2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 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 No.)
incorporation or organization)
101 WOOD AVENUE, ISELIN, NJ 08830
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (732) 205-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. Yes |X|.
Number of shares of common stock outstanding as of March 23, 2001 - 129,969,342.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Proxy
Statement for the 2001 Annual Meeting of Shareholders, which will be filed by
April 30, 2001.
1
Table of Contents
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Item Page
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Part I
1. Business
(a) General development of business 3
(b) Segment and geographic area data 3-6, 52-56
(c) Description of business 3-6, 52-56
2. Properties 8-9
3. Legal Proceedings 9-10
4. Submission of Matters to a Vote of 10
Security Holders
Part II
5. Market for Registrant's 11
Common Equity and Related
Stockholder Matters
6. Selected Financial Data 12,64-65
7. Management's Discussion and 13-25
Analysis of Financial Condition
and Results of Operations
8. Financial Statements and 26-63
Supplementary Data
9. Changes in and Disagreements with 65
Accountants on Accounting and Financial
Disclosure
Part III
10. Directors and Executive Officers of 66-67
the Registrant
11. Executive Compensation 67
12. Security Ownership of Certain 67
Beneficial Owners and Management
13. Certain Relationships and Related 67
Transactions
Part IV
14. Exhibits, Financial Statement 68-131
Schedules, and Reports on Form 8-K
2
PART I
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Item 1. Business
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Engelhard Corporation (which together with its Subsidiaries, is
collectively referred to as the Company) was formed under the laws of Delaware
in 1938 and became a public company in 1981. The Company's principal executive
offices are located at 101 Wood Avenue, Iselin, NJ, 08830 (telephone number
(732) 205-5000).
The Company develops, manufactures and markets technology-based performance
products and engineered materials for a wide spectrum of industrial customers.
It also provides services to precious and base-metal customers.
The Company employed approximately 6,420 people as of January 1, 2001 and
operates on a worldwide basis with corporate, operating headquarters, principal
manufacturing facilities and mineral reserves in the United States and other
operations in the Asia-Pacific region, Canada, the European Community,
the Russian Federation, South Africa and South America.
The Company's businesses are organized into four reportable segments -
Environmental Technologies, Process Technologies, Appearance and Performance
Technologies and Materials Services.
The following information on the Company is included in Note 16, "Business
Segment and Geographic Area Data," of the Notes to Consolidated Financial
Statements: net sales to external customers, special and other charges,
operating earnings/(loss), net interest expense, depreciation, depletion and
amortization, equity in earnings/ (losses) of affiliates, total assets, equity
investments and capital expenditures.
ENVIRONMENTAL TECHNOLOGIES
The Environmental Technologies segment markets cost-effective compliance
with environmental regulations enabled by sophisticated emission-control
technologies and systems.
Environmental catalysts are used in applications such as the abatement of
carbon monoxide, oxides of nitrogen and hydrocarbons emissions from gasoline,
diesel and alternate-fueled vehicles. These catalysts also are used to remove
odors, fumes and pollutants associated with a variety of process industries;
co-generation and gas-turbine power generation; household appliances and lawn
and garden power tools.
The Company also participates in the manufacture and supply of automotive
emission-control catalysts through equity affiliates serving the Asia-Pacific
region: N.E. Chemcat Corporation (Japan) - 38.8%-owned; and Heesung-Engelhard
(South Korea) - 49%-owned, both of which also produce other catalysts and
products. Results of N.E. Chemcat are included in the Company's All-Other
segment, whereas results from Heesung-Engelhard are included in Environmental
Technologies.
3
The products of the Environmental Technologies segment compete in the
marketplace on the basis of value performance and cost. No single competitor is
dominant in the markets in which the Company operates.
The manufacturing operations of the Environmental Technologies segment are
carried out in the United States, Germany, India, South Africa, South America,
China, Thailand and the United Kingdom with equity investments located in the
United States and South Korea. The products are sold principally through the
Company's sales organizations or those of its equity investments, supplemented
by independent distributors and representatives.
Principal raw materials used by the Environmental Technologies segment
include precious metals, procured by the Materials Services segment, and a
variety of minerals and chemicals that are generally readily available.
As of January 1, 2001, the Environmental Technologies segment had
approximately 1,570 employees worldwide.
PROCESS TECHNOLOGIES
The Process Technologies segment enables customers to make their processes
more productive, efficient, environmentally sound and safer through the supply
of advanced chemical-and polymerization-process catalysts and sorbents. In
addition, the segment's advanced cracking and hydroprocessing technologies
enable petroleum refiners to more efficiently produce gasoline, transportation
fuels and heating oils.
Process Technologies' chemical catalysts are used in the manufacture of a
variety of products and intermediates made by chemical, petrochemical,
pharmaceutical and agricultural-chemical producers. Petroleum catalysts are used
by refiners to provide economies in petroleum processing and to meet
increasingly stringent fuel-quality requirements. Polymerization catalysts are
used in the production of polyproylene and polyethelyne, which are used in a
wide range of products, including food packaging, carpets, toys and automobile
bumbers. Sorbents are used to purify and decolorize naturally occurring fats and
oils for the manufacture of shortenings, margarines and cooking oils. The
segment's catalyst products are based on the Company's proprietary technology
and often are application-specific.
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. See Note 3, "Acquisitions and Divestitures,"
for further detail.
The products of the Process Technologies segment compete in the market-
place on the basis of value performance and cost. No single competitor is
dominant in the markets in which the Company operates.
The manufacturing operations of the segment are carried out in the United
States, Italy, The Netherlands and Spain. The products are sold principally
through the Company's sales organizations supplemented by independent
distributors and representatives.
The principal raw materials used by the segment include metals, procured
by the Materials Services segment and third parties; kaolin supplied by the
Appearance and Performance Technologies segment; and a variety of other minerals
and chemicals that are generally readily available.
As of January 1, 2001, the Process Technologies segment had approximately
1,750 employees worldwide. Most hourly employees are covered by collective
bargaining agreements. Employee relations have generally been good.
4
APPEARANCE AND PERFORMANCE TECHNOLOGIES
The Appearance and Performance Technologies segment provides pigments and
performance additives that enable its customers to market enhanced image and
functionality in their products. The segment serves a broad array of end markets
including coatings, plastics, cosmetics, construction and paper. The segment's
products help customers improve the look, performance and overall cost of their
products. This segment is also the internal supply source of precursors for the
Company's petroleum catalysts.
The segment's principal products include special-effect pigments, color
pigments and dispersions, paper pigments and extenders, specialty performance
additives and iridescent and specialty films. The segment's pearlescent pigments
provide a range of aesthetic, special effects in coatings, personal care and
cosmetics products, packaging, plastics, inks and other applications. Color
pigments include a broad range of organic and inorganic pigments, pigment
dispersions and universal colorants that impart color and special effects to
automotive finishes, coatings, plastics and inks. Paper pigments are used as
coating and extender pigments to improve the opacity, brightness, gloss and
printability of coated and uncoated papers. Specialty performance additives are
used to improve the functionality, appearance and value of liquid and powder
coatings, plastics, rubber, adhesives, inks, concrete and cosmetics. Iridescent
and specialty films are used to visually enhance a variety of products in such
applications as product packaging, labels, glitter, gift wrap and textiles.
The products of the Appearance and Performance Technologies segment compete
on the basis of value performance and cost. No single competitor is dominant in
the markets in which the Company competes.
Appearance and Performance Technologies manufacturing operations are
carried out in the United States, South Korea and Finland. Subsidiary sales and
distribution centers are located in France, Hong Kong, Japan, Mexico, The
Netherlands, and Turkey. An equity investment located in the Ukraine was written
off in 2000 (See Note 4, "Special and Other Charges", for further detail).
Products are sold through the Company's sales organization supplemented by
independent distributors and representatives.
The principal raw materials used by the Appearance and Performance
Technologies segment include naturally occurring minerals such as kaolin,
attapulgite and mica, which are mined from mineral reserves owned or leased by
the Company, and a variety of other minerals and chemicals which are readily
available.
As of January 1, 2001, the Appearance and Performance Technologies segment
had approximately 2,305 employees worldwide. Most hourly employees are covered
by collective bargaining agreements. Employee relations have generally been
good.
5
MATERIALS SERVICES
The Materials Services segment provides a full array of services to the
Company's technology businesses and their customers who rely on certain precious
and base metals as raw materials for their products. This is a distribution and
materials services business that purchases and sells precious metals, base
metals and related products and services. It does so under a variety of pricing
and delivery arrangements structured to meet the logistical, financial and
price-risk management requirements of the Company, its customers and suppliers.
Additionally, it offers related services for precious-metal refining and
produces salts and solutions.
The Materials Services segment is responsible for procuring precious and
base metals to meet the requirements of the Company's operations and its
customers. Supplies of newly mined platinum group metals are obtained primarily
from South Africa and the Russian Federation, and to a lesser extent, from the
United States and Canada, the only four regions that are known significant
sources. Most of these platinum group metals are obtained pursuant to a number
of contractual arrangements with different durations and terms. Gold and silver
are purchased from various sources. In addition, in the normal course of
business, certain customers and suppliers deposit significant quantities of
precious metals with the Company under a variety of arrangements. Equivalent
quantities of precious metals are returnable as product or in other forms.
Offices are located in the United States, Italy, Japan, the Russian
Federation, Switzerland and the United Kingdom. As of January 1, 2001, the
Materials Services segment had approximately 115 employees worldwide.
MAJOR CUSTOMERS
For the years ended December 31, 2000, 1999 and 1998, Ford Motor Company, a
customer of the Environmental Technologies and Materials Services segments,
accounted for more than 10% of the Company's net sales. Sales to this customer
included both fabricated products and precious metals and were therefore
significantly influenced by fluctuations in precious-metal prices as was the
quantity and type of metal purchased. In such cases, market price fluctuations,
quantities and types purchased can result in material variations in sales
reported, but do not usually have a direct or significant effect on earnings.
6
RESEARCH AND PATENTS
The Company currently employs approximately 545 scientists, technicians and
auxiliary personnel engaged in research and development in the fields of surface
chemistry and material science. These activities are conducted in the United
States and abroad. Research and development expenses were $82.8 million in 2000,
$77.9 million in 1999 and $69.8 million in 1998.
Research facilities include fully staffed instrument analysis laboratories
that the Company maintains in order to achieve the high level of precision
necessary for its technology businesses and to assist customers in understanding
how Engelhard's products and services add value to their businesses.
The Company owns or is licensed under numerous patents secured over a
period of years. It is the policy of the Company to normally apply for patents
whenever it develops new products or processes considered to be commercially
viable and, in appropriate circumstances, to seek licenses when such products or
processes are developed by others. While the Company deems its various patents
and licenses to be important to certain aspects of its operations, it does not
consider any significant portion or its business as a whole to be materially
dependent on patent protection.
ENVIRONMENTAL MATTERS
With the oversight of environmental agencies, the Company is currently
preparing, has under review, or is implementing environmental investigations and
cleanup plans at several currently or formerly owned and/or operated sites,
including Plainville, Massachusetts and Salt Lake City, Utah. The Company is
continuing to investigate contamination at Plainville under a 1993 agreement
with the United States Environmental Protection Agency (EPA) and is awaiting
approval of a decommissioning plan by the State of Massachusetts under authority
delegated by the Nuclear Regulatory Commission. Investigation of the
environmental status at the Salt Lake City site continues under a 1993 agreement
with the Utah Solid and Hazardous Waste Control Board.
In addition, as of December 31, 2000, eleven sites have been identified at
which the Company believes liability as a potentially responsible party (PRP) is
probable under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or similar state laws (collectively referred
to as Superfund) for the cleanup of contamination resulting from the historic
disposal of hazardous substances allegedly generated by the Company, among
others. Superfund imposes strict, joint and several liability under certain
circumstances. In many cases, the dollar amount of the claim is unspecified and
claims have been asserted against a number of other entities for the same relief
sought from the Company. Based on existing information, the Company believes
that it is a de minimis contributor of hazardous substances at a number of the
sites referenced above. Subject to the reopening of existing settlement
agreements for extraordinary circumstances or natural resource damages, the
Company has settled a number of other cleanup proceedings. The Company has also
responded to information requests from EPA and state regulatory authorities in
connection with other Superfund sites.
The accruals for environmental cleanup-related costs recorded in the
consolidated balance sheets at December 31, 2000 and 1999 were $24.7 million and
$31.3 million, respectively, including $0.6 million and $0.8 million,
respectively, for Superfund sites. These amounts represent those costs that the
Company believes are probable and reasonably estimable. Based on currently
available information and analysis, the Company's accrual represents
approximately 46% of what it believes are the reasonably possible environmental
cleanup-related costs of a noncapital nature. The estimate of reasonably
possible costs is less certain than the probable estimate upon which the accrual
is based.
7
Cash payments for environmental cleanup-related matters were $1.7 million,
$2.4 million and $4.1 million for 2000, 1999 and 1998, respectively. The amounts
accrued in connection with environmental cleanup-related matters were not
significant over this time period.
For the past three-year period, environmental-related capital projects have
averaged less than 10% of the Company's total capital expenditure programs, and
the expense of environmental compliance (e.g. environmental testing, permits,
consultants and in-house staff) was not material.
There can be no assurances that environmental laws and regulations will not
become more stringent in the future or that the Company will not incur
significant costs in the future to comply with such laws and regulations. Based
on existing information and currently enacted environmental laws and
regulations, cash payments for environmental cleanup-related matters are
projected to be $5.8 million for 2001, which has already been accrued. Further,
the Company anticipates that the amounts of capitalized environmental projects
and the expense of environmental compliance will approximate current levels.
While it is not possible to predict with certainty, Management believes that
environmental cleanup-related reserves at December 31, 2000 are reasonable and
adequate, and environmental matters are not expected to have a material adverse
effect on financial condition. These matters, if resolved in a manner different
from the estimates, could have a material adverse effect on the Company's
operating results or cash flows.
Item 2. Properties
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The Company leases a building on approximately seven acres of land with a
combined area of approximately 271,000 square feet in Iselin, NJ. This building
serves as the principal executive and administrative office of the Company and
its operating segments. The Company owns approximately 15 acres of land and
three buildings with a combined area of approximately 150,000 square feet in
Iselin, NJ. These buildings serve as the major research and development
facilities for the Company's operations. The Company also owns research
facilities in Gordon, GA; Union, NJ; Buchanan and Ossining, NY; Beachwood, OH;
Pasadena, TX; Hannover, Germany and DeMeern, The Netherlands.
The Environmental Technologies segment owns and operates plants in
Huntsville, AL; East Windsor, CT; Daytona and Deerfield Beach, FL; Wilmington,
MA; Hiram, OH; Duncan, SC; Newark, NJ; Nienburg, Germany; Madras, India; Port
Elizabeth, South Africa; Indiatuba, Brazil; Shanghai, China; Rayoung, Thailand
and Coleford and Cinderford in the United Kingdom.
8
The Process Technologies segment owns and operates plants in
Attapulgus and Savannah, GA; Elyria, OH; Erie, PA; Seneca, SC; Pasadena, TX;
Rome, Italy; DeMeern, The Netherlands; and Tarragona, Spain.
The Appearance and Performance Technologies segment owns and operates
attapulgite processing plants in Quincy, FL near the area containing its
attapulgite reserves, plus a mica mine and processing facilities in Hartwell,
GA. In addition, the segment owns and operates five kaolin mines and five
milling facilities in Middle Georgia, which serve an 85-mile network of
pipelines to three processing plants. It also owns land containing kaolin and
leases on a long-term basis kaolin mineral rights to additional acreage. The
segment also owns sales and manufacturing facilities in Helsinki, Kotka; Rauma,
Finland and Tokyo, Japan, in addition to owning and operating color, pearlescent
pigment and film manufacturing facilities in Sylmar, CA; Louisville, KY;
Eastport, ME; Peekskill, NY; Elyria, OH; Charleston, SC; and Inchon, South
Korea. Management believes the Company's attapulgite and mica reserves will be
sufficient to meet its needs for the foreseeable future.
The Materials Services segment's operations are conducted at leased
facilities in Iselin and Carteret, NJ; Lincoln Park, MI; Tokyo, Japan; Moscow,
Russia; Zug, Switzerland; and London, United Kingdom. In addition, the segment's
operations are conducted at owned facilities in Seneca, SC and Rome, Italy.
Management believes that the Company's processing and refining facilities,
plants and mills are suitable and have sufficient capacity to meet its normal
operating requirements for the foreseeable future.
Item 3. Legal Proceedings
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Various lawsuits, claims and proceedings are pending against the Company.
The Company is one of a number of defendants in numerous proceedings that
allege that the plaintiffs contracted cancer and/or suffered other injuries from
exposure to "toxic" substances purportedly supplied by the Company and other
defendants. The Company is also subject to a number of environmental
contingencies (see Note 18, "Environmental Costs," for further detail) and is a
defendant in a number of lawsuits covering a wide range of other matters. In
some of these matters, the remedies sought or damages claimed are substantial.
While it is not possible to predict with certainty the ultimate outcome of these
lawsuits or the resolution of the environmental contingencies, Management
believes, after consultation with counsel, that resolution of these matters is
not expected to have a material adverse effect on financial condition. These
matters, if resolved in a manner different from Management's current
expectations, could have a material adverse effect on the Company's operating
results or cash flows.
9
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 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. Management
believes the Company was targeted by corrupt officials within the former
Peruvian Government. 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.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
10
PART II
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Market for Registrant's Common Equity
Item 5. and Related Stockholder Matters
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As of March 23, 2001, there were 5,857 holders of record of the Company's
common stock, which is traded on the New York Stock Exchange (ticker symbol
"EC"), as well as on the London and Swiss stock exchanges.
The range of market prices and cash dividends for each quarterly
period were as follows:
NYSE Cash
Market Price dividends
High Low per share
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2000
First quarter $19.19 $12.56 $0.10
Second quarter 19.00 14.31 0.10
Third quarter 19.75 15.06 0.10
Fourth quarter 21.50 16.00 0.10
1999
First quarter $20.81 $16.50 $0.10
Second quarter 23.69 16.25 0.10
Third quarter 23.00 18.19 0.10
Fourth quarter 19.25 16.31 0.10
11
Item 6. Selected Financial Data
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Selected Financial Data
($ in millions, except per share amounts)
OPERATING RESULTS 2000 1999 1998 1997 1996
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OPERATING RESULTS
Net sales $5,542.6 $4,488.0 $4,246.6 $3,716.8 $3,274.0
Net earnings(1) 168.3 197.5 187.1 47.8 150.4
Basic earnings per share 1.33 1.49 1.30 0.33 1.05
Diluted earnings per share 1.31 1.47 1.29 0.33 1.03
Total assets 3,166.8 2,920.5 2,866.3 2,586.3 2,490.5
Long-term debt 248.6 499.5 497.4 373.6 375.1
Shareholders' equity 874.6 764.4 901.6 785.3 833.2
Cash dividends paid per share 0.40 0.40 0.40 0.38 0.36
Return on average shareholders' equity 20.5% 23.7% 22.2% 5.9% 19.2%
Unless otherwise indicated, all per-share amounts are presented as diluted earnings per share, as calculated
under SFAS No. 128, "Earnings Per Share".
(1) Results in 2000 include the following: fourth-quarter special and other charges of $75.1 million ($0.59 per
share) for a variety of events (see Note 4, "Special and Other Charges," for further detail), a third-quarter impairment
charge of $16.9 million ($0.13 per share) related to the write-down of goodwill and fixed assets of the Company's
HexCore business unit, net gains of $12.9 million ($0.10 per share) on sales of investments and land, a gain of $2.5 million
($0.02 per share) on the sale of inventory accounted for under the LIFO method and a gain of $4.4 million
($0.03 per share) related to the partial liquidation of precious metal inventories of Engelhard-CLAL, a precious-metal-fabrication
joint venture.
Results in 1999 include net gains of $6.0 million ($0.04 per share) on sales of investments and land, a gain
of $2.2 million ($0.02 per share) on the sale of inventory accounted for under the LIFO method and a
gain of $1.3 million ($0.01 per share) related to the partial liquidation of precious metal inventories of
Engelhard-CLAL.
Results in 1998 include a gain of $4.9 million ($0.03 per share) on the sale of inventory accounted for
under the LIFO method.
Results in 1997 include special and other charges of $117.7 million ($0.81 per share) for a variety of
events (including restructuring actions and a loss from the base-metal fraud in Japan). In addition, 1997 results
include a gain of $2.0 million ($0.01 per share) on the sale of inventory accounted for under the LIFO
method.
Results in 1996 include a gain of $3.3 million (0.02 per share) on the sale of inventory accounted for
under the LIFO method.
12
Management's Discussion and Analysis
Item 7. of Financial Condition and Results of Operations
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Unless otherwise indicated, all per-share amounts are presented as diluted
earnings per share, as calculated under Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share."
RESULTS OF OPERATIONS
Net earnings of $168.3 million ($1.31 per share) in 2000 include
fourth-quarter special and other charges of $75.1 million ($0.59 per share) for
a variety of events (see Note 4, "Special and Other Charges" for further
detail), a third-quarter impairment charge of $16.9 million ($0.13 per share)
relating to HexCore and net gains on asset sales of $12.9 million ($0.10 per
share - see "Gain on Sale of Investments and Land, Net" section on page 20 for
further detail). Excluding these items, the Company would have reported net
earnings of $247.4 million and diluted earnings per share of $1.93 in 2000.
Net earnings of $197.5 million ($1.47 per share) in 1999 include net gains
on asset sales of $6.0 million ($0.04 per share - see "Gain on Sale of
Investments and Land, Net" section on page 20 for further detail). Excluding
these net gains, the Company would have reported net earnings of $191.5 million
and diluted earnings per share of $1.43 in 1999.
The information in the discussion of each segment's results is derived from
that segment's internal financial reporting system used for Management purposes.
Items allocated to each segment's results include the majority of corporate
overhead charges. Unallocated items include net interest expense, royalty
income, sale of inventory accounted for under the last-in, first-out (LIFO)
method, certain special and other charges and other miscellaneous corporate
items.
In the fourth quarter of 2000, the Company created a new technology segment
called Appearance and Performance Technologies by combining the former Specialty
Pigments and Additives and Paper Pigments and Additives segments. In addition,
the Materials Services segment was created from the former Industrial
Commodities Management segment. Certain historical segment data has been
reclassified to conform with these internal organizational changes.
13
ENVIRONMENTAL TECHNOLOGIES
The Environmental Technologies segment markets cost-effective compliance
with environmental regulations enabled by sophisticated emission-control
technologies and systems.
2000 Performance
Sales increased 9% to $636.7 million, and operating earnings increased 29%
to $131.8 million excluding the impact of special and other charges of $15.4
million. Operating earnings increased 14% including the impact of these charges.
Discussion (before the impact of special and other charges)
The majority of this segment's sales and operating earnings are derived
from technologies designed to control pollution from mobile sources, including
gasoline- and diesel-powered passenger cars, sport-utility vehicles, trucks,
buses and off-road vehicles. Sales and earnings increased primarily from higher
volumes of auto-emission catalysts in North America, as the business benefited
from increased volumes with General Motors and Nissan. Earnings benefited from
lower manufacturing costs and the elimination of losses from the segment's
sensor technologies business sold in February 2000. These earnings increases
were partially offset by costs related to the start-up of new manufacturing
facilities in Brazil and China and expansion of a facility in India.
Sales and earnings derived from the segment's non-automotive markets
increased due to continued high demand for emission-control systems for gas
turbines and heavy-duty diesel-engine retrofits for bus fleets. These increases
were partly offset by the absence of three months' results from the segment's
metal-joining products business sold in September 2000. Earnings from these
non-automotive markets were also partially offset by higher research and
administrative costs.
Outlook
This segment expects growth in sales and operating earnings to continue as
emission-control regulations become stricter around the world and address a much
broader range of emission sources. Demand from the automotive market is
expected to increase in response to the Company's development of several new
technologies. Demand also is expected to accelerate from the diesel-bus retrofit
market. Programs are underway in Paris, London, Hong Kong, the state of
California and a number of other cities.
