UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report: July 12, 1996
Date of earliest event reported: May 31, 1996
Engelhard Corporation
------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-8142 22-1586002
------------ ---------- --------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
101 Wood Avenue, Iselin, New Jersey 08830
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(908) 205-5000
--------------------------------
(Registrant's telephone number, including area code)
No change
---------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 31, 1996, Engelhard Corporation, a Delaware corporation (the
"Company"), consummated the acquisition of The Mearl Corporation, a New Jersey
corporation ("Mearl"), from the stockholders of Mearl pursuant to a Stock
Purchase Agreement (the "Purchase Agreement") dated as of April 22, 1996, as
amended and restated as of May 15, 1996.
The purchase price for the acquisition was $272.7 million in cash. The
purchase price is subject to certain post-closing adjustments. The Company has
initially financed the acquisition with bank borrowings.
Mearl manufactures and supplies the automotive, cosmetics and industrial
markets with pearlescent pigments. Mearl also manufactures and supplies
iridescent film and other products to a variety of markets. In 1995, Mearl had
sales of approximately $134 million and operating earnings of approximately $22
million.
For a more complete description of the acquisition, reference is hereby
made to the Purchase Agreement (a copy of which is filed as an exhibit hereto).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Pages
-----
The Mearl Corporation and Subsidiaries
Consolidated Financial Statements
for the year ended December 31, 1995 and
for the period ended March 31, 1996 (unaudited):
Independent Auditors' Report 5
Consolidated Balance Sheets 6
Consolidated Statements of Income 7
Consolidated Statements of Shareholders' Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10-19
(b) Pro Forma Financial Information.
Pages
-----
Pro Forma Condensed Consolidated Balance Sheet 21
Pro Forma Condensed Consolidated Statements of Earnings 22
Notes to Pro Forma Condensed Consolidated Financial Statements 23
(c) Exhibit
2.1 Stock Purchase Agreement dated as of April 22, 1996, as amended and
restated as of May 15, 1996 (incorporated by reference to the
Engelhard Corporation Form 8-K filed with the Securities and Exchange
Commission on June 7, 1996).
2
<PAGE>
THE MEARL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 1995
and for the period ended March 31, 1996 (unaudited)
and Independent Auditors' Report
3
<PAGE>
THE MEARL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 1995 and for the period
ended March 31, 1996 (unaudited)
and Independent Auditors' Report
Table of Contents
Pages
-----
Independent Auditors' Report 5
Consolidated Financial Statements:
Balance Sheets 6
Statements of Income 7
Statements of Shareholders' Equity 8
Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10-19
4
<PAGE>
Independent Auditors' Report
To the Board of Directors
The Mearl Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of The Mearl
Corporation and Subsidiaries as of December 31, 1995 and the related
consolidated statements of income, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Mearl
Corporation and Subsidiaries as of December 31, 1995, and the results of
its operations and cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
June 14, 1996
5
<PAGE>
THE MEARL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and March 31, 1996 (unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents ..................................................... $ 15,157 $ 16,705
Accounts receivable, net of allowance of $600 ................................. 25,324 30,124
Inventories ................................................................... 46,912 47,382
Interest receivable - trusts under will of H. Mattin .......................... 2,365 1,516
Prepaid expenses and other current assets ..................................... 1,928 2,685
Deferred income taxes ......................................................... 830 830
-------- --------
Total current assets .......................................................... 92,516 99,242
Property and equipment, net of accumulated depreciation and
amortization of $104,475 and $107,065 ......................................... 64,123 62,706
Deposits and other assets ..................................................... 2,476 2,586
Notes receivable - trusts under will of H. Mattin ............................. 27,872 27,872
Deferred income taxes ......................................................... 3,071 3,071
-------- --------
Total assets .................................................................. $190,058 $195,477
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable .............................................................. $ 5,047 $ 5,852
