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 June 29, 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 August 8, 1997, 95,849,370 shares of International Specialty Products
Inc. common stock (par value, $.01 per share) were outstanding.
As of August 8, 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 August 8, 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
(973) 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
(973) 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
(973) 628-3000
ISP REALTY CORPORATION Delaware 1000 33-44862-13/
1361 Alps Road
13-2720081
Wayne, NJ 07470
(973) 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>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
Second Quarter Ended Six Months Ended
-------------------- -------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
--------- --------- --------- ---------
Net sales.............................$ 184,955 $ 197,849 $ 370,566 $ 389,006
--------- --------- --------- ---------
Costs and expenses:
Cost of products sold............... 107,122 116,260 220,018 230,421
Selling, general and administrative. 36,511 38,804 71,735 75,676
Goodwill amortization............... 3,300 3,300 6,600 6,600
--------- --------- --------- ---------
Total costs and expenses.......... 146,933 158,364 298,353 312,697
--------- --------- --------- ---------
Operating income...................... 38,022 39,485 72,213 76,309
Interest expense...................... (7,022) (6,880) (14,918) (13,542)
Equity in earnings of joint venture... 1,736 1,361 3,150 2,746
Other income, net..................... 2,893 5,897 6,467 10,544
--------- --------- --------- ---------
Income before income taxes............ 35,629 39,863 66,912 76,057
Income taxes.......................... (13,033) (14,342) (24,448) (27,348)
--------- --------- --------- ---------
Net income............................$ 22,596 $ 25,521 $ 42,464 $ 48,709
========= ========= ========= =========
Earnings per common share.............$ .23 $ .27 $ .44 $ .51
========= ========= ========= =========
Weighted average number of common
shares outstanding................... 97,489 96,044 97,617 96,257
========= ========= ========= =========
See Notes to Consolidated Financial Statements
1
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 29,
1996 1997
------------ -----------
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents..................... $ 17,753 $ 17,980
Investments in trading securities............. 1,273 62,129
Investments in available-for-sale securities.. 114,323 106,114
Investments in held-to-maturity securities.... 1,977 1,720
Other short-term investments.................. 6,149 5,396
Accounts receivable, trade, net............... 66,875 84,067
Accounts receivable, other.................... 12,835 28,234
Receivable from related parties, net.......... 5,518 8,092
Inventories................................... 108,586 110,683
Other current assets.......................... 13,239 15,706
---------- ----------
Total Current Assets........................ 348,528 440,121
Property, plant and equipment, net.............. 489,474 499,073
Goodwill, net................................... 417,258 410,657
Other assets.................................... 61,654 54,973
---------- ----------
Total Assets.................................... $1,316,914 $1,404,824
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt............................... $ 22,275 $ 44,208
Current maturities of long-term debt.......... 610 484
Accounts payable.............................. 42,939 60,186
Accrued liabilities........................... 57,134 64,933
Income taxes.................................. 5,868 6,718
---------- ----------
Total Current Liabilities................... 128,826 176,529
---------- ----------
Long-term debt less current maturities.......... 310,294 324,709
---------- ----------
Long-term notes payable to related parties...... 62,576 50,000
---------- ----------
Deferred income taxes........................... 52,665 63,513
---------- ----------
Other liabilities............................... 61,060 56,268
---------- ----------
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.................... 441,203 441,465
Treasury stock, at cost - 3,451,522 and
4,069,991 shares............................ (30,874) (39,127)
Retained earnings............................. 280,297 329,006
Cumulative translation adjustment and other... 9,868 1,462
---------- ----------
Total Stockholders' Equity.................. 701,493 733,805
---------- ----------
Total Liabilities and Stockholders' Equity...... $1,316,914 $1,404,824
========== ==========
See Notes to Consolidated Financial Statements
2
<PAGE>
INTERNATIONAL SPECIALTY PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------
June 30, June 29,
1996 1997
--------- --------
(Thousands)
Cash and cash equivalents, beginning of period........... $ 14,080 $ 17,753
-------- --------
Cash provided by operating activities:
Net income............................................. 42,464 48,709
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 18,678 20,193
Goodwill amortization.............................. 6,600 6,600
Deferred income taxes.............................. (7,075) 10,800
(Increase) decrease in working capital items........... (1,018) (12,930)
Purchases of trading securities........................ (27,403) (63,282)
Proceeds from sales of trading securities.............. 27,499 13,284
Increase in net receivable from related parties........ (14,109) (2,574)
Change in cumulative translation adjustment............ (5,875) (7,613)
Other, net............................................. 2,147 2,702
-------- --------
Net cash provided by operating activities............ 41,908 15,889
