1996
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, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file 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 (908) 205-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ----------------------------------- ------------------------
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. |X|
Number of shares of common stock outstanding as of March 6, 1997 - 144,167,717.
Aggregate market value of common stock held by non-affiliates as of March 6,
1997 - $2,148,322,684.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Proxy Statement
for the 1997 Annual Meeting of Shareholders.
1
Table of Contents
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Page
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1996
Form Proxy
Item 10-K Statement
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Part I
1. Business
(a) General development of business 3 -
(b) Segment and geographic area data 3-8, 38-40 -
(c) Description of business 3-9 -
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 10 -
Common Equity and Related
Stockholder Matters
6. Selected Financial Data 11, 47 -
7. Management's Discussion and 12-21 -
Analysis of Financial Condition
and Results of Operations
8. Financial Statements and 22-46 -
Supplementary Data
9. Changes in and Disagreements with 47 -
Accountants on Accounting and Financial
Disclosure
Part III
10. Directors and Executive Officers of 48-49 3-6
the Registrant
11. Executive Compensation 49 11-21
12. Security Ownership of Certain 49 2-3,7
Beneficial Owners and Management
13. Certain Relationships and Related 49 2-7,10
Transactions
Part IV
14. Exhibits, Financial Statement 50-135 -
Schedules, and Reports on Form 8-K
2
PART I
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Item 1. Business
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Engelhard Corporation and its Subsidiaries (collectively referred to as the
Company) are the successors to the businesses previously operated by Engelhard
Minerals & Chemicals Corporation (EMC). In 1981, the Company's Common Stock was
distributed to the shareholders of EMC, and the Company became a separate,
publicly-held corporation. The Company's principal executive offices are located
at 101 Wood Avenue, Iselin, NJ, 08830 (telephone number (908) 205-5000).
The Company develops, manufactures and markets technology-based performance
products and engineered materials for a wide spectrum of industrial customers,
and provides services to precious and base metals customers and markets
energy-related services.
The Company employed approximately 6,300 people as of January 1, 1997 and
operates on a worldwide basis with corporate and operating headquarters and
principal manufacturing facilities and mineral reserves in the United States
with other operations conducted in the European Community, the Russian
Federation and the Asia-Pacific region.
The Company's businesses are organized into three segments - Catalysts and
Chemicals, Pigments and Additives, and Engineered Materials and Industrial
Commodities Management.
Information concerning the Company's net sales, operating earnings and
identifiable assets by industry segment and by geographic area; inter-area
transfers by geographic area; and export sales is included in Note 15 "Industry
Segment and Geographic Area Data" of the Notes to Consolidated Financial
Statements on pages 38-40 of this 10-K.
Catalysts and Chemicals
The Catalysts and Chemicals segment comprises three principal product
groups: the Environmental Technologies Group, consisting of Automotive Emission
Systems, Heavy Duty Power Systems and Process Emission Systems, serving the
automotive, off-road vehicle, light and heavy duty truck, aircraft, power
generation and process industries; the Petroleum Catalysts Group, serving the
petroleum refining industries; and the Chemical Catalysts Group, serving the
chemical, petrochemical, pharmaceutical and food processing industries.
Environmental technology catalysts are used in applications such as the
abatement of carbon monoxide, oxides of nitrogen and hydrocarbons from gasoline,
diesel and alternate fueled vehicle exhaust gases to meet emission control
standards. These catalysts are also used for the removal of odors, fumes and
pollutants generated by a variety of process industries including but not
limited to the painting of automobiles, appliances and other equipment; printing
processes; the manufacture of nitric acid and tires, in the curing of polymers;
and power generation sources. In the third quarter of 1996, the Company acquired
the assets of Telaire Systems (now Engelhard Sensor Technologies), a supplier of
infrared gas sensors. In 1995, the Company purchased the assets of Jet-Com, a
supplier of thermal spray coating technology and services. This acquisition,
when combined with the Company's catalyst and thermal spray coating
technologies, provides for a broader offering of emission control systems. Also
in 1995, the Company purchased the other half of its Salem Engelhard joint
venture formed in 1992 to produce and market products and services to abate, by
catalytic and non-catalytic methods, emissions of volatile organic chemicals and
other pollutants generated by a variety of process industries.
3
The Company also participates in the manufacture and supply of automobile
exhaust emission control catalysts through affiliates serving the Asia-Pacific
region: N.E. Chemcat Corporation (Japan) - 38.8 percent owned; and Heesung-
Engelhard (South Korea) - 49 percent owned, both of which also produce other
catalysts and products.
The petroleum refining catalyst products consist of a variety of catalysts
and processes used in the petroleum refining industry. The principal products
are zeolitic cracking catalysts which are widely used to provide economies in
petroleum processing. The Company offers commercially a full line of fluid
cracking catalyst much of which is based on patented technology which can be
used to control selectivity and cracking activity virtually independently of one
another. This characteristic permits custom catalysts formulation for a large
number of users.
The Company manufactures reforming, isomerization and hydrotreating
catalysts for a variety of petroleum refining processes. Catalysts are marketed
in North America and the Caribbean by Acreon Catalysts, a jointly owned
partnership formed by the Company and Procatalyse.
In 1995, the Company and Procatalyse announced plans to expand the
production capacity of their joint venture, Acreon Catalysts. To serve market
needs more effectively, they are currently adding alumina and hydrotreating
catalyst manufacturing capacity in North America.
The chemical catalysts products consist of catalysts and sorbents used in
the production of a variety of products or intermediates, including synthetic
fibers, fragrances, antibiotics, vitamins, polymers, plastics, detergents, fuels
and lube oils, solvents, oleochemicals and edible products. These catalysts are
generally used in both batch and continuous operations requiring special
catalysts for each application. Chemical catalysts are based on the Company's
proprietary technology and many times are developed in close cooperation with
specific customers. Sorbents are used to purify and decolorize naturally
occurring fats and oils for manufacture into shortenings, margarines and cooking
oils.
The products of the Catalysts and Chemicals segment compete in the
marketplace on the basis of cost performance. No single competitor is dominant
in the markets in which the Company operates.
The manufacturing operations of the Catalysts and Chemicals segment are
carried out in 12 states in the United States. Wholly-owned foreign operations
are located in Germany, Italy, The Netherlands, South Africa and the United
Kingdom with equity investments located in the United States, Japan and South
Korea. The products are sold principally through the Company's sales
organizations or its equity investments, supplemented by independent
distributors and representatives.
The principal raw materials used by the Catalysts and Chemicals segment
include precious metals, procured by the Engineered Materials and Industrial
Commodities Management segment; kaolin, supplied by the Pigments and Additives
segment; and a variety of minerals and chemicals which are generally readily
available. For more information about precious metal supply contracts, see the
"Engineered Materials and Industrial Commodities Management" section below on
pages 5-6 of this 10-K.
As of January 1, 1997 the Catalysts and Chemicals segment had approximately
2,800 employees worldwide. Most hourly employees are covered by collective
bargaining agreements. Employee relations have generally been good.
4
Pigments and Additives
The Pigments and Additives segment is comprised principally of performance
products based on kaolin and used as coating and extender pigments for the paper
industry and mineral based performance additives products and color pigments
serving the plastics, coatings, paint, ink, and allied industries. In addition,
the group's pearlescent pigments are used in automotive, cosmetics, packaging,
and a variety of industrial applications. The segment also supplies iridescent
films used in an assortment of creative, decorative, packaging.
Products for the paper market include Miragloss (registered trademark)
pigment for coating applications requiring superior gloss and brightness;
Luminex (registered trademark) pigment, a high brightness material for
high-quality paper coating: Ansilex (registered trademark) pigments that provide
the desired opacity, brightness, gloss and printability in paper products;
Nuclay (registered trademark) specialized coating pigment for lightweight
publication papers; Exsilon (registered trademark) structured pigment that
improves the printability of lightweight coated paper and carbonless forms; and
Spectrafil (registered trademark) pigments for the newsprint and groundwood
specialties markets.
Minerals based performance additives products are used principally as
extenders pigments for a variety of purposes in the manufacture of plastic,
rubber, ink, ceramic, adhesive products and in paint. Principal products include
Satintone (registered trademark) products, ASP (registered trademark) pigments
and Translink (registered trademark) surface modified reinforcements. The group
also produces a variety of organic and inorganic color and pearlescent and
natural pearl pigments for a wide range of applications. Additionally, the group
also produces gellants and sorbents with an assortment of uses as well as
Mearlcrete and Metamax (registered trademarks) for the concrete industry.
The products of the Pigments and Additives segment compete with other
pigments and extenders on the basis of cost performance. No single competitor is
dominant in the markets in which the Company competes.
Pigments and Additives manufacturing operations are carried out in seven
states in the United States, and in Finland and Japan. Subsidiary sales and
distribution centers are located in France, Hong Kong, Mexico, the Netherlands,
and Turkey. Products are sold through the Company's sales organization
supplemented by independent distributors and representatives.
The principal raw materials used by the Pigments and Additives segment
include kaolin, attapulgite, and mica 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, 1997 the Pigments and Additives segment had approximately
2,475 employees worldwide. Most hourly employees are covered by collective
bargaining agreements. Employee relations have generally been good.
Engineered Materials and Industrial Commodities Management
The Engineered Materials and Industrial Commodities Management segment
includes the Engineered Materials Group, serving a broad spectrum of industries
and the Industrial Commodities Management Group, which is responsible for
precious and base metals sourcing and dealing, for managing the precious and
base metals requirements of the Company and its customers, and for power
marketing.
5
The products of the Engineered Materials Group consist of performance
products primarily employing metal-based materials, such as temperature-sensing
devices, precious metals coating and electroplating materials, conductive pastes
and powders and brazing alloys. These products are used in the manufacture of
automotive components, industrial devices, ceramics, chemicals, instruments,
control devices, medical supplies, hardware, furniture and air conditioners.
The products of the Engineered Materials Group compete on the basis of cost
performance. No single competitor is dominant in the markets in which the
Company operates.
Engineered Materials manufacturing and refining operations are carried out
in four states in the United States and in facilities located in Canada, France
and the United Kingdom. The products are sold principally through the
Company's sales organization, supplemented by independent distributors and
representatives.
The principal raw materials used by these operations are precious metals
including those of the platinum group (platinum, palladium, rhodium, iridium and
ruthenium), silver and gold, all of which are generally available.
In 1995 the Company formed a 50/50 joint venture with FIMALAC (formerly
CLAL), a Paris-based precious metal fabricator. (See Note 9 "Investments" of the
Notes to Consolidated Financial Statements on page 34 of this 10-K). The joint
venture combined most of the assets of the Engineered Materials business with
FIMALAC.
The Industrial Commodities Management Group 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, which four regions are the only known
significant sources. Most of these platinum group metals are obtained pursuant
to a number of contractual arrangements with different durations and terms. The
Company replaced a precious metals supply contract that expired December 31,
1996 with a new contract that offers smaller quantities and less favorable
terms. Management expects the impact to be wholly or partially offset by other
precious metals supply contracts and arrangements and by new business programs
already underway. Failure to achieve such offsetting income could result in a
material adverse impact. Management believes that an adequate supply of these
precious metals will be available to meet growing needs. 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.
The Industrial Commodities Management Group also engages in precious and
base metals dealing operations with industrial consumers, dealers, central
banks, miners and refiners. It also participates in refining of precious metals
and marketing of energy-related services. The group does not routinely speculate
in the precious and base metals market. For more information regarding precious
metals operations, see Note 7 "Metal Positions and Obligations" on page 33 and
Note 14 "Financial Instruments" of the Notes to Consolidated Financial
Statements on pages 37 and 38 of this 10-K. Offices are located in the United
States, Japan, Peru, the Russian Federation, Switzerland and the United Kingdom.
As of January 1, 1997 the Engineered Materials and Industrial Commodities
Management segment had approximately 525 employees worldwide. Most hourly
employees are covered by collective bargaining agreements. Employee relations
have generally been good.
6
Major Customers
For the year ended December 31, 1996, Engelhard-CLAL, a related party and a
customer of the Engineered Materials and Industrial Commodities Management
segment, accounted for 16% of the Company's net sales. For the years ended
December 31, 1995 and 1994, Ford Motor Company, a customer of both the Catalysts
and Chemicals and the Engineered Materials and Industrial Commodities Management
segments accounted for 11% of the Company's net sales. Sales to both
Engelhard-CLAL and to the Ford Motor Company included both fabricated products
and precious metals and were therefore significantly influenced by fluctuations
in precious metal prices as well as 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
substantive effect on earnings.
Research and Patents
The Company currently employs approximately 420 scientists, technicians and
auxiliary personnel engaged in research and development in the field of
chemistry and metallurgy. These activities are conducted in the United States
and abroad. Research and development expense was $56.5 million in 1996, $53.0
million in 1995 and $49.0 million in 1994.
Research facilities include fully staffed instrument analysis laboratories,
which the Company maintains in order to achieve the high level of precision
necessary for its various businesses and to assist customers in understanding
how Engelhard's products and services can add value to their businesses.
The Company owns or is licensed under numerous patents which have been
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, MA, Salt Lake City, UT and Attapulgus, GA. The Company is
continuing to investigate contamination at Plainville, under a 1993 agreement
with the United States Environmental Protection Agency (EPA) and under plans
approved by the Nuclear Regulatory Commission. Investigation of the
environmental status at Salt Lake City continues under a 1993 agreement with the
Utah Solid and Hazardous Waste Control Board. An approved reclamation program at
Attapulgus, under a 1994 consent order with the Georgia Department of Natural
Resources, Environmental Protection Division, is substantially complete.
In addition, 16 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
7
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 many 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 liabilities for environmental cleanup related costs recorded in the
consolidated balance sheets at December 31, 1996 and 1995 were $49.6 and $54.6
million, respectively, including $6.4 million and $10.0 million, respectively,
for Superfund sites. These amounts represent those costs which the Company
believes are probable and reasonably estimable. Based on currently available
information and analysis, the Company's accrual represents approximately 75% 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 that the probable estimate upon which the accrual is based.
During the past three-year period, cash payments for environmental cleanup
related matters were $7.0 million, $7.6 million and $4.5 million for 1996, 1995
and 1994, 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 (environmental testing,
permits, consultants and in-house staff) was not significant.
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 approximate $11.0 million for 1997, all of 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,
1996 are reasonable and adequate and that 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 operating results or cash flows when resolved in a future reporting
period.
Item 2. Properties
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The Company owns 22 acres of land and four buildings with a combined area
of approximately 420,000 square feet in Iselin, NJ. These buildings serve as the
principal executive and administrative offices of the Company and its operating
segments as well 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; and DeMeern, The
Netherlands.
The Catalysts and Chemicals segment owns and operates a complex of plants
in Georgia that manufactures petroleum cracking catalysts, and other plants
located in Huntsville, AL; Phoenix, AR; East Windsor, CT; Mangonia Park, FL;
8
Wilmington, MA; South Lyon, MI; Jackson, MS; Union, NJ; Elyria, OH; Duncan and
Seneca, SC; Salt Lake City, UT; Hannover and Nienburg, Germany; Rome, Italy;
Terneuzen and DeMeern, The Netherlands; Port Elizabeth, South Africa; and
Coleford, United Kingdom. In addition, the segment owns a mine in Mississippi
and leases a mine in Arizona.
The Pigments and Additives 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 and operates an attapulgite processing plant in Attapulgus, GA
near the area containing its attapulgite reserves, plus a mica mine and
processing facilities in Hartwell, GA. Management believes that the Company's
crude kaolin, attapulgite and mica reserves will be sufficient to meet its needs
for the foreseeable future. The segment also owns and operates color,
pearlescent pigments and film manufacturing facilities in Sylmar, CA;
Louisville, KY; Eastport, MA; Roselle Park, NJ; Peekskill, NY; Elyria, OH;
Charleston, SC; Helsinki and Kotka, Finland; and Holland, The Netherlands. In
addition, the segment owns mines in Florida.
The Engineered Materials and Industrial Commodities Management segment owns
and operates manufacturing facilities in East Newark, NJ; Anaheim, CA; Lincoln
Park, MI; Warwick, RI; Ontario, Canada; and Cinderford, United Kingdom. Other
operations are conducted at owned facilities in Iselin, NJ; Paris, France;
Tokyo, Japan; Lima, Peru; Zug, Switzerland; and London, United Kingdom.
The Company is currently restructuring its operations (see Note 12
"Restructuring Reserve" of the Notes to Consolidated Financial Statements on
pages 36 and 37 of this 10-K). 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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The Company and certain of its officers and directors are defendants in a
consolidated class action complaint pending in the U.S. District Court for the
District of New Jersey on behalf of persons who bought Engelhard stock between
April 1995 and November 1995. The complaint claims that defendants made false
statements and omissions and traded on nonpublic information. The Company
believes the class action to be without merit and is vigorously defending
against it.
The Company is one of a number of defendants in numerous proceedings which
allege that the plaintiffs contracted cancer and/or suffered other injuries from
exposure to talc, asbestos or other "toxic" substances purportedly supplied by
the Company and other defendants. The Company is also subject to a number of
environmental contingencies 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 the estimates, could have a material adverse effect on the
operating results or cash flows when resolved in a future reporting period.
9
In January 1995, the Company received a civil investigative demand to
produce documents and answer interrogatories in connection with an investigation
by the Antitrust Division of the U.S. Department of Justice into "price
coordination and market allocation by kaolin producers". The Company has
responded to this demand and subsequent requests for documents.
In July 1996, the Securities and Exchange Commission ("Commission") issued
a formal order of investigation concerning the sales of Engelhard stock by the
Company's officers and directors during 1995. Subpoenas for documents and
witness testimony were issued by the Commission. In response, the Company has
produced documents to the Commission and witnesses have been examined by the
Commission staff.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
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 6, 1997, there were 8,534 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 paid for each quarterly
period were as follows:
NYSE Cash
market price* dividends paid
High Low per share*
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1996
First quarter $24 3/8 $19 3/8 $.09
Second quarter 26 1/8 22 3/8 .09
Third quarter 23 3/4 19 1/8 .09
Fourth quarter 23 1/2 17 7/8 .09
1995
First quarter $19 3/4 $14 7/8 $.08
Second quarter 29 1/4 19 1/2 .09
Third quarter 32 1/2 23 1/8 .09
Fourth quarter 26 3/8 20 1/4 .09
* Reflects the three-for-two stock split as of June 30, 1995.
10
Item 6. Selected Financial Data
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Selected Financial Data
($ in millions, except per
share amounts)
Operating Results 1996 1995 1994 1993 1992
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Net sales $3,184.4 $2,840.1 $2,385.8 $2,150.9 $2,399.7
Net earnings(1) 150.4 137.5 118.0 .7 10.6
Net earnings per share(2) 1.05 .96 .82 - .07
Total assets $2,494.9 $1,943.3 $1,777.8 $1,436.2 $1,444.8
Long-term debt 375.1 211.5 111.8 112.2 113.9
Shareholders' equity 833.2 737.7 614.7 531.3 647.2
Cash dividends paid per share(2) $.36 $.35 $.30 $.28 $.25
Return on average shareholders' equity 19.2% 20.3% 20.6% .1% 1.5%
Current ratio 1.1 1.1 1.1 1.1 1.3
(1) Results in 1996 include a $5.7 million ($.04 per share) gain from an insurance recovery, a $3.3 million ($.02 per
share) gain on the sale of LIFO inventories, and a $1.5 million ($.01 per share) gain on the sale of an investment.
These gains were partially offset by a $4.3 million ($.03 per share) provision for costs related to certain existing
legal proceedings, a $2.5 million ($.02 per share) restructuring reserve related to the Company's investment in
Engelhard-CLAL and a $1.6 million ($.01 per share) charge for a revaluation of petroleum catalyst inventories.
Results in 1994 include a special credit of $5.0 million ($.03 per share) representing the reversal of excess
restructuring reserves and a net charge of $5.3 million ($.04 per share) for a change in the Company's estimate of
compensation expense relating to stock awards.
Results in 1993 include a special charge of $91.8 million ($.63 per share) for realignment and consolidation of
businesses and environmental matters; a gain of $6.3 million ($.04 per share) from the sale of the Company's interest in
M&T Harshaw, a base metal plating business; and a charge for the cumulative effect of an accounting change of $16.0
million ($.11 per share) as a result of adopting the provisions of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits".
Results in 1992 include a charge for the cumulative effect of accounting changes of $89.5 million ($.59 per share)
as a result of adopting the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", and No. 109, "Accounting for Income Taxes".
(2) Reflects the three-for-two stock splits as of June 30, 1995, September 30, 1993 and September 30, 1992.
11
Management's Discussion and Analysis
Item 7. of Financial Condition and Results of Operations
- ------ ------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations/Engelhard Corporation
Results of Operations
Nonrecurring Items: Net earnings in 1996 included a $5.7 million ($.04 per
share) gain from an insurance recovery, a $3.3 million ($.02 per share) gain on
the sale of LIFO inventories, and a $1.5 million ($.01 per share) gain on the
sale of an investment. These gains were partially offset by a $4.3 million ($.03
per share) provision for costs related to certain existing legal proceedings, a
$2.5 million ($.02 per share) restructuring reserve related to the Company's
investment in Engelhard-CLAL, and a $1.6 million ($.01 per share) charge for a
revaluation of petroleum catalyst inventories.
Net earnings in 1994 included a special credit of $5.0 million ($.03 per
share) arising from the reversal of excess restructuring reserves, and a net
charge of $5.3 million ($.04 per share) for a change in the Company's estimate
of compensation expense relating to stock awards.
Catalysts and Chemicals
The Catalysts and Chemicals segment comprises three business groups:
Environmental Technologies, Petroleum Catalysts and Chemical Catalysts. These
business units provide a wide range of solutions, based on catalysts and related
performance products and processes, to customers' problems across many different
industries.
1996 compared with 1995: Sales up 19%; operating earnings up 24%.
Segment Discussion: Excellent sales and operating earnings growth for
environmental technologies and chemical catalysts. A $2.6 million pretax charge
for the revaluation of petroleum catalyst inventories also is included in the
segment results.
Prior Year Comparisons
1995 compared with 1994: Sales up 20%; operating earnings up 10%. Excellent
sales and operating earnings growth for environmental technologies and chemical
catalysts were offset by lower earnings from petroleum catalysts. Auto catalyst
volumes were up due to the success of new products, and chemical catalyst sales
and operating earnings were aided by improved economic conditions in the
chemical industry and success in new-business programs. Unfavorable economic
conditions in the refining industry lead to flat sales and lower operating
earnings for petroleum catalysts.
1994 compared with 1993: Sales up 11%; operating earnings up 18%. Favorable
factors included strong volume gains for automotive and diesel truck catalysts
and for some petroleum refining catalysts. Lower manufacturing costs in the
Chemical Catalysts Group also contributed to the operating earnings improvement.
Environmental Technologies
The Environmental Technologies Group provides solutions, using catalytic and
other technologies, to customers' emission problems generated for both mobile
sources and industrial processes.
12
1996 performance: Record sales and operating earnings.
Discussion: Sales and operating earnings gains were achieved for most product
segments. Auto catalysts sales and operating earnings grew, despite flat auto
production worldwide. Engelhard continued to develop and to provide improved
solutions to customers' emissions problems, which significantly reduced their
costs of compliance with tightening environmental regulations.
