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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File Number 1-4654
WITCO CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1870000
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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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 552-2000
--------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
The number of shares of common stock outstanding is as follows:
Class Outstanding at October 31, 1997
----- -------------------------------
Common Stock - $5 par value 57,449,829
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WITCO CORPORATION
FORM 10-Q
For the quarterly period ended September 30, 1997
<TABLE>
<CAPTION>
CONTENTS PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at September 30, 1997 (unaudited)
and December 31, 1996 2
Condensed consolidated statements of operations (unaudited) for the three
and nine months ended September 30, 1997 and 1996 3
Condensed consolidated statements of cash flows (unaudited) for the
nine months ended September 30, 1997 and 1996 4
Notes to condensed consolidated financial statements (unaudited) 5
Independent accountants' report on review of interim
financial information 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Index to Exhibits 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 (a)
------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 80,290 $ 59,201
Accounts and notes receivable-net 383,424 390,288
Inventories
Raw materials and supplies $ 84,910 $ 99,112
Finished goods 166,984 251,894 185,388 284,500
-------- ---------
Deferred income taxes 80,846 92,490
Prepaid and other current assets 27,187 26,947
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TOTAL CURRENT ASSETS 823,641 853,426
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT -
less accumulated depreciation
of $806,033 and $761,926 710,857 735,392
GOODWILL AND OTHER INTANGIBLE ASSETS -
less accumulated amortization of $151,919
and $133,625 626,966 653,733
DEFERRED INCOME TAXES -- 16,438
OTHER ASSETS 89,936 72,976
NET ASSETS OF DISCONTINUED OPERATIONS -- 59,740
---------- ----------
TOTAL ASSETS $ 2,251,400 $ 2,391,705
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 2,235 $ 94,929
Accounts payable and other current liabilities 465,999 515,344
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TOTAL CURRENT LIABILITIES 468,234 610,273
---------- ----------
LONG-TERM DEBT 687,011 700,820
DEFERRED INCOME TAXES 11,548 --
DEFERRED CREDITS AND OTHER LIABILITIES 438,733 452,747
SHAREHOLDERS' EQUITY
$2.65 Cumulative Convertible Preferred Stock,
par value $1 per share: authorized - 14 shares,
issued and outstanding - 6 shares 6 6
Common Stock, par value $5 per share, authorized -
100,000 shares, issued - 57,414 shares and 56,763 shares 287,070 283,818
Capital in excess of par value 155,357 138,453
Equity adjustments:
Foreign currency translation (20,691) 11,989
Pensions and other (6,659) (6,423)
Retained earnings 231,273 200,022
Treasury stock, at cost - 10 shares (482) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 645,874 627,865
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,251,400 $ 2,391,705
---------- ----------
---------- ----------
</TABLE>
(a) The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes.
2
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WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------
(In thousands except per share data)
1997 1996 1997 1996
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 528,105 $ 562,049 $1,668,032 $1,722,932
Cost of Goods Sold 393,159 437,952 1,249,026 1,320,977
--------------- -------------- -------------- -------------
Gross Profit 134,946 124,097 419,006 401,955
Operating Expenses
Selling expense 27,679 26,591 78,083 82,298
General and administrative expenses 29,662 37,299 107,511 109,206
Research and development 17,897 17,869 53,407 53,895
Other expenses (income) - net 1,178 3,087 12,095 9,875
Restructuring charges 2,055 - 8,813 -
--------------- -------------- -------------- -------------
Total Operating Expenses 78,471 84,846 259,909 255,274
--------------- -------------- -------------- -------------
Operating Income from Continuing
Operations 56,475 39,251 159,097 146,681
Other Expense (Income) - Net
Interest expense 12,172 17,854 39,552 53,247
Interest income (841) (2,159) (2,828) (7,030)
Other expense - net 762 931 2,973 2,805
--------------- -------------- -------------- -------------
Income from Continuing Operations before
Income Taxes 44,382 22,625 119,400 97,659
Income Taxes 18,640 10,697 50,148 41,631
--------------- -------------- -------------- -------------
Income from Continuing Operations 25,742 11,928 69,252 56,028
Discontinued Operations:
Income from Discontinued Operations -
Net of Income Taxes of $ -, $ -, $ -
and $283 - - - 340
Estimated Income (Loss) on Disposal - Net
of Income Taxes (Benefit) of $-, $-,
$6,274 and $(43,612) - - 9,990 (68,253)
--------------- -------------- -------------- -------------
Income (Loss) from Discontinued
Operations - - 9,990 (67,913)
--------------- -------------- -------------- -------------
Net Income (Loss) $ 25,742 $ 11,928 $ 79,242 $ (11,885)
=============== ============== ============== =============
NET INCOME (LOSS) PER COMMON SHARE:
PRIMARY
Income from continuing operations $ .44 $ .21 $ 1.20 $ .98
Income (loss) from discontinued
operations - net of income taxes - - .17 (1.19)
--------------- -------------- -------------- -------------
Net Income (Loss) Per Common Share:
Primary $ .44 $ .21 $ 1.37 $ (.21)
=============== ============== ============== =============
NET INCOME (LOSS) PER COMMON SHARE: FULLY
DILUTED
Income from continuing operations $ .44 $ .21 $ 1.18 $ .98
Income (loss) from discontinued
operations - net of income taxes - - .17 (1.19)
--------------- -------------- -------------- -------------
Net Income (Loss) Per Common Share:
Fully Diluted $ .44 $ .21 $ 1.35 $ (.21)
=============== ============== ============== =============
Weighted average number of common shares
and equivalents - primary 58,873 56,867 57,917 56,919
=============== ============== ============== =============
Dividends declared $ .28 $ .28 $ .84 $ .84
=============== ============== ============== =============
</TABLE>
See accompanying notes.
