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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, 1998
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, 1998
----- ----------------------------
Common Stock - $5 par value 57,622,023
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WITCO CORPORATION
FORM 10-Q
For the quarterly period ended June 30, 1998
<TABLE>
<CAPTION>
CONTENTS PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at June 30, 1998 (unaudited)
and December 31, 1997 2
Condensed consolidated statements of operations (unaudited) for the
three and six months ended June 30, 1998 and 1997 3
Condensed consolidated statements of cash flows (unaudited) for the
six months ended June 30, 1998 and 1997 4
Notes to condensed consolidated financial statements (unaudited) 5
Independent accountants' report on review of interim
financial information 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to Vote on Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits 19
</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>
June 30, December 31,
1998 1997 (a)
------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34,967 $ 96,383
Accounts and notes receivable-net 371,761 383,758
Inventories
Raw materials and supplies $ 76,970 $ 72,528
Finished goods 162,211 239,181 162,806 235,334
-------- --------
Deferred income taxes 52,758 47,036
Prepaid 25,728 27,128
--------- -----------
TOTAL CURRENT ASSETS 724,395 789,639
--------- ----------
PROPERTY, PLANT, AND EQUIPMENT -
less accumulated depreciation
of $805,725 and $766,241 837,257 780,390
GOODWILL AND OTHER INTANGIBLE ASSETS -
less accumulated amortization of $168,321
and $157,703 599,566 621,619
DEFERRED INCOME TAXES - 6,981
OTHER ASSETS 95,249 99,023
---------- ----------
TOTAL ASSETS $2,256,467 $2,297,652
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 120,798 $ 52,834
Accounts payable and other current liabilities 363,348 515,531
---------- ----------
TOTAL CURRENT LIABILITIES 484,146 568,365
---------- ----------
LONG-TERM DEBT 680,400 645,101
DEFERRED INCOME TAXES 7,458
DEFERRED CREDITS AND OTHER LIABILITIES 436,407 439,906
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 57,632 shares and 57,503 shares 288,159 287,516
Capital in excess of par value 161,318 157,980
Accumulated other comprehensive income and other (35,189) (31,352)
Retained earnings 234,215 230,832
Treasury stock, at cost - 10 shares and 15 shares (453) (702)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 648,056 644,280
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,256,467 $2,297,652
========== ==========
</TABLE>
(a) The balance sheet at December 31, 1997 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)
1998 1997 1998 1997
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 504,302 $ 571,437 $ 1,011,676 $ 1,139,927
Cost of Goods Sold 377,567 423,702 757,787 855,867
----------- ----------- ----------- -----------
Gross Profit 126,735 147,735 253,889 284,060
Operating Expenses
Selling expense 25,973 25,886 51,685 50,404
General and administrative expenses 35,913 39,611 69,945 77,849
Research and development 18,314 18,124 36,199 35,510
Other expenses (income) - net 5,721 6,767 6,741 10,917
Restructuring charges 2,781 3,220 5,043 6,758
----------- ----------- ----------- -----------
Total Operating Expenses 88,702 93,608 169,613 181,438
----------- ----------- ----------- -----------
Operating Income from Continuing
Operations 38,033 54,127 84,276 102,622
Other Expense (Income) - Net
Interest expense 12,002 13,456 23,992 27,380
Interest income (1,374) (1,317) (2,694) (1,987)
Other expense - net 674 1,347 1,595 2,211
----------- ----------- ----------- -----------
Income from Continuing Operations before
Income Taxes 26,731 40,641 61,383 75,018
Income Taxes 11,574 17,070 25,781 31,508
----------- ----------- ----------- -----------
Income from Continuing Operations 15,157 23,571 35,602 43,510
Discontinued Operations:
Estimated Income on Disposal - Net of
Income Taxes of $-, $6,274, $- and $6,274 -- 9,990 -- 9,990
---------- ----------- ----------- -----------
Income from Discontinued Operations -- 9,990 -- 9,990
----------- ----------- ----------- -----------
Net Income $ 15,157 $ 33,561 $ 35,602 $ 53,500
=========== =========== =========== ===========
Net income per common share - basic
Income from continuing operations $ .26 $ .42 $ .62 $ .77
Income from discontinued operations -- .17 -- .17
----------- ----------- ----------- -----------
Net income per common share - basic $ .26 $ .59 $ .62 $ .94
=========== =========== =========== ===========
Average number of common shares - basic 57,528 57,069 57,485 56,951
=========== =========== =========== ===========
Net income per common share - diluted
Income from continuing operations $ .26 $ .41 $ .61 $ .76
Income from discontinued operations -- .17 -- .17
----------- ----------- ----------- -----------
Net income per common share - diluted $ .26 $ .58 $ .61 $ .93
=========== =========== =========== ===========
Average number of common shares - diluted 58,052 57,805 58,173 57,462
=========== =========== =========== ===========
Dividends declared $ .28 $ .28 $ .56 $ .56
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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WITCO CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (48,086) $ 105,444
----------- ----------
INVESTING ACTIVITIES
Expenditures for property, plant, and equipment (121,592) (59,107)
Proceeds from dispositions 26,448 17,761
Other investing activities 6,256 5,917
----------- ----------
Net Cash Used in Investing Activities (88,888) (35,429)
----------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings 166,790 71,739
Payments on borrowings (62,403) (122,428)
Dividends paid (32,219) (31,873)
Proceeds from exercise of stock options 3,893 11,342
----------- ----------
Net Cash Provided By (Used in) Financing Activities 76,061 (71,220)
----------- ----------
Effects of Exchange Rate Changes on Cash and Cash Equivalents (503) (4,453)
----------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (61,416) (5,658)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 96,383 59,201
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,967 $ 53,543
=========== ==========
</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, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. 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, 1997.
The condensed consolidated financial statements at June 30, 1998, and for the
three and six month periods ended June 30, 1998 and 1997, 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 - Comprehensive Income
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 130, "Reporting Comprehensive Income.". Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity because these items were previously
reported. Statement No. 130 requires foreign currency translation and minimum
pension liability adjustments, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of Statement No. 130.
