<PAGE>
UNITED STATES
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, 1996
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
----------------------------------------------------
(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, 1996
- --------------------- -------------------------------
$1 par value 143,851,369
<PAGE>
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,
------------------ ----------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales ......................... $800,894 $724,588 $2,359,497 $2,140,187
Cost of sales ..................... 676,810 614,120 1,997,515 1,791,934
-------- -------- ---------- ----------
Gross profit ................. 124,084 110,468 361,982 348,253
Selling, administrative and other
expenses ........................ 61,556 52,731 177,708 187,005
-------- -------- ---------- ----------
Earnings from operations ..... 62,528 57,737 184,274 161,248
Equity in losses of affiliates .... (607) (1,865) (2,080) (1,525)
Net interest expense .............. 13,009 6,998 31,732 22,723
-------- -------- ---------- ----------
Earnings before income taxes 48,912 48,874 150,462 137,000
Income tax expense ................ 13,940 11,861 42,882 35,655
-------- -------- ---------- ----------
Net earnings ................. $34,972 $37,013 $107,580 $101,345
======== ======== ========== ==========
Net earnings per share ............ $0.24 $0.26 $0.75 $0.71
======== ======== ========== ==========
Cash dividends paid per share ..... $0.09 $0.09 $0.27 $0.26
======== ======== ========== ==========
Average number of shares
outstanding ..................... 143,869 144,031 143,796 143,498
======== ======== ========== ==========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
2
<PAGE>
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
Cash ...........................................$ 60,744 $ 40,023
Receivables .................................... 365,159 268,578
Inventories .................................... 325,805 238,002
Other current assets ........................... 53,482 54,440
---------- ----------
Total current assets ........................$ 805,190 601,043
Investments .................................... 231,013 224,721
Property, plant and equipment, net ............. 710,140 609,540
Other noncurrent assets ........................ 368,190 210,271
---------- ----------
Total assets ................................$2,114,533 $1,645,575
========== ==========
Short-term borrowings ..........................$ 376,064 $ 183,570
Accounts payable ............................... 130,748 101,064
Other current liabilities ...................... 222,065 209,875
---------- ----------
Total current liabilities ................... 728,877 494,509
Long-term debt ................................. 375,241 211,533
Other noncurrent liabilities ................... 205,524 201,791
Shareholders' equity ........................... 804,891 737,742
---------- ----------
Total liabilities and
shareholders' equity ...................$2,114,533 $1,645,575
========== ==========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
3
<PAGE>
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------
1996 1995
---- ----
Cash flows from operating activities
Net earnings .........................................$ 107,580 $ 101,345
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion and amortization .......... 54,898 46,473
Equity results, net of dividends .................. 4,595 4,936
Change in assets and liabilities ..................... (93,334) (45,294)
---------- ---------
Net cash provided by operating activities ......... 73,739 107,460
---------- ---------
Cash flows from investing activities
Capital expenditures, net ............................ (95,466) (65,736)
Proceeds from sale of business ....................... 500 0
Acquisitions and investments, net of cash acquired.... (269,516) (27,370)
Other ................................................ 3,736 (6,515)
---------- ---------
Net cash used in investing activities ............. (360,746) (99,621)
---------- ---------
Cash flows from financing activities
Net change in short-term borrowings . ................ 192,572 (81,879)
Proceeds from long-term debt ......................... 249,726 99,975
Repayment of long-term debt .......................... (100,225) (44)
Purchase of treasury stock ........................... (7,357) 0
Stock bonus and option plan transactions ............. 12,346 27,444
Dividends paid ....................................... (38,828) (37,361)
---------- ---------
Net cash provided by financing activities ......... 308,234 8,135
Effect of exchange rate changes on cash ................. (506) 2,597
---------- ---------
Net change in cash ................................ 20,721 18,571
Cash at beginning of year ......................... 40,023 26,404
---------- ---------
Cash at end of period .............................$ 60,744 $ 44,975
========== =========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
4
<PAGE>
ENGELHARD CORPORATION
SEGMENT INFORMATION
(Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Net Sales
Catalysts and Chemicals ......... $211,168 $170,534 $ 627,962 $ 529,807
Pigments and Additives .......... 147,660 108,539 365,278 314,902
Engineered Materials and
Industrial Commodities
Management .................. 442,066 445,515 1,366,257 1,295,478
-------- -------- ---------- ----------
$800,894 $724,588 $2,359,497 $2,140,187
======== ======== ========== ==========
Operating Earnings
Catalysts and Chemicals ......... $ 28,033 $ 25,009 $ 94,379 $ 77,019
Pigments and Additives .......... 29,697 27,572 70,032 68,904
Engineered Materials and
Industrial Commodities
Management .................. 9,417 10,182 34,432 35,566
-------- -------- ---------- ----------
67,147 62,763 198,843 181,489
Equity in losses of affiliates .... (607) (1,865) (2,080) (1,525)
Interest and other expenses, net .. (17,628) (12,024) (46,301) (42,964)
-------- -------- ---------- ----------
Earnings before income taxes... $ 48,912 $ 48,874 $ 150,462 $ 137,000
======== ======== ========== ==========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
5
<PAGE>
Notes to the Condensed Consolidated Financial Statements
- --------------------------------------------------------
1. 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. These financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's 1995 Annual Report to
Shareholders.