3
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WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
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(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 166,094 $ 140,409
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INVESTING ACTIVITIES
Expenditures for property, plant, and equipment (93,725) (118,990)
Proceeds from dispositions 74,181 13,650
Other investing activities 5,917 165
--------- ---------
Net Cash Used in Investing Activities (13,627) (105,175)
--------- ---------
FINANCING ACTIVITIES
Payments on borrowings (165,478) (322,126)
Proceeds from borrowings 72,030 319,489
Dividends paid (47,991) (47,491)
Proceeds from exercise of stock options 16,805 5,558
Other financing activities (665) --
--------- ---------
Net Cash Used in Financing Activities (125,299) (44,570)
--------- ---------
Effects of Exchange Rate Changes on Cash and Cash Equivalents (6,079) (2,566)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,089 (11,902)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,201 143,994
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 80,290 $ 132,092
========= =========
</TABLE>
See accompanying notes.
4
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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 nine month
periods ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. 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, 1996.
The condensed consolidated financial statements at September 30, 1997, and for
the three and nine month periods ended September 30, 1997 and 1996, 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 - Discontinued Operations
On September 11, 1995, the company announced its intention to divest its
Lubricants Group. These operations are reflected as discontinued operations for
all periods presented in the company's statements of operations and as net
assets of discontinued operations in the company's balance sheet. Total revenues
for the three and nine month periods ended September 30, 1997 and 1996 were
$3,076,000 and $53,401,000, and $99,193,000 and $278,408,000, respectively.
Retained liabilities (principally environmental liabilities) of the Lubricants
Group as of September 30, l997 are included in "Accounts payable and other
current liabilities" ($27,527,000) and "Deferred Credits and Other Liabilities"
($40,991,000).
The nine month period ended September 30, 1997 includes a positive adjustment to
the provision recorded in 1996 for the loss on disposal associated with the
Lubricants Group. The adjustment of $9,990,000 (net of income taxes), or $.17
per common share, is primarily the result of revised estimates from the sale of
various Lubricants businesses.
The nine month period ended September 30, 1996 includes a provision for
estimated loss on disposal (net of income tax benefit) of $68,253,000, or $1.20
per common share, associated with the divestiture of the Lubricants Group.
On July 16, 1997, the company completed the Lubricant's Group divestiture with
the sale of the Golden Bear Division to Golden Bear Acquisition Corporation for
approximately $50 million, subject to certain post-closing adjustments.
NOTE C - Other Matters
On March 31, 1997, the company entered into a new five year revolving credit
agreement totaling $500,000,000 with various banks. Borrowings on this facility
are at various rate options to be determined at the time of borrowing. The
facility contains covenants which are customary in agreements of this nature.
The company is required to pay a facility fee of .075 percent per year on the
total commitment. On April 2, 1997, the company's previously existing credit
facility was terminated.
On April 23, 1997, shareholders approved a Shareholder Value Incentive Plan (the
"SVIP") under which 200,000 shares of Convertible Preferred Stock may be issued
to selected officers and employees of the company and its subsidiaries and
affiliates. The shares are each convertible into 10 shares of Common Stock if
either one of certain targets is achieved by March 4, 2002. The targets under
the SVIP are that either (i) the price per share of Common Stock, as reported on
the New York Stock Exchange, has remained at or above $75 5/8 for a period of
ten consecutive trading days; or (ii) the earnings per share of the company for
any year is at least $4.50. As of September 30, 1997, the company granted rights
to certain officers and employees for 171,000 shares of Convertible Preferred
Stock having no par value under the SVIP.
On July 23, 1997, the company signed a Letter of Intent to exchange its epoxy
systems and adhesives business for the Ciba Specialty Chemicals Inc. PVC heat
stabilizers business.
