SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1995
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 name 1-8142
ENGELHARD CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1586002
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(908) 205-5000
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(Registrant's telephone number including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if change 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 at October 31, 1995
- --------------------- -------------------------------
$1 par value 144,050,763
<PAGE>
PART I - FINANCIAL INFORMATION
Engelhard Corporation
Condensed Consolidated Statements of Earnings
(Thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ...................................$724,588 $578,580 $2,140,187 $1,769,683
Cost of sales ............................... 614,120 475,327 1,791,934 1,472,211
------- ------- --------- ---------
Gross profit ............................. 110,468 103,253 348,253 297,472
Selling, administrative and other expenses .. 52,731 58,591 187,005 170,818
------ ------ ------- -------
Earnings from operations ................. 57,737 44,662 161,248 126,654
Equity in earnings (losses) of affiliates ... (1,865) 109 (1,525) 472
Net interest expense 6,998 5,145 22,723 14,667
----- ----- ------ ------
Earnings before income taxes ............. 48,874 39,626 137,000 112,459
Income tax expense .......................... 11,861 9,907 35,655 28,115
------ ----- ------ ------
Net earnings ............................. $37,013 $29,719 $101,345 $84,344
======= ======= ======== =======
Net earnings per share * .................... $0.26 $0.21 $0.71 $0.58
===== ===== ===== =====
Cash dividends paid per share * ............. $0.09 $0.08 $0.26 $0.22
===== ===== ===== =====
Average number of shares outstanding * ...... 144,031 144,044 143,498 144,483
======= ======= ======= =======
</TABLE>
* Reflects 3-for-2 stock split as of June 30, 1995.
See Note to Condensed Consolidated Financial Statements
2
<PAGE>
Engelhard Corporation
Condensed Consolidated Balance Sheets
(Thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Cash ............................................................................................$ 44,975 $ 26,404
Receivables ..................................................................................... 231,242 265,639
Inventories ..................................................................................... 236,963 243,439
Other current assets ............................................................................ 49,820 38,155
------ ------
563,000 573,637
Investments ..................................................................................... 219,107 112,855
Property, plant and equipment, net .............................................................. 538,830 540,361
Other noncurrent assets ......................................................................... 212,374 213,906
------- -------
$1,533,311 $1,440,759
========== ==========
Short-term borrowings ...........................................................................$ 97,591 $ 179,667
Current maturities of long-term debt ............................................................ 339 489
Accounts payable ................................................................................ 88,236 86,230
Other current liabilities ....................................................................... 204,409 233,313
------- -------
Total current liabilities .................................................................... 390,575 499,699
Long-term debt .................................................................................. 211,843 111,762
Other noncurrent liabilities .................................................................... 213,810 214,563
Shareholders' equity ............................................................................ 717,083 614,735
------- -------
Total liabilities and
shareholders' equity ....................................................................$1,533,311 $1,440,759
========== ==========
</TABLE>
See Note to Condensed Consolidated Financial Statements
3
<PAGE>
Engelhard Corporation
Condensed Consolidated Statements of Cash Flows
(Thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
------- --------
Cash flows from operating activities
<S> <C> <C>
Net earnings .............................................................................$101,345 $ 84,344
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion and amortization ............................................. 46,473 51,612
Equity results, net of dividends ..................................................... 4,936 3,361
Change in assets and liabilities ......................................................... (45,294) (54,231)
------- -------
Net cash provided by operating activities ............................................ 107,460 85,086
------- ------
Cash flows from investing activities
Capital expenditures, net ............................................................... (65,736) (66,750)
Acquisition of businesses and investments ............................................... (27,370) (43,972)
Other ................................................................................... (6,515) 4,666
------ -----
Net cash used in investing activities ............................................... (99,621) (106,056)
------- --------
Cash flows from financing activities
Net change in short-term borrowings ..................................................... (81,879) 63,838
Proceeds from long-term debt ............................................................ 100,125 0
Dividends paid .......................................................................... (37,361) (32,766)
Other ................................................................................... 27,250 (7,936)