Accrued liabilities ........................................................... 7,493 8,778
Income taxes payable .......................................................... 226 1,733
-------- --------
Total current liabilities ..................................................... 12,766 16,363
Long-term debt - trusts under will of H. Mattin ............................... 42,000 42,000
Other liabilities ............................................................. 7,439 7,016
-------- --------
Total liabilities ............................................................. 62,205 65,379
Commitments and contingencies
Shareholders' equity:
First preferred stock, 3% noncumulative, $100 par; 236 shares
authorized, issued and outstanding ............................................ 24 24
Second preferred stock, 4% noncumulative, $100 par; 9,196 shares
authorized, issued and outstanding ............................................ 920 920
Common stock, no par value; 50,000 shares authorized and issued ........ ...... 1,000 1,000
Additional paid-in capital .................................................... 1,425 1,425
Cumulative translation adjustment ............................................. 992 166
Retained earnings ............................................................. 177,809 180,880
-------- --------
182,170 184,415
Less: 33,091 shares of treasury stock, at cost ................................ (54,317) (54,317)
-------- --------
Total shareholders' equity .................................................... 127,853 130,098
-------- --------
Total liabilities and shareholders' equity .................................... $190,058 $195,477
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
THE MEARL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
for the year ended December 31, 1995 and for the period
ended March 31, 1996 (unaudited)
(In thousands)
December 31, March 31,
1995 1996
----------- ---------
(unaudited)
Net sales ............................. $134,417 $33,739
Cost of sales ......................... 79,340 20,038
-------- -------
Gross profit .......................... 55,077 13,701
Operating expenses:
Research and development .............. 6,264 1,665
Selling, general and administrative ... 27,127 6,406
-------- --------
Total operating expenses .............. 33,391 8,071
-------- --------
Income from operations ................ 21,686 5,630
Other income (expense):
Interest expense ...................... (4,836) (1,139)
Other income .......................... 5,382 805
-------- -------
Total other income (expense) .......... 546 (334)
-------- -------
Income before income taxes ............ 22,232 5,296
Income taxes .......................... 9,295 2,225
-------- -------
Net income ............................ $ 12,937 $ 3,071
======== =======
See notes to consolidated financial statements.
7
<PAGE>
<TABLE>
THE MEARL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
for the year ended December 31, 1995 and for the period ended March 31, 1996 (unaudited)
(In thousands, except share data)
<CAPTION>
First Second
Preferred Preferred Treasury
Stock Stock Common Stock Additional Cumulative ----------------
------------- -------------- -------------- Paid-in Translation Retained Common
Shares Amount Shares Amount Shares Amount Capital Adjustment Earnings Shares Amount
------ ------ ------ ------ ------ ------ ------- ---------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 236 $ 24 9,196 $920 50,000 $1,000 $1,425 $ 403 $164,883 33,091 $54,317
Net income - - - - - - - - 12,937 - -
Dividends paid - - - - - - - - (11) - -
Foreign currency translation
adjustment - - - - - - - 589 - - -
--- ---- ----- ---- ------ ------ ------ ------ -------- ------ -------
Balances, December 31, 1995 236 $ 24 9,196 $920 50,000 $1,000 $1,425 $ 992 $177,809 33,091 $54,317
Net income (unaudited) - - - - - - - - 3,071 - -
Foreign currency translation
adjustment (unaudited) - - - - - - - (826) - - -
--- ---- ----- ---- ------ ------ ------ ------ -------- ------ -------
Balances, March 31, 1996
(unaudited) 236 $ 24 9,196 $920 50,000 $1,000 $1,425 $ 166 $180,880 33,091 $54,317
=== ==== ===== ==== ====== ====== ====== ====== ======== ====== =======
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
THE MEARL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the year ended December 31, 1995 and for the period
ended March 31, 1996 (unaudited)
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
----------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $12,937 $ 3,071
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................... 11,408 2,954
Provision for doubtful accounts .................................. 72 -
Deferred income taxes ............................................ 29 -
Increase (decrease) in cash flows from changes in operating
assets and liabilities:
Accounts receivable .......................................... 2,649 (4,800)