The three and nine month periods ended September 30, 1997 include gains from the
sale of the Food Emulsifiers and Polymeric Plasticizers businesses of $3,827,000
($2,334,000 after-tax or $.04 per common share).
5
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In February 1997, the Financial Accounting Standards Board issued Statement No.
128 Earnings per Share, which is required to be adopted on December 31, 1997. At
that time, the company will be required to change the method currently used to
compute earnings per share, and to restate all prior periods. Under the new
requirements for calculating basic (primary) earnings per share, the dilutive
effect of stock options will be excluded. Statement No. 128 would not materially
impact basic or fully diluted earnings per share for the three and nine month
periods ended September 30, 1997 and 1996.
NOTE D - Effective Tax Rate
The effective tax rates of 42%, 47.3%, 42% and 42.6% for the three and nine
month periods ended September 30, 1997 and 1996, respectively, as compared to
the federal statutory tax rate of 35%, are primarily the result of the impact of
state income taxes, goodwill amortization related to OSi Specialties, Inc. which
is not deductible for income tax purposes and the effect of the mix between
domestic and foreign earnings.
NOTE E - Financial Instruments
The company enters into foreign currency forward contracts, currency swaps and
other financial market instruments to hedge the effect of foreign currency
fluctuations on the financial statements.
The company purchases foreign currency forward contracts that are designated and
effective as hedges of recorded transactions (principally foreign currency trade
receivables and payables) which otherwise would expose the company to foreign
currency risk. Realized and unrealized gains and losses on foreign currency
forward contracts (including open, matured, and terminated contracts) that are
designated and effective as hedges of recorded transactions are recognized in
earnings and offset the impact of valuing recorded foreign currency trade
payables and receivables. Unrealized gains or losses are cumulatively measured
as the differential between the spot exchange rate at the contract's inception
and the spot exchange rate as of the balance sheet date. Discounts or premiums
(the difference between the current spot exchange rate and the contract exchange
rate at the inception of the contract) on foreign currency contracts designated
and effective as hedges of recorded transactions are amortized over the
respective contract's lives. Realized and unrealized gains and losses on foreign
currency contracts that are not designated and effective as hedges are included
in income as other expenses (income) -net. The net asset or liability
representing the fair value of open positions are included in accounts and notes
receivables - net.
The company uses foreign exchange swap contracts (principally denominated in
German marks, Italian lire, French francs and British pounds) that are designed
to reduce its exposure to foreign currency risk from its net investment
(including long-term intercompany loans) in its international subsidiaries. For
foreign currency contracts that are designated and effective as hedges, realized
and unrealized gains and losses (including those from open, matured, and
terminated contracts), net of related taxes, are included in the cumulative
translation adjustment account in shareholders' equity (the deferral accounting
method). Discounts or premiums are amortized over the respective contract lives.
The related amounts due to or from counterparties are included in other assets.
NOTE F - Litigation and Environmental
The company is a potentially responsible party ("PRP") or a defendant in a
number of governmental (federal, state and local) and private actions associated
with the release, or suspected release, of contaminants into the environment. As
a PRP, the company may be liable for costs associated with the investigation and
remediation of environmental contamination, as well as various penalties and
damages to persons, property and natural resources. As of September 30, 1997,
the company was a PRP, or a defendant, in connection with 62 sites at which it
is likely to incur environmental response costs as a result of actions brought
against the company pursuant to the federal Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), the federal Resource Conservation and
Recovery Act ("RCRA") or similar state or local laws. With 24 exceptions, all of
these sites involve one or more other PRPs and in most cases there are numerous
other PRPs in addition to the company. CERCLA, RCRA and the state counterparts
to these federal laws authorize governments to investigate and remediate actual
or suspected damage to the environment caused by the release, or suspected
release, of hazardous substances into the environment, or to order the
responsible parties to investigate and/or remediate such environmental damage.
6
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The company evaluates and reviews environmental reserves for future remediation
and other costs on a regular 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 September 30, 1997, the company's reserves for environmental remediation and
compliance costs amounted to $207,698,000, reflecting the company's estimate of
the costs to be incurred over an extended period of time in respect of those
matters which are reasonably estimable. At September 30, 1997, $149,215,000 of
the reserves are included in "Deferred Credits and Other Liabilities".
The company is a defendant in six similar actions arising out of the company's
involvement in the polybutylene resin manufacturing business in the 1970's. Five
of the following cases are currently pending in California state courts and one
is pending in Texas state court: East Bay Municipal Utility District v. Mobil
Oil Corporation, et al., filed in November 1993, and pending in Superior Court
for the County of San Mateo, California; City of Santa Maria v. Shell Oil
Company, et al., filed in May 1994, and pending in Superior Court for the County
of San Luis Obispo, California; Nipomo Community Services District v. Shell Oil
Company, et al., filed in May 1995, and pending in Superior Court for the County
of Santa Barbara, California; Alameda County Water District v. Mobil Oil
Corporation, et al., filed in April 1996, and Marin Municipal Water District v.
