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 MARCH 31, 1996
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of common stock outstanding is as follows:
Class Outstanding at April 30, 1996
----- -----------------------------
Common Stock - $5 par value 56,567,288
<PAGE>
WITCO CORPORATION
FORM 10-Q
March 31, 1996
CONTENTS PAGE
-------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at March 31, 1996
and December 31, 1995 2
Condensed consolidated statements of income for the three
months ended March 31, 1996 and 1995 3
Condensed consolidated statements of cash flows for the
three months ended March 31, 1996 and 1995 4
Notes to condensed consolidated financial statements 5
Independent accountants' report on review of interim
financial information 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I.FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
<CAPTION>
March 31, December 31,
1996 1995 (a)
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $120,054 $143,994
Accounts and notes receivable-net 444,768 406,486
Inventories
Raw materials and supplies $115,910 $115,231
Finished goods 201,295 317,205 207,667 322,898
---------- ----------
Prepaid and other current assets 67,221 70,667
---------- ----------
TOTAL CURRENT ASSETS 949,248 944,045
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT -
less accumulated depreciation
of $596,946 and $586,595 820,460 811,667
GOODWILL AND OTHER INTANGIBLE ASSETS -
less accumulated amortization of $69,767
and $62,450 723,390 728,124
OTHER ASSETS 120,365 118,182
NET ASSETS OF DISCONTINUED OPERATIONS 170,959 170,426
---------- ----------
TOTAL ASSETS $2,784,422 $2,772,444
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $308,957 $309,171
Accounts payable and other current liabilities 387,669 385,294
---------- ----------
TOTAL CURRENT LIABILITIES 696,626 694,465
---------- ----------
LONG-TERM DEBT 681,167 683,830
DEFERRED INCOME TAXES 102,247 87,532
DEFERRED CREDITS AND OTHER LIABILITIES 285,338 302,500
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 - 56,554 shares and 56,435 shares 282,772 282,173
Capital in excess of par value 133,530 131,076
Equity adjustments:
Foreign currency translation 19,014 17,222
Pensions (4,898) (4,898)
Retained earnings 588,619 578,537
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,019,044 1,004,117
========== ==========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,784,422 $2,772,444
========== ==========
</TABLE>
(a) The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date.
See accompanying notes.
2
<PAGE>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
------------------------
(In thousands except per
share data)
1996 1995
--------- ---------
Net Sales $ 589,425 $ 517,952
Cost of Goods Sold 448,345 405,213
--------- ---------
Gross Profit 141,080 112,739
Operating Expenses
Selling expense 27,119 19,938
General and administrative expenses 35,427 30,439
Research and development 17,989 12,443
Other expenses (income) - net 1,281 (4,846)
--------- ---------
Total Operating Expenses 81,816 57,974
--------- ---------
Operating Income from Continuing Operations 59,264 54,765
Other Expense (Income) - Net
Interest expense 17,669 8,450
Interest income (2,468) (2,922)
Other expense - net 973 1,206
--------- ---------
Income from Continuing Operations before
Income Taxes 43,090 48,031
Income Taxes 17,509 17,761
--------- ---------
Income from Continuing Operations 25,581 30,270
Income (Loss) from Discontinued Operations - Net of
Income Taxes (Benefit) of $283 and ($114) 340 (495)
--------- ---------
Net Income $ 25,921 $ 29,775
========= =========
PER COMMON SHARE: PRIMARY
Income from continuing operations $ .45 $ .54
Income (loss) from discontinued operations -
net of income taxes .01 (.01)
========= =========
Net Income $ .46 $ .53
========= =========
PER COMMON SHARE: FULLY DILUTED
Income from continuing operations $ .44 $ .54
Income (loss) from discontinued operations -
net of income taxes .01 (.01)
--------- ---------
Net Income $ .45 $ .53
========= =========
Weighted average number of common shares
and equivalents - primary 56,895 56,356
========= =========
Dividends declared $ .28 $ .28
========= =========
See accompanying notes.