Inventories .................................................. (7,164) (470)
Interest receivable .......................................... - 849
Prepaid expenses and other current assets .................... (1,036) (757)
Deposits and other assets .................................... (575) (110)
Accounts payable and accrued liabilities ..................... (2,026) 2,090
Income taxes payable ......................................... (562) 1,507
Other liabilities ............................................ 1,684 (423)
----- ----
Net cash provided by operating activities ................. 17,416 3,911
------ -----
Cash flows from investing activities:
Acquisition of property and equipment ............................... (14,852) (1,709)
Net proceeds from investment in marketable securities ............... 150 -
--- -----
Net cash used in investing activities ..................... (14,702) (1,709)
------- ------
Cash flows from financing activities:
Repayment of loan payable - bank .................................... (2,000) -
Repayment of note payable - treasury stock purchase ................. (3,000) -
Dividends paid ...................................................... (11) -
--- ----
Net cash used in financing activities ..................... (5,011) -
------ ----
Effect of exchange rate changes on cash and cash equivalents 441 (654)
--- ----
Net increase (decrease) in cash and cash equivalents ..... (1,856) 1,548
Cash and cash equivalents - beginning of year ......................... 17,013 15,157
------ ------
Cash and cash equivalents - end of period ................. $15,157 $16,705
======= =======
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
THE MEARL CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
for the year ended December 31, 1995 and for the period
ended March 31, 1996 (unaudited)
(In thousands, except where otherwise noted)
1. Summary of Significant Accounting Policies:
-------------------------------------------
Basis of Consolidation
----------------------
The consolidated financial statements include The Mearl Corporation
(the "Company") and its wholly-owned subsidiaries, Mearl
International Sales Corporation, Inc., Mearl International B.V. and
Subsidiary ("Holland"), The Mearl Corporation - Japan ("Japan"), The
Mearl Corporation Hong Kong Limited ("Hong Kong"), Mearl de Mexico,
S.A. de C.V. ("Mexico") and Mearl Company, Ltd. ("Canada"). All
significant intercompany transactions and balances have been eliminated
in consolidation. All amounts included in the footnotes are in thousands
unless stated otherwise.
Business Description
--------------------
The Company is a vertically integrated manufacturer and marketer of
pearlescent pigments to the paint, cosmetic, plastic and ink industries
and a manufacturer and distributor of iridescent film throughout the
world.
Cash Equivalents
----------------
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
Inventories
-----------
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out basis.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is calculated
utilizing accelerated and straight-line methods for both financial and
tax reporting purposes.
Expenditures for repairs and maintenance are charged to expense. Renewals
and betterments are capitalized; upon sale, the cost of the asset and the
related accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in the results of operations.
10
<PAGE>
1. Summary of Significant Accounting Policies, Continued:
------------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates used in these
financial statements include those assumed in determining the useful
lives of depreciable assets and determining the amount of the liability
for environmental clean-up (see Note 10). Actual results could differ
from those estimates.
Fair Values of Financial Instruments
------------------------------------
The carrying amounts reflected in the balance sheets for notes
receivable, notes and loan payable and long-term debt approximate fair
value due to the short-term nature of those instruments and/or the market
interest rates associated with them.
Interim Unaudited Consolidated Financial Statements
---------------------------------------------------
The interim unaudited financial statements reflect adjustments,
consisting only of normal recurring accruals, which are, in the opinion
of the Company's management, necessary for a fair presentation of the
financial position and results of operations for the periods presented.
Sales and net income for any interim period are not necessarily
indicative of the results for a full year.
Revenue Recognition
-------------------
The Company recognizes revenue when the product is shipped to customers.
2. Subsequent Event:
-----------------
On May 31, 1996, the stockholders sold the Company to Engelhard
Corporation ("Engelhard"). The selling price was $272.7 million in cash
subject to certain post-closing adjustments.