Sales and operating earnings from heavy-duty power systems also were up
significantly. Sales of diesel catalysts to truck engine makers and of CMX
catalytic converters for diesel buses led these increases. Engelhard was the
first company to have a product certified by the U.S. Environmental Protection
Agency for urban bus retrofit. As a result, the Company succeeded in capturing a
major share of the market. An upturn in the aviation market coupled with
manufacturing cost reductions led to strong operating earnings from engine
coatings.
Outlook: Continued emphasis on improved emission-control solutions and on
broadening the Company's product and service offerings is expected to more than
offset higher raw material costs beginning in 1997 (see "Other Matters" on page
21). Longer term, Engelhard expects to benefit from several strategic alliances
with leading automotive suppliers, new business with auto companies, and
geographic expansion. For example, additional catalyst business has been gained
with several major auto companies around the world. Also, Engelhard (along with
joint venture partners) will begin construction of new automotive catalyst
plants in India and Thailand.
Petroleum Catalysts
The Petroleum Catalysts Group provides solutions that enable customers in the
petroleum refining industry to more efficiently produce gasoline, transportation
fuels and heating oils through use of advanced cracking and hydroprocessing
catalysts.
1996 performance: Slightly higher sales and operating earnings.
Discussion: Slight gains in sales and operating earnings were achieved despite
continued negative factors in the refining industry. Petroleum catalyst pricing
was under pressure due to excess capacity in the fluid cracking catalyst
industry (the Group's major product line). Also, oil companies pursued mergers,
refinery shutdowns (in the United States and Europe) and other means to enhance
their profitability. Engelhard reduced operating costs and increased its volume
and market share through sales of newer fluid cracking catalysts developed for
processing heavier feedstocks.
One of these new products, Ultrium, is the first commercial catalyst
combining benefits of Engelhard's two manufacturing processes. Engelhard is the
only supplier with this dual manufacturing capability and, as a result, has the
broadest range of products in the industry.
The worldwide moving-bed catalyst market continued to decline as less
efficient units were shut down. However, the Company increased sales to Russia
and focused efforts on expanding market share in this region. Most of the
Russian market had previously been served by a local supplier; Engelhard is the
only western company supplying catalysts for moving-bed units.
Engelhard's joint venture Acreon, which markets hydroprocessing catalysts,
contributed higher equity earnings. This business is currently a small
participant in the hydroprocessing market. Acreon is focused on increasing
market share and is completing plant expansions and a facility to produce
catalyst supports.
13
Outlook: Engelhard continues to focus on the current trends developing in the
petroleum refining industry and is aligning its resources accordingly. The
Company is developing products to serve the fast-growing Asian
petroleum-refining market.
Chemical Catalysts
The Chemical Catalysts Group provides solutions, based on catalysts, sorbents
and separation products, to customers' unique processing needs in a wide variety
of industries.
1996 performance: Record sales and operating earnings.
Discussion: Continued strong economic conditions in the chemical industry and
success in new-business programs led to growth in sales and operating earnings.
Volumes were up for all product lines, but most notably for catalysts used to
make PTA (the main component of polyester), catalysts used to make PVC
intermediates, and products to remove lead from drinking water.
In late 1996, Engelhard began shipping catalysts for use in an improved
process for ammonia production developed by M.W. Kellogg. Engelhard is the
exclusive supplier of these catalysts. This alliance is expected to yield
further catalyst sales as the new ammonia process is designed into plants around
the world. Another alliance, formed in 1995, contributed to the Group's
performance in 1996 - Engelhard is selling catalysts to plastics producers who
use technology licensed by Geon, a leading producer and compounder of PVC
plastic.
Also contributing was continuing success in "decaptivating" or taking over
production of catalysts from chemical and consumer product companies that
formerly made their own. Plant expansions were undertaken to accommodate this
new business.
The Group broadened its product portfolio with two acquisitions. First,
Engelhard purchased certain assets of American Colloids, a maker of bleaching
agents for edible fats and oils and of separation products for lube oils. This
business has been integrated into an existing Engelhard manufacturing plant,
allowing the facility to boost productivity. Second, Engelhard purchased the
assets of Doduco, a supplier of complementary chemical catalysts technology and
catalysts used in home and commercial appliances. This business also is being
integrated into existing Engelhard facilities.
Outlook: Industry forecasts indicate that growth in the chemical industry may
begin to slow during 1997. Engelhard plans to offset this trend through new
performance products and other solutions, such as those provided with alliance
partners Kellogg, Geon and Amoco; by broadening its product portfolio through
acquisition; and by providing solutions for new customers and entering new
markets, such as water treatment. Further growth also is anticipated in Asia as
Engelhard continues supplying new chemical plants being built in the region.
Pigments and Additives
The Pigments and Additives segment provides solutions, based on white, color and
pearlescent pigments and extenders, to enhance or add new properties to
customers' products. The segment also provides viscosity-control solutions.
14
1996 compared with 1995: Sales up 24%; operating earnings up 9%.
Segment Discussion: Sales growth was due to stronger revenues from performance
additives and color pigments, as well as the addition of pearlescent pigment
sales resulting from the May 31, 1996 acquisition of the Mearl Corporation (see
Note 2, "Acquisition", on page 28). Paper pigment revenues were down slightly.
Operating earnings benefited from reduced manufacturing costs, the success
of new paper pigments and performance additives, and the acquisition of Mearl's
pearlescent pigments business. Without the acquisition and the impact of an
improved transportation cost management system, segment operating earnings would
have declined.
Lower operating earnings from paper pigments were due to depressed economic
conditions in the paper industry. However, new performance products developed
and marketed during the year improved Engelhard's performance versus much of the
industry. Chief among these are Luminex, a kaolin-based paper pigment bright
enough to compete with more costly alternative pigments; and several pigments
based on a new, patented manufacturing process that work better on today's
high-speed papermaking machines.
The new product strategy extended to performance additives and colors.
Ultrex 96 was commercialized as a highly cost-effective brightening agent for
use in coatings, inks and plastics. Meta max, an additive to strengthen
concrete, and Translink additives for wire and cable, gained broader market
acceptance. In addition, 15 new higher performance color products were
introduced during 1996.
Acquisition of the Mearl Corporation, a world leader in pearlescent
pigments, greatly expanded the product and market scope of Engelhard's colors
and performance additives business. Mearl is particularly strong in the
automotive finishes and cosmetics market segments, while Engelhard's strength
is in paper, plastics and coatings. For further information about this
acquisition, see Note 2, "Acquisition", on page 28.
During 1996, the use of alliances to expand product lines and the
penetration of geographic markets progressed with the formation of joint
ventures in Ukraine and India.
Segment Outlook: Paper industry volume is expected to recover modestly in 1997,
but pricing pressures are expected to continue. Consolidation in the coatings
industry is creating larger, stronger buyers with greater performance
expectations. The Pigments and Additives segment will continue to focus on cost
control and developing and marketing solutions utilizing performance products
and services. Integration of the Mearl operations will provide new product and
market solutions. Global reach will be enhanced with the start-up of Dnipro
Kaolin in Ukraine and Engelhard-Highland in India.
Prior Year Comparisons
1995 compared with 1994: Sales up 7%; operating earnings up 26%. Significant
productivity improvements and a higher margin product mix resulted in earnings
growth despite a sales decline in the last quarter, reflecting the turndown in
the paper industry. In performance additives and colors, sales prices were
favorable for all product lines. Higher volumes of high-performance
surface-treated mineral products were partially offset by lower volumes of
sorbents and color products.
1994 compared with 1993: Sales up 2%; operating earnings up 31%. Increased sales
of calcined paper pigments, tighter cost controls and consolidation of paper
pigments facilities all improved results. A favorable product mix of performance
additives and colors as well as lower manufacturing costs aided profits.
15
Engineered Materials and Industrial Commodities Management
The Engineered Materials and Industrial Commodities Management segment provides
solutions, based on products and coatings containing precious metals to a
variety of industrial customers. This segment also provides industrial
commodities products and services.
1996 compared with 1995: Sales up 6%; operating earnings up 4%.
Segment Discussion: The majority of the industrial business units in this
segment were transferred to a joint venture, Engelhard-CLAL, in June 1995 (see
Note 9, "Investments", on page 34). On a comparable year-to-year basis, sales
and operating earnings were up. When comparing total results, 1996 operating
earnings excluding a $5.4 million pretax gain (resulting from the partial
liquidation of one component of precious metal inventories maintained on a LIFO
basis - see Note 8, "Inventories", on pages 33 and 34) were down slightly.
Precious metals are included in the segment's sales figures if the metal
has been supplied by Engelhard. In these cases, precious metal market price
fluctuations can result in material variations in sales. Often, customers supply
the precious metals for the manufactured product. In those cases, precious-metal
values are not included in sales numbers. The mix of such arrangements and the
extent of market price fluctuations can significantly affect the level of
reported sales but do not usually have a material effect on earnings. The
purchase of metal for our and our customers' products is normally hedged. (See
Note 1, "Summary of Significant Accounting Policies", on pages 26-28.)
Segment Outlook: Engineered Materials will continue to pursue sales growth in
Asia and the development of new products. Industrial Commodities Management is
continuing product, service, and geographic expansions. The impact of a less
favorable precious metals supply contract (see "Other Matters" on page 21) may
be totally or partially offset by other contracts.
Prior Year Comparisons
1995 compared with 1994: Sales up 22%; operating earnings up 32%. Strong growth
in the Industrial Commodities Management Group more than offset reduced sales
and flat earnings in the Engineered Materials Group, which were due to the
formation of a 50/50 joint venture, Engelhard-CLAL, in June 1995. Sales and
operating earnings in the retained business units were up substantially.
1994 compared with 1993: Sales up 13%; operating earnings up 19%. Higher
earnings from the Engineered Materials Group more than offset slightly lower
earnings from Industrial Commodities Management. Higher sales in the United
States and Asia Pacific, combined with lower manufacturing costs, produced the
increased earnings in Engineered Materials. The Industrial Commodities
Management Group was adversely affected by weak market conditions worldwide.
Engineered Materials
The Engineered Materials Group provides solutions to a wide range of industrial
customers. These solutions are based on products and coatings containing
precious metals.
16
1996 performance: The majority of the business units in this Group were
transferred to a joint venture, Engelhard-CLAL, in June 1995, the results of
which are now reported in equity earnings. Accordingly, 1996 sales and operating
earnings only reflect the results of those businesses retained by Engelhard.
Sales and operating earnings were lower than in 1995, primarily because of the
transfer.
Discussion: Besides the impact of the transfer of business units to
Engelhard-CLAL, operating earnings declined slightly on a modest increase in
sales. Unfavorable operating expenses more than offset strengthening economic
conditions in customer industries. These units include a metal-joining business,
which was expanded last year with the addition of a line of custom-engineered
brazing systems. Engelhard now offers a full range of these products to the
appliance and air-conditioning industries. Export sales of metal-joining
products were doubled as increasing focus was placed on the growing Asia-Pacific
and South American markets.
In 1996, a joint venture was formed to develop and market colored
conductive inks for use in a wide range of consumer and industrial products. By
the end of the year, the venture granted its first technology licenses to
apparel and accessory manufacturers in the United States and Europe.
Industrial Commodities Management
The Industrial Commodities Management Group provides products and services to
customers in a wide variety of industries.
1996 performance: Higher sales and operating earnings.
Discussion: Improvement was driven by strong performance in the precious-metals
refining and salts and solutions product lines.
The Industrial Commodities Management Group purchases and sells precious
metals, base metals and energy and related products under a variety of pricing
and delivery arrangements structured to meet the logistical, financial and price
risk management requirements of customers and suppliers in a variety of
industries under long- and short-term arrangements. The Group also offers
related products and services, including precious metals refining and salts and
solutions, as well as energy cost management.
In recent years, Industrial Commodities Management has expanded its product
and service offerings by entering new markets. A complementary base-metals
business was started up in 1995 and contributed incrementally to profits in
1996.
Also, in response to the ongoing restructuring of the U.S. electricity
industry, Engelhard began offering industrial customers services to lower their
energy costs.
Restructuring Reserve
The Company has provided reserves for restructuring certain operations and for
costs associated with idle sites. See Note 12, "Restructuring Reserve", on pages
36 and 37 for more information.
17
Selling, Administrative and Other Expenses
Selling, administrative and other expenses in 1996 of $255.5 million were up
from $244.7 million in 1995 and $244.6 million in 1994. The 1996 amount reflects
the acquisition of Mearl in May 1996. The 1995 amount reflects the transfer of
certain sites and businesses to the Engelhard-CLAL joint venture in June. In
1994, the Company revised its estimate of current compensation expense relating
to stock awards to include the cost of shares where there is no risk of
forfeiture by the employee, which resulted in a charge to 1994 earnings of $8.6
million ($5.3 million after tax or $.04 per share). See Note 16, "Stock Option
and Bonus Plans", on pages 40-42.
Acquisitions and Partnerships
Other Party Business Arrangement Transaction Date Business Opportunity
- ----------- -------------------- ---------------- --------------------
Mearl Corporation Acquired business May 1996 Rationalization of costs and expansion of
markets.
Salem Industries Acquired remaining 50 percent October 1995 Markets products and services to abate
of joint venture formed in emissions of volatile organic chemicals and
1992 other pollutants.
FIMALAC Formed Paris-based, June 1995 Development of the low-cost position in
(formerly "CLAL") 50/50 joint venture manufacturing and marketing precious-metal
containing products.
General Plasma, Inc. Acquired assets and July 1994 Providing solutions to heavy-duty diesel
business of thermal emissions problems.
spray coating company
Solvay Catalysts, GmbH Acquired assets of March 1994 Providing economies from combining this
sorbents and moving- business with our existing business.
bed catalysts business
ICC Technologies, Inc. Formed Engelhard/ICC, February 1994 Providing HVAC solutions for improved indoor air
50/50 partnership quality and for achieving dehumidification
and cooling efficiency by controlling temperature
and humidity separately.
Equity Earnings/Losses
Equity in losses of affiliates was $5.0 million in 1996, compared with equity in
earnings of affiliates of $.7 million in 1995 and $.6 million in 1994. The 1996
comparison reflects a larger loss in Engelhard/ICC due to expenses for key
personnel additions as well as product development and start-up costs related to
a new marketing agreement for the Asia-Pacific region. In addition, a loss was
incurred in Engelhard-CLAL due to a restructuring charge for workforce
reductions. Engelhard-CLAL has recorded a deferred tax asset reflecting the
benefit of loss carryforwards. Although realization is not assured, management
believes it is more likely than not that all deferred tax assets will be
realized. The amount considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
18
Gain on Sale of Investment
In the fourth quarter of 1996, Engelhard sold its share of Heraeus Engelhard
Electrochemistry Corp., a marketer of electrochemical products formed in 1992.
The Company realized a gain of $2.4 million ($1.5 million after tax or $.01 per
share) on the sale.
Interest
Net interest expense was $45.0 million in 1996, compared with $31.3 million in
1995 and $22.0 million in 1994. The 1996 increase reflects the financing costs
associated with acquiring Mearl in May 1996. Excluding the impact of Mearl
financing, higher net interest expense in all three years was primarily due to
higher average debt balances as a result of acquisitions and investments, and
common stock purchases in 1994.
Interest income, included as a component of net sales, was $1.8 million in
1996, $2.2 million in 1995 and $1.1 million in 1994.
Taxes
Income tax expense was $59.5 million in 1996, $47.8 million in 1995 and $39.3
million in 1994 reflecting effective income tax rates of 28.3% in 1996, 25.8% in
1995 and 25.0% in 1994. The higher effective rate in 1996 was primarily due to a
shift in the geographic mix of earnings and a changing product slate.
At year-end 1996, the net deferred tax asset was $67.4 million, primarily
for accrued postretirement and postemployment benefit obligations, the
restructuring reserve, the environmental cleanup reserve, and other accruals.
Management believes Engelhard will generate sufficient taxable income and tax
planning opportunities to ensure deferred tax benefits are realized.
Financial Condition and Liquidity
Working capital was $115.3 million at December 31, 1996, about even with last
year. The year-end market value of the Company's precious metals inventories
exceeded carrying cost by $25.9 million, compared with $35.5 million last year.
A part of the reduction in value reflects the sale of certain LIFO inventories
in the fourth quarter of 1996 (see Note 8, "Inventories", on pages 33 and 34).
The current ratio was unchanged from last year at 1.1.
Primarily due to the Mearl acquisition, the Company's total debt increased
to $680.0 million at December 31, 1996 from $395.1 million last year.
Specifically, short-term borrowings increased to $304.9 million from $183.6
million and long-term debt increased to $375.1 million from $211.5 million. In
1996, the Company called $100 million of 10% notes due in 2000, and issued $150
million of 7.0% notes due in 2001 and $100 million of 7.375% notes due in 2006.
The ratio of total debt to total capital increased to 45% at December 31,
1996 from 35% last year, due to the Mearl acquisition. The Company currently has
a total of $600 million in two unsecured committed revolving credit facilities
which expire in 2000. In 1997, management expects to replace these two credit
agreements with one $600 million, five-year facility with a group of major
domestic and foreign banks. Additional unused lines of credit available exceeded
$800 million at year-end 1996.
Operating activities provided net cash of $24.8 million in 1996, compared
with $133.8 million in 1995 and $16.1 million in 1994. The reduction in cash
flows from operating activities in 1996 and 1994 occurred in the Industrial
19
Commodities Management Group ("ICM") and primarily represented an increase in
metal positions (included in Committed Metal Positions on the Consolidated
Balance Sheets) to facilitate both supplier and customer requirements. 1996 also
reflected higher ICM receivables due to the new base metal dealing business.
ICM routinely enters into a variety of arrangements for the sourcing of
industrial commodities. Generally, all such transactions are hedged on a daily
basis. See Note 1, "Summary of Significant Accounting Policies", on pages 26-28
for a complete description. ICM works to ensure that the Company and its
customers have an uninterrupted source of industrial commodities utilizing
supply contracts and commodities markets around the world. Hedging is
accomplished primarily through forward and futures contracts.
Hedged metal obligations (metal sold not yet purchased but fully hedged)
are included as liabilities in the Consolidated Balance Sheets and the change in
these amounts from year to year is included in the financing activities section
of the Consolidated Statements of Cash Flows. The Consolidated Balance Sheets
also reflect the fair values of the derivative instruments. These transactions
generally cover the sourcing requirements of ICM.
The cash provided from operations other than ICM exceeded $100 million in
each of the last three years despite generally higher working capital
requirements. Management believes that the Company will continue to have
adequate access to credit and capital markets to meet its needs for the
foreseeable future.
Market Risk Sensitive Transactions
Generally, all industrial commodity transactions are hedged on a daily basis,
using forward, future or option contracts, to substantially eliminate the
exposure to price risk. In addition, all industrial commodity transactions are
marked-to-market daily. In limited and closely monitored situations, for which
preapproved exposure levels have been set, the Company holds significant
unhedged industrial commodity positions, which are subject to future market
fluctuations.
Capital Expenditures, Commitments and Contingencies
Capital projects are designed to maintain capacity, expand operations, improve
efficiency or protect the environment. These amounted to $128.2 million in 1996,
compared with $147.7 million in 1995 and $97.5 million in 1994. Capital
expenditures in 1995 included the Company's $57.0 million purchase of land and a
building that serve as the principal executive and administrative offices of the
Company and its operating businesses. Capital expenditures in 1997 are expected
to approximate 1996 spending. See also Note 17, "Environmental Costs", and Note
18, "Litigation and Contingencies", on pages 43 and 44 for further information
about commitments and contingencies.
Effect of Foreign Currency Transactions and Translation
The Company uses a variety of strategies, including foreign currency forward
contracts and internal hedging, to minimize or eliminate foreign currency
exchange rate risk associated with substantially all of its foreign currency
transactions, including precious-metals 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.
20
Dividends And Capital Stock
In the second quarter of 1995, the Board of Directors approved a 12.5% increase
in the common stock dividend, raising the level to $.09 per share effective June
30, 1995. The annualized common stock dividend rate at the end of 1996 and 1995
was $.36 per share. In addition, the Board of Directors authorized a three-for-
two split of common stock effective June 30, 1995.
In the first quarter of 1996, the Board approved the purchase of 5 million
shares of common stock. At December 31, 1996, no shares had been purchased under
this plan. In the second quarter of 1992, the Board of Directors approved two
separate plans to purchase up to 12.5 million shares of common stock. At
December 31, 1996, 11.8 million shares had been purchased under these plans.
Other Matters
As of December 31, 1996, one of the Company's precious-metals supply contracts
expired and was replaced with a new contract that offers smaller quantities and
less favorable terms. Management believes that an adequate supply of the
precious metals will be available to meet growing needs. Management expects the
financial impact to be offset by other supply contracts and arrangements and by
new business programs already underway. Failure to achieve such offsetting
income could result in a material adverse impact to the earnings and cash flows
of the Company.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share". The Company anticipates no material impact from
adoption on December 31, 1997.
Forward-Looking Statements
This document contains forward-looking statements. Investors should be aware of
factors that could cause Engelhard's actual results to vary materially from
those projected in the forward-looking statements. These factors include, but
are not limited to, domestic and foreign economic trends; competitive pricing or
product development activities; markets, alliances, and geographic expansions
developing differently than anticipated; government legislation and/or
regulation (particularly on environmental issues); and technology, manufacturing
and legal issues.
21
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
Engelhard Corporation
Consolidated Statements of Earnings
Year ended December 31, 1996 1995 1994
---- ---- ----
(in thousands, except per share amounts)
Net sales .................................................................. $3,184,431 $2,840,077 $2,385,802
Cost of sales .............................................................. 2,671,377 2,379,474 1,970,563
---------- ---------- ----------
Gross profit ........................................................... 513,054 460,603 415,239
Selling, administrative and other expenses ................................. 255,460 244,660 244,611
Special credit ............................................................. - - (8,000)
---------- ---------- ----------
Earnings from operations ............................................... 257,594 215,943 178,628
Equity in earnings (losses) of affiliates .................................. (5,008) 695 632
Gain on sale of investment ................................................. 2,378 - -
---------- ---------- ----------
Interest expense, net of capitalized amounts ............................... 45,860 35,066 23,010
Less contango on futures and forward contracts ......................... (851) (3,740) (1,056)
---------- ---------- ----------
Net interest expense .............................................. 45,009 31,326 21,954
---------- ---------- ----------
Earnings before income taxes ...................................... 209,955 185,312 157,306
Income tax expense ......................................................... 59,508 47,791 39,326
---------- ---------- ----------
Net earnings ...................................................... $ 150,447 $ 137,521 $ 117,980
========== ========== ==========
Net earnings per share............................................. $1.05 $.96 $.82
========== ========== ==========
Average number of shares outstanding ....................................... 143,810 143,619 144,100
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
22
Engelhard Corporation
Consolidated Balance Sheets
December 31, 1996 1995
(in thousands) ---- ----
Assets
Cash ..................................................................... $ 39,683 $ 40,023
Receivables .............................................................. 381,904 274,006
Committed metal positions ................................................ 357,087 292,306
Inventories .............................................................. 337,098 245,103
Other current assets ..................................................... 68,557 54,440
---------- ----------
Total current assets ................................................. 1,184,329 905,878
Investments .............................................................. 221,364 217,620
Property, plant and equipment, net ....................................... 744,655 609,540
Other noncurrent assets .................................................. 344,556 210,271
---------- ----------
Total assets ......................................................... $2,494,904 $1,943,309
========== ==========
Liabilities and Shareholders' Equity
Short-term bank borrowings ............................................... $ 108,652 $ 89,233
Commercial paper ......................................................... 196,000 94,000
Current maturities of long-term debt ..................................... 243 337
Accounts payable ......................................................... 152,202 143,987
Hedged metal obligations ................................................. 414,097 254,811
Other current liabilities ................................................ 197,803 209,875
---------- ----------
Total current liabilities ............................................ 1,068,997 792,243
Long-term debt ........................................................... 375,075 211,533
Other noncurrent liabilities ............................................. 217,676 201,791
---------- ----------
Total liabilities .................................................... 1,661,748 1,205,567
---------- ----------
Commitments and contingent liabilities
Preferred stock, no par value, 5,000 shares authorized and unissued ...... - -
Common stock, $1 par value, 200,000 shares authorized
and 147,295 shares issued .............................................. 147,295 147,295
Retained earnings ........................................................ 730,313 625,787
Treasury stock, at cost, 3,440 and 3,579 shares, respectively ............ (56,479) (57,173)
Cumulative translation adjustment ........................................ 12,027 21,833
---------- ----------
Total shareholders' equity ........................................... 833,156 737,742
---------- ----------
Total liabilities and shareholders' equity ........................... $2,494,904 $1,943,309
========== ==========
See accompanying Notes to Consolidated Financial Statements.