3
<PAGE>
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
-----------------------
1996 1995
--------- ---------
(In Thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 20,440 $ 23,084
--------- ---------
INVESTING ACTIVITIES
Expenditures for property, plant,
and equipment (43,334) (23,881)
Proceeds from dispositions 13,650 24,090
Other investing activities (1,171) (1,836)
--------- ----------
Net Cash Used in Investing Activities (30,855) (1,627)
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 303,257 21
Payments on borrowings (302,953) (689)
Dividends paid (15,806) (15,725)
Other financing activities 3,052 1,206
--------- ---------
Net Cash Used in Financing Activities (12,450) (15,187)
--------- ---------
Effects of Exchange Rate Changes on Cash
and Cash Equivalents (1,075) 11,548
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (23,940) 17,818
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 143,994 197,173
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 120,054 $ 214,991
========= =========
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 month period ended
March 31, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
company's annual report on Form 10-K/A for the year ended December 31, 1995.
The condensed consolidated financial statements at March 31, 1996, and for the
three month periods ended March 31, 1996 and 1995, 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 - Income Statement Reclassifications
Effective January 1, 1996, the company made the following revisions to its
income statement format:
o Depreciation expense is included in cost of goods sold, general and
administrative expenses, selling expense and research and development.
Amortization expense is included in other expenses (income) - net.
Depreciation and amortization was previously classified separately.
o Research and development, previously included in cost of goods sold, is now
classified separately.
o State income taxes, previously included in cost of goods sold, are now
classified as income taxes.
The condensed consolidated statement of income for the three months ended March
31, 1995 has been reclassified for these changes.
NOTE C - Shareholder Rights Plan
On March 2, 1995, the Board of Directors unanimously approved a Shareholder
Rights 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 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 redeemed earlier by the company in whole, but
not in part, at a price of $.01 per right.
NOTE D - 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 income statements and as net assets of
discontinued operations in the company's balance sheets. Total revenues for the
three month periods ended March 31, 1996 and 1995 were $87,179,000 and
$84,499,000, respectively.
5
<PAGE>
NOTE D - Discontinued Operations (continued)
A summary of net assets of discontinued operations for the periods ended March
31, 1996 and December 31, 1995 are as follows:
March 31, December 31,
1996 1995
----------- ------------
Accounts and notes receivable - net $ 57,100 $ 61,633
Inventories 40,665 38,378
Property, plant, and equipment - net 111,824 112,639
Accounts payable and other current liabilities (37,187) (39,603)
Other assets and liabilities - net (1,443) (2,621)
--------- ---------
Net assets of discontinued operations $ 170,959 $ 170,426
========= =========
NOTE E - Other Matters
At December 31, 1995, the company has $605 million of bank loans outstanding
under a credit agreement with a consortium of banks. 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 under the credit agreement, as amended, was reduced
to $375 million of which $305 million was utilized at March 31, 1996.
The statement of income for the three month period ended March 31, 1995,
includes a gain of $5,918,000 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 expenses (income) - net".
NOTE F - Effective Tax Rate
The effective tax rate of 40.6% as compared to the statutory tax rate of 35% for
the three month period ended March 31, 1996 is primarily the result of state
income taxes and goodwill amortization related to OSi Specialties, which is not
deductible for income tax purposes.
NOTE G - Litigation and Environmental
The company has been notified that it is a potentially responsible party ("PRP")
or a defendant in a number of governmental (federal, state, and local) and
private actions associated with the release, or suspected release, of
contaminants into the environment. As a PRP, the company may be liable for costs
associated with the investigation and remediation of environmental
contamination, as well as various penalties, and damages to persons, property
and natural resources. As of March 31, 1996, the company was a PRP, or a
defendant, in connection with 67 sites at which it is likely to incur costs
associated with environmental investigation or remedial actions which have been
or will be executed pursuant to the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA'), the Resource Conservation and
Recovery Act ("RCRA"), or similar state or local laws. With 21 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 effect the
company's ability to estimate the ultimate costs of remediation efforts. Such
uncertainties include the nature and extent of contamination at each site,
evolving governmental standards regarding remediation requirements, changes in
environmental regulations, widely varying costs of alternative cleanup methods,
the number and financial condition of other potentially responsible parties at
multi-party sites, innovations in remediation and restoration technology, and
the identification of additional environmental sites.