11
<PAGE>
3. Inventories:
-----------
Inventories at December 31, 1995 and March 31, 1996 (unaudited) are
comprised of the following:
December 31, March 31,
1995 1996
---- ----
(unaudited)
Raw materials $ 4,530 $ 4,851
Work-in-process 5,071 5,115
Finished goods 37,311 37,416
------ ------
$46,912 $47,382
======= =======
4. Property and Equipment:
----------------------
Major classes of property and equipment at December 31, 1995 are as
follows:
December 31,
1995
-----------
Land and land improvements $ 8,748
Buildings and building improvements 47,304
Machinery and equipment 111,573
Leasehold improvements 973
--------
168,598
Less: accumulated depreciation 104,475
and amortization --------
$ 64,123
========
Depreciation and amortization expense was $11,408 for the year ended
December 31, 1995.
5. Notes Receivable - Trusts Under Will of H. Mattin:
-------------------------------------------------
On February 10, 1989, the Company advanced $12,872 to the Estate of H.
Mattin, the Company's majority shareholder. The loan bears interest at
11%, receivable annually, and the principal balance is due in March 2003.
12
<PAGE>
On March 10, 1993, the Company advanced an additional $15,000 to the
Estate of H. Mattin. The loan bears interest at 10%, receivable annually,
and the principal balance is due in March 2006.
The loans are unsecured. Interest income from the loans totaled $2,916
for the year ended December 31, 1995. Accrued interest receivable on the
loans was $2,365 at December 31, 1995.
Effective May 31, 1996, Engelhard is entitled to offset these receivables
against the long-term debt disclosed in Note 7.
6. Trust Fund:
----------
In 1984, the Company established a Contingently Revocable Trust (the
"Trust") in the amount of $400 for the benefit of a designated charity.
The Trust document provides for the payment of all income generated by
the Trust to the designated charity. The Trust terminated upon the sale
of the Company.
7. Long-Term Debt - Trusts Under Will of H. Mattin:
-----------------------------------------------
Long-term debt consists of the following at December 31, 1995:
December 31,
1995
----
Note payable - Trusts under will of H. Mattin, payable
interest only, annually at 11% with the principal
balance due March 10, 2003 $12,983
Note payable - Trusts under will of H. Mattin, payable
interest only, annually at 11%, with the principal
balance due March 10, 2006 29,017
-------
$42,000
=======
Principal maturities of long-term debt for the year ending December 31,
1995 are as follows:
December 31,
1995
----
1996 $ -
1997 -
1998 -
1999 -
2000 -
Thereafter 42,000
-------
$42,000
=======
13
<PAGE>
The Trust under will of H. Mattin is a shareholder of the Company. Helen
Mattin is a former shareholder. Interest expense on the notes payable -
Trust under will of H. Mattin totaled $4,620 in 1995. Accrued interest
payable was $3,747 at December 31, 1995 and is included in accrued
liabilities.
8. Geographic Area Data:
--------------------
The following table presents certain data by geographic area as of
December 31, 1995:
Operating Identifiable
Net Sales Earnings Assets
--------- -------- ------
North America $79,878 $21,066 $161,713
Europe 31,705 (397) 14,205
Asia 22,834 1,017 13,640
9. Employee Benefit Plans:
----------------------
The Company has domestic defined benefit pension plans covering
substantially all employees not covered by collective bargaining
agreements. These plans generally provide benefits based on years of
service and the employee's final average compensation. The Company makes
contributions to the plans to the extent such contributions are currently
deductible for tax purposes. The plans' assets are invested primarily in
insurance contracts.
The components of the net pension expense for all plans are shown in the
following table:
December 31,
1995
----
Net pension expense
Service cost $622
Interest cost 824
Actual return on plan assets (632)
Net amortization and deferral 209
------
Net pension expense $1,023
======
14
<PAGE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation for the pension plans are 8.0% and 6.5%,
respectively. The expected long term rate of return on assets is 8.5%.
The following table sets forth the plans' funded status:
December 31,
1995
----
Actuarial present value of benefit obligations
Vested benefit obligation $ (8,617)
--------
Accumulated benefit obligation $ (8,851)
--------
Projected benefit obligation $(11,488)
Plan assets at fair value 7,751
--------
Projected benefit obligation in excess of plan assets (3,737)
Unrecognized net loss 578
Unrecognized transition obligation, net 2,903
--------
Accrued pension obligation $ (256)
========
The Company maintains a profit sharing plan covering substantially all
domestic employees not covered by collective bargaining agreements. The
profit sharing plan provides for annual contributions at the Company's
discretion. The Company's contribution to the profit sharing plan was
approximately $2,600 for the year ended December 31, 1995.