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures and acquisition................... (21,197) (31,184)
Purchases of available-for-sale securities............. (130,064) (90,102)
Purchases of held-to-maturity securities............... (3,306) (1,623)
Proceeds from sales of available-for-sale securities... 133,178 90,081
Proceeds from held-to-maturity securities.............. 3,421 1,881
-------- --------
Net cash used in investing activities................ (17,968) (30,947)
-------- --------
Cash provided by (used in) financing activities:
Increase (decrease) in short-term debt................. (8,757) 21,933
Increase (decrease) in borrowings under revolving
credit facility...................................... (28,800) 14,575
Other increase (decrease) in long-term debt, net....... 318 (286)
Increase (decrease) in loans from related parties...... 15,095 (12,576)
Repurchases of common stock............................ (4,816) (9,295)
Other.................................................. 721 934
-------- --------
Net cash provided by (used in) financing activities.. (26,239) 15,285
-------- --------
Net change in cash and cash equivalents.................. (2,299) 227
-------- --------
Cash and cash equivalents, end of period................. $ 11,781 $ 17,980
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 17,140 $ 14,897
Income taxes (including taxes paid/refunded
pursuant to the Tax Sharing Agreement)............. 41,957 11,811
See Notes to Consolidated Financial Statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated 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 June 29, 1997, and the results of operations and cash
flows for the periods ended June 30, 1996 and June 29, 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, June 29,
1996 1997
------------ ---------
(Thousands)
Finished goods..................... $ 68,436 $ 73,618
Work in process.................... 24,261 21,559
Raw materials and supplies......... 17,814 19,556
-------- --------
Total.............................. 110,511 114,733
Less LIFO reserve.................. (1,925) (4,050)
-------- --------
Inventories........................ $108,586 $110,683
======== ========
NOTE C:
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 ("G-I Holdings").
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D: Contingencies
Asbestos Litigation Against GAF
GAF is a defendant in a substantial number of pending lawsuits
involving asbestos-related bodily injury claims. GAF and G-I
Holdings have established reserves for such claims based on certain
assumptions, one of which was the effectiveness of a class action
settlement of future asbestos-related bodily injury claims (the
"Settlement"). On June 25, 1997, the United States Supreme Court
affirmed the ruling of the United States Court of Appeals for the
Third Circuit that the class in such action was not certifiable, thus
rendering the Settlement inoperable. GAF and G-I Holdings have
advised the Company that they are presently evaluating the effect of
this recent Supreme Court decision on the amount of their reserves
for asbestos-related liabilities, that such analysis could result in
GAF and G-I Holdings increasing their estimates of asbestos-related
liabilities and that it is not currently possible to estimate the
range or amount, if any, of such possible additional reserves. GAF
and G-I Holdings have stated that they remain committed to
effectuating a comprehensive resolution of asbestos-related bodily
injury claims, that they are presently exploring a number of options,
both judicial and legislative, to accomplish such resolution, but
that there can be no assurance that these efforts will be successful.
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 Environmental Claims are in the early stages or have been
dormant for protracted periods.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D: (Continued)
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.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second Quarter 1997 Compared With
Second Quarter 1996
The Company recorded second quarter 1997 net income of $25.5 million (27
cents per share) versus $22.6 million (23 cents per share) in the second
quarter of 1996. The 13% increase in net income was attributable primarily to
higher operating and other income.
Net sales for the second quarter of 1997 were $197.8 million, a 7%
increase compared with $185 million for the second quarter of 1996. The higher
sales primarily reflected higher sales of specialty chemicals (up $12.7
million) as a result of increased sales volumes (up $21.9 million), partially
offset by the unfavorable effect of the stronger U.S. dollar relative to other
currencies in certain areas of the world ($5.1 million), and by unfavorable
selling prices. The sales growth in the second quarter reflected increased
sales in the U.S., the Asia-Pacific region and the Western Hemisphere,
partially offset by lower sales in Europe due primarily to the effect of the
stronger U.S. dollar.
Operating income for the second quarter of 1997 increased by 4% to $39.5
million from last year's $38 million. The higher operating income resulted
from increased sales across all business segments and improved income from
filter products (up $1.1 million) and mineral products (up $.9 million), both
due to improved gross profit margins, partially offset by slightly lower
specialty chemicals results due to lower gross profit margins resulting
primarily from the effect of the stronger U.S. dollar and product mix.
Interest expense for the second quarter was $6.9 million compared with $7
million in the second quarter of 1996. Other income, net, for the second
quarter of 1997 was $5.9 million compared with $2.9 million in the second
quarter of 1996, with the increase resulting primarily from higher investment
income.
