1994
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
--------------------------------------
For the fiscal year ended December 31, 1994
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
For the transition period from to
Commission file number 1-8142
ENGELHARD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-1586002
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 WOOD AVENUE, ISELIN, NJ 08830
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (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.
Number of shares of common stock outstanding as of March 2, 1995 - 95,400,983
Aggregate market value of common stock held by non-affiliates as of March 2,
1995 - $1,724,284,602
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Proxy Statement
for the 1995 Annual Meeting of Shareholders.
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Table of Contents
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Page
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1994
Form Proxy
Item 10-K Statement
- ---- ---- ----------
Part I
1. Business
(a) General development of business 3 -
(b) Industry segment and geographic area data 3-10, 41-43 -
(c) Description of business 3-10 -
2. Properties 10-11 -
3. Legal Proceedings 11 -
4. Submission of Matters to a Vote of 11 -
Security Holders
Part II
5. Market for Registrant's 12 -
Common Equity and Related
Stockholder Matters
6. Selected Financial Data 12-13 -
7. Management's Discussion and 13-25 -
Analysis of Financial Condition
and Results of Operations
8. Financial Statements and -
Supplementary Data
(a) Financial Statements 26-48 -
(b) Selected Quarterly Financial Data 49 -
9. Changes in and Disagreements with 49 -
Accountants on Accounting and Financial
Disclosure
Part III
10. Directors and Executive Officers of 50-51 3-6
the Registrant
11. Executive Compensation 51 11-21
12. Security Ownership of Certain 51 2-3,7
Beneficial Owners and Management
13. Certain Relationships and Related 51 2-3,3-6,7,10
Transactions
Part IV
14. Exhibits, Financial Statement 52-56 -
Schedules, and Reports on Form 8-K
-2-
PART I
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Item 1. Business
- ------ --------
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, New Jersey, 08830 (telephone number
(908) 205-5000).
The Company develops, manufactures and markets technology-based
specialty chemical products and engineered materials for a wide spectrum of
industrial customers and provides services to precious metals customers.
In 1993 the Company provided for a plan to realign and consolidate
businesses, concentrate resources and better position itself to achieve its
strategic growth objectives. See Note 2 "Special Charge" of the Notes to
Consolidated Financial Statements on pages 31-32 of this 10-K. This plan
resulted in a special charge of $148.0 million ($91.8 million after tax or $.95
per share) in 1993 consisting of a $118.0 million pre-tax restructure provision
for asset writedowns related to product lines or sites being exited together
with provisions for facility shutdown, rundown and relocation and for employee
reassignment, severance and related benefits and a $30.0 million pretax
environmental reserve. See Note 15 "Environmental Costs" of the Notes to
Consolidated Financial Statements on pages 44-46 of this 10-K and the
"Environmental Matters" section below on pages 8-10 of this 10-K for a
discussion of environmental matters and the amount of the Company's
environmental reserve.
The Company employed approximately 5,800 people as of January 1,
1995 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
Precious Metals 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 13 "Industry
Segment and Geographic Area Data" of the Notes to Consolidated Financial
Statements on pages 41-43 of this 10-K.
Catalysts and Chemicals
The Catalysts and Chemicals segment comprises four principal product
groups: the Automotive Emission Systems Group (AES), serving the automotive,
off-road vehicle, and aircraft industries; the Stationary Source Emission
Control Group (SSEC) serving the 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.
-3-
Environmental catalysts, comprising AES and SSEC, 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 1994, the Company purchased the assets of General Plasma, Inc. a
supplier of thermal spray coating technology and services. This acquisition,
when combined with the Company's catalyst technology, provides for a broader
offering of emission control systems.
The Company also participates in the manufacture and supply of
automobile exhaust emissions control catalysts through affiliates serving the
Asia-Pacific region: N.E. Chemcat Corporation (Japan) - 38.8 percent owned;
and Hankuk-Engelhard (South Korea) - 49 percent owned, both of which also
produce other catalysts and products. In the third quarter of 1992, the
Company and Salem Industries, Inc., formed Salem Engelhard, a jointly owned
partnership 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.
The petroleum refining catalyst products consist of a variety of
catalysts and processes used in the petroleum refining industry. The principal
products are zeolitic fluid cracking catalysts which are widely used to provide
economies in petroleum processing. The Company offers commercially a full line
of fluid cracking catalyst based on patented technology including the DYNAMICS
(registered trademark) line 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 petroleum catalysts used for catalytic
reforming and isomerization of hydrocarbons to produce higher octane gasoline,
for isomerization of xylenes to produce paraxylene and orthoxylene and for
selective hydrogenation of alkylation feed stocks. The Company also
manufactures hydrotreating catalysts which are used in viscosity improvement
and aromatics saturation of lube oil feedstocks and for the removal of
contaminant sulfur, nitrogen and metals. These reforming, isomerization and
hydrotreating catalysts are marketed in North America and the Caribbean by
Acreon Catalysts, a jointly owned partnership formed by the Company and
Procatalyse. Process technologies developed by the Company are also offered
for license to the petroleum industry.
In March 1994, the Company completed its purchase of the assets of
the sorbents and moving bed catalysts businesses of Solvay Catalysts, GmbH, in
Nienburg Germany. This acquisition expanded the Company's moving bed catalysts
business and provided complementary product lines serving adsorbents
applications. Optimization of these operations is being pursued.
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
-4-
cooperation with specific customers. Sorbents are used to purify and
decolorize naturally occurring fats and oils for manufacture into shortenings,
margarines and cooking oils.
In early 1994, the Company and ICC Technologies, Inc. formed
Engelhard/ICC, a jointly owned partnership, to develop and commercialize air
conditioning and air-treatment systems based on a proprietary new desiccant
developed by Engelhard.
The products of the Catalysts and Chemicals segment compete in the
marketplace on the basis of product performance, technical service and price.
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 eight states in the United States. Wholly-owned foreign
operations are located in Italy, The Netherlands, Germany, the United Kingdom
and South Africa with equity investments located in the U.S., 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
Precious Metals 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 Precious Metals Management" section below on
pages 6-7 of this 10-K.
As of January 1, 1995 the Catalysts and Chemicals segment had
approximately 2,250 employees worldwide, many of whom are hourly employees
covered by collective bargaining agreements. Employee relations have generally
been good.
Pigments and Additives
The Pigments and Additives segment comprises two principal
product groups: the Paper Pigments and Chemicals Group, serving the paper
industry and the Specialty Minerals and Colors Group, serving the plastics,
coatings, paint and allied industries.
Paper pigments and chemicals products consist primarily of coating
and extender pigments. The coating pigments provide whiteness, opacity and
improved printing properties for high-quality paper and paperboard. Other
products are used as extenders and/or combined with fibers during the
manufacture of paper or paperboard. Products for the paper market include
Ultra White 90 (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 (trademark) structured pigment that
improves the printability of lightweight coated paper and carbonless forms; and
Spectrafil (trademark) pigments for the newsprint and groundwood specialties
markets.
-5-
Specialty minerals and colors kaolin based products are used as
pigments and extenders 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.
Other specialty minerals and colors products which serve essentially the same
end markets as the Company's kaolin-based pigments and extenders comprise a
variety of organic and inorganic color pigments. The Group also produces
gellants and sorbents for a wide range of applications.
The products of the Pigments and Additives segment compete with
similar products as well as products made from other materials on the basis of
product performance and price. No single competitor is dominant in the markets
in which the Company operates.
Pigments and Additives operations are carried out in four states in
the United States and in Finland and Japan. The products are sold principally
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 and attapulgite from mineral reserves owned or leased by
the Company and a variety of minerals and chemicals which are generally readily
available.
As of January 1, 1995 the Pigments and Additives segment had
approximately 1,640 employees worldwide, many of whom are hourly employees
covered by collective bargaining agreements. Employee relations have generally
been good.
Engineered Materials and Precious Metals Management
The Engineered Materials and Precious Metals Management segment
includes the Engineered Materials Group, serving a broad spectrum of industries
and the Precious Metals Management Group, which is responsible for precious
metals sourcing and dealing and for managing the precious metals requirements
of the Company and its customers.
The products of the Engineered Materials Group consist primarily of
metal-based materials such as temperature-sensing devices, crucibles, bushings,
gauze, precious metals coating and electroplating materials, conductive pastes
and powders, brazing alloys and precious metal wire, sheet, and tubing. These
products are used in the manufacture of automotive components, industrial
devices, glass and glass fiber, ceramics, chemicals, instruments, control
devices, fine jewelry, dental and medical supplies, hardware, furniture and air
conditioners. The Group also provides refining services to internal and
external customers.
The products of the Engineered Materials Group compete with similar
products as well as products made from other materials on the basis of product
performance, technical service and price. 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
the United Kingdom, France and Italy. The products are sold principally
through the Company's sales organization, supplemented by independent
distributors and representatives.
-6-
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.
As previously announced, the Company has entered into negotiations
with CLAL for the establishment of a Paris-based precious metal fabrication
joint venture. Consummtion of the joint venture is pending appropriate
approvals (see Note 2 "Special Charge" of the Notes to Consolidated Financial
Statements on pages 31-32 of this 10-K). The joint venture will combine most
of the assets of the Engineered Materials business with CLAL.
In January, 1993 the Company sold its 40 percent interest in M&T
Harshaw, an affiliate through which the Company had participated in the base
metal plating industry. In the fourth quarter of 1992, the Company formed
Heraeus Engelhard Electrochemistry Corp., a venture with Heraeus Inc. The
venture, 46 percent owned, markets electrochemical products in the Western
Hemisphere.
The Precious Metals Management Group is responsible for procuring
precious metals 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 contracts with one
supplier will expire in their present forms on December 31, 1996, the end of
the initial period. The Company is proceeding with arrangements to optimize
their replacement. Management believes that available supplies of such metals
will be adequate to meet the needs of the Company for the foreseeable future.
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 Precious Metals Management Group also engages in precious metal
dealing operations with industrial consumers, dealers, central banks, miners
and refiners. It also participates in refining and marketing of energy-related
services. The group does not routinely speculate in the precious metals
market. For more information regarding precious metals operations, see Note 12
"Financial Instruments and Precious Metals Operations" of the Notes to
Consolidated Financial Statements on pages 39-41 of this 10-K. Offices are
located in the United States, the United Kingdom, Switzerland, Japan and the
Russian Federation.
As of January 1, 1995 the Engineered Materials and Precious Metals
Management segment had approximately 1,370 employees throughout the world, many
of whom are hourly employees covered by collective bargaining agreements.
Employee relations have generally been good.
Major Customer
Approximately 11 percent and 12 percent of the Company's net sales
for the year ended December 31, 1994 and 1992, respectively, was generated from
a customer of both the Catalysts and Chemicals and Engineered Materials and
Precious Metals Management segments. Sales to this customer included both
fabricated products and precious metal and were therefore significantly
-7-
influenced by fluctuations in precious metal prices as well as the quantity of
metal purchased. In such cases, the market price fluctuations and quantities
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 320 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 $49.0 million
in 1994, $46.9 million in 1993 and $44.6 million in 1992.
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 the performance of Engelhard products in their specific
application.
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 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
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 is currently preparing, has under review, or is
implementing, with the oversight of cognizant environmental agencies,
environmental investigations and cleanup plans at several locations which it
owns and/or operates, including Plainville, Massachusetts; Salt Lake City,
Utah; Attapulgus, Georgia; and Newark, New Jersey. With respect to Plainville,
in September 1993 the United States Environmental Protection Agency (EPA) and
the Company entered into a consent order under which the Company is
investigating contamination and will conduct site stabilization measures.
