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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 June 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 July 31, 1997
----- ----------------------------
Common Stock - $5 par value 57,318,849
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WITCO CORPORATION
FORM 10-Q
For the quarterly period ended June 30, 1997
<TABLE>
<CAPTION>
CONTENTS PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at June 30, 1997 (unaudited)
and December 31, 1996 2
Condensed consolidated statements of operations (unaudited) for the three
and six months ended June 30, 1997 and 1996 3
Condensed consolidated statements of cash flows (unaudited) for the
six months ended June 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 4. Submission of Matters to Vote on Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Index to Exhibits 17
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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>
June 30, December 31
1997 1996 (a)
------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 53,543 $ 59,201
Accounts and notes receivable-net 406,989 390,288
Inventories
Raw materials and supplies $ 84,292 $ 99,112
Finished goods 164,874 249,166 185,388 284,500
-------- ----------
Deferred income taxes 81,485 92,490
Prepaid and other current assets 19,415 26,947
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TOTAL CURRENT ASSETS 810,598 853,426
--------- ----------
PROPERTY, PLANT, AND EQUIPMENT -
less accumulated depreciation
of $796,233 and $761,926 704,278 735,392
GOODWILL AND OTHER INTANGIBLE ASSETS -
less accumulated amortization of $145,854
and $133,625 633,809 653,733
DEFERRED INCOME TAXES - 16,438
OTHER ASSETS 92,164 72,976
NET ASSETS OF DISCONTINUED OPERATIONS 48,190 59,740
---------- ------------
TOTAL ASSETS $2,289,039 $2,391,705
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 44,786 $94,929
Accounts payable and other current liabilities 467,144 515,344
----------- ----------
TOTAL CURRENT LIABILITIES 511,930 610,273
----------- ----------
LONG-TERM DEBT 688,635 700,820
DEFERRED INCOME TAXES 10,357 --
DEFERRED CREDITS AND OTHER LIABILITIES 444,654 452,747
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 and outstanding - 57,187 shares and 56,763 shares 285,935 283,818
Capital in excess of par value 148,724 138,453
Equity adjustments:
Foreign currency translation (16,262) 11,989
Pensions and other (6,521) (6,423)
Retained earnings 221,581 200,022
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 633,463 627,865
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,289,039 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ------------------------------
(In thousands except per share data)
1997 1996 1997 1996
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 571,437 $ 571,458 $1,139,927 $1,160,883
Cost of Goods Sold 423,702 434,680 855,867 883,025
--------------- -------------- -------------- -------------
Gross Profit 147,735 136,778 284,060 277,858
Operating Expenses
Selling expense 25,886 28,588 50,404 55,707
General and administrative expenses 39,611 36,480 77,849 71,907
Research and development 18,124 18,037 35,510 36,026
Other expenses (income) - net 6,767 5,507 10,917 6,788
Restructuring charge 3,220 - 6,758 -
--------------- -------------- -------------- -------------
Total Operating Expenses 93,608 88,612 181,438 170,428
--------------- -------------- -------------- -------------
Operating Income from Continuing 54,127 48,166 102,622 107,430
Operations
Other Expense (Income) - Net
Interest expense 13,456 17,724 27,380 35,393
Interest income (1,317) (2,403) (1,987) (4,871)
Other expense - net 1,347 901 2,211 1,874
--------------- -------------- -------------- -------------
Income from Continuing Operations before
Income Taxes 40,641 31,994 75,018 75,034
Income Taxes 17,070 13,425 31,508 30,934
--------------- -------------- -------------- -------------
Income from Continuing Operations 23,571 18,519 43,510 44,100
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,
$(43,612), $6,274 and $(43,612) 9,990 (68,253) 9,990 (68,253)
--------------- -------------- -------------- -------------
Income (Loss) from Discontinued
Operations 9,990 (68,253) 9,990 (67,913)
--------------- -------------- -------------- -------------
Net Income (Loss) $ 33,561 $ (49,734) $ 53,500 $ (23,813)
=============== ============== ============== =============
PER COMMON SHARE: PRIMARY
Income from continuing operations $ .41 $ .33 $ .76 $ .77
Discontinued operations:
Income from discontinued
operations - net of income taxes - - - .01
Estimated income (loss) on
disposal - net of
income taxes (benefit) .17 (1.20) .17 (1.20)
--------------- -------------- -------------- -------------
Net Income (Loss) $ .58 $ (.87) $ .93 $ (.42)
=============== ============== ============== =============
PER COMMON SHARE: FULLY DILUTED
Income from continuing operations $ .41 $ .32 $ .75 $ .77
Discontinued operations:
Income from discontinued
operations - net of income taxes - - - -
Estimated income (loss) on
disposal - net of
income taxes (benefit) .17 (1.19) .17 (1,19)
--------------- -------------- -------------- -------------
Net Income (Loss) $ .58 $ (.87) $ .92 $ (.42)
=============== ============== ============== =============
Weighted average number of common shares
and equivalents - primary 57,790 56,990 57,412 56,943
=============== ============== ============== =============
Dividends declared $ .28 $ .28 $ .56 $ .56
=============== ============== ============== =============
</TABLE>
See accompanying notes.