Sales of advanced catalysts for medium-and heavy-duty diesel trucks are
expected to expand beginning in the second half of 2003 as new regulations begin
to take effect. The Company expects sales to start in the second half of 2003
for engines going into the California market. The European light-duty diesel
passenger vehicle segment is growing at a greater rate than the gasoline
segment, thus creating an opportunity to expand the segment's market position.
The medium-and heavy-duty engine sectors are to have new U.S. regulations
beginning in 2004.
The segment also anticipates continued growth from non-mobile applications
of its technology driven by increased demand for power generation and the need
to comply with emission-reduction regulations.
The segment's joint venture in Thailand (ECTL), which is a partnership with
its N.E. Chemcat joint venture in Japan, has completed construction of a new
plant and will commence shipments in the second half of 2001.
14
1999 compared with 1998
Sales increased 6% to $584.8 million, and operating earnings increased 15%
to $102.4 million.
Sales and operating earnings increases were primarily driven by strength in
auto-emission catalysts for North America and a surge in volume of diesel-engine
retrofit kits. These increases were partly offset by costs related to the
start-up of new manufacturing plants in India and Brazil. Operating earnings
also were favorably impacted by reduced material costs resulting from
supply-chain management initiatives.
PROCESS TECHNOLOGIES
The Process Technologies segment enables customers to make their processes
more productive, efficient, environmentally sound and safer through the supply
of advanced chemical-and polymerization-process catalysts and sorbents. In
addition, the segment's advanced cracking and hydroprocessing technologies
enable petroleum refiners to more efficiently produce gasoline, transportation
fuels and heating oils.
2000 Performance
Sales increased 9% to $566.6 million, and operating earnings increased 6%
to $86.5 million excluding the impact of special and other charges of $5.5
million. Operating earnings decreased 1% including the impact of these charges.
Discussion (before the impact of special and other charges)
Earnings growth from petroleum and polypropylene catalysts was offset by a
slight decline in earnings from chemical catalysts.
The increase in earnings from catalyst sales to the petroleum market was
primarily due to increased volumes of fluid cracking catalysts and reduced costs
from supply-chain management initiatives and productivity improvements. These
increases were partly offset by higher energy costs. Earnings from polypropylene
catalysts increased primarily from the continued strong demand for Lynx 1000
polypropylene catalysts and the inclusion of results from the polyolefin
catalyst business of Targor GmbH, acquired in September 2000. Lynx 1000
catalysts are used to produce polypropylene, which is used in a wide range of
products, including car battery cases, carpets, toys and automobile bumpers.
Earnings from catalyst sales to chemical-processing markets were down
slightly primarily due to higher raw material costs and an unfavorable foreign
currency translation.
15
Outlook
Sales and earnings growth in this segment is expected to come from custom
process catalysts, high value-add petroleum refining catalysts, increased market
penetration for polypropylene catalysts and a favorable comparison from the
full-year inclusion of results of the acquired Targor polyolefin catalyst
business. Additional growth is expected from continued cost management,
productivity improvements and product technology advances. New capacity for
polypropylene catalysts was added in 2000.
Overall weakness in the chemical industry, significantly higher energy and
raw material costs and relatively flat demand for petroleum cracking catalysts
are expected to continue for most of 2001. In the petroleum refining industry,
consolidations and more efficient refining operations are the primary drivers
influencing cracking catalyst demand. The segment will continue to aggressively
manage costs and emphasize high-value products and services. Included in the
segment's new product offerings are catalysts capable of significantly
improving petroleum refining yields.
1999 compared with 1998
Sales increased 3% to $521.8 million, and operating earnings increased 12%
to $81.9 million.
Sales growth was due to the full-year inclusion of results from the
catalyst businesses of Mallinckrodt Inc., acquired in May 1998. Excluding these
results, net sales for the segment would have declined slightly, primarily due
to lower demand for petrochemical catalysts and petroleum cracking catalysts.
Reduced costs from supply-chain management initiatives and productivity
improvements were the primary drivers of operating earnings growth.
APPEARANCE AND PERFORMANCE TECHNOLOGIES
The Appearance and Performance Technologies segment provides pigments and
performance additives that enable its customers to market enhanced image and
functionality in their products. The segment serves a broad array of end markets
including coatings, plastics, cosmetics, construction and paper. The segment's
products help customers improve the look, performance and overall cost of their
products. This segment is also the internal supply source of precursors for the
Company's petroleum catalysts.
2000 Performance
Sales increased 1% to $684.4 million, and operating earnings decreased 8%
to $80.2 million excluding the impact of special and other charges of $49.7
million. Operating earnings decreased 65% including the impact of these charges.
16
Discussion (before the impact of special and other charges)
Earnings declined as increased profits, driven by higher sales volumes from
special-effect pigments, were more than offset by declines from pigments sold to
the paper market. In spite of slightly higher volumes, earnings from the paper
market declined as a result of significantly higher energy costs and lower
selling prices.
Overall segment performance reflected the benefit of supply-chain
management initiatives and productivity improvements.
Outlook
Sales growth is expected to continue from both established and new product
offerings. New offerings include: Lumina (trademark) colors, a new generation of
mica-based special effect pigments for automotive coatings; Scintillating Silver
(trademark) bright metallic-silver pigments for nail enamels; ShimmerSilk
(trademark) high-strength film for textile use; an array of rightfitted organic
pigments for use in plastics applications; and Mirafilm (trademark) and Mirana
(trademark) engineered pigments for paper. No growth is expected in the
segment's paper markets.
In addition, the segment will continue efforts to improve productivity,
control operating and manufacturing costs in spite of expected continued higher
energy costs and pursue benefits from supply-chain initiatives. The segment also
plans to shift productive resources to markets that offer the highest value.
1999 compared with 1998
Sales increased 3% to $675.3 million, and operating earnings increased 12%
to $86.9 million.
Strong worldwide demand, including a rebound in the Asia-Pacific region,
drove sales increases for several of the segment's major product lines,
including effect pigments, specialty kaolin-based products and iridescent films.
The cosmetics, industrial, agricultural, construction, coatings and decorative
markets all contributed to the growth. These sales increases were partially
offset by decreased sales of color pigments, which resulted from product-supply
issues associated with the start-up of a new manufacturing process, and lower
sales for the paper markets.
Operating earnings increased driven by record-level sales growth in most
market segments, combined with savings from supply-chain management initiatives
and productivity improvements. Operating earnings were negatively impacted by
depressed pricing and a less favorable product mix for the paper market.
17
MATERIALS SERVICES
The Materials Services segment provides a full array of services to the
Company's technology businesses and their customers who rely on certain precious
and base metals as raw materials for their products. This is a distribution and
materials services business that purchases and sells precious metals, base
metals and related products and services. It does so under a variety of pricing
and delivery arrangements structured to meet the logistical, financial and
price-risk management requirements of the Company, its customers and suppliers.
Additionally, it offers related services for precious-metal refining and
produces salts and solutions.
2000 Performance
Sales increased 39% to $3.6 billion, and operating earnings increased 226%
to $129.3 million.
Discussion
Sales for this segment include substantially all of the Company's sales of
metals to industrial customers of all segments. Sales also include fees invoiced
for services rendered (e.g. refining and handling charges) plus the metal
content of refineables purchased and immediately hedged. Because of the
logistical and hedging nature of much of this business and the significant
precious metal values included in both sales and cost of sales, gross margins
tend to be low in relation to the Company's other manufacturing businesses as
does capital employed. This effect will also dampen the gross margin percentages
of the Company as a whole, but improves the return on investment.
While most customers for the Company's platinum-group-metal catalysts
purchase the metal from Materials Services, some choose to deliver metal from
other sources prior to the manufacture of the catalysts. In such cases, precious
metal values are not included in sales. The mix of such arrangements and the
extent of market price fluctuations can significantly affect the reported level
of sales and cost of sales, but there is no direct correlation between
year-to-year changes in reported sales and operating earnings.
The sales increase for the year resulted primarily from higher
platinum-group-metals prices and continued strong industrial demand for these
metals. Operating earnings increased significantly due to a combination of
higher volumes, prices and price volatility for all platinum group metals, as
well as growth in the recycling (refining) of these metals. Volatility not only
increases the spreads on transactions, but also provides opportunities to
benefit from strong and prudent physical positions (see the "Commodity Price
Risk" section on page 23 for further details).
Outlook
While a sustainable level of base business is anticipated, market
volatility cannot be assured. The benefits of such volatility represent an
opportunity for this segment above its sustainable base business. The
results of this segment are much more likely to approximate the levels produced
in 1998 and 1999 rather than the exceptional results reported in 2000.
18
1999 compared with 1998
Sales increased 11% to $2.6 billion, and operating earnings decreased 18%
to $39.6 million.
Sales increased primarily from higher volumes as well as higher palladium
and rhodium prices. Operating earnings decreased due to significantly lower
volatility in platinum group metals during the first half of 1999 as compared
with high volatility in 1998. Variability of shipments from Russia contributed
to high volatility in 1998.
Acquisitions
Other Party Business Arrangement Transaction Date Business Opportunity
----------- -------------------- ---------------- --------------------
Targor GmbH Acquired the polyolefin September 2000 Expansion of catalyst
catalyst business for business
$35 million
ISP Acquired the bismuth March 1999 Expansion of
product line for effect pigments for
$11.5 million cosmetics
Mallinckrodt Inc. Acquired the chemical May 1998 Expansion of catalyst
catalyst businesses business
(Mallinckrodt businesses)
for $210 million
Semo Chemical Acquired the pearlescent January 1998 Asian expansion into
Company pigments business for effect pigments markets
$13.5 million
CONSOLIDATED GROSS PROFIT
Gross profit as a percentage of sales was 13.2% in 2000, compared with
14.4% in 1999 and 15.3% in 1998. Excluding the impact of special and other
charges of $27.1 million in 2000, gross profit as a percentage of sales was
13.7% in 2000. The decrease was driven by the relatively lower margins earned on
metal sales by the Materials Services segment. Sales from this segment increased
39% in 2000 to $3.6 billion and provided a gross profit of 5%, while 2000 sales
from the other reportable segments increased 6% and provided a gross profit of
29%. Excluding the impact of special and other charges of $27.1 million in 2000,
the other reportable segments provided a gross profit of 30% in 2000. As
described earlier, the lower margins on Materials Services sales are driven by
the inclusion of the value of precious metals in both sales and cost of sales.
19
SELLING, ADMINISTRATIVE AND OTHER EXPENSES
Selling, administrative and other expenses were $382.3 million in 2000,
compared with $328.2 million in 1999 and $340.6 million in 1998. The 2000 amount
includes $23.8 million in special and other charges, and the 1998 amount
reflects the acquisition of the Mallinckrodt businesses in May 1998.
EQUITY EARNINGS
Equity in earnings of affiliates was $24.2 million in 2000, compared with
equity earnings of $16.3 million in 1999 and $10.1 million in 1998. The earnings
in 2000 reflect special and other charges of $0.8 million related to the
write-off of the Company's investment in its Dnipro Kaolin 50%-owned joint
venture. The increase in 2000 was primarily due to higher equity earnings from
Engelhard-CLAL, a 50%-owned 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 as the joint
venture is in the process of selling off business units. Higher equity earnings
were also reported for Heesung-Engelhard, a 49% Korean-owned environmental
catalyst joint venture. The increase in 1999 was primarily due to higher
earnings from Heesung-Engelhard; higher equity earnings from N.E. Chemcat
Corporation, a 38.8%-owned, publicly traded Japanese corporation that is a
leading producer of automotive and chemical catalysts; and the absence of losses
from Acreon Catalysts, a hydroprocessing joint venture sold in the first quarter
of 1999.
GAIN ON SALE OF INVESTMENTS AND LAND, NET
In the first quarter of 2000, the Company recorded a loss of $6.0 million
($4.1 million after tax or $0.03 per share) associated with
the divestiture of the International Dioxide, Inc. (IDI) business unit.
In the third quarter of 2000, the Company sold its metal-joining products
business located in Warwick, Rhode Island and recorded a gain of $24.8 million
($17.0 million after tax or $0.13 per share).
In the first quarter of 1999, the Company sold its investment in Acreon
Catalysts, a hydroprocessing joint venture. The Company recorded a gain of $1.0
million ($0.7 million after tax or less than $0.01 per share).
In the second quarter of 1999, the Company sold its metal-plating business
and recorded a gain of $9.3 million ($6.5 million after tax or $0.05 per share).
In addition, the Company reduced the carrying value of its investment in
Engelhard Highland Private Ltd., an India-based venture, to its estimated net
realizable value of $1.0 million. Accordingly, the Company recorded a loss of
$4.6 million ($3.2 million after tax or $0.02 per share).
In the third quarter of 1999, the Company sold its Mearlcrete concrete
foaming agent business. The Company recorded a gain of $1.1 million ($0.7
million after tax or less than $0.01 per share). In addition, the Company sold
land and certain mineral rights located in Talladega County, Alabama. The
Company recorded a gain of $1.8 million ($1.3 million after tax or $0.01 per
share).
20
INTEREST
Net interest expense was $62.6 million in 2000, compared with $56.6 million
in 1999 and $58.9 million in 1998. Net interest expense in 1999 included a
reduction of $7.1 million resulting from the settlement of treasury lock
positions that were entered into to hedge anticipated long-term borrowings that
never occurred. Excluding this reduction from 1999, net interest expense in 2000
decreased due to decreased borrowings, partially offset by increased interest
rates; exclusive of the reduction from treasury locks, net interest expense in
1999 increased from 1998 levels primarily due to increased borrowings related to
a major share repurchase in May 1999 and an increase in interest rates.
The Company capitalized interest of $3.9 million in 2000, $2.6 million in
1999 and $1.9 million in 1998.
Interest income was $2.1 million in 2000, $2.9 million in 1999 and
$2.3 million in 1998.
TAXES
The worldwide income tax expense was $77.4 million in 2000, compared with
$86.7 million in 1999 and $73.5 million in 1998. The effective income tax rate
was 31.5% in 2000, 30.5% in 1999 and 28.2% in 1998.
The increase in the worldwide effective tax rate in 2000 primarily resulted
from the Company's mix of income in jurisdictions with higher tax rates and the
mix of income from businesses with fewer tax benefits. The 1998 worldwide
effective tax rate reflected the reversal of certain valuation allowances
established against deferred tax assets arising from special charges recorded
in 1997.
FINANCIAL CONDITION AND LIQUIDITY
The working capital deficit was $85.0 million at December 31, 2000,
compared with a deficit of $67.5 million at December 31, 1999. The current ratio
was 1.0 in 2000 and 1999. The year-end market value of the Company's
precious-metal inventories accounted for under the LIFO method exceeded carrying
cost by $254.1 million at December 31, 2000, compared with $115.3 million at
December 31, 1999. The increase in excess value reflects higher market values
that more than offset the impact of slightly reduced inventory volumes (see Note
5, "Inventories" for further detail).
The Company's total debt decreased to $750.7 million at December 31, 2000
from $951.5 million at December 31, 1999. The ratio of total debt to total
capital decreased to 46% at December 31, 2000 from 55% at December 31, 1999,
primarily due to decreased long-term borrowings and increased retained earnings.
The Company currently has a $600 million, five-year committed credit
facility and a $200 million, one-year committed credit facility with a group of
major U.S. and overseas banks. Additional unused, uncommitted lines of credit
exceeded $680 million at December 31, 2000.
In July 1998, the Company filed a shelf registration for $300 million.
Plans to issue debt under the shelf registration are under consideration by
Management.
21
Operating activities provided net cash of $180.1 million in 2000 compared
with $349.0 million in 1999 and $176.7 million in 1998. The variance in cash
flows from operating activities primarily occurred in the Materials Services
segment and reflects changes in metal positions used to facilitate requirements
of the Company, its metals customers and suppliers. Materials Services routinely
enters into a variety of arrangements for the sourcing of metals. Generally, all
such transactions are hedged on a daily basis (see Note 1, "Summary of
Significant Accounting Policies"). Hedging is accomplished primarily through
forward, future and option contracts. Hedged metal obligations (primarily
amounts payable for metal purchased forward as an economic hedge) are considered
financing activities and are included in that section of the Company's
"Consolidated Statements of Cash Flows." These transactions generally cover
Materials Services sourcing requirements. Materials Services works to ensure
that the Company and its customers have an uninterrupted source of metals,
primarily platinum group metals, utilizing supply contracts and commodities
markets around the world. Cash flows from operating activities in 2000 were also
negatively impacted by higher receivables related to increased prices of
platinum group metals.
The cash provided from operations other than the change in metal-related
assets and liabilities exceeded $245 million in 2000, 1999 and 1998.
The variance in cash flows from investing activities is primarily due to
proceeds received from the sale of the Company's metal-joining products business
in September 2000, the acquisition of the Targor polyolefin catalyst business in
September 2000, proceeds received from the sale and leaseback of the Company's
principal executive and administrative offices in December 1998 and the
acquisition of the Mallinckrodt businesses in May 1998.
The variance in cash flows from financing activities was impacted by the
repayment of long-term debt in the third quarter of 2000 and increased
short-term borrowings in 1999 to fund a major share repurchase.
Management believes that existing sources of capital, together with cash
flows from operations, will be sufficient to meet foreseeable cash flow
requirements.
MARKET-RISK SENSITIVE TRANSACTIONS
The Company is exposed to market risks arising from adverse changes in
interest rates, foreign currency exchange rates and commodity prices. In the
normal course of business, the Company uses a variety of techniques and
instruments, including derivatives, as part of its overall risk management
strategy. The Company enters into derivative agreements with a diverse group of
major financial and other institutions with individually determined credit
limits to reduce exposure to the risk of nonperformance by counterparties.
INTEREST RATE RISK
The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined here
as the potential change in the fair value of debt resulting from an adverse
movement in interest rates. The fair value of the Company's total debt was
$739.9 million at December 31, 2000 and $931.0 million at December 31, 1999
based on average market quotations of price and yields provided by investment
banks. A 100 basis-point increase in interest rates could result in a reduction
in the fair value of total debt of $17.3 million at December 31, 2000 compared
with $21.8 million at December 31, 1999.
22
Also, the Company uses interest-rate derivatives to help achieve its fixed
and floating rate debt objectives. In 2000, the Company did not enter into any
interest rate derivative agreements. During 1999, the Company entered into two
forward treasury lock agreements with a total notional value of $100 million,
which were settled in September and October of 1999. As of December 31, 1998,
the Company had two forward treasury lock agreements with a total notional value
of $100 million, both of which were settled in March 1999.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company uses a variety of strategies, including foreign currency
forward contracts, to minimize or eliminate foreign currency exchange rate risk
associated with substantially all of its foreign currency transactions,
including metal-related transactions denominated in other than U.S. dollars. In
selected circumstances, the Company may enter into foreign currency forward
contracts to hedge the U.S. dollar value of its foreign investments.
The Company uses sensitivity analysis to assess the market risk associated
with its foreign currency transactions. Market risk is defined here as the
potential change in fair value resulting from an adverse movement in foreign
currency exchange rates. A 10% adverse movement in foreign currency rates could
result in a net loss of $23.6 million at December 31, 2000 compared with $9.1
million at December 31, 1999 on the Company's foreign currency forward
contracts. However, since the Company limits the use of foreign currency
derivatives to the hedging of contractual foreign currency payables and
receivables, this loss in fair value for those instruments generally would be
offset by a gain in the value of the underlying payable or receivable.
A 10% adverse movement in foreign currency rates could result in an
unrealized loss of $103.6 million at December 31, 2000 compared with $79.4
million at December 31, 1999 on the Company's net investment in foreign
subsidiaries and affiliates. However, since the Company views these investments
as long term (except for Engelhard-CLAL as the Company is in the process of
liquidating all or part of its investment in this joint venture), the Company
would not expect such a loss to be realized in the near term.
COMMODITY PRICE RISK
In closely monitored situations, for which exposure levels and transaction
size limits have been set by senior management, the Company from time to time
holds large, unhedged industrial commodity positions that are subject to future
market fluctuations. Such positions may include varying levels of derivative
commodity instruments. All unhedged industrial commodity transactions are
monitored and marked-to-market daily, as necessary. All other industrial
commodity transactions are hedged on a daily basis, using forward, future,
option or swap contracts to substantially eliminate the exposure to price risk.
The Company has performed a "value-at-risk" analysis on all of its
commodity assets and liabilities. The "value-at-risk" calculation is a
statistical model that uses historical price and volatility data to predict
market risk on a one-day interval with a 95% confidence level. While the
"value-at-risk" models are relatively sophisticated, the quantitative
information generated is limited by the historical information used in the
calculation. For example, the volatility in the platinum and palladium markets
in 2000 and 1999 was greater than historical norms. Therefore, the Company uses
this model only as a supplement to other risk management tools and not as a
substitute for the experience and judgment of senior management and dealers who
have extensive knowledge of the markets and adjust positions and revise
strategies as the markets change. Based on the "value-at-risk" analysis, the
maximum potential one-day loss in fair value was approximately $4.8 million as
of December 31, 2000 compared with $3.9 million as of December 31, 1999.
23
CAPITAL EXPENDITURES, COMMITMENTS AND CONTINGENCIES
Capital projects are designed to maintain capacity, expand operations,
improve efficiency or protect the environment. Capital expenditures amounted to
$136.6 million in 2000, $102.0 million in 1999 and $116.5 million in 1998.
Capital expenditures in 2001 are expected to be approximately $165 million. For
information about commitments and contingencies, see Note 18, "Environmental
Costs" and Note 19, "Litigation and Contingencies."
DIVIDENDS AND CAPITAL STOCK
The annualized common stock dividend rate at the end of 2000, 1999 and 1998
was $0.40 per share.
JAPAN FRAUD UPDATE/PERU UPDATE
See Note 19, "Litigation and Contingencies," for a discussion of Japan and
Peru.
SPECIAL AND OTHER CHARGES
See Note 4, "Special and Other Charges," for a discussion of the Company's
special and other charges.
OTHER MATTERS
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.
Adoption of these statements in the first quarter of 2001 did not have a
material effect on the Company's results of operations, financial position, cash
flows or equity. The Company does not expect them to have a material effect on
results of operations, financial position, cash flows or equity.
While the Company engages in economic hedging of metal positions, it does
not plan to avail itself of the hedge accounting provisions of the new
statements. Accordingly, present accounting policies are relatively unchanged by
the new statements.
24
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 that 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. 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.
25
ENGELHARD CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31 (in thousands, except per-share amounts) 2000 1999 1998
----------- ----------- ------------
Net sales $ 5,542,648 $ 4,488,007 $ 4,246,638
Cost of sales 4,812,450 3,843,950 3,596,709
----------- ----------- ------------
Gross profit 730,198 644,057 649,929
Selling, administrative and other expenses 382,287 328,242 340,556
Special charge 82,548 - -
----------- ----------- ------------
Operating earnings 265,363 315,815 309,373
Equity in earnings of affiliates 24,187 16,266 10,077
Gain on sale of investments and land, net 18,786 8,592 -
Interest expense, net (62,649) (56,555) (58,887)
----------- ----------- ------------
Earnings before income taxes 245,687 284,118 260,563
Income tax expense 77,391 86,656 73,479
----------- ----------- -----------
Net earnings $ 168,296 $ 197,462 $ 187,084
=========== =========== ============
Basic earnings per share $ 1.33 $ 1.49 $ 1.30
Diluted earnings per share $ 1.31 $ 1.47 $ 1.29
=========== =========== ============
Average number of shares outstanding - basic 126,351 132,432 144,157
=========== =========== ============
Average number of shares outstanding - diluted 128,141 134,590 145,366
=========== =========== ============
See accompanying Notes to Consolidated Financial Statements.
