SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
Commission File Number 1-4654
WITCO CORPORATION
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(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 July 31, 1995
----- ----------------------------
Common Stock - $5 par value 56,403,345
<PAGE>
WITCO CORPORATION
FORM 10-Q
June 30, 1995
CONTENTS PAGE
-------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at June 30, 1995
and December 31, 1994 2
Condensed consolidated statements of income for the three
and six months ended June 30, 1995 and 1994 3
Condensed consolidated statements of cash flows for the
six months ended June 30, 1995 and 1994 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 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
June 30, December 31,
1995 1994 (a)
---------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 300,018 $ 197,173
Accounts and notes receivable-net 445,176 395,547
Inventories
Raw materials and supplies $ 99,112 $ 96,939
Finished goods 161,795 260,907 161,433 258,372
--------- ---------
Prepaid and other current assets 45,648 45,737
---------- ----------
TOTAL CURRENT ASSETS 1,051,749 896,829
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT -
less accumulated depreciation
of $714,828 and $696,043 688,723 719,966
INTANGIBLE ASSETS - less accumulated
amortization of $52,123 and $43,760 198,861 191,422
OTHER ASSETS 119,909 111,128
---------- ----------
TOTAL ASSETS $2,059,242 $1,919,345
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 1,537 $ 1,795
Accounts payable and other current liabilities 356,924 343,414
---------- ----------
TOTAL CURRENT LIABILITIES 358,461 345,209
---------- ----------
LONG-TERM DEBT 351,601 346,545
DEFERRED FEDERAL AND FOREIGN INCOME TAXES 79,131 81,354
DEFERRED CREDITS AND OTHER LIABILITIES 226,668 206,231
SHAREHOLDERS' EQUITY
$2.65 Cumulative Convertible Preferred Stock,
par value $1 per share
Authorized - 14 shares
Issued and outstanding - 7 shares 7 7
Common Stock, par value $5 per share
Authorized - 100,000 shares
Issued - 56,324 and 56,312 shares 281,619 281,561
Capital in excess of par value 128,761 127,643
Equity adjustments:
Foreign currency translation 28,224 (1,481)
Pensions (2,063) (2,446)
Retained earnings 606,833 537,199
Less cost of 165 shares of common
stock in treasury -- (2,477)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,043,381 940,006
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,059,242 $1,919,345
========== ==========
</TABLE>
(a) The balance sheet at December 31, 1994, has been derived from the audited
financial statements at that date.
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 586,675 $ 565,597 $ 1,189,126 $ 1,119,014
Interest 3,208 2,425 6,130 4,649
----------- ----------- ----------- -----------
589,883 568,022 1,195,256 1,123,663
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold (exclusive of depreciation
and amortization) 463,738 429,216 932,675 855,776
Selling and administrative expenses 57,301 60,339 119,109 121,225
Depreciation and amortization 28,434 26,964 56,910 53,505
Interest 8,294 6,526 16,744 14,840
Other income-net (77,999) (4,840) (86,459) (5,410)
----------- ----------- ----------- -----------
479,768 518,205 1,038,979 1,039,936
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL AND FOREIGN
INCOME TAXES 110,115 49,817 156,277 83,727
FEDERAL AND FOREIGN INCOME TAXES 38,761 17,435 55,148 29,304
----------- ----------- ----------- -----------
NET INCOME $ 71,354 $ 32,382 $ 101,129 $ 54,423
=========== =========== =========== ===========
PER COMMON SHARE:
Net Income $1.26 $.57 $1.79 $.98
Net Income - assuming full dilution $1.26 $.57 $1.79 $.98
Dividends declared $ .28 $.25 $ .56 $.50
Weighted average number of common shares
and equivalents - primary 56,460 56,347 56,410 56,391
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
---------------------------------
1995 1994
--------- ----------
(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 25,329 $ 42,558
--------- ---------
INVESTING ACTIVITIES
Expenditures for property, plant, and equipment (49,070) (54,027)
Proceeds from dispositions 146,026 24,194
Other investing activities (1,824) 441
--------- ---------
Net Cash Provided by (Used in) Investing Activities 95,132 (29,392)
--------- ---------
FINANCING ACTIVITIES
Dividends paid (31,459) (25,266)
Other financing activities 2,953 (402)
--------- ---------
Net Cash Used in Financing Activities (28,506) (25,668)
--------- ---------
Effects of Exchange Rate Changes on Cash and Cash Equivalents 10,890 5,670
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 102,845 (6,832)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 197,173 183,050
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 300,018 $ 176,218
========= =========
</TABLE>
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 three and six month
periods ended June 30, 1995, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995. 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, 1994.
