Engelhard Reports Earnings in Line With Estimates
ISELIN, N.J.--July 23, 2002--Engelhard Corporation today reported net earnings for the second quarter ended June 30 of $60.1 million, or 46 cents per share on a diluted basis, compared with $59.5 million, or 45 cents per share, for the same period a year ago.The results are in line with the current range of estimates.
The quarter included an after-tax benefit of five cents per share stemming from insurance settlements and two charges amounting to four cents per share relating to costs associated with a manufacturing consolidation plan and the write down of an investment.
Lower prices for platinum group metals were a primary factor that resulted in second-quarter sales totaling $1.0 billion compared with $1.5 billion a year ago.
Contributions from new products and ongoing productivity initiatives resulted in improved margins in spite of weak core-market volumes.
"The diversity of our served-market portfolio, coupled with new technology applications and an enterprise-wide focus on productivity are enabling us to deliver results without the benefit of significant economic recovery," said Barry W. Perry, chairman and chief executive officer. "Even though most of the markets we serve remain weak, we still expect to deliver earnings for the full year in the $1.75-to-$1.90 range, which is consistent with analysts' estimates established at the beginning of the year."
Net earnings for the first six months of this year totaled $112 million, or 85 cents per share, compared with $107 million, or 81 cents per share, reported for the first half of 2001. Net sales for the first half of 2002 were $2.0 billion compared with $3.1 billion for the same period last year.
The insurance settlements during the quarter stemmed from events in late 1997 and early 1998, in which Engelhard and other companies were victimized in an elaborate scheme involving base-metal inventories held in third-party warehouses in Japan. The latest settlements brought cash payments received this year from insurance associated with the Japan matter to $29 million, all of which has been used to purchase shares of the company's stock.
The investment write down was taken to reflect the lower current value of an investment in fuel-cell developer Plug Power Inc., originally made as part of agreements between the two companies for development of advanced materials for fuel cells. The other charge in the quarter reflects costs associated with a plan to consolidate manufacturing of surface-coating technologies. The consolidation plan was a result of ongoing productivity initiatives.
Cash flow remained strong through the second quarter. Over the first half of the year, the company generated approximately $85 million of free cash flow, which was used to reduce net debt and repurchase stock.
Environmental Technologies
Operating earnings from Environmental Technologies declined 15% to $31 million before the charge for manufacturing consolidation, while sales declined 4% to $171 million. The segment saw moderate increases in sales and earnings from its core automotive market. An unusually strong year-ago quarter caused by the ramp up of new, non-automotive applications combined with this year's increased development and start-up costs related to new technologies for diesel OEM and power-generation applications drove unfavorable comparisons year over year.
Process Technologies
Operating earnings from Process Technologies increased slightly to $23 million. Sales were $136 million, down from $147 million a year ago. Sales were impacted by both lower volumes in some chemical markets and lower precious metal prices, which are passed through to customers. Results from the petroleum refining market continue to benefit from favorable price/mix associated with new technologies and from reduced costs.
Appearance and Performance Technologies
Operating earnings from Appearance and Performance Technologies were $25 million, an increase of 117% over reported earnings in the year-ago period. Last year's quarter included a $7 million charge for asset redeployment that resulted from productivity initiatives. Excluding the impact of that charge, operating earnings rose 34%. Sales declined 2% to $171 million. While core demand in most of the segment's served markets was weak, results throughout this year reflect the benefit of lower costs resulting from productivity initiatives and market acceptance of new pigment and specialty technologies.
Materials Services
Operating earnings from Materials Services were $16 million excluding the benefit of the insurance settlements, up 24% from the same period last year. Sales were $496 million, down from $967 million. The earnings increase relates to the timing of platinum group metal transactions.
The second-quarter also was highlighted by the official opening of a new gas-to-liquids catalyst facility in DeMeern, The Netherlands; dedication of new gasoline- and diesel-emission technology capabilities in Nienburg, Germany; and the combined contribution from new technologies in process and appearance markets.
