SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
Commission File Number 1-4654
WITCO CORPORATION
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1870000
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One American Lane, Greenwich, Connecticut 06831-2559
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 552-2000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
The number of shares of common stock outstanding is as follows:
Class Outstanding at October 31, 1994
----- -------------------------------
Common Stock - $5 par value 56,142,789
<PAGE>
WITCO CORPORATION
FORM 10-Q
September 30, 1994
CONTENTS PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at
September 30, 1994 and December 31, 1993 2
Condensed consolidated statements of income for the three
and nine months ended September 30, 1994 and 1993 3
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1994 and 1993 4
Notes to condensed consolidated financial statements 5
Independent accountants' report on review of interim
financial information 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
September December
30, 31,
1994 1993 (a)
------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 182,318 $ 183,050
Accounts and notes receivable-net 421,034 340,850
Inventories
Raw materials and supplies $ 97,713 $ 81,440
Finished goods 152,054 249,767 146,029 227,469
------- --------
Prepaid and other current assets 46,694 41,204
--------- ---------
TOTAL CURRENT ASSETS 899,813 792,573
--------- ---------
PROPERTY, PLANT AND EQUIPMENT -
less accumulated depreciation
of $683,407 and $621,684 721,365 696,462
INTANGIBLE ASSETS - less accumulated
amortization of $49,341 and $38,612 194,525 217,032
OTHER ASSETS 103,837 132,931
--------- ---------
TOTAL ASSETS $ 1,919,540 $ 1,838,998
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 3,174 $ 4,194
Accounts payable and other current liabilities 348,524 337,144
--------- ---------
TOTAL CURRENT LIABILITIES 351,698 341,338
--------- ---------
LONG-TERM DEBT 349,074 496,266
DEFERRED FEDERAL AND FOREIGN INCOME TAXES 70,475 74,612
DEFERRED CREDITS AND OTHER LIABILITIES 218,476 213,367
SHAREHOLDERS' EQUITY
$2.65 Cumulative Convertible Preferred Stock,
par value $1 per share
Authorized - 14 shares
Issued and outstanding - 7 and 9 shares 7 9
Common Stock, par value $5 per share
Authorized - 100,000 shares
Issued - 56,312 and 50,818 shares 281,561 254,089
Capital in excess of par value 127,499 6,123
Equity adjustments:
Foreign currency translation 2,868 (23,723)
Pensions (6,548) (6,548)
Retained earnings 527,279 488,241
Less cost of 190 and 318 shares of common
stock in treasury (2,849) (4,776)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 929,817 713,415
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,919,540 $ 1,838,998
========= =========
(a) The balance sheet at December 31, 1993, has been derived from the audited
financial statements at that date.
</TABLE>
See accompanying notes.
2
<PAGE>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 564,174 $ 540,603 $ 1,683,188 $ 1,643,226
Interest 2,500 1,995 7,149 6,091
----------- ----------- ----------- -----------
566,674 542,598 1,690,337 1,649,317
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold (exclusive of
depreciation and amortization) 439,353 414,892 1,295,129 1,272,025
Selling and administrative expenses 58,738 56,843 179,963 175,617
Depreciation and amortization 25,622 26,894 79,127 80,163
Interest 7,125 9,251 21,965 26,520
Other expense (income)-net (4,161) 11,330 (9,571) 20,224
----------- ----------- ----------- -----------
526,677 519,210 1,566,613 1,574,549
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL AND FOREIGN
INCOME TAXES 39,997 23,388 123,724 74,768
FEDERAL AND FOREIGN INCOME TAXES 12,999 9,763 42,303 27,438
----------- ----------- ----------- -----------
NET INCOME $ 26,998 $ 13,625 $ 81,421 $ 47,330
=========== =========== =========== ===========
PER COMMON SHARE:
Net Income $ .48 $ .27 $ 1.46 $ .94
Net Income - assuming full dilution $ .48 $ .26 $ 1.46 $ .94
Dividends declared $ .28 $ .25 $ .78 $ .71
Weighted average number of common shares
and equivalents - primary 56,383 56,258 56,389 54,364
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
-------------------------
1994 1993
------- ---------
(In Thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 87,052 $116,397
------- ---------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (82,653) (71,971)
Proceeds from dispositions 24,194 -
Other investing activities 2,384 (5,928)
------- ---------
Net Cash Used in Investing Activities (56,075) (77,899)
------- ---------
FINANCING ACTIVITIES
Proceeds from common stock offering - 142,169
Proceeds from borrowings 657 366,192
Payments on borrowings (3,892) (489,044)
Dividends paid (39,294) (32,060)
Other financing activities 2,155 1,519
------- ---------
Net Cash Used in Financing Activities (40,374) (11,224)
------- ---------
Effects of Exchange Rate Changes on Cash and
Cash Equivalents 8,665 (2,077)
------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (732) 25,197
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 183,050 134,447
------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $182,318 $159,644
======= =========
See accompanying notes.