3
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WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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<CAPTION>
Six Months Ended
June 30,
-----------------------
1997 1996
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(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 105,444 $ 74,485
--------- ---------
INVESTING ACTIVITIES
Expenditures for property, plant, and equipment (59,107) (77,910)
Proceeds from dispositions 17,761 13,650
Other investing activities 5,917 (2,521)
--------- ---------
Net Cash Used in Investing Activitities (35,429) (66,781)
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FINANCING ACTIVITIES
Proceeds from borrowings 71,739 303,831
Payments on borrowings (122,428) (306,698)
Dividends paid (31,873) (31,643)
Proceeds from exercise of stock options 11,342 4,944
Other financing activities -- 70
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Net Cash Used in Financing Activities (71,220) (29,496)
--------- ---------
Effects of Exchange Rate Changes on Cash and Cash Equivalents (4,453) (2,550)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (5,658) (24,342)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 59,201 143,994
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,543 $ 119,652
========= =========
</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 six month
periods ended June 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 June 30, 1997, and for the
three and six month periods ended June 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 sheets. Total
revenues for the three and six month periods ended June 30, 1997 and 1996 were
$18,916,000 and $50,325,000, and $92,036,,000 and $179,215,000, respectively.
The components of net assets of discontinued operations at June 30, 1997 are as
follows:
June 30,
In Thousands 1997
- ------------ --------
Accounts and notes receivable - net $11,515
Inventories - net of LIFO reserve of $9,899 5,434
Property, plant, and equipment - net 30,889
Other assets and liabilities - net 352
-------
Net assets of discontinued operations $48,190
=======
Additional liabilities (including environmental liabilities) of the Lubricants
Group to be retained as of June 30, l997 are included in "Accounts payable and
other current liabilities" ($36,835,000) and "Deferred Credits and Other
Liabilities" ($42,200,000).
The three and six month periods ended June 30, 1997 include an 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 three and six month periods ended June 30, 1996 include 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 sold certain assets of the Golden Bear Division to
the Golden Bear Acquisition Corporation for approximately $50 million subject to
certain post-closing adjustments.
5
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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 June 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 and Ciba Specialty Chemicals Inc. signed a letter
of intent to exchange its epoxy systems and adhesives business and Ciba's PVC
heat stabilizers business in a one-for-one transaction.
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 six month
periods ended June 30, 1997 and 1996.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
NOTE D - Effective Tax Rate
The effective tax rate of 42% for the three and six month periods ended June 30,
1997, as compared to the federal statutory tax rate of 35%, is primarily the
result of state income taxes, goodwill amortization related to OSi Specialties,
Inc. which is not deductible for income tax purposes and the effect of a change
in the mix between domestic and foreign earnings. The effective tax rate of 42%
and 41.2% for the three and six month periods ended June 30, 1996, as compared
to the statutory tax rate of 35%, are primarily the result of state income taxes
and goodwill amortization related to OSi Specialties, Inc.
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 executes foreign currency forward contracts with major financial
institutions 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 a foreign currency contract designated and effective as a hedge of
recorded transactions is amortized over the contracts life. 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, Spanish pesetas, French francs and British pounds) that are
designed to reduce its exposure to foreign currency risk from its net investment
(includes long-term intercompany loans) in its international subsidiaries. These
same contracts also fix the interest rates on the underlying long-term
intercompany loans. For foreign currency contracts that are designated and
effective as hedges, discounts or premiums (the differences between the current
spot exchange rate and the forward exchange rate at inception of the contract)
and 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). The related amounts due to of from counterparties are
included in accounts and notes receivable - net. The net interest rate
differentials that are paid or received are reflected as adjustments to interest
expense.