Shell Oil Company, et al., filed in May 1996, both pending in Superior Court for
the County of San Mateo; and City of Austin v. Shell Oil Company, et al., filed
in June 1996, and pending in the District Court of Travis County, Texas. The
actions generally allege that the company and several other defendants
negligently misrepresented the performance of polybutylene pipe and fittings
installed in water distribution systems. Other allegations in the California and
Texas actions include breach of the California Unfair Practices Act and the
Texas Deceptive Practices Act, respectively; breach of warranty, fraud and
strict liability. It is possible that the company may be named as a defendant in
future actions arising out of its past involvement in the polybutylene resin
manufacturing business.
The company is not a party to any legal proceedings, including environmental
matters, which it believes will have a material adverse effect on its
consolidated financial position. However, the company's results could be
materially affected in future periods by the resolution of these contingencies.
7
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Independent Accountants' Review Report
The Board of Directors
Witco Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Witco
Corporation and Subsidiary Companies as of September 30, 1997, and the related
condensed consolidated statements of operations for the three-month and
nine-month periods ended September 30, 1997 and 1996, and the condensed
consolidated statements of cash flows for the nine-month periods ended September
30, 1997 and 1996. 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, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated January 31, 1997, except for Note 19,
as to which the date is March 4, 1997, 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, 1996, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
November 11, 1997
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
Cash and cash equivalents increased $21.1 million during the first nine months
of 1997 primarily as a result of proceeds received from the sales of businesses
offset in part by the company's decision to pay down debt, and improved cash
flow from operations.
During the fourth quarter of 1996, the company adopted a plan to restructure
operations. In connection with the plan and other initiatives, the company
recorded an after-tax charge of $310.6 million, of which approximately $130
million will require cash expenditures. As of September 30, 1997, approximately
$22.8 million has been spent relating to this restructuring plan and other
initiatives.
On March 31, 1997, the company entered into a new five year credit agreement
with various banks in the amount of $500 million. The new facility contains
various covenants which are customary in agreements of this nature. Borrowings
on this facility are at various rate options to be determined at the time of the
borrowing. The company is required to pay a facility fee of .075 percent per
year on the total commitment. The company plans to utilize the facility
periodically for its various operating requirements and planned capital
investment program. On April 2, 1997, the company's previously existing credit
facility was terminated. On July 16, 1997, the company paid down the outstanding
balance on the credit facility with proceeds from the sale of certain assets of
the Golden Bear Division of the Lubricants Group.
CAPITAL INVESTMENTS AND COMMITMENTS
Capital expenditures for the first nine months of 1997 amounted to $93.7
million, as compared to $119.0 million during the same period of 1996. Capital
expenditures related to continuing operations for the nine months ended
September 30, l997 and 1996 were $91.3 million and $109 million, respectively.
The company expects capital expenditures during the fourth quarter to accelerate
in conjunction with its restructuring plan and to be in the range of
approximately $200 million for the year.
The company is currently in the process of addressing date sensitive systems
issues associated with the year 2000. In connection with the company's 1996
restructuring initiative, the company is in the process of replacing its
worldwide information systems. This initiative will address the majority of the
company's major business processes and related software. All major business
processes will become year 2000 compliant through these efforts. Modification or
upgrade costs for other remaining systems not addressed by the initiative are at
this time expected to be immaterial.
CONTINGENCIES
The company is a potentially responsible party ("PRP") or a defendant in a
number of governmental (federal, state and local) and private actions associated
with the release, or suspected release, of contaminants into the environment. As
a PRP, the company may be liable for costs associated with the investigation and
remediation of environmental contamination, as well as various penalties and
damages to persons, property and natural resources.
The company is not a party to any legal proceedings or environmental matters
which it believes will have a material adverse effect on its consolidated
financial position, cash flow or liquidity. It is possible, however, that future
results of operations for any particular quarterly or annual period, could be
materially affected by such legal proceedings or environmental matters. The
company, however, does not expect the results of such proceedings or
environmental matters to materially affect its competitive position. See Note F
of Notes to Condensed Consolidated Financial Statements for additional details.
DISCONTINUED OPERATIONS
On September 11, 1995, the Company announced its intention to divest its
Lubricants Group (see Note B of Notes to Condensed Consolidated Financial
Statements for additional details).
