SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10788
INTERNATIONAL SPECIALTY PRODUCTS INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0333696
(State of Incorporation) (I. R. S. Employer
Identification No.)
818 Washington Street, Wilmington, Delaware 19801
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (302) 429-8554
Commission File Number 33-44862
ISP CHEMICALS INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3416260
(State of Incorporation) (I. R. S. Employer
Identification No.)
Rt. 95 Industrial Area, P.O. Box 37
Calvert City, Kentucky 42029
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (502) 395-4165
<PAGE>
Commission File Number 33-44862-01
ISP TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0333795
(State of Incorporation) (I. R. S. Employer
Identification No.)
State Highway 146 & Industrial Road
Texas City, Texas 77590
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (409) 945-3411
See table of additional registrants.
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 / /
As of May 5, 1997, 96,099,750 shares of International Specialty Products Inc.
common stock (par value, $.01 per share) were outstanding.
As of May 5, 1997, ISP Chemicals Inc. and ISP Technologies Inc. each had 10
shares of common stock outstanding. No shares are held by non-affiliates.
As of May 5, 1997, each of the additional registrants had the number of shares
outstanding which is shown on the table below. No shares are held by non-
affiliates.
<PAGE>
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
Commission
Address, including zip
File No./I.R.S
code, and telephone number,
No. of Employer
including area code, of
Exact name of registrant as State of Shares Identification
registrant's principal
specified in its charter Incorporation Outstanding No.
executive office
- --------------------------- -------------- ----------- ---------------
- ----------------------------
<S> <C> <C> <C>
<C>
ISP (PUERTO RICO) INC. Delaware 10 33-44862-03/
Mirador de Bairoa
22-2934561
Calle 27st-14
Caquas, Puerto Rico 00725-8900
(787) 744-3116
ISP ENVIRONMENTAL SERVICES INC. Delaware 10 33-44862-04/
1361 Alps Road
51-0333801
Wayne, NJ 07470
(201) 628-3000
ISP FILTERS INC. Delaware 10 33-44862-05/
4436 Malone Road
51-0333796
Memphis, TN 38118
(901) 795-2445
ISP GLOBAL TECHNOLOGIES INC. Delaware 10 33-44862-06/
818 Washington Street
51-0333802
Wilmington, DE 19801
(302) 429-7492
ISP INTERNATIONAL CORP. Delaware 10 33-44862-07/
818 Washington Street
51-0333734
Wilmington, DE 19801
(302) 429-7493
ISP INVESTMENTS INC. Delaware 10 33-44862-08/
818 Washington Street
51-0333803
Wilmington, DE 19801
(302) 429-7496
ISP MANAGEMENT COMPANY, INC. Delaware 10 33-44862-09/
1361 Alps Road
51-0333800
Wayne, NJ 07470
(201) 628-3000
ISP MINERAL PRODUCTS INC. Delaware 10 33-44862-10/
34 Charles Street
51-0333794
Hagerstown, MD 21740
(301) 733-4000
ISP MINERALS INC. Delaware 10 33-44862-11/
Route 116
51-0333798
Blue Ridge Summit, PA 17214
(717) 794-2184
ISP REAL ESTATE COMPANY, INC. Delaware 2 33-44862-12/
1361 Alps Road
22-2886551
Wayne, NJ 07470
(201) 628-3000
ISP REALTY CORPORATION Delaware 1000 33-44862-13/
1361 Alps Road
13-2720081
Wayne, NJ 07470
(201) 628-3000
VERONA INC. Delaware 100 33-44862-16/
NCNB Plaza, Suite 300
22-3036319
7 North Laurens Street
Greenville, SC 29601
(803) 271-9194
BLUEHALL INCORPORATED Delaware 1 33-44862-15/
818 Washington Street
13-3335905
Wilmington, DE 19801
(302) 651-0165
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
Quarter Ended
-------------------
March 31, March 30,
1996 1997
--------- ---------
Net sales............................... $ 185,611 $191,157
--------- ---------
Costs and expenses:
Cost of products sold................. 112,896 114,161
Selling, general and administrative... 35,224 36,872
Goodwill amortization................. 3,300 3,300
--------- ---------
Total costs and expenses............ 151,420 154,333
--------- ---------
Operating income........................ 34,191 36,824
Interest expense........................ (7,896) (6,662)
Equity in earnings of joint venture..... 1,414 1,385
Other income, net....................... 3,574 4,647
--------- ---------
Income before income taxes.............. 31,283 36,194
Income taxes............................ (11,415) (13,006)
--------- ---------
Net income.............................. $ 19,868 $ 23,188
========= =========
Earnings per common share............... $ .20 $ .24
========= =========
Weighted average number of common
shares outstanding..................... 97,742 96,474
========= =========
See Notes to Consolidated Financial Statements
1
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 30,
1996 1997
------------ -----------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents..................... $ 17,753 $ 17,489
Investments in trading securities............. 1,273 19,373
Investments in available-for-sale securities.. 114,323 127,121
Investments in held-to-maturity securities.... 1,977 2,214
Other short-term investments.................. 6,149 5,504
Accounts receivable, trade, net............... 66,875 77,229
Accounts receivable, other.................... 12,835 29,644
Receivable from related parties, net.......... 5,518 2,537