The Company has a postretirement benefits plan that provides health
benefits to retirees and their spouses. The plan covers substantially all
domestic employees not covered by collective bargaining agreements.
Benefits are paid through the Company's general health care programs.
The components of the net expense for these postretirement benefits are
shown in the following table:
December 31,
1995
----
Postretirement benefit expense
Service cost $ 419
Interest cost 577
Net amortization 366
------
Net postretirement benefit expense $1,362
======
15
<PAGE>
Annual cash spending for postretirement benefits was $136 for the year
ended December 31, 1995. The weighted average discount rate used in
determining the actuarial present value for the accumulated
postretirement benefit obligation is 8.0%. The average assumed health
care cost trend rate used for 1996 was 11%, gradually decreasing to 6% by
2005. A 1% increase in the assumed health care cost trend rate would
increase aggregate service and interest cost by $277 for the year ended
December 31, 1995, and the postretirement benefit obligation by $1,743 at
December 31, 1995.
The following table sets forth the components of the accrued post-
retirement benefit obligation, all of which are unfunded:
December 31,
1995
----
Postretirement benefit obligation
Accumulated benefit obligation
Retirees $(2,431)
Fully eligible active participants (1,894)
Other active participants (3,781)
-------
(8,106)
Unrecognized transition obligation, net 6,961
-------
Accrued benefit obligation $(1,145)
=======
10. Commitments and Contingencies:
-----------------------------
Leases
------
The Company leases space for offices, research and manufacturing under
operating leases with unaffiliated third parties which expire through
February 2004.
Future minimum lease payments at December 31, 1995, under agreements
classified as operating leases with non-cancelable terms in excess of one
year, are as follows for the year ending December 31, 1995:
December 31,
1995
----
1996 $ 304
1997 304
1998 304
1999 203
2000 203
Thereafter 644
------
Total minimum lease payments $1,962
======
16
<PAGE>
In addition to rental payments, certain leases require the payment of
real estate taxes and increased rental based upon increases in the
consumer price index.
Rent expense was $376 for the year ended December 31, 1995.
Contingencies
-------------
The Company has a $4,000 unsecured line of credit which expired on June
30, 1996. At December 31, 1995, the Company was contingently liable for
$1,719 of outstanding letters of credit under this line.
Litigation
----------
The Company has reached an agreement with the United States Environmental
Protection Agency to fund its share of the Union Chemical Superfund site.
The estimated total cost of the clean-up is approximately $12,909, of
which the Company is responsible for approximately 24.3%, or $3,137. The
Company has paid $1,717 to date. The Company was required to post a
surety bond in the amount of $1,259 on May 18, 1995 to secure its
obligation under the settlement. As the clean-up progresses, the amount
of the assessment is subject to change. During 1995, the amount of the
estimated clean-up costs increased, resulting in a charge to earnings,
net of insurance recovery, of $142.
In connection with this assessment, the Company has initiated litigation
against its insurance carriers to recover under its comprehensive general
liability policies. The likelihood of success and the amounts of any
recoveries cannot be determined at this time.
The Company has been named a "potentially responsible party" in several
other environmental lawsuits seeking to recover costs involved in
remediating damage to various hazardous waste sites. The Company's
potential liability for these other clean-ups cannot be estimated at
December 31, 1995. The Company's policy is to accrue environmental
clean-up related costs of a noncapital nature when those costs are
believed to be probable and can be reasonably estimated. The
quantification of environmental exposures requires an assessment of many
factors, including changing laws and regulations, advancements in
environmental technologies, the quality of information available related
to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For Superfund sites, the Company also assesses the financial
capability of other PRPs and, where allegations are based on tentative
findings, the reasonableness of the Company's apportionment. The Company
has not anticipated recoveries from insurance carriers or other
potentially responsible third parties in its accruals for environmental
liabilities.