Plainville is also included on the Nuclear Regulatory Commission (NRC)
"Existing Site Decommissioning Management Plan Sites" list and the Company is
currently conducting further investigations of the site pursuant to NRC
approved plans. With respect to Salt Lake City, in connection with obtaining
an operating permit under the Utah Solid and Hazardous Waste Act, the Company
entered into an agreement in December 1993 with the Utah Solid and Hazardous
Waste Control Board under which the Company is currently investigating the
environmental status of the site. With respect to Attapulgus, in January 1994
the Georgia Department of Natural Resources, Environmental Protection Division
and the Company entered into a consent order under which the Company will
develop and implement a reclamation program. With respect to Newark, the
Company is in the process of implementing a cleanup plan in coordination with
the New Jersey Department of Environmental Protection.
-8-
The Company has been designated as a potentially responsible party
(PRP) by EPA under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended and by certain state environmental
authorities under similar state laws (collectively referred to as Superfund)
with respect to the cleanup of contamination resulting from the disposal of
hazardous substances at 16 sites to which the Company, among others, sent waste
in the past. Superfund requires cleanup of certain sites from which there has
been a release or threatened release of hazardous substances and authorizes EPA
to take any necessary response action at such sites, including ordering PRPs to
cleanup or contribute to the cleanup of a site. Courts have interpreted
Superfund to impose strict, joint and several liability. These claims are in
various stages of administrative or judicial proceedings, and include demands
for recovery of past governmental costs and future investigative or cleanup
action. 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
recovery or other relief as was asserted against the Company. Based on
existing information, the Company believes that it is a de minimis contributor
at most of the sites referenced above. Subject to outstanding state claims or
the reopening of existing settlement agreements for extraordinary circumstances
or natural resource damages, the Company has settled a number of other cleanup
proceedings. In several additional instances, PRPs designated by EPA or a
state equivalent have notified or sued the Company, claiming that the Company
should have been named a PRP and allocated a share of cleanup costs. The
Company has also responded to information requests from EPA at other CERCLA
sites.
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 the Superfund sites, the Company also assesses
the financial capability of other PRPs and, where allegations are based on
tentative findings, the reasonableness of the Company's apportionment. The
Company has not anticipated recoveries from insurance carriers or other
potentially responsible third parties in its consolidated balance sheets. The
liabilities for environmental cleanup related costs recorded in the
consolidated balance sheets at December 31, 1994 and 1993 were $62.2 million
and $66.1 million, respectively, including $10.8 million and $11.8 million,
respectively, for the 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 90 percent of what it believes are 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 $4.5 million, $.3 million and $.7 million for
1994, 1993 and 1992, respectively. In 1994 and 1992, the amounts accrued in
connection with environmental cleanup related matters were not significant. In
1993, $30.0 million was accrued as a result of developments during that year
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which caused the Company to revise its estimates of environmental cleanup
related costs at sites being idled or affected by restructuring, where
conditions had recently changed, or where studies and cleanup plans had been
approved and the assessment of the likelihood or extent of remediation had
changed.
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 the 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 $10.0 million for 1995, all of which has already
been accrued. Further, the Company anticipates that the future amounts of
capitalized environmental projects and the future 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, 1994 are reasonable and adequate and that
environmental matters are not expected to have a material adverse effect on
financial condition or on the results of operations.
Item 2. Properties
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The Company owns approximately 15 acres of land and three buildings
with a combined area of approximately 168,000 square feet in Iselin, New
Jersey. These buildings serve as the major research and development facilities
for the Company's operations. The Company also owns a research facility in the
Cleveland, Ohio area. In 1990, the Company entered into a 15 year lease for a
271,000 square foot building in Iselin, New Jersey, proximate to its owned
facilities, which serves as the principal executive and administrative offices
of the Company and its operating segments. This lease provides for three
consecutive five-year-period extensions. The building is owned by a
partnership in which the Company holds a significant interest.
The Catalysts and Chemicals segment owns and operates a complex of
plants in Georgia that manufactures petroleum cracking catalysts, and other
domestic plants located in Union, New Jersey; Huntsville, Alabama; Seneca,
South Carolina; Elyria,Ohio; East Windsor, Connecticut; and Jackson,
Mississippi. Foreign manufacturing operations are conducted at owned
facilities in Italy, The Netherlands, Germany and the 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 four processing plants. It also owns land containing
kaolin clay 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, Georgia near the area containing its
attapulgite reserves. It also owns and operates a plant in Little Rock,
Arkansas. Management believes that the Company's crude kaolin and attapulgite
reserves will be sufficient to meet its needs for the foreseeable future.
The segment also owns and operates color pigments manufacturing facilities
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in Louisville, Kentucky, Sylmar, California and Elyria, Ohio. Foreign
operations are conducted at owned facilities in Finland. In addition, the
segment owns mines in Florida.
The Engineered Materials and Precious Metals Management segment owns
and operates manufacturing facilities in Carteret and East Newark, New Jersey;
Anaheim and Fremont, California; Lincoln Park, Michigan; and Warwick, Rhode
Island. Other manufacturing operations are conducted at owned facilities in
the United Kingdom, France and Italy.
The Company is currently restructuring its operations (see Note 2
"Special Charge" of the Notes to Consolidated Financial Statements on pages
31-32 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 requirments for the foreseeable future.
Item 3. Legal Proceedings
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The Company is a defendant in a number of lawsuits covering a wide
range of matters. In some of these pending lawsuits, the remedies sought or
damages claimed are substantial. The Company is vigorously defending against
these claims. The Company is also subject to a number of environmental
contingencies (See "Environmental Matters"). 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 or on the results of operations.
In January, 1995, the Company received and is reviewing 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".
Submission of Matters to a Vote of
Item 4. Security Holders
- ------ ----------------
Not applicable.
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PART II
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Market for Registrant's Common Equity
Item 5. and Related Stockholder Matters
- ------ ------------------------------
As of March 3, 1995, there were 8,772 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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1994
First quarter $31 1/2 $23 5/8 $.11
Second quarter 28 1/4 24 1/4 .11
Third quarter 28 5/8 21 1/2 .12
Fourth quarter 27 5/8 20 7/8 .12
1993
First quarter $29 7/8 $22 7/8 $.10
Second quarter 28 5/8 19 3/8 .10
Third quarter 27 3/8 25 1/4 .11
Fourth quarter 28 3/4 22 3/4 .11
<TABLE>
Item 6. Selected Financial Data
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Selected Financial Data
<S> <C> <C> <C> <C> <C>
($ in millions, except per
share amounts) 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Net sales $2,385.8 $2,150.9 $2,399.7 $2,436.4 $2,942.2
Net earnings (a) 118.0 .7 10.6 87.9 70.3
Net earnings
per share(a) 1.23 .01 .11 .87 .70
Property, plant and
equipment, net $ 540.4 $ 494.4 $ 514.4 $ 533.3 $ 563.4
Total assets 1,440.8 1,279.1 1,287.7 1,279.4 1,343.3
Long-term debt 111.8 112.2 113.9 114.5 119.4
Shareholders' equity 614.7 531.3 647.2 756.6 709.8
Cash dividends paid
per share $ .46 $ .42 $ .37 $ .33 $ .30
Return on average
shareholders'
equity(a) 20.6% .1% 1.5% 12.0% 10.4%
Current ratio 1.0 1.1 1.5 1.5 1.3
Net cash provided
by operating
activities $ 114.8 $ 130.4 $ 169.5 $ 135.4 $ 150.0
-12-
(a) Results in 1994 include a special credit of $5.0 million after tax ($.05
per share) representing the reversal of excess restructuring reserves; and
an after-tax net charge of $5.3 million ($.05 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 $91.8 million after tax
($.95 per share) for realignment and consolidation of businesses and
environmental matters; an after-tax gain of $6.3 million ($.06 per share)
from the sale of the Company's interest in M&T Harshaw, a base-metal plating
business; and an after-tax charge for the cumulative effect of an accounting
change of $16.0 million ($.16 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 an after-tax charge for the cumulative effect of
accounting changes of $89.5 million ($.89 per share) as a result of adopting
the provisions of Statements of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
No. 109, "Accounting for Income Taxes."
Management's Discussion and Analysis
Item 7. of Financial Condition and Results of Operations
- ------ ------------------------------------------------
Management's Discussion and Analysis of Financial Engelhard Corporation
Condition and Results of Operations
Results of Operations
The Company reported net earnings before cumulative effect of accounting
changes of $118.0 million ($1.23 per share) in 1994 compared with $16.7 million
($.17 per share) in 1993 and $100.1 million ($1.00 per share) in 1992. 1994
net earnings included a special credit (see "Special Charge") of $5.0 million
($.05 per share) representing the reversal of excess restructuring reserves and
a net charge of $5.3 million ($.05 per share) for a change in the Company's
estimate of compensation expense relating to stock awards (see "Selling,
Administrative and Other"). 1993 net earnings included a special charge (see
"Special Charge") of $91.8 million ($.95 per share) and a gain on the sale of
an investment (see "Gain on Sale of Investment") of $6.3 million ($.06 per
share).
In 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The impact of this change on 1993 results was a one-time, noncash,
after-tax charge of $16.0 million ($.16 per share). 1993 net earnings after
the cumulative effect were $.7 million ($.01 per share).
In 1992, the Company adopted the provisions of Statements of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and No. 109, "Accounting for Income Taxes." The
impact of these changes on 1992 results was a one-time, noncash, after-tax
charge of $89.5 million ($.89 per share). 1992 net earnings after the
cumulative effect were $10.6 million ($.11 per share).
Special Charge
In 1993, the Company provided for a plan to realign and consolidate businesses,
concentrate resources and better position itself to achieve its strategic
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growth objectives. That plan resulted in a special charge of $148.0 million
($91.8 million after tax or $.95 per share) in 1993, consisting of a $118.0
million pretax restructure provision for asset writedowns related to product
lines or sites being exited together with provisions for facility shutdown,
rundown and relocation and for employee reassignment, severance and related
benefits and a $30.0 million pretax environmental reserve. See Note 15
"Environmental Costs" of the Notes to Consolidated Financial Statements for a
discussion of environmental matters and the amount of the Company's
environmental reserve.
The Company's restructuring reserve at December 31, 1993, consisted of the
$118.0 million 1993 special charge and $32.4 million of previously established
provisions associated with idled sites, as rundown costs continue to be
incurred at these sites and their disposition is pending completion of
environmental cleanup and/or consummation of sales. During the fourth quarter
of 1994, the Company reversed $8.0 million of its restructuring reserve because
its idle Canadian facility was sold earlier and at more favorable terms than
originally estimated and because of a revised, and less costly, approach to the
cleanup/disposition of its idle Newark, New Jersey site.
Generally, the 1993 restructuring plan is being implemented as originally
contemplated. The following table sets forth the components of the Company's
restructuring reserve and related activity for the year:
Restructuring Reserve
(in millions) Employee Asset
separation 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 (8.8) - (8.4) (17.2)
Cash proceeds - 1.7 - 1.7
Reclassification - 7.5 (7.5) -
Reversal - - (8.0) (8.0)
----- ----- ----- -----
Balance at December 31, 1994 $27.1 $14.8 $18.4 $60.3
In 1994, the Company reconfigured certain production processes of the
Middle Georgia facility of the Paper Pigments and Chemicals Group, which
resulted in the writeoff of the associated assets. Two other Company-owned
sites, originally identified for closure, will remain open. One of these
facilities, a part of the Engineered Materials Group, will continue to operate
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. The other facility, a part of the
Chemical Catalysts Group, will continue to operate because the product lines
are complementary to the Company's other businesses. The impairment of this
facility, as opposed to the originally planned shutdown and relocation,
resulted in a reclassification of shutdown and relocation costs to asset
writedowns.