Loan receivable from related party............ - 822
Inventories................................... 108,586 110,794
Other current assets.......................... 13,239 12,919
---------- ----------
Total Current Assets........................ 348,528 405,646
Property, plant and equipment, net.............. 489,474 492,240
Goodwill, net................................... 417,258 413,958
Other assets.................................... 61,654 55,375
---------- ----------
Total Assets.................................... $1,316,914 $1,367,219
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt............................... $ 22,275 $ 22,739
Current maturities of long-term debt.......... 610 554
Accounts payable.............................. 42,939 49,981
Accrued liabilities........................... 57,134 55,812
Income taxes.................................. 5,868 5,664
---------- ----------
Total Current Liabilities................... 128,826 134,750
---------- ----------
Long-term debt less current maturities.......... 310,294 342,785
---------- ----------
Long-term notes payable to related parties...... 62,576 50,000
---------- ----------
Deferred income taxes........................... 52,665 58,304
---------- ----------
Other liabilities............................... 61,060 59,358
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value per share;
20,000,000 shares authorized:
0 shares issued............................. - -
Common stock, $.01 par value per share;
300,000,000 shares authorized: 99,888,646
shares issued............................... 999 999
Additional paid-in capital.................... 441,203 441,352
Treasury stock, at cost - 3,451,522 and
3,369,893 shares............................ (30,874) (30,143)
Retained earnings............................. 280,297 303,485
Cumulative translation adjustment and other... 9,868 6,329
---------- ----------
Total Stockholders' Equity.................. 701,493 722,022
---------- ----------
Total Liabilities and Stockholders' Equity...... $1,316,914 $1,367,219
========== ==========
See Notes to Consolidated Financial Statements
2
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
--------------------
March 31, March 30,
1996 1997
-------- --------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 14,080 $ 17,753
-------- --------
Cash provided by operating activities:
Net income............................................. 19,868 23,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 9,102 9,960
Goodwill amortization.............................. 3,300 3,300
Deferred income taxes.............................. (4,905) 4,919
(Increase) decrease in working capital items........... (8,975) (23,725)
Purchases of trading securities........................ (12,531) (15,227)
Proceeds from sales of trading securities.............. 13,159 3,082
Change in net receivable from/payable to
related parties...................................... (1,903) 2,981
Change in cumulative translation adjustment............ (2,801) (6,475)
Other, net............................................. 5,307 4,767
-------- --------
Net cash provided by operating activities............ 19,621 6,770
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisition................... (9,871) (13,945)
Purchases of available-for-sale securities............. (36,856) (38,246)
Purchases of held-to-maturity securities............... (3,306) (1,623)
Proceeds from sales of available-for-sale securities... 72,587 25,188
Proceeds from held-to-maturity securities.............. 3,118 1,386
-------- --------
Net cash provided by (used in) investing activities.. 25,672 (27,240)
-------- --------
Cash provided by (used in) financing activities:
Increase (decrease) in short-term debt................. (14,081) 464
Increase in borrowings under revolving credit facility. 6,200 32,575
Other increase (decrease) in long-term debt, net....... 504 (140)
Decrease in loans from related parties................. (20,671) (13,398)
Repurchases of common stock............................ (464) -
Other.................................................. 547 705
-------- --------
Net cash provided by (used in) financing activities.. (27,965) 20,206
-------- --------
Net change in cash and cash equivalents.................. 17,328 (264)
-------- --------
Cash and cash equivalents, end of period................. $ 31,408 $ 17,489
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 12,020 $ 10,533
Income taxes (including taxes paid/refunded
pursuant to the Tax Sharing Agreement)............. 14,174 36
See Notes to Consolidated Financial Statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements for International Specialty Products Inc. (the
"Company") reflect, in the opinion of management, all adjustments necessary to
present fairly the financial position of the Company at December 31, 1996 and
March 30, 1997, and the results of operations and cash flows for the periods
ended March 31, 1996 and March 30, 1997. All adjustments are of a normal
recurring nature. These financial statements should be read in conjunction
with the annual financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "Form 10-K").