Results of Operations - Six Months 1997 Compared With
Six Months 1996
For the first six months of 1997, the Company recorded net income of $48.7
million (51 cents per share), compared with net income of $42.5 million (44
cents per share) for the first six months of 1996. The 15% increase in net
income was attributable to higher operating and other income and lower interest
expense.
7
<PAGE>
Net sales for the first six months of 1997 were $389 million versus net
sales of $370.6 million for the same period in 1996. The higher sales
reflected increased sales in all business segments, principally specialty
chemicals (up $15.3 million) and mineral products (up $2.8 million). The sales
growth in specialty chemicals was attributable to increased sales volumes (up
$31.2 million), partially offset by the unfavorable effect of the stronger U.S.
dollar relative to other currencies in certain areas of the world ($10
million), and by unfavorable pricing. The higher mineral products sales were
due to increased sales volumes and favorable pricing. The sales growth
reflected sales increases in the U.S., the Asia-Pacific region and the Western
Hemisphere, partially offset by lower sales in Europe due primarily to the
effect of the stronger U.S. dollar.
Operating income for the first six months of 1997 was $76.3 million, a 6%
increase over the $72.2 million recorded in the first six months of 1996. The
higher operating income reflected improved results in all business segments,
principally mineral products (up $2.4 million) and filter products (up $1.8
million), due to higher sales and improved gross profit margins.
Interest expense for the first six months of 1997 was $13.5 million
compared with $14.9 million for the same period in 1996. The lower interest
expense was primarily attributable to lower interest rates. Other income, net,
for the first six months of 1997 was $10.5 million compared with $6.5 million
last year, with the increase resulting primarily from higher investment income
and lower miscellaneous, nonrecurring items of other expense.
Liquidity and Financial Condition
During the first six months of 1997, the Company generated cash from
operations of $15.9 million, reinvested $31.2 million for capital programs and
generated $.2 million from net sales of available-for-sale and
held-to-maturity securities, for a net cash outflow of $15.1 million before
financing activities. Cash from operations reflected a $50 million cash outlay
for net purchases of trading securities and also included $6.3 million of
dividends received from the GAF-Huls Chemie GmbH joint venture. Working
capital increased by $12.9 million, primarily reflecting a $17.2 million
increase in trade accounts receivable due to higher sales in June 1997 versus
December 1996, a $15.4 million increase in accounts receivable, other, mainly
from the sale of the Company's domestic trade accounts receivable, and a $2.1
million increase in inventories, partially offset by a $24.2 million increase
in accounts payable and accrued liabilities.
8
<PAGE>
Net cash generated from financing activities in the first six months of
1997 totaled $15.3 million, mainly reflecting $21.9 million of additional short-
term borrowings and a $14.6 million increase in borrowings under the Company's
bank revolving credit facility, partially offset by a $12.6 million reduction
in borrowings from an affiliate and $9.3 million of repurchases of common stock
pursuant to the Company's share repurchase program.
As a result of the foregoing factors, cash and cash equivalents increased
by $.2 million during the first six months of 1997 to $18 million (excluding
$175.4 million of trading, available-for-sale and held-to-maturity securities
and other short-term investments).
In June and July of 1997, the Company entered into five-year interest rate
swap contracts with a total notional amount of $100 million to convert its
floating interest rates on $100 million of debt to fixed rates.
See Note D to Consolidated Financial Statements for information regarding
contingencies.
9
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 1, 1997, each
nominated director was reelected, with at least 94,330,717 votes in favor of,
and not more than 93,200 votes withheld from, each nominee, and the proposed
amendment to the Company's 1991 Incentive Plan for Key Employees and Directors
was approved, with 87,366,499 votes in favor, 7,038,783 votes against and
18,635 abstentions.
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
June 29, 1997.
10
<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: August 12, 1997 BY: /s/Randall R. Lay
--------------- -----------------------------
Randall R. Lay
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-29-1997
<CASH> 17,980
<SECURITIES> 169,963
<RECEIVABLES> 84,067
<ALLOWANCES> 0
<INVENTORY> 110,683
<CURRENT-ASSETS> 440,121
<PP&E> 499,073
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,404,824
<CURRENT-LIABILITIES> 176,529
<BONDS> 324,709
0
0
<COMMON> 999
<OTHER-SE> 732,806
<TOTAL-LIABILITY-AND-EQUITY> 1,404,824
<SALES> 389,006
<TOTAL-REVENUES> 389,006
<CGS> 230,421
<TOTAL-COSTS> 230,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,542
<INCOME-PRETAX> 76,057
<INCOME-TAX> 27,348
<INCOME-CONTINUING> 48,709
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,709
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