RESULTS FROM CONTINUING OPERATIONS
Net sales for the third quarter 1997 declined $33.9 million to $528.1 million
compared to the third quarter 1996. The comparatively stronger U.S. dollar
accounted for $27.6 million of this decline. The remainder of this decline was
due to a 7 percent decrease in volume, which was partially offset by a more
favorable sales mix.
9
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Income from continuing operations in the third quarter 1997 reached $25.7
million compared to $11.9 million for the comparable 1996 period. Gross margin
increased by 3.5 percentage points to 25.6 percent. This increase was mainly
attributable to lower material costs and, to a lesser extent, restructuring
related reductions in manufacturing costs, including depreciation expense. Also
contributing to this increase in income were lower general and administrative
expenses (despite the inclusion of higher costs associated with performance
based compensation plans), reduced net interest expense attributable to a
reduction in debt and a lower effective tax. These favorable items were
partially offset by current quarter restructuring charges.
Net sales for the nine months ended September 30, 1997 declined $54.9 million
compared to the same period of 1996. The comparatively stronger U.S. dollar
accounted for $60.8 million of this decline. The impact of a 4 percent decline
in volume, of which 1 percent was attributable to the absence of Witco Israel,
was more than offset by a more favorable product mix.
For the nine month period ended September 30, 1997, income from continuing
operations was $69.3 million, an increase of 23.6 percent over the $56.0 million
reported for the same period of 1996. Gross margin increased by 1.8 percentage
points to 25.1 percent. This increase was due equally to lower material costs
and restructuring driven reductions in manufacturing costs, including
depreciation expense. Also contributing to this increase in income were lower
net interest expense due to a reduction in debt, and a decrease in selling,
general and administrative expenses, despite the inclusion of higher costs
associated with performance based compensation plans. Current year restructuring
charges and the impact of the comparatively stronger U.S. dollar partially
offset these positive items.
SEGMENT INFORMATION
Segment net sales and operating income for the third quarter and nine months of
1997 and 1996 are set forth in the following table. The "Other" classification
included in net sales relates to Witco Israel, which was disposed of at the end
of the first quarter 1996. Prior period segment information has been restated to
conform to the current period's newly constituted segments.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(Unaudited - millions of dollars) 1997 1996 1997 1996
- --------------------------------- -------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales
Oleochemicals & Derivatives $ 100.1 $ 109.2 $ 314.4 $ 326.6
Performance Chemicals 182.4 201.3 596.4 639.8
Polymer Chemicals 130.8 141.1 398.5 407.7
OrganoSilicones 114.8 110.4 358.7 336.7
Other - - - 12.1
--------------- -------------- ------------- ------------
Net sales $ 528.1 $ 562.0 $ 1,668.0 $ 1,722.9
=============== ============== ============= ============
Operating income from
continuing operations
Oleochemicals & $ 9.0 $ 5.1 $ 20.4 $ 19.6
Derivatives
Performance Chemicals 15.2 13.9 50.9 52.5
Polymer Chemicals 21.1 15.1 58.9 43.7
OrganoSilicones 18.6 11.5 52.7 45.3
Other (7.4) (6.3) (23.8) (14.4)
--------------- -------------- ------------- ------------
Operating income from
continuing operations $ 56.5 $ 39.3 $ 159.1 $ 146.7
=============== ============== ============= ============
</TABLE>
OLEOCHEMICALS & DERIVATIVES
Oleochemicals & Derivatives third quarter 1997 net sales of $100.1 million were
down $9.1 million, or 8 percent, from the prior year. The comparatively stronger
U.S. dollar accounted for half of this decline. The balance of this decline was
due to lower sales prices resulting from the soft glycerin market and
competitive pressure in the basic oleochemical market.
10
<PAGE>
<PAGE>
This segment's third quarter 1997 operating income of $9.0 million was $3.9
million greater than the third quarter 1996. This increase included a $3.3
million non-recurring gain on the sale of the food emulsifiers business. The
positive effect of restructuring driven reductions in manufacturing and other
operating costs, and lower material costs, were offset by continued softness in
the glycerin market, competitive pressure in the basic oleochemical business and
higher compensation plan charges.
Segment sales for the nine months ended September 30, 1997 of $314.4 million
were $12.2 million lower than the same period of the prior year. The
comparatively stronger U.S. dollar accounted for 88 percent of this decrease in
net sales. The balance of this decline was the result of an erosion of sales
prices attributable to the soft glycerin market and the highly competitive
nature of the Oleochemicals business, which was partially offset by a 2 percent
increase in volume.
Operating income for Oleochemicals & Derivatives for the nine months ended
September 30, 1997 of $20.4 million was up $.8 million from the same period of
1996. Current year results benefited from a $3.3 million non-recurring gain on
the sale of the food emulsifiers business. Excluding this non-recurring gain,
the segment's operating income declined primarily as a result of the soft
glycerin market, lower basic oleochemical shipment volume and higher
compensation plan charges. Restructuring driven initiatives resulted in lower
manufacturing and other operating costs, which partially offset the effect of
the aforementioned adverse factors.
