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, 2000
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 number 1-8142
ENGELHARD CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1586002
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(732) 205-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), 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, 2000
- --------------------- -------------------------------
$1 par value 127,779,536
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 Nine Months Ended
September 30, September 30,
------------------------ ----------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
Net sales .................... $1,374,350 $1,016,242 $3,937,325 $3,292,209
Cost of sales ................ 1,207,698 865,665 3,394,618 2,824,149
----------- ----------- ---------- ----------
Gross profit ............ 166,652 150,577 542,707 468,060
Selling, administrative and
other expenses ............. 79,308 69,428 258,807 232,358
----------- ----------- --------- ---------
Operating earnings ...... 87,344 81,149 283,900 235,702
Equity in earnings of
affiliates ................. 5,031 4,192 19,428 11,995
Gain/(loss) on disposal of
investments and land ....... 170 2,911 (5,830) 8,592
Interest expense, net ........ (15,001) (14,869) (47,867) (43,735)
----------- ----------- ---------- ----------
Earnings before income
taxes ................. 77,544 73,383 249,631 212,554
Income tax expense ........... 26,210 22,382 80,417 64,829
----------- ----------- ---------- ----------
Net earnings ............ $ 51,334 $ 51,001 $ 169,214 $ 147,725
=========== =========== ========== ==========
Basic earnings per share ..... $ 0.41 $ 0.41 $ 1.34 $ 1.10
=========== =========== ========== ==========
Diluted earnings per share ... $ 0.40 $ 0.40 $ 1.32 $ 1.08
=========== =========== =========== ===========
Cash dividends per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
=========== =========== =========== ===========
Average number of shares
outstanding - Basic ........ 126,451 125,921 126,281 134,642
=========== =========== =========== ===========
Average number of shares
outstanding - Diluted ...... 128,368 128,592 127,983 136,914
=========== =========== =========== ===========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
2
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
September 30, December 31,
2000 1999
------------ ------------
Cash ............................................. $ 35,364 $ 54,375
Receivables, net.................................. 438,954 394,338
Committed metal positions ........................ 1,320,904 467,768
Inventories ...................................... 373,736 359,153
Other current assets ............................. 98,647 121,672
---------- ----------
Total current assets ...................... 2,267,605 1,397,306
Investments ...................................... 195,711 182,184
Property, plant and equipment, net ............... 830,558 871,900
Intangible assets, net ........................... 311,617 325,544
Other noncurrent assets .......................... 111,390 143,590
---------- ----------
Total assets .............................. $3,716,881 $2,920,524
========== ==========
Short-term borrowings ............................ $ 521,618 $ 452,029
Accounts payable ................................. 912,335 246,016
Hedged metal obligations ......................... 592,211 497,800
Other current liabilities ........................ 281,418 268,978
---------- ----------
Total current liabilities ................. 2,307,582 1,464,823
Long-term debt ................................... 322,111 499,466
Other noncurrent liabilities ..................... 186,627 191,845
Shareholders' equity ............................. 900,561 764,390
---------- ----------
Total liabilities and
shareholders' equity .................... $3,716,881 $2,920,524
========== ==========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
3
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------
2000 1999
--------- --------
Cash flows from operating activities
Net earnings ........................................ $169,214 $ 147,725
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and depletion ..................... 77,258 72,519
Amortization of intangible assets .............. 8,404 9,773
Loss/(gain) on disposal of investments and land. 5,830 (8,592)
Equity results, net of dividends ............... (15,064) (9,564)
Net change in assets and liabilities
Metal related ............................. (84,982) 171,766
All other ................................. (45,006) (51,431)
--------- ---------
Net cash provided by operating activities....... 115,654 332,196
--------- ---------
Cash flows from investing activities
Capital expenditures ................................ (76,060) (61,519)
Proceeds from disposal of investments and land....... 52,811 10,449
Acquisitions and other investments .................. (40,095) (1,230)
Other ............................................... - 2,408
---------- ----------
