dilutive debentures (net of tax)........................... -- -- 1,109 --------- -------- -------- ($247,174) 100,346 95,529 Income (loss) from discontinued operations............................. (67,913) 4,099 12,647 --------- -------- -------- Total............................................................. ($315,087) $104,445 $108,176 --------- -------- -------- --------- -------- -------- Weighted average shares outstanding.................................... 56,900 56,312 54,812 Assumed conversions: Convertible subordinated debentures.................................. -- -- 1,266 Stock options........................................................ -- 237 300 Preferred stock...................................................... -- 117 129 --------- -------- -------- Total............................................................. 56,900 56,666 56,507 --------- -------- -------- --------- -------- -------- Net Income (Loss) Per Common Share: Income (loss) from continuing operations............................. $(4.35) $1.77 $1.69 Income (loss) from discontinued operations........................... (1.19) 0.07 0.22 --------- -------- -------- Net Income (Loss).................................................... $(5.54) $1.84 $1.91 --------- -------- -------- --------- -------- --------
EX-21 4 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF WITCO CORPORATION(1)(2)(3) AS OF JANUARY 1, 1997
PERCENTAGE OF VOTING SECURITIES OWNED DIRECTLY OR STATE OR INDIRECTLY BY COUNTY OF WITCO CORPORATION ORGANIZATION ------------------ --------------- A-K Divestiture, Inc.................................................... 100.0% Delaware AOC Div., Inc........................................................... 100.0 Indiana Assured Insurance Company............................................... 100.0 Vermont Baxenden Chemicals Limited.............................................. 53.5 United Kingdom Baxenden Scandinavia AS................................................. 53.5 Denmark BOC Div., Inc........................................................... 100.0 Georgia CCC Divestiture Company................................................. 100.0 Delaware Enenco, Incorporated(4)................................................. 50.0 New York Firma W/K Witco EPA(4).................................................. 50.0 The Netherlands Jonk BV................................................................. 100.0 The Netherlands Nerap Expeditie BV...................................................... 100.0 The Netherlands OSi Specialties Asia Pacific Inc........................................ 100.0 Delaware OSi Specialties Asia Limited............................................ 100.0 Hong Kong OSi Specialties (Australia) Pty Ltd..................................... 100.0 Australia OSi Specialties Benelux NV.............................................. 100.0 Belgium OSi Specialties Canada Inc.............................................. 100.0 Canada OSi Specialties China Limited........................................... 100.0 China OSi Specialties de Colombia Limitada.................................... 100.0 Colombia OSi Specialties de Mexico S.A. de C.V................................... 100.0 Mexico OSi Specialties do Brasil Ltda.......................................... 100.0 Brazil OSi Specialties Germany GmbH............................................ 100.0 Germany OSi Specialties Holding Company......................................... 100.0 Delaware OSi Specialties Inc..................................................... 100.0 Delaware OSi Specialties Inc. (Chile) Limitada................................... 100.0 Chile OSi Specialties Italia S.p.A............................................ 100.0 Italy OSi Specialties (Korea) Limited......................................... 100.0 Korea OSi Specialties (Malaysia) Sdn Bhd...................................... 100.0 Malaysia OSi Specialties New Zealand, Inc........................................ 100.0 Delaware OSi Specialties S.A..................................................... 100.0 Switzerland OSi Specialties Singapore PTE Ltd....................................... 100.0 Singapore OSi Specialties Thailand Ltd............................................ 100.0 Thailand OSi Specialties (U.K.) Ltd.............................................. 100.0 United Kingdom OSi Specialties USA, Inc................................................ 100.0 Delaware PT OSi Specialities Indonesia........................................... 100.0 Indonesia Rinol AG(4)............................................................. 4.0 Germany Sherex Chemical Company, Inc............................................ 100.0 Ohio SWPC Div., Inc.......................................................... 100.0 Delaware TRC Divestiture Company................................................. 100.0 Ohio Witco Asia Pacific PTE Ltd.............................................. 100.0 Singapore Witco Australia Pty Limited............................................. 100.0 Australia
PERCENTAGE OF VOTING SECURITIES OWNED DIRECTLY OR STATE OR INDIRECTLY BY COUNTY OF WITCO CORPORATION ORGANIZATION ------------------ --------------- Witco BV................................................................ 100.0% The Netherlands Witco Canada Inc........................................................ 100.0 Canada Witco Corporation UK Limited............................................ 100.0 United Kingdom Witco Deutschland GmbH.................................................. 100.0 Germany Witco do Brasil Ltda.................................................... 100.0 Brazil Witco Dominion Financial Services Company, Ltd.......................... 100.0 Canada Witco Ecuador S.A....................................................... 100.0 Ecuador Witco Espana, S.L....................................................... 100.0 Spain Witco Europe Financial Services Co...................................... 100.0 Delaware Witco Europe Investment Partners........................................ 100.0 Delaware Witco Financial Services Co............................................. 100.0 Ireland Witco Foreign Sales Corporation......................................... 100.0 Barbados Witco GmbH.............................................................. 100.0 Germany Witco Grand Banks, Inc.................................................. 100.0 Canada Witco Handels GmbH...................................................... 100.0 Austria Witco International Corporation......................................... 100.0 New Jersey Witco Investment Holdings BV............................................ 100.0 The Netherlands Witco Investments BV.................................................... 100.0 The Netherlands Witco Investments SNC................................................... 100.0 France Witco Ireland Investment Company Limited................................ 100.0 Ireland Witco Italiana SrL...................................................... 100.0 Italy Witco Mexico S.A. de C.V................................................ 100.0 Mexico Witco Polymers and Resins BV............................................ 100.0 The Netherlands Witco S.A............................................................... 100.0 France Witco Solvay Duromer GmbH(4)............................................ 50.0 Germany Witco Specialties PTE Ltd............................................... 100.0 Singapore Witco Surfactants GmbH.................................................. 100.0 Germany Witco Warmtekracht BV................................................... 100.0 The Netherlands
- - ------------ Notes: (1) The Company lists the business entities in which it has investments for information purposes only. Such listing is not to be deemed an admission that these business entities are under the control of the Company within the meaning of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) With respect to certain subsidiaries, shares in names of nominees and qualifying shares in names of directors are included in the above percentages. (3) With the exception of the companies covered by footnote (4), the companies named are included in the consolidated financial statements. (4) The Company records in the consolidated financial statements its equity in undistributed earnings (losses) of these unconsolidated entities. EX-23 5 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to 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, and 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, of our report dated January 31, 1997 (except Note 19, as to which the date is March 4, 1997), with respect to the consolidated financial statements and schedule of Witco Corporation and Subsidiary Companies for the year ended December 31, 1996 included in this Annual Report (Form 10-K). /S/ ERNST & YOUNG LLP Stamford, Connecticut March 20, 1997 EX-27 6 ART. 5 FDS FOR 4TH QUARTER 10-K
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 59,201 0 404,489 14,201 284,500 853,426 1,497,318 761,926 2,391,705 610,273 700,820 283,818 0 6 344,041 2,391,705 2,263,327 2,263,327 1,760,320 1,760,320 0 8,235 69,334 (325,809) (78,635) (247,174) (67,913) 0 0 (315,087) (5.54) (5.54) -----END PRIVACY-ENHANCED MESSAGE-----