SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________ to ________
Commission file name 1-8142
ENGELHARD CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 22-1586002
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
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(Address of principal executive offices) (Zip Code)
(908) 205-5000
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(Registrant's telephone number including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding as of October 31
- --------------------- ----------------------------
$1 par value 95,231,558
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Engelhard Corporation
Condensed Consolidated Statements of Earnings
(Thousands except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $578,580 $558,102 $1,769,683 $1,611,514
Cost of sales 475,327 466,730 1,472,211 1,348,061
---------- ---------- ---------- ----------
Gross profit 103,253 91,372 297,472 263,453
Selling, administrative and other expenses 58,591 54,075 170,818 162,690
---------- ---------- ---------- ----------
Earnings from operations 44,662 37,297 126,654 100,763
Equity in earnings of affiliates 109 1,707 472 2,816
Gain on sale of investment - - - 10,145
Net interest expense 5,145 3,799 14,667 10,800
---------- ---------- ---------- ----------
Earnings before income taxes and
cumulative effect of an accounting change 39,626 35,205 112,459 102,924
Income tax expense 9,907 7,622 28,115 24,687
---------- ---------- ---------- ----------
Net earnings before cumulative effect
of an accounting change 29,719 27,583 84,344 78,237
Cumulative effect of an accounting change - - - (16,000)
---------- ---------- ---------- ----------
Net earnings $29,719 $27,583 $84,344 $62,237
========== ========== ========== ==========
Net earnings per share
Before cumulative effect of an accounting change $0.31 $0.29 $0.88 $0.80
Cumulative effect of an acccounting change - - - (0.16)
---------- ---------- ---------- ----------
Net earnings $0.31 $0.29 $0.88 $0.64
========== ========== ========== ==========
Cash dividends paid per share $0.12 $0.11 $0.34 $0.31
========== ========== ========== ==========
Average number of shares outstanding 96,029 96,007 96,322 97,228
========== ========== ========== ==========
See Note to Condensed Consolidated Financial Statements
- 2 -
</TABLE>
<TABLE>
Engelhard Corporation
Condensed Consolidated Balance Sheets
(Thousands)
(unaudited)
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Cash $28,808 $25,613
Receivables 245,397 230,593
Inventories 241,524 216,279
Other current assets 52,738 44,095
------------- ------------
568,467 516,580
Investments 110,332 97,147
Property, plant and equipment, net 528,514 494,440
Other noncurrent assets 194,242 170,931
------------ ------------
$1,401,555 $1,279,098
============ ============
Short-term borrowings $163,920 $99,987
Current maturities of long-term debt 493 440
Accounts payable 75,789 56,342
Other current liabilities 277,386 305,968
------------ ------------
Total current liabilities 517,588 462,737
Long-term debt 112,017 112,240
Other noncurrent liabilities 169,678 170,256
Deferred income taxes 4,648 2,547
Shareholders' equity 597,624 531,318
------------ ------------
Total liabilities and
shareholders' equity $1,401,555 $1,279,098
============ ============
See Note to Condensed Consolidated Financial Statements
- 3 -
</TABLE>
<TABLE>
Engelhard Corporation
Condensed Consolidated Statements of Cash Flows
(Thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings $84,344 $62,237
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 51,612 53,078
Cumulative effect of an accounting change - 16,000
Gain on sale of investment - (10,145)
Equity earnings, net of dividends 3,361 (238)
Change in assets and liabilities (54,231) (16,158)
-------- --------
Net cash provided by operating activities 85,086 104,774
-------- --------
Cash flows from investing activities
Capital expenditures, net (66,750) (76,333)
Acquisition of businesses and investment (43,972) -
Proceeds from sale of investment - 39,787
Other 4,666 (7)
-------- --------
Net cash used in investing activities (106,056) (36,553)
-------- --------
Cash flows from financing activities
Net change in short-term borrowings 63,838 36,532
Dividends paid (32,766) (30,211)
Other (7,936) (72,565)
-------- --------
Net cash provided by (used in)
financing activities 23,136 (66,244)
-------- --------
Effect of exchange rate changes on cash 1,029 (1,085)
-------- --------
Net change in cash 3,195 892
Cash at beginning of year 25,613 31,326
-------- --------
Cash at end of period $28,808 $32,218
======== ========
See Note to Condensed Consolidated Financial Statements
- 4 -
</TABLE>
<TABLE>
Engelhard Corporation
Industry Segment Information
(Thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1994 1993 1994 1993
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales
Catalysts and Chemicals $145,935 $121,861 $425,288 $399,464
Pigments and Additives 94,831 91,547 278,167 279,180
Engineered Materials and
Precious Metals Management 337,814 344,694 1,066,228 932,870
---------- ---------- ---------- ----------
$578,580 $558,102 $1,769,683 $1,611,514
========== ========== ========== ==========
Operating Earnings
Catalysts and Chemicals 20,645 19,800 64,848 56,321
Pigments and Additives 21,000 14,427 52,025 40,640
Engineered Materials and
Precious Metals Management 8,938 7,941 26,026 21,177
---------- ---------- ---------- ----------
50,583 42,168 142,899 118,138
Equity earnings 109 1,707 472 2,816
Gain on sale of investment - - - 10,145
Interest and other expenses, net (11,066) (8,670) (30,912) (28,175)
---------- ---------- ---------- ----------
Earnings before income taxes and
cumulative effect if an accounting change $39,626 $35,205 $112,459 $102,924
========== ========== ========== ==========
See Note to Condensed Consolidated Financial Statements
- 5 -
</TABLE>
Note to Condensed Consolidated Financial Statements
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The unaudited condensed consolidated financial statements of
Engelhard Corporation and subsidiaries (the "Company") contain all
adjustments which, in the opinion of management, are necessary for a
fair statement of the results for the interim periods presented.