The components of comprehensive income, net of related tax, for the three and
six month periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 15,157 $ 33,561 $ 35,602 $ 53,500
Foreign currency translation adjustments 1,256 (10,740) (3,920) (28,251)
======== ======== ======== ========
Comprehensive income $ 16,413 $ 22,821 $ 31,682 $ 25,249
======== ======== ======== ========
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
June 30, 1998 and December 31, 1997 are as follows:
(in thousands of dollars) 1998 1997
------------ -----------
Foreign currency translation adjustments $(31,301) $(27,381)
Pension - minimum liability adjustments (1,990) (1,990)
-------- --------
Accumulated other comprehensive income (33,291) (29,371)
Other - restricted stock compensation (1,898) (1,981)
======== ========
Accumulated other comprehensive income and other $(35,189) $(31,352)
======== ========
NOTE C - Changes in Accounting Principles
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative instruments and hedging activities". This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Statement permits early adoption as of the beginning of any
fiscal period after its issuance. The Company has not yet determined when it
will adopt the new Statement . The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair
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value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in fair value of derivatives will either be offset against
the change in fair market value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair market value will be immediately recognized in
earnings.
The Company has not yet determined what the effect of Statement No.133 will be
on the earnings and financial position of the Company. Because the standard
allows certain foreign currency transactions to be accounted for as hedges for
financial reporting purposes that were not previously treated as hedges, the
Company may change its policies towards the management of certain foreign
currency exposures. Any changes that may occur would be to further reduce the
Company's exposure to foreign currency risks.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits." This Statement revises employers' disclosures about pension and other
postretirement benefit plans. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. Restatement of disclosures for
earlier periods is required. This Statement is effective for the Company's
financial statements for the year ended December 31, 1998.
In June of 1997, the FASB issued Statement of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise and Related Information." This
Statement is required to be adopted for fiscal years beginning after December
15, 1997. This Statement will require the Company to disclose revenues, earnings
and other financial information pertaining to the business segments by which the
Company is managed, as well as what factors management used to determine these
segments. The Company is currently evaluating the effects Statement No. 131 will
have on its financial statements and related disclosures.
NOTE D - Effective Tax Rate
The effective tax rates of 43.3% and 42% for the three and six month periods
ended June 30, 1998, respectively, and 42% for the three and six months periods
ended June 30,1997, respectively, as compared to the federal statutory tax rate
of 35%, are higher primarily as a result of state income taxes, goodwill
amortization related to acquisition of 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.
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NOTE E - Earnings Per Share
The following is an illustration of the reconciliation of the numerators and
denominators of basic and diluted EPS computations and other related
disclosures.
(in thousands of dollars and shares, except per common share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
- ----------
Net income $ 15,157 $ 33,561 $ 35,602 $ 53,500
Preferred stock dividends (4) (4) (8) (8)
----------- ---------- ---------- ----------
Numerator for basic earnings per share - income
available to common shareholders 15,153 33,557 35,594 53,492
Effect of dilutive securities:
Preferred stock dividends 4 4 8 8
----------- ---------- ---------- ----------
Numerator for diluted earnings per share - income
available to common shareholders after assumed
conversions $ 15,157 $ 33,561 $ 35,602 $ 53,500
=========== ========== ========== ==========
Denominator:
- ----------
Denominator for basic earnings per share - weighted-
average shares 57,528 57,069 57,485 56,951
Effect of dilutive securities:
Employee stock options 345 546 508 338
Cumulative convertible preferred stock 102 108 103 108
Restricted shares 77 82 77 65
----------- ---------- ---------- ----------
Dilutive potential common shares 524 736 688 511
----------- ---------- ---------- ----------
Denominator for diluted earnings per share - adjusted
weighted -average shares and assumed conversions 58,052 57,805 58,173 57,462
=========== ========== ========== ==========
Basic Earnings Per Share .26 .59 .62 .94
=========== ========== ========== ==========
Diluted Earnings Per Share .26 .58 .61 .93
=========== ========== ========== ==========
</TABLE>
NOTE F - Other Matters
On May 29, 1998, the Company swapped its epoxy and adhesives business for Ciba
Specialty Chemicals' PVC heat stabilizer business. The PVC heat stabilizer
business has an assessed value of approximately of $31,000,000. The acquisition
was accounted for as a purchase and results of operations have been included in
the consolidated financial statements from the date of the acquisition. A
preliminary allocation of the purchase price (the assessed value of $31,000,000)
resulted in no goodwill. The disposition of the Company's epoxy systems and
adhesives business resulted in a gain of $362,000 ($221,000 after - tax; with no
earnings per share effect).
NOTE G - 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, 1998, the
company was a PRP, or a defendant, in connection with 60 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 21 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
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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, 1998, the Company's reserves for environmental remediation and
compliance costs amounted to $161,274,000, 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, 1998, $147,788,000 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., file 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 or liquidity. However, the Company's operating
results or cash flow could be materially affected in future periods by the
resolution of these contingencies.
NOTE H - Discontinued Operations
On September 11, 1995 the Company announced its intention to divest its
Lubricants Group. The Company's statements of operations for the three and six
month periods ended June 30, 1997 include revenues of $18,916,000 and
$50,325,000 for discontinued operations.
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.
8
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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 June 30, 1998, and the related
condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 1998 and 1997, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1998 and 1997.
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, 1997, 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 February 2, 1998, 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, 1997, 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, 1998
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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 $61.4 million during the first six months of
1998 primarily as a result of expenditures associated with the 1996
restructuring plan and other initiatives, which include capital expenditures. As
of June 30, 1998 approximately $69.3 million, including $25.2 million in 1998,
has been spent against reserves relating to this restructuring plan and other
initiatives.
Total debt increased $103.3 million to $801.2 at June 30, 1998 as compared to
December 31, 1997. Net cash used in operations through June 30, 1998 and the
increase in total debt primarily reflects the timing of certain capital
expenditures, an increase in working capital and other costs associated with the
1996 restructuring plan. Although the Company anticipates cash flow from
operations to be positive for the year ending 1998, cash and cash equivalents
are expected to be well below the balance at December 31, 1997. Additionally,
the total debt for the year ending 1998 is expected to be above total debt
balance at December 31, 1997, reflecting the timing of certain expenditures, as
the Company aggressively pursues the implementation of the restructuring plan.
The Company has a credit agreement with various banks in the amount of $500
million, of which $50 million, has been utilized at June 30,1998. In addition,
the Company has access to short term uncommitted facilities based on current
money market interest rates. As of June 30,1998 the Company had approximately
$67 million outstanding on these uncommitted facilities. These uncommitted
facilities were not utilized at December 31, 1997. The Company plans to utilize
both facilities periodically for its various operating requirements and planned
capital investment program.