Net cash used in investing activities .......... (63,344) (49,892)
--------- ---------
Cash flows from financing activities
Increase in short-term borrowings.................... 19,529 203,673
Increase/(decrease) in hedged metal obligations...... 33,165 (184,192)
Proceeds from issuance of long-term debt ............ - 45,894
Repayment of long-term debt ......................... (103,703) (3,784)
Purchase of treasury stock .......................... - (296,076)
Stock bonus and option plan transactions ............ 7,641 10,732
Dividends paid ...................................... (25,525) (39,936)
--------- ---------
Net cash used in financing activities........... (68,893) (263,689)
Effect of exchange rate changes on cash .................. (2,428) (2,296)
--------- ---------
Net (decrease)/increase in cash ................ (19,011) 16,319
Cash at beginning of year ...................... 54,375 22,339
--------- ---------
Cash at end of period........................... $ 35,364 $38,658
========= =========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
4
ENGELHARD CORPORATION
BUSINESS SEGMENT INFORMATION
(Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
Net Sales ------------ ---------- ----------- ----------
Environmental Technologies .. $ 164,621 $ 141,195 $ 493,190 $ 440,900
Process Technologies ........ 145,877 110,369 388,381 349,169
Specialty Pigments and
Additives ................. 92,875 91,298 284,342 274,281
Paper Pigments and Additives. 65,280 61,802 179,919 177,894
Industrial Commodities
Management ................ 897,286 594,000 2,565,790 1,975,966
----------- ----------- ----------- -----------
Reportable segments ... 1,365,939 998,664 3,911,622 3,218,210
All other ................... 8,411 17,578 25,703 73,999
----------- ----------- ----------- -----------
$1,374,350 $1,016,242 $3,937,325 $3,292,209
=========== =========== =========== ===========
Operating Earnings
Environmental Technologies ... $ 35,552 $ 24,361 $ 101,381 $ 80,348
Process Technologies ......... 19,495 18,784 54,433 52,736
Specialty Pigments and
Additives .................. 17,014 15,145 52,887 46,384
Paper Pigments and Additives.. 5,168 5,228 10,597 21,081
Industrial Commodities
Management ................. 14,301 9,372 77,634 29,569
----------- ----------- ----------- -----------
Reportable segments ... 91,530 72,890 296,932 230,118
All other ................... (4,186) 8,259 (13,032) 5,584
----------- ----------- ----------- -----------
87,344 81,149 283,900 235,702
Equity in earnings of
affiliates ................. 5,031 4,192 19,428 11,995
Gain/(loss) on disposal of
investments and land ....... 170 2,911 (5,830) 8,592
Interest expense, net ........ (15,001) (14,869) (47,867) (43,735)
----------- ----------- ----------- -----------
Earnings before income
taxes ............... $ 77,544 $ 73,383 $ 249,631 $ 212,554
Income tax expense ........... 26,210 22,382 80,417 64,829
----------- ----------- ----------- -----------
Net earnings .......... $ 51,334 $ 51,001 $ 169,214 $ 147,725
=========== =========== =========== ===========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
5
Notes to the Unaudited Condensed Consolidated Financial Statements
- ------------------------------------------------------------------
Note 1 - Basis of Presentation
- ------------------------------
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. The financial statement results for interim
periods are not necessarily indicative of financial results for the full year.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1999 Annual
Report to Shareholders. Certain prior-year amounts have been reclassified
to conform with the current-year presentation.
Note 2 - Inventories
- --------------------
Inventories consist of the following (in thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
Raw materials ..................... $ 87,741 $ 84,165
Work in process ................... 67,723 52,954
Finished goods .................... 191,533 195,731
Precious metals ................... 26,739 26,303
-------- --------
Total inventories ................. $373,736 $359,153
======== ========
All precious metals included in inventories are stated at LIFO cost. The
market value of the precious metals inventories exceeded cost by $198.8 million
and $115.3 million at September 30, 2000 and December 31, 1999, respectively.
Note 3 - Comprehensive Income
- -----------------------------
Comprehensive income is summarized as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------------
2000 1999 2000 1999
-------- ------- --------- --------
Net earnings ................. $51,334 $51,001 $169,214 $147,725
Other comprehensive income/(loss):
Foreign currency
translation adjustment (4,512) 16,116 (5,431) 1,486
------- ------- --------- --------
Comprehensive income ......... $46,822 $67,117 $163,783 $149,211
======= ======= ========= ========
No provision has been made for U.S. or additional foreign taxes on the
undistributed earnings of foreign subsidiaries because such earnings are
expected to be reinvested indefinitely in the subsidiaries' operations.