The condensed consolidated financial statements at June 30, 1995, and for the
three and six month periods ended June 30, 1995 and 1994, 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 - Accounting Change
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 three and six month periods ended June
30, 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 three
and six month periods ended June 30, 1994.
NOTE C - Shareholder Rights Plan
On March 2, 1995, the Board of Directors unanimously approved a Shareholder
Rights Plan. The Plan has been implemented by the issuance of one preferred
stock purchase right for each share of common stock outstanding at the close of
business on March 2, 1995, or issued thereafter until the rights become
exercisable. Each right will entitle the holder in certain events to purchase
one-one thousandth of a share of participating preferred stock at a purchase
price of $110. Each one-one thousandth of a share of participating preferred
stock is intended to represent the economic equivalent of one share of common
stock. Under the Shareholder Rights Plan, 300,000 shares of Series A
participating cumulative preferred stock without par value have been authorized.
The rights currently are not exercisable. If a person or group acquires more
than 15% of the outstanding common stock, or at the Board's election if a tender
offer for more than 15% of the outstanding common stock is commenced, or if such
person or group acquires the company in a merger or other business combination,
each right (other than those held by the acquiring person) will entitle the
holder to purchase stock of the company or stock or other property of the
acquiring person having a value of twice the purchase price. The rights will
expire on March 2, 2005, unless earlier redeemed by the company in whole, but
not in part, at a price of $.01 per right.
NOTE D - Other Matters
The statements of income for the three and six month periods ended June 30,
1995, include a gain of $27,073,000, or $.48 per common share, from the sale of
the company's Carbon Black business. The pre-tax gain of $41,651,000 is included
in the caption "Other income-net".
The statements of income for the three and six month periods ended June 30,
1995, include income of $23,032,000, or $.40 per common share, as a result of
settlements with certain of the company's insurance carriers, net of related
legal and other costs. The settlements ended litigation with those carriers
concerning whether policies they had issued covered certain environmental costs.
The pre-tax income of $35,434,000 is included in the caption "Other income-net".
5
<PAGE>
NOTE D - Other Matters - (con't)
The statement of income for the six month period ended June 30, 1995, includes a
gain of $6,196,000, or $.11 per common share, from the sale of the company's
Battery Parts business. The pre-tax gain of $9,532,000 is included in the
caption "Other income-net".
The statements of income for the three and six month periods ended June 30, 1994
include a gain of $3,133,000, or $.06 per common share, from the sale of the
metal finishing and metalworking businesses of the company's Allied-Kelite
subsidiary. The pre-tax gain of $4,820,000 is included in the caption "Other
income-net".
NOTE E - Litigation and Environmental
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 June 30, 1995, the company had been identified as a PRP in connection with
41 sites which are subject to the federal Superfund Program under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). The company has also been identified as a PRP in connection with 21
sites where state agencies have taken the lead role in overseeing site cleanup.
With 11 exceptions, all the CERCLA and state controlled 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, changes in
environmental regulations, widely varying costs of alternative cleanup methods,
the number and financial condition of other potentially responsible parties at
multi-party sites, innovations in remediation and restoration technology, and
the identification of additional environmental sites.