4
<PAGE>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A - Basis of Preparation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. Operating results for the nine month period ended
September 30, 1994, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1994. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
company's annual report on Form 10-K for the year ended December 31, 1993.
The condensed consolidated financial statements at September 30, 1994, and for
the nine month periods ended September 30, 1994 and 1993, have been reviewed in
accordance with standards established by the American Institute of Certified
Public Accountants, by independent accountants, Ernst & Young LLP, and their
report is included herein.
NOTE B - Common Stock Split
On September 2, 1993, the Board of Directors of the company authorized a two for
one common stock split in the form of a 100% stock distribution issuable to
shareholders of record as of September 16, 1993. The distribution was made on
October 5, 1993. All common stock share and per share data for the periods
presented reflect the split.
NOTE C - Redemption of 5 1/2% Convertible Debentures
In March 1994, the company called for redemption all of its $150,000,000
outstanding 5 1/2% Convertible Subordinated Debentures due 2012. $149,890,000 of
the principal was converted into approximately 5,495,000 shares of common stock
at a conversion price of $27.28 per share and $110,000 of the principal was
redeemed for cash at a premium of 1.65%. Since the shares underlying the
debentures had been previously included as common stock equivalents, the shares
converted have no effect on the net income per common share calculations.
NOTE D - Other Matters
The statement of income for the nine month period ended September 30, 1994,
includes a gain of $3,133,000, or $.06 per common share, from the sale of the
metal finishing and metal working businesses of the company's Allied-Kelite
subsidiary. The pre-tax gain of $4,820,000 is included in the caption "Other
expense (income) - net."
Statements of income for the three and nine month periods ended September 30,
1993, include a charge of $1,718,000, or $.03 per common share, as a result of
the increase in the U.S. federal tax rate.
The statements of income for the three and nine month periods ended September
30, 1993, include a charge of $7,563,000, or $.14 per common share, as a result
of a legal judgment against the company. The pre-tax charge of $11,636,000 is
included in the caption "Other expense (income) - net".
The statement of income for the nine month period ended September 30, 1993,
includes a charge of $6,061,000, or $.11 per common share, for a loss on
sublease of office facilities. The pre-tax charge of $9,184,000 is included in
the caption "Other expense (income) - net."
5
<PAGE>
NOTE E - Litigation and Environmental
The company has been notified, or is a named or a potentially responsible party
in a number of governmental (federal, state, and local) and private actions
associated with environmental matters, such as those relating to hazardous
wastes, including certain sites which are on the United States EPA National
Priorities List. These actions seek cleanup costs, penalties and/or damages for
personal injury or damage to property or natural resources.
The company evaluates and reviews environmental reserves for future remediation
and compliance 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, 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 September 30, 1994, the company's reserves for environmental remediation and
compliance costs amounted to $96,539,000, reflecting Witco's estimate of the
costs which will be incurred over an extended period of time in respect of these
matters which are reasonably estimable.
The company has numerous insurance policies which it believes provide coverage
at various levels for environmental liabilities. The company is currently in
litigation with many of its insurers concerning the applicability and amount of
insurance coverage for environmental costs under certain of these policies.