It is the Company's belief that annual cash flows from operations, along with
the flexibility provided by the credit agreement, will be sufficient to fund,
for the foreseeable future, the 1996 restructuring plan and other initiatives,
capital investments, dividend payments, commitments on environmental remediation
projects and operating requirements.
CAPITAL INVESTMENTS AND COMMITMENTS
Capital expenditures for the first six months of 1998 amounted to $121.6
million, primarily due to restructuring related projects, as compared to $59.1
million during the same period of 1997. The company expects capital expenditures
to be approximately $265 million for the year.
The Company is currently in the process of addressing date sensitive system
issues associated with the Year 2000. In connection with the Company's 1996
restructuring initiative, the Company began a worldwide business process
redesign and new systems implementation project (Project "EDGE") which is
expected to be completed in mid-1999. It is anticipated that these new systems,
which are Year 2000 compliant, will replace substantially all of the Company's
business computer programs. The remaining business application programs will be
made compliant through the efforts of internal resources and third party
vendors. The majority of the business applications addressed through the EDGE
Project are scheduled to be completed by July 1999, with a few software programs
scheduled to be replaced near the end of that year.
The total costs associated with Project EDGE are expected to be approximately
$80 million (including $62 million of capital expenditures), of which $56
million has been incurred ($43 million capitalized and $13 million expensed),
including expenditures of $25 million in the first six months of 1998 ($22
million capitalized and $3 million expensed).
The Company has ascertained that failure to alleviate the Year 2000 problems
within its application systems could result in possible system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. These problems could be substantially
alleviated with manual processing. However, this would cause delays and possible
lost production days.
The Company has also identified critical suppliers and customers and is
assessing their plans and progress in addressing the Year 2000 problem. To the
extent that the material suppliers and customers operations are impacted by
their failure to address their Year 2000 problems such disruption may have a
direct impact on the Company's
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results of operations.
In order to determine the readiness of its production and other equipment with
the Year 2000 issue, the Company has substantially completed a comprehensive
inventory of monitoring and control devices for plants, safety systems and other
similar operating installations. The Company expects to determine the necessary
"system" upgrades, modifications and related costs during the third quarter of
1998. To the extent the Company fails to alleviate Year 2000 problems within its
production and other equipment, the Company could be faced with disruption in
operations with a corresponding impact on the Company's results of operations.
The Company is confident that the Year 2000 issues will be resolved by the
implementation of Project EDGE and the other aforementioned remedial efforts. If
the measures associated with the business application systems and production and
other equipment were to fail, the contingency plan would be manual processing as
previously described.
On January 1, 1999, certain member countries of the European Union will adopt
the Euro as their common legal currency. Between January 1, 1999 and January 1,
2002, transactions may be conducted in either the Euro or the participating
countries national currency. However, by July 1, 2002, the participating
countries will withdraw their national currency as legal tender and complete the
conversion to the Euro.
The Company conducts business in Europe and does not expect the conversion to
the Euro to have an adverse effect on its competitive position or consolidated
financial position. The Company believes that the implementation of Project EDGE
will allow the Company to conduct business transactions in both the Euro as well
as the participating countries national currency.
The Company has determined that failure to implement systems that are able to
process both the Euro and participating countries national currency may cause
disruptions to operations including, among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
These problems could be substantially alleviated with manual processing.
However, this would cause delays in certain normal business activities.
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 or liquidity. It is possible, however, that future results of
operations or cash flow 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 G
of Notes to Condensed Consolidated Financial Statements for additional details.
DISCONTINUED OPERATIONS
See Note H of Notes to Condensed Consolidated Financial Statements for
additional details.
RESULTS FROM CONTINUING OPERATIONS
Second quarter 1998 net sales of $504.3 million were $67.1 million, or 12
percent, lower than the corresponding quarter of 1997. The decline was driven by
a 16 percent decline in volume. On a proforma basis, adjusted for divestitures
or closures of non-strategic, commodity businesses and product lines, shipments
were down 10 percent. Of the total shortfall, approximately $28 million was
attributable to the planned divestitures or closures of non-strategic, commodity
businesses and product lines which had generated little or no operating income.
The continuing economic weakness in the Asia/Pacific region resulted in lower
second quarter sales of approximately $17 million, and the comparatively
stronger US dollar negatively impacted second quarter revenue by approximately
$10 million. Lower demand in selected markets also contributed to the reduced
revenue, while a more favorable product sales mix partially offset the impact of
the lower volume.
11
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<PAGE>
Income from continuing operations in the second quarter of 1998 was $15.2
million compared to $23.6 million for the comparable 1997 period. The $8.4
million decline was driven primarily by the revenue shortfall, as outlined
above. Positively impacting income from continuing operations were cost savings,
attributable to the previously announced three-year restructuring program, and
lower performance based compensation costs.
Net sales for the six months ended June 30, 1998 declined $128.3 million to
$1,011.7 million compared to the same period of 1997. Shipments were down 15
percent compared to 1997, which on a proforma basis adjusted for divestitures or
closures of non-strategic, commodity businesses and product lines declined 7
percent. Planned divestitures or closures of non-strategic, commodity businesses
and product lines accounted for approximately $56 million of the lower revenue,
while approximately $30 million was a result of the comparatively stronger US
dollar and approximately $29 million was due to lower sales in the Asia/Pacific
region. Sales volumes were also adversely affected by competitive pressures and
soft demand in selected markets. A more favorable product sales mix partially
offset the effect of the decline in volume.
For the six month period ended June 30,1998, income from continuing operations
was $35.6 million, a decrease of $7.9 million compared to the same period in
1997. This decline was primarily due to the aforementioned lower sales. Current
year results were favorably affected by continued cost savings attributable to
restructuring program initiatives, lower performance based compensation costs, a
gain on the disposition of an investment and a reduction in interest expense.