At June 30, 1995, the company's reserves for environmental remediation and
compliance costs amounted to $88,492,000, 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 a defendant in three similar actions pending in California state
courts, which arise out of the company's involvement in the polybutylene resin
manufacturing business in the 1970's: East Bay Municipal Utility District v.
Mobil Oil Co., et al.; filed in November 1993, and pending in Superior Court for
the County of San Mateo, City of Santa Maria v. Shell Oil Co., et al.; filed in
May 1994, and pending in Superior Court for the County of San Luis Obispo, and
Nipomo Community Services District v. Shell Oil Co., et al.; filed in May 1995,
and pending in Superior Court for the County of San Luis Obispo. The actions
generally allege that the company and several other defendants negligently
misrepresented the performance of polybutylene pipe and fittings installed in
water distribution systems. Other allegations include breach of warranty, fraud,
strict liability, and breach of the California Unfair Practices Act.
The company is 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 June 30, 1995, and the related
condensed consolidated statements of income for the three-month and six
month-periods ended June 30, 1995 and 1994, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1995 and 1994.
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, 1994, 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 26, 1995, 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, 1994, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
August 10, 1995
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND A NALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
Cash and cash equivalents have increased since year-end primarily from the
divestiture of the company's Diversified Products Segment for $146 million and
to favorable exchange rate fluctuations, which added $10.9 million. The
resources derived from these dispositions will be utilized in strengthening core
businesses. The company is continuing its search for acquisition candidates
which will expand its global reach.
In addition, accounts receivable increased $72.4 million principally due to
record net sales and a structured settlement in connection with insurance
coverage of certain environmental costs. 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.
CAPITAL INVESTMENTS AND COMMITMENTS
Capital expenditures during the first six months of 1995 amounted to $49.1
million, as compared to $54 million during the same period of 1994. Capital
expenditures for the year are expected to be comparable to last years record
level of $107.4 million.
During the second quarter, the Board of Directors approved a major expansion of
the company's organic peroxide facility located in Marshall, Texas. The
investment of approximately $12.7 million will double the capacity for producing
these products and, along with a recently completed expansion at this site, will
enable the company to expand its leading position in North America and to meet
growing product demands in Asia and Europe. The project is expected to be
completed by the fourth quarter of 1996.
In addition, the Board also approved an expansion at its Mapleton, Illinois
manufacturing facility. The plan for a new distillation unit will add to the
existing capacity of a broad range of fatty acids, as well as more fully utilize
the present assets of the plant. The expansion, for approximately $12.2 million,
will enable the company to meet a steadily growing world demand for these
products, and is scheduled to be completed by the fourth quarter of 1996.
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
Net sales of $586.7 million for the second quarter of 1995 were $21.1 million
greater than the comparable 1994 period. Higher shipment volume of approximately
3 percent caused sales to rise during this period. The 1995 effect of favorable
exchange rates, attributable to a weakening of the U.S. dollar against many
international currencies, offset the loss of approximately $18 million in 1994
sales due to the disposition of certain Diversified Products Segment businesses.
Net income, including non-recurring items, was $71.4 million for the second
quarter of 1995, compared to net income of $32.4 million for the same quarter of
1994. Second quarter 1995 results included a gain of $27.1 million on the sale
of the Concarb Division, which completed the divestiture of the company's
Diversified Products Segment, and income of $23 million, net of related legal
and other costs, from settlements covering environmental issues with certain of
the company's insurers. Prior year second quarter results contained a $3.1
million gain on the sale of the company's Allied-Kelite operations. Before
non-recurring items, net income for the second quarter of 1995 was $21.2
million, a decrease of $8 million from the $29.2 million recorded for the same
period of 1994. These results were indicative of steep increases in raw material
feedstock costs which were not totally absorbed through higher sales prices,
resulting in a 3 percent erosion in gross profit margins.