To date, the Company has been unable to implement two of the originally
planned restructuring projects. Delayed Department of Justice clearance has
impeded the completion of the Floridin acquisition which was formally announced
in June 1994 and is an integral part of the rationalization of the Company's
attapulgite business. Further, although negotiations began in late 1993 for
the establishment of a Paris-based precious metal fabrication joint venture
with CLAL, consummation of the joint venture is pending appropriate approvals.
The Company anticipates implementation of both of these projects as soon as
appropriate approvals/clearances are obtained.
-14-
As indicated in the table above, the reserve balance at December 31, 1994,
will be used for severance and related benefits, asset writeoffs and other
expenses, primarily rundown costs at idle sites. The Company continues to
expect that approximately 600 employees will be impacted; currently, about half
of these employees have been separated or notified of their impending
termination.
During 1994, restructuring savings of approximately $7.0 million were
realized, primarily as a result of reduced depreciation. Additional savings
will be realized in 1995, and by the end of 1996 the Company anticipates annual
cost savings of about $20 to $25 million as a result of lower manufacturing and
operating expenses, with annual cash savings of about $15 million.
Gain on Sale of Investments
In the first quarter of 1993, the Company sold its share of M&T Harshaw, formed
in 1990, to its partner, Elf Atochem North America, Inc., for $40 million in
cash with the buyer assuming all assets and liabilities. The Company realized
an after-tax gain of $6.3 million ($.06 per share).
Catalysts and Chemicals
The Catalysts and Chemicals segment develops, manufactures and markets a wide
range of catalysts and related products and processes for the automotive, off-
road vehicle, aircraft, power generation, petroleum refining, chemical,
petrochemical, pharmaceutical and food processing industries, among others.
The Company's products are used by customers in these industries to reduce
emissions, achieve desired manufacturing yields and improve quality and/or
cost-efficiency.
Results of Operations
(in millions) 1994 1993 1992
---- ---- ----
Net sales $602.5 $541.1 $511.0
Operating earnings 96.9 81.9 70.9
Special charge - (79.1) -
1994 Compared with 1993
Operating earnings for the Catalysts and Chemicals segment rose 18 percent in
1994 while sales increased 11 percent over the prior year. 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 increase although volumes were lower.
Automotive Emission Systems
The newly named "Automotive Emission Systems" Group (which includes the mobile-
source emission control business of the former Environmental Catalysts Group)
posted higher sales and earnings in 1994. Brisk vehicle sales in the U.S.
more than countered continued sluggishness in vehicle sales in Europe and
Japan.
The Group's new plant in Nienburg, Germany, contributed to substantial
market share gains in Europe. After lagging behind expectations during the
first half of 1994, production increased during the second half of the year.
Certain European auto makers adopted the Group's new trimetal catalyst
technology, Trimax, more quickly than anticipated.
-15-
Similarly, another new technology, the PdPLUS all-palladium catalyst, won
an award from Ford, the Group's largest customer and the co-developer of PdPLUS
catalysts. This technology offers greater thermal stability, permitting the
catalyst to be placed closer to the engine and activate faster.
Production of catalytic converters for truck diesel engines, which started
in September 1993, reached full stride in 1994. As the sole supplier to the
world's leading maker of diesel engines, Engelhard has a large share of the
truck diesel catalyst market.
While automotive products account for a large part of its sales, Automotive
Emission Systems also made progress with its off-highway business.
Consolidation of manufacturing facilities is lowering costs and a new soot
filter for fork-lift trucks was launched.
Looking forward, the Group intends to expand its role as a supplier of
complete emission systems to the automotive, truck and bus industries. To that
end, Engelhard acquired the business and assets of General Plasma, a leading
North American supplier of thermal spray coatings that provide emissions-
control and fuel-economy benefits when applied to gasoline and diesel engines.
In early 1995, the Group further strengthened its geographic presence with
the opening of a small catalyst facility in South Africa. In February 1995,
the Group formed a joint venture with W.R. Grace to develop, manufacture and
market technologically advanced metallic-substrate catalytic converters that
will help automakers comply with regulations. This joint venture is not
expected to have a material impact on the operations or cash flows of the
Company in the near term.
The Group expects continued strength in 1995 through its efforts to work
more closely with customers, starting with initial product design through
development of advanced technologies that meet increasingly stringent emission
standards.
Stationary Source Emission Control
Salem Engelhard, the Company's joint venture in controlling emissions of
volatile organic compounds, developed new technology based on the capabilities
of both partners. Called Regenerative Catalytic Oxidation, this new technology
will be at the heart of systems ordered in early 1995 by a major forest
products company. Financial performance improved in 1994, but the joint
venture operated at a slight loss. Salem Engelhard has an improved outlook
for 1995 due to strong orders coming into the year.
Engelhard's business in NOx reduction from power-generating facilities is
still developing. While the Company has innovative technology, strong
regulations are not yet in place. Progress in 1994 included two successful
demonstrations of a new cost-effective system to control NOx emissions from
coal-fired power plants. A third demonstration began earlier this year in
New England. Engelhard also received several orders for NOx control systems
for gas turbine power plants in California.
Petroleum Catalysts
The Petroleum Catalysts Group also increased sales and profit in 1994. The
Group achieved increased volumes of fluid catalytic cracking (FCC) catalysts
in the Asia-Pacific region as new products developed especially for the market
were introduced. Heavier feedstocks are widely used in Asia-Pacific refineries
placing tougher demands on catalysts. In mid-1994 Engelhard introduced
Millennium catalysts for this application and achieved its first sales in Asia
Pacific and in Europe by year's end.
Increased volumes of moving bed catalysts (MBC) also contributed to the
Group's performance. MBC products are used in older refineries, many of which
are in Russia. For the most part the Russian petroleum industry manufactures
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its own catalysts. In 1994, Engelhard purchased a complementary MBC business to
augment its existing capabilities in these products. As a result, the Group
was able to place local catalysts at several Russian refineries. Additional
gains are anticipated in 1995 as well.
In the United States, where the refinery industry has been consolidating in
recent years, cost-effective products and excellent customer service are
the Group's emphasis. In 1994, Engelhard gained market share at several major
refiners by customizing products and services for their needs.
In addition to FCC and MBC products, the Group is involved in
hydroprocessing products and services through its joint venture company, Acreon
Catalysts. In 1994, Acreon operated at a loss due to poor market demand. The
Group is addressing strategies to improve this business.
In 1994, the Petroleum Catalysts Group also upgraded a facility in
Savannah, Georgia, that was purchased in 1993. The plant is expected to be a
positive contributor to earnings in 1995. It also has allowed Engelhard to
develop a new FCC technology called Syntec. This technology combines benefits
from the production method used in Savannah and a proprietary Engelhard
production method. The first products arising from this new technology were
introduced in late 1994.
Chemical Catalysts
Operating earnings increased in the Chemical Catalysts Group on constant sales.
Consolidation and productivity initiatives led to the profit growth. Sales
growth in certain product lines and in Asia Pacific were balanced by sales
declines in other product lines.
The Group has not yet benefitted from the upturn in the overall chemical
industry because of adverse trends in some of its market segments. These
include lower catalyst consumption and declining end markets. New initiatives
begun over the last few years are helping to counter these trends and provide
growth opportunities for Chemical Catalysts.
The Group is maintaining its pressure on costs, pursuing opportunities in
the economically thriving Asia-Pacific region, joining forces with some
customers to manufacture custom catalysts and building alliances to develop
new, more efficient manufacturing processes using advanced catalysts. In
1994, exports to its key markets in the Asia-Pacific region--Korea, Taiwan,
Japan, Malaysia, Indonesia and India increased significantly. In 1993, a
large U.S. consumer products company chose Engelhard to supply a catalyst the
company formerly made for itself, and in 1994 the second such agreement was
made. The new agreement is with a leading European chemical company that will
be working with Engelhard in the area of polymers.
The Group is pursuing alliances with engineering firms that are developing
new manufacturing processes. Working with the M.W. Kellogg Company, Engelhard
is participating in the design and construction of the first plant that will be
using a new ammonia process the two companies developed together.
1993 Compared with 1992
Operating earnings increased 16 percent while sales increased six percent over
the prior year. Significantly higher earnings from the Petroleum and Chemical
Catalysts Groups more than offset lower earnings from the Environmental
Catalysts Group.
Increased demand and favorable pricing in FCC catalysts produced
significantly higher results in the Petroleum Catalysts Group. The Chemical
Catalysts Group benefitted from substantial reductions in manufacturing costs
as a result of its reengineering programs. These more than offset lower volumes
caused by the timing of customer orders. The decline in the Environmental
-17-
Catalysts Group earnings was due to an increase in new product development
expenses and lower non-automotive volumes, which more than offset an increase
in U.S. and European auto catalyst volumes, including the initial sales of
diesel truck catalysts.
1992 Compared with 1991
Operating earnings increased 27 percent in 1992. Sales increased 28 percent,
in part as a result of the acquisition of the remainder of the Company's
former German auto-catalyst joint venture (see "Investments"). The Petroleum
Catalysts Group generated increased sales and earnings mainly as a result of
favorable pricing and product mix for fluid catalytic cracking catalysts. Lower
Environmental Catalysts Group earnings were due to reduced domestic auto
catalysts shipments, higher costs associated with the European auto catalysts
business and increased new product development and marketing expenses,
partially offset by technology transfer income. The Chemical Catalysts Group
earnings benefitted from cost reductions, which were offset by the impact of
the recession on the chemical, construction and automotive industries.
Outlook
The outlook for this segment in 1995 is favorable. The Automotive Emission
Systems business should benefit from a continued strong automotive industry and
from its initiatives in advanced technology and systems. Stationary Source
Emission Control should improve with strong orders coming in to Salem
Engelhard. Petroleum Catalysts is expected to take advantage of new capacity
and make further inroads in the growing Asia-Pacific market, while Chemical
Catalysts intends to continue cost management efforts, building close customer
alliances and pursuing opportunities in Asia Pacific.
Pigments and Additives
Engelhard's Pigments and Additives segment develops, manufactures and markets
coating and extender pigments for the paper industry and color pigments and
specialty minerals for a variety of industries. The Company's paper pigments
are used principally to make coating and uncoated papers. Its color pigments
are used primarily in paints and coatings, plastics, rubber and printing inks,
while specialty mineral products are sold to the plastics, rubber, wire and
cable, coatings, inks and adhesives industries.
Most of the minerals used by this segment are mined by the Company from
reserves it owns or has under long-term leases. Engelhard has sufficient
mineral reserves for its operations.
Results of Operations
(in millions) 1994 1993 1992
---- ---- ----
Net sales $376.0 $369.0 $362.2
Operating earnings 72.0 55.0 56.8
Special charge - (30.3) -
1994 Compared with 1993
Operating earnings inceased 31 percent while sales increased two percent over
the prior year. Earnings increased for both the Paper Pigments and Chemicals
Group and the Specialty Minerals and Colors Group. Increased volumes of
calcined paper pigments and lower manufacturing costs in the Paper Pigments and
Chemicals Group produced significantly higher earnings. The Specialty Minerals
and Colors Group experienced significantly higher earnings due to favorable
product mix and lower manufacturing costs.
-18-
Paper Pigments and Chemicals
For the paper industry, 1994 started out as another difficult year, but signs
of economic recovery were evident by year's end. The industry is anticipated
to stabilize and improve through 1995 with North America and Europe leading the
recovery.
The Company took a number of steps to respond to the recovery in the paper
industry and to build competitive advantages.
In April 1995, a new calciner will go on stream in Middle Georgia to meet
the paper industry's increasing demand for calcined-kaolin products. This
additional capacity will also address growing demand for specialty mineral
products and intermediates for petroleum-refining catalysts.
To better serve the important Japanese market, Engelhard opened a new
distribution center close to some of that country's largest paper mills. In
addition to increased storage capability, the facility allows more flexible
packaging options.