6
Note 4 - Earnings Per Share
- ---------------------------
The following table represents the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(in thousands, except per share data) 2000 1999 2000 1999
- ------------------------------------- -------- -------- -------- --------
Basic EPS Computation
- ---------------------
Net earnings applicable to common
shares $ 51,334 $ 51,001 $169,214 $147,725
-------- -------- -------- --------
Average number of shares
outstanding - basic 126,451 125,921 126,281 134,642
-------- -------- -------- --------
Basic earnings per share $ 0.41 $ 0.41 $ 1.34 $ 1.10
======== ======== ======== ========
Diluted EPS Computation
- -----------------------
Net earnings applicable to common
shares $ 51,334 $ 51,001 $169,214 $147,725
-------- -------- -------- --------
Average number of shares
outstanding - basic 126,451 125,921 126,281 134,642
Effect of dilutive stock options
and other incentives 669 1,336 454 937
Effect of Rabbi Trust 1,248 1,335 1,248 1,335
-------- -------- -------- --------
Average number of shares
outstanding - diluted 128,368 128,592 127,983 136,914
-------- -------- -------- --------
Diluted earnings per share $ 0.40 $ 0.40 $ 1.32 $ 1.08
======== ======== ======== ========
Note 5 - Disposal of Investments and Land
- -----------------------------------------
In the third quarter of 2000, the Company sold it's metal joining products
business located in Warwick, Rhode Island. This business is a leading
manufacturer of brazing alloys and fluxes, as well as a supplier of lead-free
solder, serving metal-joining industries such as plumbing, electronics,
lighting, shipbuilding and aerospace. The Company recorded a gain of $24.8
million ($15.2 million after tax or $0.12 per share on a diluted basis) which
was recorded in "Gain/(loss) on disposal of investments and land" in the
Company's Condensed Consolidated Statements of Earnings. Net cash proceeds
received were $41.8 million. In 1999, this business had approximately $49
million in annual revenue and was reported in the Company's Environmental
Technologies Segment.
7
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
evaluated the recoverability of the long-lived assets, including goodwill, of
its HexCore business unit. This business unit manufactures and markets
desiccant-coated rotors and related products, and is reported in the Company's
"All Other" segment. As part of the Company's annual budgeting process, it was
determined that HexCore's estimated future undiscounted cash flows were below
the carrying value of its assets, primarily due to the loss of a major customer
in August 2000. Accordingly, during the third quarter of 2000, the Company
adjusted the carrying value of HexCore's long-lived assets and goodwill to their
estimated fair values. The resulting impairment charge was approximately $24.6
million ($16.9 million after-tax or $0.13 per share on a diluted basis) and was
recorded in "Gain/(loss) on disposal of investments and land" in the Company's
Condensed Consolidated Statements of Earnings. The impairment charge consisted
of a write-down of goodwill of $21.9 million and fixed assets of $2.7 million.
The estimated fair value was based on anticipated future cash flows discounted
at a rate commensurate with the Company's estimated cost of capital.
Note 6 - Acquisitions
- ---------------------
In September 2000, the Company acquired a polyolefin catalyst business
located in Tarragona, Spain from Targor GmbH, a subsidiary of BASF AG, for
approximately $35 million. As part of the acquisition, the Company obtained a
supply agreement to become the exclusive supplier of polyolefin catalysts to
Novolen Technology Holdings C.V. This acquisition was recorded under the
purchase method of accounting, and accordingly, the results of operations of
this acquisition have been included in the accompanying consolidated financial
statements from the date of acquisition. A portion of the purchase price has
been allocated to assets acquired and liabilities assumed based on their fair
values, while the remaining balance was recorded as an intangible asset and is
being amortized over 15 years. Pro forma information is not provided since the
impact of the acquisition does not have a material effect on the Company's
results of operations, cash flows or financial position.