2. Some of the Company's businesses use industrial commodities in their
operations. In addition, sales and purchases of these and other industrial
commodities to/from customers are transacted through the Company's dealing
operations. Secondarily, and usually as a consequence of the above
transactions, the Company also engages in industrial commodities dealing
with other counterparties. Generally, all of these industrial commodity
transactions are hedged on a daily basis, using spot, forward, futures or
option transactions, to substantially eliminate the exposure to price risk.
In limited and closely monitored situations, for which preapproved exposure
levels have been set, the Company holds significant unhedged industrial
commodity positions. Changes in the market value of unhedged (open)
industrial commodity positions are recognized in earnings in the period of
the change by marking these positions to their current market value.
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
- ------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the Third Quarter of 1996
With the Third Quarter of 1995
- ----------------------------------------
Earnings before income taxes for the third quarter of 1996 were $48.9
million, about the same as 1995. The 1996 results included a positive impact of
about 10% from the Mearl Corporation ("Mearl", see "Mearl Acquisition") and the
benefit from an improved transportation cost management system; both of these
items (excluding the interest cost related to Mearl) are reflected in the
Pigments and Additives segment.
Operating earnings for the third quarter of 1996 increased 7% as the
Catalysts and Chemicals segment and the Pigments and Additives segment reported
higher results which more than offset unfavorable results in the Engineered
Materials and the Industrial Commodities Management segment.
The Company's share of losses from affiliates was $.6 million for the third
quarter of 1996 compared with a loss of $1.9 million in 1995. The improvement
reflected a much smaller loss in Engelhard-CLAL, a precious metal fabrication
joint venture, due to the benefits from a reorganization which is currently
underway. Partially offsetting this favorable result were a start-up loss at
Colortronics, a conductive ink joint venture and less favorable results at N.E.
Chemcat, a Japanese affiliate.
Higher net interest expense was primarily due to the acquisition of Mearl.
Net earnings for the third quarter of 1996 were $35.0 million compared with
$37.0 million in 1995. The effective tax rate in 1996 was 28.5% compared with
24.3% for the same quarter last year, due to a changing geographic mix of
earnings.
6
<PAGE>
Net sales for the third quarter of 1996 increased 11% to $800.9 million
from $724.6 million in the same quarter of 1995 with higher sales in the
Catalysts and Chemicals segment and the Pigments and Additives segment more than
offsetting slightly lower sales in the Engineered Materials and Industrial
Commodities Management segment. The acquisition of Mearl is estimated to account
for about half of this increase in net sales, see "Pigments and Additives", and
basically all of the increase in selling, administrative and other expenses.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 12% to $28.0 million in the third quarter of
1996 from $25.0 million in 1995 while net sales were up 24% to $211.2 million in
1996 from $170.5 million in 1995.
The Environmental Technologies Group had higher earnings largely due to
increased volumes and improved mix in the United States, particularly
auto-emission systems and heavy duty power systems, and increased market share
and volume in Europe. In the Petroleum Catalysts Group, earnings declined
primarily due to fluid catalytic cracking ("FCC") catalysts where cost and
pricing impacts more than offset higher volumes. The Chemical Catalysts Group
had strong business results which were more than offset by higher operating
expenses.