------ ------
Net cash provided by financing activities ........................................... 8,135 23,136
Effect of exchange rate changes on cash .................................................... 2,597 1,029
----- -----
Net change in cash .................................................................. 18,571 3,195
Cash at beginning of year ........................................................... 26,404 25,613
------ ------
Cash at end of period ............................................................... $44,975 $28,808
======= =======
</TABLE>
See Note to Condensed Consolidated Financial Statements
4
<PAGE>
Engelhard Corporation
Industry Segment Information
(Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
Net Sales
<S> <C> <C> <C> <C>
Catalysts and Chemicals ..................................$ 170,534 $ 145,935 $ 529,807 $ 425,288
Pigments and Additives ................................... 108,539 94,831 314,902 278,167
Engineered Materials and
Precious Metals Management ............................. 445,515 337,814 1,295,478 1,066,228
------- ------- --------- ---------
$ 724,588 $ 578,580 $ 2,140,187 $ 1,769,683
========= =========== =========== ===========
Operating Earnings
Catalysts and Chemicals ..................................$ 25,009 $ 20,645 $ 77,019 $ 64,848
Pigments and Additives ................................... 27,572 21,000 68,904 52,025
Engineered Materials and
Precious Metals Management ............................. 10,182 8,938 35,566 26,026
------ ----- ------ ------
62,763 50,583 181,489 142,899
Equity earnings (losses) ..................................... (1,865) 109 (1,525) 472
Interest and other expenses, net ............................. (12,024) (11,066) (42,964) (30,912)
------- ------- ------- -------
Earnings before income taxes .......................$ 48,874 $ 39,626 $ 137,000 $ 112,459
========= =========== =========== ===========
</TABLE>
See Note to Condensed Consolidated Financial Statements
5
<PAGE>
Note to Condensed Consolidated Financial Statements
- ---------------------------------------------------
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 1994 financial
statements have been restated to reflect the June 30, 1995 three- for-two stock
split. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1994 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 1995
With the Third Quarter of 1994
- ---------------------------------------
Earnings before income taxes for the third quarter of 1995 increased 23
percent to $48.9 million compared with $39.6 million in the third quarter of
1994 primarily due to higher earnings from all business segments partially
offset by increased net interest expense as a result of higher average debt
balances and rates. Equity in earnings of affiliates was a loss for the third
quarter of 1995 compared with a slight profit last year reflecting a loss
associated with a new precious-metal products joint venture, Engelhard/CLAL, and
new technology development expenses at Engelhard/ICC, the Company's desiccant
air conditioning joint venture.
Net earnings for the third quarter of 1995 were $37.0 million or $.26 per
share, a 25 percent increase from $29.7 million or $.21 per share for the same
quarter in 1994. The effective tax rate in 1995 was 24.3 percent compared with
25.0 percent for the same period last year. Average shares outstanding were
substantially the same for both periods.
Net sales for the third quarter of 1995 increased 25 percent to $724.6
million compared with 578.6 million for the same quarter in 1994. All three
business segments contributed to the increase.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 21 percent to $25.0 million in the third
quarter of 1995 compared with $20.6 million in the same period of 1994. Net
sales increased 17 percent to $170.5 million in 1995 from $145.9 million in
1994.
6
<PAGE>
Significantly 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 is primarily due to strong demand
for autocatalysts in Europe. The Chemical Catalysts Group had increased volumes
of base metal and precious metal catalysts worldwide. In the Petroleum Catalysts
Group, the decrease in earnings reflected refiners continuing to use lighter
crude oils that require less catalysts to produce gasoline and other products.
Pigments and Additives
- ----------------------
Operating earnings increased 31 percent to $27.6 million in the third
quarter of 1995 compared with $21.0 million in the same period of 1994. Net
sales in 1995 were up 14 percent to $108.5 million from $94.8 million in the
third quarter of 1994.
Earnings for both the Paper Pigments and Chemicals Group and the Specialty
Minerals and Colors Group showed improvement. The increase in the Paper Pigments
and Chemicals Group was primarily due to favorable volume, pricing and mix for
hydrous products as well as reductions in manufacturing costs. The Specialty
Minerals and Colors Group benefitted from higher volumes and sales prices for
Kaolin and Attapulgite products partially offset by lower Colors volumes.
Engineered Materials and Precious Metals Management
- ---------------------------------------------------
Operating earnings increased 14 percent to $10.2 million in the third
quarter of 1995 compared with $8.9 million in the same period of 1994. Net sales
in 1995 increased to $445.5 million from $337.8 million in 1994, reflecting
higher volumes and prices of certain precious metals.
Higher earnings from the Precious Metals Management Group more than offset
slightly lower earnings from the Engineered Materials Group. The Engineered
Materials Group reduction reflected the transfer of businesses to the new
Engelhard/CLAL joint venture. The increase in the earnings of the Precious
Metals Management Group was primarily due to increased demand for precious
metals products.