8
Note 7 - New Accounting Pronouncements
- --------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133". SFAS No. 137 delayed
the required adoption of SFAS No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities
(an amendment of FASB Statement No. 133). These standards require that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in earnings or
comprehensive income, depending on the designation of the derivative.
The Company will adopt these statements in the first quarter of 2001 and
does not expect them to have a material effect on the Company's results of
operations, financial position, cash flows or equity.
Note 8 - Other Matters
----------------------
In 1998, Management learned that Engelhard and several other companies
operating in Japan had been victims of a fraudulent scheme involving base-metal
inventory held in third-party warehouses in Japan. The inventory loss was
approximately $40 million in 1997 and $20 million in 1998. The Company is
vigorously pursuing various recovery actions. These actions include
negotiations with the various third parties involved and, in several instances,
the commencement of litigation. In the first quarter of 1998, Engelhard
recorded a receivable from the insurance carriers and third parties involved
for approximately $20 million. This amount represents Management's and
counsel's best estimate of the minimum probable recovery from the various
insurance policies and other parties involved in the fraudulent scheme.
The Company is involved in a value-added tax dispute in Peru, which
Management believes has a maximum economic exposure of approximately $30
million. On December 2, 1999, Engelhard Peru, S.A., a wholly owned subsidiary,
was denied refund claims of approximately $28 million. The Peruvian tax
authority also determined that Engelhard Peru, S.A. is liable for approximately
$63 million in refunds previously paid, fines and interest as of December 31,
1999. Interest and fines continue to accrue at rates established by Peruvian
law. Engelhard Peru, S.A. is contesting these determinations vigorously, and
Management believes, based on consultation with counsel, that Engelhard Peru,
S.A. is entitled to all refunds claimed and is not liable for these additional
taxes, fines or interest. In late October 2000, a criminal proceeding alleging
tax fraud and forgery related to this value-added tax dispute was initiated
against two Lima based officials of Engelhard Peru, S.A. Although Engelhard
Peru, S.A. is not a defendant, it may be civilly liable for criminal conduct of
its representatives and Engelhard Peru is assisting in the vigorous defense of
this proceeding. Management believes the maximum economic exposure is limited to
the aggregate value of all assets of Engelhard Peru, S.A., including unpaid
refunds, which is approximately $30 million.
9
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
- ------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the Third Quarter of 2000
with the Third Quarter of 1999
- ----------------------------------------
Net earnings increased 1% to $51.3 million in the third quarter of 2000
from $51.0 million in the same period of 1999. Operating earnings for the third
quarter of 2000 increased 8% to $87.3 million from $81.1 million in the same
period of 1999. Higher operating earnings were reported in four of the Company's
five reportable segments -- Environmental Technologies, Process Technologies,
Specialty Pigments and Additives and Industrial Commodities Management.
Operating earnings from the Paper Pigments and Additives segment were
essentially flat from the same period of 1999.
The effective tax rate was 33.8% in the third quarter of 2000 compared with
30.5% for the same period last year. The higher effective rate was primarily
driven by a lower estimated tax basis in the HexCore assets written off in the
third quarter of 2000.
The Company's share of earnings from affiliates increased 20% to $5.0
million in the third quarter of 2000 compared with $4.2 million for the same
period in 1999. Higher equity earnings were primarily from Heesung Engelhard, an
environmental catalyst joint venture.
Net interest expense increased 1% to $15.0 million in the third quarter of
2000 from $14.9 million in the same period of 1999. In the third quarter of
1999, net interest expense included $3.0 million of income resulting from the
settlement of treasury lock positions. Excluding this income, net interest
expense would have decreased 16% primarily due to decreased borrowings,
partially offset by an increase in interest rates.
Net sales increased 35% to $1.4 billion in the third quarter of 2000 from
$1.0 billion for the same period of 1999. Higher sales were reported in all five
of the Company's reportable segments.
10
Environmental Technologies
- --------------------------
Operating earnings increased 46% to $35.6 million in the third quarter of
2000 from $24.4 million in the same period of 1999. Net sales for the third
quarter of 2000 increased 17% to $164.6 million from $141.2 million in the same
period of 1999.