Except for amounts reflected in executed settlement agreements, no provision for
recovery under any of these policies is included in the company's financial
statements.
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.
6
<PAGE>
Independent Accountants' Review Report
The Board of Directors
Witco Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Witco
Corporation and Subsidiary Companies as of September 30, 1994, and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended September 30, 1994 and 1993, and the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 1994 and
1993. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Witco Corporation and Subsidiary
Companies as of December 31, 1993, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated January 27, 1994, except for Note 7,
as to which the date is March 11, 1994, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1993, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Stamford, Connecticut
November 9, 1994
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
Although cash and cash equivalents have decreased slightly since year-end,
record sales have resulted in a $89.9 million increase in other components of
working capital. Additional accounts receivable represents $67.1 million of this
increase. The company anticipates that cash flow from operations will be
sufficient to fund, for the foreseeable future, capital investments, dividend
payments, commitments on environmental remediation projects, and operating
requirements.
Earlier in the year the company completed the redemption of all of its $150
million outstanding 5 1/2% Convertible Subordinated Debentures due 2012. $149.9
million of this debt was converted into the company's common stock. The
redemption was called to provide greater financial flexibility as the company
continues in its efforts to expand product lines and marketing capabilities of
its core businesses. See Note C to the Financial Statements for further
discussion regarding the redemption.
The company is moving forward in its efforts to divest non-core businesses. The
Allied-Kelite operations were sold in the second quarter for $24.2 million and
the sale of the Battery Parts business is expected to be completed by the end of
the year. Early in the fourth quarter the company also announced its intention
to sell its Concarb operations. Concarb, a producer of carbon black used mostly
in the rubber industry for the manufacture of tires, has plants in Ponca City,
Oklahoma; Sunray, Texas; and Phenix City, Alabama. It is anticipated that the
proceeds from these divestitures will be used to fund an acquisition(s) that
will accelerate the global expansion of the company's core businesses.
CAPITAL INVESTMENTS AND COMMITMENTS
Capital expenditures during the first nine months of 1994 amounted to $82.7
million compared to $72 million during the same period of 1993. Capital
expenditures are expected to exceed $110 million in 1994 which would be a record
level of capital investment by the company.
The company has successfully completed the assimilation of the businesses
acquired in late 1992 from Schering AG and is now focusing its efforts on
reviewing possible acquisition candidates. The company is seeking an
acquisition(s) that will expand its product offerings and market share in its
core businesses. An ideal acquisition candidate will be one that will position
the company for significant growth in North America, Europe, and the Pacific
Rim.
CONTINGENCIES
The company has been notified, or is a named or a potentially responsible party
in a number of governmental (federal, state, and local) and private actions
associated with environmental matters, such as those relating to hazardous
wastes, including certain sites which are on the United States EPA National
Priorities List. These actions seek cleanup costs, penalties and/or damages for
personal injury or damage to property or natural resources.
The company is not a party to any legal proceedings or environmental matters
which it believes will have a material adverse effect on its consolidated
financial position. It is possible, however, that future results of operations
and cash flows, 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.
8
<PAGE>
RESULTS OF OPERATIONS
Reported sales of $564.2 million outpaced sales for the same quarter of 1993 by
$23.6 million, or 4 percent. Higher sales volume in both the Chemical and
Petroleum Segments led to the increase. Sales in 1994 were affected by the
divestitures of the company's Chemprene subsidiary in the fourth quarter of 1993
and Allied-Kelite's operations in the second quarter of 1994. Reported sales for
these businesses were $18 million for the third quarter of 1993.
Despite an across the board lag in the recovery of higher raw material costs,
third quarter 1994 net income of $27 million was achieved. Prior year third
quarter reported net income included non-recurring charges of $7.6 million for a
legal judgment and $1.7 million attributable to an increase in the U.S.
corporate tax rate. Excluding non-recurring items from 1993's results, current
year third quarter net income was $4.1 million over the same quarter of 1993.
