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
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For the quarterly period ended March 31, 1996
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
- ------------------------------- ----------------------------
(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
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(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 April 30, 1996
- --------------------- -----------------------------
$1 par value 143,718,424
1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
---------------------
1996 1995
-------- ---------
Net sales ........................................... $774,740 $ 694,455
Cost of sales ....................................... 664,895 582,505
-------- ---------
Gross profit ................................... 109,845 111,950
Selling, administrative and other expenses .......... 53,860 65,409
-------- ---------
Earnings from operations ....................... 55,985 46,541
Equity in losses of affiliates ...................... (927) (639)
Net interest expense ................................ 9,527 8,072
-------- ---------
Earnings before income taxes ................... 45,531 37,830
Income tax expense .................................. 12,976 10,221
-------- ---------
Net earnings ................................... $ 32,555 $ 27,609
======== =========
Net earnings per share*.............................. $ 0.23 $ 0.19
======== =========
Cash dividends paid per share*....................... $ 0.09 $ 0.08
======== =========
Average number of shares outstanding*................ 143,725 142,911
======== =========
* Reflects 3-for-2 stock split as of June 30, 1995.
See Note to Condensed Consolidated Financial Statements
2
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
March 31, December 31,
1996 1995
---------- ------------
Cash ............................................. $ 38,364 $ 40,023
Receivables ...................................... 288,471 268,578
Inventories ...................................... 244,602 238,002
Other current assets ............................. 51,491 54,440
---------- ----------
Total current assets ...................... 622,928 601,043
Investments ...................................... 223,106 224,721
Property, plant and equipment, net ............... 617,111 609,540
Other noncurrent assets .......................... 219,225 210,271
---------- ----------
Total assets .............................. $1,682,370 $1,645,575
========== ==========
Short-term borrowings ............................ $ 203,214 $ 183,233
Current maturities of long-term debt ............. 269 337
Accounts payable ................................. 124,700 101,064
Other current liabilities ........................ 192,710 209,875
---------- ----------
Total current liabilities ................. 520,893 494,509
Long-term debt ................................... 211,521 211,533
Other noncurrent liabilities ..................... 201,131 201,791
Shareholders' equity ............................. 748,825 737,742
---------- ----------
Total liabilities and
shareholders' equity .................... $1,682,370 $1,645,575
========== ==========
See Note to Condensed Consolidated Financial Statements
3
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
1996 1995
--------- --------
Cash flows from operating activities
Net earnings .................................... $ 32,555 $ 27,609
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion and amortization ... 17,404 16,463
Equity losses, net of dividends ............ 927 639
Change in assets and liabilities ................ (27,538) (12,670)
-------- --------
Net cash provided by operating activities .. 23,348 32,041
-------- --------
Cash flows from investing activities
Capital expenditures, net ....................... (26,615) (23,500)
Acquisition of business and investment .......... (3,652) -
Other ........................................... 323 4,438
-------- --------
Net cash used in investing activities ...... (29,944) (19,062)
-------- --------
Cash flows from financing activities
Net change in short-term borrowings ............. 19,981 8,911
Dividends paid .................................. (12,932) (11,448)
Other ........................................... (1,776) 4,433
-------- --------
Net cash provided by financing activities .. 5,273 1,896
Effect of exchange rate changes on cash .............. (336) 1,742
-------- --------
Net change in cash ......................... (1,659) 16,617
Cash at beginning of year .................. 40,023 26,404
-------- --------
Cash at end of period ...................... $ 38,364 $ 43,021
======== ========
See Note to Condensed Consolidated Financial Statements
4
ENGELHARD CORPORATION
INDUSTRY SEGMENT INFORMATION
(Thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------
1996 1995
-------- --------
Net Sales
Catalysts and Chemicals ..................... $210,986 $175,524
Pigments and Additives ...................... 97,244 101,460
Engineered Materials and
Industrial Commodities Management ......... 466,510 417,471
-------- --------
$774,740 $694,455
======== ========
Operating Earnings
Catalysts and Chemicals ..................... $ 32,201 $ 24,489
Pigments and Additives ...................... 17,524 18,770
Engineered Materials and
Industrial Commodities Management ......... 11,969 11,033
-------- --------
61,694 54,292
Equity losses .................................... (927) (639)
Interest and other expenses, net ................. (15,236) (15,823)
-------- --------
Earnings before income taxes ........... $ 45,531 $ 37,830
======== ========
See Note to Condensed Consolidated Financial Statements
5
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.