Certain prior period amounts have been reclassified to conform to the
current period presentation. The 1993 financial statements have been
restated to reflect the adoption of statement of Financial Accounting
Standard No. 112 "Employers' Accounting for Postemployment Benefits."
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1993 Annual Report to Shareholders.
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
- ------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the Third Quarter of 1994
With the Third Quarter of 1993
- ---------------------------------------
Earnings before income taxes for the third quarter of 1994
increased 13 percent to $39.6 million compared with $35.2 million in the
third quarter of 1993 primarily due to higher earnings from all business
segments partially offset by increased net interest expense as a result
of higher average debt and interest rates. Equity in earnings of
affiliates was down for the third quarter of 1994 compared with last
year in part due to the startup losses of a new joint venture,
Engelhard/ICC.
Net earnings for the third quarter of 1994 were $29.7 million
or $.31 per share, an eight percent increase from $27.6 million or $.29
per share for the same quarter in 1993. The effective tax rate in 1994
was 25.0 percent compared with 21.7 percent for the same period last
year. The lower tax rate in 1993 was primarily due to 1993 U.S. tax
legislation which reinstated the research and development credit and
increased the U.S. income tax rate, which had a favorable impact on the
Company's net deferred tax asset. Average shares outstanding were
substantially the same for both periods.
Net sales for the third quarter of 1994 increased 4 percent to
$578.6 million compared with $558.1 million for the same quarter in
1993. The increase was primarily attributable to the Catalysts and
Chemicals Segment.
-6-
Catalysts and Chemicals
- -----------------------
Operating earnings increased four percent to $20.6 million in
the third quarter of 1994 compared with $19.8 million in the same period
of 1993. Net sales increased 20 percent to $145.9 million in 1994 from
$121.9 million in 1993; part of this increase relates to operations
acquired in the interim period.
Higher earnings from the Environmental and Chemical Catalysts
Groups more than offset lower earnings from the Petroleum Catalysts
Group. The increase in the Environmental Catalysts Group reflected
increased sales of automotive and diesel truck catalysts partially
offset by higher manufacturing and operating expenses. The increase in
the Chemical Catalysts Group is primarily due to reductions in its
manufacturing costs. In the Petroleum Catalysts Group, the decrease in
earnings resulted from higher manufacturing and operating expenses due
to the startup and integration of two new facilities and higher research
spending which more than offset higher sales and earnings from FCC
catalysts.
Pigments and Additives
- ----------------------
Operating earnings increased 46 percent to $21.0 million in
the third quarter of 1994 compared with $14.4 million in the same period
of 1993. Net sales in 1994 increased four percent to $94.8 million from
$91.5 million in the third quarter of 1993.
Earnings for both the Paper Pigments and Chemicals Group and
the Specialty Minerals and Colors Group showed a significant
improvement. The increase in the Paper Pigments and Chemicals Group was
primarily due to favorable product mix and lower manufacturing costs.
The Specialty Minerals and Colors Group benefitted from higher volumes
and sales prices as well as favorable plant costs.
Engineered Materials and Precious Metals Management
- ---------------------------------------------------
Operating earnings increased 13 percent to $8.9 million in the
third quarter of 1994 compared with $7.9 million in the same period of
1993. Net sales in 1994 decreased slightly to $337.8 million from
$344.7 million in 1993.
Higher earnings from the Engineered Materials Group were
partially offset by lower earnings from the Precious Metals Management
Group. The Engineered Materials Group experienced cost savings across
the Group and volume increases for fabricated industrial products in the
U.S. The decline in earnings of the Precious Metals Management Group
was primarily due to slower industrial demand for precious metals.
-7-
Comparison of the First Nine Months of
1994 With the First Nine Months of 1993
- ---------------------------------------
Earnings before income taxes and cumulative effect of an
accounting change for the first nine months of 1994 were $112.5 million
compared with $102.9 million for the same period in 1993. The first nine
months of 1993 included a pretax gain of $10.1 million ($6.3 million
after tax or $.06 per share) from the sale of the Company's interest in
M&T Harshaw, a base-metal plating business. Excluding this gain,
earnings before income taxes and cumulative effect of an accounting
change were up 21 percent from the prior year with higher earnings from
all business segments. Net interest expense was $14.7 million in the
first nine months of 1994 compared with $10.8 million in the same period
in 1993 primarily due to higher average debt and interest rates. Equity
in earnings of affiliates was $.5 million for the first nine months of
1994 compared with $2.8 million in 1993, largely due to the startup
losses of a new joint venture, Engelhard/ICC.