SEGMENT INFORMATION
Segment net sales and operating income for the second quarter and six months of
1998 and 1997 are set forth in the following table.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited - millions of dollars) 1998 1997 1998 1997
- ------------------------------------ --------------------------- ----------------------------
- ------------------------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales
Oleochemicals & Derivatives $ 93.5 $ 107.6 $ 187.6 $ 214.3
Performance Chemicals 173.6 203.7 351.2 414.0
Polymer Chemicals 124.7 139.0 248.7 267.7
OrganoSilicones 112.5 121.1 224.2 243.9
- ------------------------------------ ------------ ------------- ------------- ------------
Net sales $504.3 $ 571.4 $1,011.7 $1,139.9
- ------------------------------------ ------------ ------------- ------------- ------------
Operating income from continuing
operations:
Oleochemicals & Derivatives $ 2.0 $ 7.5 $ 2.0 $ 11.3
Performance Chemicals 17.0 19.1 37.0 35.7
Polymer Chemicals 14.6 21.5 32.5 37.9
OrganoSilicones 12.0 16.0 23.8 34.1
Corporate and unallocated (7.6) (10.0) (11.0) (16.4)
- ------------------------------------ ------------ ------------- ------------- ------------
Operating income from
continuing operations $ 38.0 $ 54.1 $ 84.3 $ 102.6
- ------------------------------------ ------------ ------------- ------------- -------------
</TABLE>
OLEOCHEMICALS & DERIVATIVES
Oleochemicals and Derivatives' second quarter 1998 net sales of $93.5 million
were down $14.1 million, or 13 percent, compared to the same quarter of 1997.
Lower sales were primarily the result of an 8 percent decline in volume, mainly
due to continued weakness in the Asia/Pacific market, the 1997 divestiture of
the food emulsifiers business and softness in selected markets. Lower glycerin
prices and the comparatively stronger US dollar also had a negative impact on
net sales.
Second quarter 1998 Oleochemicals and Derivatives' operating income of $2.0
million was down $5.5 million compared to the same quarter of last year. This
decline was primarily due to the lower sales volume and lower glycerin prices.
12
<PAGE>
<PAGE>
For the six months ended June 30, 1998, Oleochemicals and Derivatives' net sales
were $187.6 million, a decrease of $26.7 million, or 12 percent, compared to the
same six months of 1997. This decrease was primarily attributable to a 6 percent
decline in volume, one-third of which was due to the third quarter 1997
divestiture of the food emulsifiers business. The balance of the decline in
volume was a result of the continued economic weakness in the Asia/Pacific
region and softness in selected markets. The comparatively stronger US dollar
and a lower market value of glycerin also added to the shortfall.
Oleochemicals and Derivatives' operating income for the six months ended June
30, 1998 was $2.0 million, a decrease of $9.3 million from the comparable 1997
period. The decrease was a result of reduced shipments and a decline in glycerin
prices.
PERFORMANCE CHEMICALS
Performance Chemicals' second quarter 1998 net sales of $173.6 million were down
$30.1 million, or 15 percent, compared to the same period of 1997. A 23 percent
decline in volume was the predominant factor contributing to the lower sales, of
which approximately one-half was attributable to planned divestitures and
pruning of low margin non-strategic, commodity businesses and product lines. The
economic crisis in the Asia/Pacific region, and significant competitive
pressures in selected markets and operating difficulties at one of the segment's
facilities accounted for the remainder of the volume shortfall.
Operating income for Performance Chemicals for the second quarter of 1998
declined $2.1 million to $17.0 million, compared to 1997. This decline was
mainly the result of lower shipments and higher manufacturing costs associated
with temporary operating difficulties at one of the segment's facilities,
partially offset by reduced restructuring charges and lower performance based
compensation costs.
Net sales for the first six months of 1998 for Performance Chemicals of $351.2
million were $62.8 million, or 15 percent, behind the same period of 1997. This
decline was attributable to planned divestitures and pruning of non-strategic,
commodity businesses and product lines, continued economic weakness in the
Asia/Pacific region and competitive pressures in selected markets. Partially
offsetting these negative factors was the recovery of sales lost in 1997
attributable to a fire at the Petrolia, Pennsylvania plant. Shipments were down
21 percent compared to the prior year, of which 11 percent was attributable to
the divested and pruned businesses and product lines.
Performance Chemicals' operating income of $37.0 million for the first six
months of 1998 was $1.3 million, or 4 percent, ahead of the comparable period of
1997. Despite the decline in net sales, a significant portion of which was
attributable to divestitures and pruning of low margin business, operating
income increased mainly due to the absence of costs related to the 1997 Petrolia
fire and reduced restructuring charges.
POLYMER CHEMICALS
Second quarter 1998 net sales for Polymer Chemicals of $124.7 million were down
$14.3 million, or 10 percent, from the second quarter of 1997. Volume declined
11 percent causing the shortfall. Approximately one-half of the decline was
attributable to planned divestitures and pruning of non-strategic products and
product lines, with a soft demand in the PVC market and the impact of the
Asia/Pacific economic crisis accounting for most of the balance. The negative
impact of the comparatively stronger US dollar also added to the shortfall in
revenue.
Polymer Chemicals' operating income for the second quarter of 1998 of $14.6
million was $6.9 million below 1997. This decline was primarily attributable to
the decrease in net sales.
Polymer Chemicals' net sales for the first six months of 1998 were down $19
million, or 7 percent, to $248.7 million compared to the same period of 1997. A
9 percent decline in shipment volume was primarily responsible for the shortfall
in net sales. Of the total decline in shipments, approximately 60 percent
related to planned divestitures and pruning of non-strategic products and
product lines, while the economic crisis in the Asia/Pacific region and reduced
demand in the PVC market added to the shortfall. The comparatively stronger US
dollar adversely affected net sales, while higher sales prices and a more
favorable product sales mix partially offset the impact of the lower volume and
the stronger dollar.
Operating income for Polymer Chemicals for the six months ended June 30, 1998 of
$32.5 million was $5.4 million less than the same period of 1997. The 14 percent
decline in operating income was primarily due to lower shipments, partially
offset by higher average sales prices attributable to increased prices and a
more favorable
13
<PAGE>
<PAGE>
product sales mix.
ORGANOSILICONES
OrganoSilicones' second quarter 1998 net sales of $112.5 million were $8.6
million, or 7 percent, behind the same period of 1997. The shortfall in net
sales was primarily due to a 12 percent decline in volume, predominantly
attributable to continued weakness in economic conditions in the Asia/Pacific
region, and the comparatively stronger US dollar. These factors were partially
offset by a more favorable product sales mix.
Operating income for OrganoSilicones of $12.0 million for the second quarter of
1998 was $4.0 million below the corresponding period of 1997. This decline was
mainly due to lower sales volume and the unfavorable impact of the comparatively
stronger US dollar.