PERFORMANCE CHEMICALS
Third quarter 1997 net sales for Performance Chemicals of $182.4 million were
$18.9 million lower than the prior year. This decrease in net sales was a result
of a 12 percent reduction in volume, and the comparatively stronger U.S. dollar
which accounted for $6.3 million of the decline. These unfavorable factors were
partially offset by a more favorable product sales mix.
Performance Chemicals third quarter 1997 operating income of $15.2 million was
up $1.3 million over the prior year. Higher operating income was the result of
reduced material costs, lower manufacturing and other operating costs resulting
from restructuring initiatives, including depreciation expense, and the
continued focus on high margin products. Factors adversely affecting current
quarter operating income included a decline in shipment volume, restructuring
charges, higher compensation plan expenses and the impact of the comparatively
stronger U.S. dollar.
Segment net sales for the first nine months of 1997 were down 7 percent, to
$596.4 million, compared to the same period of 1996. This $43.4 million decline
was primarily due to a 7 percent drop in volume, and the comparatively stronger
U.S. dollar which contributed $12.7 million to the decrease in net sales. Volume
was down from the prior year mainly as a result of the Petrolia Plant fire and
its lingering residual effects and exiting selected product lines.
Performance Chemicals operating income for the nine months ended September 30,
1997 of $50.9 million decreased $1.6 million compared to the same period of
1996. The segment benefited from lower material costs and restructuring driven
reductions in other operating and manufacturing costs, including depreciation.
These favorable items were offset by current year restructuring charges, lower
shipment volume, increased expenses attributable to the Petrolia Plant fire,
higher compensation plan charges and the adverse impact of the comparatively
stronger U.S. dollar.
POLYMER CHEMICALS
Polymer Chemicals net sales for the third quarter 1997 of $130.8 million were
down $10.3 million from 1996. This decline was attributable to the comparatively
stronger U.S. dollar which had an $11.5 million adverse effect on current
quarter net sales. A more favorable product sales mix offset the decline in net
sales resulting from an 8 percent decrease in volume.
Third quarter 1997 operating income for Polymer Chemicals increased $6.0 million
to $21.1 million compared to the third quarter 1996. An improvement in gross
margin attributable to lower material costs, reduced manufacturing costs
resulting from the implementation of restructuring initiatives, and a favorable
product sales mix caused segment operating income to rise. These positive items
were partially offset by the adverse effect of the stronger U.S. dollar.
11
<PAGE>
<PAGE>
Net sales for Polymer Chemicals for the first nine months of 1997 of $398.5
million were down $9.2 million from the same period of 1996. The comparatively
stronger U.S. dollar had a $25.5 million adverse effect on current year net
sales. A more favorable product sales mix partially offset the adverse effect of
the stronger U.S. dollar and a 1 percent decline in volume.
Polymer Chemicals operating income rose $15.2 million, or 35 percent, to $58.9
million for the nine months ended September 30, 1997 compared to the same period
of 1996. This increase in operating income was mainly attributable to lower
manufacturing costs resulting from restructuring initiatives, lower material
costs and a more favorable product sales mix. The adverse impact of the
comparatively stronger U.S. dollar partially offset these positive factors.
ORGANOSILICONES
Segment net sales for the third quarter 1997 of $114.8 million rose $4.4 million
above 1996. This increase was driven by a 10 percent improvement in volume,
partially offset by the comparatively stronger U.S. dollar which had a $5.3
million unfavorable effect on current quarter net sales.
OrganoSilicones third quarter 1997 operating income of $18.6 million was $7.1
million above 1996. The 62 percent improvement was primarily a result of an
increase in shipment volume and a reduction in manufacturing costs, including
the initial benefits associated with the Termoli, Italy silanes expansion and
manufacturing process improvements. These favorable factors were partially
offset by higher compensation plan charges.
OrganoSilicones net sales for the nine months ended September 30, 1997 of $358.7
million increased $22.0 million, or 7 percent, compared to the same period of
the prior year. This improvement was a result of a 12 percent increase in
volume, partially offset by the comparatively stronger U.S. dollar which had an
$11.8 million adverse effect on current year net sales.
Operating income for OrganoSilicones rose from $45.3 million for the first nine
months of 1996 to $52.7 million for the same period of 1997. This $7.4 million
improvement was a result of increased shipment volume and lower manufacturing
and other operating costs attributable to restructuring initiatives, partially
offset by higher corporate charges, predominately compensation plan expenses.