Engelhard Corporation is a surface and materials science company that develops technologies to improve customers' products and processes. A Fortune 500 company, Engelhard is a world-leading provider of technologies for environmental, process, appearance and performance applications. For more information, visit Engelhard on the Internet at www.engelhard.com
Forward-looking statements: This document contains forward-looking statements in management's comments. There are a number of factors that could cause Engelhard's actual results to vary materially from those projected in the forward-looking statements. For a more thorough discussion of these factors, please refer to page 27 of Engelhard's 2001 Form 10-K, dated March 21, 2002.
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 982,314 $1,471,576 $1,984,135 $3,082,893
Cost of sales 805,158 1,298,506 1,646,287 2,743,575
---------- ---------- ---------- ----------
Gross profit 177,156 173,070 337,848 339,318
Selling, administrative
and other expenses 95,800 87,846 183,411 175,425
Special (credit)/charge (7,862) 7,100 (7,862) 7,100
---------- ---------- ---------- ----------
Operating earnings 89,218 78,124 162,299 156,793
Equity in earnings of
affiliates 4,408 14,955 8,070 20,408
Loss on investments (6,659) - (6,659) -
Interest expense, net (6,868) (12,789) (13,788) (27,132)
---------- ---------- ---------- ----------
Earnings before
income taxes 80,099 80,290 149,922 150,069
Income tax expense 20,024 20,790 37,480 42,770
---------- ---------- ---------- ----------
Net earnings $ 60,075(A)$ 59,500 $ 112,442 $ 107,299
========== ========== ========== ==========
Basic earnings
per share $ 0.47 $ 0.45 $ 0.87 $ 0.83
========== ========== ========== ==========
Diluted earnings
per share $ 0.46(A)$ 0.45 $ 0.85 $ 0.81
========== ========== ========== ==========
Cash dividends
paid per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
========== ========== ========== ==========
Average number of
shares outstanding
- basic 128,707 131,098 128,750 129,674
========== ========== ========== ==========
Average number of
shares outstanding
- diluted 131,673 133,704 131,544 131,877
========== ========== ========== ==========
Actual number of
shares outstanding 129,180 131,598 129,180 131,598
========== ========== ========== ==========
(A) - Excluding an insurance settlement gain of $11.0 million ($6.8
million after tax), an investment impairment of $6.7 million
($4.1 million after tax) and a manufacturing consolidation
charge of $3.1 million ($1.9 million after tax), the Company
would have reported net earnings of $59.3 million and diluted
earnings per share of $0.45 in the second quarter of 2002.
ENGELHARD CORPORATION
BUSINESS SEGMENT INFORMATION
(Thousands)
(Unaudited)
Three Months Ended
June 30,
-----------------------
2002 2001 Change
----------- ----------- ------
Net Sales
Environmental Technologies $ 170,564 $ 176,755 -4%
Process Technologies 136,407 147,066 -7%
Appearance and Performance
Technologies 170,632 174,629 -2%
Materials Services 495,564 967,137 -49%
----------- -----------
Reportable segments 973,167 1,465,587 -34%
All other 9,147 5,989 53%
----------- -----------
$ 982,314 $ 1,471,576 -33%
=========== ===========
Operating Earnings
Environmental Technologies $ 27,983(A)$ 36,707 -24%
Process Technologies 22,972 22,677 1%
Appearance and Performance
Technologies 24,720 11,409(C)117%
Materials Services 27,245(B) 13,082 108%
----------- -----------
Reportable segments 102,920 83,875 23%
All other (13,702) (5,751) 138%
----------- -----------
89,218 78,124 14%
Equity in earnings of
affiliates 4,408 14,955 -71%
Loss on investments (6,659) -
Interest expense, net (6,868) (12,789) -46%
----------- -----------
Earnings before income
taxes 80,099 80,290
Income tax expense 20,024 20,790 -4%
----------- -----------
Net earnings $ 60,075 $ 59,500 1%
=========== ===========
Six Months Ended
June 30,
-----------------------