Net earnings before the cumulative effect of an accounting
change for the first nine months of 1994 were $84.3 million compared
with $78.2 million for the same period of 1993. The effective tax rate
in 1994 was 25.0 percent compared with 24.0 percent for the same period
last year. Net earnings before the cumulative effect of an accounting
change for the first nine months of 1994 were $.88 per share compared
with $.80 per share in 1993.
In 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits". The cumulative effect of this change was a
one-time, non-cash charge of $16.0 million ($.16 per share) resulting in
net earnings for the first nine months of 1993 of $62.2 million ($.64
per share) compared with net earnings of $84.3 million in 1994 ($.88 per
share).
Net sales for the first nine months of 1994 increased ten
percent to $1.77 billion compared with $1.61 billion a year earlier.
The increase was primarily attributable to the Engineered Materials and
Precious Metals Management segment and reflected higher volumes and
prices for certain precious metals.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 15 percent to $64.8 million in
the first nine months of 1994 compared with $56.3 million in 1993. Net
sales increased six percent to $425.3 million for the 1994 period
compared with $399.5 million for the same period in 1993.
The higher earnings reflected significantly higher earnings
from the Environmental Catalysts Group, slightly higher earnings from
the Petroleum Catalysts Group and slightly lower earnings from the
Chemical Catalysts Group. The increase in the Environmental Catalysts
Group earnings was attributable to sales of the new diesel emission
control catalysts to the truck and bus market, as well as continuing
strong demand for autocatalysts in North America partially offset by
-8-
higher operating expenses. In the Petroleum Catalysts Group,
significantly higher shipments of its fluid catalytic cracking and
moving bed catalysts were offset by higher manufacturing and operating
expenses due to investments in new technologies and the startup and
integration of two new facilities. The Chemical Catalysts Group had
lower volumes of North American base-metal catalysts which offset the
benefit from reductions in manufacturing costs as a result of
reengineering programs.
Pigments and Additives
- ----------------------
Operating earnings increased 28 percent to $52.0 million in
the first nine months of 1994 compared with $40.6 million in 1993. Net
sales declined slightly to $278.2 million for the 1994 period compared
with $279.2 million for the same period in 1993.
Earnings increased for both the Paper Pigments and Chemicals
and Specialty Minerals and Colors Groups. The increase in the Paper
Pigments and Chemicals Group was primarily due to favorable
manufacturing and operating costs which more than offset lower volumes
and pricing. The Specialty Minerals and Colors Group achieved higher
volumes and sales prices as well as favorable manufacturing costs.
Engineered Materials and Precious Metals Management
- ---------------------------------------------------
Operating earnings for the first nine months of 1994 increased
23 percent to $26.0 million from $21.2 million a year earlier on a 14
percent increase in net sales for the first nine months of 1994 to $1.07
billion from $.93 billion in the 1993 period.
Higher earnings from the Engineered Materials Group more than
offset lower earnings from the Precious Metals Management Group. The
Engineered Materials Group experienced cost savings and some volume
increases. The mix of business caused the decline in the earnings of
the Precious Metals Management Group.
Capital Resources and Liquidity
-------------------------------
At September 30, 1994 the Company's current ratio was 1.1,
about the same as at December 31, 1993. The total debt to total capital
ratio was 31.6 percent at September 30, 1994 compared with 28.6 percent
at December 31, 1993. The increase in debt is largely attributable to
acquisitions of and investment in businesses and purchases of the
Company's common stock during the year. The Company increased its
quarterly common stock dividend per share amount nine percent to $.12
per share effective with the September 30, 1994 payment.
Management believes that the combination of the Company's cash
on hand, ongoing cash flow and the ability to access credit and capital
markets will be adequate to finance its working capital requirements and
capital expenditure programs.
-9-
Other Matters
- -------------
On November 7, 1994, it was announced that Engelhard
Corporation and Paris-based CLAL (Groupe FIMALAC) have signed a letter
of intent to enter into discussions with the objective of establishing a
50/50 joint venture for the purpose of refining, manufacturing and
selling certain precious and base metal containing products.
Discussions between the two companies are expected to continue
for the next few months with the formation of the joint venture
contingent upon satisfactory completion of due diligence, execution of a
definitive agreement, approvals by the boards of directors of both
companies and by CLAL shareholders, and appropriate government
approvals.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
Report on Form 8-K
There were no reports on Form 8-K during the quarter ended
September 30, 1994
-10-
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.
ENGELHARD CORPORATION
-----------------------------
(Registrant)
Date November 14, 1994 /s/Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
President and
Chief Executive Officer
Date November 14, 1994 /s/Robert L. Guyett
--------------------- ------------------------------
Robert L. Guyett
Senior Vice President and
Chief Financial Officer
Date November 14, 1994 /s/Martin J. Connor, Jr.
--------------------- -------------------------------
Martin J. Connor, Jr.
Controller
-11-
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 28808
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<INVENTORY> 241524
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<OTHER-SE> 499427
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<SALES> 1769683
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