23
Engelhard Corporation
Consolidated Statements of Cash Flows
Year ended December 31, 1996 1995 1994
(in thousands) ---- ---- ----
Cash flows from operating activities
Net earnings ...................................................... $ 150,447 $ 137,521 $117,980
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation, depletion and amortization ..................... 74,871 65,450 69,104
Gain on sale of investment ................................... (2,378) - -
Special credit ............................................... - - (8,000)
Equity results, net of dividends ............................. 7,523 2,716 3,201
Net change in assets and liabilities
Metal related ............................................ (121,270) (32,256) (95,997)
All other ................................................ (84,434) (39,620) (70,172)
--------- --------- --------
Net cash provided by operating activities ............ 24,759 133,811 16,116
Cash flows from investing activities
Capital expenditures, net of disposals ............................ (128,195) (147,704) (97,531)
Proceeds from sale of investment .................................. 1,391 - -
Acquisition of businesses and investments ......................... (287,675) (42,502) (44,298)
Other ............................................................. 4,931 2,035 (1,036)
--------- --------- ---------
Net cash used in investing activities ................ (409,548) (188,171) (142,865)
Cash flows from financing activities
Increase (decrease) in short-term borrowings ...................... 121,419 (10,237) 79,585
Increase in hedged metal obligations .............................. 159,286 4,708 98,672
Proceeds from issuance of long-term debt .......................... 250,164 100,125 -
Repayment of long-term debt ....................................... (100,786) (994) (429)
Purchase of treasury stock ........................................ (7,357) (7,235) (41,280)
Stock bonus and option plan transactions .......................... 13,903 29,273 33,672
Dividends paid .................................................... (51,773) (50,313) (44,178)
--------- --------- ---------
Net cash provided by financing activities ............ 384,856 65,327 126,042
Effect of exchange rate changes on cash ............................. (407) 2,652 1,498
--------- --------- ---------
Net increase (decrease) in cash ...................... (340) 13,619 791
Cash at beginning of year ............................ 40,023 26,404 25,613
--------- --------- ---------
Cash at end of year .................................. $ 39,683 $ 40,023 $ 26,404
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
24
Engelhard Corporation
Consolidated Statements of Shareholders' Equity
Cumulative Total
Common Retained Treasury translation shareholders'
stock earnings stock adjustment equity
------- -------- -------- ----------- ------------
(in thousands, except per share amounts)
Balance at December 31, 1993 ....................... $ 98,197 $497,490 $(55,218) $(9,151) $531,318
Net earnings ....................................... - 117,980 - - 117,980
Dividends ($.30 per share) ......................... - (44,178) - - (44,178)
Foreign currency translation adjustment ............ - - - 17,223 17,223
Treasury stock acquired ............................ - - (41,280) - (41,280)
Stock bonus and option plan transactions ........... - 11,228 22,444 - 33,672
------- -------- -------- -------- --------
Balance at December 31, 1994 ....................... 98,197 582,520 (74,054) 8,072 614,735
Net earnings ....................................... - 137,521 - - 137,521
Dividends ($.35 per share) ......................... - (50,313) - - (50,313)
Three-for-two stock split .......................... 49,098 (49,098) - - -
Foreign currency translation adjustment ............ - - - 13,761 13,761
Treasury stock acquired ............................ - - (7,235) - (7,235)
Stock bonus and option plan transactions ........... - 5,157 24,116 - 29,273
------- -------- -------- -------- --------
Balance at December 31, 1995 ....................... 147,295 625,787 (57,173) 21,833 737,742
Net earnings ....................................... - 150,447 - - 150,447
Dividends ($.36 per share) ......................... - (51,773) - - (51,773)
Foreign currency translation adjustment ............ - - - (9,806) (9,806)
Treasury stock acquired ............................ - - (7,357) - (7,357)
Stock bonus and option plan transactions ........... - 5,852 8,051 - 13,903
------- -------- -------- -------- --------
Balance at December 31, 1996 ....................... $147,295 $730,313 $(56,479) $12,027 $833,156
======= ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
25
Notes to Consolidated Financial Statements
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 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 generally accepted
accounting principles 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.
Inventories
Inventories are stated at the lower of cost or market. The elements of cost
include direct labor and materials, variable overhead and the full absorption of
fixed manufacturing overhead. The cost of precious metals 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 and amortization
of plant and equipment are provided primarily on a straight-line basis over the
estimated useful lives of the assets. Depletion of mineral deposits and mine
development are provided under the unit of production method.
When assets are sold or retired, the cost and related accumulated
depreciation or amortization are removed from the accounts and any gain or loss
is included in earnings.
Goodwill and Other Intangible Assets
Goodwill and other acquired intangible assets are stated at cost and
amortization is provided on a straight-line basis over the estimated useful
lives of the assets, but not in excess of 40 years.
Committed Metal Positions And Hedged Metal Obligations
The Company routinely enters into a variety of arrangements for the sourcing of
industrial commodities. These arrangements are spread among a number of
counterparties, which are generally major industrial companies or highly rated
financial institutions. The conduct of this business is closely monitored.
Generally, all industrial commodity transactions are hedged on a daily
basis, using forward, future, option or swap contracts, to substantially
eliminate the exposure to price risk. In limited and closely monitored
situations, for which preapproved exposure levels have been set, the Company
holds significant unhedged (open) industrial commodity positions.
Committed metal positions (non-inventory metal purchases) and hedged metal
obligations (metal sold not yet purchased but fully hedged) are recorded at fair
value. Fair value is generally based on listed market prices. If listed market
prices are not avail able or if liquidating the Company's positions would
reasonably be expected to impact market prices, fair value is determined based
26
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.
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. 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
anticipate recoveries from insurance carriers or other third parties in its
accruals for environmental liabilities.
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 level of reported
sales but do not usually have a material effect on earnings.
In addition, sales and purchases of precious metals to/from industrial and
refining customers are transacted through the Company's dealing operations 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 dealing 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.
Derivative Instruments And Contango
Derivative financial instruments are used by the Company primarily for hedging
purposes to mitigate a variety of working capital, investment and borrowing
risks. The use and mix of hedging instruments can vary depending on business and
economic conditions and management's risk assessments. The Company uses a
variety of strategies, including foreign currency forward contracts and internal
hedging, to minimize or eliminate foreign currency exchange rate risk associated
with substantially all of its foreign currency transactions. Gains and losses on
these hedging transactions are generally recorded in earnings in the same period
as they are realized, which is usually the same period as the settlement of the
underlying transactions. In selected circumstances, the Company may enter into
foreign currency forward contracts to hedge the U.S. dollar value of its foreign
investments. Gains and losses on these hedging contracts are recognized as
cumulative translation adjustments. The Company uses interest rate instruments
only as hedges or as integral parts of borrowings. As such, the differential to
be paid or received in connection with these instruments is accrued and
recognized in income as an adjustment to interest expense.
27
Derivative commodity instruments are used by the Company primarily for
hedging purposes to mitigate commodity price risk and include futures, forwards,
options and swaps. Gains and losses on these hedging instruments are recorded in
earnings daily, which matches the recording of gains and losses on the
underlying transactions. Usually the contract price of forward and futures
instruments exceeds the current (spot) price of the metal by a premium referred
to as "contango". This premium constitutes an offset to the financing costs
associated with carrying the precious metal that underlies the transaction. As
such, contango is reflected in the consolidated statements of earnings as an
adjustment to interest expense because it is an integral component of the
Company's financing costs. Risk is reduced on any mismatches on maturities
through the use of Eurodollar futures.
Stock Option Plans
The Company applies the provisions of Accounting Principles Board Opinion No. 25
and related interpretations in accounting for stock option plans. Accordingly,
no compensation cost related to these plans has been recognized in the
consolidated statements of earnings.
2. Acquisition
On May 31, 1996, the Company acquired the Mearl Corporation ("Mearl"). Mearl
manufactures and supplies the automotive, cosmetics and industrial markets with
pearlescent pigments, and also manufactures and supplies iridescent film and
other products to a variety of markets. The transaction was accounted for as a
purchase. The purchase price was $272.7 million in cash, initially financed with
short-term bank borrowings which were subsequently refinanced primarily with
long-term debt. The purchase price exceeded the fair value of net assets
acquired by approximately $130 million, which is being amortized on a
straight-line basis over 35 years. The results of operations of Mearl are
included in the accompanying financial statements from the date of acquisition.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1 of each year:
Pro Forma Information
($ in millions, except per share data) 1996 1995
- -------------------------------------- ---- ----
Net sales $3,253.0 $2,979.9
Net earnings 147.3 137.8
Earnings per share 1.02 .96
These amounts include Mearl's actual results in 1995 and for the first five
months of 1996 prior to the acquisition and actual results for the seven months
in 1996 after the acquisition. The postacquisition results of the business
generated approximately a $.04 positive impact on 1996 net earnings. The amounts
are based upon certain assumptions and estimates, and do not reflect any benefit
from economies which might be achieved from combined operations. The pro forma
results do not necessarily represent results which would have occurred if the
acquisition had taken place on the basis assumed above, nor are they indicative
of the results of future combined operations.
3. Research and Development Costs
Research and development costs are charged to expense as incurred and were $56.5
million in 1996, $53.0 million in 1995 and $49.0 million in 1994.
28
4. 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 and fixed income
securities.
The components of the net pension credit for all plans are shown in the
following table:
Net Pension Credit (in millions) 1996 1995 1994
- -------------------------------- ---- ---- ----
Service cost $ 8.9 $ 8.3 $ 9.3
Interest cost 20.3 20.4 19.1
Actual return on plan assets (40.7) (40.9) (9.3)
Net amortization and deferral 9.7 8.6 (21.0)
------- ------- -------
Net pension credit $ (1.8) $ (3.6) $ (1.9)
======= ======= =======
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations for the pension plans are 6.5% to 8.5% and 3.0% to
6.0%, respectively. The expected long-term rate of return on assets is 7.5% to
10.5%.
The following table sets forth the plans' funded status:
Funded Status (in millions) 1996 1995
---- ----
Actuarial present value of benefit
obligations
Vested benefit obligation $243.2 $222.5
Accumulated benefit obligation $251.9 $235.9
Projected benefit obligation $297.3 $267.9
Plan assets at fair value $329.4 $288.8
Plan assets in excess of projected
benefit obligation $ 32.1 $ 20.9
Unrecognized net loss 34.5 37.6
Unrecognized prior service cost 6.4 6.4
Unrecognized transition asset, net of
amortization (5.8) (8.8)
Fourth quarter contribution .4 .3
------- -------
Prepaid pension expense $ 67.6 $ 56.4
======= =======
In May 1996, in connection with the acquisition of Mearl (see Note 2,
"Acquisition", on page 28), the Company assumed certain assets and liabilities
of the Mearl pension plans that reduced the pension asset by $2.8 million.
29
The Company also sponsors two savings plans covering certain salaried and
hourly paid employees. The Company's contributions, which may equal up to 50% of
certain employee contributions, were approximately $2.2 million in 1996, 1995
and 1994.
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 paid 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.
The components of the net expense for these postretirement and
postemployment benefits are shown in the following table:
Postretirement and Postemployment
Benefit Expense (in millions) 1996 1995 1994
- --------------------------------- ---- ---- ----
Service cost $ 2.4 $ 2.3 $ 2.3
Interest cost 8.1 9.0 10.0
Net amortization (5.5) (4.9) (4.5)
------ ------ ------
Net benefit expense $ 5.0 $ 6.4 $ 7.8
====== ====== ======
The weighted-average discount rate used in determining the actuarial
present value of the accumulated postretirement and postemployment benefit
obligation is 8%. The average assumed health care cost trend rate used for 1996
is 8%, gradually decreasing to 5% by 2004. A 1% increase in the assumed health
care cost trend rate would have increased aggregate service and interest cost in
1996 by $.6 million and the accumulated postretirement and postemployment
benefit obligation as of December 31, 1996 by $5.9 million.
The following table sets forth the components of the accrued postretirement
and postemployment benefit obligation, all of which are unfunded:
Postretirement and Postemployment
Benefit Obligation (in millions) 1996 1995
- --------------------------------- ---- ----
Accumulated benefit obligation
Retirees $ 79.7 $ 74.8
Fully eligible active participants 14.6 15.9
Other active participants 19.5 18.2
------- ----
113.8 108.9
Unrecognized prior service cost 44.8 46.5
Unrecognized net gain 3.9 4.8
Fourth quarter contribution (2.3) (2.0)
------- ----
Accrued benefit obligation $160.2 $158.2
======= ======
30
In May 1996, in connection with the acquisition of Mearl (see Note 2,
"Acquisition", on page 28), the Company assumed certain postretirement
liabilities that increased the Company's accrued benefit obligation by $6.5
million.
5. 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 Engelhard-CLAL and its
subsidiaries. Anglo indirectly holds a significant minority interest in the
common stock of the Company. Engelhard-CLAL is a 50% owned joint venture. The
Company's transactions with such entities amounted to purchases-from of $203.2
million in 1996, $367.3 million in 1995 and $233.1 million in 1994; sales-to of
$513.5 million in 1996 and $442.4 million in 1995; and metal leasing-to of $37.7
million in 1996, $31.7 million in 1995 and $49.7 million in 1994. Management
believes these transactions were under terms no less favorable to the Company
than those arranged with other parties. At December 31, 1996 and 1995 amounts
due to such entities totaled $4.3 million and $4.9 million, respectively.
6. Income Taxes
The components of income tax expense are shown in the following table:
Income Tax Expense
(in millions) 1996 1995 1994
---- ---- ----
Current income tax expense
Federal $21.7 $15.9 $13.3
State 2.1 2.0 1.3
Foreign 11.0 12.0 7.5
----- ----- -----
34.8 29.9 22.1
Deferred income tax expense
Federal 16.6 19.2 13.2
Changes in tax rates - - 1.3
State 3.0 2.7 2.7
Foreign 4.7 (2.6) 8.1
Loss carryforwards/tax credits .4 (1.4) (8.1)
----- ----- -----
24.7 17.9 17.2
----- ----- -----
Income tax expense $59.5 $47.8 $39.3
===== ===== =====
The foreign portion of income before income tax expense was $50.6 million
in 1996, $40.8 million in 1995 and $51.0 million in 1994. Taxes on income of
foreign consolidated subsidiaries and affiliates are provided at the tax rates
applicable to their respective foreign tax jurisdictions. Tax credits of $1.7
million in 1996, $8.0 million in 1995 and $3.6 million in 1994, are in
connection with equity transactions, and are included in adjustments for those
years. These amounts are not reflected in the previous table.
The following table sets forth the components of the net deferred income
tax asset which results from temporary differences between the amounts of assets
and liabilities recognized for financial reporting and tax purposes:
31
Net Deferred Income Tax Asset
(in millions) 1996 1995
---- ----
Deferred tax assets
Accrued liabilities $33.0 $51.9
Noncurrent liabilities 80.4 83.8
Tax credits and carryforwards 39.8 41.0
Deferred tax liabilities
Prepaid pension expense (36.4) (27.5)
Property, plant and equipment (11.0) (10.0)
Other assets (38.4) (41.9)
------ ------
Net deferred income tax asset $67.4 $97.3
====== ======
As of December 31, 1996, the Company had approximately $19.5 million of
nonexpiring alternative minimum tax credit carryforwards and approximately $2.3
million of research and development credits with expiration dates through 2011
available to offset future U.S. federal income taxes. Also, as of December 31,
1996, the Company had approximately $9.8 million of foreign nonexpiring net
operating loss carryforwards and approximately $6.0 million of foreign
investment tax credits expiring in 2000 available to offset certain future
foreign income taxes. Management believes that the Company will generate
sufficient taxable income and tax planning opportunities to ensure realization
of these tax benefits.
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)
1996 1995 1994
---- ---- ----
Income tax expense at federal
statutory rate $73.5 $64.9 $55.0
Effect of tax law changes - - 1.3
State income taxes, net of federal effect 3.3 3.0 2.6
Percentage depletion (13.4) (14.0) (11.6)
Equity earnings (1.0) (.9) (.6)
Effect of different tax rates on
foreign earnings, net .2 (3.6) 2.3
Tax credits (.8) (.7) (7.5)
Foreign sales corporation (5.0) (4.1) (3.4)
Other items, net 2.7 3.2 1.2
------ ------ ------
Income tax expense $59.5 $47.8 $39.3
====== ====== ======
At December 31, 1996, the Company's share of the cumulative undistributed
earnings of foreign subsidiaries was approximately $275.0 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.
32
7. Metal Positions and Obligations
The following table sets forth the Company's open metal positions included in
Committed Metal Positions on the consolidated balance sheets:
Metal Positions Information
(in millions) 1996 1995
------------------ -----------------
Gross Gross
Position Value Position Value
-------- ------ -------- -----
Platinum group metals Long $49.2 Long $2.9
Gold Short (4.0) Long 3.0
Silver Short (.5) Short (.3)
------ -----
Total open metal positions $44.7 $5.6
====== =====
The net mark-to-market adjustments related to the above open positions were
$.8 million income in 1996 and $.2 million expense in 1995 and 1994. As a result
of its metals transactions, the Company earned contango income of $.9 million in
1996, $3.7 million in 1995 and $1.1 million in 1994.
Derivative commodity and foreign currency instruments used to hedge metal
positions and obligations consist of the following:
Metal Hedging Instruments 1996 1995
(in millions) ------------------ ------------------
Buy Sell Buy Sell
--- ---- --- ----
Forward/futures contracts $733.1 $ 520.3 $620.4 $614.5
Eurodollar futures 270.0 1,016.0 - -
Options 143.7 150.4 13.3 8.7
Swaps 6.9 99.0 3.9 21.4
Yen forwards/futures - 171.5 40.6 115.6
8. Inventories
Inventories consist of the following:
Inventories
(in millions) 1996 1995
---- ----
Raw materials $ 72.5 $ 68.9
Work in process 50.0 30.1
Finished goods 180.0 117.5
Precious metals 34.6 28.6
------ ------
Total inventories $337.1 $245.1
====== ======
All precious-metals inventories are stated at LIFO cost. The market value
of the precious-metals inventories exceeded cost by $25.9 million and $35.5
million at December 31, 1996 and 1995, respectively. Net earnings in 1996
include an after-tax gain of $3.3 million ($.02 per share) from the partial
liquidation of one component of precious-metals inventories.
In May 1996, the Company acquired $54.1 million of inventory in connection
with the acquisition of Mearl (see Note 2, "Acquisition", on page 28).
33
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.
9. Investments
The Company has investments in affiliates that are accounted for on the equity
method. The more significant of these investments are Engelhard-CLAL and N.E.
Chemcat Corporation (N.E. Chemcat). Engelhard-CLAL, a 50/50 joint venture with
Paris-based FIMALAC (formerly CLAL), was established in June 1995 for the
purpose of developing the low-cost position in manufacturing and marketing
certain precious-metal containing products. 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-metals based
products.
At December 31, 1996 and 1995, the quoted market value of the Company's
investment in N.E. Chemcat was in excess of $104 million and $130 million,
respectively. The valuation represents a mathematical calculation based on a
closing quotation published by the Tokyo over-the-counter market and is not
necessarily indicative of the amount that could be realized upon sale.
In the fourth quarter of 1996, the Company sold its investment in Heraeus
Engelhard Electrochemistry Corp. to its partner for cash, with the buyer
assuming all assets and liabilities. The Company realized an after-tax gain of
$1.5 million ($.01 per share) on the sale.
The summarized unaudited financial information below represents an
aggregation of the Company's nonsubsidiary affiliates:
Financial Information (unaudited)
(in millions) 1996 1995 1994
---- ---- ----
Earnings data
Revenue $1,739.7 $1,207.9 $348.1
Gross profit 327.9 130.8 62.0
Net earnings/(losses) (5.3) 6.2 6.4
Company's equity in net earnings/losses (5.0) .7 .6
Balance sheet data
Current assets $ 555.1 $ 573.8
Noncurrent assets 199.6 190.0
Current liabilities 212.7 240.5
Noncurrent liabilities 104.1 90.1
Net assets 437.9 433.2
Company's equity in net assets 217.4 216.1
The Company's share of undistributed earnings of affiliated companies
included in consolidated retained earnings was $36.0 million, $39.2 million and
$41.8 million at December 31, 1996, 1995 and 1994, respectively. Dividends from
affiliated companies were $2.5 million in 1996, $3.4 million in 1995 and $3.8
million in 1994.
34
10. Property, Plant and Equipment
Property, plant and equipment consist of the following:
Property, Plant and Equipment
(in millions) 1996 1995
---- ----
Land $ 38.5 $ 24.2
Buildings and building improvements 224.5 198.4
Machinery and equipment 1,140.3 1,001.5
Construction in progress 82.1 71.0
Mineral deposits and mine development 74.4 71.7
-------- --------
1,559.8 1,366.8
Accumulated depreciation, depletion
and amortization 815.1 757.3
-------- ---------
Property, plant and equipment, net $ 744.7 $ 609.5
======== =========
In May 1996, the Company acquired $81.8 million of property, plant and
equipment in connection with the acquisition of Mearl (see Note 2,
"Acquisition", on page 28). In December 1995, the Company acquired, for $57.0
million, certain properties previously operated under lease agreements. These
properties consist of land and a building that serves as the principal executive
and administrative offices of the Company and its operating businesses.
11. Short-term Borrowings and Long-term Debt
At December 31, 1996, unsecured committed revolving credit agreements included a
$300 million and Long-term Debt facility with a group of North American money
center banks and a $300 million facility with a group of major foreign banks,
both of which expire in the year 2000. Commitment fees are paid on unused
portions of these lines. The Company's credit facilities contain certain
covenants which are not considered restrictive to operations. In 1997,
management expects to replace these two credit agreements with one $600 million,
five-year facility with a group of major domestic and foreign banks at more
favorable terms.
At December 31, 1996 and 1995, short-term bank borrowings were $108.7
million and $89.2 million, respectively. Weighted-average interest rates were
5.7%, 6.0% and 6.3% during 1996, 1995 and 1994, respectively. At December 31,
1996 and 1995, commercial paper borrowings were $196.0 million and $94.0
million, respectively. Weighted -average interest rates were 5.5%, 5.8% and 6.0%
during 1996, 1995 and 1994, respectively.