Although shipment volume was up 9 percent during this period, gross profit was
unchanged. Higher raw material feedstock costs and lower sales prices in certain
Petroleum businesses offset the profit contribution from increased sales volume
for the current quarter. Lower interest expense attributable to the redemption
of the company's 5 1/2% Convertible Subordinated Debentures during the first
quarter of 1994 accounted for approximately one-third of the quarter's increase
in net income before non-recurring items. The remainder of the increase was due
to favorable fluctuations in other corporate expenses.
Reported net sales for the first nine months of 1994 were $1,683.2 million,
compared to sales of $1,643.2 million for the same period of 1993. Excluding
Chemprene's and Allied-Kelite's decrease of $38 million, sales increased $78
million. Higher sales were attained through a 5 percent increase in volume,
principally in the Chemical Segment.
The company's reported net income of $81.4 million for the first nine months of
1994 and $47.3 million for the corresponding period of 1993 included several
non-recurring items. Current year results included a $3.1 million gain on the
sale of the Allied-Kelite businesses, while 1993 contained the previously noted
third quarter non-recurring items and a $6.1 million provision for loss on
sublease of office facilities. Excluding non-recurring items, net income for the
first nine months of 1994 was $78.3 million compared to $62.7 million for the
same period of 1993. An increase in gross profit margins of approximately 1
percent and a 5 percent increase in shipment volume continue to be the
predominate factors leading to the 25 percent increase in net income before
non-recurring items. A combination of lower feedstock costs early in the year,
favorable sales mix and cost saving initiatives have contributed to improved
margins for the current year. Conversely, higher domestic pension costs,
attributable to plan amendments and assumption changes, had a $3.9 million
adverse effect on net income.
Segment net sales and operating income for the third quarter and first nine
months of 1994 and 1993 are set forth in the following table. Income and
expenses of a general nature are not allocated to industry segments in computing
operating income. These include general corporate expenses, interest income and
expense, and certain other income and expenses.
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
----- ----- ------- -------
Net Sales
Chemical $ 336.2 $303.3 $1,008.2 $ 948.4
Petroleum 203.1 195.9 579.0 568.6
Diversified products 28.9 45.2 108.3 138.4
Intersegment elimination (4.0) (3.8) (12.3) (12.2)
----- ----- ------- -------
Total Net Sales $ 564.2 $540.6 $1,683.2 $1,643.2
===== ===== ======= =======
Operating Income
Chemical $ 29.0 $ 24.8 $ 95.5 $ 82.9
Petroleum 16.2 8.5 47.3 31.4
Diversified products 1.4 3.0 12.0 7.7
----- ----- ------- -------
Total Operating Income $ 46.6 $ 36.3 $ 154.8 $ 122.0
===== ===== ======= =======
Domestic operations accounted for 70 percent of the company's net sales and 68
percent of its operating income for the first nine months of 1994. These amounts
were comparable to those of the same period of the prior year. Current year
third quarter comparable percentages for both sales and operating income were
the same as reported for the first nine months of 1994. However, a comparison of
the third quarter 1994 to the third quarter of 1993 shows that the company's
domestic operations' contribution to net sales declined 3 percent, while
contributing a 5 percent higher amount to net income.
9
<PAGE>
CHEMICAL SEGMENT
Primarily due to an increase in sales volume, the segment's 1994 third quarter
net sales were 11 percent ahead of sales for the same period of 1993. Each of
the segment's three operating groups shared in an overall 9 percent increase in
shipments. Operating income for the Chemical Segment rose $4.2 million, or 17
percent, during the third quarter of 1994 compared to the same quarter of 1993.
The Polymer Additives Group accounted for approximately two-thirds of the
segment's higher operating earnings. This strong performance was attributable to
increased shipments to PVC manufacturers, domestic manufacturing efficiencies
and an upturn in the European economy. Greater sales volume in PVC additives was
indicative of a rise in housing starts, greater industrial construction and
higher automobile sales. Higher operating earnings were also reported by both
the Surfactants and International/Europe Groups. An increase in shipment volume
of approximately 10 percent, primarily a reflection of increased global demand
for surfactant products, led to improved results.