Sales for the first six months of 1995 of $1,189.1 million were $70.1 million
ahead of the same period of 1994. As noted for the quarter, current year sales
were favorably affected by foreign currency exchange rates. The effect of the
weaker U.S. dollar added approximately $36 million to current year sales, more
than offsetting the $31 million decline in sales attributable to the divestiture
of certain Diversified Products Segment businesses. Approximately $43 million of
the increase in sales was due to higher sales prices, a reflection of increased
raw material costs, while the remainder was principally attributable to a 2
percent rise in shipment volume.
Net income for the first six months of 1995 was $101.1 million, compared to
$54.4 million for the corresponding period of 1994. In addition to the
non-recurring items previously noted, current year results included a first
quarter gain of $6.2 million from the disposition of the Battery Parts business.
Excluding non-recurring items, net income for the six months ended June 30, 1995
of $44.8 million was 13 percent behind the prior year's net income of $51.3
million for the corresponding period. This decline was mainly attributable to a
rise in material costs which the company has not been totally successful in
recouping through higher selling prices, causing gross profit margins to decline
approximately 2 percent.
Segment net sales and operating income for the second quarter and first six
months of 1995 and 1994 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -----------------------------------
1995 1994 1995 1994
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Sales
Chemical $371.4 $337.3 $ 753.8 $ 672.0
Petroleum 193.9 196.3 382.1 375.9
Diversified products 25.7 36.1 61.5 79.3
Intersegment elimination (4.3) (4.1) (8.3) (8.2)
--------------- --------------- ---------------- ----------------
Total Net Sales $586.7 $565.6 $1,189.1 $1,119.0
=============== =============== ================ ================
Operating Income
Chemical $29.0 $34.9 $ 63.5 $ 66.4
Petroleum 8.5 18.8 14.7 31.2
Diversified products 47.1 7.1 62.7 10.6
--------------- --------------- ---------------- ----------------
Total Operating Income $84.6 $60.8 $140.9 $108.2
=============== =============== ================ ================
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS - (con't)
The contribution of the company's international operations to current year net
sales and net income, excluding non-recurring items, continues to be ahead of
1994. International operations were responsible for 33 percent of net sales for
both the second quarter and first six months of 1995, up 4 percent from the
comparable periods of 1994. This trend remains the same after adjusting for the
favorable effect that current year foreign currency exchange rates had on sales.
The increase was more dramatic for operating income, excluding non-recurring
items, increasing approximately 6 percent for both periods. International
operations accounted for 40 percent and 38 percent of the current year's second
quarter and first six months operating income, excluding non-recurring items,
respectively.
CHEMICAL SEGMENT
Segment sales for the second quarter of 1995 were 10 percent ahead of sales for
the same quarter of 1994. Half of the increase was attributable to favorable
foreign currency exchange rates, while higher sales prices and a 2 percent
increase in shipment volume accounted for the other 50 percent.
Chemical Segment operating income for the second quarter of 1995 slipped $5.9
million compared to the same quarter of the prior year. Spiraling raw material
costs, which were only partially recovered through higher sales prices, were the
major factor leading to each of the segment's operating groups reporting current
quarter earnings that were lower than the previous year. A majority of the
decline in segment earnings was attributable to the Oleo/Surfactants Group. The
group was severely affected by increases in raw material feedstock costs for its
products that ultimately go into the consumer market, where, due to extremely
competitive marketplace conditions, margins dropped and shipment volume
declined. Additional costs attributable to purchasing intermediates as a result
of unplanned production outages also adversely affected the group's 1995 second
quarter earnings. Production levels are expected to return to normal during the
fourth quarter of 1995. The Polymer Additives Group's results from operations
reflected a downturn in the housing and business construction markets and lower
margins for tin stabilizers and barium and zinc based stabilizers. These latter
products are being used as alternatives to cadmium containing stabilizers as a
result of the company's June 1994 decision to withdraw from this business in the
U.S. market. Earnings for the Resins Group were slightly below the prior year.
Higher material costs resulted in lower reported earnings for each of the
group's business units.