26
ENGELHARD CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31 (in thousands) 2000 1999
-------------------------- ---------------------------
Assets
Cash $ 33,534 $ 54,375
Receivables, net of allowances of
$6,534 and $5,217, respectively 459,753 394,338
Committed metal positions 720,659 467,768
Inventories 371,767 359,153
Other current assets 155,992 121,672
---------------------------
Total current assets 1,741,705 1,397,306
Investments 200,070 182,184
Property, plant and equipment, net 767,687 871,900
Intangible assets, net 302,843 325,544
Other noncurrent assets 154,527 143,590
---------------------------
Total assets $3,166,832 $2,920,524
===========================
Liabilities and Shareholders' Equity
Short-term borrowings $ 502,172 $ 452,029
Accounts payable 220,827 246,016
Hedged metal obligations 676,460 497,800
Other current liabilities 427,240 268,978
---------------------------
Total current liabilities 1,826,699 1,464,823
Long-term debt 248,566 499,466
Other noncurrent liabilities 217,000 191,845
---------------------------
Total liabilities 2,292,265 2,156,134
---------------------------
Shareholders' equity:
Preferred stock, no par value, 5,000 shares
authorized and unissued - -
Common stock, $1 par value, 350,000 shares
authorized and 147,295 shares issued 147,295 147,295
Retained earnings 1,122,377 1,000,473
Treasury stock, at cost, 20,662 and 21,414
shares, respectively (344,036) (352,282)
Accumulated other comprehensive loss (51,069) (31,096)
---------------------------
Total shareholders' equity 874,567 764,390
---------------------------
Total liabilities and shareholders' equity $3,166,832 $2,920,524
===========================
See accompanying Notes to Consolidated Financial Statements.
27
ENGELHARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (in thousands) 2000 1999 1998
-----------------------------------------------
Cash flows from operating activities
Net earnings $168,296 $197,462 $187,084
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and depletion 103,326 98,328 88,374
Amortization of intangible assets 13,733 13,296 12,557
Gain on sale of investments and land, net (18,786) (8,592) -
Equity results, net of dividends (19,823) (13,835) (8,055)
Net change in assets and liabilities
Metal related (115,569) 83,033 (71,859)
All other 48,878 (20,685) (31,389)
-----------------------------------------------
Net cash provided by operating activities 180,055 349,007 176,712
-----------------------------------------------
Cash flows from investing activities
Capital expenditures (136,579) (101,957) (116,460)
Proceeds from sale of investments and land 52,811 12,764 1,018
Proceeds from sale and leaseback - - 67,168
Acquisitions and other investments (40,095) (3,142) (244,780)
Other 838 368 5,850
-----------------------------------------------
Net cash used in investing activities (123,025) (91,967) (287,204)
-----------------------------------------------
Cash flows from financing activities
Increase in short-term borrowings 77 102,825 5,349
Increase/(decrease) in hedged metal obligations 69,188 (79,525) 39,743
Proceeds from issuance of long-term debt - 100,773 115,605
Repayment of long-term debt (104,132) (4,500) -
Purchase of treasury stock (71) (298,032) (8,411)
Stock bonus and option plan transactions 11,400 7,455 11,021
Dividends paid (51,002) (52,658) (57,842)
-----------------------------------------------
Net cash (used in)/provided by financing activities (74,540) (223,662) 105,465
Effect of exchange rate changes on cash (3,331) (1,342) (1,399)
-----------------------------------------------
Net (decrease)/increase in cash (20,841) 32,036 (6,426)
Cash at beginning of year 54,375 22,339 28,765
-----------------------------------------------
Cash at end of year $ 33,534 $ 54,375 $ 22,339
===============================================
See accompanying Notes to Consolidated Financial Statements.
28
ENGELHARD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
other Total
Common Retained Treasury Comprehensive comprehensive shareholders'
(in thousands, except per-share amounts) stock earnings stock income/(loss) income/(loss) equity
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $147,295 $726,082 $(45,992) $(42,125) $785,260
Comprehensive income/(loss):
Net earnings 187,084 $187,084 187,084
-------
Other comprehensive income/(loss):
Foreign currency translation adjustments 12,067
Minimum pension liability adjustment (3,916)
-------
Other comprehensive income 8,151 8,151 8,151
-------
Comprehensive income 195,235
=======
Dividends ($0.40 per share) (57,842) (57,842)
Treasury stock acquired (8,411) (8,411)
Adoption of Rabbi Trust (3,603) (20,103) (23,706)
Stock bonus and option plan transactions 1,528 9,493 11,021
----------------------------------------------------------------------------
Balance at December 31, 1998 147,295 853,249 (65,013) (33,974) 901,557
Comprehensive income/(loss):
Net earnings 197,462 197,462 197,462
-------
Other comprehensive income/(loss):
Foreign currency translation adjustments (18)
Minimum pension liability adjustment 2,896
-------
Other comprehensive income 2,878 2,878 2,878
-------
Comprehensive income 200,340
=======
Dividends ($0.40 per share) (52,658) (52,658)
Treasury stock acquired (298,032) (298,032)
Stock bonus and option plan transactions 2,420 10,763 13,183
----------------------------------------------------------------------------
Balance at December 31, 1999 147,295 1,000,473 (352,282) (31,096) 764,390
Comprehensive income/(loss):
Net earnings 168,296 168,296 168,296
-------
Other comprehensive income/(loss):
Foreign currency translation adjustments (20,993)
Minimum pension liability adjustment 1,020
-------
Other comprehensive loss (19,973) (19,973) (19,973)
-------
Comprehensive income $148,323
=======
Dividends ($0.40 per share) (51,002) (51,002)
Treasury stock acquired (71) (71)
Stock bonus and option plan transactions 4,610 8,317 12,927
----------------------------------------------------------------------------
Balance at December 31, 2000 $147,295 $1,122,377 $(344,036) $(51,069) $874,567
============================================================================
See accompanying Notes to Consolidated Financial Statements.
29
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Engelhard Corporation and its wholly owned subsidiaries (collectively referred
to as Engelhard or the Company). All significant intercompany transactions and
balances have been eliminated in consolidation. Certain prior-year amounts have
been reclassified to conform with the current-year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include all investments purchased with an original
maturity of three months or less and have virtually no risk of loss in value.
INVENTORIES
Inventories are stated at the lower of cost or market. The elements of cost
include direct labor and materials, variable overhead and fixed manufacturing
overhead. The cost of owned precious-metal inventories is determined using the
last-in, first-out (LIFO) method of inventory valuation. The cost of other
inventories is principally determined using either the average cost or the
first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation of
buildings and equipment are provided primarily on a straight-line basis over the
estimated useful lives of the assets. Buildings and building improvements are
depreciated over 20 years, while machinery and equipment is depreciated based on
lives varying from 3 to 10 years. Depletion of mineral deposits and mine
development are provided under the units-of-production method. When assets are
sold or retired, the cost and related accumulated depreciation is removed from
the accounts, and any gain or loss is included in earnings. The Company
continually evaluates the reasonableness of depreciation of its fixed assets. If
it becomes probable that expected future undiscounted cash flows associated with
these assets are less than their carrying value, the assets are written down to
their fair value.
INTANGIBLE ASSETS
Identifiable intangible assets, such as patents and trademarks, are
amortized using the straight-line method over their estimated useful lives.
Goodwill is amortized over periods up to 40 years using the straight-line
method. The Company recorded amortization expense of $13.7 million in 2000,
$13.3 million in 1999 and $12.6 million in 1998. Accumulated amortization
amounted to $60.4 million and $46.7 million at December 31, 2000 and December
31, 1999, respectively. Included in intangible assets is net goodwill that
amounted to $248.4 million and $290.1 million at December 31, 2000 and December
31, 1999, respectively. The Company continually evaluates the reasonableness of
its amortization of intangibles. In addition, if it becomes probable that
expected future undiscounted cash flows associated with intangible assets are
less than their carrying value, the assets are written down to their fair value.
In 2000, the Company wrote-off goodwill of $30.4 million as follows: in the
first quarter, the Company wrote-off $6.0 million of goodwill associated with
the divestiture of its International Dioxide, Inc. (IDI) business unit; in the
third quarter, the Company wrote-off $21.9 million of goodwill related to the
impairment of its HexCore business unit; and, in the fourth quarter, the Company
wrote-off $2.5 million of goodwill as part of its fourth-quarter special charge
related to the impairment of its colors business.
30
COMMITTED METAL POSITIONS AND HEDGED METAL OBLIGATIONS
Committed metal positions reflect the fair value of metal owned by the
Company (other than LIFO inventory) and the fair market value of contracts
undertaken to economically hedge price exposures related to a portion of these
metals (see Note 8, "Committed Metal Positions and Hedged Metal Obligations" for
further detail). Hedged metal obligations are valued at fair value and are
comprised of amounts due for metal purchased forward as an economic hedge and
amounts representing losses under forward sales and similar derivative
transactions undertaken as economic hedges.
To the extent metal prices increase subsequent to a spot purchase that has
been hedged, the Company will record a gain while marking the spot metal to
market and recognize a loss related to the fair value of the derivative
instrument. The aggregate fair value of derivataives in a loss position will be
classified as part of hedged metal obligations at the balance sheet date while
the spot gains will be included in committed metal positions. Should the reverse
occur and the metal prices decrease, the resultant gain on the derivative will
be offset against the spot loss within committed metal positions. The reason for
this seemingly divergent treatment is that a liability to the counterparty will
have been incurred with respect to any derivative instrument in a loss position.
Both spot metal and the so-called derivative instruments used in hedging
(e.g. forwards, futures, swaps and options) are stated at market or fair value.
Fair value is generally based on listed market prices. If listed market prices
are not available or if liquidating the Company's positions would reasonably be
expected to impact market prices, fair value is determined based on other
relevant factors, including dealer price quotations and price quotations in
different markets, including markets located in different geographic areas. Any
change in value, realized or unrealized, is recognized in gross profit in the
period of the change.
In closely monitored situations, for which exposure levels and transaction
size limits have been set by senior management, the Company from time to time
holds large unhedged industrial commodity positions that are subject to future
market fluctuations. Such positions may include varying levels of derivative
commodity instruments. All unhedged industrial commodity transactions are
monitored and marked-to-market daily, as necessary. The portion of this metal
that has not been hedged is therefore subject to price risk and is disclosed in
Note 8, "Committed Metal Positions and Hedged Metal Obligations."
ENVIRONMENTAL COSTS
In the ordinary course of business, like most other industrial companies,
the Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations and has made provisions for the
estimated financial impact of environmental cleanup-related costs. The Company's
policy is to accrue environmental cleanup-related costs of a noncapital nature
when those costs are believed to be probable and can be reasonably estimated.
Environmental cleanup costs are deemed probable when litigation has commenced or
a claim or an assessment has been asserted, or, based on available information,
commencement of litigation or assertion of a claim or an assessment is probable,
and, based on available information, it is probable that the outcome of such
litigation, claim or assessment will be unfavorable. The quantification of
environmental exposures requires an assessment of many factors, including
changing laws and regulations, advancements in environmental technologies, the
quality of information available related to specific sites, the assessment stage
of each site investigation, preliminary findings and the length of time involved
in remediation or settlement. For certain matters, the Company expects to share
costs with other parties. The Company does not include anticipated recoveries
from insurance carriers or other third parties in its accruals for environmental
liabilities.
31
REVENUE RECOGNITION
Revenues are recognized on sales of product at the time the goods are
shipped or when risks of ownership have passed to the customer. In limited
situations, revenue is recognized on a bill-and-hold basis as title passes to
the customer before shipment of goods. These bill-and-hold sales meet the
criteria for revenue recognition. Sales recognized on a bill-and-hold basis were
approximately $13.6 million in 2000, $12.9 million in 1999 and $10.8 million in
1998.
In accordance with EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs," adopted by the Company in the fourth quarter of 2000, the Company
reports amounts billed to customers for shipping and handling fees as sales in
the Company's "Consolidated Statements of Earnings." Costs incurred by the
Company for shipping and handling fees are reported as cost of sales.
SALES AND COST OF SALES
Some of the Company's businesses use precious metals in their manufacturing
processes. Precious metals are included in sales and cost of sales if the metal
has been supplied by the Company. Often, customers supply the precious metals
for the manufactured product. In those cases, precious-metals values are not
included in sales or cost of sales. The mix of such arrangements and the extent
of market-price fluctuations can significantly affect the reported level of
sales and cost of sales, but there is no direct correlation between year-to-year
changes in reported sales and operating earnings.
In addition, sales and purchases of precious metals to/from industrial and
refining customers are transacted through the Company's Materials Services
segment and are recorded in sales and cost of sales. Secondarily, and usually as
a consequence of the above transactions, the Company also engages in
precious-metals sourcing with other counterparties. In these cases, the
precious-metals values are generally included in sales and cost of sales only to
the extent that the Company has added value by changing the physical form of the
metal. For all Materials Services activities, an unrealized gain or loss is
recorded as an element of cost of sales based on changes in the market value of
the Company's positions.
INCOME TAXES
Deferred income taxes reflect the differences between the assets and
liabilities recognized for financial reporting purposes and amounts recognized
for tax purposes. Deferred taxes are based on tax laws as currently enacted.
EQUITY METHOD OF ACCOUNTING
The Company's investments in 20%-to 50%-owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for using the equity method. Accordingly, the Company's share of
the earnings of these companies is included in consolidated net income.
Investments in other companies are carried at cost.
FOREIGN CURRENCY TRANSLATION
The functional currency for the majority of the Company's foreign
operations is the applicable local currency. The translation from the applicable
foreign currencies to U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted-average exchange rate during the period. The
resulting translation adjustments are recorded as a component of shareholders'
equity. Gains or losses resulting from foreign currency transactions are
included in the Company's "Consolidated Statements of Earnings."
DERIVATIVE INSTRUMENTS
The Company enters into foreign exchange contracts as a hedge against
monetary assets and/or liabilities that are denominated in currencies other
than the functional currency of the entity holding those assets or liabilities.
The ultimate maturities of the contracts are timed to coincide with the expected
liquidation of the underlying monetary balances. Gains and losses on the
ultimate settlement of the contracts are offset against the losses and gains
realized on those underlying monetary accounts.
32
Interest rate swaps, treasury locks and similar arrangements are used by
the Company to lock in interest rates and/or convert floating rates to fixed and
vice versa. The differential to be paid or received is accrued as interest rates
change and is recognized over the life of the underlying debt agreements.
Natural gas futures contracts are used as a hedge to protect a portion of
manufacturing costs against the volatility of natural gas pricing over future
periods. The ultimate maturities of the contracts are timed to coincide with the
expected usage of natural gas in the Company's manufacturing operations.
The use of derivative metal instruments is discussed on page 31 under
"Committed Metal Positions and Hedged Metal Obligations." To the extent that the
maturities of these instruments are mismatched, the Company may be exposed to
cash interest rates. This exposure is mitigated through use of Eurodollar
futures that are marked-to-market daily along with the underlying commodity
instruments.
STOCK OPTION PLANS
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) in 1997. In conjunction
with the adoption, the Company will continue to apply the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" with pro forma disclosure of net
income and earnings per share as if the fair-value-based method prescribed by
SFAS 123 had been applied. In general, no compensation cost related to these
plans is recognized in the Company's "Consolidated Statements of Earnings."
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred and were
$82.8 million in 2000, $77.9 million in 1999 and $69.8 million in 1998. These
costs are included within "selling, administrative and other expenses" in the
Company's "Consolidated Statements of Earnings."
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.
Adoption of these statements in the first quarter of 2001 did not have a
material effect on the Company's results of operations, financial position, cash
flows or equity. The Company does not expect them to have a material effect on
results of operations, financial position, cash flows or equity.
While the Company engages in economic hedging of metal positions, it does
not plan to avail itself of the hedge accounting provisions of the new
statements. Accordingly, present accounting policies are relatively unchanged by
the new statements.
2. SIGNIFICANT SHAREHOLDER TRANSACTION
In May 1999, the Company purchased approximately 18 million of its shares
owned by Minorco, which represented approximately 13% of the Company's total
shares outstanding at that time. The remainder of Minorco's stake (28 million
shares) was sold in a secondary public offering. Minorco compensated the Company
for costs and other expenses related to the secondary offering and the purchase
of the shares. The Company financed the share repurchase with short-term debt.
33
3. ACQUISITIONS AND DIVESTITURES
During 2000, the Company recorded a gain of $24.8 million ($17.0 million
after tax or $0.13 per share on a diluted basis) on the sale of its metal-
joining products business located in Warwick, Rhode Island. In addition, the
Company recorded a loss of $6.0 million ($4.1 million after tax or $0.03 per
share on a diluted basis) associated with the divestiture of the International
Dioxide, Inc. (IDI) business unit.
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. The results of operations of this acquisition,
integrated into the Process Technologies segment, are 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.
During 1999, the Company sold its hydroprocessing joint venture, its metal-
plating business, its Mearlcrete concrete foaming agent business, and certain
land and mineral rights located in Talladega County, Alabama. These sales
resulted in gains of $13.2 million ($9.2 million after tax or $0.06 per share on
a diluted basis). In addition, the Company reduced the carrying value of its
investment in Engelhard Highland Private Ltd. to its estimated net realizable
value of $1.0 million and accordingly recorded a loss of $4.6 million ($3.2
million after tax or $0.02 per share on a diluted basis).
In March 1999, the Company acquired the effect-pigment product line of ISP
for approximately $11.5 million. This acquisition expanded the Company's
effect-pigments line. The excess of the purchase price over the fair value of
net assets acquired has been recorded as goodwill and is being amortized on a
straight-line basis over 20 years. The results of operations of this product
line, integrated into the Appearance and Performance Technologies segment, are
included in the accompanying consolidated financial statements from the date of
acquisition.
In May 1998, the Company acquired the chemical catalyst businesses of
Mallinckrodt Inc. for approximately $210 million in cash. The Company financed
the acquisition with a combination of commercial paper and bank borrowings. The
purchase price exceeded the assessment of the fair value of net assets acquired
by approximately $90 million, which is being amortized on a straight-line basis
over 40 years. The results of operations of the Mallinckrodt businesses,
integrated into the Process Technologies segment, are included in the
accompanying consolidated financial statements from the date of acquisition.
In January 1998, the Company acquired the pearlescent pigments business of Semo
Chemical Company for approximately $13.5 million. This acquisition expanded the
Company's effect-pigments business. The excess of the purchase price over the
fair value of net assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. The results of operations of
this business, integrated into the Appearance and Performance Technologies
segment, are included in the accompanying consolidated financial statements from
the date of acquisition.
34
4. SPECIAL AND OTHER CHARGES
The Company recorded special and other charges of $134.2 million ($92.0
million after tax or $0.72 per share on a diluted basis) in 2000 for a variety
of events. The following table sets forth the impact of these charges in the
Company's 2000 "Consolidated Statements of Earnings:"
Third Quarter Fourth Quarter
FINANCIAL IMPACT Special and Special and
(in millions, except per share amounts) Other Charges Other Charges Total
------------- ------------- -------------
Cost of sales $ - $ (27.1) $ (27.1)
Selling, administrative and other expenses - (23.8) (23.8)
Special charge (24.6) (57.9) (82.5)
------------- ------------- -------------
Operating loss (24.6) (108.8) (133.4)
Equity in losses of affiliates - (0.8) (0.8)
------------- ------------- -------------
Loss before income taxes (24.6) (109.6) (134.2)
Income tax benefit 7.7 34.5 42.2
------------- ------------- -------------
Net loss $ (16.9) $ (75.1) $ (92.0)
------------- ------------- -------------
Diluted loss per share $ (0.13) $ (0.59) $ (0.72)
------------- ------------- -------------
The 2000 special and other charges are described below:
The Environmental Technologies segment incurred charges of $15.4 million,
primarily related to additional provisions for warranty costs associated with
the segment's stationary-source, emission-control capital equipment business,
which was sold in 1998.
The Process Technologies segment incurred charges of $5.5 million,
primarily for the write-off of the unamortized balance of a customer supply
agreement recognized in connection with the acquisition of the chemical catalyst
businesses of Mallinckrodt Inc. in 1998. The Company does not expect future
deliveries under the contract.
The Appearance and Performance Technologies segment incurred charges of
$50.5 million, including the write-down of assets of $30.4 million in the
segment's colors business, the write-off of $4.6 million of obsolete inventory
within the segment's minerals business, charges of $3.6 million related to the
Company's decision to divest its 50%-owned interest in the Dnipro Kaolin
(Ukraine) joint venture, which had previously generated immaterial losses,
charges of $3.5 million related to the write-off of an obsolete computer system
and other charges of $8.4 million.
As a result of declining sales, a shift in product mix to higher volume,
low-gross-profit products and severe price pressure for all product lines, the
colors business continued operating at a loss in 2000. In accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of,"
the Company performed an impairment review of its long-lived assets. During the
fourth quarter of 2000, the Company determined that the estimated future
undiscounted cash flows of the segment's colors business were below the
carrying value of its assets. Accordingly, the Company adjusted the carrying
value of the long-lived assets and goodwill to their estimated fair values. The
estimated fair values of the machinery and equipment and goodwill were based on
anticipated future cash flows discounted at a rate commensurate with the
Company's estimated cost of capital. The resulting impairment charge consisted
primarily of a write-down of machinery and equipment.
35
Based on a reassessment of the volumes of usable crude kaolin contained in
stockpiles in Middle Georgia, a determination was made to adjust quantities
downward resulting in a charge of $4.6 million. Crude kaolin is used to produce
high-quality pigments and additives for a variety of end markets.
Within the Company's "All Other" category, the Company incurred special and
other charges of $62.8 million, primarily related to the decision to exit from
its residual, desiccant-based, climate-control-system business. This business
was comprised of the Company's HexCore subsidiary and a cost-based investment in
Fresh Air Solutions, a limited partnership. These charges primarily result from
asset write-offs and recognition of the Company's obligation under a guarantee.
Revenues and net losses from the HexCore subsidiary were immaterial for each of
the three years ended December 31, 2000.
In 1999, the Company recorded severance costs of $5.4 million and asset
impairments of $3.7 million associated with a restructuring of the Company's
business groups and for severance at three of the Company's manufacturing
facilities. The severance charges related to the elimination of 72 positions. In
1999, the Company recognized charges of $3.7 million relating to closure costs
at the Company's Salt Lake City facility of approximately $2.3 million, as well
as an impairment to goodwill of $1.4 million relating to the sensor technologies
business unit. The Company sold its sensor technologies business in February
2000. The proceeds of $6.5 million approximated the remaining net realizable
value.
The Company's pre-1998 restructuring charge included a $5.0 million
impairment relating to the Company's Salt Lake City facility and $3.8 million
for environmental remediation costs for its Harvard-Denison site in Cleveland,
Ohio. In 1999, the Company restored the carrying value of the Salt Lake City
facility to its original book value of $5.0 million based on a third party offer
and independent appraisal. In 2000, the Company sold a portion of this facility.
With regard to Harvard-Denison, the Company believes the site qualifies
for the Government's Formerly Utilized Sites Remedial Action Program (FUSRAP)
and, as a result, the government would be responsible for future remediation.
Accordingly, the Company reversed $3.8 million as a special credit in 1999.
36
The following table sets forth the components of the Company's reserves for
restructuring and other costs:
RESTRUCTURING AND OTHER RESERVES Separations Other
(in millions) Pre-1998 1999 2000 Pre-1998 1999 2000 Total
-------------------------- -------------------------------------
Balance at December 31, 1997 $11.2 $ -- $ -- $10.8 $ -- $ -- $22.0
Cash spending, net (4.7) -- -- (5.8) -- -- (10.5)
Asset write-offs -- -- -- (1.9) -- -- (1.9)
-------------------------------------------------------------------
Balance at December 31, 1998 6.5 -- -- 3.1 -- -- 9.6
Cash spending, net (0.5) (3.4) -- (2.9) -- -- (6.8)
(Reversal)/provision (4.8) 5.4 -- 4.8 0.9 -- 6.3
-------------------------------------------------------------------
Balance at December 31, 1999 1.2 2.0 -- 5.0 0.9 -- 9.1
Cash spending, net (0.9) (1.4) -- (4.1) (0.6) -- (7.0)
Provision -- -- 1.1 -- -- 31.4(a) 32.5
-------------------------------------------------------------------
Balance at December 31, 2000 $0.3 $0.6 $1.1 $0.9 $0.3 $31.4 $34.6
===================================================================
(a) Primarily related to warranty and restructuring charges.