Net sales for the first nine months of 1994 were up 6 percent compared to the
first nine months of 1993. Shipment volume rose 7 percent during this period
while sales prices were unchanged. Segment operating income for the first nine
months of 1994 was 15 percent above the income reported for the corresponding
period of the prior year. Approximately half of the segment's improved operating
earnings was attributable to the favorable results reported by each of the
Polymer Additives Group's business units. As noted for the quarter, increased
sales to PVC manufacturers, cost cutting initiatives, and a more robust European
economy were the factors which led to the group's higher earnings. The
Surfactants and International/Europe Groups also reported earnings that were up
during this nine month period. The reported increase for the Surfactants Group
resulted from its ability to increase shipment volume by 8 percent, while
maintaining the group's selling, general and administrative expenses at 1993
levels. Greater shipment volume, primarily attributable to a 20 percent growth
of the group's Surfactant business, coupled with cost saving initiatives
including the consolidation of sales and administrative functions, accounted for
the higher International/Europe Group's operating income.
PETROLEUM SEGMENT
Third quarter 1994 net sales were 4 percent ahead of sales for the third quarter
of 1993. A 9 percent increase in sales volume was offset partially by a 5
percent drop in selling prices. Prevailing adverse market conditions for asphalt
and industrial products and an unfavorable sales mix of petroleum specialty
products caused sales prices to decline. 1993's third quarter earnings were
adversely affected by a $11.6 million legal judgment. Excluding this
non-recurring charge, third quarter 1994 segment earnings declined $4 million,
or 20 percent, from the same period of 1993. Both of the segment's operating
groups reported a drop in operating income. The bulk of the decline was a result
of higher crude oil costs and lower sales prices reported by the Lubricants
Group. Adverse market conditions have had an unfavorable impact on the selling
prices of the group's asphalt and industrial products. Earnings for the
Petroleum Specialties Group were down as a result of an unfavorable product
sales mix and start up costs attributable to the group's Extracted Sulfonic Acid
Unit in Gretna, Louisiana, and its Amsterdam, Holland, Calcium Sulfonates Plant.
Petroleum segment sales for the first nine months of 1994 were $10.4 million, or
2 percent, greater than sales for the comparable period of 1993. Sales were up
as a result of a 4 percent increase in shipment volume, which was partially
offset by a 1 percent decline in prices. The segment's reported increase in
earnings for the first nine months of 1994 compared to the same period of 1993
was primarily attributable to the previously noted non-recurring legal judgment.
Operating income, excluding this charge, rose $4.3 million, or 10 percent.
Higher Petroleum Specialties Group earnings accounted for the segment's entire
increase in operating income. The increase in the group's profitability was a
result of its ability to retain part of the savings gained through lower
feedstock costs earlier in the year. These savings are part of the normal cycle
in which sales price adjustments lag behind changes in feedstock costs. The
group also benefited from a favorable mix of products shipped from its domestic
and Canadian operations. Lubricants Group earnings were down from the prior
year, primarily due to adverse market conditions for asphalt products.
10
<PAGE>
DIVERSIFIED PRODUCTS
The company announced its intention to sell its Concarb Division, the largest
operation of the Diversified Products Segment. This divestiture is part of
Witco's continuing long-term strategy of growing core chemical and petroleum
specialty businesses while shedding non-strategic lines. The divestiture program
is on schedule; the Chemprene subsidiary was sold in 1993, Allied-Kelite's
operations in 1994, and it is expected that the Battery Parts Division will be
sold during the fourth quarter of 1994.
Sales attributable to the segment's Concarb and Battery Parts Divisions
(remaining operations) for the third quarter of 1994 increased approximately $2
million, or 8 percent, compared to the third quarter of the prior year. This
increase was mainly the reflection of a greater demand for carbon black
products, the result of higher motor vehicle production and improved tire sales.