The drive for superior service is being extended into all areas of the
order-fulfillment process. After equipping a fleet of 1,100 rail cars with
quick disconnect fittings to simplify and speed unloading, the business
implemented its Quick-Trax system on a pilot basis. It tells customers exactly
where their shipments are at all times. In addition, electronic data
interchange is being applied to allow easier, faster order placement tracing,
invoicing and payment.
In early 1995, the Paper Pigments and Chemicals and the Specialty Minerals
and Colors Groups were combined under one management. This consolidation is
expected to yield cost and productivity benefits in purchasing, manufacturing
and administration while separate sales, marketing and technical service
functions will continue to respond to the different customer requirements for
these product lines.
Specialty Minerals and Colors
The Specialty Minerals and Colors business also achieved growth in operating
earnings, primarily through effective cost management efforts, new products and
an improved product mix. Sales volumes overall remained about even with the
1993 level.
Kaolin-based products introduced over the last few years helped fuel the
earnings increase. They include ASP extender pigments for high-gloss paints
and Translink reinforcing agents for plastics. Toward the end of the year, the
Group introduced MetaMax additives for reinforcing concrete and received early
positive reviews from customers.
For attapulgite products, the planned acquisition of a more modern
manufacturing facility, from Floridin, will help this business to continue
cost-management efforts, while broadening product and service capabilities.
This acquisition was under review by the U.S. Department of Justice Anti-Trust
Division at the time of publication.
In colors, the Group experienced continued success with organic traffic-
grade pigments as more municipalities made the switch from lead-based products.
In addition, development work continued on the Company's low-VOC colorants. A
new line of low VOC colorants with better performance than competitive products
has been developed and is being commercialized in 1995.
Technology advances are playing an important part in new products for in-
store paint mixing. The new line is being developed with a leading manufacturer
of high-quality paint. It will offer consumers a much broader palette from
which to choose than is available today.
-19-
1993 Compared with 1992
Operating earnings decreased three percent while sales increased slightly.
Earnings declined for both the Paper Pigments and Chemicals Group and the
Specialty Minerals and Colors Group.
The decline in the Paper Pigments and Chemicals Group was primarily due to
lower pricing and higher manufacturing and operating costs, these factors more
than offset increased volumes. The Specialty Minerals and Colors Group
experienced unfavorable attapulgite volumes and higher manufacturing costs in
its minerals business, which more than offset favorable volumes and pricing for
its colors business.
1992 Compared with 1991
Operating earnings and sales increased four percent in 1992. Higher volumes,
favorable sales prices and lower manufacturing costs, partially offset by lower
sales of commodity grades of attapulgite products. A decline in the Paper
Pigments and Chemicals Group earnings reflected lower prices and higher energy
costs, partially offset by higher volumes and lower operating expenses.
Outlook
The Pigments and Additives segment should benefit from efficiencies gained as
its two core businesses are being combined under one management. Capacity
increases will allow the Group to take advantage of strengthening worldwide
economies and a recovery in the paper industry. A favorable product mix and
higher volumes are expected for Specialty Minerals and Colors.
Engineered Materials and Precious Metals Management
The Engineered Materials and Precious Metals Management segment develops,
manufactures and markets fabricated products and coatings based on precious
metals for a broad spectrum of industries. This segment also engages in
precious metals management on behalf of Engelhard businesses and customers that
use precious metals. It also participates in refining and marketing of energy-
related services.
Results of Operations
(in millions) 1994 1993 1992
---- ---- ----
Net sales $1,407.3 $1,240.8 $1,526.5
Operating earnings 36.8 31.0 42.0
Special charge - (38.6) -
Precious metals are included in the 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 these cases
precious metals values are not included in the sales numbers. The mix
of such arrangements and the extent of market price fluctuations can
significantly impact the level of sales reported but do not usually have a
direct material effect on earnings. Purchase of metal for customers' products
are normally hedged. See Note 12, "Financial Instruments and Precious Metals
Operations," of the Notes to Consolidated Financial Statements for further
information about hedging activities.
-20-
1994 Compared with 1993
This segment increased operating earnings 19 percent and sales 13 percent.
Higher earnings from the Engineered Materials Group more than offset slightly
lower earnings from the Precious Metals Management Group. Higher sales volumes
in the U.S. and Asia Pacific combined with lower manufacturing costs produced
increased earnings in the Engineered Materials Group. The Precious Metals
Management Group experienced weak worldwide market conditions.
Engineered Materials
The Engineered Materials Group has the widest product line and broadest
customer base in Engelhard. The Group continued to adjust its operations and
products to market trends. Most of the Group's markets are classified as
mature and cyclical with modest growth rates.
In 1994, the Group's diversity was an advantage. Favorable market
influences in the United States balanced the impact of the lingering recession
in Europe. In the United States, higher sales for applications in such basic
industries as housing, glass and electronics have more than offset lower
sales to the defense industry. Sales of plating products for the electronics
industry and metal-joining products were strong. Growth in Asia Pacific
also was achieved.
A planned joint venture with the French precious metals company CLAL (see
"Current Developments") should provide significant efficiencies. The joint
venture, which is expected to be finalized in May 1995, will combine most of
the assets of Engelhard's Engineered Materials business with CLAL. Synergies
between the geographic and technology positions of the two companies will help
expand market reach and new product development efforts.
Precious Metals Management
The Engelhard-CLAL joint venture also offers growth opportunities for
Engelhard's Precious Metals Management Group. The Group will provide virtually
all of the precious metals consumed by the joint venture, while remaining the
supplier to all Engelhard business groups and many external customers that use
precious metals.
The Precious Metals Management Group reported somewhat lower earnings and
flat sales for 1994. The major causes were weak worldwide market conditions and
expenses associated with steps to diversify. To achieve consistent profit
growth, the Group is focusing on geographic expansion and ways to offer its
commodity management skills to a wider array of industries and customers.
Advances were made on both fronts during 1994. Business development
activities in Moscow, Tokyo and South America were advanced, while a subsidiary
was formed to market electric power in the United States. The Group assumed
responsibility for platinum group metals refining and associated operations,
transferred from the Chemical Catalysts Group. The move groups related services
into a "full-loop" package for customers.
1993 Compared with 1992
Operating earnings decreased 26 percent as sales declined 19 percent. The drop
in sales was principally the result of lower volumes and pricing for certain
platinum group metals. Lower earnings from the Precious Metals Management
Group more than offset higher earnings from the Engineered Materials Group.
The Engineered Materials Group achieved cost savings and sales increases in the
U.S. market.
-21-
1992 Compared with 1991
Operating earnings decreased 12 percent and sales were down 11 percent. The
sales decline was principally the result of the acquisition of the remainder of
the Company's former German joint venture (see "Investments") and lower
precious metals prices. Earnings for the Engineered Materials Group were about
the same as 1991, as higher volumes in the United States were partially offset
by the impact of weak European markets. Earnings from the Precious Metals
Management Group decreased as a result of generally weaker market conditions.
Outlook
This segment will be altered significantly by the formation of the Engelhard-
CLAL joint venture. Most of the Engineered Materials Group will become part of
the new venture. Profit will be reported as equity earnings. The joint
venture, and geographic and service expansions in Precious Metals Management,
is expected to lead to improved overall results in 1995.
Selling, Administrative and Other
Selling, administrative and other expenses increased in 1994 to $244.6 million
from $213.0 million in 1993 and $224.1 million in 1992. 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 $.05 per
share). See Note 14, "Stock Option and Bonus Plans," of the Notes to
Consolidated Financial Statements. In addition, the increase in 1994 reflects
increased spending on research and development as well as higher expenses
overall related to acquisitions and growth programs (see also "Investments").
Equity Earnings, Interest and Taxes
Equity in earnings of affiliates decreased to $0.6 million in 1994 from $3.4
million in 1993 and $7.4 million in 1992. The decrease in 1994 was primarily
due to the startup losses of a new joint venture Engelhard/ICC and lower
volumes at Acreon Catalysts. The decrease in 1993 was primarily due to the
absence of M&T Harshaw (sold in January 1993).
Net interest expense was $22.0 million in 1994 compared with $13.7 million
in 1993 and $16.2 million in 1992. Gross interest expense and offsetting
contango income, which are components of net interest expense, reflect the
extent of precious metals financed by spot and forward transactions during each
year. The higher net interest expense in 1994 was primarily due to higher
interest rates and average debt balances as a result of acquisitions of and
investments in businesses, capital spending and purchases of the Company's
common stock during the year. The lower net interest expense in 1993 was
primarily due to the expiration of an unfavorable interest rate swap agreement
in 1992 and the initiation of a then favorable interest rate swap agreement in
1993. See Note 12, "Financial Instruments and Precious Metals Operations," of
the Notes to the Consolidated Financial Statements for further information
about these interest rate swap agreements. The lower net interest expense in
1992 resulted from the Company's planned debt reductions.
Interest income, included as a component of net sales, was $1.1 million,
$2.0 million and $2.5 million in 1994, 1993 and 1992, respectively.
The Company recorded a $39.3 million income tax provision in 1994, a $21.4
million income tax benefit in 1993 (primarily as a result of the special
-22-
charge) and a $33.7 million income tax provision in 1992. Excluding the impact
of the special charge, the effective income tax expense rate was 25.0 percent
in 1994 and 24.3 percent in 1993 and 25.2 percent in 1992. The lower expense
rate in 1993 was primarily due to 1993 U.S. tax legislation which reinstated
the research and development credit and increased the U.S. income tax rate,
which had a favorable impact on the Company's net deferred tax asset. At
December 31, 1994, the net deferred tax asset included in the balance sheet was
$105.4 million and related primarily to the accrued postretirement and
postemployment benefit obligations, the restructuring reserve, the
environmental cleanup reserve and other accruals. Management believes that the
Company will generate sufficient taxable earnings and tax planning
opportunities to ensure realization of these tax benefits.
Investments
In July 1994, the Company purchased the business and assets of General Plasma,
Inc., a supplier of thermal spray-coating technology and services. The
acquisition when combined with the Company's catalyst technology aids the
development of complete emission control systems.
In March 1994, the Company purchased the assets of the sorbents and moving
bed catalysts businesses of Solvay Catalysts, GmbH, in Nienburg, Germany. This
acquisition expanded the Company's moving bed catalysts business and provides
complementary product lines serving adsorbents applications.
In early 1994, the Company and ICC Technologies, Inc. formed
Engelhard/ICC, a jointly owned partnership, to develop and commercialize air-
conditioning and air-treatment systems based on a proprietary new desiccant
developed by Engelhard.
In the fourth quarter of 1992, the Company and Procatalyse formed Acreon
Catalysts, a jointly owned partnership that markets hydroprocessing catalysts
in North America and the Caribbean.
In the fourth quarter of 1992, the Company formed Heraeus Engelhard
Electrochemistry Corp., a venture with Heraeus Inc., 46 percent owned by
Engelhard, which markets electrochemical products in the Western Hemisphere.
In the third quarter of 1992, the Company formed Salem Engelhard with Salem
Industries, Inc., a Michigan-based supplier of air pollution control systems.
The jointly owned partnership markets products and services to abate emissions
of volatile organic chemicals and other pollutants.
In the first quarter of 1992, the Company acquired the remaining 50 percent
of Engelhard Kali-Chemie GmbH, an auto catalyst manufacturer and marketer in
Germany.
Current Developments
In November 1994, the Company formally announced that Engelhard Corporation and
Paris-based CLAL (Groupe FIMALAC) had signed a letter of intent to enter into
discussions with the objective of establishing a 50/50 joint venture for the
purpose of refining, manufacturing and selling certain precious and base metal
containing products. Consummation of the joint venture is pending appropriate
approvals.