At March 31, 1996, the company's reserves for environmental remediation and
compliance costs related to continuing operations amounted to $80,481,000
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.
6
<PAGE>
NOTE G - Litigation and Environmental (continued)
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, 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;
Nipomo Community Services District v. Shell Oil Co., et al., filed in May 1995,
and pending in Superior Court for the County of Santa Barbara; and, Alameda
County Water District v. Mobil Oil Corporation, et al., filed April 4, 1996, and
pending in Superior Court for the County of San Mateo. 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 a defendant in an action filed on May 15, 1992 in New Jersey
state court styled Gordon et al. v. Witco Corporation, Superior Court of New
Jersey Law Division - Morris County Docket No. MRS-L-2165-92 in which nine
former employees of the company sought compensatory and punitive damages on the
basis their termination of employment by the company violated the New Jersey age
discrimination statute and caused loss of income and emotional harm. Prior to
the trial of the action the company settled the claims of five of the
plaintiffs. Following trial and while the jury deliberated, the company settled
the claims of two of the remaining plaintiffs, but the jury was not informed of
the settlements. On March 6, 1996 the jury in the action awarded three of the
plaintiffs (including the two plaintiffs whose claims the company had settled
while the jury deliberated) a total of $1.3 million in compensatory damages and
$7.5 million in punitive damages, and rendered a verdict in favor of the company
in respect of the fourth plaintiff. The one successful plaintiff not bound by a
settlement is also entitled to reasonable attorney's fees, but no amount has
been awarded to date. As a result of the settlements with two of the three
plaintiffs to whom the jury awarded damages, the company's maximum exposure is
for approximately $3 million of the total of approximately $9 million awarded by
the jury and attorney's fees sought by the plaintiff. The company will appeal
the verdict.
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, depending on the amount and timing of
an unfavorable resolution of these contingencies, it is possible that the
company's future results could be materially affected in a particular period.
7
<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 March 31, 1996, and the related
condensed consolidated statements of income and cash flow for the three-month
periods ended March 31, 1996 and 1995. 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, 1995, 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 29, 1996, except for Note 7,
as to which the date is February 12, 1996, 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, 1995, 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
May 10, 1996
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
Cash and cash equivalents have decreased $23.9 million during the first quarter
primarily due to an increase in accounts receivable and increased capital
spending. The increase in accounts receivable is primarily a result of higher
first quarter net sales as compared to the fourth quarter of 1995. Days sales
outstanding at March 31 and December 31 were comparable. The increase in capital
spending levels is primarily attributable to the OSi business which was acquired
in October 1995.
At December 31, 1995, the company had $605 million of bank loans outstanding
under a credit agreement with a consortium of banks. 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 under the credit agreement, as amended, was reduced
to $375 million. The company plans to repay the remaining $305 million with
proceeds from the sale of the Lubricants Group, cash flow from operations or
additional long-term financing.
CAPITAL INVESTMENTS AND COMMITMENTS
Capital expenditures during the first three months of 1996 amounted to $43.3
million, as compared to $23.9 million during the same period of 1995. Capital
expenditures related to continuing operations as of March 31, 1996 and 1995 were
$39.8 million and $19.1 million, respectively. The company anticipates that
capital expenditures for 1996 related to continuing operations will be in excess
of the 1995 amount of $98.3 million.
CONTINGENCIES
The company has been notified that it 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. 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.
RESULTS FROM CONTINUING OPERATIONS
The company reported income from continuing operations of $25.6 million for the
first quarter of 1996 compared to $30.3 million for the same period of 1995. A
comparison of these periods is affected by a non-recurring gain from the sale of
the Battery Parts business in 1995. The following table shows the effect of this
non-recurring item on earnings.