Net sales of $224.2 million for OrganoSilicones for the six month period ended
June 30,1998 declined $19.7 million, or 8 percent, compared to the same period
of the prior year. A 7 percent decline in volume, primarily attributable to the
economic crisis in the Asia/Pacific region and softness in US markets, along
with the comparatively stronger US dollar, were responsible for the lower sales.
The negative impact of these factors was partially offset by a more favorable
product sales mix.
Operating income for the first six months of 1998 for OrganoSilicones declined
$10.3 million to $23.8 million from the same period of 1997. This decline was
primarily attributable to the lower sales volume and the unfavorable impact of
the comparatively stronger US dollar.
OUTLOOK
During the first half of 1998, the Company experienced reduced revenue compared
to 1997 due to the purposeful disposition of non-strategic businesses and
product lines, the economic weakness in the Asia Pacific region, the strong US
dollar, and lower demand in selected markets. The Company believes that the
economic uncertainty in the Asia Pacific region will continue to negatively
impact revenue in the second half of the year, but to a lesser degree than in
the first half when compared to the same time periods in 1997. In addition, the
Company expects that the strength of the US dollar will have less of an impact
during the second half of the year than it did in the first half. In order to
improve revenues in the current economic environment, during 1998 the Company
began to refocus on the customers and markets it serves. The Company believes
these efforts will have a positive impact. In addition, the Company continues to
pursue the implementation of its three year restructuring plan. While the full
extent of the cost reductions will not be realized until 2000, the Company's
implementation plan is progressing well. 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.
Capital spending in 1997 was below plan but will be made up in 1998 and 1999 to
keep the restructuring plan on track. Primarily as a result of this shift in the
timing of the capital spending and reduced revenue, it is expected that total
debt at the end of 1998 will be above the year-end 1997 level and that some of
the cost savings expected in 1998 will be shifted to 1999. The decline of
revenues and volume experienced by the Company in 1998 has obscured the cost
savings impact on earnings. The Company believes its refocus on its customers
and the markets it serves and the implementation of its restructuring program,
are important for the Company to achieve its long-term goals.
Certain 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 cost and timing of the implementation of the Company's
new worldwide business processes and systems (referred to as Project Edge), the
ability of the Company to implement certain new business applications programs
which are not part of the Edge Project before the calendar year 2000, the
Company's ability to generate appropriate cash flows, the cost of 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, the Company's ability to maintain price increases, changes in
product mix, availability and pricing of raw materials, shifts in market demand,
price and product competition, certain global and regional economic conditions
and other factors listed from time to time in the Company's other Securities
Exchange Commission filings.
14
<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, 1998, the
Company was a PRP, or a defendant, in connection with 60 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 21 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 or liquidity. However, the Company's operating
results or cash flow could be materially affected in future periods by the
resolution of these contingencies.
15
<PAGE>
<PAGE>
ITEM 4. Submission of Matters to Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 22, 1998, 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 six directors to
serve term expiring in 2001, except for Roger Sharp's term which will expire
in 2000, as follows:
<TABLE>
<CAPTION>
Votes
For Withheld
----------------- ----------------
<S> <C> <C>
Bruce R. Bond 51,080,280 1,121,401
William G. Burns 51,906,608 295,073
E. Gary Cook 51,934,053 267,628
Louise Goeser 51,444,832 756,849
Roger L. Sharp 51,937,966 263,715
William Wishnick 51,811,510 390,171
</TABLE>
Directors who did not stand for election and continue in office until the 1999
Annual Meeting are: Donald L. Blankenship, Harry G. Hohn, Dan J. Samuel and
Bruce F. Wesson. Directors who did not stand for election and continue in
office until the 2000 Annual Meeting are: Simeon Brinberg, William Grant,
Richard Hayden and Nicholas Pappas
(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 1998.
Votes
For Against Abstain
--------------------------------------------------------------------------
52,117,512 33,707 50,462
16
<PAGE>
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits
10(iii)(A) 11. 1992 Stock Option Plan for Employees of Witco
Corporation and its Subsidiaries as Amended and Restated,
Effective June 2, 1998
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 June 30, 1998.
</TABLE>
17
<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: August 12, 1998 _______________________________________
Brian J. Dick
Controller - Chief Accounting Officer
/s/ DUSTAN E. MCCOY
Date: August 12, 1998 _______________________________________
Dustan E. McCoy
Senior Vice President,
General Counsel and Corporate Secretary
18
<PAGE>
<PAGE>
WITCO CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------------- -------------------------------------------------
10(iii)(A) 11. 1992 Stock Option Plan for Employees of Witco
Corporation and its Subsidiaries as Amended and
Restated, Effective June 2, 1998
15 Letter re unaudited interim financial information
27 Financial Data Schedule
19
<PAGE>
<PAGE>
1992 STOCK OPTION PLAN FOR EMPLOYEES
OF
WITCO CORPORATION AND ITS SUBSIDIARIES
AS AMENDED AND RESTATED, EFFECTIVE JUNE 2, 1998
SECTION 1. ESTABLISHMENT.
Witco Corporation hereby establishes the 1992 Stock Option Plan for
Employees of Witco Corporation and its Subsidiaries.
SECTION 2. PURPOSE.
The purpose of the Plan is to (a) create a strong and clear link between
rewards for employees of the Company and its subsidiaries and the creation of
value for the Company's shareholders; (b) attract and retain the highest caliber
employees to the Company and its subsidiaries by insuring that the Company's
total compensation opportunities are fully comparable to opportunity levels
among competing employers; and (c) promote a stakeholder orientation among
employees of the Company and its subsidiaries by providing a meaningful
opportunity to own shares of the Company.
SECTION 3. DEFINITIONS.
(a) Affiliate means (a) any corporation that is a member of the
"controlled group of corporations" that includes the Company, determined in
accordance with the Code Section 1563(a) without regard to Code Sections
1563(a)(4) and (e)(3)(C), and (b) any organization that is part of a group of
trades or businesses under common control pursuant to Code Section 414(b) that
includes the Company.
(b) Board of Directors shall mean the Board of Directors of the Company.