Concentrations of Credit Risk
-----------------------------
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. Cash and cash equivalents exceeding
federally insured limits totaled $2,213 at December 31, 1995.
17
<PAGE>
The Company's accounts receivable at December 31, 1995 reflect its
geographic diversity and, as such, the concentration of credit risk is
limited.
11. Supplemental Cash Flow Information:
----------------------------------
Cash paid for interest and income taxes for the year ended
December 31, 1995 and for the period ended March 31, 1996
(unaudited) were as follows:
December 31, March 31,
1995 1996
---- ----
(unaudited)
Interest $4,913 $4,620
Income taxes 7,965 718
12. Income Taxes:
------------
The Company's deferred tax asset consists of:
December 31,
1995
----
Current deferred tax asset $ 830
Non-current deferred tax asset 3,071
------
$3,901
======
The components of the income tax expense are as follows:
December 31,
1995
----
Current $9,266
Deferred 29
------
$9,295
======
18
<PAGE>
A reconciliation of the difference between the Company's consolidated
income tax expense and the expense computed at the Federal statutory rate
is shown in the following table:
Income before taxes $22,232
Federal statutory rate 34.0%
-------
7,559
Depletion (150)
State taxes (net of Federal benefit) 417
Foreign taxes 1,368
Foreign tax credits (75)
Other 176
-------
Taxes $ 9,295
=======
Effective income tax rate 41.8%
====
19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Consolidated
Financial Statements
20
<PAGE>
Engelhard Corporation and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1996
(In thousands)
(Unaudited)
The following unaudited pro forma condensed consolidated balance sheet assumes
the acquisition of The Mearl Corporation by Engelhard Corporation was effective
as of March 31, 1996 and accounted for by the purchase method.
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------------
Engelhard Mearl Pro Forma Pro
Corporation Corporation Adjustments Forma
----------------------------------------- ----------
<S> <C> <C> <C> <C>
Cash $ 38,364 $ 16,705 $(10,000) (3) $ 45,069
Receivables 288,471 30,124 - 318,595
Inventories 244,602 47,382 5,200 (1) 297,184
Other current assets 51,491 5,031 - 56,522
----------------------------------------- ----------
Total current assets 622,928 99,242 (4,800) 717,370
Investments 223,106 - - 223,106
Property, plant and equipment, net 617,111 62,706 - 679,817
Other noncurrent assets 219,225 33,529 118,880 (1),(2) 371,634
----------------------------------------- ----------
Total assets $1,682,370 $195,477 $114,080 $1,991,927
========================================= ==========
Short-term bank borrowings $203,483 $ - $13,650 (1),(3)$ 217,133
Accounts payable 124,700 5,852 - 130,552
Other current liabilities 192,710 10,511 - 203,221
----------------------------------------- ----------
Total current liabilities 520,893 16,363 13,650 550,906
Long-term debt 211,521 42,000 222,128 (1),(2) 475,649
Other noncurrent liabilities 201,131 7,016 8,400 (1) 216,547
Shareholders' equity 748,825 130,098 (130,098) (1) 748,825
----------------------------------------- ----------
Total liabilities and shareholders' equity $1,682,370 $195,477 $114,080 $1,991,927
========================================= ==========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
21
<PAGE>
Engelhard Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statements of Earnings
for the Year Ended December 31, 1995 and
the Three Months Ended March 31, 1996
(In thousands except per share amounts)
(Unaudited)
The following unaudited pro forma condensed consolidated statements of earnings
assume that the acquisition of The Mearl Corporation by Engelhard Corporation
had been consummated as of January 1, 1995 and accounted for by the purchase
method. The pro forma condensed consolidated results are not necessarily
indicative of the actual results that would have occurred had the acquisition
been consummated as of January 1, 1995 or of the future operations of the
combined company.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 Three Months Ended March 31, 1996