<TABLE>
<CAPTION>
(Unaudited - Millions Of Dollars Three Months Ended March 31,
Except Per Share Data) 1996 1995
- ------------------------------------------- ----------------------------------------------------------------------------------
Pre-Tax Income Pre-Tax Income
Income Income Per Share Income Income Per Share
- ------------------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Continuing operations excluding
non-recurring item $43.1 $25.6 $0.4 $38.5 $24.4 $.43
Gain on disposition of operations
of a subsidiary -- -- -- 9.5 5.9 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations $43.1 $25.6 $0.4 $48.0 $30.3 $.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
RESULTS FROM CONTINUING OPERATIONS (continued)
First quarter 1996 net sales from continuing operations of $589.4 million, the
highest reported for any quarter in the company's history, was $71.5 million
over net sales for the same period of 1995. The 14 percent improvement was
attributable to the acquisition of OSi Specialties which added $112.8 million to
current quarter sales, more than offsetting the $35.7 million decline in sales
resulting from the disposition of the Diversified Products businesses. Current
quarter sales attributable to the company's continuing operations, excluding OSi
Specialties and Diversified Products, were $5.7 million lower than the first
quarter of 1995. Although volume remained unchanged, the adverse effect of
currency translation rates and changes in product sales mix caused these sales
to decline.
Income from continuing operations for the first three months of 1996 was $25.6
million compared to $24.4 million, before a non-recurring gain, for the
corresponding period in 1995. The 5 percent increase in net income from
continuing operations was primarily attributable to an increase in the company's
first quarter 1996 margin performance. Gross profit margin rose 2.2 percent to
approximately 24 percent, while operating income margin from continuing
operations increased 1.3 percent to approximately 10 percent after adjusting for
the gain on the sale of the Battery Parts business. The combination of the
acquisition of OSi Specialties and the disposition of the Diversified Products
businesses accounted for all but .5 percent of the higher gross profit and
operating income margins. This .5 percent improvement is reflective of a
stabilization of feedstock costs combined with higher selling prices within the
chemical segment and cost reductions associated with productivity improvement
programs initiated in 1995. Partially offsetting the favorable effect that
higher margins had on net income from continuing operations, the financing of
the acquisition of OSi Specialties and the assumption of OSi's debt caused
current quarter interest expense to increase over the prior year. A 3.6 percent
increase in the effective tax rate, mainly resulting from an increase in
non-deductible goodwill amortization attributable to the OSi Specialties'
acquisition, also adversely affected current quarter earnings.
The company is planning to adopt the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting and Disclosure of Stock
Based Compensation" in 1996. Accordingly, operating results will not be impacted
by the adoption.
SEGMENT INFORMATION
Segment net sales and operating income for the first quarter of 1996 and 1995
are set forth in the following table. The Petroleum Segment consists solely of
the Petroleum Specialties Group. This was a result of the company's decision to
sell the Lubricants Group, the operating results of which have been recorded as
discontinued operations.
Three Months ended March 31,
(Unaudited - In Millions) 1996 1995
----------------------------
Net sales
Chemical $377.7 $382.1
OSi Specialties 112.8 --
Petroleum 99.2 103.7
Diversified products -- 35.7
Intersegment elimination (.3) (3.5)
------ ------
Net sales $589.4 $518.0
====== ======
Operating income from continuing operations
Chemical $36.5 $33.9
OSi Specialties 17.7 --
Petroleum 6.6 8.1
Diversified products -- 15.5
Corporate and unallocated (1.5) (2.7)
------ ------
Operating income from continuing operations $59.3 $54.8
====== ======
Shipments from the company's international operations accounted for 42 percent
of net sales for the first quarter of 1996 compared to 37 percent for the same
quarter of 1995. The acquisition of OSi Specialties and disposition of the
Diversified Products businesses accounted for the 5 percent increase.
International operations accounted for 41 percent of segment operating income
from continuing operations, excluding the non-recurring gain from the sale of
the Battery Parts business, for the first quarter of both years. Excluding OSi
Specialties and Diversified Products, the company's international operations
share of operating income would have risen 5 percent.