(c) Change in Control shall be deemed to have occurred if:
(i) any "person", as such term is used in Sections 3(a)(9)and
13(d)(3) of the Exchange Act, other than an Affiliate or any employee
benefit plan sponsored by the Company or an Affiliate becomes a
"beneficial owner", as such term is used in Rule 13d-3 promulgated under
the Exchange Act, of 20% or more of the "Voting Stock" (which means the
capital stock of any class or classes of the Company having general
voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of such corporation) of the
Company;
(ii) 33 1/3% of the Board of Directors consists of individuals
other than the members of the Board of Directors on January 1, 1998 (the
"Incumbent Directors"); provided, however, that any person becoming a
director subsequent to such date whose election or nomination for
election was approved by two-thirds (but in no event less than two) of
the directors who at the time of such election or nomination comprise
the Incumbent Directors shall, for purposes of this Plan, be considered
an Incumbent Director;
(iii) the Company adopts any plan of liquidation providing for
the distribution of all or substantially all of its assets;
(iv) the Company combines with another company (whether or not
the Company is the surviving corporation) and immediately after the
combination, the shareholders of the Company immediately prior to the
combination (other than shareholders who, immediately prior to the
combination were "affiliates" of such other company, as such term is
defined in the rules of the Securities and Exchange Commission) do not
beneficially own, directly or indirectly, more than 20% of the Voting
Stock of the combined company; or
(v) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, the assets of the Company occurs.
(d) Code shall mean the Internal Revenue Code of 1986, together with any
applicable amendments. References to Sections of the Code shall refer to any
corresponding provisions of subsequent legislation.
20
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<PAGE>
(e) Committee shall mean an Organization and Compensation Committee of
the Company composed and acting as described in Section 4.
(f) Company shall mean Witco Corporation, a Delaware corporation.
(g) Date of Exercise shall mean the date on which both the payment of
the Option Price and written request for the Shares to be purchased are received
by the Secretary of the Company.
(h) Date of Grant shall mean the date the Option is granted pursuant to
the provisions of Section 13.
(i) Effective Date shall have the meaning set forth in Section 12.
(j) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute.
21
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<PAGE>
(k) Fair Market Value shall mean the closing price of the Shares on the
New York Stock Exchange-Composite Transactions Tape on the applicable valuation
date or, if no trade of the Shares shall have been made on that day, the next
preceding day on which there was a trade of the Shares.
(l) Incentive Stock Option shall mean an option meeting the requirements
of Section 422 of the Code.
(m) Nonqualified Stock Option shall mean all options which are not
Incentive Stock Options.
(n) Option or Options shall mean the Option or Options to purchase
Shares granted pursuant to the provisions of this Plan and evidenced in the
Optionee's Stock Option Agreement.
(o) Optionee shall mean the employee to whom an option is granted.
(p) Option Price shall mean the price per Share which the Optionee must
pay to purchase Shares pursuant to an Option, as determined under the Plan and
set forth in the Optionee's Stock Option Agreement.
(q) Plan shall mean the 1992 Stock Option Plan for Employees of Witco
Corporation and its Subsidiaries, as presently adopted and as amended from time
to time.
(r) Shares shall mean shares of the common stock of the Company ($5.00
par value), or in the event that the outstanding shares of the common stock of
the Company are hereafter changed into or exchanged for shares of a different
stock or securities of the Company or some other corporation, then such other
stock or securities.
(s) Stock Option Agreement, which is dated as of the Date of Grant,
shall mean the agreement between the Company and the Optionee under which the
Optionee may purchase Shares pursuant to the Plan.
(t) Subsidiaries or Subsidiary shall mean all Subsidiaries or a
Subsidiary as such term is defined in Section 424(f) of the Code.
SECTION 4. ADMINISTRATION
The Plan shall be administered by the Committee, which shall consist of
two or more outside directors as defined in the Code Section 162(m)(9)(c) and
who shall be "non-employee" directors as defined from time to time in Rule 16b-3
promulgated by the Securities and Exchange Commission pursuant to the Exchange
Act. The Committee shall be appointed by the Board of Directors, which may from
time to time appoint members of the Committee in substitution for members
previously appointed and may fill vacancies, however caused, in the Committee.
The Committee will, in its discretion, determine (subject to the terms
of the Plan) the employees to be granted options, the time or times at which
Options shall be granted, and the number of Shares subject to each Option,
whether the Options are Incentive Stock Options or Nonqualified Stock Options,
and the manner in which Options may be exercised. In making such determination,
the Committee may take into consideration the value of the services rendered by
the respective individuals, their present and potential contributions to the
success of the Company and its Subsidiaries and such other factors which the
Committee may deem relevant in accomplishing the purpose of the Plan.
The Committee shall hold its meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee, shall be deemed the
acts of the Committee. The Company shall grant Options under the Plan in
accordance with determinations made by the Committee pursuant to the provisions
of the Plan. The Committee from time to time may adopt (and thereafter amend and
rescind) such rules and provisions for carrying out the Plan and take such
action in the administration of the Plan, not inconsistent with the provisions
hereof, as it shall deem proper. The interpretation and construction of any
provisions of the Plan by the Committee shall, unless otherwise determined by
the Board of Directors, be final and conclusive. No member of the Board of
Directors or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted thereunder.
SECTION 5. OPTION SHARES.
22
<PAGE>
<PAGE>
The maximum number of Shares which may be issued upon exercise of
Options under the Plan shall not exceed 1,300,000 Shares (subject to adjustment
as provided in Section 10). The Shares issued under the Plan may be either
issued Shares reacquired by the Company at any time and held in its Treasury or
authorized but unissued Shares, as the Board of Directors from time to time may
determine.
In the event that any outstanding Options under the Plan for any reasons
expire or are terminated, the Shares allocable to the unexercised portion of all
of such Options shall again be available for the future grant of an Option or
Options under the Plan.
SECTION 6. ELIGIBILITY.
Options will be granted only to persons who are employees of the Company
or its Subsidiaries. The term "employees" shall include officers as well as
other employees of the Company or any Subsidiary and shall include directors who
are also employees of the Company or any Subsidiary.
23
<PAGE>
<PAGE>
No Incentive Stock Option may be granted to any individual who, on the
Date of Grant, owns (within the meaning of Section 422(b)(6) of the Code)
directly or indirectly stock of the Company possessing more than ten percent
(10%) of the total combined voting power or value of all classes of stock of the
Company or any Subsidiary. For purposes of the preceding sentence, direct or
indirect ownership shall be determined in accordance with the attribution rules
of Section 424(d) of the Code.
An individual may be granted more than one Option but only on the terms
and subject to the restrictions hereinafter set forth. No person shall be
eligible to receive an Option for a larger number of Shares than is recommended
for such individual by the Committee.