The non-separation-related cash spending for pre-1998 restructuring and
other liabilities for each of the three years ended December 31, 2000, 1999, and
1998 consisted primarily of costs associated with the shutdown of the Union and
Newark, New Jersey sites, the Attapulgus, Georgia attapulgite operations and the
Plainville, Massachusetts site. The remaining balance in the pre-1998
restructuring and other reserves consists of shutdown costs for the Union, New
Jersey, and Plainville, Massachusetts sites, as well as the attapulgite
operations in Attapulgus.
The non-separation restructuring and other cost provision made prior to
1998 consists primarily of costs associated with the shutdown of the facilities
to be closed in connection with the Process Technologies and Environmental
Technologies segments and certain warranty obligations associated with the sold
Environmental Technologies stationary-source, emission-control capital equipment
business. Non-separation-related cash spending associated with these liabilities
for the year ended December 31, 2000 consisted of payments concerning completion
of the shutdown of the facilities and the satisfaction of warranty obligations.
37
5. INVENTORIES
Inventories consist of the following:
INVENTORIES
(in millions) 2000 1999
------------------------
Raw materials $ 81.1 $ 84.2
Work in process 76.7 53.0
Finished goods 190.8 195.7
Precious metals 23.2 26.3
------------------------
Total inventories $371.8 $359.2
========================
The majority of the Company's physical metal is carried in committed metal
positions with the remainder carried in inventory. All precious-metal
inventories are stated at LIFO cost. The market value of the precious-metals
inventories exceeded cost by $254.1 million and $115.3 million at December 31,
2000 and 1999, respectively. Net earnings include after-tax gains of $2.5
million in 2000, $2.2 million in 1999, and $4.9 million in 1998 from the sale of
inventory accounted for under the LIFO method.
In the normal course of business, certain customers and suppliers deposit
significant quantities of precious metals with the Company under a variety of
arrangements. Equivalent quantities of precious metals are returnable as product
or in other forms.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
PROPERTY, PLANT AND EQUIPMENT
(in millions) 2000 1999
---------------------
Land $ 27.9 $ 30.4
Buildings and building improvements 203.3 213.2
Machinery and equipment 1,330.8 1,438.5
Construction in progress 101.3 67.1
Mineral deposits and mine development 74.3 80.4
---------------------
1,737.6 1,829.6
Accumulated depreciation and depletion 969.9 957.7
---------------------
Property, plant and equipment, net $ 767.7 $ 871.9
=====================
Mineral deposits and mine development consist of industrial mineral
reserves such as kaolin, attapulgite and mica. The Company does not own any
mining reserves or conduct any mining operations with respect to platinum,
palladium or other metals.
In 2000, the Company entered into a sale-leaseback transaction for
machinery and equipment that is used in the Process Technologies segment. This
lease is being accounted for as an operating lease.
The Company capitalized interest of $3.9 million in 2000, $2.6 million in
1999 and $1.9 million in 1998.
38
7. INVESTMENTS
The Company has investments in affiliates that are accounted for under the
equity method. The more significant of these investments are Engelhard-CLAL,
N.E. Chemcat Corporation (N.E. Chemcat) and Heesung-Engelhard. Engelhard-CLAL, a
50%-owned joint venture, manufactures and markets certain products containing
precious metals. N.E. Chemcat is a 38.8%-owned, publicly traded Japanese
corporation and a leading producer of automotive and chemical catalysts,
electronic chemicals and other precious-metal-based products. Heesung-Engelhard,
a 49% Korean-owned joint venture, manufactures and markets catalyst products for
automobiles.
In the first quarter of 1999, the Company sold its investment in Acreon
Catalysts, a hydroprocessing joint venture. The Company recorded a gain of $1.0
million ($0.7 million after tax).
The summarized unaudited financial information below represents an
aggregation of the Company's nonsubsidiary affiliates on a 100% basis, unless
otherwise noted:
FINANCIAL INFORMATION (unaudited)
(in millions) 2000 1999 1998
--------------------------------------------------------------------------------
Earnings data:
Revenue $1,886.1 $1,553.2 $1,540.7
Gross profit 195.2 156.1 151.8
Net earnings 60.2 37.1 14.3
Engelhard's equity in net earnings
of affiliates 24.2 16.3 10.1
Balance sheet data:
Current assets $ 609.2 $ 513.0
Noncurrent assets 213.7 209.1
Current liabilities 301.5 232.6
Noncurrent liabilities 62.9 67.7
Net assets 458.5 421.8
Engelhard's equity in net assets 193.9 179.0
The Company's share of undistributed earnings/losses of affiliated
companies included in consolidated retained earnings were earnings of $60.3
million as of December 31, 2000 and $40.5 million as of December 31, 1999, and a
loss of $5.4 million as of December 31, 1998. Dividends from affiliated
companies were $4.4 million in 2000, $2.4 million in 1999 and $2.0 million in
1998.
As of December 31, 2000, the Company's accumulated other comprehensive loss
included a foreign currency translation loss of approximately $13.5 million
relating to its Engelhard-CLAL joint venture. The Company is currently in the
process of liquidating all or a part of its Engelhard-CLAL joint venture. Upon
complete liquidation of the Company's investment in Engelhard-CLAL, the Company
will recognize the foreign currency translation amount relating to
Engelhard-CLAL in current earnings with an offsetting credit to other
comprehensive income in accordance with accounting principles generally accepted
in the United States.
39
8. COMMITTED METAL POSITIONS AND HEDGED METAL OBLIGATIONS
The following table sets forth the Company's unhedged metal positions included
in committed metal positions on the Company's "Consolidated Balance Sheets:"
METAL POSITIONS INFORMATION
(in millions) 2000 1999
--------------------------------------
Gross Gross
Position Value Position Value
-------------------------------------
Platinum group metals Long $78.4 Long $65.0
Gold Flat -- Long 0.2
Silver Long 1.3 Long 1.6
Base metals Long 5.0 Long 5.3
--------------------------------------
Total unhedged metal positions $84.7 $72.1
======================================
The net mark-to-market adjustments related to open unhedged positions were
$11.6 million at December 31, 2000 and $8.2 million at December 31, 1999. The
net mark-to-market adjustments related to open unhedged positions were not
material at December 31, 1998.
Derivative metal and foreign currency instruments used to hedge metal
positions and obligations consist of the following:
METAL HEDGING INSTRUMENTS
(in millions) 2000 1999
----------------------------------------------
Buy Sell Buy Sell
----------------------------------------------
Metal forwards/futures $1,244.0 $1,146.6 $1,495.6 $1,026.2
Eurodollar futures 115.7 104.3 52.9 66.3
Swaps 16.0 22.7 118.2 177.4
Options 39.3 8.7 90.2 5.4
Foreign exchange forwards/futures - 171.2 77.5 -
9. FINANCIAL INSTRUMENTS
The Company's nonderivative financial instruments consist primarily of cash
in banks, temporary investments, accounts receivable and debt. The fair value of
financial instruments in working capital approximates book value. The fair value
of long-term debt was $237.5 million as of December 31, 2000 and $479.1 million
as of December 31, 1999 based on current interest rates, compared with a book
value of $248.6 million as of December 31, 2000 and $499.5 million as of
December 31, 1999.
The Company believes that its financial instruments do not represent a
concentration of credit risk because the Company deals with a variety of major
banks worldwide, and its accounts receivable are spread among a number of major
industries, customers and geographic areas. In addition, a centralized credit
committee reviews significant credit transactions and risk-management issues
before the granting of credit, and an appropriate level of reserves is
maintained. For the past three-year period, provisions to these reserves were
not significant.
40
FOREIGN CURRENCY INSTRUMENTS
Aggregate foreign transaction gains and losses were not significant for any
year presented. The following table sets forth, in U.S. dollars, the Company's
open foreign currency forward contracts used for hedging other than
metal-related transactions as of the respective year ends (see Note 8,
"Committed Metal Positions and Hedged Metal Obligations" for further detail):
FOREIGN CURRENCY FORWARD CONTRACTS INFORMATION
(in millions)
2000 1999
---------------------------------------
Buy Sell Buy Sell
---------------------------------------
Deutsche mark $ - $ 27.7 $ - $ 0.3
Japanese yen - - 10.7 16.1
French franc - 3.0 - -
Euro 11.0 142.4 - 50.8
Netherlands guilder 4.1 9.4 39.9 21.2
South Africian rand - 4.8 - -
Peru soles - - - 10.0
Swedish krona - - - 0.7
British pound 6.9 - - -
Italian lira - 1.6 2.0 4.8
---------------------------------------
Total open foreign currency
forward contracts $22.0 $188.9 $52.6 $103.9
=======================================
None of these contracts exceeds a year in duration, and the net amount of
deferred income and expense on foreign currency forward contracts had no impact
on the Company's financial position or results of operations in 2000, 1999 and
1998.
10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
At December 31, 2000, the Company had unsecured committed revolving credit
agreements for $600 million and $200 million with a group of major North
American banks and foreign banks. The $600 million agreement expires in April
2002, and the $200 million agreement expires in May 2001. In connection with
these credit facilities, the Company has agreed to certain covenants, none of
which is considered by Management to be restrictive to the operations of the
Company. Facility fees are paid to the bank group for these lines. Renewal of
both agreements are under consideration by Management.
At December 31, 2000 and 1999, short-term bank borrowings were $153.0
million and $229.9 million, respectively. Weighted-average interest rates were
6.4%, 5.2% and 5.5% during 2000, 1999, and 1998, respectively. At December 31,
2000 and 1999, long-term debt due within one year was $150.1 million and $100.1
million, respectively.
At December 31, 2000 and 1999, commercial paper borrowings were $199.1
million and $122.0 million, respectively. Weighted-average interest rates were
6.3%, 5.1% and 5.5% during 2000, 1999 and 1998, respectively.
Additional unused, uncommitted lines of credit available exceeded $680
million at December 31, 2000. The Company's lines of credit with its banks are
available in accordance with normal terms for prime commercial borrowers and are
not subject to commitment fees or other restrictions.
In July 1998, the Company filed a shelf registration for $300 million.
Plans to issue debt under the shelf registration are under consideration.
41
The following table sets forth the components of long-term debt:
DEBT INFORMATION
(in millions) 2000 1999
---------------
Notes, with a weighted-average interest rate of 6.53%,
due 2000 $ - $ 99.9
Notes acquired, with a weighted-average interest rate
of 12.0%, due 2003-2006 14.1 14.1
7% Notes, due 2001, net of discount 149.9 149.6
7.375% Notes, due 2006, net of discount 99.6 99.5
6.95% Notes, due 2028, net of discount 118.5 118.4
Bank Debt, 7.25%, due 2000-2004 - 100.8
Industrial revenue bonds, 5.375%, due 2006 6.5 6.5
Industrial revenue bonds, variable rate, due 2020 8.5 8.6
Foreign bank loans with a weighted-average interest
rate of 7.0%, due 2000-2001 1.1 1.2
Other, with weighted-average rate of 5.9%, due 2000-2007 0.5 1.0
---------------
398.7 599.6
Amounts due within one year 150.1 100.1
---------------
Total long-term debt $248.6 $499.5
===============
As of December 31, 2000, the aggregate maturities of long-term debt for the
succeeding five years are as follows: $150.1 million in 2001, $1.1 million in
2002, $0.1 million in 2003, $0.1 million in 2004, $0.1 million in 2005 and
$247.2 million thereafter.
Net interest expense was $62.6 million in 2000, compared with $56.6 million
in 1999 and $58.9 million in 1998. Net interest expense in 1999 included a
reduction of $7.1 million resulting from the settlement of treasury lock
positions that were entered into to hedge anticipated long-term borrowings that
never occurred. Excluding this reduction from 1999, net interest expense in 2000
decreased due to decreased borrowings, partially offset by increased interest
rates; exclusive of the reduction from treasury locks, net interest expense in
1999 increased from 1998 levels primarily due to increased borrowings related to
a major share repurchase in May 1999 and an increase in interest rates. Interest
income was $2.1 million in 2000, $2.9 million in 1999 and $2.3 million in 1998.
42
11. INCOME TAXES
The components of income tax expense are shown in the following table:
Income Tax Expense
(in millions) 2000 1999 1998
--------------------------------------
Current income tax expense
Federal $105.7 $ 45.7 $39.5
State and local 10.1 4.7 7.9
Foreign 14.5 31.6 22.4
--------------------------------------
130.3 82.0 69.8
--------------------------------------
Deferred income tax expense
Federal (55.1) 3.8 1.9
State and local (11.3) (2.1) (1.0)
Foreign 13.5 0.7 8.6
Changes in tax rates - 0.3 (0.8)
Loss carryforwards/tax credits - 2.0 (5.0)
--------------------------------------
(52.9) 4.7 3.7
--------------------------------------
Income tax expense $77.4 $ 86.7 $73.5
======================================
The foreign portion of earnings before income tax expense was $126.3
million in 2000, $109.4 million in 1999 and $77.9 million in 1998. Taxes on
income of foreign consolidated subsidiaries and affiliates are provided at the
tax rates applicable to their respective foreign tax jurisdictions.
The following table sets forth the components of the net deferred tax asset
that result from temporary differences between the amounts of assets and
liabilities recognized for financial reporting and tax purposes:
NET DEFERRED INCOME TAX ASSET
(in millions) 2000 1999
----------------------------
Deferred tax assets
Accrued liabilities $203.3 $ 89.2
Noncurrent liabilities 68.5 73.5
Tax credits/carryforwards 5.5 33.4
----------------------------
Total deferred tax assets 277.3 196.1
----------------------------
Valuation allowance (11.1) (17.4)
----------------------------
Total deferred tax assets, net of
valuation allowance 266.2 178.7
----------------------------
Deferred tax liabilities
Prepaid pension expense (32.8) (37.6)
Property, plant and equipment (8.0) (9.8)
Other assets (49.5) (31.3)
----------------------------
Total deferred tax liabilities (90.3) (78.7)
----------------------------
Net deferred tax asset $175.9 $100.0
============================
43
Net current deferred tax assets of $116.8 million and $65.0 million at
December 31, 2000 and December 31, 1999, respectively, are included in other
current assets and net noncurrent deferred tax assets of $59.1 million and $35.0
million at December 31, 2000 and December 31, 1999, respectively, are included
in other noncurrent assets in the Company's "Consolidated Balance Sheets."
In 2000, the Company recorded special and other charges in the amount of
$134.2 million. A deferred tax asset of $54.0 million was provided with respect
to this charge. The Company generated and recorded a deferred tax asset for U.S.
foreign tax credit carryforwards in the amount of $1.5 million and provided a
full valuation allowance against that asset. The Company recorded certain
deferred tax assets created by foreign net operating loss carryforwards in the
aggregate amount of $2.1 million and provided full valuation allowances against
those assets.
As of December 31, 2000, the Company had approximately $1.5 million of U.S.
foreign tax credit carryforwards, which will expire in 2005. The Company also
had approximately $3.9 million of foreign net operating losses of which $0.1
million will expire in 2005, and $3.8 million will carry forward indefinitely.
A reconciliation of the difference between the Company's consolidated income
tax expense and the expense computed at the federal statutory rate is shown
in the following table:
CONSOLIDATED INCOME TAX EXPENSE RECONCILIATION
(in millions)
2000 1999 1998
----------------------------------
Income tax expense at federal
statutory rate $ 86.0 $ 99.4 $ 91.2
State income taxes, net of
federal effect 4.0 3.8 4.3
Percentage depletion (9.8) (12.9) (13.5)
Equity earnings (3.4) (3.1) (1.3)
Effect of different tax rates
on foreign earnings, net 2.0 1.5 2.5
Tax credits/carrybacks (3.6) (9.7) (1.7)
Foreign sales corporation (7.9) (7.3) (7.4)
Non-deductible goodwill 2.9 2.0 2.0
Valuation allowance 3.6 11.7 (7.1)
Other items, net 3.6 1.3 4.5
----------------------------------
Income tax expense $ 77.4 $ 86.7 $ 73.5
==================================
At December 31, 2000, the Company's share of the cumulative undistributed
earnings of foreign subsidiaries was approximately $463.5 million. 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. It is not practical to estimate
the amount of additional tax that might be payable on these foreign earnings in
the event of distribution or sale. However, under existing law, foreign tax
credits would be available to substantially reduce, or in some cases, eliminate
U.S. taxes payable.
44
12. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has raw material supply
arrangements with entities in which Anglo American Corporation of South Africa
Limited (Anglo) has material interests and with its equity affiliates,
including N.E Chemcat, Engelhard-CLAL and Heesung-Engelhard. Anglo, indirectly
through Minorco S.A., held a significant minority interest in the common stock
of the Company. In May 1999, Minorco sold all the shares of common stock of
Engelhard that it owned (see Note 2, "Significant Shareholder Transaction" for
further detail). The Company's transactions with such entities (through May 1999
for entities in which Anglo had material interests) amounted to: purchases-from
of $5.5 million in 2000, $41.3 million in 1999 and $176.3 million in 1998;
sales-to of $27.8 million in 2000, $24.6 million in 1999 and $1.7 million in
1998; and metal leasing-to of $9.9 million in 2000, $2.8 million in 1999 and
$17.5 million in 1998. At December 31, 2000 and 1999, amounts due to such
entities totaled $0.4 million and $1.9 million, respectively.
13. BENEFITS
The Company has domestic and foreign pension plans covering substantially
all employees. Plans covering most salaried employees generally provide benefits
based on years of service and the employee's final average compensation. Plans
covering most hourly bargaining unit members generally provide benefits of
stated amounts for each year of service. The Company makes contributions to the
plans as required and to such extent contributions are currently deductible for
tax purposes. Plan assets primarily consist of listed stocks, fixed income
securities and cash.
45
The following table sets forth the plans' funded status:
Funded Status
(in millions) 2000 1999
------------- ------- -------
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year $382.0 $386.1
Service cost 13.3 12.1
Interest cost 26.8 24.5
Plan amendments 1.6 3.0
Actuarial losses/(gains) 21.2 (9.1)
Benefits paid (23.3) (29.8)
Foreign exchange (5.6) (4.8)
------- -------
Projected benefit obligation at end of year $416.0 $382.0
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $422.4 $375.1
Actual return on plan assets 93.3 77.0
Employer contribution 2.9 5.7
Benefits paid (23.3) (29.8)
Foreign exchange (6.7) (5.6)
------- -------
Fair value of plan assets at end of year $488.6 $422.4
------- -------
Funded status $ 72.6 $ 40.4
Unrecognized net actuarial (gain)/loss (15.5) 23.2
Unrecognized prior service cost 10.9 11.3
Unrecognized transition asset, net of amortization (0.6) (1.2)
Fourth quarter contribution 0.1 -
------- --------
Prepaid pension asset $ 67.5 $ 73.7
======= ========
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ 72.5 $ 75.6
Accrued benefit liability (5.0) (5.5)
Intangible asset - 2.6
Accumulated other comprehensive loss - 1.0
------- --------
Net amount recognized $ 67.5 $ 73.7
======= ========
The prepaid pension asset balances of $67.5 million and $73.7 million at
December 31, 2000 and December 31, 1999, respectively, are included in other
noncurrent assets in the Company's "Consolidated Balance Sheets." The Company
recorded minimum pension asset adjustments of $1.0 million and $2.9 million in
2000 and 1999, respectively. These adjustments were recognized and charged
to "Accumulated Other Comprehensive Loss."
46
The components of net periodic pension expense for all plans are shown in
the following table:
NET PERIODIC PENSION EXPENSE
(in millions) 2000 1999 1998
-----------------------------------
Service cost $ 13.3 $ 12.1 $ 12.1
Interest cost 26.8 24.5 23.6
Expected return on plan assets (37.7) (36.0) (34.7)
Amortization of prior service cost 1.9 2.2 1.6
Amortization of transition asset (0.6) (0.5) (1.0)
Recognized actuarial loss 2.9 4.3 2.4
Curtailment gain - - (1.0)
-----------------------------------
Net periodic pension expense $ 6.6 $ 6.6 $ 3.0
===================================
The discount rates used in determining the actuarial present value of the
projected benefit obligation are 6.0% to 7.75% in 2000, 5.50% to 7.75% in 1999
and 6.00% to 6.75% in 1998. The expected increase in future compensation levels
was 3.50% to 4.50% in 2000, 3.00% to 4.50% in 1999 and 3.00% to 4.00% in 1998.
The expected long-term rate of return on assets was 8.50% to 10.50% in 2000,1999
and 1998.
The Company also sponsors three savings plans covering certain salaried and
hourly employees. The Company's contributions, which may equal up to 50% of
certain employee contributions, were $3.9 million in 2000, $3.6 million in 1999
and $3.2 million in 1998.
The Company also currently provides postretirement medical and life
insurance benefits to certain retirees (and their spouses), certain disabled
employees (and their families) and spouses of certain deceased employees.
Substantially all U.S. salaried employees and certain hourly employees are
eligible for these benefits, which are paid through the Company's general health
care and life insurance programs, except for certain medicare-eligible salaried
and hourly retirees who are provided a defined contribution towards the cost of
a partially insured health plan. In addition, the Company provides
postemployment benefits to former or inactive employees after employment but
before retirement. These benefits are substantially similar to the
postretirement benefits, but cover a much smaller group of employees.
47
The following table sets forth the components of the accrued postretirement and
postemployment benefit obligation, all of which are unfunded:
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
(in millions) 2000 1999
-----------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $117.8 $128.1
Service cost 2.8 3.2
Interest cost 8.7 8.3
Actuarial losses/(gains) 3.5 (10.1)
Benefits paid (9.8) (11.7)
------- -------
Benefit obligation at end of year $123.0 $117.8
------- -------
Unrecognized net loss (5.8) (2.5)
Unrecognized prior service cost 21.6 27.8
------- -------
Accrued benefit obligation $138.8 $143.1
======= =======
The postretirement and postemployment benefit balances of $138.8 million
and $143.1 million at December 31, 2000 and December 31, 1999, respectively, are
included in other noncurrent liabilities in the Company's "Consolidated Balance
Sheets."
The components of the net expense for these postretirement and
postemployment benefits are shown in the following table:
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
(in millions) 2000 1999 1998
-----------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $2.8 $3.2 $3.0
Interest cost 8.7 8.3 8.0
Net amortization (5.8) (5.6) (5.8)
----- ----- -----
Net periodic benefit cost $5.7 $5.9 $5.2
===== ===== =====
The weighted-average discount rate used in determining the actuarial
present value of the accumulated postretirement and postemployment benefit
obligation for 2000 and 1999 is 7.75%. The average assumed health care cost
trend rate used for 2000 and 1999 is 5% to 6% and 5% to 8%, respectively. A 1%
increase in the assumed health care cost trend rate would have increased
aggregate service and interest cost in 2000 by $0.7 million and the accumulated
postretirement and postemployment benefit obligation as of December 31, 2000 by
$6.3 million. A 1% decrease in the assumed healthcare cost trend rate would have
decreased aggregate service and interest cost in 2000 by $1.2 million and the
accumulated postretirement and postemployment benefit obligation as of December
31, 2000 by $10.8 million.
48
14. STOCK OPTION AND BONUS PLANS
The Company's Stock Option Plans of 1999 and 1991, as amended (the Key
Option Plans), generally provide for the granting to key employees of options to
purchase an aggregate of 5,500,000 and 16,875,000 common shares, respectively,
at fair market value on the date of grant. No options under the Stock Option
Plans of 1999 and 1991 may be granted after December 16, 2009 and June 30, 2002,
respectively.
In 1993, the Company established the Employee Stock Option Plan of 1993, as
amended, which generally provided for the granting to all employees (excluding
U.S. bargaining unit employees and key employees eligible under the Key Option
Plans) of options to purchase an aggregate of 2,812,500 common shares at fair
market value on the date of grant. No additional options may be granted under
this plan. In 1995, the Company established the Directors Stock Options Plan,
which generally provides for the annual granting to each non-employee director
the option to purchase up to 3,000 common shares at the fair market value on the
date of grant. Options under all plans become exercisable in four installments
beginning after one year, and no options may be exercised after 10 years from
the date of grant. Outstanding options may be canceled and reissued under terms
specified in the plan documents.