10
<PAGE>
CHEMICAL SEGMENT
Segment first quarter 1996 sales were down 1 percent to $377.7 million compared
to the same quarter in 1995. Although each of the segment's operating groups
managed to recoup a portion of the higher prices paid for raw material
feedstocks in 1995 through increased sales prices, a 2 percent decline in volume
and unfavorable foreign currency translations caused sales to decline.
Operating income for the first three months of 1996 increased 8 percent to $36.5
million compared to the same period of the prior year. The segment benefited
from improved product margins resulting from the stabilization of feedstock
costs, productivity related cost reductions and higher sales prices. The
segment's Polymer Additives and Oleo/Surfactants groups each reported improved
operating earnings. Earnings were up in each of the Polymer Additives Group's
strategic business units with Vinyls reporting the greatest improvement. Cost
reductions resulting from productivity improvements, which included operating
and procurement efficiencies, led to the group's improved operating results.
Current quarter results were positive for most of the Oleo/Surfactants Group's
strategic business units. The group benefited from Agricultural Surfactants' new
product introductions and increased global penetration, a larger share of the
European Surfactants market and a greater demand for Laundry Products. Although
Personal Care Surfactants' current quarter operating income declined compared to
the first quarter of 1995, the business recovered a portion of the market share
lost during the last three quarters of 1995. The favorable results of cost
saving initiatives begun in 1995, which exceeded increased expenses attributable
to the severity of this year's winter weather, also added to the
Oleo/Surfactants Group's higher reported earnings. The operating earnings of the
segment's Resins Group was down compared to the prior year. A decline in
shipments caused all three of the group's strategic business units to report
lower operating earnings. The group's Epoxy/Hardeners unit was the business most
adversely affected by stagnant European economies, particularly the portion of
the business servicing the Coatings and Civil Engineering sectors. Additionally,
extremely cold weather conditions added extra expense to current year results
while contributing to reduced product demand.
OSi SPECIALTIES SEGMENT
The OSi Specialties business, which was acquired during the fourth quarter of
1995, added $112.8 million of net sales and $17.7 million of operating income,
inclusive of acquisition related amortization expense, to first quarter 1996
reported results. Although not included in the company's first quarter 1995
results, a comparison of the two periods shows a 2 percent decline in sales. The
segment reported an increase in operating income of approximately 22 percent as
compared to 1995 on a pro forma basis, mainly as a result of lower cost contract
manufacturing, manufacturing efficiency improvements, and reduced purchases of
intermediates from outside sources.
PETROLEUM SEGMENT
Net sales for the first three months of 1996 of $99.2 million were 4 percent
behind the same period of 1995. Despite an increase in shipments of
approximately 4 percent, lower sales prices mainly attributable to product mix
caused sales to decline.
Segment operating earnings for the first quarter of 1996 declined $1.5 million
to $6.6 million when compared to the same period of 1995. Higher operating costs
associated with recent plant expansions in Gretna, Louisiana and Amsterdam,
Holland, a 2 percent decline in material margin, and lower sales caused the
earnings of the Specialty Products business unit to fall below prior year
levels. The lower margin was due to a combination of market induced lower sales
prices, product mix, and higher raw material feedstock costs.
DIVERSIFIED PRODUCTS SEGMENT
The divestiture of the Diversified Products Segment was completed during the
second quarter of 1995. Operating income for the first quarter of 1995 included
a non-recurring gain of $9.5 million attributable to the disposition of the
Battery Parts business.
11
<PAGE>
OUTLOOK
The initiative announced in 1995 to consolidate plants is on schedule and the
company continues to review the next phase of the consolidation program which is
focused on the closure of less efficient facilities and moving production to
more cost-effective sites. The company hopes to complete the disposition of the
Lubricants Group no later than the third quarter of 1996. As the final phase of
its three year divestiture program nears completion, the company is focusing its
technical expertise in the areas of new product and application development,
which is the next step in becoming a premier global specialty chemical and
specialty petroleum producer.