SECTION 7. LIMITATION APPLICABLE ONLY TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value of the Shares
determined as of the Date of Grant with respect to which Incentive Stock Options
(determined without regard to this sentence) are granted to an Optionee after
1986 and are exercisable for the first time by an Optionee in any calendar year
(under all plans of the Company and its Subsidiaries) exceeds $100,000 (or such
other maximum amount which may hereafter be specified under Section 422 of the
Code), such Options shall be treated as Options which are not Incentive Stock
Options by taking such Options into account in the order in which granted.
SECTION 8. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by a Stock Option
Agreement containing such terms and conditions, not inconsistent with the Plan,
as the Committee shall determine, provided that such Stock Option Agreement
shall clearly and separately identify Nonqualified Stock Options and Incentive
Stock Options and that the substance of the following terms and conditions shall
be included therein:
(a) Option Price. The Option Price at which each Share covered by such
Option may be purchased shall be determined by the Committee and shall be no
less than 100 percent (100%) of the Fair Market Value of the Shares on the Date
of Grant.
(b) Nontransferable. The Option shall not be transferable by the
Optionee otherwise than by will or by the laws of descent and distribution and
may be exercised, during the Optionee's lifetime, only by the Optionee.
(c) Exercise After Termination of Employment. Except as provided
hereafter in this paragraph (c), only those Options exercisable as of the date
of the Optionee's termination of employment (determined after application of
paragraph (g) hereof) may be exercised, and such options shall be exercisable
during the ninety (90) day period following such termination, provided that
(unless as otherwise determined by the Committee as provided for in Section 8(d)
below) no Options shall be exercisable after the expiration of ten (10) years
from the Date of Grant or such earlier date as may be specified hereunder.
Options granted under the Plan shall not be affected by any change of duties or
position so long as the Optionee continues to be an employee of the Company or
any Subsidiary. Notwithstanding the foregoing provisions of this paragraph (c),
upon termination of employment by (i) early retirement or normal retirement by
an Optionee, each as determined pursuant to the Witco Corporation Retirement
Plan, (ii) death or (iii) disability as determined pursuant to the Witco
Corporation Long Term Disability Plan, any Option which would otherwise not then
be exercisable shall become immediately exercisable and such Options shall be
exercisable during the three (3) year period following such termination;
provided, however, that the exercise of any Incentive Stock Option shall qualify
for Incentive Stock Option treatment only if the Optionee has been an employee
of the Company or any Subsidiary at all times during the period beginning with
the Date of Grant and ending on the day three (3) months (or one (1) year in the
case of an Optionee permanently and totally disabled as defined in Section
22(e)(3) of the Code) before the Date of Exercise of such Option. In the event
of any question regarding the meaning of the terms "termination", "early
retirement", "normal retirement" or "disability" the determination of the
Committee shall be final and binding.
(d) Term of Option. No Option shall be exercisable prior to the date of
shareholder approval of the Plan, or after (i) the expiration of ten (10) years
from the Date of Grant, or (ii) such earlier date as may be specified hereunder.
Notwithstanding the preceding sentence, the Committee may, in the case of
certain Nonqualified Stock Options granted outside of the United States, extend
the term of an Option beyond ten (10) years from the Date of Grant.
(e) Death of Optionee. In the event of the death of an Optionee, any
Option theretofore granted to such person which is then exercisable as provided
in paragraph (c) shall be exercisable only by the executor or administrator of
the Optionee's estate or by the person or persons to whom the Optionee's rights
under the Option shall pass by the Optionee's will
24
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or the laws of descent and distribution.
(f) No Right to Continuance of Employment. Nothing contained in the Plan
or in any Stock Option Agreement shall confer upon any Optionee any right of
continuance of employment by the Company or its Subsidiaries, nor interfere in
any way with the right of the Company or any of its Subsidiaries to terminate
the Optionee's employment or change the Optionee's compensation at any time.
(g) Dismissal for Cause. In the event that any Optionee shall be
dismissed from the employ of the Company or any of its Subsidiaries for any
reason which the Committee determines to constitute good cause for dismissal,
the Company shall notify such Optionee of such determination and any Option
still held by such person at such time shall be canceled effective as of the
date of such Optionee's termination of employment. The decision of the Committee
as to what shall constitute good cause for dismissal shall be final and binding
upon all concerned.
SECTION 9. EXERCISE OF OPTIONS-PURCHASE OF SHARES.
Unless otherwise determined by the Committee (subject to Section 8(d)
hereof), twenty percent (20%) of the total number of Shares subject to an Option
shall become exercisable one year from Date of Grant and twenty percent (20%) on
each of the four succeeding anniversaries, subject to the limitations imposed on
exercise in the Stock Option Agreement. An Optionee's right to purchase Shares
with respect to an Option which becomes exercisable in installments shall be
cumulative during the term of the Option. An Option shall be exercised by
payment to the Company of the Option Price accompanied by a written request
specifying the number of Shares with respect to which such Option is exercised
on the Date of Exercise. However, the Company shall not be required to issue or
deliver any certificates for Shares purchased upon the exercise of an Option
prior to the completion of any registration or other qualification of such
shares under any state or federal law or rulings or regulations of any
government regulatory body, which the Company shall determine to be necessary or
advisable.
Payment of the Option Price shall be in cash, or such other
consideration as the Committee shall determine in its sole discretion, to be
substantially equivalent to cash (including cashless exercise procedures), or by
surrender of stock certificates representing like common stock of the Company
having an aggregate Fair Market Value, determined as of the Date of Exercise,
equal to the number of Shares with respect to which such Option is exercised
multiplied by the Option Price per share; provided that the Committee may impose
whatever restrictions it deems necessary or desirable with respect to the
payment for Shares by the surrender of stock certificates representing like
common stock of the Company.
No Optionee or Optionee's executor or administrator, legatees or
distributees, as the case may be, will be, or will be deemed to be, a holder of
any Shares subject to an Option unless and until a stock certificate or
certificates for such Shares are issued to such person or persons under the
terms of the Plan and Stock Option Agreement. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 10.
SECTION 10. CHANGE IN STOCK, ADJUSTMENTS, ETC.