OUTLOOK
In December of 1996, the company announced a three-year restructuring plan, and
certain cost reduction goals which included lower manufacturing costs and
reduced general and administration expenses. The company is committed to
achieving 50% of its three-year savings objectives by the end of 1997 on an
annualized basis and is confident it will meet this goal. The capital spending
portion of the plan, however, is somewhat behind schedule, primarily as a result
of an increased emphasis on proper scope definition and enhanced upfront
planning. Management, however, remains optimistic that the Company will meet the
overall goals of the three-year restructuring plan. The company will continue
to aggressively pursue implementation of the restructuring plan, and, following
its completion, the company believes it will achieve its long-term financial
goals: revenues of up to $3.0 billion within five years; gross margins to exceed
30%; operating margins in the mid-teens; earnings per share growth sufficient
to maintain return on equity greater than 20%; debt to total capitalization of
30-45%; and, a return on capital employed greater than the company's cost of
capital so that shareholder value will increase.
Statements made in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section are "forward looking statements"
that involve certain risks and uncertainties. The factors that could cause
actual results to differ materially from those presented herein include, without
limitation, the company's ability to generate appropriate cash flows, the cost
and timing of the implementation of certain capital improvements, the cost and
timing associated with the planned reduction in production facilities and
workforce, the impact of cost savings initiatives, the company's ability to
effectively divest certain assets, the cost of environmental remediation and
compliance efforts, technological or competitive changes in any of the company's
businesses, inability to reach agreement with third parties on planned business
arrangements, certain global and regional economic conditions and other factors
listed from time to time in the company's other Securities and Exchange
Commission filings.
12
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The company is a potentially responsible party ("PRP") or a defendant in a
number of governmental (federal, state and local) and private actions associated
with the release, or suspected release, of contaminants into the environment. As
a PRP, the company may be liable for costs associated with the investigation and
remediation of environmental contamination, as well as various penalties and
damages to persons, property and natural resources. As of September 30, 1997,
the company was a PRP, or a defendant, in connection with 62 sites at which it
is likely to incur environmental response costs as a result of actions brought
against the company pursuant to the federal Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), the federal Resource Conservation and
Recovery Act ("RCRA") or similar state or local laws. With 24 exceptions, all of
these sites involve one or more other PRPs, and in most cases there are numerous
other PRPs in addition to the company. CERCLA, RCRA and the state counterparts
to these federal laws authorize governments to investigate and remediate actual
or suspected damage to the environment caused by the release, or suspected
release, of hazardous substances into the environment, or to order the
responsible parties to investigate and/or remediate such environmental damage.
The company evaluates and reviews environmental reserves for future remediation
and other costs on a regular basis to determine appropriate reserve amounts.
Inherent in this process are considerable uncertainties which affect the
company's ability to estimate the ultimate costs of remediation efforts. Such
uncertainties include the nature and extent of contamination at each site,
evolving governmental standards regarding remediation requirements, changes in
environmental regulations, widely varying costs of alternative cleanup methods,
the number and financial condition of other potentially responsible parties at
multi-party sites, innovations in remediation and restoration technology and the
identification of additional environmental sites.
The company is a defendant in six similar actions arising out of the company's
involvement in the polybutylene resin manufacturing business in the 1970's. Five
of the following cases are currently pending in California state courts and one
is pending in Texas state court: East Bay Municipal Utility District v. Mobil
Oil Corporation, et al., filed in November 1993, and pending in Superior Court
for the County of San Mateo, California; City of Santa Maria v. Shell Oil
Company, et al., filed in May 1994, and pending in Superior Court for the County
of San Luis Obispo, California; Nipomo Community Services District v. Shell Oil
Company, et al., filed in May 1995, and pending in Superior Court for the County
of Santa Barbara, California; Alameda County Water District v. Mobil Oil
Corporation, et al., filed in April 1996, and Marin Municipal Water District v.
Shell Oil Company, et al., filed in May 1996, both pending in Superior Court for
the County of San Mateo; and City of Austin v. Shell Oil Company, et al., filed
in June 1996, and pending in the District Court of Travis County, Texas. The
actions generally allege that the company and several other defendants
negligently misrepresented the performance of polybutylene pipe and fittings
installed in water distribution systems. Other allegations in the California and
Texas actions include breach of the California Unfair Practices Act and the
Texas Deceptive Practices Act, respectively; breach of warranty, fraud and
strict liability. It is possible that the company may be named as a defendant in
future actions arising out of its past involvement in the polybutylene resin
manufacturing business.
The company is not a party to any legal proceedings, including environmental
matters, which it believes will have a material adverse effect on its
consolidated financial position. However, the company's results could be
materially affected in future periods by the resolution of these contingencies.
13
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<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re computation of per share earnings
15 Letter re unaudited interim financial information
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three
months ended September 30, 1997.