The acquisition of OSi Specialties has had a major effect on the company's
margin performance during the first quarter of 1996. As this business is further
integrated into the Witco organization and additional synergies are achieved,
margins are expected to continue to rise. The company is optimistic that net
income from continuing operations, excluding non-recurring items, will continue
to improve throughout the remainder of 1996 when compared to 1995 results as a
result of an anticipated continuation of the first quarter downward trend in raw
material prices; a projected upturn in the European economy; the inclusion of
OSi Specialties' operating results for a full year; and an expansion of the
company's presence in the Pacific Rim.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The company has been notified that it is a potentially responsible party ("PRP")
or a defendant in a number of governmental (federal, state, and local) and
private actions associated with the release, or suspected release, of
contaminants into the environment. As a PRP, the company may be liable for costs
associated with the investigation and remediation of environmental
contamination, as well as various penalties, and damages to persons, property
and natural resources. As of March 31, 1996, the company was a PRP, or a
defendant, in connection with 67 sites at which it is likely to incur costs
associated with environmental investigation or remedial actions which have been
or will be executed pursuant to the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA'), the Resource Conservation and
Recovery Act ("RCRA"), or similar state or local laws. With 21 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 effect 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 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, 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;
Nipomo Community Services District v. Shell Oil Co., et al., filed in May 1995,
and pending in Superior Court for the County of Santa Barbara; and, Alameda
County Water District v. Mobil Oil Corporation, et al., filed April 4, 1996, and
pending in Superior Court for the County of San Mateo. 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 a defendant in an action filed on May 15, 1992 in New Jersey
state court styled Gordon et al. v. Witco Corporation, Superior Court of New
Jersey Law Division - Morris County Docket No. MRS-L-2165-92 in which nine
former employees of the company sought compensatory and punitive damages on the
basis their termination of employment by the company violated the New Jersey age
discrimination statute and caused loss of income and emotional harm. Prior to
the trial of the action the company settled the claims of five of the
plaintiffs. Following trial and while the jury deliberated, the company settled
the claims of two of the remaining plaintiffs, but the jury was not informed of
the settlements. On March 6, 1996 the jury in the action awarded three of the
plaintiffs (including the two plaintiffs whose claims the company had settled
while the jury deliberated) a total of $1.3 million in compensatory damages and
$7.5 million in punitive damages, and rendered a verdict in favor of the company
in respect of the fourth plaintiff. The one successful plaintiff not bound by a
settlement is also entitled to reasonable attorney's fees, but no amount has
been awarded to date. As a result of the settlements with two of the three
plaintiffs to whom the jury awarded damages, the company's maximum exposure is
for approximately $3 million of the total of approximately $9 million awarded by
the jury and attorney's fees sought by the plaintiff. The company will appeal
the verdict.
On November 3, 1995, the United States filed suit against the company in United
States District Court for the Central District of Illinois seeking up to $4.5
million in civil penalties for the alleged discharge of pollutants in violation
of the Clean Water Act. In this action, the United States alleges that, at
various times from 1990 to 1993, the company discharged pollutants into the
Illinois River from its Mapleton, Illinois facility without first obtaining a
National Pollutant Discharge Elimination System Permit.
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, depending on the amount and timing of
an unfavorable resolution of these contingencies, it is possible that the
company's future results could be materially affected in a particular period.
13
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The company's Annual Meeting of Shareholders was held on April 24, 1996, at
the offices of the company, One American Lane, Greenwich, Connecticut
beginning at 2:00 p.m.
(b) At the Annual Meeting, the company's shareholders elected three directors
to serve a term expiring in 1999 as follows:
Votes
------------------------------------------------------
For Withheld
------------------------- --------------------
Harry G. Hohn 50,423,618 872,667
Dan J. Samuel 50,359,653 936,632
Bruce F. Wesson 50,450,115 846,170
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. Directors who did not stand for election and continue in
office until the 1998 Annual Meeting are: William G. Burns, William E. Mahoney,
L. John Polite, Jr., and William Wishnick.
(c) In addition to the election of directors, at the Annual Meeting the
company's shareholders:
(i) Approved the adoption of the Witco Corporation Long Term Incentive
Plan.