In the event that the outstanding Shares are hereafter increased or
decreased or changed into, or exchanged for, a different number of shares or
kind of shares or other securities of the Company or another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of Shares, or a dividend payable
in capital stock, appropriate adjustment shall be made by the Committee in the
number and the kind of Shares for purchase of which Options may be granted under
the Plan, including the maximum number that may be granted to any one person. In
addition, the Committee shall make appropriate adjustments in the number and in
the kind of Shares as to which outstanding Options, or portions thereof then
unexercised, shall be exercisable, to the end that the Optionee's proportionate
interest shall be maintained as before the occurrence of such event, and such
adjustment of outstanding Options shall be made without change of the total
Option Price applicable to the unexercised portion of the Option and with a
corresponding adjustment in the price per share; provided, however, that each
such adjustment in the number and kind of Shares subject to the outstanding
Options, including any adjustments in the Option Price, shall be made in such
manner as not to constitute a modification as defined in Section 424(h) of the
Code. Any such adjustment made by the Committee shall be conclusive.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
25
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<PAGE>
SECTION 11. DURATION, AMENDMENT AND TERMINATION.
The Board of Directors may at any time terminate the Plan or make such
amendments thereof as it shall deem advisable and in the best interest of the
Company, without further action on the part of the shareholders of the Company;
provided, however, that no such termination or amendment shall, without the
consent of the individual to whom any Option shall theretofore have been
granted, affect or impair the rights of such individual under such Option, and
provided further, that unless the shareholders of the Company shall have first
approved thereof, no amendment of the Plan shall be effective for which
shareholder approval is required in order to satisfy the requirements of Rule
16b-3 under Section 16(b) of the Exchange Act, the Code, the New York Stock
Exchange, or any other applicable laws.
It is intended that the Plan be applied and administered in compliance
with Rule 16b-3. If any provision of the Plan would be in violation of Rule
16b-3 if applied as written, such provision shall not have effect as written and
shall be given effect so as to comply with Rule 16b-3, as determined by the
Committee. The Board of Directors is authorized to amend the Plan and to make
any such modifications to Stock Option Agreements to comply with Rule 16b-3, as
it may be amended from time to time, and to make any other such amendments or
modifications as it deems necessary or appropriate to better the purposes of the
Plan in light of any amendments made to Rule 16b-3.
No Option shall be granted under the Plan after January 14, 2002, but
Options granted prior to or as of such date may extend beyond such date in
accordance with the provisions hereof.
SECTION 12. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective on the date approved by the Board of
Directors (the "Effective Date"), subject to the approval of the Plan within
twelve (12) months of its Effective Date by shareholders of the Company. After
the Effective Date, the Options may be granted as provided herein subject to
such subsequent shareholder approval.
SECTION 13. DATE OF GRANT.
The Date of Grant of an Option pursuant to the Plan shall be the date
the Committee's decision that an Option shall be granted becomes final or such
later date as specified by the Committee. The Company shall submit to the
Optionee a Stock Option Agreement duly executed by and on behalf of the Company,
with the request that the Optionee execute such Agreement and return it to the
Secretary of the Company within thirty (30) days after it is mailed by the
Company to the Optionee.
SECTION 14. NO OBLIGATION TO EXERCISE OPTION.
Granting of an Option shall impose no obligation on the Optionee to
exercise such option.
SECTION 15. WITHHOLDING TAXES.
The Company's obligations to deliver Shares upon the exercise of any
option shall be subject to applicable federal, state and local tax withholding
requirements. Accordingly, the Company may either (i) reduce the number of
Shares otherwise issuable, subject to such limitations as may be imposed by Rule
16b-3 under Section 16(b) of the Exchange Act, or (ii) require reimbursement
from the holder equal to the withholding applicable under federal, state and
local income tax laws and regulations.
SECTION 16. EFFECT OF CHANGE IN CONTROL OR TENDER OFFER.
(a) Each Stock Option Agreement entered into pursuant to the Plan shall
provide that Options granted under the Plan shall be exercisable in full for a
period of thirty (30) days following the date of a Change in Control of the
Company.
(b) A tender offer or exchange offer for shares which results in a
Change in Control shall be deemed to constitute a Tender Offer.
(c) All Options outstanding at the end of the thirty (30) day period in
subsection (a) hereof shall be surrendered to the Secretary of the Company for
cancellation in exchange for a settlement payment. The amount paid in settlement
for the surrender and cancellation of each Option shall be the higher of:
26
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<PAGE>
(i) the excess of the Fair Market Value of the Shares subject to
the Option (regardless of exercisability) at the end of the period
specified in subsection (a) hereof over the Option Price; or
(ii) the excess of the "Offer Price per Share" (as hereinafter
defined), if any, of the Shares subject to the Option (regardless of
exercisability) over the Option Price.
As used in subparagraph (ii) above, the term "Offer Price per Share"
shall mean the highest price per Share payable in any Tender Offer which was in
effect at any time during the period beginning sixty (60) days prior the date on
which such Option was surrendered. Any securities or other property which are
part of the consideration paid for Shares in a Tender Offer shall be valued in
determining the Offer Price per Share at the valuation placed on such securities
or property by the corporation, person or other entity making the Tender Offer.
27
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<PAGE>
(d) The Committee at any time may exempt from the operation of
subsections (a) and (c) hereof any outstanding Option selected by the Committee
or may exempt all outstanding Options. No exemption shall, however, be effective
after payment or delivery of Shares has been made in settlement of a surrendered
Option.
(e) The Committee shall have sole discretion to determine whether
settlement payments shall be made wholly in cash, wholly in Shares or by a
combination of cash and shares. In the event no action is taken by the Committee
to determine the method of payment, the amount due shall be paid in cash.
(f) To the extent that the exercise of an Option during the thirty (30)
day period referred to in subsection (a) above or the surrender of an option as
provided for in subsection (c) above would result in liability under Section
16(b) of the Exchange Act to an Optionee, the Committee shall exempt from the
operation of subsections (a) and (c) hereof any such Options, pursuant to
subsection (d) above, until such time that the exercise of such Option would not
result in liability under Section 16(b) of the Exchange Act.
SECTION 17. OTHER TERMS.
Stock Option Agreements evidencing Options may contain such other
provisions, not inconsistent with the Plan, as the Committee deems advisable.
28
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<PAGE>
EXHIBIT 15
LETTER RE: UNAUDITED FINANCIAL INFORMATION
ACKNOWLEDGMENT LETTER
August 12, 1998
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), the 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, 1998 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, 1998.
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
29
<PAGE>
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