14
<PAGE>
<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/ BRIAN J. DICK
Date: November 14, 1997 _________________________________________
Brian J. Dick
Controller - Chief Accounting Officer
/s/ DUSTAN E. MCCOY
Date: November 14, 1997 _________________________________________
Dustan E. McCoy
Senior Vice President, General Counsel
and Corporate Secretary
15
<PAGE>
<PAGE>
WITCO CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------------- -------------------------------------------------
11 Statement re computation of per share earnings
15 Letter re unaudited interim financial information
27 Financial Data Schedule
16
<PAGE>
<PAGE>
EXHIBIT 11
WITCO CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------
1997 1996 1997 1996
---------- ----------- --------- ----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
PRIMARY
Income from Continuing Operations $ 25,742 $ 11,928 $ 69,252 $ 56,028
Dividend requirements of preferred stock (5) (4) (13) (13)
-------- -------- -------- --------
Total 25,737 11,924 69,239 56,015
Income (Loss) from Discontinued Operations -- -- 9,990 (67,913)
-------- -------- -------- --------
Net Income (Loss) $ 25,737 $ 11,924 $ 79,229 $(11,898)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding 57,279 56,661 57,078 56,576
Assumed conversions:
Stock options 1,594 206 839 343
-------- -------- -------- --------
Total 58,873 56,867 57,917 56,919
-------- -------- -------- --------
-------- -------- -------- --------
Per share amounts:
Income from Continuing Operations $ .44 $ .21 $ 1.20 $ .98
Income (Loss) from Discontinued Operations -- -- .17 (1.19)
-------- -------- -------- --------
Net Income (Loss) $ .44 $ .21 $ 1.37 $ (.21)
-------- -------- -------- --------
-------- -------- -------- --------
FULLY DILUTED
Income from Continuing Operations $ 25,742 $ 11,928 $ 69,252 $ 56,028
Income (Loss) from Discontinued Operations -- -- 9,990 (67,913)
-------- -------- -------- --------
Net Income (Loss) $ 25,742 $ 11,928 $ 79,242 $(11,885)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding 57,279 56,661 57,078 56,576
Assumed conversions:
Stock options 1,594 354 1,626 370
Preferred stock 105 112 107 114
-------- -------- -------- --------
Total 58,978 57,127 58,811 57,060
-------- -------- -------- --------
-------- -------- -------- --------
Per share amounts:
Income from Continuing Operations $ .44 $ .21 $ 1.18 $ .98
Income (Loss) from Discontinued Opeerations -- -- .17 (1.19)
-------- -------- -------- --------
Net Income (Loss) $ .44 $ .21 $ 1.35 $ (.21)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 15
LETTER RE: UNAUDITED FINANCIAL INFORMATION
ACKNOWLEDGMENT LETTER
November 11, 1997
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 Post-effective Amendment No. 2 to the Registration
Statement (Form S-8, No. 33-10715), Post-effective Amendment No. 1 to the
Registration Statements (Form S-8, Nos. 33-30995 and 33-45194), each pertaining
to stock option plans of Witco Corporation, the Registration Statement (Form
S-8, No. 33-48806), pertaining to an employee benefit plan of Witco Corporation,
the Registration Statement (Form S-8, No. 33-60755), pertaining to the 1995
Stock Option Plan for Employees of Witco Corporation and its Subsidiaries, the
Post-effective Amendment No. 1 to the Registration Statement (Form S-8, No.
333-05509), pertaining to the 1995 Stock Option Plan for Employees of Witco
Corporation and its Subsidiaries, and the Registration Statement (Form S-8, No.
333-33221) pertaining to the Witco Corporation 1997 Stock Incentive Plan of our
report dated November 11, 1997 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 September 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not part of
the registration statements prepared or certified by accountants within the
meaning of Sections 7 or 11 of the Securities Act of 1933.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 80,290
<SECURITIES> 0
<RECEIVABLES> 400,604
<ALLOWANCES> 17,180
<INVENTORY> 251,894
<CURRENT-ASSETS> 823,641
<PP&E> 1,516,890
<DEPRECIATION> 806,033
<TOTAL-ASSETS> 2,251,400
<CURRENT-LIABILITIES> 468,234
<BONDS> 687,011
<COMMON> 287,070
0
6
<OTHER-SE> 358,798
<TOTAL-LIABILITY-AND-EQUITY> 2,251,400
<SALES> 1,668,032
<TOTAL-REVENUES> 1,668,032
<CGS> 1,249,026
<TOTAL-COSTS> 1,249,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,827
<INTEREST-EXPENSE> 39,552
<INCOME-PRETAX> 119,400
<INCOME-TAX> 50,148
<INCOME-CONTINUING> 159,097
<DISCONTINUED> 9,990
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,242
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.35
</TABLE>