Votes
----------------------------------------------------
For Against Abstain
---------- --------- -------
44,775,728 6,352,715 167,842
(ii) Approved the amendment of the 1995 Stock Option Plan for
Employees of Witco Corporation and its Subsidiaries.
Votes
----------------------------------------------------
For Against Abstain
---------- --------- -------
43,198,164 7,916,533 181,288
(iii) Ratified the appointment of Ernst & Young LLP as the company's
independent auditors for 1996.
Votes
----------------------------------------------------
For Against Abstain
---------- --------- -------
50,774,062 463,388 58,835
(iv) Defeated a shareholder proposal requesting diversity on the Board
of Directors.
Votes
----------------------------------------------------
Against For Abstain
---------- --------- -------
40,346,495 7,719,426 882,062
14
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2 Not applicable
4 Not applicable
10 (i) 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
The company filed two Current Reports on Form 8-K, the first
dated January 18, 1996, pertained to a charge against
earnings in the fourth quarter ended December 31, 1995,
related to plant consolidation, environmental remediation
and litigation, and the second dated February 12, 1996
pertained to the company entering into a First Supplemental
Indenture with the Chase Manhattan Bank, N.A., and Fleet
National Bank of Connecticut appointing them as trustees for
debentures and notes, respectively, issued on that date.
15
<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: May 10, 1996 ----------------------------------------------------
Michael D. Fullwood
Executive Vice President and Chief Financial Officer
/s/ Dustan E. McCoy
Date: May 10, 1996 ----------------------------------------------------
Dustan E. McCoy
Vice President - General Counsel and Corporate
Secretary
EXHIBIT 11
WITCO CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended
March 31,
------------------------
1996 1995
--------- --------
(In Thousands Except Per
Share Data)
PRIMARY
Income from Continuing Operations $25,581 $30,270
Dividend requirements of preferred stock (5) (5)
------- -------
Total 25,576 30,265
Income (loss) from Discontinued Operations -
net of income taxes 340 (495)
------- -------
Net Income $25,916 $29,770
======= =======
Weighted average shares outstanding 6,483 56,161
Assumed conversions:
Stock options 412 195
------- -------
Total 56,895 56,356
======= =======
Per share amounts:
Income from Continuing Operations $.45 $.54
Income (loss) from Discontinued Operations -
net of income taxes .01 (.01)
------- -------
Net Income $.46 $.53
======= =======
FULLY DILUTED
Income from Continuing Operations $25,581 $30,270
Income (loss) from Discontinued Operations -
net of income taxes 340 (495)
------- -------
Net Income $25,921 $29,775
======= =======
Weighted average shares outstanding 56,483 56,161
Assumed conversions:
Stock options 540 243
Preferred stock 115 122
------- -------
Total 57,138 56,526
======= =======
Per share amounts:
Income from Continuing Operations $.44 $.54
Income (loss) from Discontinued Operations -
net of income taxes .01 (.01)
------- -------
Net Income $.45 $.53
======= =======
EXHIBIT 15
LETTER RE: UNAUDITED FINANCIAL INFORMATION
ACKNOWLEDGMENT LETTER
May 10, 1996
The Board of Directors
Witco Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-3, No. 33-45865) and the Post-effective Amendment No. 2 to the
Registration Statement (Form S-3, No. 33-58066), each pertaining to the issuance
of debentures, the Post-effective Amendment No. 1 to the Registration Statement
(Form S-3, No. 33-58120), pertaining to the issuance of common stock, the
Registration Statement (Form S-3, No. 33-65203), pertaining to the issuance of
notes and debentures, the Posteffective 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 May 10, 1996 relating to the unaudited
condensed consolidated interim financial statements of Witco Corporation and
Subsidiary Companies which is included in its Form 10-Q for the quarter ended
March 31, 1996.
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
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