NOTE A: In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share", which is required to be
adopted in 1998. Implementation of SFAS No. 128, which will require
the Company to report "Basic Earnings per Share" and "Diluted
Earnings per Share", will not have a material impact on the earnings
per share amounts as currently reported by the Company.
NOTE B: Inventories consist of the following:
December 31, March 30,
1996 1997
------------ ---------
(Thousands)
Finished goods..................... $ 68,436 $ 69,252
Work in process.................... 24,261 24,464
Raw materials and supplies......... 17,814 20,466
-------- --------
Total.............................. 110,511 114,182
Less LIFO reserve.................. (1,925) (3,388)
-------- --------
Inventories........................ $108,586 $110,794
======== ========
NOTE C: Contingencies
Asbestos Litigation Against GAF
The Company's parent, ISP Holdings Inc. ("ISP Holdings"), was a
wholly owned subsidiary of GAF Corporation ("GAF") until January 1,
1997, when its stock was distributed to the stockholders of GAF in a
series of transactions involving GAF's subsidiaries. As a result,
ISP Holdings and the Company are no longer direct or indirect
subsidiaries of GAF or its subsidiary, G-I Holdings Inc. ("G-I
Holdings"). GAF is a defendant in a substantial number of pending
lawsuits involving asbestos-related bodily injury claims. GAF and
G-I Holdings have advised the Company that, subject to certain
assumptions, they believe that their reserves adequately reflect
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C: (Continued)
their asbestos-related liabilities. Neither the Company nor the
assets or operations of the Company, which was operated as a division
of a corporate predecessor of GAF prior to July 1986, have been
involved in the manufacture or sale of asbestos products. The
Company believes that it should have no legal responsibility for
damages in connection with asbestos-related claims.
Environmental Litigation
The Company, together with other companies, is a party to a
variety of administrative proceedings and lawsuits involving
environmental matters ("Environmental Claims"), in which recovery is
sought for the cost of cleanup of contaminated sites, a number of
which are in the early stages or have been dormant for protracted
periods.
In the opinion of the Company's management, the resolution of
the Environmental Claims should not be material to the business,
liquidity, results of operations, cash flows or financial position of
the Company. However, adverse decisions or events, particularly as
to the liability and the financial responsibility of the Company's
insurers and of the other parties involved at each site and their
insurers, could cause the Company to increase its estimate of its
liability in respect of such matters. It is not currently possible
to estimate the amount or range of any additional liability.
For further information regarding asbestos-related and
environmental matters, reference is made to Note 12 to Consolidated
Financial Statements contained in the Form 10-K.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First Quarter 1997 Compared With
First Quarter 1996
The Company recorded first quarter 1997 net income of $23.2 million (24
cents per share) versus $19.9 million (20 cents per share) in the first quarter
of 1996. The 17% increase in net income was attributable to higher operating
income, reduced interest expense and higher other income, net.
Net sales for the first quarter of 1997 were $191.2 million compared with
$185.6 million for the first quarter of 1996. The higher sales reflected
higher sales of specialty chemicals (up $2.6 million), mineral products (up
$2.7 million) and filter products (up $.7 million). The sales growth in
specialty chemicals was attributable to increased sales volumes (up $9.3
million), partially offset by the unfavorable effect ($4.9 million) of the
stronger U.S. dollar relative to other currencies in certain areas of the world
and by unfavorable selling prices. The higher mineral and filter products
sales were due principally to increased sales volumes. The sales growth in the
first quarter reflected increased sales in the U.S., Asia-Pacific and the
Western Hemisphere, partially offset by lower sales in Europe.