Net sales for the six months ended June 30, 1995 were $81.8 million higher than
the corresponding period of the prior year. Higher sales prices and favorable
foreign currency exchange rates equally accounted for approximately 80 percent
of the increase in sales. A 3 percent increase in volume sold also had a
favorable effect on sales.
Earnings from operations for the Chemical Segment for the first six months of
1995 were down 4 percent from the same period of 1994. Although segment earnings
were down from 1994, the Resins Group reported higher earnings mainly on the
strength of a 6 percent increase in shipment volume. All business units within
the Resins Group performed well, surpassing 1994 levels. The largest shortfall
in earnings was concentrated within the Oleo/Surfactants Group. As noted for the
quarter, the competitive climate surrounding products going into the consumer
marketplace and the added costs of purchasing intermediate products severely
affected the group's current year earnings. This was partially offset by
sustained growth in the profitability of the Oilfield Surfactants business,
attributable to higher sales volume. Operating earnings were down in the Polymer
Additives Group due to fewer housing starts, less business construction and the
lower margins for tin and non-cadmium based stabilizer alternative products.
PETROLEUM SEGMENT
The Petroleum Segment's 1995 second quarter sales were slightly behind sales for
the same period of 1994, decreasing 1 percent. Although shipment volume was up 4
percent from the preceding year, product sales mix caused overall sales to
decline.
10
<PAGE>
PETROLEUM SEGMENT - (con't)
Segment operating earnings dropped $10.3 million from the second quarter of 1994
to the second quarter of 1995. Both of the segment's operating groups were
responsible for the disappointing results. The Petroleum Specialties Group's
operating earnings for the quarter were adversely affected by a tight supply of
key white oil feedstocks, caused by plant turnarounds at major producers, and
continued start up costs associated with the group's Extracted Sulfonic Acid
Unit in Gretna, Louisiana and Calcium Sulfonates Plant in Amsterdam, Holland.
The feedstock shortage resulted in higher prices being paid for alternative,
sometimes lower yield, products and missed sales opportunities. Operating income
for the Lubricants Group was also well below the earnings reported in 1994.
Higher feedstock, additive and packaging costs continue to plague the group
during the current quarter eroding material margins. Adding to the group's
problems, inventory storage constraints for asphalt products resulting from a
weather delayed paving season, at a time when crude oil feedstock costs were up
and demand sensitive sales prices were down, forced the group to sell at prices
below cost.
Sales rose $6.2 million, or 2 percent, for the first six months of 1995,
compared to the same period of 1994. A 1 percent increase in sales volume and,
to a lesser extent, higher prices and product mix accounted for the improvement
in sales.
Operating income for the Petroleum Segment for the first six months of 1995 was
approximately one-half of what it was for the corresponding six months of 1994.
The reported results for both of the segment's operating groups were down
considerably from 1994. A deterioration of material margins, resulting from the
inability to raise selling prices proportionately to current year increases in
material and packaging costs, weighed heavily on the Lubricants Group's 1995
earnings. Additionally, the group's current year operating results were
adversely affected by losses on asphalt sales and a decrease in shipment volume
of branded lubricant products which followed an overall market decline. The
Petroleum Specialties Group's decline in operating earnings was attributable to
a White Oil feedstock shortage and start up costs. Second quarter supply
shortages of key White Oil feedstocks, coupled with a shutdown for catalyst
replacement at the group's Petrolia, Pennsylvania facility, necessitated
purchasing more expensive alternative materials to satisfy minimum customer
requirements. The shortage also resulted in deferring sales, where possible, and
in some cases not pursuing potential sales opportunities. Although start up
costs burdened the group during the first half of 1995, both units are expected
to become fully operational later this year.
DIVERSIFIED PRODUCTS SEGMENT
The company completed its Diversified Products Segment divestiture program with
the sale of the Concarb Division on June 30, 1995. Segment results included a
$41.7 million gain from the sale of this business.
Concarb's second quarter and first six months of 1995 net sales and operating
income grew substantially compared to the corresponding periods of 1994.