Had compensation cost for the Company's two stock option plans been
determined based on the fair value at grant date for awards in 2000, 1999 and
1998 consistent with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," the Company's net
earnings and earnings per share would have been as follows:
PRO FORMA INFORMATION
(in millions, except per share data) 2000 1999 1998
-------------------------------
Net earnings--as reported $168.3 $197.5 $187.1
Net earnings--pro forma 159.9 189.3 179.4
Basic earnings per share--as reported 1.33 1.49 1.30
Basic earnings per share--pro forma 1.27 1.43 1.24
Diluted earnings per share--as reported 1.31 1.47 1.29
Diluted earnings per share--pro forma 1.25 1.41 1.23
The weighted-average fair value at date of grant for options granted during
2000, 1999 and 1998 was $4.28, $5.19 and $5.07, respectively. Fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model.
The following assumptions were used:
2000 1999 1998
-------------- ----------------- ------------------
Dividend yield 2.1% - 2.4% 1.9% - 2.3% 1.8% - 2.3%
Expected volatility 33% 33% 32%
Risk-free interest rate 6.0% 4.5% - 6.0% 4.5% - 6.0%
Expected life (years) 4-5 4 4
49
Stock option transactions under all plans are as follows:
2000 1999 1998
Weighted-Average Weighted-Average Weighted-Average
Number Exercise Price Number Exercise Price Number Exercise Price
of Shares Per Share of Shares Per Share of Shares Per Share
----------------------------- ---------------------------- ----------------------------
Outstanding at beginning of year 16,472,791 $18.30 14,084,148 $18.17 11,730,245 $17.93
Granted 1,611,786 $16.87 2,953,721 $18.62 2,903,190 $18.59
Forfeited (255,840) $19.22 (328,616) $18.83 (320,162) $20.61
Exercised (142,230) $12.14 (236,462) $13.09 (229,125) $12.67
----------- ------ ----------- ------ ----------- ------
Outstanding at end of year 17,686,507 $18.20 16,472,791 $18.30 14,084,148 $18.17
Exercisable at end of year 13,692,608 $18.24 10,412,192 $17.99 8,108,731 $17.45
Available for future grants 5,383,014 3,738,960 3,864,065
The following table summarizes information about fixed-price options outstanding
at December 31, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise prices at 12/31/00 Life (years) Price at 12/31/00 Price
----------------------------------------------------- ----------- ---------
$5.54 to 15.36 1,384,081 1-2 $13.58 1,384,081 $13.58
14.21 to 22.38 4,630,489 4-5 17.76 4,630,489 17.76
19.00 to 23.88 1,788,889 6 21.52 1,788,889 21.52
18.56 to 20.91 2,667,967 7 19.10 2,258,951 19.09
17.34 to 21.69 2,767,278 8 18.63 1,918,215 18.71
17.81 to 20.97 2,858,955 9 18.59 1,431,555 18.50
16.84 to 18.75 1,588,848 10 16.87 280,428 16.84
---------- ------ ----------- ---------
17,686,507 $18.20 13,692,608 $18.24
The Company's Key Employee Stock Bonus Plan, as amended (the Bonus Plan)
provides for the award of up to 15,187,500 common shares to key employees as
compensation for future services, not exceeding 1,518,750 shares in any year
(plus any canceled awards or shares available for award but not previously
awarded). The Bonus Plan terminates on June 30, 2006. Shares awarded vest in
five annual installments, provided the recipient is still employed by the
Company on the vesting date. Compensation expense is measured on the date the
award is granted and is amortized over five years. In 2000 and 1999, the Company
granted 321,000 and 270,000 shares to key employees at a fair value of $16.84
and $19.54, respectively, per share.
50
Compensation expense relating to stock awards was $5.0 million in 2000,
$4.3 million in 1999 and $3.9 million in 1998. Shares awarded, net of
cancellations, are included in average shares outstanding.
Engelhard has certain deferred compensation arrangements where shares
earned under the Engelhard stock bonus plan are deferred and placed in a "Rabbi
Trust". Under certain conditions, the plan permitted employees to convert their
deferred stock balance to deferred cash. In February 2001, the Company
terminated this deferred cash option and now requires all future pay-outs to be
made in the form of Engelhard common stock. In the third quarter of 1998, the
Company adopted the provisions of Emerging Issues Task Force (EITF) 97-14,
"Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held
in a Rabbi Trust and Invested." This EITF requires Engelhard to consolidate into
its financial statements the net assets of the trust. The impact to the third
quarter, 1998 consolidated financial statements was a $20.1 million increase in
treasury stock (measured at historical cost); the recording of a $23.7 million
deferred compensation obligation (measured on the reporting date by fair value
of the Engelhard common stock held in the trust on behalf of the employees); and
a charge to equity for the $3.6 million difference (referred to as the
"transition differential"). After the transition date but prior to final
settlement, increases/decreases in the deferred compensation liability will be
recognized (1) in equity to the extent that the share price change falls within
the transition differential, or (2) in income to the extent that the share
change falls outside the transition differential. With the termination of the
deferred cash option, increases/decreases in the deferred compensation liability
will no longer be recognized in earnings.
For the year ended December 31, 2000, the Company recognized expense of
$0.4 million related to the increase in the value of its common stock held in a
Rabbi Trust for deferred compensation from $18.875 at December 31, 1999 to
$20.375 at December 31, 2000. For the year ended December 31, 1999, the Company
recognized income of $0.9 million related to the decrease in the value of its
common stock from $19.50 at December 31 1998 to $18.875 at December 31, 1999.
For the year ended December 31, 1998, the Company recognized expense of $2.4
million related to the increase in the value of its common stock from $17.69 at
September 30, 1998 to $19.50 at December 31, 1998. The total value of the Rabbi
Trust at December 31, 2000 was $7.8 million compared to $25.2 million at
December 31, 1999.
51
15. EARNINGS PER SHARE
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
(SFAS 128) specifies the computation, presentation, and disclosure requirements
for basic and diluted earnings per share (EPS). The following table represents
the computation of basic and diluted EPS as required by SFAS 128:
EARNINGS PER SHARE COMPUTATIONS
Year ended December 31 (in thousands, except per share data)
2000 1999 1998
----------------------------------
BASIC EPS COMPUTATION
Net income applicable to common shares $168,296 $197,462 $187,084
----------------------------------
Average number of shares outstanding-basic 126,351 132,432 144,157
----------------------------------
Basic earnings per share $ 1.33 $ 1.49 $ 1.30
==================================
DILUTED EPS COMPUTATION
Net income applicable to common shares $168,296 $197,462 $187,084
----------------------------------
Average number of shares outstanding-basic 126,351 132,432 144,157
Effect of dilutive stock options
and other incentives 546 823 818
Effect of Rabbi Trust 1,244 1,335 391
----------------------------------
Total number of shares outstanding-diluted 128,141 134,590 145,366
----------------------------------
Diluted earnings per share $ 1.31 $ 1.47 $ 1.29
==================================
Options to purchase additional shares of common stock of 11,684,042 (at a
price range of $17.50 to $23.88), 4,037,068 (at a price range of $19.59 to
$23.88) and 2,886,768 (at a price range of $19.72 to $23.88) were outstanding at
the end of 2000, 1999 and 1998, respectively, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average annual market price of the common shares. Shares held in the
Rabbi Trust were included in basic and diluted shares outstanding until adoption
of EITF 97-14 (as of September 30, 1998) at which point they were considered
treasury stock and excluded from basic shares outstanding.
16. BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA
The Company has four reportable business segments: Environmental Technologies,
Process Technologies, Appearance and Performance Technologies, and Materials
Services.
In the fourth quarter of 2000, the Company created a new technology segment
called Appearance and Performance Technologies by combining the former Specialty
Pigments and Additives and Paper Pigments and Additives segments. In addition,
the Materials Services segment was created from the former Industrial
Commodities Management segment. Certain historical segment data has been
reclassified to conform with these internal organizational changes.
52
The Environmental Technologies segment, located principally in the United
States, Europe and South Africa, markets cost-effective compliance with
environmental regulations enabled by sophisticated emission-control technologies
and systems.
The Process Technologies segment, located principally in the United States
and Europe, enables customers to make their processes more productive,
efficient, environmentally sound and safer through the supply of advanced
chemical-and polymerization-process catalysts and sorbents. In addition, the
segment's advanced cracking and hydroprocessing technologies enable petroleum
refiners to more efficiently produce gasoline, transportation fuels and heating
oils.
The Appearance and Performance Technologies segment, located principally in
the United States, South Korea and Finland, provides pigments and performance
additives that enable its customers to market enhanced image and functionality
in their products. The segment serves a broad array of end markets including
coatings, plastics, cosmetics, construction and paper. The segment's products
help customers improve the look, performance and overall cost of their products.
This segment is also the internal supply source of precursors for the Company's
petroleum catalysts.
The Materials Services segment, located principally in the United States,
Europe and Japan, provides a full array of services to the Company's technology
businesses and their customers who rely on certain precious and base metals as
raw materials for their products. This is a distribution and materials services
business that purchases and sells precious metals, base metals and related
products and services. It does so under a variety of pricing and delivery
arrangements structured to meet the logistical, financial and price-risk
management requirements of the Company, its customers and suppliers.
Additionally, it offers related services for precious-metal refining and
produces salts and solutions.
Within the "All Other" category, sales to external customers are primarily
from the Ventures and Engineered Materials businesses; operating
earnings/(losses) are derived primarily from the Ventures and Engineered
Materials businesses, the sale of inventory accounted for under the LIFO method,
royalty income and other miscellaneous income and expense items not related to
the reportable segments. In the second quarter of 1999, the Company sold its
Engineered Materials business (metal-plating business).
The majority of Corporate expenses have been charged to the segments on
either a direct-service basis or as part of a general allocation. Environmental
Technologies and, to a much lesser extent, Process Technologies utilize metal
in their factories in excess of that provided by customers. This metal is
provided by Materials Services.
53
The following table presents certain data by business segment:
BUSINESS SEGMENT INFORMATION (in millions)
Appearance
and Reportable
Environmental Process Performance Materials Segments All
Technologies Technologies Technologies Services Sub-total Other Total
---------------------------------------------------------------------------------------------------------------------
2000
Net sales to external customers $636.7 $566.6 $684.4 $3,614.2 $5,501.9 $ 40.7 $5,542.6
Operating earnings/(loss), before
special and other charges and
HexCore impairment 131.8 86.5 80.2 129.3 427.8 (29.0)(a) 398.8
Fourth quarter special and
other charges (15.4) (5.5) (49.7) - (70.6) (38.2) (108.8)
Third quarter HexCore
impairment charge - - - - - (24.6) (24.6)
Operating earnings/(loss)
as reported 116.4 81.0 30.5 129.3 357.2 (91.8) 265.4
Interest expense, net - - - - - 62.6 62.6
Depreciation, depletion &
amortization 21.6 28.2 51.0 1.5 102.3 14.8 117.1
Equity in earnings/(losses)
of affiliates 6.6 - (1.2)(b) - 5.4 18.8 24.2
Total assets 492.8 540.1 825.0 790.2 2,648.1 518.7 3,166.8
Equity investments 15.7 - - - 15.7 178.2 193.9
Capital expenditures 40.2 30.5 45.9 1.0 117.6 19.0 136.6
---------------------------------------------------------------------------------------------------------------------
1999
Net sales to external customers $584.8 $521.8 $675.3 $2,608.6 $4,390.5 $ 97.5 $4,488.0
Operating earnings 102.4 81.9 86.9 39.6 310.8 5.0(a) 315.8
Interest expense, net - - - - - 56.6 56.6
Depreciation, depletion &
amortization 18.7 28.1 51.1 1.9 99.8 11.8 111.6
Equity in earnings/(losses)
of affiliates 3.0 - (0.1) - 2.9 13.4 16.3
Total assets 391.8 558.1 891.7 565.3 2,406.9 513.6 2,920.5
Equity investments 11.2 - 1.2 - 12.4 167.8 180.2
Capital expenditures 26.4 32.1 33.1 1.2 92.8 9.2 102.0
---------------------------------------------------------------------------------------------------------------------
1998
Net sales to external customers $549.7 $506.7 $655.1 $2,346.9 $4,058.4 $188.2 $4,246.6
Operating earnings 89.0 73.1 77.8 48.5 288.4 21.0(a) 309.4
Interest expense, net - - - - - 58.9 58.9
Depreciation, depletion &
amortization 16.4 24.4 47.0 1.6 89.4 11.5 100.9
Equity in earnings/(losses)
of affiliates (0.5) (1.2) - - (1.7) 11.8 10.1
Total assets 343.4 567.6 867.6 611.5 2,390.1 476.2 2,866.3
Equity investments 5.2 0.7 1.3 - 7.2 146.4 153.6
Capital expenditures 25.2 27.4 53.0 3.6 109.2 7.3 116.5
(a) Includes pretax gains on the sale of certain inventories accounted for under the LIFO method of $3.9 million
in 2000, $3.4 million in 1999 and $8.2 million in 1998.
(b) Includes pretax special and other charges of $0.8 million.
54
The following table presents certain data by geographic area:
GEOGRAPHIC AREA DATA (in millions) 2000 1999 1998
--------------------------------------------------------------------------------
Net sales to external customers:
United States $3,559.3 $2,928.3 $2,896.1
International 1,983.3 1,559.7 1,350.5
--------------------------------------------------------------------------------
Total consolidated net sales to
external customers $5,542.6 $4,488.0 $4,246.6
--------------------------------------------------------------------------------
Property, plant and equipment, net:
United States $ 679.2 $ 788.4 $ 791.6
International 88.5 83.5 84.9
--------------------------------------------------------------------------------
Total property, plant and equipment, net $ 767.7 $ 871.9 $ 876.5
--------------------------------------------------------------------------------
The Company's international operations are predominantly based in Europe.
55
The following table reconciles segment operating earnings with earnings
before income taxes as shown in the Company's "Consolidated Statements of
Earnings:"
SEGMENT RECONCILIATIONS
(in millions)
2000 1999 1998
------------------------------
Net sales to external customers:
Net sales for reportable segments $5,501.9 $4,390.5 $4,058.4
Net sales for other business units 37.7(a) 95.0 148.6
All other 3.0 2.5 39.6
------------------------------
Total consolidated net sales to external customers $5,542.6 $4,488.0 $4,246.6
==============================
Earnings before income taxes:
Operating earnings for reportable segments $ 357.2 $ 310.8 $ 288.4
Operating (loss)/earnings for other
business units (35.6) (1.7) 2.4
Special and other charges - Corporate (28.3) - -
Other operating (loss)/earnings-Corporate (27.9) 6.7 18.6
------------------------------
Total operating earnings $ 265.4 $ 315.8 $ 309.4
Interest expense, net (62.6) (56.6) (58.9)
Equity in earnings of affiliates 24.2 16.3 10.1
Gain on sale of investments and land, net 18.7 8.6 -
------------------------------
Earnings before income taxes $ 245.7 $ 284.1 $ 260.6
==============================
Total assets
Total assets for reportable segments $2,648.1 $2,406.9 $2,390.1
Assets for other business units 29.1 81.3 83.9
All other 489.6 432.3 392.3
------------------------------
Total consolidated assets $3,166.8 $2,920.5 $2,866.3
==============================
(a) Decrease primarily due to the sale of the metal-plating business in the
second quarter of 1999.
An unaffiliated customer of the Environmental Technologies and Materials
Services segments accounted for approximately $830 million of the Company's net
sales in 2000, approximately $1,007 million of the Company's net sales in 1999
and approximately $731 million of the Company's net sales in 1998.
56
17. LEASE COMMITMENTS
The Company rents real property and equipment under long-term operating
leases. Rental expense and sublease income for all operating
leases are summarized as follows:
(IN MILLIONS) 2000 1999 1998
----------------------------------------------------------------------------
Minimum rentals $26.7 $22.0 $10.9
Less sublease income (0.8) (0.8) (0.2)
----------------------------------------------------------------------------
Rent expense, net $25.9 $21.2 $10.7
============================================================================
Future minimum rental payments at December 31, 2000, required under
noncancellable operating leases, having initial or remaining lease terms in
excess of one year, are as follows:
(IN MILLIONS)
------------------------------------------------------------------
2001 $ 25.5
2002 25.4
2003 22.4
2004 20.3
2005 15.7
Thereafter 83.8
------------------------------------------------------------------
Total minimum lease payments 193.1
Less: minimum sublease income (3.1)
------------------------------------------------------------------
Net minimum lease payments $190.0
==================================================================
In 1998, the Company entered into a sale-leaseback transaction for property
that served as the principal executive and administrative offices of the Company
and its operating business. The term of the lease is twenty years. In 2000, the
Company entered into a sale-leaseback transaction for machinery and equipment
that is used in the Process Technologies segment. The term of the lease is five
years.
57
18. ENVIRONMENTAL COSTS
With the oversight of environmental agencies, the Company is currently
preparing, has under review, or is implementing environmental investigations and
cleanup plans at several currently or formerly owned and/or operated sites,
including Plainville, Massachusetts and Salt Lake City, Utah. The Company is
continuing to investigate contamination at Plainville under a 1993 agreement
with the United States Environmental Protection Agency (EPA) and is awaiting
approval of a decommissioning plan by the State of Massachusetts under authority
delegated by the Nuclear Regulatory Commission. Investigation of the
environmental status at the Salt Lake City site continues under a 1993 agreement
with the Utah Solid and Hazardous Waste Control Board.
In addition, as of December 31, 2000, eleven sites have been identified at
which the Company believes liability as a potentially responsible party (PRP) is
probable under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or similar state laws (collectively referred
to as Superfund) for the cleanup of contamination resulting from the historic
disposal of hazardous substances allegedly generated by the Company, among
others. Superfund imposes strict, joint and several liability under certain
circumstances. In many cases, the dollar amount of the claim is unspecified and
claims have been asserted against a number of other entities for the same relief
sought from the Company. Based on existing information, the Company believes
that it is a de minimis contributor of hazardous substances at a number of the
sites referenced above. Subject to the reopening of existing settlement
agreements for extraordinary circumstances or natural resource damages, the
Company has settled a number of other cleanup proceedings. The Company has also
responded to information requests from EPA and state regulatory authorities in
connection with other Superfund sites.
The accruals for environmental cleanup-related costs recorded in the
consolidated balance sheets at December 31, 2000 and 1999 were $24.7 million and
$31.3 million, respectively, including $0.6 million and $0.8 million,
respectively, for Superfund sites. These amounts represent those costs that the
Company believes are probable and reasonably estimable. Based on currently
available information and analysis, the Company's accrual represents
approximately 46% of what it believes are the reasonably possible environmental
cleanup-related costs of a noncapital nature. The estimate of reasonably
possible costs is less certain than the probable estimate upon which the accrual
is based.
Cash payments for environmental cleanup-related matters were $1.7 million,
$2.4 million and $4.1 million for 2000, 1999 and 1998, respectively. The amounts
accrued in connection with environmental cleanup-related matters were not
significant over this time period.
For the past three-year period, environmental-related capital projects have
averaged less than 10 percent of the Company's total capital expenditure
programs, and the expense of environmental compliance (e.g. environmental
testing, permits, consultants and in-house staff) was not material.
58
There can be no assurances that environmental laws and regulations will not
become more stringent in the future or that the Company will not incur
significant costs in the future to comply with such laws and regulations. Based
on existing information and currently enacted environmental laws and
regulations, cash payments for environmental cleanup-related matters are
projected to be $5.8 million for 2001, which has already been accrued.
Further, the Company anticipates that the amounts of capitalized environmental
projects and the expense of environmental compliance will approximate current
levels. While it is not possible to predict with certainty, Management believes
environmental cleanup-related reserves at December 31, 2000 are reasonable
and adequate, and environmental matters are not expected to have a material
adverse effect on financial condition. These matters, if resolved in a manner
different from the estimates, could have a material adverse effect on the
Company's operating results or cash flows.
19. LITIGATION AND CONTINGENCIES
Various lawsuits, claims and proceedings are pending against the Company.
The Company is one of a number of defendants in numerous proceedings that
allege that the plaintiffs contracted cancer and/or suffered other injuries from
exposure to "toxic" substances purportedly supplied by the Company and other
defendants. The Company is also subject to a number of environmental
contingencies (see Note 18, "Environmental Costs" for further detail) and is a
defendant in a number of lawsuits covering a wide range of other matters. In
some of these matters, the remedies sought or damages claimed are substantial.
While it is not possible to predict with certainty the ultimate outcome of these
lawsuits or the resolution of the environmental contingencies, Management
believes, after consultation with counsel, that resolution of these matters is
not expected to have a material adverse effect on financial condition. These
matters, if resolved in a manner different from Management's current
expectations, could have a material adverse effect on the Company's operating
results or cash flows.
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 of 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.
59
The Company is involved in a value-added tax dispute in Peru. Management
believes the Company was targeted by corrupt officials within the former
Peruvian Government. 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.
60
20. SUPPLEMENTAL INFORMATION
The following table present certain supplementary information to the Company's
"Consolidated Statements of Cash Flows:"
SUPPLEMENTARY CASH FLOW INFORMATION
(in millions) 2000 1999 1998
---------------------------
Cash paid during the year for:
Interest $ 61.7 $ 58.7 $ 49.6
Income taxes 60.9 65.3 57.6
--------------------------
Change in assets and liabilities -- source(use):
Special and other charges $ 133.4 $ - $ -
Receivables (79.4) (18.1) (41.1)
Committed metal positions (143.4) 98.1 (98.0)
Inventories (22.7) (9.7) 23.9
Other current assets (29.7) (41.5) (29.5)
Other noncurrent assets (13.2) (5.7) 21.8
Accounts payable (26.8) 18.5 41.4
Accrued liabilities 121.1 24.8 (7.6)
Noncurrent liabilities (6.0) (4.1) (14.1)
---------------------------
Net change in assets and liabilities $ (66.7) $ 62.3 $(103.2)
===========================
The following tables present certain supplementary information to the
Company's "Consolidated Balance Sheets:"
SUPPLEMENTARY BALANCE SHEET INFORMATION
Other current assets
(in millions)
2000 1999
-----------------------
Prepaid insurance $ 6.4 $ 6.1
Current deferred taxes 116.8 65.0
Other 32.8 50.6
------------------------
Other current assets $156.0 $121.7
========================
Other current liabilities
(in millions)
2000 1999
-----------------------
Income taxes payable $156.5 $ 87.8
Payroll-related accruals 69.9 54.5
Deferred income 6.7 16.8
Interest payable 9.7 12.7
Restructuring and other reserves 34.6 9.1
Environmental accrual 5.7 5.8
Refining reserves 8.3 3.8
Rebates 3.7 4.4
Other 132.1 74.1
-----------------------
Other current liabilities $427.2 $269.0
=======================
61
Reports of Independent Accountants
_________________________________________
To the Shareholders and Board of Directors of Engelhard Corporation:
We have audited the accompanying consolidated balance sheets of Engelhard
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of earnings, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Engelhard Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/Arthur Andersen LLP
----------------------
Arthur Andersen LLP
New York, New York
February 1, 2001
62
To the Shareholders and Board of Directors of Engelhard Corporation:
In our opinion, the consolidated statement of earnings, shareholders'
equity and cash flows for the period ended December 31, 1998, present fairly, in
all material respects, the financial position, results of operations and cash
flows of Engelhard Corporation at December 31, 1998 and for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. We have not audited the
consolidated financial statements of Engelhard Corporation for any period
subsequent to December 31, 1998.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 4, 1999
63
First Second Third Fourth
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) quarter quarter quarter quarter
($ in millions, except per-share amounts) -------------------------------------------------------
2000
Net sales $1,183.8 $1,419.6 $1,396.9 $1,542.3
Gross profit 192.0 184.0 166.7 187.5
Earnings/(loss) before income taxes 84.7 87.4 77.5 (3.9)
Net earnings/(loss) 58.0 59.9 51.3 (0.9)
Basic earnings/(loss) per share 0.46 0.47 0.41 (0.01)
Diluted earnings/(loss) per share 0.45 0.47 0.40 (0.01)
1999
Net sales $1,090.6 $1,224.2 $1,037.5 $1,135.7
Gross profit 146.0 174.6 150.8 172.7
Earnings before income taxes 58.3 80.8 73.4 71.6
Net earnings 40.6 56.2 51.0 49.7
Basic earnings per share 0.28 0.42 0.41 0.40
Diluted earnings per share 0.28 0.41 0.40 0.39
Results in first quarter of 2000 include a loss of $6.0 million ($4.1 million after tax) associated with the
divestiture of the Company's International Dioxide, Inc. (IDI) business unit and a gain of $3.8 million ($2.5
million after tax) related to the partial liquidation of precious metal inventories of Engelhard-CLAL.