Additional unused lines of credit available exceeded $800 million at
December 31, 1996. 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.
35
The following table sets forth the components of long-term debt:
Debt Information
(in millions) 1996 1995
---- ----
Notes, with a weighted-average interest rate
of 6.53%, due 2000 $100.0 $100.0
7% Notes, due 2001, net of discount 149.8 -
7.375% Notes, due 2006, net of discount 99.9 -
10% Notes, called in 1996 - 99.9
Notes acquired, with a weighted-average
interest rate of 12.0%, due 2003-2006 14.1 -
Industrial revenue bonds, 5.375%, due 2006 6.5 -
Industrial revenue bonds, 64.5% to 68.0% of
prime rate, due 1997-1999 4.5 5.5
Industrial revenue bonds, 7.91%, called in 1996 - 5.5
Foreign bank loans with a weighted-average
interest rate of 7.0%, due 1997-2000 .5 .9
------ ------
375.3 211.8
Amounts due within one year .2 .3
------ ------
Total long-term debt $375.1 $211.5
====== ======
As of December 31, 1996, the aggregate maturities of long-term debt for the
succeeding five years are as follows: $.2 million in 1997, $.3 million in 1998,
$4.5 million in 1999, $100.0 million in 2000 and $149.8 million in 2001. See
Note 14, "Financial Instruments", on pages 37 and 38 for a discussion about
interest rate swap agreements.
12. Restructuring Reserve
The Company has provided reserves for restructuring certain operations and for
costs associated with idle sites. The following table sets forth the components
of the Company's restructuring reserve and related activity:
Restructuring Reserve Employee Asset
(in millions) separations writedowns Other Total
Balance at December 31, 1993 $35.9 $72.2 $42.3 $150.4
Asset writeoffs/writedowns - (66.6) - (66.6)
Cash spending/proceeds (8.8) 1.7 (8.4) (15.5)
Reclassification - 7.5 (7.5) -
Reversal - - (8.0) (8.0)
------ ------ ------ -------
Balance at December 31, 1994 27.1 14.8 18.4 60.3
Asset writeoffs/writedowns - (7.7) - (7.7)
Cash spending (9.5) - (8.6) (18.1)
Engelhard-CLAL formation (3.9) 1.0 9.0 6.1
------ ------ ------ -------
Balance at December 31, 1995 13.7 8.1 18.8 40.6
Asset writeoffs/writedowns - (9.2) - (9.2)
Cash spending/proceeds (8.3) 3.0 (9.7) (15.0)
Other - - (1.0) (1.0)
------ ------ ------ -------
Balance at December 31, 1996 $ 5.4 $ 1.9 $ 8.1 $ 15.4
====== ====== ====== =======
36
In 1994, the Company reconfigured certain production processes at a
facility of the Pigments and Additives Group which resulted in the writeoff of
the associated assets. A facility of the Chemical Catalysts Group was impaired,
as opposed to the originally planned shutdown and relocation, resulting in a
reclassification of shutdown and relocation costs to asset writedowns. In
addition, the Company reversed $8.0 million of its restructuring reserve due to
a change in cost estimates for disposing of an idle Canadian facility (sold in
1994) and for the cleanup/disposition of its idle Newark, NJ site.
In 1995, the Company completed the formation of Engelhard-CLAL, a
Paris-based precious-metal fabrication joint venture. This transaction increased
the reserve as a result of previously anticipated precious metal and other asset
gains, partially offset by a decrease in the reserve for restructuring
activities to be performed in the joint venture.
In 1996, the Company completed the disposition of a small Chemical
Catalysts Group business which resulted in the asset writeoff.
Cash spending in all years was predominately for employee separations and
the rundown costs at idle sites.
Most of the restructuring actions have been taken. The primary remaining
action is the completion of the Floridin acquisition. The remaining provision
for employee separations provides for severance primarily for former employees
and the remaining provision in "Other" relates to rundown costs.
13. Lease Commitments
The Company rents real property and equipment under long-term operating leases.
Future minimum rental payments required under noncancellable operating leases,
having initial or remaining lease terms in excess of one year, are $2.7 million
in 1997, $2.8 million in 1998, $2.3 million in 1999, $1.6 million in 2000, $1.8
million in 2001 and $5.1 million thereafter. Rental/lease expense, including all
leases, amounted to $11.8 million in 1996, $14.2 million in 1995 and $14.5
million in 1994.
14. Financial Instruments and Precious Metals Operations
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. At December
31, 1996, the fair value of long-term debt was $380.1 million based on current
interest rates, compared with a book value of $375.3 million.
The Company's 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
consummation and an appropriate level of reserves is maintained. For the past
three-year period, provisions to these reserves were not significant. Management
believes that should a counterparty fail to perform according to the terms of an
agreement, it is unlikely that any of the Company's off-balance sheet financial
instruments would result in a significant loss to the Company.
37
Foreign Currency Instruments
There were no speculative positions in foreign currencies as of December 31,
1996 and 1995, and there were no material gains or losses from such positions
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 (see Note 7, "Metal Positions and Obligations", on
page 33 for foreign currency instruments used to hedge metal-related
transactions):
Foreign Currency Forward 1996 1995
Contracts Information (in millions) Buy Sell Buy Sell
--- ---- --- ----
Deutsche Mark $ - $5.0 $1.2 $ 3.8
Pound Sterling - - 7.7 15.5
---- ---- ---- -----
Total foreign currency
forward contracts $ - $5.0 $8.9 $19.3
==== ==== ==== =====
The Company also has a cross-currency forward contract to buy Dutch
Guilders and sell Japanese Yen to hedge an intercompany loan transaction. The
U.S. dollar value of this contract was $6.9 million at December 31, 1996. 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 in 1996,
$.1 million income in 1995 and $1.0 million expense in 1994.
Interest Rate Instruments
The Company entered into an interest rate swap agreement in 1993 to change
certain fixed rate debt into floating rate debt. The impact of this swap
contract increased interest expense by $.6 million in 1996, $1.9 million in 1995
and $.3 million in 1994.
In 1996, in connection with the $150 million 7% Notes due 2001 and the $100
million 7.375% Notes due 2006, the Company entered into ten forward starting
swaps. These swap agreements were based on amounts and maturities which
coincided with the debt agreements. These agreements were closed concurrent with
the debt issuance. The resulting impact on the weighted-average interest rate
for 1996 was not material.
15. Business Segment and Geographic Area Data
The Company operates in three business segments: Catalysts and Chemicals,
Pigments and Additives, Geographic Area Data and Engineered Materials and
Industrial Commodities Management.
The Catalysts and Chemicals segment, located principally in the United
States, Europe, the Asia-Pacific region and South Africa, provides a wide range
of solutions, based on catalysts and related performance products and processes,
to customers' problems across many different industries. The Company's solutions
are used by customers in these industries, including automotive, manufacturing
and petroleum refining, to solve problems related to quality and/or cost
efficiency, manufacturing yields and emissions.
The Pigments and Additives segment, located principally in the United
States, Finland and Japan, provides solutions, based on white, color, and
pearlescent pigments and extenders, to enhance or add new properties to our
customers' products in a wide variety of industries, including paper, paint,
plastics and rubber. The segment also provides solutions for viscosity-control
problems.
38
The Engineered Materials and Industrial Commodities Management segment,
located principally in the United States, Europe and Japan, provides solutions
based on products and coatings containing precious metals to a variety of
industrial customers. This segment also buys and sells precious metals, base
metals, energy and related products, and provides industrial commodities
products and services.
The following table presents certain data by business segment:
Business Segment Information
(in millions)
Engineered
Materials/
Industrial
Catalysts & Pigments & Commodities Corporate
Chemicals Additives Management and Other Consolidated
----------- ---------- ----------- --------- ------------
1996
Net sales $866.2 $500.8 $1,817.4 $ - $3,184.4
Operating earnings 132.5 98.9 50.4(1) - 281.8
Depreciation, depletion and amortization 32.3 34.3 2.4 5.9 74.9
Identifiable assets 652.6 793.7 576.6 472.0 2,494.9
Capital expenditures, net 71.9 42.9 6.0 7.4 128.2
1995
Net sales $725.0 $403.8 $1,711.3 $ - $2,840.1
Operating earnings 106.5 90.6 48.3 - 245.4
Depreciation, depletion and amortization 28.1 29.4 4.3 3.7 65.5
Identifiable assets 534.4 468.8 420.9 519.2 1,943.3
Capital expenditures, net 32.8 49.0 5.3 60.6 147.7
1994
Net sales $602.5 $376.0 $1,407.3 $ - $2,385.8
Operating earnings, excluding
special credit 96.9 72.0 36.8 - 205.7
Special credit - - - 8.0 8.0
Depreciation, depletion and amortization 29.5 27.6 7.0 5.0 69.1
Identifiable assets 453.5 431.6 557.9 334.8 1,777.8
Capital expenditures, net 33.8 54.0 5.2 4.5 97.5
(1) Includes a pretax gain of $5.4 million from the partial liquidation of precious metals inventories.
39
The following table presents certain data by geographic area:
Geographic Area Data
(in millions)
Net Inter-area Operating Special Identifiable
sales sales earnings credit assets
-------- ---------- --------- -------- ------------
1996
United States $1,910.9 $32.5 $232.9 $ - $1,572.0
Foreign 1,273.5 55.8 48.9 - 450.9
1995
United States $1,680.9 $31.6 $203.4 $ - $1,031.0
Foreign 1,159.2 52.3 42.0 - 393.1
1994
United States $1,568.6 $32.5 $154.7 $ 2.0 $992.4
Foreign 817.2 77.0 51.0 6.0 450.6
1996 amounts reflect the acquisition of Mearl (see Note 2, "Acquisition",
on page 28). Inter-area sales are generally based on market prices. The
Company's foreign operations are predominately based in Europe. Export sales
from the United States to customers throughout the world were $285.9 million in
1996, $265.8 million in 1995 and $237.0 million in 1994 and are included in U.S.
sales.
The following table reconciles segment operating earnings with earnings
before income taxes as shown in the Consolidated Statements of Earnings:
Reconciliation to Consolidated Statements of Earnings
(in millions)
1996 1995 1994
---- ---- ----
Operating earnings $281.8 $245.4 $213.7
Gain on sale of investment 2.4 - -
Equity earnings (losses) of affiliates (5.0) .7 .6
Interest and other expenses, net (69.2) (60.8) (57.0)
------ ------ ------
Earnings before income taxes $210.0 $185.3 $157.3
====== ====== ======
For the year ended December 31, 1996, Engelhard-CLAL, a related party and a
customer of the Engineered Materials and Industrial Commodities Management
segment, accounted for 16% of the Company's net sales. For the years ended
December 31, 1995 and 1994, an unaffiliated customer of both the Catalysts and
Chemicals and the Engineered Materials and Industrial Commodities Management
segments accounted for 11% of the Company's net sales.
16. Stock Option and Bonus Plans
The Company's Stock Option Plans of 1991 and 1981, as amended (the Key Option
Plans) generally provide for the granting to key employees of options to
purchase an aggregate of 16,875,000 and 6,834,375 common shares, respectively,
at fair market value on the date of grant. No options under the Key Option Plans
may be granted after June 30, 2001.
40
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 granting to each nonemployee 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. The effect of outstanding stock options has
been excluded from the calculation of the number of shares outstanding used to
compute earnings per share of common stock because it is not significant.
Had compensation cost for the Company's two stock plans been determined
based on the fair value at grant date for awards in 1996 and 1995 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) 1996 1995
---- ----
Net earnings - as reported $150.4 $137.5
Net earnings - pro forma 145.0 135.3
Earnings per share - as reported 1.05 .96
Earnings per share - pro forma 1.01 .94
The pro forma amounts shown above are not representative of the effects on
net income or earnings per share in future years because only options granted
after January 1, 1995 have been included in the above numbers, and the full net
income effect is recognized over the vesting period, typically four years. The
weighted-average fair value at date of grant for options granted during 1996 and
1995 was $6.17 and $7.37, respectively. Fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used for option grants in 1996 and
1995: dividend yield of 1.5%, expected volatility of 31%; risk free interest
rate of 6%; and expected lives of 5 years.
Stock option transactions under all plans are as follows:
1996 1995 1994
--------------------------- -------------------------- --------------------------
Number Option price Number Option price Number Option price
of shares per share of shares per share of shares per share
---------- ------------ --------- ------------ ---------- ------------
Outstanding at beginning of year 7,901,801 $ 5.26-19.05 7,289,925 $ 4.54-19.05 6,677,028 $ 4.54-19.05
Granted 2,006,572 19.00-23.88 2,143,845 16.83-22.38 1,382,198 14.20-19.05
Forfeited (351,168) 8.17-23.88 (121,165) 5.54-19.14 (94,958) 5.54-19.05
Exercised (369,260) 5.54-17.92 (1,410,804) 4.54-19.14 (674,343) 5.26-19.05
---------- ----------- --------- ----------- ---------- -----------
Outstanding at end of year 9,187,945 $ 5.26-23.88 7,901,801 $ 5.26-22.88 7,289,925 $ 4.54-19.05
Exercisable at end of year 4,652,411 $ 5.26-22.38 2,860,532 $ 5.26-19.05 1,933,977 $ 4.54-19.05
Available for future grants 9,320,239 10,975,643 12,998,323
41
The following table summarizes information about fixed-price options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
- -------------------------------------------------------------- --------------------------
Weighted-
average Weighted- Weighted-
Number remaining average Number average
Range of outstanding contractual exercise exercisable exercise
exercise prices at 12/31/96 life (years) price at 12/31/96 price
$ 5.26 to $ 6.69 210,544 3 $ 5.71 210,544 $ 5.71
8.17 to 9.46 473,239 5 8.40 473,239 8.40
11.45 to 15.36 1,177,468 6 15.14 1,177,468 15.14
14.70 to 19.05 1,150,259 7 18.68 984,551 18.68
14.21 to 19.05 2,235,770 8 16.19 1,287,795 16.43
16.83 to 22.38 1,994,497 9 18.81 503,190 18.73
19.00 to 23.88 1,946,168 10 21.59 15,624 23.88
--------- ------ --------- ------
9,187,945 $17.44 4,652,411 $15.55
========= ====== ========= ======
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 value is measured on the date the
award is granted. In 1996, the Company granted 174,000 shares to key employees
at a fair value of $23.88 per share.
In 1994, based on a study of incentive compensation and in response to
changing demographics, the Company revised its estimate of current compensation
expense relating to stock awards to include the cost of shares where the risk of
forfeiture by the employee has been removed. The impact of this revised estimate
was a net charge to 1994 earnings of $8.6 million ($5.3 million after tax - $.04
per share). Excluding the above change in estimate, compensation expense
relating to stock awards was $7.0 million in 1996, $7.7 million in 1995 and $8.6
million in 1994. Shares awarded, net of cancellations, are included in average
shares outstanding.
17. 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, MA, Salt Lake City, UT and Attapulgus, GA. The Company is
continuing to investigate contamination at Plainville, under a 1993 agreement
with the United States Environmental Protection Agency (EPA) and under plans
approved by the Nuclear Regulatory Commission. Investigation of the
environmental status at Salt Lake City continues under a 1993 agreement with the
Utah Solid and Hazardous Waste Control Board. An approved reclamation program at
Attapulgus, under a 1994 consent order with the Georgia Department of Natural
Resources, Environmental Protection Division, is substantially complete.
42
In addition, 16 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 many 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 liabilities for environmental cleanup related costs recorded in the
consolidated balance sheets at December 31, 1996 and 1995 were $49.6 and $54.6
million, respectively, including $6.4 million and $10.0 million, respectively,
for Superfund sites. These amounts represent those costs which the Company
believes are probable and reasonably estimable. Based on currently available
information and analysis, the Company's accrual represents approximately 75% 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.
During the past three-year period, cash payments for environmental cleanup
related matters were $7.0 million, $7.6 million and $4.5 million for 1996, 1995
and 1994, 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 (environmental testing,
permits, consultants and in-house staff) was not significant.
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 $11.0 million for 1997, all of 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, 1996 are reasonable
and adequate and that 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 operating
results or cash flows when resolved in a future reporting period.
18. Litigation and Contingencies
The Company and certain of its officers and directors are defendants in a
consolidated class action complaint pending in the U.S. District Court for the
District of New Jersey on behalf of persons who bought Engelhard stock between
April 1995 and November 1995. The complaint claims that defendants made false
43
statements and omissions and traded on nonpublic information. The Company
believes the class action to be without merit and is vigorously defending
against it.
The Company is one of a number of defendants in numerous proceedings which
allege that the plaintiffs contracted cancer and/or suffered other injuries from
exposure to talc, asbestos or other "toxic" substances purportedly supplied by
the Company and other defendants. The Company is also subject to a number of
environmental contingencies (see Note 17, "Environmental Costs", on pages 42 and
43) 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 the estimates,
could have a material adverse effect on the operating results or cash flows when
resolved in a future reporting period.
In January 1995, the Company received a civil investigative demand to
produce documents and answer interrogatories in connection with an investigation
by the Antitrust Division of the U.S. Department of Justice into "price
coordination and market allocation by kaolin producers". The Company has
responded to this demand and subsequent requests for documents.
In July 1996, the Securities and Exchange Commission ("Commission") issued
a formal order of investigation concerning the sales of Engelhard stock by the
Company's officers and directors during 1995. Subpoenas for documents and
witness testimony were issued by the Commission. In response, the Company has
provided documents to the Commission and witnesses have been examined by the
Commission staff.
19. Supplemental Information
The following table presents certain supplementary information to the
Consolidated Statements of Cash Flows:
Supplementary Cash Flow Information
(in millions) 1996 1995 1994
---- ---- ----
Cash paid during the year for
Interest, net of capitalized amounts
and contango $ 34.2 $ 29.1 $ 24.2
Income taxes 41.3 21.9 22.1
Change in assets and liabilities-source (use)
Receivables $ (82.1) $ 22.5 $ (27.5)
Committed metal positions (64.8) (33.1) (113.1)
Inventories (33.2) (29.9) (20.2)
Other current assets (7.5) 8.2 6.0
Other noncurrent assets .2 (17.2) (27.2)
Accounts payable 2.7 (3.4) 42.5
Accrued liabilities (23.5) (6.7) (19.4)
Noncurrent liabilities 2.5 (12.3) (7.3)
-------- ------- -------
Net change in assets and liabilities $(205.7) $(71.9) $(166.2)
======== ======= ========
44
The following table presents certain supplementary information to the
Consolidated Balance Sheets:
Supplementary Balance Sheet Information
(in millions) 1996 1995
---- ----
Payroll-related accruals $ 37.7 $ 34.3
Accrued interest payable 14.5 7.1
Restructuring reserve 13.5 32.5
Deferred income 11.2 6.9
Environmental reserve 11.0 10.0
Other 109.9 119.1
------ ------
Other current liabilities $197.8 $209.9
====== ======
45
Report 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, 1996 and 1995, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of Engelhard
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 6, 1997
46
Selected Quarterly Financial Data (unaudited)
First Second Third Fourth
(in millions, except per share amounts) quarter quarter quarter quarter
------- ------- ------- -------
1996
Net sales $774.7 $783.9 $800.9 $824.9
Gross profit 109.8 128.1 124.1 151.1
Earnings before income taxes 45.5 56.0 49.0 59.5
Net earnings 32.6 40.0 35.0 42.8
Net earnings per share .23 .28 .24 .30
1995
Net sales $694.5 $721.1 $724.6 $699.9
Gross profit 112.0 125.8 110.5 112.3
Earnings before income taxes 37.8 50.3 48.9 48.3
Net earnings 27.6 36.7 37.0 36.2
Net earnings per share* .19 .26 .26 .25
Results in the second quarter of 1996 include a gain of $9.2 million ($5.7 million after tax or $.04 per
share) from an insurance recovery partially offset by a provision of $7.0 million ($4.3 million after tax or $.03
per share) for costs related to certain existing legal proceedings. Results in the fourth quarter of 1996 include a
gain of $5.4 million ($3.3 million after tax or $.02 per share) on the sale of LIFO inventories and a gain of $2.4
million ($1.5 million after tax or $.01 per share) on the sale of an investment. These fourth quarter gains were
partially offset by a restructuring reserve of $2.5 million after tax ($.02 per share) related to the Company's
investment in Engelhard-CLAL, and a charge of $2.6 million ($1.6 million after tax or $.01 per share) for a
revaluation of petroleum catalyst inventories.
Earnings per share amounts are calculated independently for each of the quarters presented. The sum of the
quarters may not equal the full year earnings per share amounts.
* Reflects a three-for-two stock split as of June 30, 1995.
Changes in and Disagreements with
Item 9. Accountants on Accounting and Financial Disclosure
- ------ --------------------------------------------------
Not applicable.
47
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" and "Information with Respect to Nominees and
Directors Whose Terms Continue" on pages 3 through 6 of the Proxy Statement for
the 1997 Annual Meeting of Shareholders and is incorporated herein by reference.
(b) Executive Officers -
MARTIN J. CONNOR, JR. Age 64. Controller of the Company from prior to
1992.
ARTHUR A. DORNBUSCH, II Age 53. Vice President, General Counsel and
Secretary of the Company from prior to 1992.
WILLIAM M. DUGLE Age 54. Vice President, Human Resources of the
Company from prior to 1992.
JOSEPH E. GONNELLA Age 50. Senior Vice President, Strategy and
Corporate Development effective February 1, 1997.
Group Vice President and General Manager of the
Environmental Technologies Group from August 1994
to January 1997. Business Director of the Mobile
Source business from August 1992 to July 1994.
President of the Automotive Products Group of
Amcast prior thereto.
L. DONALD LATORRE * Age 59. President and Chief Operating Officer of
the Company since January 1995. Senior Vice
President and Chief Operating Officer of the
Company prior thereto. Mr. LaTorre has announced
his intention to retire from the Company effective
April 1, 1997. Mr. LaTorre is also a director of
Harnischfeger Industries.
WILLIAM E. NETTLES Age 53. Vice President and Chief Financial
Officer since May 1995. Group Vice President
and General Manager of Chemical Catalysts from
July 1992 to January 1995. Group Vice
President and General Manager of Specialty
Minerals and Colors prior thereto.
BARRY W. PERRY Age 50. President and Chief Operating Officer
effective February 1, 1997. Group Vice President
and General Manager of the Pigments and Additives
Group from August 1993 to January 1997. Group
Vice President and General Manager of the Latex &
Specialty Polymers Division of Rhone-Poulenc prior
thereto.
* Also a director of the Company
48
ROBERT J. SCHAFFHAUSER Age 58. Vice President and Chief Technical Officer
effective February 1, 1997. Vice President,
Technology and Corporate Development from January
1995 to January 1997. Vice President, Corporate
Development prior thereto.
ORIN R. SMITH * Age 61. Chairman and Chief Executive Officer of
the Company since January 1995. President and
Chief Executive Officer of the Company prior
thereto. Mr. Smith is also a director of
Ingersoll-Rand Company, The Louisiana Land and
Exploration Company, Minorco, Perkin-Elmer
Corporation, Summit Bancorp and Vulcan Materials
Company.
MICHAEL A. SPERDUTO Age 39. Treasurer of the Company since January
1993. Vice President of Finance of the Industrial
Commodities Management Group prior thereto.