6
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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 June 30, 1997, the
company was a PRP, or a defendant, in connection with 68 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 quarterly basis to determine appropriate reserve amounts.
Inherent in this process are considerable uncertainties which affect the
company's ability to estimate the ultimate costs of remediation efforts. Such
uncertainties include the nature and extent of contamination at each site,
evolving governmental standards regarding remediation requirements, changes in
environmental regulations, widely varying costs of alternative cleanup methods,
the number and financial condition of other potentially responsible parties at
multi-party sites, innovations in remediation and restoration technology and the
identification of additional environmental sites.
At June 30, 1997, the company's reserves for environmental remediation and
compliance costs amounted to $208,899,000, 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 June 30, 1997, $149,215,000 of the
reserves are included in Deferred Credits and Other Liabilities on the
Consolidated Balance Sheets.
The company is a defendant in six similar actions arising out of the company's
involvement in the polybutylene resin manufacturing business in the 1970's. Five
of the following cases are currently pending in California state courts and one
is pending in Texas state court: East Bay Municipal Utility District v. Mobil
Oil Corporation, et al., filed in November 1993, and pending in Superior Court
for the County of San Mateo, California; City of Santa Maria v. Shell Oil
Company, et al., filed in May 1994, and pending in Superior Court for the County
of San Luis Obispo, California; Nipomo Community Services District v. Shell Oil
Company, et al., filed in May 1995, and pending in Superior Court for the County
of Santa Barbara, California; Alameda County Water District v. Mobil Oil
Corporation, et al., filed in April 1996, and Marin Municipal Water District v.
Shell Oil Company, et al., filed in May 1996, both pending in Superior Court for
the County of San Mateo; and City of Austin v. Shell Oil Company, et al., filed
in June 1996, and pending in the District Court of Travis County, Texas. The
actions generally allege that the company and several other defendants
negligently misrepresented the performance of polybutylene pipe and fittings
installed in water distribution systems. Other allegations in the California and
Texas actions include breach of the California Unfair Practices Act and the
Texas Deceptive Practices Act, respectively; breach of warranty, fraud and
strict liability. It is possible that the company may be named as a defendant in
future actions arising out of its past involvement in the polybutylene resin
manufacturing business.
The company is not a party to any legal proceedings, including environmental
matters, which it believes will have a material adverse effect on its
consolidated financial position. However, the company's results could be
materially affected in future periods by the resolution of these contingencies.
7
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To Board of Directors
Witco Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Witco
Corporation and Subsidiary Companies as of June 30, 1997, and the related
condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 1997 and 1996, and the condensed consolidated
statements of cash flows for the six-month periods ended June 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
August 12, 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 decreased $5.7 million during the first six months of
1997 primarily as a result of the company's decision to pay down debt.
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 June 30, 1997 approximately $16.8
million has been spent against reserves 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. As of June 30, 1997, $40,000,000 was outstanding on the
new credit facility. On July 16, 1997, the company paid down the outstanding
balance on the credit facility with proceeds from the sale of the Golden Bear
Division of the Lubricants Group.
CAPITAL INVESTMENTS AND COMMITMENTS
Capital expenditures for the first six months of 1997 amounted to $59.1 million,
as compared to $77.9 million during the same period of 1996. Capital
expenditures related to continuing operations for the six months ended June 30,
l997 and 1996 were $57 million and $70.8 million, respectively. The company
expects capital expenditures during the remainder of the year will accelerate in
conjunction with its restructuring plan and to be in the range of approximately
$220 million for the year.
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 addition details).
RESULTS FROM CONTINUING OPERATIONS
Second quarter 1997 net sales of $571.4 million were unchanged from the second
quarter of 1996. The effect of a comparatively stronger U.S. dollar, which had
an adverse effect on current quarter sales of approximately $13.0 million, was
offset by a 1.5 percent increase in volume and a favorable product sales mix.