The majority of this segment's sales and operating earnings are derived
from technologies to control pollution from mobile sources, including gasoline
and diesel-powered passenger cars, sport-utility vehicles, trucks, buses and
off-road vehicles. Earnings increased in North America, primarily as a result of
increased volumes for auto-emission catalysts. Foreign earnings increased due to
an improved product mix resulting from the introduction of advanced technologies
concurrent with the new model year.
Earnings in the segment's non-automotive markets also increased due to
significantly higher sales of stationary emission systems for gas turbines.
Process Technologies
- --------------------
Operating earnings increased 4% to $19.5 million in the third quarter of
2000 from $18.8 million in the same period of 1999. Net sales for third quarter
of 2000 increased 32% to $145.9 million from $110.4 million in the same period
of 1999.
Earnings growth from chemical catalysts was partially offset by a decline
in earnings from petroleum catalysts and polypropylene catalysts.
Earnings from chemical catalysts increased primarily due to increased
volumes compared with a relatively weak year ago quarter. Earnings were also
favorably impacted by the third quarter shipment of orders that were delayed
from the first half of this year. Higher revenues of chemical catalysts
reflected higher precious metal prices this year.
Earnings from petroleum catalysts decreased as the effect of increased
volumes from fluid cracking catalysts were offset by an unfavorable product mix
and higher energy costs. Earnings from polypropylene catalysts decreased as
increased volumes were offset by an unfavorable product mix and increased
operating expenses.
Specialty Pigments and Additives
- --------------------------------
Operating earnings increased 12% to $17.0 million in the third quarter of
2000 from $15.1 million in the same period of 1999. Net sales for the third
quarter of 2000 increased 2% to $92.9 million from $91.3 million in the same
period of 1999.
Earnings increased primarily due to increased volumes of effect pigments to
industrial and cosmetics markets. In addition, lower production costs of color
pigments had a favorable impact on earnings. These increased results were
partially offset by decreased earnings of performance additives primarily
resulting from higher energy costs.
11
Paper Pigments and Additives
- ----------------------------
Operating earnings of $5.2 million for the third quarter of 2000 were
essentially flat compared with the same period of 1999. Net sales for the third
quarter of 2000 increased 6% to $65.3 million from $61.8 million in the same
period of 1999.
Earnings were essentially flat with the same period of 1999 as increased
volumes were offset by higher energy costs and lower selling prices.
Industrial Commodities Management
- ---------------------------------
Operating earnings increased 53% to $14.3 million in the third quarter of
2000 from $9.4 million in the same period of 1999. Net sales for the third
quarter of 2000 increased 51% to $897.3 million from $594.0 million in the same
period of 1999.
The sales increase resulted from higher prices and the continued strong
demand for platinum group metals. The operating earnings increase resulted from
significantly higher volatility in platinum group metals.
Comparison of the First Nine Months of 2000
with the First Nine Months of 1999
- ------------------------------------------
Net earnings increased 15% to $169.2 million in the first nine months of
2000 from $147.7 million in the same period of 1999. Operating earnings for the
first nine months of 2000 increased 20% to $283.9 million from $235.7 million in
the same period of 1999. Four of the Company's five reportable segments reported
increased operating earnings -- Environmental Technologies, Process
Technologies, Specialty Pigments and Additives and Industrial Commodities
Management.
The effective tax rate was 32.2% in the first nine months of 2000 compared
with 30.5% for the same period last year. The higher effective rate was driven
by a lower estimated tax basis in the HexCore assets written off in the third
quarter of 2000. In addition, the higher effective rate was due to a shift in
the geographic mix of earnings and a changing product slate.
The Company's share of earnings from affiliates increased 62% to $19.4
million in the first nine months of 2000 from $12.0 million for the same period
in 1999. The increase was primarily due to higher equity earnings from
Engelhard-CLAL, a precious-metal-fabrication joint venture. The Company's share
of earnings from Engelhard-CLAL included a gain of $6.7 million related to the
partial liquidation of precious metal inventories. Higher equity earnings were
also reported for Heesung Engelhard, an environmental catalyst joint venture.