* Also a director of the Company
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 caption
"Executive Compensation and Other Information" on pages 11 through 23 of the
Proxy Statement for the 1997 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" on pages 2 through
3 and page 7, respectively, of the Proxy Statement for the 1997 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 captions
"Information as to Certain Shareholders", "Information with Respect to Nominees
and Directors Whose Terms Continue", "Share Ownership of Directors and Officers"
and "Compensation Committee Interlocks, Insider Participation and Certain
Transactions" on pages 2 through 7 and page 10, respectively, of the Proxy
Statement for the 1997 Annual Meeting of Shareholders and is incorporated herein
by reference.
49
PART IV
Exhibits, Financial Statement
Item 14. Schedules and Reports on Form 8-K
- ------- ---------------------------------
Pages
-----
(a) (1) Financial Statements and Schedules
Report of Independent Accountants 46
Consolidated Statements of Earnings for each of the 22
three years in the period ended December 31, 1996
Consolidated Balance Sheets at December 31, 1996 and 1995 23
Consolidated Statements of Cash Flows for each of the 24
three years in the period ended December 31, 1996
Consolidated Statements of Shareholders' Equity for each 25
of the three years in the period ended December 31, 1996
Notes to Consolidated Financial Statements 26-45
(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 Statement on pages 26-45
on this Form 10-K.
(b) In a report on Form 8-K filed with the Securities and Exchange *
Commission on June 7, 1996, the Company reported the
acquisition of the Mearl Corporation
In a report on Form 8-K/A filed with the Securities and *
Exchange Commission on July 12, 1996, the Company amended the
Form 8-K filed with the Securities and Exchange Commission on
June 7, 1996 to include the financial statements required
under items 7(a) and 7(b).
* Incorporated by reference as indicated.
50
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) By-laws of the Company as amended September 17, 1981 *
(incorporated by reference to Form 10-Q for the
quarter ended September 30, 1981).
(3) (c) 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).
(3) (d) Article XVII of the Registrant's By-laws as amended *
on May 2, 1988 (incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on
May 21, 1988).
(3) (e) 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) (f) 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).
(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) Engelhard Corporation Stock Option Plan of 1981 *
Restated as of December 13, 1989 - conformed copy
includes amendments through February 1995
(incorporated by reference to Form 10-K filed
with the Securities and Exchange Commission on
March 22, 1996).
(10)(c) 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.
51
Exhibits Page
- -------- ----
(10)(d) 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) (incorporated by reference to Form
10-K filed with the Securities and Exchange
Commission on March 22, 1996).
(10)(e) 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)(f) 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)(g) 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)(h) 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)(i) 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)(j) 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).
(10)(k) Engelhard Corporation Stock Option Plan of 1991 - *
conformed copy includes amendments through
February 1995 (incorporated by reference to the
1995 definitive Proxy Statement filed with the
Securities and Exchange Commission on March 31, 1995).
* Incorporated by reference as indicated.
52
Exhibits Pages
- -------- -----
(10)(l) 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)(m) Form of Agreement With Key Employees in the *
Event of an Acquisition of a Control Interest in
the Company, dated November 2, 1995 (incorporated by
reference to Form 10-K filed with the Securities and
Exchange Commission on March 22, 1996).
(10)(n) 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)(o) 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)(p) Form of Employee Agreement with Orin R. Smith, Chairman 56-72
and Chief Executive Officer of the Company, dated
October 3, 1996.
(10)(q) Amendment to the Supplemental Retirement Program of 73-74
Engelhard Corporation adopted December 19, 1996.
(12) Computation of Ratio of Earnings to Fixed Charges 75-76
(21) Subsidiaries of the Registrant 77-79
(23) Consent of Independent Accountants 80-81
(24) Powers of Attorney 82-92
(99)(a) Annual Report on Form 11-K of the Salary 93-117
Deferral Savings Plan of Engelhard Corporation
for each of the three years in the period
ended December 31, 1996.
(b) Annual Report on Form 11-K of the Engelhard 118-135
Corporation Savings Plan for Hourly Paid Employees
for each of the three years in the period ended
December 31, 1996.
* Incorporated by reference as indicated.
53
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 27th day of March 1997.
Engelhard Corporation
---------------------
Registrant
/s/Orin R. Smith
---------------------
Orin R. Smith
(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/Orin R. Smith Chairman and Chief Executive March 27, 1997
- ---------------------- Officer & Director
Orin R. Smith (Principal Executive Officer)
/s/William E. Nettles Vice President and March 27, 1997
- ---------------------- Chief Financial Officer
William E. Nettles (Principal Financial Officer)
/s/Martin J. Connor, Jr. Controller March 27, 1997
- --------------------------- (Principal Accounting Officer)
Martin J. Connor, Jr.
54
* Director March 27, 1997
- ---------------------------
Linda G. Alvarado
* Director March 27, 1997
- ---------------------------
Marion H. Antonini
* Director March 27, 1997
- ---------------------------
L. Donald LaTorre
* Director March 27, 1997
- --------------------------
Anthony W. Lea
* Director March 27, 1997
- --------------------------
James V. Napier
* Director March 27, 1997
- -------------------------
Norma T. Pace
* Director March 27, 1997
- -------------------------
Reuben F. Richards
* Director March 27, 1997
- -------------------------
Henry R. Slack
* Director March 27, 1997
- -------------------------
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 25.
/s/Arthur A. Dornbusch, II March 27, 1997
- -------------------------------
Arthur A. Dornbusch, II
55
EXHIBIT 10(q):
EMPLOYEE AGREEMENT WITH
ORIN R. SMITH
-----------------------
56
EMPLOYMENT AGREEMENT
It is mutually agreed between Engelhard Corporation, a Delaware corporation
with its principal offices at 101 Wood Avenue, Iselin, New Jersey 08830-0770
(hereinafter referred to as the "Company"), and Orin R. Smith, an individual
residing at Middlebrook P.O. Box 631 Oldwick, N.J. 08858 (hereinafter referred
to as the "Employee"), as follows:
1. Upon the terms and conditions of this Agreement, the Company shall employ
the Employee and the Employee shall continue in the employ of the Company
for the three-year period commencing May 21, 1996 and ending May 20, 1999
(hereinafter referred to as the "Employment Period"). Commencing on May 20,
1997, and on each May 20th thereafter, the Employment Period shall
automatically be extended for another calendar year unless notice of the
Company's intention not to so extend the Employment Period shall have been
given to the Employee in writing no later than December 31st of the
preceding year; provided, however, that the Employment Period shall not
extend beyond August 31, 2000.
2. The employment shall be as Chairman and Chief Executive Officer of the
Company and for such other and further assignments and responsibilities of
comparable status as the Board of Directors of the Company may direct. The
Employee shall diligently and faithfully devote his full working time
exclusively and his best efforts to the performance of the work and
services under this Agreement and to the furtherance of the best interests
of the Company, subject to the authority and direction of the Board of
Directors of the Company; provided, however, that the Employee may, without
prior approval of the Board of Directors of the Company, (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions, and
(iii) manage his personal investments, so long as such activities do not
interfere materially with his responsibilities under this Agreement.
3. (a) In addition to the Employee's obligations under Paragraph 2 above, the
Employee, during the Employment Period, and for a period of two years
succeeding, will not (on his own behalf, either as an officer,
shareholder, partner, employee or otherwise, or on behalf of any
significant competitor of the Company), in any manner, directly or
indirectly without the express prior written consent of the Company,
or except on behalf of the Company, engage in any activity, accept
employment with, render any service in any capacity to or have any
interest in (including investments in the equity securities of) any
business or enterprise or other activity (x) which will conflict with
the significant interests of the Company or its business or (y) which
is a significant competitor of or in significant competition with the
Company; provided, however, that the Employee may acquire or hold
(beneficially and of record) up to, but not more than, 1% of the
equity securities of any such significant competitor or entity without
the consent of the Company if such equity securities are listed on the
New York Stock Exchange or the American Stock Exchange or are quoted
on NASDAQ.
(b) The Employee will not in bad faith in any manner, at any time during
the Employment Period, directly or indirectly, affect to the Company's
detriment any relationship of the Company or any affiliate with any
customer, supplier or employee of the Company or any affiliate, or
cause any customer or supplier to refrain from entrusting additional
business to the Company or any affiliate.
57
(c) The Employee will not in any manner, at any time during the Employment
Period, directly or indirectly, without the express prior written
consent of the Company, disclose or use (x) any material confidential
information, it being understood that the term "confidential" shall
mean all information concerning the Company or any affiliate or
customer or supplier or other business associate of the Company or any
affiliate (including but not limited to any trade secrets or other
private matters), which has been or is received by the Employee from
the Company or any affiliate or customer or supplier or other business
associate of the Company or any affiliate and which is not known or
generally available to the general public or of a type which the
Company has customarily made available to the general public and has
not kept confidential, and (y) any idea which the Employee may
conceive during the Employment Period, whether such idea is conceived
individually or jointly, on or off Company premises or during or after
working time, and which relates to the Company's services to its
customers or suppliers or other business associates, the Employee
hereby acknowledging that any such idea shall be the exclusive
property of the Company.
(d) The Employee agrees that the remedy at law for any breach of any of
the foregoing provisions of this Paragraph 3 will be inadequate and
that the Company, in addition to any remedy at law, shall be entitled
to injunctive relief in the case of any such breach.
(e) Provided that the Company shall be in compliance in all material
respects with its obligations hereunder, the foregoing obligations of
the Employee under this Paragraph 3 shall survive a termination, for
any reason, of the Employee's employment prior to the end of the
Employment Period, and shall remain in full force and effect until the
end of the Employment Period (and two years following the end of the
Employment Period in the case of the obligations set forth in
Paragraph 3(a)).
4. As consideration for the obligations incurred by the Employee under
this Agreement and for the services to be rendered by the Employee under
this Agreement, the Company shall pay to the Employee during the Employment
Period (except as otherwise provided in this Agreement) compensation as
follows:
(a) The Company shall pay to the Employee a salary at an annual rate of
not less than $775,000 payable in periodic installments on the
Company's regular payroll dates.
(b) Additionally, in each year during the Employment Period the Employee
shall be entitled to participate in and receive cash bonus, equity
pool and stock option awards pursuant to the Company's Incentive
Compensation Plan, stock option plan and other equity-based
compensation plans as determined by the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee"); provided,
however, that for each calendar year included in the Employment Period
(beginning with calendar year 1996) the Employee shall receive awards
no less than the following: (i) if the Company's performance for the
year is less than a predictable level of performance, as determined by
the Compensation Committee, cash bonus of at least $216,645 and an
award of at least 22,500 shares of Common Stock of the Company; and
(ii) if the Company's performance for the year is greater than or
equal to a predictable level of performance, as determined by the
Compensation Committee, (x) cash bonus of at least $581,250, (y)
equity pool share awards with a value of at least $484,375 and (z)
58
stock option awards with a value of at least $1,162,500. For this
purpose, equity pool and stock option awards for a year will be valued
in the manner established by the Compensation Committee for valuing
such awards for other executives for such year. The minimum cash bonus
and other awards set forth in this Paragraph 4(b) shall be prorated on
a daily basis for any calendar year during which the Employee is not
employed by the Company for the entire year and the Company's
performance for such partial year shall be deemed to be the greater
of: (i) the performance of the Company during the immediately
preceding calendar year; or (ii) the projected level of performance at
the time of termination, as set forth in the most recent Monthly
Report to Directors. Cash bonuses for a calendar year shall be
disbursed (subject to any election by the Employee to defer payment
pursuant to an applicable deferred compensation plan maintained by the
Company) at the customary time for payment (generally during the first
quarter of the calendar year immediately subsequent to the year in
which earned). Equity pool, stock option and share awards for a
calendar year shall be made at the customary time for such awards
(generally before the end of the first quarter of the calendar year
immediately subsequent to the year for which earned), except that such
awards may be made earlier if deemed necessary or desirable by the
Compensation Committee.
(c) The Employee shall be provided with the perquisites and privileges
commensurate with his position as Chairman and Chief Executive Officer
of the Company.
(d) The Employee shall be entitled to participate in the benefit plans of
the Company, including the pension plan, supplemental pension plan,
savings plan, deferred compensation plan and insurance and medical
plans as the Company may from time to time provide generally for its
executive officers.
(e) The foregoing enumeration of certain types and amounts of compensation
shall not be construed to affect the Company's right to pay additional
compensation as the Company in its discretion may determine. To the
extent that the Company's performance exceeds a predictable level, as
determined by the Compensation Committee, compensation paid to the
Employee hereunder for a year shall be no less than the compensation
otherwise determined under the applicable Company compensation plans
as administered by the Compensation Committee.
(f) If the Employee desires to defer payment of any portion of his minimum
cash bonus provided for in Paragraph 4(b) above, the Employee shall be
required to make such a deferral election in respect of such amount of
the cash bonus on or prior to the December 31 immediately preceding
the year for which the bonus is earned.
5. The employment of the Employee shall terminate prior to the expiration of
the Employment Period in the event that the Employee (i) dies, (ii) becomes
permanently and totally disabled, (iii) retires at any normal retirement
age or early retirement age pursuant to the Retirement Income Plan for
Salaried Employees of the Company, or (iv) breaches this Agreement and the
Company terminates his employment for such breach. In the event of any such
termination other than a termination described in (i) or (ii) above, the
Company's obligation to pay further salary as provided in Paragraph 4(a),
or to pay additional bonuses or make equity pool, stock option or share
awards as provided in Paragraph 4(b), shall cease. In the event of
termination due to death or permanent and total disability, the Employee
(or in the case of his death, his estate or beneficiary) shall be entitled
59
to receive an amount equal to 70% of the total annual compensation that
would otherwise be payable under Paragraph 4 hereof during the remaining
term of this Agreement at the time such amounts would have been paid had
the employment of the Employee continued for the full term of the
Agreement; provided, however, that in lieu of stock option, restricted
stock or other equity-based awards the Employee shall receive the cash
value of such awards at the time the awards would have been granted, which
stock option values shall be determined based on the Black-Scholes option
pricing model and restricted stock values shall be based on the
undiscounted closing trading price of Company shares on the New York Stock
Exchange on the date of grant. Notwithstanding any such termination of
employment prior to the expiration of the Employment Period, the terms and
conditions of this Agreement, including, without limitation, the Employee's
obligations set forth in Paragraphs 3 and 6 of this Agreement, shall
continue in force and effect except as otherwise provided herein.
6. In the event of termination of employment other than for reason of the
Employee's death or permanent and total disability, the Employee shall when
requested, and against payment of expenses, by the Company make himself
available as a consultant to consult with and supply information to and
generally cooperate with the Company during the remainder of the Employment
Period, all for reasonable periods of time and on reasonable notice not
inconsistent with the Employee's engaging in other full time employment not
itself inconsistent with the terms of this Agreement.
7. (a) This Agreement shall be deemed to be made under and construed in
accordance with the laws of the State of New Jersey.
(b) This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and shall be binding upon the Employee, his
heirs, executors and administrators.
(c) As used in this Agreement, the term "affiliate" means any entity
controlled by, controlling or under common control with the Company.
Ownership, directly or indirectly, of more than 50% of the voting
securities of any corporation shall, in any event, constitute control
for the purposes of this Agreement.
(d) Except as provided in the following sentence, this Agreement
constitutes and expresses the whole agreement of the parties in
reference to any employment of the Employee by the Company and
supersedes all prior understandings, written or oral, between the
Employee and the Company relating to the subject matter hereof,
including the employment agreement between the Company and the
Employee dated May 21, 1986. This Agreement does not supersede the
Change in Control Agreement between the Company and the Employee dated
as of October 3, 1996 (the "Change in Control Agreement"); provided,
however, that amounts receivable under Paragraph 4 hereof upon breach
of this Agreement by the Company will be reduced (but not below zero)
by amounts received by the Employee under Section 3 of the Change in
Control Agreement. Upon the occurrence of a "change in control" as
defined in the Company's Articles of Incorporation and/or the Change
in Control Agreement, the Employee shall have the right solely at his
option to call for early termination of this Agreement. Upon such
demand, the Employee shall immediately be paid in cash the
undiscounted cash value of base salary, bonus and equity-based
compensation that would have been paid if the Employee had performed
hereunder through August 31, 2000 computed as if the Company had
achieved results in each year remaining in the term equal to its
60
highest performance in any of the three immediately preceding years;
provided, however, that the cash value of stock options, restricted
stock awards and other equity-based awards shall be the undiscounted
value of such awards at the time the awards would have been granted
determined, in the case of stock options, based on the Black-Scholes
option pricing model and in the case of restricted stock on the
undiscounted closing trading price of Company shares on the New York
Stock Exchange on the date of grant; provided further, however, that
amounts receivable under Paragraph 4 hereof upon breach of this
Agreement by the Company will be reduced (but not below zero) by
amounts received by the Employee under Section 3 of the Change in
Control Agreement.
(e) This Agreement may not be amended, modified or supplemented except by
a writing signed by both of the parties hereto which expressly states
it is being made pursuant to this Paragraph 7(e).
(f) In case any one or more of the covenants, agreements, provisions or
terms contained in this Agreement shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants,
agreements, provisions or terms contained herein shall be in no way
affected, prejudiced or disturbed thereby.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the 3rd
day of October, 1996.
ENGELHARD CORPORATION
By: /s/Orin R. Smith
--------------------
Orin R. Smith
61
CHANGE IN CONTROL AGREEMENT
Agreement, made this 3rd day of October, 1996, by and between ENGELHARD
CORPORATION, a Delaware corporation (the "Company"), and Orin R. Smith (the
"Executive").
WHEREAS, the Executive is a key employee of the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") considers the
maintenance of a sound management to be essential to protecting and enhancing
the best interests of the Company and its stockholders and recognizes that the
possibility of a change in control raises uncertainty and questions among key
employees and may result in the departure or distraction of such key employees
to the detriment of the Company and its stockholders; and
WHEREAS, the Board wishes to assure that it will have the continued
dedication of the Executive and the availability of his advice and counsel,
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company; and
WHEREAS, the Executive is willing to continue to serve the Company taking
into account the provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoinq, and the respective
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. Potential Change in Control; Change in Control. Benefits shall be provided
hereunder only in the event there shall have occurred a "Potential Change
in Control" or "Change in Control," as such terms are defined below, and
the Executive's employment by the Company shall thereafter have terminated
in accordance with Section 2 below within the period beginning on the date
of the "Potential Change in Control" or "Change in Control" and ending on
the third anniversary of the date on which a "Change in Control" occurs
(the "Protection Period"); provided, however, that if the Protection Period
begins by reason of a "Potential Change in Control," and the Board
determines in good faith that a "Change in Control" is unlikely to occur,
such Protection Period shall end on the date of adoption of a resolution by
the Board to that effect. If any Protection Period terminates without the
Executive's employment having terminated, any "Potential Change in Control"
or "Change in Control" subsequent to such termination shall give rise to a
new Protection Period. No benefits shall be paid under this Agreement if
the Executive's employment terminates outside of a Protection Period.
(i) For purposes of this Agreement, a "Potential Change in Control" shall
be deemed to have occurred if:
(A) the Company enters into an agreement the consummation of which,
or the approval by shareholders of which, would constitute a
Change in Control;
(B) proxies for the election of directors are solicited by anyone
other than the Company;
(C) any Person (as defined below) publicly announces an intention to
take or to consider taking actions which, if consummated, would
constitute a Change in Control; or
62
(D) any other event occurs which is deemed to be a Potential Change
in Control by the Board and the Board adopts a resolution to the
effect that a Potential Change in Control has occurred.
(ii) For purposes of this Agreement, a "Change in Control" shall mean:
(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
63
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
(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.
2. Termination Following Change in Control. The Executive shall be entitled to
the benefits provided in Section 3 hereof upon any termination of his
employment with the Company within a Protection Period, except a
termination of employment (a) because of his death, (b) because of a
"Disability," (c) by the Company for "Cause," or (d) by the Executive other
than for "Good Reason."
(i) Disability. The Executive's employment shall be deemed to have
terminated because of a "Disability" if the Executive applies for and
is determined to be eligible to receive disability benefits under the
Company's Long-Term Disability Plan.
(ii) Cause. Termination of the Executive's employment by the Company for
"Cause" shall mean termination by reason of the Executive's willful
engagement in conduct which involves dishonesty or moral turpitude in
connection with his employment and which is demonstrably and
materially injurious to the financial condition or reputation of the
Company. An act or omission shall he deemed "willful" only if done, or
omitted to be done, in bad faith and without reasonable belief that it
was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to the
Executive a written notice of termination from the Compensation
Committee (the "Committee") after reasonable notice to the Executive
and an opportunity for him, together with his counsel, to be heard
before the Committee, finding that, in the good faith opinion of such
Committee, he was guilty of conduct set forth above in the first
sentence of this subsection (ii) and specifying the particulars in
detail.
64
(iii) Without Cause. The Company may terminate the employment of the
Executive without Cause during a Protection Period only by giving the
Executive written notice of termination to that effect. In that event,
the Executive's employment shall terminate on the last day of the
month in which such notice is given (or such later date as may be
specified in such notice), and the benefits set forth in Section 3
hereof shall be provided to the Executive.
(iv) Good Reason. Termination of employment by the Executive for "Good
Reason" shall mean termination:
(A) within a Protection Period, if there has occurred a
reduction by the Company in the Executive's base salary in
effect immediately before the beginning of the Protection
Period or as increased from time to time thereafter;
(B) within a Protection Period, and without the Executive's
written consent, if the Company has required the Executive
to be relocated anywhere in excess of thirty-five (35) miles
from his office location immediately before the beginning of
the Protection Period, except for required travel on the
business of the Company to an extent substantially
consistent with the Executive's business travel obligations
immediately before the beginning of the Protection Period;
(C) within a Protection Period, if there has occurred a failure
by the Company to maintain plans providing benefits at least
as beneficial as those provided by any benefit or
compensation plan (including, without limitation, any
incentive compensation plan, bonus plan or program,
retirement, pension or savings plan, stock option plan,
restricted stock plan, life insurance plan, health and
dental plan and disability plan) in which the Executive is
participating immediately before the beginning of the
Protection Period, or if the Company has taken any action
which would adversely affect the Executive participation in
or reduce the Executive's benefits under any of such plans
or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the
Protection Period, or if the Company has failed to provide
the Executive with the number of paid vacation days to which
he would be entitled in accordance with the normal vacations
policy of the Company as in effect immediately before the
beginning of the Protection Period; provided, however, that
a reduction in benefits under the Company's tax-qualified
retirement, pension or savings plans or its life insurance
plan, health and dental plan, disability plans or other
insurance plans which reduction applies equally to all
participants in the plans and has a de minimis effect on the
Executive shall not constitute "Good Reason" for termination
by the Executive;
(D) within a Protection Period, if the Company has reduced in
any manner which the Executive considers important the
Executive's title, job authorities or responsibilities
immediately before the beginning of the Protection Period;
(E) within a Protection Period, if the Company has failed to
obtain the assumption of the obligations contained in this
Agreement by any successor as contemplated in Section 8(c)
hereof; or
65
(F) within a Protection Period, if there occurs any purported
termination of the Executive's employment by the Company
which is not effected pursuant to a written notice of
termination as described in subsection (ii) or (iii) above.
The Executive shall exercise his right to terminate his employment for Good
Reason by giving the Company a written notice of termination specifying in
reasonable detail the circumstances constituting such Good Reason. In that
event, the Executive's employment shall terminate on the last day of the month
in which such notice is given.
A termination of employment by the Executive within a Protection Period
shall be for Good Reason if one of the occurrences specified in this subsection
(iv) shall have occurred, notwithstanding that the Executive may have other
reasons for terminating employment, including employment by another employer
which the Executive desires to accept. For purposes of this subsection (iv), any
good faith determination of "Good Reason" made by the Executive shall be
conclusive.