In June 1994, the Company announced that it intends to acquire certain
assets of the Floridin Company's Specialty Minerals operations. The assets
include a manufacturing facility and mineral rights. The proposal to purchase
the plant and certain related assets is contingent on several actions,
including the appropriate government approvals and a definitive agreement.
-23-
Financial Condition and Liquidity
At December 31, 1994, the Company had $24.9 million of working capital,
including $26.4 million of cash. The year-end market value of the Company's
precious metals exceeded its carrying cost by $71.0 million. At December 31,
1994, the Company's ratio of current assets to current liabilities decreased to
1.0 from 1.1 a year earlier, primarily due to increased borrowings.
Short-term bank and commercial paper borrowings increased to $179.7 million
at December 31, 1994, primarily due to the acquisition of General Plasma and
certain assets of Solvay, the formation of Engelhard/ICC, and the Company's
stock purchase program. In addition, short-term borrowings were used to
finance precious metals in excess of the Company's owned inventories needed for
manufacturing and refining operations, as well as for precious metals dealing
activities.
The Company's total debt to total capital ratio increased to 32 percent at
December 31, 1994, from 29 percent at December 31, 1993, as a result of higher
short-term borrowings. The Company currently has available $605 million in
committed revolving credit facilities. The Company also has authorization from
its Board of Directors to issue up to $200 million of commercial paper ($127.3
million outstanding at December 31, 1994) and $100 million of additional long-
term financing and has uncommitted lines of short-term credit exceeding $700
million. In 1996, management expects to call the $100 million 10% Notes due in
2000. Management believes that the Company will continue to have adequate
access to short-term and long-term credit and capital markets to meet its needs
for the foreseeable future.
Net cash provided by operating activities was $114.8 million in 1994
compared with $130.4 million in 1993 and $169.5 million in 1992. For the past
three-year period, cash and internally generated funds were adequate to fund
working capital requirements, support capital projects and sustain increased
dividend payments. For 1995, management anticipates that cash and cash flows
will again be adequate to fund operational and capital requirements.
Capital Expenditures, Committments and Contingencies
Capital projects designed to maintain capacity, expand operations, improve
efficiency or protect the environment amounted to $97.5 million in 1994
compared with $107.1 million in 1993 and $54.1 million in 1992. Capital
expenditures in 1995 are projected to approximate $120.0 million. See also
Note 15, "Environmental Costs," and Note 16, "Litigation and Contingencies," of
the Notes to Consolidated Financial Statements for further information about
commitments and contingencies.
Effect of Foreign Currency Transactions and Translation
Generally, the Company does not speculate in foreign currency, but enters into
foreign currency and transactions in the normal course of business and has
investments in a number of different currencies. As a result, the Company is
subject to transaction and translation exposure from fluctuations in foreign
currency exchange rates. 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. In selected circumstances, the Company
enters into foreign currency forward contracts to hedge the U.S. dollar value
of its foreign investments. See Note 12, "Financial Instruments and Precious
Metals Operations," of the Notes to Consolidated Financial Statements for
further information about foreign currency hedging activities. Precious metals
inventories are generally not impacted by foreign currency rate fluctuations
because they are denominated in U.S. dollars.
-24-
Dividends and Capital Stock
In the third quarter of 1994, the Board of Directors approved a nine percent
increase in the quarterly dividend on common stock to $.12 effective as of
September 30, 1994. The annualized common stock dividend rate at the end of
1994 was $.48 per share.
In the third quarter of 1993, the Board of Directors authorized a three-
for-two split of common stock effective as of September 30, 1993. In the fourth
quarter of 1993, the Board of Directors elected to retire 3.5 million shares of
stock previously held in treasury and approved a plan to purchase up to 2.4
million shares of common stock for delivery under its stock incentive and
employee benefit plans. At December 31, 1994, 1.1 million shares had been
purchased under this plan. The plan has now been closed.
In the third quarter of 1992, the Board of Directors authorized a three-
for-two split of common stock effective as of September 30, 1992. In the second
quarter of 1992, the Board of Directors approved two separate plans to purchase
up to 8.3 million shares of the Company's common stock. At December 31, 1994,
7.4 million shares had been purchased under these plans.
-25-
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
</TABLE>
<TABLE>
Consolidated Statements of Earnings Engelhard Corporation
<S> <C> <C> <C>
Year ended December 31, 1994 1993 1992
---- ---- ----
(in thousands, except per share amounts)
Net sales $2,385,802 $2,150,865 $2,399,749
Cost of sales 1,970,563 1,794,438 2,033,012
---------- ---------- ----------
Gross profit 415,239 356,427 366,737
Selling, administrative and other expenses 244,611 213,018 224,093
Special charge (credit) (8,000) 148,000 -
---------- ---------- ----------
Earnings (loss) from operations 178,628 (4,591) 142,644
Gain on sale of investment - 10,145 -
Equity in earnings of affiliates 632 3,433 7,445
---------- ---------- ----------
Interest expense, net of capitalized amounts 23,010 17,292 19,067
Less contango on futures and forward contracts (1,056) (3,596) (2,836)
---------- --------- ----------
Net interest expense 21,954 13,696 16,231
---------- --------- ----------
Earnings (loss) before income taxes and cumulative
effect of accounting changes 157,306 (4,709) 133,858
Income tax expense (benefit) 39,326 (21,381) 33,732
---------- --------- ----------
Net earnings before cumulative effect of
accounting changes 117,980 16,672 100,126
Cumulative effect of accounting changes - (16,000) (89,509)
---------- --------- ----------
Net earnings $ 117,980 $ 672 $ 10,617
========== ========= ==========
Net earnings per share of common stock
Before cumulative effect of accounting changes $1.23 $.17 $1.00
Cumulative effect of accounting changes - (.16) (.89)
---------- --------- ----------
Net earnings per share $1.23 $.01 $ .11
========== ========= ==========
Average number of shares outstanding 96,067 96,792 100,287
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
-26-
<TABLE>
Consolidated Balance Sheets Engelhard Corporation
<S> <C> <C>
December 31, 1994 1993
(in thousands) ---- ----
Assets
Cash $ 26,404 $ 25,613
Receivables 265,639 230,593
Inventories 243,439 216,279
Other current assets 38,155 44,095
---------- ----------
Total current assets 573,637 516,580
Investments 112,855 97,147
Property, plant and equipment, less accumulated
depreciation, depletion and amortization 540,361 494,440
Other noncurrent assets 213,906 170,931
---------- ----------
Total assets $1,440,759 $1,279,098
========== ==========
Liabilities and Shareholders' Equity
Short-term bank borrowings $ 52,342 $ 79,987
Commercial paper 127,325 20,000
Current maturities of long-term debt 489 440
Accounts payable 86,230 56,342
Accrued liabilities 282,313 305,968
---------- ----------
Total current liabilities 548,699 462,737
Long-term debt 111,762 112,240
Other noncurrent liabilities 165,563 172,803
---------- ----------
Total liabilities 826,024 747,780
---------- ----------
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 98,197 shares issued 98,197 98,197
Retained earnings 582,520 497,490
Treasury stock, at cost, 3,099 and 2,251 shares, respectively (74,054) (55,218)
Cumulative translation adjustment 8,072 (9,151)
---------- ----------
Total shareholders' equity 614,735 531,318
---------- ----------
Total liabilities and shareholders' equity $1,440,759 $1,279,098
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
-27-
<TABLE>
Consolidated Statements of Cash Flows Engelhard Corporation
<S> <C> <C> <C>
Year ended December 31, 1994 1993 1992
(in thousands) ---- ---- ----
Cash flows from operating activities
Net earnings $ 117,980 $ 672 $ 10,617
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation, depletion and amortization 69,104 68,177 73,798
Special charge (credit) (8,000) 148,000 -
Gain on sale of investment - (10,145) -
Cumulative effect of accounting changes - 16,000 89,509
Equity earnings, net of dividends 3,201 (854) (4,375)
Net change in assets and liabilities (67,497) (91,488) (83)
--------- --------- --------
Net cash provided by operating activities 114,788 130,362 169,466
Cash flows from investing activities
Capital expenditures, net of disposals (97,531) (107,088) (54,112)
Acquisition of businesses and investments (44,298) - (11,152)
Proceeds from sale of investment - 39,787 -
Other (1,036) (2,749) (22,096)
--------- --------- --------
Net cash used in investing activities (142,865) (70,050) (87,360)
Cash flows from financing activities
Increase in short-term borrowings 79,585 49,305 10,081
Proceeds from issuance of long-term debt - - 2,379
Repayment of long-term debt (429) (1,935) (6,975)
Purchase of treasury stock (41,280) (90,648) (66,485)
Stock bonus and option plan transactions 33,672 19,030 14,304
Dividends paid (44,178) (40,631) (37,861)
--------- --------- -----------
Net cash provided by (used in) financing activities 27,370 (64,879) (84,557)
Effect of exchange rate changes on cash 1,498 (1,146) (2,460)
--------- --------- -----------
Net increase (decrease) in cash 791 (5,713) (4,911)
Cash at beginning of year 25,613 31,326 36,237
--------- --------- -----------
Cash at end of year $ 26,404 $ 25,613 $ 31,326
========= ========= ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
-28-
<TABLE>
Consolidated Statements of Shareholders' Equity Engelhard Corporation
<S> <C> <C> <C> <C> <C> <C>
Additional Cumulative Total
Common paid-in Retained Treasury translation shareholders'
stock capital earnings stock adjustment equity
------- ---------- -------- -------- ----------- ------------
(in thousands, except per share amounts)
Balance at December 31, 1991 $45,200 $ 63,407 $633,420 $(10,556) $ 25,143 $756,614
Net earnings - - 10,617 - - 10,617
Dividends ($.37 per share) - - (37,861) - - (37,861)
Three-for-two stock split 22,600 (22,600) - - - -
Foreign currency translation adjustment - - - - (29,985) (29,985)
Treasury stock acquired - - - (66,485) - (66,485)
Stock bonus and option plan transactions - (3,483) - 17,787 - 14,304
------- -------- -------- -------- -------- --------
Balance at December 31, 1992 67,800 37,324 606,176 (59,254) (4,842) 647,204
Net earnings - - 672 - - 672
Dividends ($.42 per share) - - (40,631) - - (40,631)
Three-for-two stock split 33,897 (33,897) - - - -
Foreign currency translation adjustment - - - - (4,309) (4,309)
Treasury stock acquired - - - (90,648) - (90,648)
Stock bonus and option plan transactions - (3,427) (1,989) 24,446 - 19,030
Retirement of treasury stock (3,500) - (66,738) 70,238 - -
------- -------- -------- -------- -------- --------
Balance at December 31, 1993 98,197 - 497,490 (55,218) (9,151) 531,318
Net earnings - - 117,980 - - 117,980
Dividends ($.46 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
======= ======== ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
-29-
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 inter-company transactions and balances
have been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform with the current year presentation.
Cost of Sales and 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 first-in, first-out (FIFO) method.
The Company routinely enters into a variety of arrangements for the
sourcing and supply of precious metals. These arrangements are spread among a
number of counter-parties, which are generally major industrial companies or
highly rated financial institutions. The conduct of this business is closely
monitored and appropriate reserves for potential losses are maintained.
Depreciation, Depletion and Amortization
Additions to 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.
Amortization and Intangible Assets
Goodwill and other acquired intangible assets are recorded 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.
Accounting Changes
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." This standard requires the accrual method of
accounting for certain benefits provided to former or inactive employees after
employment but before retirement. As of January 1, 1993, the Company
recognized the full actuarially calculated amount of its estimated accumulated
postemployment benefit obligation. The charge to 1993 earnings was $26.0
million ($16.0 million after tax--$.16 per share). The after-tax amount has
been reflected in 1993 as a cumulative effect of an accounting change.