Income from continuing operations in the second quarter of 1997 rose to $23.6
million from $18.5 million for the comparable 1996 period. Gross margin for the
second quarter of 1997 increased by 2 percentage points to 25.9
9
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percent compared to the same quarter of 1996. This improvement was primarily
attributable to lower raw material costs and restructuring driven reductions in
manufacturing costs, including a significant reduction in depreciation expense.
Lower selling and general and administrative expenses, excluding greater
expenses associated with incentive compensation plans, also contributed to the
increase in income over 1996. These positive impacts were partially offset by
second quarter restructuring charges of $2.0 million after-tax (primarily plant
expenditures at sites scheduled for closure which otherwise would have been
capitalized) and increased accruals of $3.2 million after-tax attributable to
new performance based incentive compensation plans.
Net sales for the first six months of 1997 of $1.1 billion were $21.0 million,
or approximately 2 percent lower than those reported for the comparable 1996
period. The comparatively stronger U.S. dollar, which accounted for
approximately $33 million of the decline, the absence of $12.1 million of
revenue from Witco Israel, which was disposed of at the end of the first quarter
of 1996, and an approximate 1 percent decrease in volume, excluding Witco
Israel, were the primary causes of this decline. A favorable product sales mix,
attributable to market demand and an increased concentration on high value
products, partially offset the negative influences.
For the six month period ended June 30, 1997, income from continuing operations
was $43.5 million compared to $44.1 million for the same period of 1996. First
half 1997 income from continuing operations was adversely affected by $4.1
million of after-tax restructuring charges (primarily plant expenditures at
sites scheduled for closure which otherwise would have been capitalized), first
quarter after-tax costs of approximately $2.6 million relating to a fire and
resulting temporary shut-down of the company's Petrolia, Pennsylvania, plant and
higher after-tax accruals of $5.9 million associated with the company's new
incentive compensation plans. Despite the higher costs attributable to the
Petrolia fire, restructuring driven savings initiatives in manufacturing costs,
including a significant reduction in depreciation expense, and a continued focus
on high margin products resulted in a 1 percent improvement in gross margin.
Income from continuing operations was also favorably affected by a $3.1 million
after-tax decrease in net interest expense due to reductions in bank debt.
SEGMENT INFORMATION
Segment net sales and operating income for the second quarter and six months of
1997 and 1996 are set forth in the following table. The " Other" Classification
represents net sales of Witco Israel, disposed of at the end of the first
quarter 1996. Prior period segment information has been restated to conform with
the current periods newly constituted segments.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited - millions of dollars) 1997 1996 1997 1996
- ----------------------------------- --------------------------- ---------------------------
- ----------------------------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales
Oleochemicals & Derivatives $ 107.6 $ 107.7 $ 214.3 $ 217.5
Performance Chemicals 203.7 213.9 414.0 438.5
Polymer Chemicals 139.0 136.6 267.7 266.6
OrganoSilicones 121.1 113.3 243.9 226.2
Other - -- - 12.1
- ----------------------------------- ------------ ------------- ------------- -----------
Net sales $ 571.4 $ 571.5 $ 1,139.9 $1,160.9
- ----------------------------------- ------------ ------------- ------------- -----------
Operating income from continuing
operations
Oleochemicals & Derivatives $ 7.5 $ 7.8 $ 11.3 $ 14.5
Performance Chemicals 19.1 16.8 35.7 38.6
Polymer Chemicals 21.5 13.5 37.9 28.6
OrganoSilicones 16.0 16.1 34.1 33.8
Other (10.0) (6.0) (16.4) (8.1)
- ----------------------------------- ------------ ------------- ------------- -----------
Operating income from
continuing operations $ 54.1 $ 48.2 $ 102.6 $ 107.4
- ----------------------------------- ------------ ------------- ------------- ------------
</TABLE>
10
<PAGE>
<PAGE>
OLEOCHEMICALS & DERIVATIVES
Oleochemicals & Derivatives' second quarter net sales of $107.6 million were
down slightly from the corresponding quarter of 1996. An approximate 4 percent
increase in volume was offset by the impact of the comparatively stronger U.S.
dollar, a decrease in the market value of glycerin and competitive pressure in
the basic oleochemical market.
Second quarter operating income for Oleochemicals & Derivatives of $7.5 million
was $.3 million below the same period of the prior year. Decreased operating
income attributable to lower margins resulting from the competitive pressure in
the basic oleochemical portion of the business and continued softness in the
glycerin market was partially offset by the effect of an increase in shipment
volume and restructuring driven reductions in operating expenses.