OUTLOOK
In the near future the company expects relief from escalating raw material
prices and sees signs that the availability of white oil feedstocks will return
to normal levels. This, combined with a continued focus to recoup past material
cost increases through higher sales prices, should restore profit margins to
more traditional levels. A greater sense of urgency has been placed on cost
improvement programs, as evidenced by recently enacted initiatives, including a
workforce reduction, within the Lubricants Group. The consolidation of
manufacturing operations through possible plant closures is also under review.
Management is confident that its strategic plan of divestiture, acquisition,
consolidation, concentration on core competencies, and cost improvement will
result in long term global growth and improved earnings.
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
June 30, 1995, the company had been identified as a PRP in
connection with 41 sites which are subject to the federal Superfund
Program under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"). The company has also been
identified as a PRP in connection with 21 sites where state agencies
have taken the lead role in overseeing site cleanup. With 11
exceptions, all the CERCLA and state controlled 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, 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 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 was 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. in the United States District Court for the Eastern District of
California. The United States alleged that the company 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 company entered a consent
decree settling this action in which the company neither admited nor
denied liability. Under the terms of the decree, Witco and a third
party jointly paid a civil penalty of $700,000, and Witco agreed to,
among other things: (i) make certain modifications to existing
equipment in the refinery, and install certain new equipment; (ii)
close deep injection wells on an agreed timetable; (iii) install a
storm water and wastewater treatment facility at the refinery; and,
(iv) complete a site evaluation at the location of the refinery and
adjacent properties.
The company is a defendant in three similar actions pending in
California state courts, which arise out of the company's
involvement in the polybutylene resin manufacturing business in the
1970's: East Bay Municipal Utility District v. Mobil Oil Co., et
al.; filed in November 1993, and pending in Superior Court for the
County of San Mateo, City of Santa Maria v. Shell Oil Co., et al.;
filed in May 1994, and pending in Superior Court for the County of
San Luis Obispo, and Nipomo Community Services District v. Shell Oil
Co., et al.; filed in May 1995, and pending in Superior Court for
the County of San Luis Obispo. The actions generally allege that the
company and several other defendants negligently misrepresented the
performance of polybutylene pipe and fittings installed in water
distribution systems. Other allegations include breach of warranty,
fraud, strict liability, and breach of the California Unfair
Practices Act.
The company is 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 4. Submission of Matters to a Vote of Security Holders
(a) The company's Annual Meeting of Shareholders was held on April
26, 1995, at Witco Corporation, One American Lane, Greenwich,
Connecticut at 2:00 p.m.
(b) The company's shareholders elected five directors at said Annual
Meeting, one for a term expiring in 1996 and four for terms
expiring in 1998, as follows:
VOTES
------------------------------
FOR WITHHELD
---------- ---------
William J. Ashe 49,804,570 276,894
William G. Burns 49,882,650 198,814
William E. Mahoney 49,846,700 234,764
L. John Polite, Jr. 49,807,538 273,926
William Wishnick 49,845,114 236,350
Mr. Ashe will be serving a one-year term expiring in 1996 as he
will be reaching the mandatory retirement age for members of the
Board. Messrs. Burns, Mahoney, Polite and Wishnick were elected
for terms expiring in 1998. Under the Board's current retirement
policy, it is anticipated that Mr. Polite will serve two years of
his three year term.
Directors who did not stand for election and continue in office
until the 1996 Annual Meeting are: Harry G. Hohn, Dan J. Samuel
and Bruce F. Wesson. Directors who did not stand for election and
continue in office until the 1997 Annual Meeting are: Simeon
Brinberg, William R. Grant, Richard M. Hayden and William R.
Toller.
(c) In addition to the election of five directors, the company's
shareholders:
(i) Approved the adoption of the 1995 Stock Option Plan for
Employees of Witco Corporation and its Subsidiaries.