3. Benefits Upon Termination Within Protection Period. If, within a Protection
Period, the Executive's employment by the Company shall be terminated (a)
by the Company other than for Cause or because of a Disability, or (b) by
the Executive for Good Reason, the Executive shall be entitled to the
benefits provided for below:
(i) The Company shall pay to the Executive through the date of the
Executive's termination of employment salary at the rate then in
effect, together with salary in lieu of vacation accrued to the date
on which his employment terminates, in accordance with the standard
payroll practices of the Company;
(ii) The Company shall pay to the Executive an amount equal to the product
of (A) the total incentive pool under the Company's Incentive
Compensation Plan (the "Incentive Plan") for the Executive for the
calendar year that includes the date of the Change in Control,
determined based on the Executive's annual base salary in effect at
the time of the Change in Control, the Executive's "Pool Development
Factors" (i.e., cash bonus factor, equity pool factor and stock
options factor) under the Incentive Plan for the year that includes
the date of the Change in Control, and the highest "Performance
Multiplier" attributable solely to Company performance under the
Incentive Plan for each Pool Development Factor in respect of any of
the 3 calendar years immediately preceding the calendar year that
includes the date of the Change in Control (or if less than 3 full
calendar years have elapsed since December 31, 1994, the number of
full calendar years that have elapsed since that date), multiplied by
(B) a fraction, the numerator of which is the number of days elapsed
in the calendar year through the date of termination of the
Executive's employment, and the denominator of which is 365; and such
payment shall be made in a lump sum within 10 business days after the
date of such termination of employment;
(iii) The Company shall pay to the Executive an amount equal to the sum of
(A) his highest annual salary in effect during any of the 36 months
immediately preceding his date of termination of employment, and (B)
the total incentive pool under the Incentive Plan for the Executive
for the calendar year that includes the date of the Change in Control,
determined based on the Executive's annual base salary in effect at
the time of the Change in Control, the Executive's "Pool Development
66
Factors" (i.e., cash bonus factor, equity pool factor and stock
options factor) under the Incentive Plan for the year that includes
the date of the Change in Control, and the highest "Performance
Multiplier" attributable solely to Company performance under the
Incentive Plan for each Pool Development Factor in respect of any of
the 3 calendar years immediately preceding the calendar year that
includes the date of the Change in Control (or if less than 3 full
calendar years have elapsed since December 31, 1994, the number of
full calendar years that have elapsed since that date); and such
payment shall be made in a lump sum within 10 business days after the
date of such termination of employment;
(iv) The Company shall continue to cover the Executive and his dependents
under, or provide the Executive and his dependents with insurance
coverage no less favorable than, the Company's life, disability,
health, dental or other emp1oyee welfare benefit plans or programs (as
in effect on the day immediately preceding the Protection Period or,
at the option of the Executive, on the date of termination of his
employment) for a period equal to the lesser of (x) one year following
the date of termination or (y) until the Executive is provided by
another employer with benefits substantially comparable to the
benefits provided by such plans or programs; and
(v) Following the Executive's termination of employment, the Company shall
treat the Executive as if he had continued participation and benefit
accruals under the Company's Supplemental Retirement Program or a
successor plan (as in effect on the date immediately preceding the
Protection Period) for one year following the date of termination, or
the Company shall provide an equivalent benefit outside such plan with
the result that an additional year of age and service shall be granted
to the Executive.
4. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, practices, policies or programs provided by
the Company or any of its subsidiaries and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option or other agreements with the
Company or any of its subsidiaries. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan,
practice, policy or program of the Company or any of its subsidiaries at or
subsequent to the date of termination of the Executive's employment shall be
payable in accordance with such plan, practice, policy or program.
5. Full-Settlement; Legal Expenses. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement. The Company agrees to pay, upon written demand
therefor by the Executive, all legal fees and expenses which the Executive
may reasonably incur as a result of any dispute or contest (regardless of
the outcome thereof) by or with the Company or others regarding the validity
or enforceability of, or liability under, any provision of this Agreement
(including as a result of any contest by the Executive about the amount of
any payment hereunder), plus in each case interest at the applicable Federal
rate provided for in Section 7872(f)(2) of the Internal Revenue Code of
67
1986, as amended (the "Code"). In any such action brought by the Executive
for damages or to enforce any provisions of this Agreement, he shall be
entitled to seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's obligations
hereunder, in his sole discretion.
6. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution made, or benefit provided (including, without
limitation, the acceleration of any payment, distribution or
benefit), by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 6) (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the
Code (or any similar excise tax) or any interest or
penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes
(including any Excise Tax) imposed upon the Gross-Up Payment
and any interest or penalties imposed with respect to such
taxes, the Executive retains from the Gross-Up Payment an
amount equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 6(c), all
determinations required to be made under this Section 6,
including determination of whether a Gross-Up Payment is
required and of the amount of any such Gross-up Payment,
shall be made by Coopers & Lybrand (the "Accounting Firm"),
which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the
date of termination of the Executive's employment, if
applicable, or such earlier time as is requested by the
Company, provided that any determination that an Excise Tax
is payable by the Executive shall be made on the basis of
substantial authority. The initial Gross-Up Payment, if any,
as determined pursuant to this Section 6(b), shall be paid
to the Executive within five business days of the receipt of
the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive,
it shall furnish the Executive with a written opinion that
he has substantial authority not to report any Excise Tax on
his Federal income tax return. Any determination by the
Accounting Firm meeting the requirements of this Section
6(b) shall be binding upon the Company and the Executive;
subject only to payments pursuant to the following sentence
based on a determination that additional Gross-Up Payments
should have been made, consistent with the calculations
required to be made hereunder (the amount of such additional
payments is referred to herein as the "Gross-Up
Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 6(c) and the Executive
thereafter is required to make a payment of any Excise Tax,
68
the Accounting Firm shall determine the amount of the
Gross-Up Underpayment that has occurred and any such
Gross-Up Underpayment shall be promptly paid by the Company
to or for the benefit of the Executive. The fees and
disbursements of the Accounting Firm shall be paid by the
Company.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of a Gross-Up
Payment. Such notification shall be given as soon as
practicable but not later than ten business days after the
Executive receives written notice of such claim and shall
apprise the Company of the nature of such claim and the date
on which such Claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim and that it will bear the costs and provide the
indemnification as required by this sentence, the Executive
shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 6(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto, imposed with respect
69
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to the payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 6(c), the Executive
becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's
complying with the requirements of Section 6(c)) promptly
pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 6(c), a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then any
obligation of the Executive to repay such advance shall be
forgiven and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
7. Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries, and
their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its subsidiaries
and which shall not be or become public knowledge (other than by acts of the
Executive or his representatives in violation of this Agreement). After the
date of termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the Company,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 7 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
8. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives or successor(s) in interest.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise)
to a11 or substantially all of the business and/or assets of
70
the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such
succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by
operation of law or otherwise.
9. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Orin R. Smith
"Middlebrook"
P.O. Box 631
Oldwick, NJ 08858-0631
If to the Company:
------------------
Engelhard Corporation
101 Wood Avenue
Iselin, New Jersey 08830-0770
Attention: Arthur A. Dornbusch, II
or to such other address as either party shall have
furnished to the other in writing in accordance herewith.
Notice and communications shall be effective when actually
received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver
of such provision or any other provision thereof.
71
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter
hereof but does not supersede or override the provisions of
any stock option, employee benefit or other plan, program,
policy or practice in which Executive is a participant or
under which the Executive is a beneficiary.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed as of the day and year first above written.
/s/Orin R. Smith
------------------------------
Name: Orin R. Smith
ENGELHARD CORPORATION
By: /s/Arthur A. Dornbusch, II
------------------------------
Name: Arthur A. Dornbusch, II
Title: V.P., General Counsel
& Secretary
Attest:
/s/William M. Dugle
- ---------------------------
Name: William M. Dugle
Title: V.P. Human Resources
72
EXHIBIT 10(r):
AMENDMENT TO THE SUPPLEMENTAL RETIREMENT PROGRAM
------------------------------------------------
73
AMENDMENT TO
SUPPLEMENTAL RETIREMENT PROGRAM
OF ENGELHARD CORPORATION
(as amended and restated effective January 1, 1989)
The Supplemental Retirement Program of Engelhard Corporation, as amended
and restated effective January 1, 1989, is hereby amended as set forth below,
effective as of December 19, 1996.
1. The first sentence of Paragraph (b) of Section 5 is amended by adding
the following at the end thereof:
"or unless the employee has made an election to receive his benefit in a
lump sum pursuant to Paragraph (e) of this Section 5."
2. Paragraph (e) of Section 5 is amended to read as follows:
"(e) Anything in this Supplemental Retirement Program to the contrary
notwithstanding, an employee may elect pursuant to this Paragraph (e) that
the benefits payable under the Excess Benefit Plan and the Supplemental
Executive Retirement Plan be payable in the form of a lump sum as soon as
practicable following his Severance From Service Date. A written
irrevocable election pursuant to this Paragraph (e) may be made by an
employee at any time which is at least 6 months prior to the employee's
Severance From Service Date, except that the election shall not be
effective until 6 months shall have elapsed from the date of the election.
As a condition to receiving benefits in a lump sum pursuant to this
Paragraph (e), the employee shall enter into, or be deemed to enter into,
the noncompetition agreement with the Company set forth in Paragraph
(b)(iv) of this Section 5. Except as set forth above, the availability of
an election under this Paragraph (e) to an employee shall be subject to the
same terms and conditions as would apply to such lump sum benefit had it
been paid under the Pension Plan, and the amount of the lump sum benefit
shall be determined using the same actuarial assumptions as would be used
in determining the lump sum benefit under the Pension Plan. An election
made under this Paragraph (e) may be revoked in writing, except that such
revocation shall not be effective until six months have elapsed from the
date of the revocation. Anything in this Supplemental Retirement Program to
the contrary notwithstanding, in no event may the benefits hereunder be
paid in the form of a lump sum distribution other than as provided in this
Paragraph (e) or, in the absence of a lump sum election pursuant to this
Paragraph (e), as provided in Paragraph (b) of this Section 5."
74
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
75
EXHIBIT 12
ENGELHARD CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
Year Ended
December 31 Year Ended December 31
----------- -----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income from continuing operations
before provision for income taxes $209,955 $185,312 $157,306 ($4,709) $133,858
Add/(deduct)
Portion of rents representative
of the interest factor 3,900 4,700 4,800 4,500 4,000
Interest on indebtedness 45,009 31,326 21,954 13,696 16,231
Equity dividends 2,515 3,411 3,800 2,600 3,100
Equity (earnings)/loss 5,008 (695) (632) (3,443) (7,445)
-------- -------- -------- ------- --------
Earnings as adjusted $266,387 $224,054 $187,228 $12,644 $149,744
======== ======== ======== ======= ========
Fixed Charges
Portion of rents representative
of interest factor $3,900 $4,700 $4,800 $4,500 $4,000
Interest on indebtedness 45,009 31,326 21,954 13,696 16,231
Capitalized Interest 1,053 1,000 800 2,700 400
------- ------- ------- ------- -------
$49,962 $37,026 $27,554 $20,896 $20,631
======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 5.33 6.05 6.79 - (A) 7.26
======= ======= ======= ======= =======
(A) For fiscal 1993, earnings were insufficient to cover fixed charges by approximately $8.3 million. Earnings in 1993 were
negatively impacted by a charge of approximately $148 million for the realignment and consolidation of businesses and
environmental matters. Without such charge the ratio of earnings to fixed charges for fiscal 1993 would have been 7.14.
76
EXHIBIT 21:
SUBSIDIARIES OF THE REGISTRANT
------------------------------
77
Subsidiaries of the Registrant
------------------------------
Jurisdiction Under Which
Name of Subsidiary Incorporated or Organized
- ------------------ -------------------------
Engelhard West, Inc. California
Engelhard Canada, Ltd. Canada
Engelhard Industries International, Ltd. Canada
Engelhard Technologies, Ltd. Canada
EC Delaware, Inc. Delaware
EI 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 MC, Inc. Delaware
Engelhard Metal Plating, Inc. Delaware
Engelhard Pollution Control, Inc. Delaware
Engelhard Power Marketing, Inc. Delaware
Engelhard Sensor Technologies, Inc. Delaware
Engelhard Strategic Investments, Inc. Delaware
Engelhard Supply Corporation Delaware
Mustang Property Corporation Delaware
Engelhard Pigments OY Finland
Engelhard Pyrocontrole S.A. France
Engelhard S.A. France
Engelhard Holdings GmbH Germany
Engelhard Process Chemicals GmbH Germany
Engelhard Technologies GmbH Germany
Engelhard Technologies Verwaltsung GmbH Germany
Engelhard Italiana S.P.A. Italy
Engelhard Metals Japan, Ltd. Japan
Engelhard DeMeern, B.V. The Netherlands
Engelhard Netherlands, B.V. The Netherlands
Engelhard Terneuzen, B.V. The Netherlands
Harshaw Chemical Company New Jersey
Mearl Corporation New Jersey
Engelhard Peru S.A. Peru
Engelhard South Africa, Ltd. South Africa
Engelhard Metals A.G. Switzerland
Dnipro Kaolin Ukraine
Engelhard International, Ltd. United Kingdom
Engelhard Limited United Kingdom
Engelhard Metals, Ltd. United Kingdom
Engelhard Sales, Ltd. United Kingdom
Engelhard Technologies, Ltd. United Kingdom
Sheffield Smelting Co., Ltd. United Kingdom
Engelhard Export Corporation U.S. Virgin Islands
78
Subsidiaries of the Registrant
------------------------------
Jurisdiction Under Which
Name of Subsidiary Incorporated or Organized
- ------------------ -------------------------
Engelhard-CLAL, Ltd. Partnership Delaware
Metreon Delaware
Engelhard-CLAL SAS France
NE Chemcat Corporation Japan
Engelhard/Colortronics New Jersey
Engelhard/ICC Pennsylvania
Heesung-Engelhard Corporation South Korea
Acreon Catalysts Texas
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.
79
EXHIBIT 23:
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
80
Consent of Independent Accountants
----------------------------------
We consent to the incorporation by reference in the registration statements
of Engelhard Corporation on Form S-8 (File Nos. 2-72830, 2-81559, 2-84477, 2-
89747, 33-28540, 33-37724, 33-40365, 33-40338 and 33-43934) of our report dated
February 6, 1997, on our audits of the consolidated financial statements of
Engelhard Corporation and Subsidiaries, as of December 31, 1995 and 1994, and
for the years ended December 31, 1996, 1995 and 1994, which report is included
in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 27, 1997
81
EXHIBIT 24:
POWERS OF ATTORNEY
------------------
82
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ Linda G. Alvarado
_____________________________
Linda G. Alvarado
83
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ Marion H. Antonini
________________________________
Marion H. Antonini
84
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ L. Donald LaTorre
________________________________
L. Donald LaTorre
85
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 3, 1997.
/s/ Anthony W. Lea
________________________________
Anthony W. Lea
86
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ William R. Loomis, Jr.
______________________________
William R. Loomis, Jr.
87
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ James V. Napier
______________________________
James V. Napier
88
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 5, 1997.
/s/ Norma T. Pace
________________________________
Norma T. Pace
89
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 3, 1997.
/s/ Reuben F. Richards
_________________________________
Reuben F. Richards
90
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ Henry R. Slack
_______________________________
Henry R. Slack
91
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, 1996.
NOW, THEREFORE, the undersigned in his/her capacity as a director of
ENGELHARD CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith,
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 6, 1997.
/s/ Douglas G. Watson
_________________________________
Douglas G. Watson
92
EXHIBIT 99(a):
ANNUAL REPORT ON FORM 11-K OF THE
SALARY DEFERRAL SAVINGS PLAN OF ENGELHARD CORPORATION
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
93
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
--- TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _____
_______________
SALARY DEFERRAL SAVINGS PLAN OF ENGELHARD CORPORATION
-----------------------------------------------------
(Full title of the plan)
ENGELHARD CORPORATION
(Exact name of issuer as specified in its charter)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
- ----------------------------------- ---------
(Address of principal executive offices) (Zip code)
DELAWARE 22-1586002
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
94
Salary Deferral Savings Plan
of Engelhard Corporation
Table of Contents
Description Page
----------- ----
Report of Independent Accountants 96
Statements of Financial Condition 97-101
at December 31, 1996 and 1995
Statements of Income and Changes in Plan Equity 102-108
for each of the three years in the period
ended December 31, 1996
Notes to Financial Statements 109-115
Supplemental Schedule
Schedule of Investments at December 31, 1996 and 1995 116-117
95
Report of Independent Accountants
To the Pension and Employee Benefit Plans Committee of Engelhard Corporation:
We have audited the financial statements and the financial statement
schedule of the Salary Deferral Savings Plan of Engelhard Corporation listed in
the table of contents on Page 95 of this Form 11-K. These financial statements
and the financial statement schedule are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 the Salary Deferral Savings
Plan of Engelhard Corporation as of December 31, 1996 and 1995, and the results
of its operations for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
March 19, 1997
96
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1996
(Page 1 of 3)
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- ----------- ------------ ----------- -----------
Assets:
Investments, at fair value
(combined cost of $99,913,416) $45,013,881 $25,199,419 $22,568,240 $7,112,369 $8,046,210
Interest receivable - - - - -
Contributions Receivable:
Participants 155,863 119,735 121,548 41,812 49,468
Engelhard Corporation 161,598 - - - -
Promissory notes from participants 86,046 61,814 39,513 11,573 16,645
----------- ----------- ----------- ---------- ----------
Total assets $45,417,388 $25,380,968 $22,729,301 $7,165,754 $8,112,323
=========== =========== =========== ========== ==========
Plan equity:
Plan equity $45,417,388 $25,380,968 $22,729,301 $7,165,754 $8,112,323
=========== =========== =========== ========== ==========
See Accompanying Notes to Financial Statements
97
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1996
(Page 2 of 3)
Life Life
International Small Short-Term Strategy Strategy
Growth Cap Bond Growth Income
Fund Fund Fund Fund Fund
------------- ---------- ---------- --------- ----------
Assets:
Investments, at fair value
(combined cost of $99,913,416) $2,424,766 $1,738,424 $724,087 $155,170 $108,922
Interest receivable - - - - -
Contributions receivable:
Participants 17,527 12,944 7,158 3,581 14
Engelhard Corporation - - - - -
Promissory notes from participants 5,049 1,779 1,886 1,190 -
---------- --------- -------- -------- --------
Total assets $2,447,342 $1,753,147 $733,131 $159,941 $108,936
========== ========== ======== ======== ========
Plan equity:
Plan equity $2,447,342 $1,753,147 $733,131 $159,941 $108,936
========== ========== ======== ======== ========
See Accompanying Notes to Financial Statements
98
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1996
(Page 3 of 3)
Life Strategy Vanguard Life Strategy
Conservative U.S. Moderate
Growth Growth Growth Loan
Fund Fund Fund Fund Combined
------------- -------- ------------- --------- ------------
Assets:
Investments, at fair value
(combined cost of $99,913,416) $184,830 $961,544 $178,302 $ - $114,416,164
Interest receivable - - - 46,686 46,686
Contributions receivable:
Participants 274 5,688 1,666 - 537,278
Engelhard Corporation - - - - 161,598
Promissory notes from participants - 1,867 239 6,974,484 7,202,085
-------- -------- -------- ---------- ------------
Total assets $185,104 $969,099 $180,207 $7,021,170 $122,363,811
======== ======== ======== ========== ============
Plan equity:
Plan equity $185,104 $969,099 $180,207 $7,021,170 $122,363,811
======== ======== ======== ========== ============
See Accompanying Notes to Financial Statements
99
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1995
(Page 1 of 2)
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- ----------- ------------ ----------- -----------
Assets:
Investments, at fair value
(combined cost of $85,942,063) $46,246,875 $26,317,093 $17,593,710 $6,167,856 $6,062,770
Interest receivable - - - - -
Contributions receivable:
Participants 151,244 132,029 119,096 37,258 41,370
Engelhard Corporation 153,549 - - - -
Promissory notes from participants 79,450 64,332 42,556 10,968 12,357
----------- ----------- ----------- ---------- ----------
Total assets $46,631,118 $26,513,454 $17,755,362 $6,216,082 $6,116,497
=========== =========== =========== ========== ==========
Plan equity:
Plan equity $46,631,118 $26,513,454 $17,755,362 $6,216,082 $6,116,497
=========== =========== =========== ========== ==========
See Accompanying Notes to Financial Statements
100
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1995
(Page 2 of 2)
International Small Short-Term
Growth Cap Bond Loan
Fund Fund Fund Fund Combined
------------- -------- ---------- --------- ----------
Assets:
Investments, at fair value
(combined cost of $85,942,063) $1,913,421 $991,499 $431,943 $ - $105,725,167
Interest receivable - - - 44,142 44,142
Contributions receivable:
Participants 14,404 8,636 6,496 - 510,533
Engelhard Corporation - - - - 153,549
Promissory notes from participants 3,445 1,074 860 6,735,711 6,950,753
---------- -------- -------- ---------- ------------
Total assets $1,931,270 $1,001,209 $439,299 $6,779,853 $113,384,144