Operating income for the third quarter of 1994 attributable to the segment's
remaining operations was comparable to the same period of 1993. Higher carbon
black feedstock costs offset the positive effect that greater customer demand
had on earnings.
The segment's remaining operations reported net sales for the first nine months
of 1994 that were 10 percent higher than sales for the same period of 1993.
Again, an increased demand for carbon black due to higher new vehicle and tire
sales was the major reason for the improved sales. Earnings from the segment's
remaining operations for the first nine months of 1994 were up $3.7 million
compared to the first nine months of 1993. Approximately two-thirds of this
increase was a result of higher carbon black sales, while the remainder was
attributable to a favorable product sales mix and a reduction in personnel
related to the Battery Parts Division.
OUTLOOK
The company anticipates that earnings for the remainder of 1994 will remain at
reasonable levels. Most operating groups are incurring increased raw material
costs, and while each group should reestablish margins over time, it may be
difficult in all cases to raise selling prices during the remainder of 1994 in
amounts sufficient to recover all increased raw material costs.
The company's strategic focus continues to be on the growth of its chemical and
petroleum specialty businesses. Reaching its goal of $5 billion in sales by the
year 2000 will be accomplished through the divestiture of non-core businesses
and through acquisitions which will expand the Company's global offerings and
market share. Witco is strongly committed to the expansion of its core
businesses in North America, Europe, and the Pacific Rim.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The company has been notified, or is named as a potentially responsible
party ("PRP") or a defendant in a number of governmental (federal,
state, and local) and private actions associated with environmental
matters, such as those relating to hazardous wastes. These actions seek
remediation costs, penalties and/or damages for personal injury or
damage to property or natural resources. As of December 31, 1993, the
company had been identified as a PRP in connection with forty sites
which are subject to the federal Superfund Program under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"). With two exceptions, all the Superfund sites in which
the company is involved are multi-party sites, and, in most cases, there
are numerous other potentially responsible parties in addition to the
company. CERCLA authorizes the federal government to remediate a
Superfund site itself and to assess the costs against the responsible
parties, or to order the responsible parties to remediate the site.
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, 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 a case filed in October 1992 by the United
States Department of Justice on behalf of the United States
Environmental Protection Agency styled United States v. Witco, et al.
pending in the United States District Court for the Eastern District of
California. The United States alleged that the company has violated the
Clean Air Act, the Safe Water Drinking Act, and the Resource
Conservation and Recovery Act in connection with certain activities at
its Oildale, California, refinery. The United States seeks unspecified
civil penalties and certain injunctive relief in this action.
The company has numerous insurance policies which it believes provide
coverage at various levels for environmental liabilities. The company is
currently in litigation with many of its insurers concerning the
applicability and amount of insurance coverage for environmental costs
under certain of these policies. Except for amounts reflected in
executed settlement agreements, no provision for recovery under any of
these policies is included in the company's financial statements.
The company is a defendant in four similar actions pending in California
state courts, which arise out of the company's involvement in the
polybutylene resin manufacturing business in the 1970's: East Bay
Municipal Utility District v. Mobil Oil Co., et al., filed in November
1993, is pending in Superior Court for the County of Alameda in
California. The plaintiff alleges that Witco and several other
defendants negligently misrepresented the performance of polybutylene
pipe and fittings installed in a water distribution system. Other
allegations include breach of warranty, fraud, strict liability and
breach of the California Unfair Practices Act; City of Santa Maria v.
Shell Oil Co., et al., filed in May 1994, is pending in Superior Court
for the County of San Luis Obispo in California; City of Redding v.
Mobil Oil Co., et al, filed in July 1993, is pending in Superior Court
for the County of Tehama in California; and, City of Morgan Hill v.
Mobil Oil Co., et al., filed in December 1987, is presently pending in
Superior Court for the County of Santa Clara in California.
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.