On June 21, 1995, certain assets and liabilities of the Engineered
Materials Group were contributed to Engelhard/CLAL, a new joint venture of the
Company. See "Financial Condition".
Comparison of the First Nine Months of
1995 With the First Nine Months of 1994
- ---------------------------------------
Earnings before income taxes for the first nine months of 1995 increased 22
percent to $137.0 million from $112.5 million for the same period in 1994. Net
7
<PAGE>
interest expense was $22.7 million in the first nine months of 1995 compared
with $14.7 million in the same period in 1994 primarily due to higher average
debt balances and rates. Equity in earnings of affiliates was a loss of $1.5
million for the first nine months of 1995 compared with income of $.5 million in
1994, largely due to losses in Engelhard/CLAL, a new joint venture, and
Engelhard/ICC.
Net earnings for the first nine months of 1995 increased 20 percent to
$101.3 million from $84.3 million for the same period of 1994. The effective tax
rate in 1995 was 26.0 percent compared with 25.0 percent for the same period
last year. Net earnings for the first nine months of 1995 were $.71 per share
compared with $.58 per share in 1994.
Net sales for the first nine months of 1995 increased 21 percent to $2.1
billion compared with $1.8 billion a year earlier. The increase was attributable
to all business segments.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 19 percent to $77.0 million in the first nine
months of 1995 compared with $64.8 million in 1994. Net sales increased 25
percent to $529.8 million for the 1995 period compared with $425.3 million for
the same period in 1994.
Significantly 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 earnings was attributable to
continuing strong demand for autocatalysts in Europe. The Chemical Catalysts
Group had significantly higher volumes of North American base metal catalysts.
In the Petroleum Catalysts Group, the decrease in earnings resulted from
refiners continuing to use weight crude oils that require less catalyst to
produce gasoline and other products.
Pigments and Additives
- ----------------------
Operating earnings increased 32 percent to $68.9 million in the first nine
months of 1995 compared with $52.0 million in 1994. Net sales increased 13
percent to $314.9 million for the 1995 period compared with $278.2 million for
the same period in 1994.
Earnings increased for both the Paper Pigments and Chemicals Group and the
Specialty Minerals and Colors Group. The increase in the Paper Pigments and
Chemicals Group was primarily due to higher volumes and improved mix as well as
favorable manufacturing costs. The Specialty Minerals and Colors Group had
higher volumes and sales prices for Kaolin and Attapulgite products.
8
<PAGE>
Engineered Materials and Precious Metals Management
- ---------------------------------------------------
Operating earnings for the first nine months of 1995 increased 37 percent
to $35.6 million from $26.0 million a year earlier on a 22 percent increase in
net sales for the first nine months of 1995 to $1.3 billion from $1.1 billion in
the 1994 period.
Higher earnings resulted from both the Engineered Materials Group and the
Precious Metals Management Group. The Engineered Materials Group experienced
cost savings and some volume increases. The Precious Metals Management Group
benefitted from generally favorable precious metals markets.
On June 21, 1995 certain assets and liabilities of the Engineered Materials
Group were contributed to Engelhard/CLAL, a new joint venure of the Company. See
"Financial Condition".
Financial Condition
-------------------
On June 21, 1995, as previously disclosed in its Form 8-K, the Company
announced the formation of a 50/50 joint venture with Paris-based CLAL (Groupe
FIMALAC) for manufacturing, marketing and refining precious metal containing
products. The new venture, Engelhard/CLAL, combines most of the assets of CLAL
and certain assets and liabilities of the Company's Engineered Materials Group
in Europe and Asia Pacific and the engineered materials business currently
conducted in Carteret, NJ and Fremont, CA. Engelhard/CLAL is headquartered in
Paris and has annual revenues of more than $1 billion.
The changes in receivables, inventories, fixed assets and accrued
liabilities on the condensed consolidated balance sheets primarily relate to the
net asset contribution made by the Company in exchange for its 50 percent
investment in the joint venture. Approximately $25 million of cash was
contributed. This initial contribution of approximately $100 million is subject
to adjustment based upon the terms of the agreement. These adjustments, if any,
are expected to be finalized by year end. The establishment of the
Engelhard/CLAL joint venture resulted in a reduction of the Company's precious
metals inventories with no impact to the results of operations. Inventories
consist of the following (in millions):
September 30, 1995 Dec 31, 1994
------------------ ------------
Raw Material $ 64.5 $ 62.9
Work in Process 28.4 24.1
Finished Goods 118.8 103.0
Precious Metals 25.3 53.4
---- ----
$237.0 $243.4
====== ======
The combined market value of precious metals in inventories and the
investment in precious metals exceeded cost by $48.7 million at September 30,
1995.