Effective January 1, 1992, the Company adopted the provisions of Statements
of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) and No. 109
"Accounting for Income Taxes" (SFAS 109). The cumulative effect of these
accounting changes was to reduce 1992 earnings by $134.5 million ($83.4 million
after tax--$.83 per share) for SFAS 106 and by $6.1 million ($.06 per share)
for SFAS 109.
-30-
2. Special Charge
In 1993, the Company provided for a plan to realign and consolidate businesses,
concentrate resources and better position itself to achieve its strategic
growth objectives. That plan resulted in a special charge of $148.0 million
($91.8 million after tax--$.95 per share) in 1993, consisting of a $118.0
million pretax restructure provision for asset writedowns related to product
lines or sites being exited together with provisions for facility shutdown,
rundown and relocation and for employee reassignment, severance and related
benefits and a $30.0 million pretax environmental reserve. See Note 15,
"Environmental Costs," for a discussion of environmental matters and the amount
of the Company's environmental reserve.
The Company's restructuring reserve at December 31, 1993, consisted of the
$118.0 million 1993 special charge and $32.4 million of previously established
provisions associated with idled sites, as rundown costs continue to be
incurred at these sites and their disposition is pending completion of
environmental cleanup and/or consummation of sales. During the fourth quarter
of 1994, the Company reversed $8.0 million of its restructuring reserve because
its idle Canadian facility was sold earlier and at more favorable terms than
originally estimated and because of a revised, and less costly, approach to the
cleanup/disposition of its idle Newark, New Jersey site.
Generally, the 1993 restructuring plan is being implemented as originally
contemplated. The following table sets forth the components of the Company's
restructuring reserve and related activity for the year:
Restructuring Reserve
(in millions) Employee Asset
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 (8.8) - (8.4) (17.2)
Cash proceeds - 1.7 - 1.7
Reclassification - 7.5 (7.5) -
Reversal - - (8.0) (8.0)
----- ----- ----- ------
Balance at December 31, 1994 $27.1 $14.8 $18.4 $ 60.3
In 1994, the Company reconfigured certain production processes of the
Middle Georgia facility of the Paper Pigments and Chemicals Group, which
resulted in the writeoff of the associated assets. Two other Company-owned
sites, originally identified for closure, will remain open. One of these
facilities, a part of the Engineered Materials Group, will continue to operate
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. The other facility, a part of the
Chemical Catalysts Group, will continue to operate because the product lines
are complementary to the Company's other businesses. The impairment of this
facility, as opposed to the originally planned shutdown and relocation,
resulted in a reclassification of shutdown and relocation costs to asset
writedowns.
To date, the Company has been unable to implement two of the originally
planned restructuring projects. Delayed Department of Justice clearance has
-31-
impeded the completion of the Floridin acquisition which was formally announced
in June 1994, and is an integral part of the rationalization of the Company's
attapulgite business. Further, although negotiations began in late 1993 for
the establishment of a Paris-based precious metal fabrication joint venture
with CLAL, consummation of the joint venture is pending appropriate approvals.
The Company anticipates implementation of both of these projects as soon as
appropriate approvals/clearances are obtained.
As indicated in the table above, the reserve balance at December 31, 1994,
will be used for severance and related benefits, asset writeoffs and other
expenses, primarily rundown costs at idle sites. The Company continues to
expect that approximately 600 employees will be impacted; currently, about half
of these employees have been separated or notified of their impending
termination.
During 1994, restructuring savings of approximately $7.0 million were
realized, primarily as a result of reduced depreciation. Additional savings
will be realized in 1995, and by the end of 1996 the Company anticipates annual
cost savings of about $20 to $25 million as a result of lower manufacturing and
operating expenses, with annual cash savings of about $15 million.
3. Research and Development Costs
Research and development costs are charged to expense as incurred and were
$49.0 million in 1994, $46.9 million in 1993 and $44.6 million in 1992.
4. Benefits
The Company has 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 to the
extent such 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) 1994 1993 1992
---- ---- ----
Service cost $ 9.3 $ 8.1 $ 8.2
Interest cost 19.1 18.8 18.1
Actual return on plan assets (9.3) (26.9) (20.6)
Net amortization and deferral (21.0) (2.2) (11.1)
------ ------ ------
Net pension credit $ (1.9) $ (2.2) $ (5.4)
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 7.5 to 9.0 percent and
3.5 to 6.5 percent, respectively. The expected long-term rate of return
on assets is 7.5 to 10.5 percent.
-32-
The following table sets forth the plans' funded status:
Funded Status
(in millions) 1994 1993
---- ----
Actuarial present value of benefit obligations
Vested benefit obligation $206.9 $209.4
Accumulated benefit obligation $217.8 $220.2
Projected benefit obligation $254.3 $250.2
Plan assets at fair value $283.6 $280.9
Plan assets in excess of projected benefit obligation $ 29.3 $ 30.7
Unrecognized net loss 39.8 34.8
Unrecognized prior service cost 6.8 6.3
Unrecognized transition asset, net of amortization (14.7) (19.7)
------ ------
Prepaid pension expense $ 61.2 $ 52.1
The Company also sponsors two savings plans covering certain salaried and
hourly paid employees. The Company's contributions, which may equal up to 50
percent of certain employee contributions, were $2.0 million in 1994, 1993 and
1992.
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) 1994 1993 1992
---- ---- ----
Service cost $ 2.3 $ 2.1 $ 2.6
Interest cost 10.0 13.3 11.0
Net amortization (4.5) (3.2) (1.0)
----- ----- -----
Net benefit expense $ 7.8 $12.2 $12.6
Annual cash spending for postretirement and postemployment benefits
averaged approximately $7 million for the past three-year period.
-33-
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) 1994 1993
---- ----
Accumulated benefit obligation
Retirees $ 72.3 $ 92.6
Fully eligible active participants 16.0 19.9
Other active participants 33.1 39.2
------ ------
121.4 151.7
Unrecognized prior service cost 37.1 39.6
Unrecognized net gain (loss) 7.1 (23.6)
------ ------
Accrued benefit obligation $165.6 $167.7
The weighted-average discount rate used in determining the actuarial
present value of the accumulated postretirement and postemployment benefit
obligation is 8.5 percent. The average assumed health care cost trend rate used
for 1994 is 12 percent, gradually decreasing to 5 percent by 2004. A one
percent increase in the assumed health care cost trend rate would increase
aggregate service and interest cost in 1994 by $1.9 million and the accumulated
postretirement and postemployment benefit obligation as of December 31, 1994,
by $15.8 million.
5. Related Party Transactions
The Company, in the ordinary course of business, has raw material supply
arrangements with entities in which it is informed Anglo American Corporation
of South Africa Limited (Anglo) has a material interest. Anglo indirectly holds
a significant minority interest in the common stock of the Company. The
Company's purchases from such entities amounted to $233.1 million in 1994,
$228.7 million in 1993 and $254.5 million in 1992, and metal leases to such
entities amounted to $49.7 million in 1994. These transactions were under
terms no less favorable to the Company than those arranged with other parties.
At December 31, 1994 and 1993 amounts due to such entities totaled $14.8
million and $3.4 million, respectively.
-34-
6. Income Taxes
The components of income tax expense are shown in the following table:
Income Tax Expense (Benefit)
(in millions) 1994 1993 1992
---- ---- ----
Current income tax expense
Federal $13.3 $18.4 $13.0
State 1.3 1.6 1.0
Foreign 7.5 7.8 2.5
----- ----- -----
22.1 27.8 16.5
Deferred income tax expense (benefit)
Federal 13.2 (39.8) 11.5
Changes in tax rates 1.3 (1.6) -
State 2.7 (2.7) 2.8
Foreign 8.1 (1.2) 6.4
Loss carryforwards/tax credits (8.1) (3.9) (3.5)
----- ------ -----
17.2 (49.2) 17.2
----- ------ -----
Income tax expense (benefit) $39.3 $(21.4) $33.7
The foreign portion of income (loss) before income tax expense (benefit)
was income of $51.0 million in 1994, $20.9 million in 1993 and $36.4 million in
1992. Taxes on income of foreign consolidated subsidiaries and affiliates are
provided at the tax rates applicable to their respective foreign tax
jurisdictions. Tax credits (charges) of $3.6 million in 1994, $6.2 million in
1993 and ($0.8) million in 1992, in connection with equity adjustments, are
included in such adjustments for those years and are not reflected in the
amounts shown above.
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:
Net Deferred Income Tax Asset
(in millions) 1994 1993
---- ----
Deferred tax assets
Accrued liabilities $ 78.1 $102.1
Noncurrent liabilities 66.4 68.1
Tax credits and carryforwards 41.3 30.3
Deferred tax liabilities
Prepaid pension expense (28.5) (24.5)
Property, plant and equipment (16.1) (22.6)
Other assets (35.8 ) (36.1)
------ ------
Net deferred income tax asset $105.4 $117.3
-35-
As of December 31, 1994, the Company had approximately $16.8 million of
nonexpiring alternative minimum tax credit carryforwards and approximately $4.8
million of research and development credits with expiration dates through 2009
available to offset future U.S. Federal income taxes. Also, as of December 31,
1994, the Company had approximately $11.6 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.
A reconciliation of the difference between the Company's consolidated
income tax expense (benefit) and the expense (benefit) computed at the federal
statutory rate is shown in the following table:
Consolidated Income Tax Expense (Benefit) Reconciliation
(in millions) 1994 1993 1992
---- ---- ----
Income tax expense (benefit) at federal
statutory rate $55.0 $ (1.6) $45.5
Special charge - (4.4) -
Effect of tax law changes 1.3 (1.6) -
State income taxes, net of federal effect 2.6 2.8 2.5
Percentage depletion (11.6) (11.6) (10.0)
Equity earnings (.6) - (1.7)
Effect of different tax rates on
foreign earnings, net 2.3 (4.0) (3.1)
Benefit of tax credits (7.5) (1.0) -
Foreign sales corporation (3.4) (1.4) (1.8)
Other items, net 1.2 1.4 2.3
----- ------ -----
Income tax expense (benefit) $39.3 $(21.4) $33.7
At December 31, 1994, the Company's share of the cumulative undistributed
earnings of foreign subsidiaries was approximately $251.8 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 practicable
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.
7. Inventories
Inventories consist of the following:
Inventories
(in millions) 1994 1993
---- ----
Raw materials $ 62.9 $ 49.1
Work in process 24.1 31.1
Finished goods 103.0 82.7
Precious metals 53.4 53.4
------ ------
Total inventories $243.4 $216.3
-36-
All precious metals inventories are stated at LIFO cost. The market value
of the precious metals inventories exceeded cost by $61.0 million and $55.7
million at December 31, 1994 and 1993, respectively. The Company also has a
long-term investment in precious metals. The combined market value of precious
metals in inventories and the investment exceeded cost by $71.0 million and
$74.5 million at December 31, 1994 and 1993, respectively.
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.
8. Investments
The Company has investments in affiliates that are accounted for on the equity
method. The most significant of these investments is N.E. Chemcat Corporation
(N.E. Chemcat), a 38.8 percent 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, 1994, the quoted
market value of the Company's investment in N.E. Chemcat was in excess of $200
million. 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 first quarter of 1993, the Company sold its investment in M&T
Harshaw to its partner for $40 million in cash with the buyer assuming all
assets and liabilities. As a result, the Company realized an after-tax gain of
$6.3 million ($.06 per share).