12
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a)Exhibits
2 Not applicable
4 Not applicable
10 Not applicable
11 Statement re computation of per share earnings
15 Letter re unaudited interim financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial Data Schedule
(b)Reports on Form 8-K
There were no reports on Form 8-K for the three months ended September
30, 1994.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WITCO CORPORATION
-----------------
(Registrant)
/s/ Michael D. Fullwood
Date: November 11, 1994 -------------------------------------------
Michael D. Fullwood
Executive Vice President and Chief
Financial Officer
/s/ Dustan E. McCoy
Date: November 11, 1994 -------------------------------------------
Dustan E. McCoy
Vice President - General Counsel and
Corporate Secretary
EXHIBIT 11
WITCO CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1994 1993 1994 1993
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY
Net Income - as reported $ 26,998 $ 13,625 $ 81,421 $ 47,330
Interest on convertible subordinated
debentures (net of tax) -- 1,299 1,109 4,022
Dividend requirements of preferred stock (5) (6) (15) (18)
---------- ---------- ---------- ----------
Total $ 26,993 $ 14,918 $ 82,515 $ 51,334
========== ========== ========== ==========
Weighted average shares outstanding 56,111 50,420 54,363 48,577
Assumed conversions:
Convertible subordinated debentures -- 5,500 1,692 5,500
Stock options 272 338 334 287
---------- ---------- ---------- ----------
Total 56,383 56,258 56,389 54,364
========== ========== ========== ==========
Per share amount $ 0.48 $ 0.27 $ 1.46 $ 0.94
========== ========== ========== ==========
FULLY DILUTED
Net Income - as reported $ 26,998 $ 13,626 $ 81,421 $ 47,330
Interest on dilutive debentures (net of tax) -- 1,300 1,109 4,025
---------- ---------- ---------- ----------
Total $ 26,998 $ 14,926 $ 82,530 $ 51,355
========== ========== ========== ==========
Weighted average shares outstanding 56,111 50,420 54,363 48,577
Assumed conversions:
Convertible subordinated debentures -- 5,520 1,692 5,522
Stock options 272 353 334 398
Preferred stock 125 148 131 150
---------- ---------- ---------- ----------
Total 56,508 56,441 56,520 54,647
========== ========== ========== ==========
Per share amount $ 0.48 $ 0.26 $ 1.46 $ .94
========== ========== ========== ==========
</TABLE>
EXHIBIT 15
LETTER RE: UNAUDITED FINANCIAL INFORMATION
ACKNOWLEDGMENT LETTER
November 9, 1994
The Board of Directors
Witco Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-3, No. 33-45865) and the Post-effective Amendment No. 2 to the
Registration Statement (Form S-3, No. 33-58066), each pertaining to the issuance
of debentures, the Post-effective Amendment No. 1 to the Registration Statement
(Form S-3, No. 33-58120) pertaining to the issuance of common stock, the
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 and the Registration Statement (Form S-8, No. 33-48806), pertaining
to an employee benefit plan of Witco Corporation, of our report dated November
9, 1994 relating to the unaudited condensed consolidated interim financial
statements of Witco Corporation and Subsidiary Companies which are included in
its Form 10-Q for the quarter ended September 30, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not part of
the registration statements prepared or certified by accountants within the
meaning of Sections 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Stamford, Connecticut
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 182,318
<SECURITIES> 0
<RECEIVABLES> 421,034
<ALLOWANCES> 0
<INVENTORY> 249,767
<CURRENT-ASSETS> 899,813
<PP&E> 1,404,772
<DEPRECIATION> 683,407
<TOTAL-ASSETS> 1,919,540
<CURRENT-LIABILITIES> 351,698
<BONDS> 349,074
0
7
<COMMON> 281,561
<OTHER-SE> 648,249
<TOTAL-LIABILITY-AND-EQUITY> 1,919,540
<SALES> 1,683,188
<TOTAL-REVENUES> 1,690,337
<CGS> 1,295,129
<TOTAL-COSTS> 1,566,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,965
<INCOME-PRETAX> 123,724
<INCOME-TAX> 42,303
<INCOME-CONTINUING> 81,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,421
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