Oleochemicals & Derivatives net sales for the six months ended June 30, 1997
declined $3.2 million, or 1.5 percent, to $214.3 million compared to 1996. An
increase in volume of approximately 3 percent was offset by the comparatively
stronger U.S. dollar and an erosion of sales prices due to the soft glycerin
market and competitive pressure in the basic oleochemical business.
Operating income for the Oleochemicals & Derivatives segment for the six months
ending June 30, 1997 of $11.3 million was $3.2 million less than the same period
of 1996. The decline in operating income was primarily a result of a reduction
in sales, as noted above, combined with higher incentive compensation plan
accruals.
PERFORMANCE CHEMICALS
This segment's second quarter net sales of $203.7 million were down $10.2
million, or approximately 5 percent, compared to the prior year. The decline was
due to lower selling prices in certain sectors of the business, the impact of
the comparatively stronger U.S. dollar and an approximate 1 percent decrease in
volume which was mainly attributable to the exiting of selected product lines
and the residual effect of the Petrolia Plant fire.
Second quarter operating income for Performance Chemicals of $19.1 million was
adversely affected by $3.1 million of restructuring charges. Excluding these
charges, operating income increased by $5.5 million compared to the second
quarter of 1996. This increase was a result of continued reductions in raw
material costs and restructuring driven declines in manufacturing costs,
predominantly due to lower depreciation, and operating expenses. A continued
focus on higher margin products also contributed to the improvement in segment
operating income.
For the first six months of 1997 Performance Chemicals reported net sales of
$414.0 million, a decrease of $24.5 million, or 5.6 percent, compared to the
same period of 1996. The lower sales were primarily a result of an approximate 5
percent decline in volume, mainly attributable to the Petrolia Plant fire and
resulting temporary shut-down, the exiting of selected product lines and the
comparatively stronger U.S. dollar.
Operating income for Performance Chemicals for the six months ended June 30,
1997 of $35.7 million included a $6.1 million restructuring charge (primarily
plant expenditures at sites scheduled for closure which otherwise would have
been capitalized). Operating income excluding this charge was up $3.3 million,
or approximately 9 percent, compared to the same period of the prior year mainly
due to lower costs and a greater emphasis on high margin products. A reduction
in raw material costs combined with restructuring related declines in
manufacturing costs which was mainly due to lower depreciation, and lower
operating expenses, resulted in a higher operating margin. These cost reductions
were partially offset by increased expenses associated with the Petrolia Plant
fire.
POLYMER CHEMICALS
Second quarter 1997 net sales for Polymer Chemicals of $139.0 million were $2.4
million ahead of 1996. The increase was attributable to a favorable product
sales mix and an approximate 2 percent increase in volume, partially offset by
the comparatively stronger U.S. dollar.
This segment's second quarter 1997 operating income of $21.5 million was $8.0
million above 1996 mainly due to an improved gross margin. This improvement was
a result of restructuring related manufacturing cost reductions, lower raw
material costs and reduced sales of low margin products.
11
<PAGE>
<PAGE>
Polymer Chemicals' net sales for the first six months of 1997 of $267.8 million
were comparable to the prior year. The effect of a favorable product sales mix
and an approximate 2 percent increase in volume was offset by the comparatively
stronger U.S. dollar.
Operating income for the Polymer Chemicals segment for 1997 rose approximately
33 percent to $37.9 million from $28.6 million in 1996. An improvement in gross
margin which was attributable to lower manufacturing costs resulting from
restructuring initiatives, reduced raw material costs and the "pruning" of lower
margin products, accounted for the increase in operating income.
ORGANOSILICONES
OrganoSilicones' second quarter 1997 net sales of $121.1 million rose $7.8
million, or 6.9 percent, compared to the same period of 1996. The increase was
due to an approximate 18 percent increase in volume, partially offset by an
unfavorable product sales mix and the comparatively stronger U.S. dollar.
Second quarter 1997 operating income of $16.0 million was down $.1 million
compared to the second quarter of 1996. The effect of an increase in shipment
volume was offset by higher incentive compensation plan accruals, the
comparatively stronger U.S. dollar and an unfavorable product sales mix.