Pigments and Additives
- ----------------------
Operating earnings increased 8% to $29.7 million in the third quarter of
1996 from $27.6 million in 1995. Net sales increased 36% to $147.7 million in
1996 from $108.5 million in 1995. Excluding the estimated positive impact of
Mearl and the benefit from an improved transportation cost management system,
operating earnings would have declined approximately 30% on flat sales.
Lower earnings in the Paper Pigments and Chemicals Group reflected lower
volumes as a result of the continuing weakness in the paper industry. Reduced
earnings in the Specialty Minerals and Colors Group (excluding Mearl) were
primarily due to product mix.
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings decreased 8% to $9.4 million in the third quarter of
1996 from $10.2 million in 1995 and net sales declined slightly to $442.1
million in 1996 from $445.5 million in 1995.
The Engineered Materials Group had lower earnings due to a decrease in the
demand for fabricated, precious-metal products. The lower earnings more than
offset the favorable results of the Industrial Commodities Management Group.
Comparison of the First Nine Months of
1996 With the First Nine Months of 1995
- ---------------------------------------
Earnings before income taxes for the first nine months of 1996 were $150.5
million compared with $137.0 million in 1995. The 1996 results included a small
positive impact from Mearl and the benefit from an improved transportation cost
management system; both of these items (excluding the interest cost related to
Mearl) are reflected in the Pigments and Additives segment.
7
<PAGE>
Operating earnings for the first nine months of 1996 increased 10% as the
Catalysts and Chemicals segment and the Pigments and Additives segment reported
higher results which more than offset unfavorable results in the Engineered
Materials and Industrial Commodities Management segment. Operating earnings of
the Company exclude the former Engineered Materials businesses placed in the
Engelhard-CLAL joint venture on June 22, 1995. The results of Engelhard-CLAL are
reported in equity in losses of affiliates.
The Company's share of losses from affiliates was $2.1 million for the
first nine months of 1996 compared with a loss of $1.5 million in 1995. The
increase reflected a larger loss at Engelhard/ICC, a desiccant air conditioning
joint venture; a start-up loss at Engelhard Colortronics, a conductive ink joint
venture; and less favorable results at N.E. Chemcat, a Japanese affiliate.
Partially offsetting these unfavorable results was a much smaller loss from
Engelhard-CLAL, a precious metal fabrication joint venture, due to the benefits
from a reorganization which is currently underway.
Higher net interest expense was primarily due to the acquisition of Mearl
and the purchase of the Company's office building in December 1995. (The
purchase of the building resulted in reduced lease expenses.)
Net earnings for the first nine months of 1996 were $107.6 million compared
with $101.3 million in 1995. The effective tax rate in 1996 was 28.5% compared
with 26.0% for the same period last year, due to a changing geographic mix of
earnings.
Net sales for the first nine months of 1996 increased 10% to $2.4 billion
from $2.1 billion for the same period in 1995 with higher sales in all segments.
The acquisition of Mearl is estimated to account for a small portion of this
increase in net sales (see "Pigments and Additives"), and offset a part of the
decrease in selling, administrative and other expenses caused by the absence of
the Engineered Materials businesses placed in the Engelhard-CLAL joint venture.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 23% to $94.4 million in the first nine months
of 1996 from $77.0 million in 1995 while net sales were up 19% to $628.0 million
in 1996 from $529.8 million in 1995.
The Environmental Technologies Group had higher earnings largely due to
increased volumes and improved mix in the United States, particularly
auto-emission systems and heavy duty power systems, and increased market share
and volume in Europe. In the Petroleum Catalysts Group, earnings declined
slightly in spite of higher volumes of FCC catalysts as a result of unfavorable
FCC pricing and higher manufacturing costs. The Chemical Catalysts Group had
improved earnings due to higher worldwide petrochemical catalyst volumes.
Pigments and Additives
- ----------------------
Operating earnings increased 2% to $70.0 million in the first nine months
of 1996 from $68.9 million in 1995. Net sales increased 16% to $365.3 million in
1996 from $314.9 million in 1995. Excluding the estimated positive impact of
Mearl and the benefit from an improved transportation cost management system,
the segment would have reported a reduction of approximately 15% in operating
earnings on flat sales.
Lower earnings in the Paper Pigments and Chemicals Group reflected
continuing weakness in the paper industry. Reduced earnings in the Specialty
Minerals and Colors Group (excluding Mearl) were primarily due to product mix.