Results in the second quarter of 2000 include a gain of $2.9 million ($1.9 million after tax) related to the
partial liquidation of precious metal inventories of Engelhard-CLAL.
Results in the third quarter of 2000 include a gain of $24.8 million ($17.0 million after tax) on the sale of the
Company's metal-joining products business located in Warwick, Rhode Island. In addition, the Company recorded an
impairment charge of $24.6 million ($16.9 million after tax) related to the write-down of goodwill and fixed assets of
the Company's HexCore business unit.
Results in the fourth quarter of 2000 include special and other charges of $109.6 million ($75.1 million after tax)
for a variety of events (see Note 4, "Special and Other Charges" for further detail) and a gain of $3.9 million ($2.5
million after tax) on the sale of inventory accounted for under the LIFO method.
64
Results in the first quarter of 1999 include a gain of $1.0 million ($0.7 million after tax) on the sale of the
Company's investment in Acreon Catalysts and a gain of $1.2 million ($0.8 million after tax) resulting from the settlement of
treasury lock positions.
Results in the second quarter of 1999 include a gain of $9.3 million ($6.5 million after tax) on the sale of the
Company's metal-plating business and a gain of $1.8 million ($1.3 million after tax) related to the partial liquidation
of precious metal inventories of Engelhard-CLAL. In addition, the Company recorded a loss of $4.6 million ($3.2 million
after tax) as the carrying value of its investment in Engelhard Highland Private Ltd. venture was reduced to its
estimated net realizable value of $1.0 million.
Results in the third quarter of 1999 include a gain of $1.1 million ($0.7 million after tax) on the sale of the
Company's Mearlcrete concrete foaming agent business, a gain of $1.8 million ($1.3 million after tax) on the sale of
land and certain mineral rights located in Talladega County, Alabama and a gain of $3.0 million ($2.1 million after tax)
resulting from the settlement of treasury lock positions.
Results in the fourth quarter of 1999 include a gain of $3.4 million ($2.2 million after tax) on the sale of
inventory accounted for under the LIFO method. In addition, the Company reduced net interest expense by $2.9 million
($2.0 million after tax) resulting from the settlement of treasury lock positions.
The Company adopted Emerging Issues Task Force (EITF) 00-10, "Accounting for Shipping and Handling Fees and Costs,"
in the fourth quarter of 2000. To conform with the newly adopted standard, certain previously reported amounts have
been reclassified (see revenue recognition section of Note 1, "Summary of Significant Accounting Policies" for further
detail).
Basic and diluted earnings per share are calculated independently for each of the quarters presented.
The sum of the quarters may not equal the full-year earnings-per-share amounts.
Changes in and Disagreements with
Item 9. Accountants on Accounting and Financial Disclosure
------ --------------------------------------------------
Not applicable
65
PART III
Item 10. Directors and Executive Officers of the Registrant
------- --------------------------------------------------
(a) Directors -
Information concerning directors of the Company is included under the
caption "Election of Directors", "Information with Respect to Nominees and
Directors Whose Terms Continue", "Share Ownership of Directors and Officers",
and "Board of Directors' Meetings, Committees and Fees" in the Proxy Statement
for the 2001 Annual Meeting of Shareholders and is incorporated herein by
reference.
(b) Executive Officers -
ARTHUR A. DORNBUSCH, II Age 57. Vice President, General Counsel and
Secretary of the Company from prior to 1994.
MARK DRESNER Age 49. Vice President of Corporate Communications
effective December 17, 1998. Director of
Corporate Communications from October 1995 to
December 1998.
JOHN C. HESS Age 48. Vice President, Human Resources effective
August 1, 1997. Director of Human Resources for
the Process Technologies Group (formerly the
Chemical Catalyst Group) from November 1995 to
July 1997.
PETER B. MARTIN Age 61. Vice President, Investor Relations
effective June 18, 1997. Vice President, Investor
Relations, W.R. Grace & Company prior thereto.
BARRY W. PERRY * Age 54. Chairman and Chief Executive Officer of
the Company since January 2001. President and
Chief Operating Officer effective February 1,
1997. Group Vice President and General Manager
of the Appearance and Performance Technologies
Group (formerly the Pigments and Additives Group)
prior thereto. Mr. Perry is also a director of
Arrow Electronic, Inc.
PETER R. RAPIN Age 46. Treasurer effective July 8, 1998.
Assistant Treasurer from July 1995 to July 1998.
MICHAEL A. SPERDUTO Age 43. Controller of the Company effective
August 5, 1999. Vice President-Finance from
July 8, 1998 to August 1999. Treasurer prior
thereto.
* Also a director of the Company
66
Officers of the Company are elected at the meeting of the Board of
Directors held in May of each year after the annual meeting of shareholders and
serve until their successors shall be elected and qualified and shall serve as
such at the pleasure of the Board.
Item 11. Executive Compensation
------- ----------------------
Information concerning executive compensation is included under the
captions "Executive Compensation and Other Information", "Pension Plans,"
"Employment Contracts, Termination of Employment and Change in Control
Arrangements" and the "Performance Graph" of the Proxy Statement for the 2001
Annual Meeting of Shareholders and is incorporated herein by reference.
Security Ownership of Certain
Item 12. Beneficial Owners and Management
------- --------------------------------
Information concerning security ownership of certain beneficial owners and
management is included under the captions "Information as to Certain
Shareholders" and "Share Ownership of Directors and Officers" of the Proxy
Statement for the 2001 Annual Meeting of Shareholders and is incorporated herein
by reference.
Certain Relationships
Item 13. and Related Transactions
------- ------------------------
Information concerning certain business relationships of nominees for
director and directors and related transactions is included under the caption
"Certain Transactions" of the Proxy Statement for the 2001 Annual Meeting of
Shareholders and is incorporated herein by reference.
67
PART IV
Exhibits, Financial Statement
Item 14. Schedules and Reports on Form 8-K Pages
------- --------------------------------- -----
(a) (1) Financial Statements and Schedules
Reports of Independent Accountants 62-63
Consolidated Statements of Earnings for each of the 26
three years in the period ended December 31, 2000
Consolidated Balance Sheets at December 31, 2000 and 1999 27
Consolidated Statements of Cash Flows for each of the 28
three years in the period ended December 31, 2000
Consolidated Statements of Shareholders' Equity for each 29
of the three years in the period ended December 31, 2000
Notes to Consolidated Financial Statements 30-61
(2) Financial Statement Schedules
Consolidated financial statement schedules not filed
herein have been omitted either because they are not
applicable or the required information is shown in the
Notes to Consolidated Financial Statements in this
Form 10-K.
(b) In a report on Form 8-K filed with the Securities and *
Exchange Commission on February 22, 2000, the Company
reported that it changed its Certifying Accountant.
Exhibits Page
-------- ----
(3) (a) Certificate of Incorporation of the Company *
(incorporated by reference to Form 10, as
amended on Form 8-K filed with the Securities
and Exchange Commission on May 19, 1981).
(3) (b) Certificate of Amendment to the Restated Certificate *
of Incorporation of the Company (incorporated by
reference to Form 10-K for the year ended December 31,
1987).
* Incorporated by reference as indicated.
68
Exhibits Pages
-------- -----
(3) (c) Certificate of Amendment to the Restated Certificate of *
Incorporation of the Company (incorporated by reference
to Form 10-Q for the quarter ended March 31, 1993).
(3) (d) Amendment to the Restated Certificate of Incorporation *
of the Company, filed with the State of Delaware, Office
of the Secretary of State on May 2, 1996 (incorporated
by reference to Form 10-Q filed with the Securities and
Exchange Commission on May 14, 1996).
(3) (e) By-laws of the Company as amended June 12, 1997 *
(incorporated by reference to Form 10-Q filed with the
Securities and Exchange Commission on August 13, 1997).
(3) (f) Article II of the By-laws of the Company as amended *
December 17, 1998 (incorporated by reference to Form S-8
filed with the Securities and Exchange Commission on
January 29, 1999).
(3) (g) Certificate of Designation relating to Series A Junior *
Participating Preferred Stock, filed with the State of
Delaware, Office of the Secretary of State on November 12,
1998.
(3) (h) Article II, Section 8 of the By-Laws of the Company as
amended March 1, 2001. 77-78
(10)(a) Form of Agreement of Transfer entered into between *
Engelhard Minerals & Chemicals Corporation and the
Company, dated May 18, 1981 (incorporated by
reference to Form 10, as amended on Form 8 filed
with the Securities and Exchange Commission on
May 19, 1981).
(10)(b) Retirement Plan for Directors of Engelhard *
Corporation Effective January 1, 1985 - conformed
copy includes amendments through June 1991
(incorporated by reference to Form 10-K filed
with the Securities and Exchange Commission on
March 22, 1996).
* Incorporated by reference as indicated.
69
Exhibits Page
-------- ----
(10)(c) Deferred Compensation Plan for Key Employees of *
Engelhard Corporation Effective August 1, 1985 -
conformed copy includes amendments through December
1993 (incorporated by reference to Form 10-K filed
with the Securities and Exchange Commission on
March 22, 1996).
(10)(d) Engelhard Corporation Directors and Executives *
Deferred Compensation Plan (1986-1989) - conformed
copy includes amendments through December 1993
(incorporated by reference to Form 10-K filed
with the Securities and Exchange Commission on
March 22, 1996).
(10)(e) Key Employees Stock Bonus Plan of Engelhard *
Corporation Effective July 1, 1986 - conformed
copy includes amendments through June 1992
(incorporated by reference to Form 10-K filed with
the Securities and Exchange Commission on
March 22, 1996).
(10)(f) Stock Bonus Plan for Non-Employee Directors of *
Engelhard Corporation Effective July 1, 1986 -
conformed copy includes amendments through
June 1992 (incorporated by reference to Form
10-K filed with the Securities and Exchange
Commission on March 22, 1996).
(10)(g) Deferred Compensation Plan for Directors of *
Engelhard Corporation Restated as of May 7, 1987 -
conformed copy includes amendments through
December 1993 (incorporated by reference to Form
10-K filed with the Securities and Exchange
Commission on March 22, 1996).
(10)(h) Supplemental Retirement Program of Engelhard *
Corporation as Amended and Restated Effective
January 1, 1989 - conformed copy includes
amendments through November 1994 (incorporated
by reference to Form 10-K filed with the Securities
and Exchange Commission on March 22, 1996).
(10)(i) Engelhard Corporation Directors and Executives *
Deferred Compensation Plan (1990-1993) -
conformed copy includes amendments through
November 1993 (incorporated by reference to Form
10-K filed with the Securities and Exchange
Commission on March 22, 1996).
* Incorporated by reference as indicated.
70
Exhibits Page
-------- ----
(10)(j) Engelhard Corporation Directors Stock Option *
Plan Effective May 4, 1995 (incorporated by
reference to the 1995 definitive Proxy Statement
filed with the Securities and Exchange Commission on
March 31, 1995).
(10)(k) Amendments to the Key Employee Stock Bonus Plan of *
Engelhard Corporation adopted March 7, 1996
(incorporated by reference to the 1996 definitive
Proxy Statement filed with the Securities and
Exchange Commission on March 29, 1996).
(10)(l) Amendments to the Stock Bonus Plan for Non-Employee *
Directors of Engelhard Corporation adopted March 7,
1996 (incorporated by reference to the 1996 definitive
Proxy Statement filed with the Securities and Exchange
Commission on March 29, 1996).
(10)(m) Amendment to the Supplemental Retirement Program of *
Engelhard Corporation adopted December 19, 1996
(incorporated by reference to Form 10-K filed with the
Securities and Exchange Commission on March 27, 1997).
(10)(n) Amendment to the Deferred Compensation Plan for Key *
Employees of Engelhard Corporation, adopted April 3,
1997 (incorporated by reference to Form 10-Q filed
with the Securities and Exchange Commission on
May 14, 1997).
(10)(o) Change in Control Agreement (incorporated by reference *
to Form 10-Q filed with the Securities and Exchange
Commission on August 13, 1998).
* Incorporated by reference as indicated.
71
Exhibits Page
-------- ----
(10)(p) Amendment to Key Employees Deferred Compensation Plan, *
effective August 6, 1998 (incorporated by reference
to Form 10-Q filed with the Securities and Exchange
Commission on August 13, 1998).
(10)(q) Amendment to Supplemental Retirement Program of *
Engelhard Corporation, effective June 11, 1998
(incorporated by reference to Form 10-Q filed with
the Securities and Exchange Commission on August 13,
1998).
(10)(r) Engelhard Corporation Stock Option Plan of 1991 - *
conformed copy includes amendments through
September 1998.
(10)(s) Rights Agreement, dated as of October 1, 1998 between *
the Company and ChaseMellon Shareholder Services, l.l.c.,
as Rights Agent (incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on
October 29, 1998).
(10)(t) Amendment to Key Employees Stock Bonus Plan of *
Engelhard Corporation, effective October 1, 1998
(incorporated by reference to Form 10-Q filed with
the Securities and Exchange Commission on
November 13, 1998).
(10)(u) Amendment to Supplemental Retirement Program of *
Engelhard Corporation, effective October 1, 1998
(incorporated by reference to Form 10-Q filed with
the Securities and Exchange Commission on
November 13, 1998).
(10)(v) Amendment to Engelhard Corporation Directors and *
Executives Deferred Compensation Plan (1986-1989),
effective October 1, 1998 (incorporated by reference
to Form 10-Q filed with the Securities and Exchange
Commission on November 13, 1998).
(10)(w) Amendment to Engelhard Corporation Directors and *
Executives Deferred Compensation Plan (1990-1993),
effective October 1, 1998 (incorporated by reference
to Form 10-Q filed with the Securities and Exchange
Commission on November 13, 1998).
(10)(x) Amendment to Deferred Compensation Plan For Key *
Employees of Engelhard Corporation, effective
October 1, 1998 (incorporated by reference to Form
10-Q filed with the Securities and Exchange Commission
on November 13, 1998).
10)(y) Amendment to Deferred Compensation Plan For *
Directors of Engelhard Corporation, effective
October 1, 1998 (incorporated by reference to Form
10-Q filed with the Securities and Exchange Commission
on November 13, 1998).
* Incorporated by reference as indicated.
72
Exhibits Pages
-------- -----
(10)(z) Amendment to Retirement Plan For Directors of *
Engelhard Corporation, effective October 1, 1998
(incorporated by reference to Form 10-Q filed with
the Securities and Exchange Commission on
November 13, 1998).
(10)(aa) Amendment to Stock Bonus Plan For Non-Employee *
Directors of Engelhard Corporation, effective
October 1, 1998 (incorporated by reference to Form
10-Q filed with the Securities and Exchange Commission
on November 13, 1998).
(10)(ab) Amendment to Deferred Compensation Plan for Key *
Employees of Engelhard Corporation, effective
August 6, 1998 (incorporated by reference to Form
10-Q filed with the Securities and Exchange Commission
on November 13, 1998).
(10)(ac) Engelhard Corporation Deferred Stock Plan for Nonemployee *
Directors, effective May 6, 1999 (incorporated by
reference to the 1998 definitive Proxy Statement filed
with the Securities and Exchange Commission on March 31,
1999).
(10)(ad) Credit Agreement dated as of April 10, 1997 (incorporated *
by reference to Form 10-Q filed with the Securities and
Exchange Commission on May 14, 1997).
(10)(ae) Amendment to Key Employees Stock Bonus Plan of Engelhard *
Corporation, effective December 16, 1999 (incorporated by
reference to Form 10-K filed with the Securities and
Exchange Commission on March 28, 2000).
(10)(af) Amendment to Engelhard Corporation Stock Option Plan of *
1991, effective December 16, 1999 (incorporated by
reference to Form 10-K filed with the Securities and
Exchange Commission on March 28, 2000).
(10)(ag) Engelhard Corporation Stock Option Plan of 1999 for *
Certain Key Employees, effective December 16, 1999
(incorporated by reference to Form 10-K filed with the
Securities and Exchange Commission on March 28, 2000).
73
(10)(ah) Amendment to Engelhard Corporation Stock Option Plan of 79-80
1999 For Certain Key Employees (non section 16 (B)
Officers), effective February 1, 2001.
(10)(ai) Amendment to Engelhard Corporation Stock Option Plan of 81-82
1991, effective February 1, 2001.
(10)(aj) Amendment to Engelhard Corporation Stock Option Plan of 83-84
1999 For Certain Key Employees (Non Section 16 (B)
Officers), effective March 1, 2001.
(10)(ak) Amendment to Engelhard Corporation Stock Option Plan of 85-86
1991, effective March 1, 2001.
(10)(al) Amendment to Engelhard Corporation Directors Stock Option 87-88
Plan, effective March 1, 2001.
(10)(am) Supplemental Retirement Trust Agreement, effective 89-99
December, 1998.
(10)(an) Annual Restricted Cash Incentive Compensation Plan, 100-105
effective December 15, 2000.
(10)(ao) Deferred Compensation Plan For Key Employees of 106-113
Engelhard Corporation effective August 1, 1985 -
conformed copy includes amendments through February 2001.
(10)(ap) Amendment to Retirement Plan For Directors of Engelhard 114-115
Corporation, effective April 2000.
(12) Computation of the Ratio of Earnings to Fixed Charges. 116-117
(21) Subsidiaries of the Registrant. 118-120
(23) Consent of Independent Accountants. 121-123
(24) Powers of Attorney. 124-131
74
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) 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, in Iselin, New Jersey
on the 30th day of March 2001.
Engelhard Corporation
---------------------
Registrant
/s/Barry W. Perry
---------------------
Barry W. Perry
(Chairman and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Barry W. Perry Chairman and Chief Executive March 30, 2001
------------------------- Officer & Director
Barry W. Perry (Principal Executive Officer)
/s/ Michael A. Sperduto Controller March 30, 2001
------------------------- (Chief Accounting Officer)
Michael A. Sperduto
75
* Director March 30, 2001
---------------------------
Marion H. Antonini
* Director March 30, 2001
--------------------------
James V. Napier
* Director March 30, 2001
--------------------------
Norma T. Pace
* Director March 30, 2001
-------------------------
Orin R. Smith
* Director March 30, 2001
-------------------------
Reuben F. Richards
* Director March 30, 2001
-------------------------
Henry R. Slack
* Director March 30, 2001
-------------------------
Douglas G. Watson
* By this signature below, Arthur A. Dornbusch, II has signed this Form 10-K
as attorney-in-fact for each person indicated by an asterisk pursuant to
duly executed powers of attorney filed with the Securities and Exchange
Commission included herein as Exhibit 24.
/s/ Arthur A. Dornbusch, II March 30, 2001
---------------------------
Arthur A. Dornbusch, II
76
EXHIBIT (3)(h)
Article II, Section 8 of the
by-laws of the Company as amended
To Allow Electronic Voting
---------------------------------
77
AMENDMENT TO BY-LAWS TO
ALLOW ELECTRONIC VOTING
At its meeting on March 1, 2001 the Company's Board of Directors amended
and restated Article II, Section 8 of the Company's By-Laws to read in full as
follows:
"Section 8. Voting. Each stockholder of record of the Corporation shall, at
every Meeting of the Stockholders of the Corporation, be entitled to one vote
for each share of stock standing in his name on the books of the Corporation on
any matter on which he is entitled to vote, and such votes may be cast either in
person or by proxy, but no proxy shall be voted on after one year from its date.
A stockholder may authorize another person or persons to act for him as
proxy by (i) executing a writing authorizing another person or persons to act
for him as proxy (such execution may be accomplished by the stockholder or his
authorized officer, director, employee or agent signing such writing or causing
his or her signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature), or (ii) transmitting or
authorizing the transmission of a telegram, cablegram, Internet, interactive
voice response system or other means of electronic transmission (including by
telephone) to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram, Internet, interactive
voice response system or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram, Internet transmission, interactive voice response system or
other electronic transmission was authorized by the stockholder. If no date is
stated in a proxy, such proxy shall be presumed to have been executed on the
date of the Meeting at which it is to be voted. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
The vote on all elections of directors shall be by ballot and, upon demand
of any stockholder, the vote on any other question before the Meeting shall be
by ballot or otherwise as determined by the Chairman of the Meeting.
Except as otherwise provided by statute, the Certificate of Incorporation
or these By-Laws, all elections shall be had and all questions decided by a
majority of the votes cast."
78
EXHIBIT(10)(ah)
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1999
FOR CERTAIN KEY EMPLOYEES
(NON SECTION 16(B) OFFICERS)
----------------------------------
79
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1999
FOR CERTAIN KEY EMPLOYEES
(NON SECTION 16(B) OFFICERS)
----------------------------------
The Engelhard Corporation Stock Option Plan of 1999 for Certain Key
Employees (Non Section 16(b) Officers) (the "Plan") is amended as set forth
below, effective as of February 1, 2001.
1. The first sentence of Sections 3 of the Plan is amended to read as follows:
"There shall be available for option under the Plan 5,500,000 shares of the
Company's Common Stock (the 'Stock'), subject to any adjustments which may be
made pursuant to Section 5(f) hereof."
80
EXHIBIT(10)(ai)
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1991
----------------------------------
81
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1991
----------------------------------
The Engelhard Corporation Stock Option Plan of 1991 (the "Plan") is amended
as set forth below, effective as of February 1, 2001.
1. Sections 6 of the Plan is amended to read as follows:
"6. Duration. Unless sooner terminated by the Board of Directors, the Plan
shall terminate on, and no option shall be granted hereunder after June 30,
2002."
2. The first sentence of Section 7(c) is amended to replace
"June 30, 2001" with "June 30, 2002."
82
EXHIBIT(10)(aj)
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1999
FOR CERTAIN KEY EMPLOYEES
(NON SECTION 16(B) OFFICERS)
----------------------------------
83
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1999
FOR CERTAIN KEY EMPLOYEES
(NON SECTION 16(B) OFFICERS)
----------------------------------
The Engelhard Corporation Stock Option Plan of 1999 for Certain Key
Employees (Non Section 16(b) Officers) (the "Plan") is amended as set forth
below, effective March 1, 2001.
1. Section 5(i) of the Plan is amended to read as follows:
"(i) Tax Withholding. The Committee may establish such rules and procedures
as it considers desirable in order to satisfy any obligation of the Company or
any Subsidiary to withhold Federal income taxes or other taxes with respect to
the exercise of an option under the Plan, including without limitation rules and
procedures permitting an optionee to elect that the Company withhold shares of
Stock otherwise issuable upon exercise of such option in order to satisfy such
withholding obligation; provided, however, that the amount of tax withholding to
be satisfied by withholding shares of Stock from the option exercise shall be
limited to the minimum amount of taxes, including employment taxes, required to
be withheld under applicable Federal, state and local law."
84
EXHIBIT(10)(ak)
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1991
----------------------------------
85
AMENDMENT TO ENGELHARD CORPORATION
STOCK OPTION PLAN OF 1991
----------------------------------
The Engelhard Corporation Stock Option Plan of 1991 (the "Plan") is amended
as set forth below, effective March 1, 2001.
1. The last sentence of the first paragraph of Sections 5(c) of the Plan
is amended to read as follows:
"The purchase price may be paid in whole or in part with shares of Stock
having a fair market value on the exercise date equal to the cash amount for
which such shares are substituted; provided, however, that in no event may any
portion of the purchase price be paid with shares of Stock acquired upon
exercise of a stock option granted under this Plan unless such shares were
acquired more than six months before the applicable date of exercise."
2. Section 5(i) of the Plan is amended to read as follows:
"(i) Tax Withholding. The Committee may establish such rules and procedures
as it considers desirable in order to satisfy any obligation of the Company or
any Subsidiary to withhold Federal income taxes or other taxes with respect to
the exercise of an option under the Plan, including without limitation rules and
procedures permitting an optionee to elect that the Company withhold shares of
Stock otherwise issuable upon exercise of such option in order to satisfy such
withholding obligation; provided, however, that the amount of tax withholding to
be satisfied by withholding shares of Stock from the option exercise shall be
limited to the minimum amount of taxes, including employment taxes, required to
be withheld under applicable Federal, state and local law."