Net sales for the OrganoSilicones segment for the first six months of 1997 of
$243.8 million were $17.6 million, or 7.8 percent, ahead of the same 1996
period. Sales were up on the strength of an approximate 13 percent increase in
volume, the effect of which was partially offset by the comparatively stronger
U.S. dollar and an unfavorable product sales mix.
OrganoSilicones' operating income for the six months ended June 30, 1997 of
$34.1 million was $.3 million above the operating income reported for the same
period of the prior year. Although sales were up over the prior year on the
strength of increased shipments, higher corporate charges, the most predominant
being incentive compensation plan accruals, resulted in operating income rising
a modest 1 percent.
OUTLOOK
The company is optimistic that results from continuing operations in 1997 will
exceed 1996 results. The principal reason for this optimism is the anticipated
successful implementation of the 1997 portion of the 1996 restructuring plan,
which will reduce the company's fixed and variable costs. While the full extent
of the reductions will not be realized until 2000, positive reductions in the
company's cost structure are expected in 1997. The company will continue to
aggressively pursue implementation of the 1996 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
<PAGE>
<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 June 30, 1997, the
company was a PRP, or a defendant, in connection with 68 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 quarterly basis to determine appropriate reserve amounts.
Inherent in this process are considerable uncertainties which affect the
company's ability to estimate the ultimate costs of remediation efforts. Such
uncertainties include the nature and extent of contamination at each site,
evolving governmental standards regarding remediation requirements, changes in
environmental regulations, widely varying costs of alternative cleanup methods,
the number and financial condition of other potentially responsible parties at
multi-party sites, innovations in remediation and restoration technology and the
identification of additional environmental sites.
The company is a defendant in six similar actions arising out of the company's
involvement in the polybutylene resin manufacturing business in the 1970's. Five
of the following cases are currently pending in California state courts and one
is pending in Texas state court: East Bay Municipal Utility District v. Mobil
Oil Corporation, et al., filed in November 1993, and pending in Superior Court
for the County of San Mateo, California; City of Santa Maria v. Shell Oil
Company, et al., filed in May 1994, and pending in Superior Court for the County
of San Luis Obispo, California; Nipomo Community Services District v. Shell Oil
Company, et al., filed in May 1995, and pending in Superior Court for the County
of Santa Barbara, California; Alameda County Water District v. Mobil Oil
Corporation, et al., filed in April 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
<PAGE>
<PAGE>
ITEM 4. Submission of Matters to Vote of Security Holders
(a) The company's Annual Meeting of Shareholders was held on April 23, 1997, at
the offices of the company. One American Lane, Greenwich, Connecticut
beginning at 10:30 a.m.
(b) At the Annual Meeting, the company's shareholders elected three directors to
serve a term expiring in 2000 as follows:
<TABLE>
<CAPTION>
Votes
For Withheld
----------------- ----------------
<S> <C> <C>
Simeon Brinberg 47,491,712 654,870
William R. Grant 47,402,286 744,296
Richard H. Hayden 47,562,761 583,821
</TABLE>
Directors who did not stand for election and continue in office until the 1998
Annual Meeting are: William G. Burns, E. Gary Cook, and William Wishnick.
Directors who did not stand for election and continue in office until the 1999
Annual Meeting are: Harry G. Hohn, Dan J. Samuel and Bruce F. Wesson. At a
meeting of the Board of Directors held on April 23, 1997. Bruce R. Bond,
President and Chief Executive Officer of ANS, an America Online Company, was
named to the company's board of Directors for a term expiring in 1998.
(c) In addition to the election of directors, at the Annual Meeting the
company's shareholders:
(i) Ratified the appointment of Ernst & Young LLP as the company's
independent auditors for 1997.
Votes
For Against Abstain
-------------------------- --------------------------- -------------------
48,080,827 39,092 26,663
(ii) Approved the adoption of the Witco Corporation Shareholder Value
Incentive Plan.
Votes
For Against Abstain
-------------------------- --------------------------- -------------------
39,254,620 6,488,514 147,801
(iii) Approved the adoption of the Witco Corporation 1997 Stock Incentive
Plan.
Votes
For Against Abstain
-------------------------- --------------------------- -------------------
37,748,831 7,976,419 164,685
(iv) Approved the adoption of the Witco Corporation Officers' Annual
Incentive Plan.