2002 2001 Change
---------- ----------- ------
Net Sales
Environmental Technologies $ 335,005 $ 345,237 -3%
Process Technologies 251,852 282,780 -11%
Appearance and Performance
Technologies 323,002 330,598 -2%
Materials Services 1,056,293 2,111,017 -50%
---------- -----------
Reportable segments 1,966,152 3,069,632 -36%
All other 17,983 13,261 36%
---------- -----------
$1,984,135 $ 3,082,893 -36%
========== ===========
Operating Earnings
Environmental Technologies $ 67,644(A)$ 79,133 -15%
Process Technologies 40,041 39,011 3%
Appearance and Performance
Technologies 39,851 21,513(C) 85%
Materials Services 37,423(B) 34,254 9%
---------- -----------
Reportable segments 184,959 173,911 6%
All other (22,660) (17,118) 32%
---------- -----------
162,299 156,793 4%
Equity in earnings of
affiliates 8,070 20,408 -60%
Loss on investments (6,659) -
Interest expense, net (13,788) (27,132) -49%
---------- -----------
Earnings before income
taxes 149,922 150,069
Income tax expense 37,480 42,770 -12%
---------- -----------
Net earnings $ 112,442 $ 107,299 5%
========== ===========
(A)- Includes a $3.1 million manufacturing consolidation charge.
(B)- Includes an $11.0 million insurance settlement gain.
(C)- Includes a $7.1 million special charge to reflect asset
redeployment actions and productivity improvements.
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
June 30, December 31,
2002 2001
-------------------------
Cash $ 57,015 $ 33,034
Receivables, net 385,462 347,656
Committed metal positions 453,692 569,109
Inventories 413,776 401,647
Other current assets 165,781 142,301
---------- ------------
Total current assets 1,475,726 1,493,747
Investments 212,309 213,467
Property, plant and equipment, net 824,203 822,520
Goodwill 271,910 253,603
Other intangible and noncurrent assets 184,470 212,212
---------- ------------
Total assets $2,968,618 $2,995,549
========== ============
Short-term borrowings $ 369,044 $ 389,051
Accounts payable 156,640 252,319
Hedged metal obligations 505,852 517,681
Other current liabilities 347,930 341,749
---------- ------------
Total current liabilities 1,379,466 1,500,800
Long-term debt 241,184 237,853
Other noncurrent liabilities 248,471 253,390
Shareholders' equity 1,099,497 1,003,506
---------- ------------
Total liabilities and
shareholders' equity $2,968,618 $2,995,549
========== ============
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------------
2002 2001
---------- ----------
Cash flows from operating activities
Net earnings $ 112,442 $ 107,299
Adjustments to reconcile net
earnings to net cash
provided by/(used in) operating
activities
Depreciation and depletion 52,632 46,592
Amortization of intangible assets 1,515 6,772
Loss on investments 6,659 -
Equity results, net of dividends (4,317) (16,251)
Net change in assets and liabilities
Metal related 7,706 (138,808)
All other (6,449) (32,833)
---------- ----------
Net cash provided by/(used in)
operating activities 170,188 (27,229)
---------- ----------
Cash flows from investing activities
Capital expenditures (46,196) (71,743)
Proceeds from sale of investments - 3,400
Acquisitions and other investments (2,400) (3,000)
---------- ----------
Net cash used in investing
activities (48,596) (71,343)
---------- ----------
Cash flows from financing activities
Decrease in short-term borrowings (20,008) (77,778)
(Decrease)/increase in hedged metal
obligations . (11,708) 152,103
Repayment of long-term debt (153) (8,910)
Purchase of treasury stock (90,545) (25,183)
Stock option plan transactions 45,335 87,613
Dividends paid (25,914) (26,334)
---------- ----------
Net cash (used in)/provided
by financing activities (102,993) 101,511
Effect of exchange rate changes on cash 5,382 (3,477)
---------- ----------
Net increase/(decrease) in cash 23,981 (538)
Cash at beginning of year 33,034 33,534
---------- ----------
Cash at end of period $ 57,015 $ 32,996
========== ==========