86
EXHIBIT(10)(al)
AMENDMENT TO ENGELHARD CORPORATION
DIRECTORS STOCK OPTION PLAN
----------------------------------
87
AMENDMENT TO ENGELHARD CORPORATION
DIRECTORS STOCK OPTION PLAN
----------------------------------
The Engelhard Corporation Directors Stock Option Plan (the "Plan") is
amended as set forth below, effective March 1, 2001.
1. The last sentence of Sections 5(d) of the Plan is amended to read
as follows:
"The purchase price may be paid in whole or in part with Shares having a
Fair Market Value on the exercise date equal to the cash amount for which
such Shares are substituted; provided, however, that in no event may any
portion of the purchase price be paid with Shares acquired upon exercise
of an Option granted under this Plan unless the Shares are acquired more
than six months before the applicable date of exercise."
2. The last sentence of Section 6(c) of the Plan is amended to read
as follows:
"This authority shall include authority to withhold or receive Shares or
other property and to make cash payments in respect thereof in
satisfaction of a Participant's tax obligations; provided, however, that
the amount of tax withholding to be satisfied by withholding Shares
delivered under this Plan on exercise of an Option shall be limited to
the minimum amount of taxes, if any, required to be withheld under
applicable Federal, state and local law."
88
EXHIBIT (10)(am)
Supplemental Retirement Trust Agreement
---------------------------------------
89
SUPPLEMENTAL RETIREMENT TRUST AGREEMENT
This Agreement made this ___ day of December, 1998, by and between
Engelhard Corporation (the "Company") and Wachovia Bank, N.A. (the "Trustee");
WHEREAS, the Company has adopted the Deferred Compensation Plan for
Directors of Engelhard Corporation, the Retirement Plan for Directors of
Engelhard Corporation, the Deferred Compensation Plan for Key Employees of
Engelhard Corporation, the Engelhard Corporation Directors and Executives
Deferred Compensation Plan (1986-1989), the Engelhard Corporation Directors and
Executives Deferred Compensation Plan (1990-1993), and the Supplemental
Retirement Program of Engelhard Corporation (collectively the "Plans")
benefiting certain of its directors and employees (the "Participants");
WHEREAS, the Company has incurred or expects to incur liability under the
terms of such Plans with respect to the Participants;
WHEREAS, the Company wishes to establish a trust (hereinafter called the
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to the Participants and their
beneficiaries in such manner and at such times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as unfunded arrangements maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended;
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
(a) The Company hereby deposits with the Trustee in trust one hundred
dollars ($100), which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly.
90
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of the Participants and general creditors as herein
set forth. The Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plans and this Trust Agreement shall be mere unsecured
contractual rights of the Participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under applicable law in the event of Insolvency, as
defined in Section 3(a) herein.
(e) Immediately upon a Change in Control (as defined in Section 13(d)
below) and within 30 days following the end of each calendar year thereafter,
the Company shall be required to irrevocably deposit additional cash or other
property (which may be held in the Trust consistent with Section 5(d) hereof) to
the Trust in an amount sufficient to pay each Participant or beneficiary the
vested benefits payable pursuant to the terms of the Plans plus projected fees
and expenses of the Trust as of the date of the Change in Control or the close
of the calendar year, as the case may be. The Company shall also fund an expense
reserve for the Trustee in the amount of $150,000. Following a Change in
Control, the Trustee shall have the right to compel contributions from the
Company to make up for any shortfall.
(f) Any one of the General Counsel, Chief Financial Officer, Treasurer or
Controller of the Company shall have the specific authority to determine whether
a Change in Control has occurred for purposes of this Agreement and shall be
required to give the Trustee written notice of a Change in Control. The Trustee
shall be entitled to rely upon such written notice, but if the Trustee receives
notice of a Change in Control from another source, the Trustee shall make its
own independent determination.
Section 2. Payments to the Participants and Their Beneficiaries.
(a) The Company shall deliver to the Trustee a schedule at least annually
and upon a Change in Control (the "Payment Schedule") that indicates the amounts
payable in respect of each Participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to the Trustee for
determining the amounts so payable, the form in which such amount is to be paid
(as provided for or available under the Plans), the rate of income and
employment tax withholding applicable to such payments, and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
the Trustee shall make payments to the Participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plans at the rates indicated on the Payment Schedule and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(b) Prior to a Change in Control, the Company shall be responsible for
determining a Participant's eligibility for benefits under the Plans and the
amount and duration thereof, and shall instruct the Trustee accordingly. The
Trustee shall observe the Company's instructions unless the Participant or
beneficiary objects thereto and pursues resolution of the dispute through legal
proceedings or arbitration, in which case the Trustee shall observe the court
decree or arbitrator's award in paying benefits (if any are awarded) to the
Participant or beneficiary.
91
(c) After a Change in Control, the Company shall continue to make the
determination of benefits due to Participants; provided, however, a Participant
or their beneficiaries may make application to the Trustee for an independent
decision as to the amount or form of their benefits due under the Plans. In
making any determination required or permitted to be made by the Trustee under
this Section 2(c), the Trustee shall, in each such case, reach its own
independent determination, in its absolute and sole discretion, as to the
Participant's or beneficiary's entitlement to a payment hereunder. In making its
determination, the Trustee may consult with and make such inquiries of such
persons, including the Participant or his or her beneficiaries, the Company,
legal counsel, actuaries or other persons, as the Trustee may reasonably deem
necessary. Any reasonable costs incurred by the Trustee in arriving at its
determination shall be reimbursed by the Company and, to the extent not paid by
the Company within a reasonable time, shall be charged to the Trust. The Company
waives any right to contest any amount paid by the Trustee hereunder pursuant to
a good faith determination made by the Trustee notwithstanding any claim by or
on behalf of the Company (absent a manifest error by the Trustee) that such
payments should not be made.
(d) A Participant or beneficiary may apply in writing directly to the
Trustee for payment of a benefit that (i) has been awarded to the Participant or
beneficiary by a final court decree or arbitration award, and (ii) has not been
paid by the Company. Such application shall be accompanied by a certified copy
of such court decree or arbitration award. Upon receiving an application for
payment of a benefit accompanied by a certified copy of a court decree or
arbitration award, the Trustee shall notify the Company of the application,
including the amount of the benefit payable, and the Trustee shall make such
payments as required by the court decree or arbitration award, after providing
the Company with an opportunity to prove to the satisfaction of the Trustee that
the Company has paid the benefit to the Participant or beneficiary.
(e) The Company may make payment of benefits directly to the Participants
or their beneficiaries as they become due under the terms of the Plans. The
Company shall notify the Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to the Participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plans, the Company shall make the balance of each such payment as
it falls due. The Trustee shall notify the Company where principal and earnings
are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When the Company Is Insolvent.
(a) The Trustee shall cease payment of benefits to the Participants and
their beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under applicable law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of the Company
shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to the Participants or their
beneficiaries.
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(2) Unless the Trustee has actual knowledge of the Company's Insolvency, or
has received notice from the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may in all events rely on
such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to the Participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of the
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of the Participants or their beneficiaries to pursue their
rights as general creditors of the Company with respect to benefits due under
the Plans or otherwise.
(4) The Trustee shall resume the payment of benefits to the Participants or
their beneficiaries in accordance with Section 2 of this Trust Agreement only
after the Trustee has determined that the Company is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to the
Participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance plus earnings on
such difference based on the "applicable federal rate" (as defined in Section
1274(d) of the Code) over such period of discontinuance.
Section 4. Payments to the Company.
Except as provided in Section 3 hereof, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payment of benefits have been made to the
Participants and their beneficiaries pursuant to the terms of the Plans and all
fees and expenses of the Trust have been paid.
Section 5. Investment Authority.
(a) The Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by the Company. All rights associated with
assets of the Trust shall be exercised by the Trustee or the person designated
by the Trustee, and shall in no event be exercisable by or rest with the
Participants.
(b) The Company shall have the right at any time, and from time to time in
its sole discretion, to substitute assets permitted to be held at such time by
the Trust of equal fair market value for any asset held by the Trust. This right
is exercisable by the Company in a nonfiduciary capacity without the approval or
consent of any person in a fiduciary capacity.
(c) Except as otherwise provided in Section 5(d) below, subject to
investment guidelines agreed in writing from time to time by the Company and the
Trustee prior to a Change in Control, the Trustee shall have the following
powers, rights and duties in addition to those provided elsewhere in this Trust
Agreement or by law.
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(i) To have the exclusive authority and discretion to invest and reinvest
the Trust assets in property of any kind, real or personal.
(ii) To engage in the writing, sale, purchase and exercise of covered call
option contracts as an investment for the Trust.
(iii) To manage, operate, sell, contract to sell, grant options with
respect to, convey, exchange, partition, transfer, abandon, improve, repair,
insure, lease for any term (although commencing in the future or extending
beyond the term of this Trust) and otherwise deal with all property, real and
personal, in such manner, for such considerations, and on such terms and
conditions as the Trustee shall decide.
(iv) To borrow from anyone such amount or amounts of money as the Trustee
considers desirable to carry out the purpose of this Trust and for that purpose
to mortgage or pledge all or any part of the Trust assets.
(v) To retain in cash (pending investment, reinvestment or payment of
benefits) any portion of the Trust assets and to deposit cash in any depository,
including the banking department of the bank acting as Trustee.
(vi) To begin, maintain or defend any litigation necessary in connection
with the investment, reinvestment and administration of the Trust.
(vii) To have all rights of an individual owner, including the power to
give proxies to vote stocks, to join in or oppose (alone or jointly with others)
voting trusts, mergers, consolidations, foreclosures, reorganizations,
recapitalizations or liquidations, and to exercise or sell stock subscription or
conversion rights.
(viii) To hold securities or other property in the name of the Trustee or
its nominee, nominees, or in such other form as it determines best, with or
without disclosing the Trustee relationship, provided the records of the Trustee
shall indicate the actual ownership of such securities or other property.
(ix) To enter into letter of credit agreements under which the Trustee may
draw down and under which the Company shall have the reimbursement obligation.
(d) During the 90 day period following a Change in Control, the Trustee may
only invest the assets of the Trust in (i) short term United States government
obligations, (ii) mutual funds consisting solely of short term United States
government obligations, or (iii) shares of Company common stock not exceeding
the number of Company common stock units held in Participants' accounts under
the Plans from time to time. Thereafter, the Trustee may only invest the assets
of the Trust in accordance with the investment guidelines attached hereto as
Exhibit A, and Exhibit A may not be amended after a Change in Control.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
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Section 7. Accounting by the Trustee.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 90 days following the close of each calendar
year and within 90 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being separately stated), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
Section 8. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, and diligence under the
circumstances then prevailing that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims, provided, however, that the Trustee shall incur no
liability to any person for any action taken pursuant to a direction, request or
approval given by the Company which is contemplated by, and in conformity with,
the terms of the Plans or this Trust and is given in writing by the Company. In
the event of a dispute between the Company and a party, the Trustee may apply to
a court of competent jurisdiction to resolve the dispute.
(b) If the Trustee incurs any liability in its capacity as Trustee
hereunder or undertakes or defends any litigation, claim or proceeding arising
in connection with this Trust, the Company agrees to indemnify the Trustee
against the Trustee's costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments, except for liabilities, costs and expenses resulting
from the willful misconduct or negligence of the Trustee or its agents or
employees. If the Company does not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire and rely on advice given by agents, accountants,
actuaries, investment advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code of
1986, as amended.
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Section 9. Compensation and Expenses of the Trustees.
The Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of the Trustee.
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee agree otherwise.
(b) Except as set forth in paragraph (c) below, the Trustee may be removed
by the Company on 30 days notice or upon shorter notice accepted by the Trustee.
(c) Upon a Change in Control, as defined herein, the Trustee may not be
removed by the Company for 6 years.
(d) If the Trustee resigns or is removed after a Change in Control, as
defined herein, the Company shall select a successor Trustee in accordance with
the provisions of Section 11(b) hereof prior to the effective date of the
Trustee's resignation or removal.
(e) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
(f) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any third party with a market
capitalization in excess of $10 billion that may be granted corporate trustee
powers under applicable law (such as a bank) as a successor to replace the
Trustee upon resignation or removal. The appointment shall be effective when
accepted in writing by the new Trustee, who shall have all of the rights and
powers of the former Trustee, including ownership rights in the Trust assets.
The former Trustee shall execute any instrument necessary or reasonably
requested by the Company or the successor trustee to evidence the transfer.
(b) If the Trustee resigns or is removed pursuant to the provisions of
Section 10(d) hereof, the Company may appoint any third party with a market
capitalization in excess of $10 billion that may be granted corporate trustee
powers under applicable law (such as a bank), but only if a majority in number
of Participants who have unpaid benefits under the Plans approve such successor
trustee in writing. The appointment of a successor Trustee shall be effective
when so approved by Participants and accepted in writing by the new Trustee. The
new Trustee shall have all the rights and powers of the former Trustee,
including ownership rights in Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the successor Trustee to
evidence the transfer.
96
(c) A successor Trustee need not examine the records and acts of any prior
Trustee and may retain or dispose of existing Trust assets, subject to Sections
7 and 8 hereof. The successor Trustee shall not be responsible for and the
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 12. Amendment or Termination.
(a) Except as set forth in paragraph (d) below, this Trust Agreement may be
amended by a written instrument executed by the Trustee and the Company.
Notwithstanding the foregoing, no such amendment shall conflict with the terms
of the Plans or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which the Participants
and their beneficiaries are no longer entitled to benefits pursuant to the terms
of the Plans and all fees and expenses of the Trust have been paid. Upon
termination of the Trust any assets remaining in the Trust shall be returned to
the Company.
(c) Upon written approval of the Participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plans, the Company may
terminate this Trust prior to the time all benefit payments under the Plans have
been made. All assets in the Trust at termination shall be returned to the
Company.
(d) This Trust Agreement may not be amended by the Company following a
Change in Control in any manner which adversely affects the rights of
Participants or beneficiaries.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Participants and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflict of laws.
(d) For purposes of this Trust, a "Change in Control" shall mean:
97
(A) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (i) any acquisition directly from the Company (other than by exercise
of a conversion privilege); (ii) any acquisition by the Company or any of its
subsidiaries; (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries; (iv)
any acquisition by any corporation with respect to which, following such
acquisition, more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such acquisition in substantially
the same proportions as their ownership, immediately prior to such acquisition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or (v) any acquisition by a Person owning more
than 25% of the Outstanding Company Common Stock on the date hereof;
(B) during any period of two consecutive years, individuals who, as of the
beginning of such period, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the beginning of such
period whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act); or
(C) approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, with respect to which all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation, do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such reorganization, merger
or consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be; or
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(D) approval by the shareholders of the Company of (1) a complete
liquidation or dissolution of the Company or (2) a sale or other disposition of
all or substantially all of the assets of the Company, other than to a
corporation with respect to which following such sale or other disposition, more
than 60% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportions as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be the date first written
above.
Attest: Engelhard Corporation
__________________ By:_____________________________
Attest: Wachovia Bank, N.A.
__________________ By:_____________________________
Exhibit A
After the 90 day period following a Change in Control, the Trustee may only
invest the assets of the Trust in the following: (i) United States government
obligations, (ii) mutual funds consisting solely of United States government
obligations, or (iii) shares of Company common stock not exceeding the number of
Company common stock units held in Participants' accounts under the Plans from
time to time.
99
EXHIBIT (10)(an)
Annual Restricted Cash Incentive Compensation Plan
--------------------------------------------------
100
ENGELHARD CORPORATION
ANNUAL RESTRICTED CASH INCENTIVE COMPENSATION PLAN
Section 1. Purpose and Scope
The purpose of the Engelhard Corporation Annual Restricted Cash Incentive
Compensation Plan is to provide certain key employees with performance-based
compensation as an incentive for their efforts to achieve the financial and
strategic objectives of Engelhard Corporation.
Section 2. Definitions
(a) "Board" means the Board of Directors of the Company.
(b) "Change in Control" means:
(i) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (i) any acquisition directly from the Company (other than by exercise
of a conversion privilege); (ii) any acquisition by the Company or any of its
subsidiaries; (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries; or
(iv) any acquisition by any corporation with respect to which, following such
acquisition, more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Company Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be;
(ii) During any period of two consecutive years, individuals who, as of the
beginning of such period, constitute the Board of Directors of the Company (the
"Incumbent Board"), cease for any reason to constitute at least a majority of
the Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to the beginning of such period whose election,
or nomination for election by the Company's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
101
(iii) approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, with respect of which all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation, do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be; or
(iv) approval by the shareholders of the Company of (1) a complete
liquidation or dissolution of the Company or (2) a sale or other disposition of
all or substantially all of the assets of the Company, other than to the
corporation, with respect to which following such sale or other disposition,
more than 60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
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(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee of the Board.
(e) "Company" means Engelhard Corporation and any subsidiary thereof
designated for Plan participation with the approval of the Committee.
(f) "Eligible Employee" means any Company employee who, in the opinion of
the Committee, is a key employee of the Company.
(g) "Participant" means an Eligible Employee designated by the Committee
under Section 3 to participate in the Plan.
(h) "Performance Award" means an award denominated in cash made to a
Participant under the terms of the Plan.
(i) "Plan" means the Engelhard Corporation Annual Restricted Cash Incentive
Plan, as amended from time to time.
(j) "Plan Year" means the calendar year.
Section 3. Participation.
The Committee shall specify, from time to time, the Eligible Employees who
shall be Participants in the Plan. Participation for a Plan Year does not
guarantee that an Eligible Employee will participate in the Plan in any later
Plan Year, such participation to be at the discretion of the Committee.
Section 4. Performance Awards.
The Committee shall, in its discretion, make Performance Awards to
Participants for each Plan Year. The amount of each Performance Award shall be
based on such Company, business unit and/or individual performance measures as
are deemed appropriate by the Committee. Performance Awards may vary among
Participants and from Plan Year to Plan Year. Unless otherwise determined by the
Committee at the time of grant of a Performance Award, the amount of each
Performance Award shall be increased by an interest factor from the date of
grant through the date of payment of the Performance Award (or, if the payment
is deferred under a deferred compensation plan of the Company, the date the
payment would have otherwise been made). Such increase shall be payable at the
time the Performance Award installment to which it relates is payable. The
interest rate utilized to calculate such increase shall be set monthly and shall
be equal to 120% of the long-term federal rate, compounded monthly (within the
meaning of Section 1274(d) of the Code) as in effect for the month for which
interest is being computed.
Section 5. Vesting and Payment of Awards.
Unless the Committee expressly provides otherwise, each Performance Award
will vest in four equal annual installments beginning on the first anniversary
of the date of grant. The amount of each installment of a Performance Award will
be paid in cash as soon as administratively practicable following vesting of the
installment, unless deferred under a Company deferred compensation plan. Except
as otherwise set forth in Section 6 below, upon termination of a Participant's
employment for any reason any unvested installment of a Performance Award shall
be immediately forfeited.
Notwithstanding any provision of this Plan to the contrary, the Committee
shall have the authority at any time to accelerate the vesting of all or any
portion of any Performance Award.
103
Section 6. Effect of Termination of Employment or Death.
Each unvested Performance Award will be forfeited immediately upon the
termination of employment of a Participant, except that: (i) if such termination
is by reason of disability or retirement at normal, deferred or early retirement
age, under any retirement plan maintained by the Company or any of its
subsidiaries, or for any other reason specifically approved in advance by the
Committee, any unvested Performance Awards held by the Participant shall
thereupon become vested in full; (ii) if such termination is by action of the
Company or a Subsidiary other than as provided in (i) above and other than
discharge by reason of willful violation of the rules of the Company or
instructions of superior(s), the Participant's Performance Awards shall continue
to vest at the times set forth under the applicable Performance Award
notwithstanding such termination of employment; and (iii) in the event of the
death of a Participant while employed, any Performance Award then held by the
Participant shall thereupon become vested in full.
Section 7. Plan Administration.
7.1 Administration by Committee. The Plan shall be administered by the
Committee.
7.2 Interpretation of Plan Provisions. The Committee shall construe and
interpret the Plan and may adopt rules and regulations governing administration
of the Plan. The Committee may consult with the management of the Company but
shall retain responsibility for administration of the Plan. The Committee's
decisions, actions and interpretations regarding the Plan shall be final and
binding upon all Participants.
Section 8. Nonassignability.
No Performance Award granted to a Participant under the Plan shall be
assignable or transferable, except by will or by the laws of descent and
distribution.
Section 9. Change in Control.
Upon the occurrence of a Change in Control, all unpaid Performance Awards
shall immediately become vested in full and shall be paid in cash to the
Participant immediately upon the Change in Control.
Section 10. Effective Date and Term of Plan.
The Plan shall be effective as of December __, 2000. The Plan shall
continue from year to year until terminated by the Board.
Section 11. Amendment of the Plan.
The Board may amend, modify or terminate the Plan at any time and from time
to time. Notwithstanding the foregoing, no such amendment, modification or
termination may adversely affect a Participant's rights under a Performance
Award previously made without the Participant's prior written consent.
104
Section 12. General Provisions.
12.1 Unfunded Plan. The Plan shall be an unfunded incentive compensation
arrangement. Nothing contained in the Plan, and no action taken pursuant to the
Plan, shall create or be construed to create a trust of any kind. A
Participant's right to receive a Performance Award shall be no greater than the
right of an unsecured general creditor of the Company. All Performance Awards
shall be paid from the general funds of the Company.
12.2 Not Compensation for Benefit Plans. No Performance Award payable under
this Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company or its
subsidiaries for the benefit of its employees unless the Company shall determine
otherwise; provided, however, Performance Awards under this Plan shall be taken
into accounting in computing benefits payable under Section 3 of the Company's
Change in Control Agreements.
12.3 Governing Law. The Plan shall be interpreted, construed and
administered in accordance with the laws of the state of New Jersey, without
giving effect to principles of conflict of laws.
12.4 Section Headings. The section headings contained in the Plan are for
purposes of convenience only and are not intended to define or limit the
contents of the Plan's sections.
12.5 Effect on Employment. Nothing contained in the Plan shall affect or be
construed as affecting the terms of employment of any Eligible Employee except
as expressly provided in the Plan.
12.6 Successors. All obligations of the Company with respect to Performance
Awards granted under the Plan shall be binding upon any successor to the
Company, whether such successor is the result of an acquisition of stock or
assets of the Company, a merger, a consolidation or otherwise.
12.7 Withholding of Taxes. The Company shall deduct from each Performance
Award the amount of any taxes required to be withheld by any governmental
authority.
105
EXHIBIT (10)(ao)
Deferred Compensation Plan For Key Employees of
Engelhard Corporation
--------------------------------------------------
106
Deferred Compensation Plan For Key Employees of
Engelhard Corporation
The purpose of the Deferred Compensation Plan for Key Employees of
Engelhard Corporation (the "Plan") is to provide a procedure whereby a key
employee of Engelhard Corporation (the "Company") may defer the payment of a
part of the future compensation payable to such key employee by the Company.
1. The persons eligible to participate in the Plan are those key employees
of the Company employed in the United States who have at least 1,232 Hay points
(the "Eligible Employees").