8
<PAGE>
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings decreased 3% to $34.4 million in the first nine months
of 1996 from $35.6 million in 1995 and net sales increased 5% to $1.4 billion in
1996 from $1.3 billion in 1995.
The Engineered Materials Group had lower earnings primarily due to the
transfer of former business units into the Engelhard-CLAL joint venture. The
lower earnings more than offset the favorable results of the Industrial
Commodities Management Group.
Mearl Acquisition
- -----------------
On May 31, 1996, the Company acquired Mearl. For a more complete
description of the acquisition, see the Company's Form 8-K/A, filed with the
Securities and Exchange Commission ("SEC") on July 12, 1996.
The integration of Mearl is expected to result in substantial cost savings
through the elimination of duplicate functions and facilities. Management
expects to substantially complete these actions by the middle of 1997. These
actions are expected to increase goodwill by approximately $6.0 million.
Financial Condition and Liquidity
- ---------------------------------
During the third quarter of 1996, the Company called $100.0 million of 10%
notes and subsequently issued $250.0 million of long-term debt (primarily to
finance the acquisition of Mearl) consisting of $150.0 million of five year
notes and $100.0 million of ten year notes bearing interest at rates of 7.0% and
7.375%, respectively. As a result, the Company's current ratio declined to 1.1
from 1.2 and the total debt to total capital ratio increased to 48% compared
with 35% as of December 31, 1995. Management believes that the Company will
continue to have adequate access to credit and capital markets to meet its needs
for the forseeable future.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K Page
- ------- -------------------------------- ----
(a) (12) Computation of the Ratio of Earnings to Fixed Charges. 11
(b) In a report on Form 8-K/A filed with the SEC on July 12, *
1996, the Company amended the Form 8-K filed with the SEC
on June 7, 1996 to include the financial statements required
under Items 7(a) and 7(b).
* Incorporated by reference as indicated.
9
<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 14, 1996 /s/ Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
Chairman and Chief
Executive Officer
Date November 14, 1996 /s/ William E. Nettles
--------------------- -----------------------------
William E. Nettles
Vice President and
Chief Financial Officer
Date November 14, 1996 /s/ Martin J. Connor, Jr.
---------------------- -----------------------------
Martin J. Connor, Jr.
Controller
10
<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
----------------- ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes ...... $150,462 $185,312 $157,306 ($4,709) $133,858 $117,569
Add /(deduct)
Portion of rents representative
of the interest factor ............. 750 4,700 4,800 4,500 4,000 4,200
Interest on indebtedness ............ 31,732 31,326 21,954 13,696 16,231 21,658
Equity dividends .................... 2,515 3,411 3,800 2,600 3,100 3,200
Equity (earnings)/ loss ............. 2,080 (695) (632) (3,443) (7,445) (5,024)
-------- -------- -------- ------- -------- --------
Earnings as adjusted ................ $187,539 $224,054 $187,228 $12,644 $149,744 $141,603
======== ======== ======== ======= ======== ========
Fixed Charges
Portion of rents representative
of interest factor .................. $750 $4,700 $4,800 $4,500 $4,000 $4,200
Interest on indebtedness ............ 31,732 31,326 21,954 13,696 16,231 21,658
Capitalized Interest ................ 891 1,000 800 2,700 400 110
------- ------- ------- ------- ------- -------
$33,373 $37,026 $27,554 $20,896 $20,631 $25,968
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges ..... 5.62 6.05 6.79 - (A) 7.26 5.45
(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.
</TABLE>
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 60744
<SECURITIES> 0
<RECEIVABLES> 365159
<ALLOWANCES> 0
<INVENTORY> 325805
<CURRENT-ASSETS> 805190
<PP&E> 1429825
<DEPRECIATION> 719685
<TOTAL-ASSETS> 2114533
<CURRENT-LIABILITIES> 728877
<BONDS> 375241
0
0
<COMMON> 147295
<OTHER-SE> 657596
<TOTAL-LIABILITY-AND-EQUITY> 2114533
<SALES> 2359497
<TOTAL-REVENUES> 2359497
<CGS> 1997515
<TOTAL-COSTS> 1997515
<OTHER-EXPENSES> 177708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31732
<INCOME-PRETAX> 150462
<INCOME-TAX> 42882
<INCOME-CONTINUING> 107580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107580
<EPS-PRIMARY> 0.75
<EPS-DILUTED> .00
</TABLE>