Votes
For Against Abstain
-------------------------- --------------------------- -------------------
39,819,326 5,879,485 192,124
14
<PAGE>
<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
The company filed a Current Report on Form 8-K on June 25,
1997 pertaining to the company revising its business
segments into four groups, thereby reclassifying its segment
reporting for net sales and operating income (loss) from
continuing operations for the quarters ended March 31, 1996,
June 30, 1996, September 30, 1996 and December 31, 1996,
respectively, and for the year ended December 31, 1996.
15
<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/ PETER J. BIANCOTTI
Date: August 14, 1997 ______________________________________
Peter J. Biancotti
Controller - Chief Accounting Officer
/s/ DUSTAN E. MCCOY
Date: August 14, 1997 ______________________________________
Dustan E. McCoy
Senior Vice President, General Counsel
and Corporate Secretary
16
<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
17
<PAGE>
<PAGE>
EXHIBIT 11
WITCO CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands Except Per Share Data)
PRIMARY
<S> <C> <C> <C> <C>
Income from Continuing Operations $ 23,571 $ 18,519 $ 43,510 $ 44,100
Dividend requirements of preferred stock (4) (4) (8) (9)
-------- -------- -------- --------
Total 23,567 18,515 43,502 44,091
Income (Loss) from Discontinued Operations 9,990 (68,253) 9,990 (67,913)
-------- -------- -------- --------
Net Income (Loss) $ 33,557 $(49,738) $ 53,492 $(23,822)
======== ======== ======== ========
Weighted average shares outstanding $ 57,101 $ 56,585 $ 56,977 $ 56,534
Assumed conversions:
Stock options 689 405 435 409
-------- -------- -------- --------
Total $ 57,790 $ 56,990 $ 57,412 $ 56,943
======== ======== ======== ========
Per share amounts:
Income from Continuing Operations $ .41 $ .33 $ .76 $ .77
Income (Loss) from Discontinued Operations .17 (1.20) .17 (1.19)
-------- -------- -------- --------
Net Income (Loss) $ .58 $ (.87) $ .93 $ (.42)
======== ======== ======== ========
FULLY DILUTED
Income from Continuing Operations $ 23,571 $ 18,519 $ 43,510 $ 44,100
Income (Loss) from Discontinued Operations 9,990 (68,253) 9,990 (67,913)
-------- -------- -------- --------
Net Income (Loss) $ 33,561 $(49,734) $ 53,550 $(23,813)
======== ======== ======== ========
Weighted average shares outstanding $ 57,101 $ 56,585 $ 56,977 $ 56,534
Assumed conversions:
Stock options 731 462 765 475
Preferred stock 108 114 108 115
-------- -------- -------- --------
Total $ 57,940 $ 57,161 $ 57,850 $ 57,124
======== ======== ======== ========
Per share amounts:
Income from Continuing Operations $ .41 $ .32 $ .75 $ .77
Income (Loss) from Discontinued Operations .17 (1.19) .17 (1.19)
-------- -------- -------- --------
Net Income (Loss) $ .58 $ (.87) $ .92 $ (.42)
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 15
LETTER RE: UNAUDITED FINANCIAL INFORMATION
ACKNOWLEDGMENT LETTER
August 12, 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 August 12, 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 June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 53,543
<SECURITIES> 0
<RECEIVABLES> 425,450
<ALLOWANCES> 18,461
<INVENTORY> 249,166
<CURRENT-ASSETS> 810,598
<PP&E> 1,500,511
<DEPRECIATION> 796,233
<TOTAL-ASSETS> 2,289,039
<CURRENT-LIABILITIES> 511,930
<BONDS> 688,635
<COMMON> 285,935
0
6
<OTHER-SE> 347,522
<TOTAL-LIABILITY-AND-EQUITY> 2,289,039
<SALES> 1,139,927
<TOTAL-REVENUES> 1,139,927
<CGS> 855,867
<TOTAL-COSTS> 855,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,296
<INTEREST-EXPENSE> 27,380
<INCOME-PRETAX> 75,018
<INCOME-TAX> 31,508
<INCOME-CONTINUING> 43,510
<DISCONTINUED> 9,990
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,500
<EPS-PRIMARY> .93
<EPS-DILUTED> .92
<PAGE>