2. Each Eligible Employee shall have the option exercisable by written
notice to the Company on or before November 30 of any calendar year to defer
payment of (i) any portion of his salary for the next succeeding calendar year
and (ii) all or any portion of any regular or special bonus the amount of which
has not been determined as of the date of the deferral election and which is to
be paid in the next succeeding calendar year; provided, however, that in no
event shall the total amount so deferred exceed thirty percent (30%) of the sum
of the amounts described in (i) and (ii) above. Notwithstanding the foregoing,
(A) with respect to the 1985 calendar year an Eligible Employee shall have the
option exercisable by written notice to the Company on or before July 1, 1985 to
defer payment of up to fifteen percent (15%) of his salary for the period from
August 1, 1985 through December 31, 1985 and (B) in the case of an individual
who first becomes an Eligible Employee during a calendar year, such individual
shall have the option exercisable by written notice to the Company to defer
payment of up to fifteen percent (15%) of his salary for the period during such
calendar year beginning on the date specified by the individual in his deferral
election (which shall be at least one month after the date on which his deferral
election is filed with the Company) and ending on the last day of such calendar
year. An election made by an Eligible Employee pursuant to this paragraph 2 with
respect to salary and bonuses for a calendar year shall become irrevocable as of
the last day for making the election. Notwithstanding any provision of this Plan
to the contrary, the payment of an installment of a Performance Award under the
Company's Annual Restricted Cash Incentive Compensation Plan may be deferred
under this Plan at the election of an Eligible Employee, provided such deferral
election is made in writing by the Eligible Employee at least six months in
advance of the date of vesting of the installment of the Performance Award. For
purposes of this Plan, a deferral of an installment of a Performance Award shall
be considered a deferral of bonus pursuant to paragraph 2 of this Plan.
3. In addition to the deferrals described in paragraph 2 above, each
Eligible Employee shall have the option, exercisable not less than two months
before any stock award vests under the Company's Key Employees Stock Bonus Plan,
to defer delivery of said stock award for a period of at least one year. An
election made by an Eligible Employee pursuant to this paragraph 3 with respect
to a stock award shall become irrevocable as of the last day for making such
election.
107
4. All salary and bonuses deferred pursuant to paragraph 2 above shall be
held in the general funds of the Company and shall be credited to a bookkeeping
account maintained by the Company in the name of the Eligible Employee, and
shall bear the equivalent of interest from the end of the calendar month in
which the compensation would have been paid if it had not been deferred.
Interest equivalents shall be credited on December 31 of each year up to and
including the year preceding that in which the last installment is paid, it
being the intent that interest equivalents shall not cease to accrue upon
payment of the first installment, but shall continue to accrue with respect to
the balance undistributed at any time. The amount of interest equivalent
credited to the Eligible Employee's account shall be determined by applying the
interest equivalent rate established hereunder to the balance in the Eligible
Employee's account (which balance shall include, for this purpose, interest
equivalent accrued but not credited to the account) at the end of each month.
For purposes of the foregoing, the interest equivalent rate shall be set monthly
and shall be equal to 120% of the long-term federal rate, compounded monthly
(within the meaning of Section 1274(d) of the Internal Revenue Code of 1986, as
amended) as in effect for the month for which interest equivalent is being
computed.** For periods prior to January 1, 1994 the last two sentences of
paragraph 4 are as follows: "The amount of interest equivalents credited to the
Eligible Employee's account annually shall be determined by applying the
interest equivalent rate established hereunder to the average balance in the
Eligible Employee's account during the year. For purposes of the foregoing, the
annual interest equivalent rate shall be determined by averaging the rate of
interest for 3-year U.S. Treasury notes as reported in the monthly Federal
Reserve Bulletin for each calendar quarter of the year for which interest is
being computed."
5. All stock awards deferred by an Eligible Employee shall be transferred
for the benefit of the Eligible Employee to a trust ("Trust") established by the
Company with such terms and conditions as shall be determined by the Committee
described in Section 8 below. The assets of the Trust shall be subject to the
claims of the general creditors of the Company in the event of bankruptcy or
insolvency of the Company, and the Trust may be utilized to assist the Company
in satisfying its other obligations under the Plan. Any dividends payable with
respect to any deferred stock awards made for the benefit of the Eligible
Employee shall be handled in one of the following ways, as irrevocably elected
by the Eligible Employee in his deferral election:
(i) such dividends shall be added to the bookkeeping account described in
paragraph 4 above, and shall be credited with interest equivalents pursuant to
said paragraph 4;
(ii) such dividends shall be paid out currently to such Eligible Employee;
or
(iii) such dividends shall be applied by the Company or the trustee of the
Trust to provide the maximum number of whole shares of Common Stock of the
Company obtainable at then prevailing prices with such shares being added to the
deferred stock awards of the Eligible Employee (and any amount which is
insufficient to add an additional whole share shall be added to the bookkeeping
account described in paragraph 4 above, and shall be credited with interest
equivalents pursuant to said paragraph 4).
108
The Eligible Employee's election of one of the above options with respect
to the handling of dividends with respect to a stock award shall become
irrevocable as of the last date for making the deferral election with respect to
such stock award. In the case of an Eligible Employee who is subject to the
limitations of Section 16 of the Securities Exchange Act of 1934, as amended,
and who elects the option described in (iii) above, such election shall be
effective only with respect to dividends that become payable on or after the
date six months following the date such election becomes irrevocable. Depending
on the terms and nature of the Trust established hereunder, the references to
dividends in this paragraph 5 may instead refer to dividend equivalents equal to
the dividends that would have been payable on the applicable deferred stock
awards.
In addition, if any voting rights are exercisable with respect to any
shares of Common Stock of the Company included in a deferred stock award for the
benefit of an Eligible Employee under the Trust, the trustee of the Trust in
exercising such voting rights shall follow the directions of such Eligible
Employee (and shall not exercise such voting rights to the extent that
directions are not received from the Eligible Employee); provided, however, that
this sentence shall not apply unless and until the Company receives a letter
ruling from the Internal Revenue Service or an attorney's opinion letter
satisfactory to the Company to the effect that allowing Eligible Employees to
exercise voting rights will not result in inclusion of the value of a deferred
stock award in the income of the Eligible Employee for federal income tax
purposes.
6. Except as hereinafter provided with respect to an "Immediate Payment
Event" or an "Additional Deferral Election" (each as hereinafter defined), any
amounts to which an Eligible Employee is entitled hereunder (including shares of
the Company's Common Stock receivable under a deferred stock award) shall be
paid or delivered either (i) in a lump sum on or about the date specified in the
Eligible Employee's deferral election or (ii) in annual installments over a
period of up to ten years payable on or about January 1 of each payment year
beginning with the January 1 specified in the Eligible Employee's deferral
election. The Eligible Employee's deferral election with respect to the
applicable deferred amounts shall designate the time and manner of payment or
delivery of such deferred amounts, and such designation shall become irrevocable
with respect to such deferred amounts as of the last date for making the
deferral election.
109
An Eligible Employee shall have an option exercisable by written notice to
the Company to further irrevocably defer payments previously deferred under
paragraph 2 hereof or delivery of stock awards previously deferred under
paragraph 3 hereof to a date or dates specified in the Eligible Employee's
further deferral election (an "Additional Deferral Election"). An Additional
Deferral Election shall specify such payment or delivery either (x) in the form
of a lump sum on or about the date specified in the Additional Deferral Election
or (y) in annual installments over a period of up to ten years payable on or
about January 1 of each payment year beginning with the January 1 specified in
the Additional Deferral Election. However, in order for an Additional Deferral
Election to be effective (i) the Additional Deferral Election must be made at
least twelve months prior to the date the payment would otherwise be due or the
delivery is otherwise scheduled to be made, as the case may be, in accordance
with a prior deferral election under this Plan, (ii) the Eligible Employee must
agree with the Company to remain employed by the Company (on the same terms and
conditions as in effect on the day preceding the additional period of
employment, subject to any changes mutually agreed to by the parities and
subject to the Company's right to terminate the Eligible Employee's employment
at any time) for at least one additional year following the date of the
Additional Deferral Election, (iii) the Additional Deferral Election may not
specify any payment of amounts hereunder or any delivery of stock awards
hereunder on a date prior to the date such payment or delivery was otherwise due
under this Plan, and (iv) the further deferral of each payment or delivery
specified in the Additional Deferral Election must be for a period of at least
one year.
If payment or delivery is to be made in installments, the amount of each
installment shall be determined by multiplying the "Accumulated Account" (as
hereinafter defined) as of the December 31 preceding the installment payment
date by a fraction, the numerator of which will be "1" and the denominator of
which will be the number of annual installments elected by the Eligible Employee
less the number of installments theretofore paid. If shares of Common Stock of
the Company held in the Trust are to be distributed in installments, each
installment payment shall consist of the appropriate number of whole shares
(disregarding fractional shares).
If an "Immediate Payment Event" (as hereinafter defined) occurs prior to
the date on which all deferred amounts have been paid or delivered, the Eligible
Employee's "Accumulated Account" shall be paid or delivered to the Eligible
Employee (or, in the event of his death, to his estate) as soon as practicable
following such "Immediate Payment Event." If such payment or delivery by reason
of an "Immediate Payment Event" is not made on or about January 1 of a calendar
year, the distribution of the Eligible Employee's "Accumulated Account" shall
include interest equivalents calculated by the Committee in a manner consistent
with paragraph 4 hereof for the period from the preceding December 31 to the
last day of the month preceding the date of such payment. Notwithstanding the
other provisions of this Section 6, unless the Eligible Employee's deferral
election specifically provides otherwise, payment of an Eligible Employee's
"Accumulated Account" pursuant to an "Immediate Payment Event" specified by the
Eligible Employee pursuant to clause (iv) of the fifth paragraph of this Section
6 as termination of employment of the Eligible Employee, shall be made in the
same payment form (either lump sum or installments) selected, pursuant to the
preceding provisions of this Section 6, by the Eligible Employee for the normal
payment of his "Accumulated Account," but only if such termination of employment
occurs after the Eligible Employee attains age 55. Payments pursuant to the
preceding sentence shall commence as soon as practicable after the "Immediate
Payment Event."
110
For purposes of this paragraph 6, the term "Accumulated Account" shall mean
(i) the amount of the salary and bonuses deferred by the Eligible Employee
pursuant to paragraph 2 hereof, and any dividends (or dividend equivalents)
added pursuant to paragraph 5 hereof to the bookkeeping account described in
paragraph 4, plus the interest equivalents accumulated thereon, less any portion
thereof theretofore distributed to him, and (ii) the amount of the Company's
Common Stock held for the benefit of the Eligible Employee pursuant to his
election of deferral of a stock award. For purposes of this paragraph 6, the
term "Immediate Payment Event" shall mean:
(i) the death of the Eligible Employee;
(ii) a "Change of Control" (as defined below);
(iii) a "Hardship" (as defined below) of the Eligible Employee as
determined by the Committee; or
(iv) such additional events as may be specified by the Eligible Employee in
his deferral election with the approval of the Committee.
A "Change of Control" for the purpose of (ii) above shall occur if:
(A) twenty-five percent (25%) or more of the Company's outstanding
securities entitled to vote in elections of directors ("voting securities")
shall be beneficially owned, directly or indirectly (including options,
conversion rights, warrants, and the like, considered as if exercised), by any
person or group of persons, other than the group presently owning the same
(including their affiliates and associates); or
(B) the majority of the Board of Directors of the Company ceases to consist
of the existing membership or successors nominated by the existing membership or
their similar successors.
Notwithstanding the foregoing, a Change of Control shall not be considered
an Immediate Payment Event hereunder with respect to the Accumulated Account of
an Eligible Employee if the Eligible Employee so elects (in a manner acceptable
to the Committee) at least six months in advance of the Change of Control.
Any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of voting securities owned by other holders shall
for the purposes of this provision be deemed to constitute each party to such
agreement, arrangement or understanding as the owner of such securities.
For the purpose of (iii) above a "Hardship" shall mean an immediate and
heavy financial need of the Eligible Employee which cannot reasonably be
expected to be satisfied from other resources available to the Eligible
Employee.
111
At the time of an Immediate Payment Event resulting from a Change of
Control, the Company shall also make to each Eligible Employee whose Accumulated
Account is distributed on account of the Change of Control an immediate cash
payment equal, on an after-tax basis (including combined federal, state and
local income, employment and excise taxes), to the excess of (A) over (B), where
(A) is equal to the present value (discounted at the Applicable Federal Rate
(within the meaning of Section 1274 of the Code) in effect at the time of
payment) of: (x) the Eligible Employee's Accumulated Account at the time of
assumed payment (described below) as increased from the date of the Immediate
Payment Event through the dates of assumed payment at a compound annual rate
equal to the interest equivalent rate provided for under Section 4 of the Plan
(as determined at the time of the Immediate Payment Event), multiplied by (y)
one minus the federal income tax rate (expressed as a decimal) in effect at the
time of the Immediate Payment Event; and (B) is the present value (discounted at
the Applicable Federal Rate at the time of payment) of the Eligible Employee's
Accumulated Account at the time of assumed payment, computed assuming that the
Eligible Employee's Accumulated Account at the time of the Immediate Payment
Event is reduced at such time by federal, state and local income taxes payable
on a lump sum distribution of the entire Accumulated Account at such time and
also assuming that such resulting amount is increased through the dates of
assumed payment at a compound annual rate equal to (x) the interest equivalent
rate provided for under Section 4 of the Plan at the time of the Immediate
Payment Event, multiplied by (y) one minus the combined federal, state and local
income tax rate at such time, expressed as a decimal. For purposes of this
paragraph, it shall be assumed that the Eligible Employee's Accumulated Account
will be distributed in ten annual installments commencing at the time the
Eligible Employee reaches age 65, and it shall also be assumed that income taxes
are payable at the top marginal rates and that state and local income taxes are
deductible for federal income tax purposes.
7. The right of an Eligible Employee to the amounts described hereunder
(including shares of the Company's Common Stock receivable under a deferred
stock award) shall not be subject to assignment or other disposition by him
other than by will, or the laws of descent and distribution. In the event that,
notwithstanding this provision, an Eligible Employee attempts to make a
prohibited disposition, the Company may disregard the same and discharge its
obligation hereunder by making payment or delivery thereof as though no such
disposition had been attempted.
8. The Plan shall be administered by a committee (the "Committee") which
shall be appointed from time to time by the Board of Directors of the Company,
and shall consist of not less than two directors of the Company who qualify as
"disinterested persons" under Rule 16b-3(c)(2) issued by the Securities and
Exchange Commission. The decision of the Committee with respect to any questions
arising as to the interpretation of this Plan, including the reconciliation of
any inconsistent provisions, the supplying of omissions and the severability of
any and all of the provisions hereof, shall be final, binding and conclusive on
all interested persons. Notwithstanding the foregoing, with respect to any
matter involving deferred stock awards, references to the "Committee" shall mean
the Committee serving under the Company's Key Employees Stock Bonus Plan.
9. The Board of Directors of the Company may discontinue the Plan at any
time and may from time to time amend the Plan; provided, however, that (a) no
such discontinuance or amendment shall operate to annul an election already in
effect for the current calendar year or any preceding year or adversely affect
the right of an Eligible Employee to receive the amounts described herein, and
(b) no such amendment affecting deferred stock awards, unless approved by the
stockholders of the Company, shall materially: (i) increase the maximum number
of shares of the Common Stock of the Company which may be issued under the Plan;
(ii) modify the requirements as to eligibility to defer stock awards hereunder;
or (iii) increase the benefits accruing to Eligible Employees hereunder.
112
10. Except as and to the extent expressly provided in this Plan or in the
Trust, neither the Eligible Employee nor any other person shall have any
interest in any fund or in any specific asset of the Company by reason of
amounts credited to the Accumulated Account of an Eligible Employee, nor the
right to receive any distribution under this Plan. Distributions hereunder shall
be made from the general funds of the Company or from the Trust, and the rights
of the Eligible Employee shall not be superior to those of an unsecured general
creditor of the Company.
11. Nothing contained herein shall be deemed to give any Eligible Employee
the right to be retained in the service of his employer or to interfere with the
right of such employer to discharge or retire any Eligible Employee at any time.
113
EXHIBIT(10)(ap)
AMENDMENT TO RETIREMENT PLAN FOR
DIRECTORS OF ENGELHARD CORPORATION
----------------------------------
114
AMENDMENT TO RETIREMENT PLAN FOR
DIRECTORS OF ENGELHARD CORPORATION
----------------------------------
The Retirement Plan for Directors of Engelhard Corporation is amended by
deleting the second sentence of Section 2(b) thereof.
115
EXHIBIT 12
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
116
EXHIBIT 12
ENGELHARD CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
Years Ended December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Earnings from continuing operations
before provision for income taxes $245,687 $284,118 $260,563 $ 85,812 $209,955
Add/(deduct)
Portion of rents representative
of the interest factor 8,800 7,000 3,500 3,000 3,900
Interest on indebtedness 62,649 56,555 58,887 52,776 45,009
Equity dividends 4,363 2,431 2,022 3,803 2,515
Equity in (earnings) losses of affiliates (24,187) (16,266) (10,077) 47,833 5,008
--------- --------- -------- -------- ---------
Earnings, as adjusted $297,312 $333,838 $314,895 $193,224 $266,387
========= ========= ======== ======== =========
Fixed Charges
Portion of rents representative
of the interest factor $8,800 $7,000 $3,500 $3,000 $3,900
Interest on indebtedness 62,649 56,555 58,887 52,776 45,009
Capitalized interest 3,880 2,580 1,897 651 875
-------- -------- ------- ------- -------
Fixed charges $75,329 $66,135 $64,284 $56,427 $49,784
======== ======== ======= ======= =======
Ratio of Earnings to Fixed Charges 3.95(A) 5.05 4.90 3.42(B) 5.35
======== ======== ======= ======= =======
(A) Earnings in 2000 were negatively impacted by pre-tax special and other charges of $134.2 million for a variety of events
(See Note 4, "Special and Other Charges" for further detail). Excluding these charges, the ratio of earnings to fixed charges
would have been 5.73.
(B) Earnings in 1997 were negatively impacted by pre-tax special and other charges of $149.6 million for a variety of events.
Excluding these such charges, the ratio of earnings to fixed charges would have been 5.28.
117
EXHIBIT 21:
SUBSIDIARIES OF THE REGISTRANT
------------------------------
118
Subsidiaries of the Registrant
------------------------------
Jurisdiction Under Which
Name of Subsidiary/Affiliate Incorporated or Organized
---------------------------- -------------------------
Engelhard Industries De Argentina SA Argentina
Engelhard Belgium BVBA Belgium
Engelhard Industries S.A. Belgium
Engelhard Do Brasil Industria E Commercio LTDA Brazil
Engelhard Canada, Ltd. Canada
Engelhard Industries International, Ltd. Canada
Mearl Company Ltd. Canada
Shanghai Engelhard Sinopec Environmental Technologies Ltd China
Engelhard Industries A/S Denmark
Engelhard Industries OY Finland
Engelhard Pigments OY Finland
Engelhard-CLAL SAS France
Engelhard S.A. France
Mearl International France S.A.R.L. France
Engelhard Holdings GmbH Germany
Engelhard Process Chemicals GmbH Germany
Engelhard Technologies GmbH Germany
Engelhard Asia Pacific (China) Ltd. Hong Kong
Engelhard Industries (Asia) Limited Hong Kong
Engelhard Asia Pacific Mauritius Limited India
Engelhard Asia Pacific Enterprises India Private Limited India
Engelhard Highland Private Limited India
Engelhard Environmental Systems India Ltd India
Engelhard Italiana S.P.A. Italy
Engelhard Metals Japan, Ltd. Japan
NE Chemcat Corporation Japan
Engelhard Asia Pacific (Korea) Ltd. Korea
Mearl De Mexico S.A. De C.V. Mexico
Engelhard Industries De Mexico S.A. Mexico
Engelhard Demeern, B.V. The Netherlands
Engelhard Investment Europe B.V. The Netherlands
Engelhard Netherlands, B.V. The Netherlands
Engelhard Pigments and Additives Europe, B.V. The Netherlands
Engelhard Terneuzen, B.V. The Netherlands
Engelhard Peru S.A. Peru
Engelhard South Africa Proprietary, Ltd. South Africa
Heesung-Engelhard South Korea
Catalyst Center - Tarragona, S.L. Spain
Engelhard Arganda SL Spain
ECT Environmental Technologies AB Sweden
Engelhard Metals A.G. Switzerland
Engelhard Chemcat (Thailand) Ltd. Thailand
Mearl International Turkey Turkey
Dnipro Kaolin Ukraine
Engelhard Europe Finance Limited United Kingdom
Engelhard International, Ltd. United Kingdom
Engelhard Limited United Kingdom
119
Subsidiaries of the Registrant
------------------------------
Jurisdiction Under Which
Name of Subsidiary/Affiliate Incorporated or Organized
---------------------------- -------------------------
Engelhard Metals, Ltd. United Kingdom
Engelhard Pension Trustees Limited United Kingdom
Engelhard Sales, Ltd. United Kingdom
Engelhard Technologies, Ltd. United Kimgdom
Engelhard Trustee Co. Ltd. United Kingdom
The Sheffield Smelting Co., Ltd. United Kimgdom
Engelhard Export Corporation U.S. Virgin Islands
Corporacion Engelhard De Venezuela CA Venezuela
Engelhard West, Inc. California
EC Delaware Incorporated Delaware
E.I. Corporation Delaware
Engelhard Asia Pacific, Inc. Delaware
Engelhard C Cubed Corporation Delaware
Engelhard DT, Inc. Delaware
Engelhard EM Holding Company Delaware
Engelhard Energy Corporation Delaware
Engelhard Equity Corporation Delaware
Engelhard Financial Corporation Delaware
Engelhard MC, Inc. Delaware
Engelhard Metal Plating Inc. Delaware
Engelhard Pollution Control, Inc. Delaware
Engelhard Power Marketing, Inc. Delaware
Engelhard Strategic Investments Incorporated Delaware
Engelhard Supply Corporation Delaware
Mustang Property Corporation Delaware
Harshaw Chemical Company New Jersey
Engelhard Metals Holding Corp. California
Mearl, LLC Delaware
Engelhard-CLAL, L.P. Delaware
Engelhard Hexcore, L.P. Delaware
Tickford Engelhard LLC Michigan
Engelhard PM, L.P. Delaware
The names of other subsidiaries have been omitted since such subsidiaries, if
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary as that term is defined in Rule 12b-2 (17 CFR 240.12b-2)
promulgated under the Securities Exchange Act of 1934.
120
EXHIBIT 23:
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
121
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K of our report dated February 1, 2001 included in
the following Registration Statement File Numbers:
1. Form S-3 of Engelhard Corporation and Subsidiaries
(File No. 333-59719)
2. Form S-8 of Engelhard Corporation and Subsidiaries
(File Nos. 2-72830, 2-81559, 2-84477, 2-89747,
33-28540, 33-37724, 33-40365, 33-40338, 33-43934,
33-65990, 333-02643, 333-71439 and 333-39570)
/s/Arthur Andersen LLP
----------------------
Arthur Andersen LLP
New York, New York
February 1, 2001
122
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-59719) and to the incorporation by reference in
the Registration Statements on Form S-8 (Nos. 2-72830, 2-81559, 2-84477,
2-89747, 33-28540, 33-37724, 33-40365, 33-40338, 33-43934, 33-65990, 333-02643,
333-39570 and 333-71439) of our report dated February 4, 1999 on our audit of
the consolidated financial statements of Engelhard Corporation, as of and for
the year ended December 31, 1998, which report is included in this Annual Report
on Form 10-K.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
New York, New York
March 30, 2001
123
EXHIBIT 24:
POWERS OF ATTORNEY
------------------
124
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 1, 2001.
/s/ Marion H. Antonini
________________________________
Marion H. Antonini
125
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 1, 2001.
/s/ James V. Napier
______________________________
James V. Napier
126
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
February 28, 2001.
/s/ Norma T. Pace
________________________________
Norma T. Pace
127
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 1, 2001.
/s/ Orin R. Smith
_________________________________
Orin R. Smith
128
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
February 26, 2001.
/s/ Reuben F. Richards
________________________________
Reuben F. Richards
129
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
February 28, 2001.
/s/ Henry R. Slack
_______________________________
Henry R. Slack
130
ENGELHARD CORPORATION
Form 10-K
Power of Attorney
WHEREAS, ENGELHARD CORPORATION intends to file with the Securities and
Exchange Commission under the Securities Act of 1934 an Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Barry W.
Perry, or either of them individually, his/her true and lawful attorney to
execute in his/her name, place and stead, in his/her capacity as a director of
ENGELHARD CORPORATION, said Form 10-K and any and all amendments to said Form
10-K and all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully to all intents and purposes as
the undersigned might or could do in person. The undersigned hereby ratifies and
approves the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 1, 2001.
/s/ Douglas G. Watson
_________________________________
Douglas G. Watson
131