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
- ------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the First Quarter of 1996
With the First Quarter of 1995
- ---------------------------------------
Earnings before income taxes for the first quarter of 1996 were $45.5
million compared with $37.8 million in the first quarter of 1995. The increase
was primarily due to a 14% increase in operating earnings as the Catalysts and
Chemicals segment and the Engineered Materials and Industrial Commodities
Management segment reported higher results which more than offset unfavorable
results in the Pigments and Additives segment. Operating earnings and selling,
administrative and other expenses exclude the former Engineered Materials
businesses placed in the Engelhard-CLAL joint venture in June 1995. Earnings
related to the venture are reported as equity earnings. This was the primary
reason for the decrease in selling, administrative and other expenses. Equity
losses from affiliates reflected the results of Engelhard-CLAL which is a new
precious metal products joint venture and Engelhard/ICC which is heavily
involved in new technology development related to desiccant air conditioning.
Higher net interest expense was due to higher average debt balances which more
than offset some favorable interest rate experience during the period.
Net earnings for the first quarter of 1996 were $32.6 million compared with
$27.6 million in 1995. The effective tax rate in 1996 was 28.5% compared with
27.0% for the same period last year.
Net sales for the first quarter of 1996 increased 12% to $774.7 million
from $694.5 million for the same quarter in 1995 with higher sales in the
Catalysts and Chemicals segment and the Engineered Materials and Industrial
Commodities Management segment more than offsetting lower sales in the Pigments
and Additives segment.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 31% to $32.2 million in the first quarter of
1996 from $24.5 million in the same period of 1995 while net sales increased 20%
to $211.0 million in 1996 from $175.5 in 1995.
The Environmental Technologies Group had higher earnings largely due to
sales of automotive emission-control catalysts in the United States, Europe and
South Africa. In the Petroleum Catalysts Group, lower expenses and increased
earnings from moving bed catalysts offset a continuing weak demand for fluid
catalytic cracking catalysts. The Chemical Catalysts Group benefitted from
higher base metal catalysts and precious metals catalysts volumes worldwide.
6
Pigments and Additives
- ----------------------
Operating earnings decreased 7% to $17.5 million in the first quarter of
1996 from $18.8 million in the same period of 1995 while net sales decreased
4% to $97.2 million in 1996 from $101.5 million in 1995.
The Paper Pigments and Chemicals Group had higher earnings largely due to a
higher-value product mix and continued productivity improvements which offset
higher energy costs and soft demand in the paper industry. These higher earnings
were more than offset by the Specialty Minerals and Colors Group which had lower
earnings due to softness in the automotive and ink industries and weather-
related delays in the housing industry which translated into lower volumes of
specialty minerals and colors products.
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings increased 8% to $12.0 million in the first quarter of
1996 from $11.0 million in the same period of 1995 and net sales increased 12%
to $466.5 million in 1996 from $417.5 million in 1995.
The Engineered Materials Group had lower earnings largely due to the
transfer of former business units into the Engelhard-CLAL joint venture. The
lower earnings were more than offset by the Industrial Commodities Management
Group which benefitted from favorable market conditions.
Capital Resources and Liquidity
-------------------------------
At March 31, 1996 the Company's current ratio was 1.2 and the total debt to
total capital ratio was 36%, both about the same as at December 31, 1995.
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
-------------
The Company announced on April 22, 1996 that it reached an agreement in
principle to buy Mearl Corporation, a privately held, world-leading manufacturer
of pearlescent pigments and iridescent film, for $272.7 million in cash, subject
to adjustment. The transaction is expected to close during the second quarter of
1996. Mearl's headquarters are in Briarcliff Manor, New York.
The Mearl business will significantly broaden the Company's existing
pigment and additives capabilities and move the Company into entirely new and
growing market areas.
7
Part II - Other Information
---------------------------
Item 4. Results of Matters to a Vote of Security Holders
- ------- ------------------------------------------------
(a) The Company's Annual Meeting of the Shareholders was held on
May 2, 1996.
(b) Results of votes of security holders.
1. Election of Directors For Withheld
--------------------- --- --------
L. Donald LaTorre 130,501,901 2,367,969
William R. Loomis, Jr. 130,508,029 2,361,841
Reuben F. Richards 130,499,734 2,370,136
Henry R. Slack 126,309,549 6,560,321
Orin R. Smith 130,465,869 2,404,001
2. Approval of the Amendments to the Key Employees Stock Bonus Plan.
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
104,521,227 20,665,846 860,908 -
3. Approval of the Amendments to the Stock Bonus Plan for Non-Employee
Directors.
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
109,468,029 15,625,481 954,471 -
4. Approval of the Amendment to the Restated Certificate of Incorporation
increasing the number of authorized shares of Common Stock from 200,000,000
shares to 350,000,000 shares.