The summarized unaudited financial information below represents an
aggregation of the Company's nonsubsidiary affiliates:
Financial Information (unaudited)
(in millions) 1994 1993 1992
---- ---- ----
Earnings data
Revenue $348.1 $327.3 $445.5
Gross profit 62.0 55.4 120.3
Net earnings 6.4 10.4 18.3
Company's equity in net earnings .6 3.4 7.4
Balance sheet data
Current assets $231.2 $222.3
Noncurrent assets 123.5 103.0
Current liabilities 103.1 103.4
Noncurrent liabilities 18.8 15.6
Net assets 232.8 206.3
Company's equity in net assets 105.5 90.5
The Company's share of undistributed earnings of affiliated companies
included in consolidated retained earnings was $41.8 million at December 31,
1994. Dividends from affiliated companies were $3.8 million in 1994, $2.6
million in 1993 and $3.1 million in 1992.
The Company has other investments, including an investment in precious
metal, that are accounted for at cost.
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9. Property, Plant, and Equipment
Property plant and equipment consist of the following:
Property, Plant and Equipment
(in millions) 1994 1993
---- ----
Land $ 14.0 $ 13.0
Buildings and building improvements 155.5 139.6
Machinery and equipment 982.5 883.5
Construction in progress 62.9 66.9
Mineral deposits and mine development 70.2 68.0
-------- --------
1,285.1 1,171.0
Accumulated depreciation, depletion and amortization 744.7 676.6
-------- --------
Property, plant and equipment, net $ 540.4 $ 494.4
10. Short-term Borrowings and Long-term Debt
At December 31, 1994, unsecured committed revolving credit agreements include a
$300 million facility with a group of North American money center banks and a
$305 million facility with a group of major foreign banks which expire in 1997
and 1998, respectively. Commitment fees are paid on unused portions
of these lines. In connection with its credit facilities, the Company has
agreed to certain covenants, none of which is considered restrictive to the
operations of the Company.
At December 31, 1994 and 1993, short-term bank borrowings were $52.3
million and $80.0 million, respectively, at a weighted average interest rate of
6.3% and 3.7%, respectively. At December 31, 1994 and 1993, commercial paper
borrowings were $127.3 million and $20.0 million, respectively, at a weighted
average interest rate of 6.0% and 3.3%, respectively.
Additional unused lines of credit available exceeded $700 million at
December 31, 1994. 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.
The following table sets forth the components of long-term debt:
Debt Information
(in millions) 1994 1993
---- ----
10% Notes, callable at par in 1996, due 2000
(net of discount) $ 99.8 $ 99.8
Industrial revenue bond, 7.91% adjustable to
market in 1995, due 1997 5.5 5.5
Industrial revenue bonds 64.5% to 68% of
prime rate, due 1997-1999 5.5 5.5
Foreign bank loans with a weighted-average
interest rate of 7.0%, due 1995-1999 1.5 1.8
------ -------
112.3 112.6
Amounts due within one year .5 .4
------ ------
Total long-term debt $111.8 $112.2
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As of December 31, 1994, the aggregate maturities of long-term debt for the
succeeding five years are as follows: $0.5 million in 1995, $0.5 million in
1996, $6.8 million in 1997 and $4.5 million in 1999. In addition, management
expects to call the $100 million 10% Notes in 1996. See Note 12, "Financial
Instruments and Precious Metals Operations," for a discussion about interest
rate swap agreements.
11. 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 $8.6 million
in 1995, $7.6 million in 1996, $6.9 million in 1997, $6.5 million in 1998, $6.4
million in 1999 and $37.6 million thereafter. Rental/lease expense, including
all leases, amounted to $14.5 million in 1994, $13.5 million in 1993 and $12.0
million in 1992.
12. Financial Instruments and Precious Metals Operations
The Company does not generally speculate in or engage in the trading of
derivative financial instruments. Derivative financial instruments are used by
the Company primarily for hedging purposes to mitigate risk and include foreign
currency forward contracts and interest rate swap agreements. 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, 1994, the fair value of long-term debt was about
$114.2 million based on current interest rates, compared with a book value of
$112.3 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 before consummation and an appropriate
level of reserves is maintained. Provisions to these reserves were not
significant in 1994, 1993 or 1992. 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.
Foreign Currency Forward Contracts
In the normal course of business, the Company enters into transactions
denominated in foreign currencies. In addition, the Company has subsidiary and
nonsubsidiary investments in a number of different currencies. As a result, the
Company is subject to transaction and translation exposure from fluctuations in
foreign currency exchange rates. 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 in the same period as the underlying or originating
transactions. In selected circumstances, the Company enters 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. In limited and closely monitored
situations, for which pre-approved exposure levels have been set, the Company
may enter into speculative foreign currency transactions. Gains and losses on
-39-
these transactions are recognized in earnings in the period of the change.
There were no speculative positions in foreign currencies as of December
31, 1994 and 1993, 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:
Foreign Currency Forward Contracts Information
(in millions) 1994 1993
----------------- --------------
Buy Sell Buy Sell
Deutschemark $ 17.3 $ 29.8 $ 4.6 $25.6
Japanese Yen 68.9 99.9 16.8 38.2
Pound Sterling 38.9 15.8 11.5 14.8
South African Financial Rand 1.4 - - -
------ ------ ----- -----
Total open foreign currency
forward contracts $126.5 $145.5 $32.9 $78.6
None of these contracts exceeds a year in duration and the net amount of
deferred income and expense on foreign currency forward contracts, which
will predominately be recognized as cumulative translation adjustments, was
$1.0 million expense in 1994 and $.3 million income in 1993.
Interest Rate Swap Agreements
The Company occasionally enters into interest rate swap agreements to modify
the characteristics of its outstanding borrowings from fixed to floating rate
debt or vice versa. The intent of these transactions is to reduce interest
expense. The use and mix of such instruments can vary depending on business and
economic conditions and management's interest rate outlook. The Company uses
swap instruments only as hedges or as integral parts of borrowings. See Note
10, "Short-term Borrowings and Long-term Debt." As such, the differential to be
paid or received is accrued and recognized in income as an adjustment to
interest expense. During the past three-year period, the Company used two
interest rate swap agreements intended to reduce interest expense on certain of
its outstanding debt. These swap agreements were based on amounts and
maturities which coincide with the debt agreements. There has been no
speculative trading in these instruments and of these two agreements, one was
held to maturity and the other is intended to be held to maturity. In
connection with the $100 million 10% Notes due in 2000, callable in 1996, the
Company entered into a $100 million notional principal amount swap contract
running from May 11, 1993, to May 13, 1996, to receive 4.5% and to pay LIBOR.
In connection with the $100 million 11.75% Eurobonds due in 1992, the Company
entered into a $100 million notional principal amount swap contract running
from June 9, 1986, to March 29, 1992, to receive LIBOR and to pay 11.15%. The
impact of these swap contracts was to increase interest expense by $.3 million
in 1994, to decrease interest expense by $.7 million in 1993 and to increase
interest expense by $1.3 million in 1992. The resulting impact on the Company's
weighted average borrowings rate was not material for any year presented.
Precious Metals Operations
Some of the Company's businesses use precious metals in their manufacturing
processes. In addition, sales and purchases of precious metals to/from
industrial and refining customers are transacted through the Company's dealing
operations. Secondarily, and usually as a consequence of the above
-40-
transactions, the Company also engages in precious metals dealing with other
counterparties. Generally, all of these precious metals transactions are hedged
on a daily basis, using spot, forward, futures or option transactions, to
substantially eliminate the exposure to price risk. In limited and closely
monitored situations, for which pre-approved exposure levels have been set, the
Company holds unhedged precious metal positions. Changes in the market value of
unhedged (open) precious metal positions are recognized in earnings in the
period of the change by marking these positions to their current market value.
The following table sets forth the Company's open precious metal positions:
Precious Metal Positions Information
(in millions) 1994 1993
----------------- -----------------
Gross Gross
Position value Position value
-------- ----- -------- -----
Platinum group metals Long $5.8 Long $7.5
Gold Short (.6) Short -
Silver Long .1 Short (2.0)
---- ----
Total open precious metal positions $5.3 $5.5
The total mark-to-market adjustment related to the above positions was $.2
million expense in 1994 and $.1 million expense in 1993.
As a result of its precious metals transactions, the Company earned
contango income of $1.1 million in 1994, $3.6 million in 1993 and $2.8 million
in 1992. Contango is a term common to precious metal transactions representing
the premium received or paid when settlement of the precious metal transaction
is in the future. 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 statement of earnings as an adjustment to
interest expense because it is an integral component of the Company's financing
costs.
13. Industry Segment and Geographic Area Data
The Company operates in three industry segments: Catalysts and Chemicals,
Pigments and Additives, and Engineered Materials and Precious Metals
Management.
The Catalyst and Chemicals segment develops, manufactures and markets a
wide range of catalysts and related products and processes for the automotive,
off-road vehicle, aircraft, power generation, petroleum refining, chemical,
petrochemical, pharmaceutical and food processing industries, among others. The
Company's products are used by customers in these industries to reduce
emissions, achieve desired manufacturing yields and improve quality and/or
cost-efficiency.
The Pigments and Additives segment develops, manufactures and markets
coating and extender pigments for the paper industry and color pigments and
specialty minerals for a variety of industries. The Company's paper pigments
are used principally to make coated and uncoated papers and paper board. Its
color pigments are used primarily in paints and coatings, plastics, rubber and
printing inks, while specialty mineral products are sold to the plastics,
rubber, wire and cable, coatings, inks and adhesives industries.
-41-
The Engineered Materials and Precious Metals Management segment develops,
manufactures and markets fabricated products and coatings based on precious
metals for a broad spectrum of industries. This segment also engages in
precious metals management on behalf of Company businesses and customers that
use precious metals. It also participates in refining and marketing of energy-
related services.
<TABLE>
The following table presents certain data by industry segment:
Industry Segment Information <C> <C> <C> <C> <C>
(in millions) Engineered
Materials &
<S> Catalysts & Pigments & Precious Corporate
Chemicals Additives Metals and Other Consolidated
----------- ---------- ----------- --------- ------------
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 453.5 431.6 220.9 334.8 1,440.8
Capital expenditures, net 33.8 54.0 5.2 4.5 97.5
1993
Net sales $541.1 $369.0 $1,240.8 $ - $2,150.9
Operating earnings excluding
special charge 81.9 55.0 31.0 - 167.9
Special charge (79.1) (30.3) (38.6) - (148.0)
Depreciation, depletion
and amortization 27.0 29.7 7.1 4.4 68.2
Identifiable assets 394.4 393.5 212.7 278.5 1,279.1
Capital expenditures, net 61.0 36.2 7.5 2.4 107.1
1992
Net sales $511.0 $362.2 $1,526.5 $ - $2,399.7
Operating earnings 70.9 56.8 42.0 - 169.7
Depreciation, depletion
and amortization 31.7 29.2 7.9 5.0 73.8
Identifiable assets 401.5 409.4 255.2 221.6 1,287.7
Capital expenditures, net 23.2 20.2 9.2 1.5 54.1
Intersegment sales are not significant. In 1993, the special charge reduced identifiable assets by $33.2
million in Catalysts and Chemicals, $25.4 million in Pigments and Additives and $7.5 million in Engineered
Materials and Precious Metals Management while the related tax benefit increased identifiable assets by $48.3
million in Corporate and Other.
-42-
The following table presents certain data by geographic area:
Geographic Area Data
(in millions) Special
Net Inter-area Operating (charge) Identifiable
sales sales earnings credit assets
-------- ---------- --------- -------- ------------
1994
United States $1,568.6 $ 32.5 $164.7 $ 2.0 $655.4
Foreign 817.2 77.0 41.0 6.0 450.6
1993
United States $1,396.8 $ 30.9 $118.5 $(120.3) $598.1
Foreign 754.1 86.0 49.4 (27.7) 402.5
1992
United States $1,544.2 $119.6 $134.0 $ - $661.6
Foreign 855.5 49.2 35.7 - 404.5
</TABLE>
Inter-area sales are generally based on market prices. In 1993, the special
charge reduced identifiable assets by $10.8 million in the United States and
$7.0 million for foreign operations. Most of the Company's foreign operations
are conducted by European subsidiaries. United States export sales to customers
throughout the world were $237.0 million in 1994, $231.2 million in 1993 and
$316.3 million in 1992.