-------------------------------------------------- ------------------------------------------------
Engelhard Mearl Pro Forma Pro Engelhard Mearl Pro Forma Pro
Corporation Corporation Adjustments Forma Corporation Corporation Adjustments Forma
------------------------------------- ---------- ------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $2,840,077 $134,417 $ 5,382 (4) $2,979,876 $774,740 $33,739 $ 805 (4) $809,284
Cost of sales 2,379,474 79,340 - 2,458,814 664,895 20,038 - 684,933
------------------------------------ ---------- ------------------------------------ --------
Gross profit 460,603 55,077 5,382 521,062 109,845 13,701 805 124,351
Selling, administrative and
other expenses 244,660 33,391 4,700 (5) 282,751 53,860 8,071 1,200 (5) 63,131
------------------------------------ ---------- ------------------------------------ --------
Earnings from operations 215,943 21,686 682 238,311 55,985 5,630 (395) 61,220
Equity in earnings (losses)
of affiliates 695 - - 695 (927) - - (927)
Net interest expense 31,326 4,836 19,800 (6) 55,962 9,527 1,139 5,000 (6) 15,666
Other income - 5,382 (5,382) (4) - - 805 (805) (4) -
------------------------------------ ---------- ------------------------------------ --------
Earnings before income
taxes 185,312 22,232 (24,500) 183,044 45,531 5,296 (6,200) 44,627
Income tax expense (benefit) 47,791 9,295 (7,500) (7) 49,586 12,976 2,225 (1,900) (7) 13,301
------------------------------------ ---------- ------------------------------------ --------
Net earnings $ 137,521 $ 12,937 ($17,000) $ 133,458 $ 32,555 $ 3,071 ($4,300) $ 31,326
==================================== ========== ==================================== ========
Net earnings per share $0.96 $0.93 $0.23 $0.22
========== ========== ========== ========
Average number of shares
outstanding 143,619 143,619 143,725 143,725
========== ========== ========== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
22
<PAGE>
Pro Forma Financial Information
Engelhard Corporation and Subsidiaries
Notes to Pro Forma Condensed Consolidated Financial Statements
(In thousands)
(1) Reflects the acquisition of the common stock of The Mearl Corporation
("Mearl") by Engelhard Corporation ("Engelhard").
Purchase Price:
Short term bank borrowings ($250,000 to be refinanced
long term) $272,650
Estimated expenses 1,000
--------
$273,650
========
Net assets acquired:
Book value as of March 31, 1996 $130,098
Adjustment of net assets to fair value -
Inventories 5,200
Deferred income taxes 1,200
Pension/postretirement liabilities (8,400)
Goodwill 145,552
--------
$273,650
========
These fair value adjustments represent a preliminary allocation based on
currently available information. Future changes are not expected to be
material.
(2) Represents a reclass of $27,872 in notes receivable to notes payable
(see Note 5 to the consolidated financial statements on pages 12-13 of this
Form 8-K/A).
(3) Reflects use of excess cash of Mearl to pay down short term borrowings.
(4) Represents a reclass to conform Mearl to Engelhard's financial statement
presentation.
(5) Represents amortization of goodwill.
(6) Represents an adjustment to interest expense to reflect Engelhard's cost
of financing the acquisition.
(7) Represents an adjustment to the income tax provision to reflect the impact
of the pro forma adjustments.
(8) On May 31, 1996 Engelhard began developing a plan to integrate Mearl
into the Company to optimize the synergistic benefits of the combined
businesses inclusive of sales, technology and costs. Due to the recent
nature of the acquisition and the complexity of Mearl's operations,
Engelhard has not yet completed its assessment. Management expects to have
an approved plan completed during October 1996 and anticipates that the
plan could result in additional costs for some site shutdowns as well as
for employee severance and relocation. Additional costs associated with
this plan, if any, will increase the cost of the acquisition and result in
additional goodwill.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENGELHARD CORPORATION
Date: July 12, 1996 By: /s/ William E. Nettles
-------------------------------
Name: William E. Netttles
Title: Vice President and
Chief Financial Officer
24