Net interest expense increased 9% to $47.9 million for the first nine
months of 2000 from $43.7 million for the same period in 1999. For the nine
month period ended September 30, 1999, net interest expense included $4.2
million of income resulting from the settlement of treasury lock positions.
Excluding this income, net interest expense would have been flat compared with
the same period of 1999.
12
Net sales increased 20% to $3.9 billion in the first nine months of 2000
from $3.3 billion in the same period in 1999. Higher sales were reported in all
five of the Company's reportable segments. Sales reported in the "All Other"
segment decreased primarily as the Company sold its metal plating business in
the second quarter of 1999.
Environmental Technologies
- --------------------------
Operating earnings increased 26% to $101.4 million in the first nine months
of 2000 from $80.3 million in the same period of 1999. Net sales for the first
nine months of 2000 increased 12% to $493.2 million from $440.9 million in the
same period of 1999.
The majority of this segment's sales and operating earnings are derived
from technologies to control pollution from mobile sources, including gasoline
and diesel-powered passenger cars, sport-utility vehicles, trucks, buses and
off-road vehicles. Earnings increased primarily from strength in auto-emission
catalysts in both North America and Europe.
Sales in the segment's non-automotive markets increased due to higher
volumes of heavy-duty deisel-engine retrofits and stationary emission systems
for gas turbines. Earnings in the non-automotive markets declined slightly as
the effect of higher volumes were offset by higher research and administrative
costs.
The segment's earnings increases were partially offset by costs related to
the start-up of new manufacturing facilities in Brazil and China, plus the
expansion of a facility in India.
Process Technologies
- --------------------
Operating earnings increased 3% to $54.4 million in the first nine months
of 2000 from $52.7 million in the same period of 1999. Net sales for the first
nine months of 2000 increased 11% to $388.4 million from $349.2 million in the
same period of 1999.
Earnings growth from petroleum catalysts and polypropylene catalysts was
offset by a decline in earnings from chemical catalysts.
Earnings from petroleum catalysts increased primarily due to increased
volumes from fluid cracking catalysts and reduced costs from
supply-chain-management initiatives and productivity improvements, partially
offset by increased energy costs. Earnings from polypropylene catalysts
increased primarily from increased volumes.
Earnings from chemical catalysts decreased as the effect of increased
volumes were offset by higher manufacturing costs and an unfavorable foreign
currency translation.
13
Specialty Pigments and Additives
- --------------------------------
Operating earnings increased 14% to $52.9 million in the first nine months
of 2000 from $46.4 million in the same period of 1999. Net sales for the first
nine months of 2000 increased 4% to $284.3 million from $274.3 million in the
same period of 1999.
Earnings increased primarily due to increased volumes of effect pigments to
industrial and cosmetics markets. In addition, earnings of specialty
kaolin-based products and specialty film products increased as a result of
increased volumes. Lower production costs of color pigments also had a favorable
impact on earnings.
Paper Pigments and Additives
- ----------------------------
Operating earnings decreased 50% to $10.6 million in the first nine months
of 2000 from $21.1 million in the same period of 1999. Net sales for the first
nine months of 2000 increased 1% to $179.9 million from $177.9 million in the
same period of 1999.
Earnings decreased as the effect of higher volumes were offset by higher
energy costs, lower selling prices and an unfavorable product mix.
Industrial Commodities Management
- ---------------------------------
Operating earnings increased 163% to $77.6 million in the first nine months
of 2000 from $29.6 million in the same period of 1999. Net sales for the first
nine months of 2000 increased 30% to $2.6 billion from $2.0 billion in the
same period of 1999.
The sales increase resulted from higher prices and the continued strong
demand for platinum group metals. The operating earnings increase resulted from
significantly higher volatility in platinum group metals.
Financial Condition and Liquidity
---------------------------------
The Company's current ratio was 1.0 at September 30, 2000 and December 31,
1999. The Company's total-debt-to-total-capital ratio decreased to 48% at
September 30, 2000 from 55% at December 31, 1999, due to decreased long-term
borrowings and increased retained earnings.