In the ordinary course of business, the Company engages in transactions
with Engelhard/CLAL, a related party. These transactions range from precious
metal sourcing arrangements to service agreements.
9
<PAGE>
Capital Resources and Liquidity
-------------------------------
At September 30, 1995 the Company's current ratio was 1.4 compared with 1.1
at December 31, 1994. During the third quarter of 1995, the Company issued
$100,000,000 of debt instruments previously registered with the SEC on Form S-3.
These non-callable notes bear interest at rates ranging from 6.37% to 6.64% and
mature at various dates in 2000. Some of the proceeds were used to reduce
short-term borrowings. The total debt to total capital ratio was 30 percent at
September 30, 1995 compared with 32 percent at December 31, 1994.
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.
Other Matters
-------------
In October 1995, the Company announced its agreement to purchase the other
half of its Salem Engelhard joint venture. Salem Engelhard provides
technologically advanced air pollution control systems for industrial and
commercial applications. This acquisition is not expected to have a material
impact on the operations or cash flows of the Company in the near term.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Part I Exhibit:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
(b) There were no reports on Form 8-K during the quarter ended
September 30, 1995.
10
<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.
ENGELHARD CORPORATION
-----------------------------
(Registrant)
Date November 13, 1995 /s/ Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
Chairman and Chief
Executive Officer
Date November 13, 1995 /s/ William E. Nettles
--------------------- -----------------------------
William E. Nettles
Vice President and
Chief Financial Officer
Date November 13, 1995 /s/ Martin J. Connor, Jr.
---------------------- -----------------------------
Martin J. Connor, Jr.
Controller
11
<PAGE>
EXHIBIT 12
ENGELHARD CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 Year Ended December 31
---------------- -----------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes $137,000 $157,306 ($4,709) $133,858 $117,569 $93,720
Add /(deduct)
Portion of rents representative
of the interest factor 3,600 4,800 4,500 4,000 4,200 5,000
Interest on indebtedness 22,723 21,954 13,696 16,231 21,658 25,804
Equity dividends 3,400 3,800 2,600 3,100 3,200 900
Equity (earnings)/ loss 1,525 (632) (3,443) (7,445) (5,024) (1,698)
----- ---- ------ ------ ------ ------
Earnings as adjusted $168,248 $187,228 $12,644 $149,744 $141,603 $123,726
======== ======== ======= ======== ======== ========
Fixed Charges
Portion of rents representative
of interest factor $3,600 $4,800 $4,500 $4,000 $4,200 $5,000
Interest on indebtedness 22,723 21,954 13,696 16,231 21,658 25,804
Capitalized Interest 900 800 2,700 400 110 445
--- --- ----- --- --- ---
$27,223 $27,554 $20,896 $20,631 $25,968 $31,249
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 6.18 6.79 - (A) 7.26 5.45 3.96
</TABLE>
(A) For fiscal 1993, earnings were insufficient to cover fixed charges by
approximately $8.3 million. Earnings in 1993 were negatively impacted by a
charge of approximately $148 million for the realignment and consolidation of
businesses and environmental matters. Without such charge the ratio of earnings
to fixed charges for fiscal 1993 would have been 7.14.
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 44975
<SECURITIES> 0
<RECEIVABLES> 231242
<ALLOWANCES> 0
<INVENTORY> 236963
<CURRENT-ASSETS> 563000
<PP&E> 1180758
<DEPRECIATION> 641928
<TOTAL-ASSETS> 1533311
<CURRENT-LIABILITIES> 390575
<BONDS> 211843
<COMMON> 143886
0
0
<OTHER-SE> 573197
<TOTAL-LIABILITY-AND-EQUITY> 1533311
<SALES> 2140187
<TOTAL-REVENUES> 2140187
<CGS> 1791934
<TOTAL-COSTS> 1791934
<OTHER-EXPENSES> 187005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22723
<INCOME-PRETAX> 137000
<INCOME-TAX> 35655
<INCOME-CONTINUING> 101345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101345
<EPS-PRIMARY> .71
<EPS-DILUTED> .00
</TABLE>