========== ========== ======== ========== ============
Plan equity:
Plan equity $1,931,270 $1,001,209 $439,299 $6,779,853 $113,384,144
========== ========== ======== ========== ============
See Accompanying Notes to Financial Statements
101
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1996
(Page 1 of 3)
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- --------- ---------- ----------- ----------
Net investment income:
Dividends $ 727,600 $ - $ 2,162,237 $ 646,837 $ 737,991
Interest - 1,544,409 - - -
----------- ---------- ----------- ----------- -----------
727,600 1,544,409 2,162,237 646,837 737,991
Contributions and other receipts:
Participants 2,371,769 2,359,733 2,275,185 842,352 927,083
Engelhard Corporation 2,065,895 - - - -
----------- ---------- ----------- ----------- -----------
4,437,664 2,359,733 2,275,185 842,352 927,083
Net realized gain (loss) on disposition
of investments 2,624,826 - 372,423 221,899 204,365
Unrealized appreciation (depreciation)
of investments (8,218,862) - 2,186,088 130,181 519,101
Transaction fees - - - - -
Distributions (2,604,553) (2,550,656) (1,197,839) (518,181) (408,588)
Other transfers 1,819,595 (2,485,972) (824,155) (373,416) 15,874
------------ ------------ ----------- ----------- -----------
(1,213,730) (1,132,486) 4,973,939 949,672 1,995,826
Plan equity, beginning of year 46,631,118 26,513,454 17,755,362 6,216,082 6,116,497
============ =========== =========== =========== ===========
Plan equity, end of year $45,417,388 $25,380,968 $22,729,301 $7,165,754 $8,112,323
============ =========== =========== =========== ===========
See Accompanying Notes to Financial Statements
102
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1996
(Page 2 of 3)
Life Life
International Small Short-Term Strategy Strategy
Growth Cap Bond Growth Income
Fund Fund Fund Fund Fund
------------- -------- ---------- -------- ---------
Net investment income:
Dividends $ 104,764 $121,902 $34,004 $ 5,154 $ 3,910
Interest - - - - -
---------- ---------- ------- -------- --------
104,764 121,902 34,004 5,154 3,910
Contributions and other receipts:
Participants 410,564 296,101 157,291 34,200 109,788
Engelhard Corporation - - - - -
---------- ---------- ------- -------- --------
410,564 296,101 157,291 34,200 109,788
Net realized gain (loss) on disposition
of investments 105,158 42,347 1,221 (98) -
Unrealized appreciation
(depreciation) of investments 103,464 50,118 (6,977) 4,378 (4,762)
Transaction fees - (9,650) - - -
Distributions (269,098) (41,149) (60,471) - -
Transfers 61,220 292,269 168,764 116,307 -
---------- ---------- ------- -------- --------
516,072 751,938 293,832 159,941 108,936
Plan equity, beginning of year 1,931,270 1,001,209 439,299 - -
---------- ---------- ------- -------- --------
Plan equity, end of year $2,447,342 $1,753,147 $733,131 $159,941 $108,936
========== ========== ======== ======== ========
See Accompanying Notes to Financial Statements
103
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1996
(Page 3 of 3)
Life Life
Strategy Vanguard Strategy
Conservative U.S. Moderate
Growth Growth Growth Loan
Fund Fund Fund Fund Combined
------------ -------- --------- -------- ------------
Net investment income:
Dividends $ 7,478 $ 70,352 $ 6,622 $ - $ 4,628,851
Interest - - - 539,133 2,083,542
-------- -------- -------- ---------- ------------
7,478 70,352 6,622 539,133 6,712,393
Contributions and other receipts:
Participants 1,305 41,866 4,956 - 9,832,193
Engelhard Corporation - - - - 2,065,895
-------- -------- -------- ---------- ------------
1,305 41,866 4,956 - 11,898,088
Net realized gain (loss) on disposition
of investments - 28,588 - - 3,600,729
Unrealized appreciation
(depreciation) of investments 1,466 (47,934) 3,383 - (5,280,356)
Transaction fees - - - - (9,650)
Distributions - - - (291,002) (7,941,537)
Transfers 174,855 876,227 165,246 (6,814) -
-------- -------- -------- ---------- ------------
185,104 969,099 180,207 241,317 8,979,667
Plan equity, beginning of year - - - 6,779,853 113,384,144
-------- -------- -------- ---------- ------------
Plan equity, end of year $185,104 $969,099 $180,207 $7,021,170 $122,363,811
======== ======== ======== ========== ============
See Accompanying Notes to Financial Statements
104
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1995
(Page 1 of 2)
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- --------- ---------- ----------- ----------
Net investment income:
Dividends $ 683,039 $ - $ 2,013,963 $ 409,498 $ 335,464
Interest - 1,636,089 - - -
----------- ---------- ----------- ----------- -----------
683,039 1,636,089 2,013,963 409,498 335,464
Contributions and other receipts:
Participants 2,210,503 2,705,387 2,122,363 737,191 749,363
Engelhard Corporation 2,022,021 - - - -
----------- ---------- ----------- ----------- -----------
4,232,524 2,705,387 2,122,363 737,191 749,363
Net realized gain on disposition
of investments 7,957,850 - 488,866 152,986 180,313
Unrealized appreciation
of investments 8,611,633 - 1,636,933 897,851 1,030,133
Transaction fees (1,419) (2,150) (1,870) (1,199) (468)
Distributions (3,238,715) (2,854,171) (1,265,670) (551,976) (318,675)
Engelhard-CLAL transfer (2,234,380) (1,129,363) (560,518) (151,684) (185,833)
Other transfers (3,862,436) 1,093,113 351,429 1,062,325 353,797
------------ ------------ ----------- ----------- -----------
12,148,096 1,448,905 4,785,496 2,554,992 2,144,094
Plan equity, beginning of year 34,483,022 25,064,549 12,969,866 3,661,090 3,972,403
============ =========== =========== =========== ===========
Plan equity, end of year $46,631,118 $26,513,454 $17,755,362 $6,216,082 $6,116,497
=========== =========== =========== =========== ===========
See Accompanying Notes to Financial Statements
105
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1995
(Page 2 of 2)
International Small Short-Term
Growth Cap Bond Loan
Fund Fund Fund Fund Combined
----------- ----------- --------- ----------- ------------
Net investment income:
Dividends $ 50,844 $ 34,996 $ 23,037 $ - $ 3,550,841
Interest - - - 459,759 2,095,848
--------- ----------- -------- ----------- ------------
50,844 34,996 23,037 459,759 5,646,689
Contributions and other receipts:
Participants 368,645 232,027 107,594 - 9,233,073
Engelhard Corporation - - - - 2,022,021
--------- ----------- -------- ----------- ------------
368,645 232,027 107,594 - 11,255,094
Net realized gain on disposition
of investments 19,830 20,017 7,499 - 8,827,361
Unrealized appreciation
of investments 157,174 139,051 11,562 - 12,484,337
Transaction fees (403) (4,666) (88) - (12,263)
Distributions (69,464) (18,616) (12,697) (289,692) (8,619,676)
Engelhard-CLAL transfer (100,247) (26,574) (12,330) (139,991) (4,540,920)
Other transfers 167,412 41,305 182,109 610,946 -
----------- ----------- --------- ----------- ------------
593,791 417,540 306,686 641,022 25,040,622
Plan equity, beginning of year 1,337,479 583,669 132,613 6,138,831 88,343,522
---------- ---------- --------- ----------- ------------
Plan equity, end of year $1,931,270 $1,001,209 $439,299 $6,779,853 $113,384,144
========== ========== ========= =========== ============
See Accompanying Notes to Financial Statements
106
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1994
(Page 1 of 2)
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- --------- ---------- ----------- ----------
Net investment income:
Dividends $ 608,346 $ - $ 1,213,105 $ 151,352 $ 189,845
Interest - 1,398,526 - - -
----------- ---------- ----------- ----------- ----------
608,346 1,398,526 1,213,105 151,352 189,845
Contributions and other receipts:
Participants 1,803,369 2,660,700 1,876,428 677,426 673,552
Engelhard Corporation 1,936,926 - - - -
----------- ---------- ----------- ----------- ----------
3,740,295 2,660,700 1,876,428 677,426 673,552
Net realized gain (loss) on disposition
of investments 2,634,392 - 130,567 (6,196) (23,868)
Unrealized depreciation
of investments (5,724,239) - (1,390,755) (240,578) (193,126)
Transaction fees - - - - -
Distributions (1,965,498) (1,287,496) (777,796) (242,086) (197,125)
Transfers 1,178,464 (1,597,562) (413,787) (656,820) (325,891)
----------- ----------- ----------- ---------- ----------
471,760 1,174,168 637,762 (316,902) 123,387
Plan equity, beginning of year 34,011,262 23,890,381 12,332,104 3,977,992 3,849,016
=========== =========== =========== ========== ==========
Plan equity, end of year $34,483,022 $25,064,549 $12,969,866 $3,661,090 $3,972,403
=========== =========== =========== ========== ==========
See Accompanying Notes to Financial Statements
107
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1994
(Page 2 of 2)
International Small Short-Term
Growth Cap Bond Loan
Fund Fund Fund Fund Combined
------------- -------- ---------- ---------- ----------
Net investment income:
Dividends $ 17,377 $ 21,781 $ 9,597 $ - $ 2,211,403
Interest - - - 406,575 1,805,101
--------- -------- -------- ---------- -----------
17,377 21,781 9,597 406,575 4,016,504
Contributions and other receipts:
Participants 205,629 98,611 39,441 - 8,035,156
Engelhard Corporation - - - - 1,936,926
--------- -------- -------- ---------- -----------
205,629 98,611 39,441 - 9,972,082
Net realized gain (loss) on disposition
of investments 17,532 (6,140) (6,195) - 2,740,092
Unrealized depreciation
of investments (47,882) (24,161) (4,245) - (7,624,986)
Transaction fees - (4,507) - - (4,507)
Distributions (32,704) (3,571) (55) (234,573) (4,740,904)
Transfers 441,663 193,458 (647) 1,181,122 -
---------- -------- -------- ---------- -----------
601,615 275,471 37,896 1,353,124 4,358,281
Plan equity, beginning of year 735,864 308,198 94,717 4,785,707 83,985,241
---------- -------- -------- ---------- -----------
Plan equity, end of year $1,337,479 $583,669 $132,613 $6,138,831 $88,343,522
========== ======== ======== ========== ===========
See Accompanying Notes to Financial Statements
108
Notes to Financial Statements
Note 1 - Description of the Plan
The Salary Deferral Savings Plan of Engelhard Corporation (the Plan), as
amended and restated as of August 1, 1996, is designed to provide eligible
employees of Engelhard Corporation (the Company) an opportunity to save part of
their income by having the Company reduce their compensation and contribute the
amount of the reduction to the Plan on a tax deferred and/or post-tax basis.
The following plan description is provided for general information
purposes. Participants of the Plan should refer to the plan document for more
detailed and complete information.
Eligibility
- -----------
Except as specifically included or excluded by the Board of Directors of the
Company (the Board), United States salaried employees of the Company and its
wholly-owned (directly or indirectly) domestic subsidiaries and all non-
collectively bargained hourly employees are eligible to participate in the Plan.
Contributions
- -------------
The Plan permits eligible employees participating in the Plan the opportunity
to defer up to 15 percent of their compensation, as defined, subject to certain
restrictions and limitations, and to have that amount contributed to the Plan
and the related taxes deferred. Effective January 1, 1995 employees may
contribute, subject to certain restrictions and limitations, up to 10 percent of
compensation to the Plan on a post-tax basis.
Matching Contributions
- ----------------------
The Company will contribute, on a monthly basis, subject to certain limitations
and exclusions, either cash or common stock of the Company in an amount equal to
50 percent of the first 6 percent contributed by the Participants. Participants
must have completed one year of service to be eligible for a matching
contribution.
Investments
- -----------
All contributions to the Plan are held and invested by Vanguard Fiduciary Trust
Company (the Trustee). The Trustee maintains 13 separate investment funds
within the Plan:
a) The Company Stock Fund consists of assets invested or held
for investment in the common stock of the Company. In the
event the assets cannot be immediately invested in Company
common stock, the funds are invested in short-term securities
pending investment in Company common stock.
b) The Fixed Income Fund consists of assets invested in shares
of the Vanguard Variable Rate Investment Contract Trust.
In the event the assets cannot be immediately invested in
such shares or deposited as specified above, the assets are
invested in direct obligations of the United States
Government or agencies thereof or in obligations guaranteed
as to the payment of principal and interest by the United
States Government.
109
c) The Growth Fund consists of assets invested in the
Vanguard Windsor Fund, which invests primarily in common
stocks for the purpose of realizing long-term growth of
capital and income.
d) The Balanced Fund consists of assets invested in the
Vanguard Asset Allocation Fund, which invests in stocks,
bonds and cash reserves for the purpose of maximizing long-
term total return with less volatility than a portfolio of
common stock.
e) The Equity Index Fund consists of assets invested in
the Vanguard Quantitative Portfolio, which invests primarily
in common stocks for the purpose of realizing a total return
greater than the Standard & Poor's 500 Index while
maintaining fundamental investment characteristics similar to
such Index.
f) The International Growth Fund consists of assets
invested in shares of the Vanguard International Growth
Portfolio or such other mutual fund or funds which invest
primarily in common stocks of companies based outside the
United States that have above-average growth potential for
the purpose of realizing long-term capital growth.
g) The Small Cap Fund consists of assets invested in
shares of the Vanguard Small Capitalization Stock Fund or
such other mutual fund or funds which invest primarily in
common stocks of small-sized companies for the purpose of
providing a comparatively low-cost method of passively
capturing the investment returns of small-sized companies and
attempting to provide investment results that parallel the
performance of the unmanaged Russell 2000 Small Stock Index.
h) The Short-Term Bond Fund consists of assets invested
in shares of the Short-Term Corporate Portfolio of the
Vanguard Fixed Income Securities Fund or such other mutual
fund or funds which invest primarily in relatively short
maturity investment-grade bonds for the purpose of providing
a level of current income consistent with a two to three year
average maturity while helping to preserve capital.
i) The Life Strategy Growth Fund consists of assets invested in
the Vanguard Life Strategy Growth Fund. This fund invests in
other Vanguard mutual funds representing a combination of
stocks, bonds and reserves in order to provide growth of
capital.
j) The Life Strategy Income Fund consists of assets invested in
the Vanguard Life Strategy Income Fund. This fund invests in
other Vanguard mutual funds representing a combination of
stocks, bonds and reserves in order to provide current income.
k) The Life Strategy Conservative Growth Fund consists of assets
invested in the Vanguard Life Strategy Conservative Growth
portfolio. This fund invests in other Vanguard mutual funds
representing a combination of stocks, bonds, and reserves in
order to provide current income and a low to moderate growth
of capital.
110
l) The Vanguard U.S. Growth portfolio seeks to provide long-term
capital appreciation by investing in common stocks of
companies with above-average growth potential for the purpose
of seeking long-term capital growth.
m) The Life Strategy Moderate Growth Fund consists of assets
invested in the Vanguard Life Strategy Moderate Growth Fund.
This fund invests in other Vanguard mutual funds representing
a combination of stocks, bonds and reserves in order to
provide growth of capital and a reasonable level of current
income.
Participants have the right to elect, subject to restrictions, the
investment fund or funds in which their contributions are invested. All matching
contributions are initially invested in the Company Stock Fund and participants
are restricted from transferring these contributions to other funds for one
year. Participants at their discretion may elect to transfer to another fund
their unrestricted balance. Their unrestricted balance is determined as the sum
of all prior year's unrestricted balances plus 25 percent of the prior year's
restricted balance after the addition of the prior year's restricted matching
contributions.
The number of Participants in each fund was as follows at December 31:
Participants 1996 1995
------------ ----- -----
Company Stock Fund 2,002 1,954
Fixed Income Fund 1,164 1,267
Growth Fund 1,145 1,074
Balanced Fund 628 550
Equity Index Fund 644 560
International Growth Fund 297 227
Small Cap Fund 200 139
Short-Term Bond Fund 117 97
Life Strategy Growth Fund 19 -
Life Strategy Income Fund 1 -
Life Strategy Conservative Growth Fund 4 -
Vanguard U.S. Growth Fund 52 -
Life Strategy Moderate Growth Fund 9 -
The total number of Participants in the Plan was less than the sum of the
number of Participants shown above because many were participating in more than
one fund.
111
The number of units representing Participant interests in each fund and the
related net asset value per unit were as follows at December 31:
Participant Interests
Company Fixed Equity Int'l Small Short-Term
Stock Income Growth Balanced Index Growth Cap Bond
Fund Fund Fund Fund Fund Fund Fund Fund
--------- ---------- --------- --------- --------- -------- -------- ---------
1996:
Units 1,402,641 25,380,968 1,370,069 399,429 364,927 148,684 86,661 68,199
Value per unit $32.38 $1.00 $16.59 $17.94 $22.23 $16.46 $20.23 $10.75
1995:
Units 1,263,716 26,513,454 1,221,979 364,794 306,591 128,580 53,800 40,303
Value per unit $36.90 $1.00 $14.53 $17.04 $19.95 $15.02 $18.61 $10.90
Life Life
Life Life Strategy Strategy Vanguard
Strategy Strategy Conservative Moderate U.S.
Growth Income Growth Growth Growth
Fund Fund Fund Fund Fund
--------- ---------- ------------ --------- ---------
1996:
Units 11,692 9,432 15,248 13,894 40,825
Value per unit $13.68 $11.55 $12.14 $12.97 $23.74
Vesting
- -------
Participants at all times have a fully vested and non-forfeitable interest in
their contributions and in the matching contributions allocated to their
account.
Loan Provision
- --------------
The Plan allows Participants who have participated in the Plan for at least one
year to borrow funds from their accounts, subject to certain terms and
conditions, at a reasonable interest rate as determined by the Company in
accordance with applicable laws and regulations.
Termination
- -----------
The Company, although it expects and intends to continue the Plan indefinitely,
has reserved the right of the Board to terminate or amend the Plan.
Distributions and Withdrawals
- -----------------------------
All distributions and withdrawals from the Plan are made to Participants in a
lump sum cash payment except those amounts distributed from the Company Stock
Fund which may, at the Participant's election, be paid in full shares of the
Company's Common Stock with cash paid in lieu of fractional shares.
112
Note 2 - Accounting Policies
The accounts of the Plan are maintained on an accrual basis. Purchases and
sales of investments are reflected on a trade date basis. Assets of the Plan are
valued at fair value. Gains and losses on distributions to participants and
sales of investments are based on average cost.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported. Actual results are not expected to
differ from those estimates.
The Plan provides for various investment options in any combination of
stocks or mutual funds. Investment securities are exposed to various risks, such
as interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to changes in
the value of investment securities, it is at least reasonably possible that
changes in risks in the near term would materially affect participants' account
balances and the amounts reported in the statement of financial condition and
the statement of income and changes in plan equity.
Note 3 - Income Tax Status
The Plan and the Trust created thereunder are intended to qualify under
Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the
Code) and the Plan includes a cash or deferred arrangement intended to meet the
requirements of Section 401(k) of the Code. The Internal Revenue Service has
issued a favorable determination letter as to the Plan's qualified status under
the Code. Amounts contributed to and earned by the Plan are not taxed to the
employee until a distribution from the Plan is made. In addition, the unrealized
appreciation on any shares of common stock of the Company distributed to an
employee is not taxed until the time of disposition of such shares.
Note 4 - Administrative Expenses
All expenses of the Plan are paid for by the Company. Investment advisory
fees for portfolio management of the Vanguard funds are paid directly from fund
earnings. Advisory fees are included in the fund expense ratio and will not
reduce the assets of the Plan. Brokerage commissions paid to purchase Engelhard
Corporation common stock are being charged against each participant's fund unit
value.
Note 5 - Concentrations of Credit Risk
Financial instruments which potentially subject the Plan to concentrations
of credit risk consist principally of investment contracts with insurance and
other financial institutions. The Plan places its investment contracts with
high-credit quality institutions and, by policy, limits the amount of credit
exposure to any one financial institution.
Note 6 - Investments
Investments in the Common Stock of the Company are valued at the
readily-available, quoted market price as of the valuation date and investments
in Vanguard Funds are valued based on the quoted net asset value (redemption
value) of the respective investment company as of the valuation date.
113
The net realized gain (loss) on disposition of investments was computed as follows:
Net realized gain (loss)
Company Equity Int'l Small Short-term
Stock Growth Balanced Index Growth Cap Bond
Fund Fund Fund Fund Fund Fund Fund
----------- ----------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 1996 -
Amount realized $35,173,927 $11,516,097 $7,588,654 $6,740,413 $2,201,845 $1,519,491 $4,514,073
Cost-average 32,549,101 11,143,674 7,366,755 6,536,048 2,096,687 1,477,144 4,512,852
Net realized gain (loss) 2,624,826 372,423 221,899 204,365 105,158 42,347 1,221
Vanguard Life
U.S. Strategy
Growth Growth Combined
Fund Fund
----------- ----------- -----------
Year ended December 31, 1996 -
Amount realized $ 5,022,468 $ 170,693 $74,447,661
Cost-average 4,993,880 170,791 70,846,932
Net realized gain (loss) 28,588 (98) 3,600,729
Company Equity Int'l Small Short-term
Stock Growth Balanced Index Growth Cap Bond
Fund Fund Fund Fund Fund Fund Fund Combined
----------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
Year ended December 31, 1995 -
Amount realized $24,124,107 $8,054,704 $1,643,052 $2,510,943 $ 978,933 $241,891 $3,870,866 $41,424,496
Cost-average 16,166,257 7,565,838 1,490,066 2,330,630 959,103 221,874 3,863,367 32,597,135
Net realized gain 7,957,850 488,866 152,986 180,313 19,830 20,017 7,499 8,827,361
Year ended December 31, 1994 -
Amount realized $11,272,424 $3,528,936 $1,484,485 $ 905,598 $1,108,288 $173,577 $2,798,485 $21,271,793
Cost-average 8,638,032 3,398,369 1,490,681 929,466 1,090,756 179,717 2,804,680 18,531,701
Net realized gain (loss) 2,634,392 130,567 (6,196) (23,868) 17,532 (6,140) (6,195) 2,740,092
114
The net unrealized appreciation (depreciation) of investments held was computed as follows:
Net unrealized appreciation (depreciation)
Company Equity Int'l Small Short-term
Stock Growth Balanced Index Growth Cap Bond
Fund Fund Fund Fund Fund Fund Fund
----------- ---------- ---------- ----------- -------- --------- -----------
Year ended December 31, 1996 -
Balance, beginning of year $16,722,575 $ 915,175 $ 916,242 $ 957,045 $159,498 $105,258 $ 7,311
Net change (8,218,862) 2,186,088 130,181 519,101 103,464 50,118 (6,977)
Balance, end of year 8,503,713 3,101,263 1,046,423 1,476,146 262,962 155,376 334
Life Life
Life Life Strategy Vanguard Strategy
Strategy Strategy Conservative U.S. Moderate
Growth Income Growth Growth Growth
Fund Fund Fund Fund Fund Combined
----------- ---------- ------------ ----------- -------- ------------
Year ended December 31, 1996 -
Balance, beginning of year $ - $ - $ - $ - $ - $19,783,104
Net change 4,378 (4,762) 1,466 (47,934) 3,383 (5,280,356)
Balance, end of year 4,378 (4,762) 1,466 (47,934) 3,383 14,502,748
Company Equity Int'l Small Short-term
Stock Growth Balanced Index Growth Cap Bond
Fund Fund Fund Fund Fund Fund Fund Combined
----------- ---------- ---------- ----------- -------- --------- ---------- -------------
Year ended December 31, 1995 -
Balance, beginning of year $ 8,110,942 $ (721,758) $ 18,391 $ (73,088) $ 2,324 $(33,793) $(4,251) $ 7,298,767
Net change 8,611,633 1,636,933 897,851 1,030,133 157,174 139,051 11,562 12,484,337
Balance, end of year 16,722,575 915,175 916,242 957,045 159,498 105,258 7,311 19,783,104
Year ended December 31, 1994 -
Balance, beginning of year $13,835,181 $ 668,997 $ 258,969 $ 120,038 $ 50,206 $ (9,632) $ (6) $14,923,753
Net change (5,724,239) (1,390,755) (240,578) (193,126) (47,882) (24,161) (4,245) (7,624,986)
Balance, end of year 8,110,942 (721,758) 18,391 (73,088) 2,324 (33,793) (4,251) 7,298,767
Note 7 - Engelhard-CLAL Transfer
In connection with the formation of a joint venture (Engelhard-CLAL) on
June 21, 1995, the Plan transferred assets of $4,540,920 to the
Engelhard-CLAL-LP Salary Deferral Savings Plan.
Note 8 - Subsequent Event
Effective January 1, 1997, the Plan was amended to allow employees of the
former Mearl Corporation to participate in the Plan.