The variance in cash flows from operating activities and financing
activities primarily occurred in the Industrial Commodities Management segment
and reflects changes in metal positions used to facilitate requirements of the
Company, its customers and suppliers. The nature of the Industrial Commodities
Management business can result in significant fluctuations in cash flow. To that
end, committed metal positions increased due to a significant purchase of
precious metals close to quarter end. Payment terms reduced the immediate
outflow of cash and this is reflected in the increase in accounts payable.
Hedged metal obligations also increased as a consequence of this transaction.
This metal will be sold during the fourth quarter of 2000 causing an offsetting
reduction in all balances. Cash flows from operating activities were also
negatively impacted by higher receivables related to increased prices of
platinum group metals. The variance in cash flows from financing activities was
also impacted by increased short-term borrowings to fund a major share
repurchase in May 1999 and the repayment of long-term debt in the third quarter
of 2000.
14
In July 1998, the Company filed a shelf registration for $300 million. The
Company currently has no plans to issue debt under the shelf registration.
Management believes the Company will continue to have adequate access to
credit and other capital markets to meet its needs for the foreseeable future.
Other Matters
-------------
Forward-looking Statements
--------------------------
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
the future prospects, developments and business strategies of Engelhard. These
forward-looking statements are identified by their use of terms and phrases such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"plan," "predict," "project," "will" and similar terms and phrases, including
references to assumptions. These forward-looking statements involve risks and
uncertainties that may cause Engelhard's actual future activities and results of
operations to be materially different from those suggested or described in this
document. These risks include: competitive pricing or product development
activities; Engelhard's ability to achieve and execute internal business plans;
global economic trends; worldwide political instability and economic growth;
markets, alliances and geographic expansions developing differently than
anticipated; fluctuations in the supply and prices of precious and base metals;
government legislation and/or regulation (particularly on environmental issues);
technology, manufacturing and legal issues; and the impact of any economic
downturns and inflation. Investors are cautioned not to place undue reliance
upon these forward-looking statements, which speak only as of their dates.
Engelhard disclaims any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
15
Part II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K Pages
- ------- -------------------------------- -----
(a)(12) Computation of the Ratio of Earnings to Fixed Charges 18-19
(b) There were no reports on Form 8-K filed during the
quarter ended September 30, 2000.
16
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, 2000 /s/ Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
Chairman and Chief
Executive Officer
Date November 13, 2000 /s/ Michael A. Sperduto
---------------------- -----------------------------
Michael A. Sperduto
Chief Accounting
Officer
17
EXHIBIT 12
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
18
ENGELHARD CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30, Years Ended December 31,
------------------ -----------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
>
Earnings from continuing operations
before provision for income taxes $249,631 $284,118 $260,563 $ 85,812 $209,955 $185,312
Add/(deduct)
Portion of rents representative
of the interest factor 5,250 7,000 3,500 3,000 3,900 4,700
Interest on indebtedness 47,867 56,555 58,887 52,776 45,009 31,326
Equity dividends 4,363 2,431 2,022 3,803 2,515 3,411
Equity in (earnings) losses
of affiliates (19,428) (16,266) (10,077) 47,833 5,008 (695)
--------- --------- --------- -------- -------- ---------
Earnings, as adjusted $287,683 $333,838 $314,895 $193,224 $266,387 $224,054
========= ========= ========= ======== ======== =========
Fixed Charges
Portion of rents representative
of the interest factor $ 5,250 $ 7,000 $ 3,500 $ 3,000 $ 3,900 $ 4,700
Interest on indebtedness 47,867 56,555 58,887 52,776 45,009 31,326
Capitalized interest 2,911 2,580 1,897 651 875 784
-------- --------- --------- -------- -------- --------
Fixed charges $56,028 $ 66,135 $ 64,284 $ 56,427 $ 49,784 $ 36,810
======== ========= ========= ======== ======== ========
Ratio of Earnings to Fixed Charges 5.13 5.05 4.90 3.42 (a) 5.35 6.09
======== ========= ========= ======== ======== ========
(a) Earnings in 1997 were negatively impacted by special and other charges of $149.6 million for a variety of events.
Without such charges the ratio of earnings to fixed charges would have been 5.28.
19