VOTES
-------------------------------------------------------
FOR AGAINST ABSTAIN
---------------- --------------- ---------------
47,352,258 2,481,326 247,880
(ii) Ratified the appointment of Ernst & Young LLP as the
company's independent auditors for 1995.
VOTES
-------------------------------------------------------
FOR AGAINST ABSTAIN
---------------- --------------- ---------------
49,977,396 52,650 51,418
13
<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 June
30, 1995.
14
<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: August 11, 1995 ____________________________________
Michael D. Fullwood
Executive Vice President and
Chief Financial Officer
/s/ Dustan E. McCoy
Date: August 11, 1995 ____________________________________
Dustan E. McCoy
Vice President - General Counsel and
Corporate Secretary
<TABLE>
<CAPTION>
EXHIBIT 11
WITCO CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1995 1994 1995 1994
--------- --------- --------- ----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY
Net Income - as reported $ 71,354 $ 32,382 $ 101,129 $ 54,423
Interest on convertible subordinated
debentures (net of tax) -- -- -- 1,109
Dividend requirements of preferred stock (4) (5) (9) (10)
--------- --------- --------- ---------
Total $ 71,350 $ 32,377 $ 101,120 $ 55,522
========= ========= ========= =========
Weighted average shares outstanding 56,248 56,040 56,205 53,475
Assumed conversions:
Convertible subordinated debentures -- -- -- 2,552
Stock options 212 307 205 364
--------- --------- --------- ---------
Total 56,460 56,347 56,410 56,391
========= ========= ========= =========
Per share amount $ 1.26 $ 0.57 $ 1.79 $ .98
========= ========= ========= =========
FULLY DILUTED
Net Income - as reported $ 71,354 $ 32,382 $ 101,129 $ 54,423
Interest on dilutive debentures (net of tax) -- -- -- 1,109
--------- --------- --------- ---------
Total $ 71,354 $ 32,382 $ 101,129 $ 55,532
========= ========= ========= =========
Weighted average shares outstanding 56,248 56,040 56,205 53,475
Assumed conversions:
Convertible subordinated debentures -- -- -- 2,552
Stock options 295 307 315 364
Preferred stock 116 131 119 135
--------- --------- --------- ---------
Total 56,659 56,478 56,639 56,526
========= ========= ========= =========
Per share amount $ 1.26 $ 0.57 $ 1.79 $ .98
========= ========= ========= =========
</TABLE>
EXHIBIT 15
LETTER RE: UNAUDITED FINANCIAL INFORMATION
ACKNOWLEDGMENT LETTER
August 10, 1995
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, the Registration Statement (Form S-8, No. 33-48806), pertaining to
an employee benefit plan of Witco Corporation, and the Registration Statement
(Form S-8, No. 33-60755), pertaining to the 1995 Stock Option Plan for Employees
of Witco Corporation and its Subsidiaries, of our report dated August 10, 1995
relating to the unaudited condensed consolidated interim financial statements of
Witco Corporation and Subsidiary Companies which is included in its Form 10-Q
for the quarter ended June 30, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not part of
the registration statements prepared or certified by accountants within the
meaning of Sections 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 300,018
<SECURITIES> 0
<RECEIVABLES> 454,564
<ALLOWANCES> 9,388
<INVENTORY> 260,907
<CURRENT-ASSETS> 1,051,749
<PP&E> 1,403,551
<DEPRECIATION> 714,828
<TOTAL-ASSETS> 2,059,242
<CURRENT-LIABILITIES> 358,461
<BONDS> 351,601
<COMMON> 281,619
0
7
<OTHER-SE> 761,755
<TOTAL-LIABILITY-AND-EQUITY> 2,059,242
<SALES> 1,189,126
<TOTAL-REVENUES> 1,195,256
<CGS> 989,585
<TOTAL-COSTS> 989,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,016
<INTEREST-EXPENSE> 16,744
<INCOME-PRETAX> 156,277
<INCOME-TAX> 55,148
<INCOME-CONTINUING> 101,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,129
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
</TABLE>