115
Salary Deferral Savings Plan
of Engelhard Corporation
Schedule of Investments
at December 31, 1996
Approximate
Company Stock Fund Cost Market Value
- ------------------ ----------- ------------
Common Stock of Engelhard Corporation $36,510,168 $ 45,013,881
(2,353,667 shares)
Fixed Income Fund
- -----------------
Vanguard Variable Rate Investment Contract Trust 25,199,419 25,199,419
Growth Fund
- -----------
Vanguard Windsor Fund 19,466,977 22,568,240
Balanced Fund
- -------------
Vanguard Asset Allocation Fund 6,065,946 7,112,369
Equity Index Fund
- -----------------
Vanguard Quantitative Portfolio 6,570,064 8,046,210
International Growth Fund
- -------------------------
Vanguard International Growth Portfolio 2,161,804 2,424,766
Small Cap Fund
- --------------
Vanguard Small Capitalization Stock Fund 1,583,048 1,738,424
Short-term Bond Fund
- --------------------
Vanguard Fixed Income Securities Fund 723,753 724,087
Life Strategy Growth Fund
- -------------------------
Vanguard Life Strategy Growth Portfolio 150,792 155,170
Life Strategy Income Fund
- -------------------------
Vanguard Life Strategy Income Portfolio 113,684 108,922
Life Strategy Conservative Growth Fund
- --------------------------------------
Vanguard Life Strategy Conservative Growth Portfolio 183,364 184,830
U.S. Growth Fund
- ----------------
Vanguard U.S. Growth Fund 1,009,478 961,544
Life Strategy Moderate Growth Fund
- ----------------------------------
Vanguard Life Strategy Moderate Growth Portfolio 174,919 178,302
----------- ------------
Total $99,913,416 $114,416,164
116
Salary Deferral Savings Plan
of Engelhard Corporation
Schedule of Investments
at December 31, 1995
Approximate
Company Stock Fund Cost Market Value
- ------------------ ----------- ------------
Common Stock of Engelhard Corporation $29,299,124 $46,021,699
(2,115,940 shares)
Cash equivalents 225,176 225,176
Fixed Income Fund
- -----------------
Vanguard Variable Rate 26,317,093 26,317,093
Investment Contract Trust
Growth Fund
- -----------
Vanguard Windsor Fund 16,678,535 17,593,710
Balanced Fund
- -------------
Vanguard Asset Allocation Fund 5,251,614 6,167,856
Equity Index Fund
- -----------------
Vanguard Quantitative Portfolio 5,105,725 6,062,770
International Growth Fund
- -------------------------
Vanguard International Growth Portfolio 1,753,923 1,913,421
Small Cap Fund
- --------------
Vanguard Small Capitalization Stock Fund 886,241 991,499
Short-term Bond Fund
- --------------------
Vanguard Fixed Income Securities Fund 424,632 431,943
----------- -----------
Total $85,942,063 $105,725,167
117
EXHIBIT 99(b):
ANNUAL REPORT ON FORM 11-K OF THE
ENGELHARD CORPORATION SAVINGS PLAN FOR HOURLY PAID EMPLOYEES
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
118
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _____
------------------
ENGELHARD CORPORATION SAVINGS PLAN FOR HOURLY PAID EMPLOYEES
------------------------------------------------------------
(Full title of the plan)
ENGELHARD CORPORATION
---------------------
(Exact name of issuer as specified in its charter)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
DELAWARE 22-1586002
- ------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
119
Engelhard Corporation Savings Plan for Hourly Paid Employees
Table of Contents
Page
Description ----
-----------
Report of Independent Accountants 121
Statements of Financial Condition 122-124
at December 31, 1996 and 1995
Statements of Income and Changes in 125-128
Plan Equity for each of the three years
in the period ended December 31, 1996
Notes to Financial Statements 129-133
Supplemental Schedule
Schedule of Investments at December 31, 1996 and 1995 134-135
120
Report of Independent Accountants
---------------------------------
To the Pension and Employee Benefit Plans Committee of Engelhard Corporation:
We have audited the financial statements and the financial statement
schedule of the Engelhard Corporation Savings Plan for Hourly Paid Employees
listed in the table of contents on Page 120 of this Form 11-K. These financial
statements and the financial statement schedule are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 the Engelhard Corporation
Savings Plan for Hourly Paid Employees as of December 31, 1996 and 1995, and the
results of its operations for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
March 19, 1997
121
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Financial Condition
at December 31, 1996
(Page 1 of 2)
Company Stock Fixed Income Explorer Balanced Equity Index
Fund Fund Fund Fund Fund
------------- ------------ -------- --------- -----------
Assets:
- ------
Investments, at fair value
(combined cost of $7,997,088) $4,222,070 $2,172,085 $21,188 $754,872 $856,059
Interest receivable - - - - -
Contributions receivable:
Participants 104,699 52,014 1,979 23,200 26,442
Engelhard Corporation 30,282 - - - -
Promissory notes from participants 7,940 6,855 331 1,337 2,083
---------- ---------- ------- -------- --------
Total assets $4,364,991 $2,230,954 $23,498 $779,409 $884,584
========== ========== ======= ======== ========
Plan equity:
Plan equity $4,364,991 $2,230,954 $23,498 $779,409 $884,584
========== ========== ======= ======== ========
See Accompanying Notes to Financial Statements
122
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Financial Condition
at December 31, 1996
(Page 2 of 2)
Treasury
Int'l Growth Money Market Loan
Fund Fund Fund Combined
------------- ------------ -------- -----------
Assets:
- ------
Investments, at fair value
(combined cost of $7,997,088) $82,923 $5,049 $ - $8,114,246
Interest receivable - - 5,041 5,041
Contributions receivable:
Participants 6,559 774 - 215,667
Engelhard Corporation - - - 30,282
Promissory notes from participants 40 - 697,323 715,909
------- ------ -------- ----------
Total assets $89,522 $5,823 $702,364 $9,081,145
======= ====== ======== ==========
Plan equity:
Plan equity $89,522 $5,823 $702,364 $9,081,145
======= ====== ======== ==========
See Accompanying Notes to Financial Statements
123
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Financial Condition
at December 31, 1995
Company Stock Fixed Income Explorer Balanced Equity Index
Fund Fund Fund Fund Fund Combined
------------- ------------ -------- --------- ----------- ----------
Assets:
- ------
Investments, at fair value
(combined cost of $5,565,821) $3,268,979 $1,896,933 $ - $534,471 $534,274 $6,234,657
Contributions receivable:
Participants 94,432 50,779 240 15,589 16,217 177,257
Engelhard Corporation 14,143 - - - - 14,143
---------- ---------- ---- -------- -------- ----------
Total assets $3,377,554 $1,947,712 $240 $550,060 $550,491 $6,426,057
========== ========== ==== ======== ======== ==========
Plan equity:
Plan equity $3,377,554 $1,947,712 $240 $550,060 $550,491 $6,426,057
========== ========== ==== ======== ======== ==========
See Accompanying Notes to Financial Statements
124
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1996
(Page 1 of 2)
Company Stock Fixed Income Explorer Balanced Equity Index
Fund Fund Fund Fund Fund
------------- ------------ ---------- ---------- ------------
Net investment income:
Dividends $ 62,635 $ - $ 1,156 $ 66,213 $ 73,787
Interest - 115,213 - - -
---------- ---------- ------- -------- --------
62,635 115,213 1,156 66,213 73,787
Contributions and other receipts:
Participants 1,284,511 664,325 16,632 269,975 311,739
Engelhard Corporation 373,690 - - - -
---------- ---------- ------- -------- --------
1,658,201 664,325 16,632 269,975 311,739
Net realized gain (loss) on disposition
of investments 43,586 - (158) 24,565 26,472
Unrealized appreciation (depreciation)
of investments (596,181) - (295) 5,066 38,146
Distributions (99,265) (108,407) - (17,124) (21,216)
Transfers (81,539) (387,889) 5,923 (119,346) (94,835)
---------- ---------- ------- -------- --------
987,437 283,242 23,258 229,349 334,093
Plan equity, beginning of year 3,377,554 1,947,712 240 550,060 550,491
---------- ---------- ------- -------- --------
Plan equity, end of year $4,364,991 $2,230,954 $23,498 $779,409 $884,584
========== ========== ======= ======== ========
See Accompanying Notes to Financial Statements
125
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1996
(Page 2 of 2)
Treasury
Int'l Growth Money Market Loan
Fund Fund Fund Combined
------------- ------------ ---------- ----------
Net investment income:
Dividends $ 3,527 $ 97 $ - $ 207,415
Interest - - 40,677 155,890
------- ------ -------- ----------
3,527 97 40,677 363,305
Contributions and other receipts:
Participants 82,549 5,763 - 2,635,494
Engelhard Corporation - - - 373,690
------- ------ -------- ----------
82,549 5,763 - 3,009,184
Net realized gain (loss) on disposition
of investments (31) - - 94,434
Unrealized appreciation (depreciation)
of investments 1,586 - - (551,678)
Distributions - (6,206) (7,939) (260,157)
Transfers 1,891 6,169 669,626 -
------- ------ -------- ----------
89,522 5,823 702,364 2,655,088
Plan equity, beginning of year - - - 6,426,057
------- ------ -------- ----------
Plan equity, end of year $89,522 $5,823 $702,364 $9,081,145
======= ====== ======== ==========
See Accompanying Notes to Financial Statements
126
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1995
Company Stock Fixed Income Explorer Balanced Equity Index
Fund Fund Fund Fund Fund Combined
------------- ------------ -------- -------- ------------ ----------
Net investment income:
Dividends $ 44,408 $ - $ - $ 37,551 $ 29,920 $ 111,879
Interest - 116,203 - - - 116,203
---------- ---------- ---- -------- -------- ----------
44,408 116,203 - 37,551 29,920 228,082
Contributions and other receipts:
Participants 844,731 612,871 240 158,253 171,213 1,787,308
Engelhard Corporation 157,288 - - - - 157,288
---------- ---------- ---- -------- -------- ----------
1,002,019 612,871 240 158,253 171,213 1,944,596
Net realized gain on disposition
of investments 271,164 - - 19,410 20,555 311,129
Unrealized appreciation
of investments 541,991 - - 76,481 91,556 710,028
Distributions (176,911) (99,178) - (22,520) (23,575) (322,184)
Engelhard-CLAL transfer (413,389) (314,571) - (71,269) (93,118) (892,347)
Other transfers 255,586 (220,663) - (2,404) (32,519) -
---------- ---------- ---- ------- -------- ----------
1,524,868 94,662 240 195,502 164,032 1,979,304
Plan equity, beginning of year 1,852,686 1,853,050 - 354,558 386,459 4,446,753
---------- ---------- ---- -------- -------- ----------
Plan equity, end of year $3,377,554 $1,947,712 $240 $550,060 $550,491 $6,426,057
========== ========== ==== ======== ======== ==========
See Accompanying Notes to Financial Statements
127
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the Year Ended December 31, 1994
Company Stock Fixed Income Balanced Equity Index
Fund Fund Fund Fund Combined
------------- ------------ -------- ------------ ----------
Net investment income:
Dividends $ 29,296 $ - $ 13,253 $ 15,197 $ 57,746
Interest - 89,922 - - 89,922
---------- ---------- -------- -------- ----------
29,296 89,922 13,253 15,197 147,668
Contributions and other receipts:
Participants 588,339 600,822 136,847 143,867 1,469,875
Engelhard Corporation 102,931 - - - 102,931
---------- ---------- -------- -------- ----------
691,270 600,822 136,847 143,867 1,572,806
Net realized gain (loss) on disposition
of investments 35,474 - (449) (764) 34,261
Unrealized depreciation
of investments (227,285) - (17,786) (14,913) (259,984)
Distributions (81,296) (174,062) (5,232) (23,285) (283,875)
Transfers 19,306 (8,855) (8,905) (1,546) -
---------- ---------- -------- -------- ----------
466,765 507,827 117,728 118,556 1,210,876
Plan equity, beginning of year 1,385,921 1,345,223 236,830 267,903 3,235,877
---------- ---------- -------- -------- ----------
Plan equity, end of year $1,852,686 $1,853,050 $354,558 $386,459 $4,446,753
========== ========== ======== ======== ==========
See Accompanying Notes to Financial Statements
128
Notes to Financial Statements
Note 1 - Description of the Plan
The Engelhard Corporation Savings Plan for Hourly Paid Employees (the
Plan), effective as of January 1, 1991, is designed to provide eligible
employees of Engelhard Corporation (the Company) an opportunity to save part of
their income by having the Company reduce their compensation and contribute the
amount of the reduction to the Plan on a tax deferred basis.
The following plan description is provided for general information
purposes. Participants of the Plan should refer to the Plan document for more
detailed and complete information.
Eligibility
- -----------
Except as specifically included or excluded by the Board of Directors of the
Company (the Board), the hourly paid employees of Engelhard Corporation
represented by Locals 223, 237 and 238, Independent Workers of North America,
Local 1668 of the United Automobile Workers, Local 170 of the United Steel
Workers of America, Local 8-406 of the Oil, Chemical and Atomic Workers
International Union, Local 663 of the International Chemicals Workers Union and
as of January 1, 1996 Local 73 of the International Chemical Workers Union who
have completed at least one year of service, as defined, are eligible to
participate in the Plan as of the first day of the month in which they meet the
year of service requirement.
Contributions
- -------------
The Plan permits eligible employees participating in the Plan (the Participants)
to elect to reduce their compensation, as defined, by a whole percentage
thereof, subject to limitations, and to have that amount contributed to the Plan
and the related taxes deferred.
Matching Contributions
- ----------------------
The Company will contribute, on a monthly basis and subject to limitations and
exclusions, either cash or common stock of the Company in an amount, ranging
from 10 percent to 25 percent, depending on the union contract, of the amount
contributed by the Participants. Effective January 1, 1996 the maximum Company
contribution was increased to 50 percent, depending on the union contract, of
the amount contributed by the Participants.
Investments
- -----------
All contributions to the Plan are held and invested by Vanguard Fiduciary Trust
Company (the Trustee). The Trustee maintains seven separate investment funds
within the Plan:
a) The Company Stock Fund consists of assets invested or
held for investment in the common stock of the Company. In
the event the assets cannot be immediately invested in
Company common stock, the funds are invested in short-term
securities pending investment in Company common stock.
129
b) The Fixed Income Fund consists of assets invested in
shares of the Vanguard Variable Rate Investment Contract
Trust. In the event the assets cannot be immediately
invested in such shares or deposited as specified above, the
assets are invested in direct obligations of the United
States Government or agencies thereof, or obligations
guaranteed as to the payment of principal and interest by the
United States Government.
c) The Explorer Fund consists of assets invested in shares of the
Vanguard Explorer Fund, which invests in common stocks of
small companies with favorable prospects for above-average
growth in market value.
d) The Balanced Fund consists of assets invested in the
Vanguard Asset Allocation Fund, which invests in stocks,
bonds and cash reserves for the purpose of maximizing long-
term total return with less volatility than a portfolio of
common stock.
e) The Equity Index Fund consists of assets invested in
the Vanguard Quantitative Portfolio, which invests primarily
in common stocks for the purpose of realizing a total
return greater than the Standard & Poor's 500 Index while
maintaining fundamental investment characteristics similar to
such Index.
f) The International Growth Fund consists of assets invested in
shares of the Vanguard International Growth Portfolio or such
other mutual fund or funds which invest primarily in common
stocks of companies based outside the United States that have
above-average growth potential for the purpose of realizing
long-term capital growth.
g) The Treasury Money Market Fund consists of assets invested in
direct obligations of the U.S. Government which guarantees
payment of principal and interest.
Participants have the right to elect, subject to restrictions, the
investment fund or funds in which their contributions are invested. All matching
contributions are initially invested in the Company Stock Fund and participants
are restricted from transferring these contributions to other funds for one
year. Participants at their discretion may elect to transfer to another fund
their unrestricted balance. Their unrestricted balance is calculated as the sum
of all prior year's unrestricted balances plus 25 percent of the prior year's
restricted balance after the addition of the prior year's restricted matching
contribution.
The number of Participants in each fund was as follows at December 31:
Participants 1996 1995
---- ----
Company Stock Fund 853 705
Fixed Income Fund 443 396
Explorer Fund 19 1
Balanced Fund 295 192
Equity Index Fund 306 199
International Growth Fund 86 -
Treasury Money Market Fund 6 -
130
The total number of Participants in the Plan was less than the sum of the
number of Participants shown above because many were participating in more than
one fund.
The number of units representing Participant interests in each fund and the
related net asset value per unit were as follows at December 31:
Participant interests
Treasury
Company Stock Fixed Income Explorer Balanced Equity Index Int'l Growth Money Market
Fund Fund Fund Fund Fund Fund Fund
------------- ------------ -------- -------- ------------ ------------ ------------
1996:
Units 134,805 2,230,954 437 43,445 39,792 5,439 5,823
Value per unit $32.38 $1.00 $53.82 $17.94 $22.23 $16.46 $1.00
1995:
Units 91,532 1,947,712 - 32,262 27,593 - -
Value per unit $36.90 $1.00 - $17.05 $19.95 - -
Vesting
- -------
Participants at all times have a fully vested and non-forfeitable interest in
their contributions and in the matching contributions allocated to their
account.
Termination
- -----------
Although it expects and intends to continue the Plan indefinitely, the Company
has reserved the right of the Board to terminate or amend the Plan.
Loan Provision
- --------------
Effective January 1, 1996 the Plan was amended and restated to allow
participants who have participated in the plan for at least one year to borrow
funds from their accounts, subject to certain terms and conditions, at a
reasonable rate of interest as determined by the Company in accordance with
applicable laws and regulations.
Distributions and Withdrawals
- -----------------------------
All distributions and withdrawals from the Plan are made to Participants in a
lump sum cash payment except those amounts distributed from the Company Stock
Fund which may, at the Participant's election, be paid in full shares of the
Company's Common Stock with cash paid in lieu of fractional shares.
Note 2 - Accounting Policies
The accounts of the Plan are maintained on an accrual basis. Purchases and
sales of investments are reflected on a trade date basis. Assets of the Plan are
valued at fair value. Gains and losses on distributions to participants and
sales of investments are based on average cost.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported. Actual results are not expected to
differ from those estimates.
131
The Plan provides for various investment options in any combination of
stocks or mutual funds. Investment securities are exposed to various risks, such
as interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to changes in
the value of investment securities, it is at least reasonably possible that
changes in risks in the near term would materially affect participants' account
balances and the amounts reported in the statement of financial condition and
the statement of income and changes in plan equity.
Note 3 - Income Tax Status
The Plan and the Trust created thereunder are intended to qualify under
Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the
Code) and the Plan includes a cash or deferred arrangement intended to meet the
requirements of Section 401(k) of the Code. The Internal Revenue Service has
issued a favorable determination letter as to the Plan's qualified status under
the Code. Amounts contributed to and earned by the Plan are not taxed to the
employee until a distribution from the Plan is made. In addition, any unrealized
appreciation on any shares of common stock of the Company distributed to an
employee is not taxed until the time of disposition of such shares.
Note 4 - Administrative Expenses
All expenses of the Plan are paid for by the Company. Investment advisory
fees for portfolio management of Vanguard funds are paid directly from fund
earnings. Advisory fees are included in the fund expense ratio and will not
reduce the assets of the Plan. Brokerage commissions paid to purchase Engelhard
Corporation common stock are being charged against each participant's fund unit
value.
Note 5 - Concentrations of Credit Risk
Financial instruments which potentially subject the Plan to concentrations
of credit risk consist principally of investment contracts with insurance and
other financial institutions. The Plan places its investment contracts with
high-credit quality institutions and, by policy, limits the amount of credit
exposure to any one financial institution.
Note 6 - Investments
Investments in the Common Stock of the Company are valued at the
readily-available, quoted market price as of the valuation date and investments
in the Vanguard Funds are valued based on the quoted net asset value (redemption
value) of the respective investment company as of the valuation date.
132
The net realized gain (loss) on disposition of investments was computed as
follows:
Treasury
Common Fixed Equity Int'l Money
Stock Income Explorer Balanced Index Growth Market
Net realized gain (loss) Fund Fund Fund Fund Fund Fund Fund Combined
---------- -------- -------- --------- -------- -------- -------- --------
Year ended December 31, 1996 -
Amount realized $2,356,448 $- $26,540 $506,269 $587,969 $85,869 $ - $3,563,095
Cost-average 2,312,862 - 26,698 481,704 561,497 85,900 - 3,468,661
Net realized gain (loss) 43,586 - (158) 24,565 26,472 (31) - 94,434
Year ended December 31, 1995 -
Amount realized $695,731 $- $ - $153,120 $176,717 $ - $ - $1,025,568
Cost-average 424,567 - - 133,710 156,162 - - 714,439
Net realized gain 271,164 - - 19,410 20,555 - - 311,129
Year ended December 31, 1994 -
Amount realized $181,313 $- $ - $ 17,714 $ 28,297 $ - $ - $ 227,324
Cost-average 145,839 - - 18,163 29,061 - - 193,063
Net realized gain (loss) 35,474 - - (449) (764) - - 34,261
The net unrealized appreciation (depreciation) of investments held was
computed as follows:
Company Equity Int'l
Net unrealized appreciation Stock Explorer Balanced Index Growth
(depreciation) Fund Fund Fund Fund Fund Combined
--------- -------- --------- -------- ------- ----------
Year ended December 31, 1996 -
Balance, beginning of year $ 526,010 $ - $68,008 $ 74,818 $ - $ 668,836
Net change (596,181) (295) 5,066 38,146 1,586 (551,678)
Balance, end of year (70,171) (295) 73,074 112,964 1,586 117,158
Year ended December 31, 1995 -
Balance, beginning of year $ (15,981) $ - $(8,473) $(16,738) $ - $ (41,192)
Net change 541,991 - 76,481 91,556 - 710,028
Balance, end of year 526,010 - 68,008 74,818 - 668,836
Year ended December 31, 1994 -
Balance, beginning of year $ 211,304 $ - $ 9,313 $ (1,825) $ - $ 218,792
Net change (227,285) - (17,786 (14,913) - (259,984)
Balance, end of year (15,981) - (8,473) (16,738) - (41,192)
Note 7 - Engelhard-CLAL Transfer
In connection with the formation of a joint venture (Engelhard-CLAL) on
June 21, 1995, the Plan transferred assets of $892,347 to the Engelhard-CLAL-LP
Plan for Hourly Paid Employees.
133
Engelhard Corporation Savings Plan for Hourly Paid Employees
Schedule of Investments
at December 31, 1996
Approximate
Cost Market Value
---------- ------------
Company Stock Fund
- ------------------
Common Stock of $4,292,241 $4,222,070
Engelhard Corporation
(220,657 shares)
Fixed Income Fund
- -----------------
Vanguard Variable Rate 2,172,085 2,172,085
Investment Contract Trust
Explorer Fund
- -------------
Vanguard Explorer Fund 21,483 21,188
Balanced Fund
- -------------
Vanguard Asset Allocation 681,798 754,872
Fund
Equity Index Fund
- -----------------
Vanguard Quantitative 743,095 856,059
Portfolio
International Growth Fund
- -------------------------
Vanguard International Growth Fund 81,337 82,923
Treasury Money Market Fund
- --------------------------
Treasury Money Market Fund 5,049 5,049
---------- ----------
Total $7,997,088 $8,114,246
========== ==========
134
Engelhard Corporation Savings Plan for Hourly Paid Employees
Schedule of Investments
at December 31, 1995
Approximate
Cost Market Value
---------- ------------
Company Stock Fund
- ------------------
Common Stock of $2,727,052 $3,253,062
Engelhard Corporation
(149,566 shares)
Cash equivalents 15,917 15,917
Fixed Income Fund
- -----------------
Vanguard Variable Rate 1,896,933 1,896,933
Investment Contract Trust
Balanced Fund
- -------------
Vanguard Asset Allocation 466,463 534,471
Fund
Equity Index Fund
- -----------------
Vanguard Quantitative 459,456 534,274
Portfolio
---------- ----------
Total $5,565,821 $6,234,657
========== ==========
135