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
129,625,234 2,810,334 434,312 -
5. Appointment of Coopers & Lybrand L.L.P. as Independent Public Accountants.
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
132,088,542 476,201 305,137 -
8
Item 6. Exhibits and Reports on Form 8-K Page
- ------- -------------------------------- ----
(a)(3) Amendment to the Restated Certificate of Incorporation of 11
the Company, filed with the State of Delaware, Office of
the Secretary of State on May 2, 1996.
(10) Material Contracts
(a) Amendments to the Key Employees Stock Bonus Plan of *
Engelhard Corporation adopted March 7, 1996 (incorporated
by reference to the Engelhard Corporation 1996 definitive
Proxy Statement as filed with the Securities and Exchange
Commission on March 29, 1996).
(b) Amendments to the Stock Bonus Plan for Non-Employee *
Directors of Engelhard Corporation adopted March 7, 1996
(incorporated by reference to the Engelhard Corporation
1996 definitive Proxy Statement as filed with the
Securities and Exchange Commission on March 29, 1996).
(12) Computation of the Ratio of Earnings to Fixed Charges. 12
(b) There were no reports on Form 8-K during the quarter
ended March 31, 1996.
* Incorporated by reference as indicated.
9
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 May 14, 1996 /s/ Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
Chairman and Chief
Executive Officer
Date May 14, 1996 /s/ William E. Nettles
--------------------- -----------------------------
William E. Nettles
Vice President and
Chief Financial Officer
Date May 14, 1996 /s/ Martin J. Connor, Jr.
---------------------- -----------------------------
Martin J. Connor, Jr.
Controller
10
PART II - ITEM 6(a)(3): AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
- -------------------------------------------------------------------------------
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
ENGELHARD CORPORATION
Adopted Pursuant to Section 242
of the
Delaware General Corporation Law
We, Arthur A. Dornbusch, II, Vice President and Secretary, and Stephen I.
Miller, Assistant Secretary of Engelhard Corporation (the "Corporation"), do
hereby certify under the seal of said Corporation as follows:
1. The first paragraph of Article FOURTH of the Corporation's
Restated Certificate of Incorporation is hereby amended to read in its
entirety as set forth below:
FOURTH: The total number of shares of capital stock that may be
issued by the Corporation is 355,000,000 of which 5,000,000 shares, without
par value, shall be Preferred Stock (hereinafter in this Article FOURTH
referred to as "Preferred Stock"), and of which 350,000,000 shares, par
value of $1 per share, shall be Common Stock. Shares of the stock of any
class of the Corporation may be issued by the Corporation from time to time
for such legally sufficient consideration as may be fixed from time to time
by the Board of Directors. Any and all shares so issued for which the
consideration is so fixed has been paid or delivered to the Corporation and
shall be deemed fully paid stock and shall not be liable to any further
call or assessment thereon, and the holders of said shares shall not be
liable for any further payments in respect of such shares.
2. The amendment to the Restated Certificate of Incorporation set
forth herein has been approved by the stockholders of the Corporation in
accordance with the provisions of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, we have signed this certificate and caused the
corporate seal of the Corporation to be hereunto affixed this 2nd day of
May, 1996.
/s/ Arthur A. Dornbusch, II
----------------------------
Arthur A. Dornbusch, II
Vice President and Secretary
ATTEST:
/s/ Stephen I. Miller
- ---------------------
Stephen I. Miller
Assistant Secretary
11
PART II - ITEM 6(a)(12): COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
- -------------------------------------------------------------------------------
ENGELHARD CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
Three Months Ended
March 31 Year Ended December 31
------------------ -----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
Income from continuing operations
before provision for income taxes ......... $45,531 $185,312 $157,306 ($ 4,709) $133,858 $117,569
Add /(deduct)
Portion of rents representative
of the interest factor ................ 1,175 4,700 4,800 4,500 4,000 4,200
Interest on indebtedness ............... 9,527 31,326 21,954 13,696 16,231 21,658
Equity dividends ....................... 0 3,411 3,800 2,600 3,100 3,200
Equity (earnings)/ loss ................ 927 (695) (632) (3,443) (7,445) (5,024)
--- ---- ---- ------ ------ ------
Earnings as adjusted ................... $57,160 $224,054 $187,228 $12,644 $149,744 $141,603
======= ======== ======== ======= ======== ========
Fixed Charges
Portion of rents representative
of interest factor ..................... $ 1,175 $ 4,700 $ 4,800 $ 4,500 $ 4,000 $ 4,200
Interest on indebtedness ............... 9,527 31,326 21,954 13,696 16,231 21,658
Capitalized Interest ................... 119 1,000 800 2,700 400 110
--- ----- --- ----- --- ---
$10,821 $ 37,026 $ 27,554 $20,896 $ 20,631 $ 25,968
======= ======== ======== ======= ======== ========
Ratio of Earnings to Fixed Charges ........ 5.28 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.
12