Operating income for the first quarter of 1997 increased by 8% to $36.8
million from last year's $34.2 million, while the Company's operating margin
improved from 18.4% to 19.3%. The higher operating income benefited from
improved results for mineral products (up $1.5 million), filter products (up
$.7 million) and specialty chemicals (up $.5 million), primarily as a result of
the higher sales volumes.
Interest expense for the first quarter was $6.7 million, a decrease of 16%
compared with $7.9 million in the first quarter of 1996. The reduced interest
expense was attributable to lower interest rates and lower average borrowings.
Other income, net, for the first quarter of 1997 was $4.6 million compared with
$3.6 million in the first quarter of 1996, the increase resulting primarily
from gains associated with the Company's program to hedge certain of its
foreign currency exposures, other nonrecurring items of income and lower
miscellaneous, nonrecurring items of other expense.
Liquidity and Financial Condition
During the first quarter of 1997, the Company generated cash from
operations of $6.8 million, reinvested $13.9 million for capital programs and
invested $13.3 million for net purchases of available-for-sale and
6
<PAGE>
held-to-maturity securities, for a net cash outflow of $20.5 million before
financing activities. Cash from operations reflected a $12.1 million cash
outlay for net purchases of trading securities and also included a $5.0 million
dividend received from the GAF-Huls Chemie GmbH joint venture. Working capital
increased by $23.7 million, primarily reflecting a $10.4 million increase in
trade accounts receivable due to higher sales in March 1997 versus December
1996, a $16.8 million increase in accounts receivable, other, mainly from the
sale of the Company's domestic trade accounts receivable, and a $2.2 million
increase in inventories, partially offset by a $5.3 million net increase in
accounts payable and accrued liabilities.
Net cash generated from financing activities in the first quarter of 1997
totaled $20.2 million, mainly reflecting a $32.6 million increase in borrowings
under the Company's bank revolving credit facility, partially offset by a $13.4
million reduction in borrowings from an affiliate.
As a result of the foregoing factors, cash and cash equivalents decreased
by $.3 million during the first quarter of 1997 to $17.5 million (excluding
$154.2 million of trading, available-for-sale and held-to-maturity securities
and other short-term investments).
See Note C to Consolidated Financial Statements for information regarding
contingencies.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
7
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
(b) No Reports on Form 8-K were filed during the quarter ended
March 30, 1997.
8
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants listed below has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL SPECIALTY PRODUCTS INC.
ISP CHEMICALS INC.
ISP TECHNOLOGIES INC.
ISP (PUERTO RICO) INC.
ISP ENVIRONMENTAL SERVICES INC.
ISP FILTERS INC.
ISP GLOBAL TECHNOLOGIES INC.
ISP INTERNATIONAL CORP.
ISP INVESTMENTS INC.
ISP MANAGEMENT COMPANY, INC.
ISP MINERAL PRODUCTS INC.
ISP MINERALS INC.
ISP REAL ESTATE COMPANY, INC.
ISP REALTY CORPORATION
VERONA INC.
BLUEHALL INCORPORATED
DATE: May 12, 1997 BY: /s/Randall R. Lay
------------ -----------------------------
Randall R. Lay
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 1997 10-Q OF INTERNATIONAL SPECIALTY PRODUCTS INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874578
<NAME> INTERNATIONAL SPECIALTY PRODUCTS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<CASH> 17,489
<SECURITIES> 148,708
<RECEIVABLES> 77,229
<ALLOWANCES> 0
<INVENTORY> 110,794
<CURRENT-ASSETS> 405,646
<PP&E> 492,240
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,367,219
<CURRENT-LIABILITIES> 134,750
<BONDS> 342,785
0
0
<COMMON> 999
<OTHER-SE> 721,023
<TOTAL-LIABILITY-AND-EQUITY> 1,367,219
<SALES> 191,157
<TOTAL-REVENUES> 191,157
<CGS> 114,161
<TOTAL-COSTS> 114,161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,662
<INCOME-PRETAX> 36,194
<INCOME-TAX> 13,006
<INCOME-CONTINUING> 23,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,188
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