The following table reconciles segment operating earnings with the earnings
before income taxes and cumulative effect of accounting changes as shown in the
Consolidated Statements of Earnings:
Reconciliation to Consolidated Statements of Earnings
(in millions) 1994 1993 1992
---- ---- ----
Operating earnings $213.7 $ 19.9 $169.7
Gain on sale of investment - 10.1 -
Equity earnings .6 3.4 7.4
Interest and other expenses, net (57.0) (38.1) (43.2)
------ ------ -----
Earnings (loss) before income taxes and
cumulative effect of accounting changes $157.3 $ (4.7) $133.9
For the years ended December 31, 1994 and 1992, one customer of both the
Catalysts and Chemicals and the Engineered Materials and Precious Metals
Management segments accounted for 11 percent and 12 percent, respectively, of
the Company's net sales.
<TABLE>
-43-
14. 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 11,250,000 and 4,556,250 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. In 1993, the Company established the
Employee Stock Option Plan of 1993, as amended, which generally provides 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 1,875,000
common shares at fair market value on the date of grant. No options under this plan may be granted after December 31, 1994.
Options under all plans become exercisable in installments after one year, and no options may be exercised after 10 years from
the date of grant. Outstanding options may be cancelled 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.
Stock option transactions under all plans are as follows:
Stock Option Information
<S> <C> <C> <C> <C> <C> <C>
1994 1993 1992
-------------------------- -------------------------- --------------------------
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 4,451,352 $ 6.81-28.58 3,353,427 $ 6.81-23.04 3,205,723 $ 6.81-14.19
Granted 1,800,762 21.31-28.58 1,850,647 22.04-28.58 1,006,575 17.17-23.04
Cancelled (63,305) 8.31-28.58 (93,067) 7.89-28.58 (16,734) 7.89-17.17
Exercised (449,562) 7.89-28.58 (659,655) 6.81-17.17 (842,137) 6.81-12.25
--------- ------------ --------- ------------ --------- ------------
Outstanding at end of year 5,739,247 $ 6.81-28.58 4,451,352 $ 6.81-28.58 3,353,427 $ 6.81-23.04
Exercisible at end of year 1,698,861 $ 6.81-28.58 1,289,318 $ 6.81-23.04 1,183,632 $ 6.81-14.19
Available for future grants 7,786,252 9,523,709 9,406,289
The Company's Key Employee Stock Bonus Plan, as amended (the Bonus Plan) provides for the award of up to 11,250,000 common
shares to key employees as compensation for future services, not exceeding 1,012,500 shares in any year (plus any cancelled
awards or shares available for award, but not previously awarded). The Bonus Plan terminates on June 30, 1996. Shares awarded
vest in five annual installments, providing the recipient is still employed by the Company on the vesting date. Compensation
value is measured on the date the award is granted.
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 ($5.3
million after tax--$.05 per share). Excluding the above change in estimate, in 1994, compensation expense relating to stock
awards was $8.6 million in 1994, $6.4 million in 1993 and $6.9 million in 1992. Shares awarded, net of cancellations, are
included in average shares outstanding.
</TABLE>
15. 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 is currently preparing, has under review, or is implementing,
with the oversight of cognizant environmental agencies, environmental
investigations and cleanup plans at several locations which it owns and/or
operates, including Plainville, Massachusetts; Salt Lake City, Utah;
-44-
Attapulgus, Georgia; and Newark, New Jersey. With respect to Plainville, in
September 1993 the United States Environmental Protection Agency (EPA) and the
Company entered into a consent order under which the Company is investigating
contamination and will conduct site stabilization measures. Plainville is also
included on the Nuclear Regulatory Commission (NRC) "Existing Site
Decommissioning Management Plan Sites" list and the Company is currently
conducting further investigations of the site pursuant to NRC approved plans.
With respect to Salt Lake City, in connection with obtaining an operating
permit under the Utah Solid and Hazardous Waste Act, the Company entered into
an agreement in December 1993 with the Utah Solid and Hazardous Waste Control
Board under which the Company is currently investigating the environmental
status of the site. With respect to Attapulgus, in January 1994 the Georgia
Department of Natural Resources, Environmental Protection Division and the
Company entered into a consent order under which the Company will develop and
implement a reclamation program. With respect to Newark, the Company is in the
process of implementing a cleanup plan in coordination with the New Jersey
Department of Environmental Protection.
In addition, the Company has been designated as a potentially responsible
party at 16 sites by EPA under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended and by certain state
environmental authorities under similar state laws (collectively referred to as
Superfund).
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 the Superfund sites, the Company also assesses
the financial capability of other potentially responsible parties and, where
allegations are based on tentative findings, the reasonableness of the
Company's apportionment. The Company has not anticipated recoveries from
insurance carriers or other potentially responsible third parties in its
consolidated balance sheets. The liabilities for environmental cleanup related
costs recorded in the consolidated balance sheets at December 31, 1994 and 1993
were $62.2 million and $66.1 million, respectively, including $10.8 million and
$11.8 million, respectively, for the 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 90 percent of what it believes are 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 $4.5 million, $.3 million and $.7 million for 1994, 1993
and 1992, respectively. In 1994 and 1992, the amounts accrued in connection
with environmental cleanup related matters were not significant. In 1993, $30.0
million was accrued as a result of developments during that year which caused
the Company to revise its estimates of environmental cleanup related costs at
sites being idled or affected by restructuring, where conditions had recently
changed, or where studies and cleanup plans had been approved and the
assessment of the likelihood or extent of remediation had changed.
-45-
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 $10.0 million for 1995, all of which has already been
accrued. Further, the Company anticipates that the future amounts of
capitalized environmental projects and the future 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, 1994, are reasonable and adequate and that
environmental matters are not expected to have a material adverse effect on
financial condition or on the results of operations.
16. Litigation and Contingencies
The Company is a defendant in a number of lawsuits covering a wide range of
matters. In some of these pending lawsuits, the remedies sought or damages
claimed are substantial. The Company is vigorously defending against these
claims. The Company is also subject to a number of environmental contingencies
(see Note 15 "Environmental Costs"). 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 or on the results of operations.
In January 1995, the Company received and is reviewing 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."
17. Supplemental Information
The following table presents certain supplementary information to the
Consolidated Statements of Cash Flows:
Supplementary Cash Flow Information
(in millions) 1994 1993 1992
---- ---- ----
Cash paid during the year for
Interest, net of capitalized amounts
and contango $ 24.2 $ 17.9 $ 23.6
Income taxes 22.1 20.1 15.9
Change in assets and liabilities-source (use)
Receivables $(27.5) $ 11.7 $ 27.0
Inventories (20.2) 17.0 7.7
Other current assets 6.0 (5.5) (3.4)
Other noncurrent assets (27.2) (60.0) 1.8
Accounts payable 28.1 (15.3) (4.5)
Accrued liabilities (19.4) (34.9) (54.0)
Accrued benefit obligation (2.2) 4.0 5.7
Deferred income taxes (5.1) (8.5) 19.6
------ ------ -----
Net change in assets and liabilities $(67.5) $(91.5) $ (.1)
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The following table presents certain supplementary information to the
Consolidated Balance Sheets:
Supplementary Balance Sheet Information
(in millions) 1994 1993
---- ----
Payroll-related accruals $ 36.4 $ 50.3
Environmental reserve 62.2 66.1
Restructuring reserve 45.5 78.2
Other 138.2 111.4
------ ------
Accrued liabilities $282.3 $306.0
-47-
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, 1994 and 1993, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in
1993 the Company changed its method of accounting for postemployment benefits
and in 1992 the Company changed its methods of accounting for income taxes and
postretirement benefits other than pensions.
Coopers & Lybrand, L.L.P.
New York, New York
February 2, 1995
-48-
<TABLE>
Selected Quarterly Financial Data (unaudited)
<S> <C> <C> <C> <C>
First Second Third Fourth
(in millions, except per share amounts) quarter quarter quarter quarter
------- ------- ------- -------
1994
Net sales $557.7 $633.4 $578.6 $616.1
Gross profit 89.8 104.4 103.3 117.7
Earnings before income taxes 30.3 42.5 39.6 44.9
Net earnings 22.8 31.9 29.7 33.6
Net earnings per share of common stock .24 .33 .31 .35
1993
Net sales $490.2 $563.2 $558.1 $539.4
Gross profit 78.6 93.4 91.4 93.0
Earnings (loss) before income taxes and cumulative effect
of an accounting change 29.7 38.1 35.2 (107.7)
Earnings (loss) before cumulative effect of an accounting change 22.2 28.5 27.6 (61.6)
Net earnings (loss) 6.2 28.5 27.6 (61.6)
Net earnings (loss) per share of common stock:
Before cumulative effect of an accounting change .22 .29 .29 (.64)
Net earnings (loss) .06 .29 .29 (.64)
Results in the fourth quarter of 1994 include a special credit of $8.0 million ($5.0 million after tax--$.05
per share) representing the reversal of excess restructuring reserves and a net charge of $8.6 million ($5.3
million after tax--$.05 per share) for a change in the Company's estimate of compensation expense relating to
stock awards.
Results in the first quarter of 1993 include a $10.1 million gain on the sale of M&T Harshaw ($6.3 million
after tax--$.06 per share) and a charge for the cumulative effect of an accounting change ($16.0 million net
of tax--$.16 per share). Results in the fourth quarter of 1993 include a $148.0 million special charge ($91.8
million after tax--$.95 per share) for realignment and consolidation of businesses and environmental matters
and $4.1 million of income from the sale of environmental catalyst technology to Russia (approximately $2.4
million after tax).
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.
</TABLE>
Changes in and Disagreements with
Item 9. Accountants on Accounting and Financial Disclosure
- ------ --------------------------------------------------
Not applicable.
-49-
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 1995 Annual Meeting of Shareholders and is incorporated herein by
reference.
(b) Executive Officers -
ORIN R. SMITH * Age 59. Chairman and Chief Executive Officer of
the Company since January 1995. President and
Chief Executive Officer of the Company from prior
thereto. Mr. Smith is also a director of Vulcan
Materials Company, The Summit Bancorporation, The
Louisiana Land and Exploration Company and
Perkin-Elmer Corporation.
L. DONALD LATORRE * Age 57. President and Chief Operating Officer of
the Company since January 1995. Senior Vice
President and Chief Operating Officer of the
Company from June 1990 to January 1995. Vice
President of the Company and President of the
Pigments and Additives Division from prior
thereto.
ROBERT L. GUYETT * Age 58. Senior Vice President and Chief
Financial Officer of the Company since September
1991. Senior Vice President and Chief Financial
Officer of Fluor Corporation from prior thereto.
Mr. Guyett is also a director of Smith
Environmental Technologies Corporation and
Newport Corporation. (Mr. Guyett has announced
his intention to retire from the Company).
MARTIN J. CONNOR, JR. Age 62. Controller of the Company from prior to
1990.
ARTHUR A. DORNBUSCH, II Age 51. Vice President, General Counsel and
Secretary of the Company from prior to 1990.
*Also a director of the Company
-50-
WILLIAM M. DUGLE Age 52. Vice President, Human Resources of the
Company from prior to 1990
ROBERT J. SCHAFFHAUSER Age 56. Vice President, Technology and Corporate
Development since January 1995. Vice President,
Corporate Development from prior thereto.
MICHAEL A. SPERDUTO Age 37. Treasurer of the Company since January
1993. Vice Pesident of Finance of the Precious
Metals Management Group from prior thereto.
FRANCIS X. VITALE, JR. Age 50. Vice President, Strategic Planning and
Corporate Affairs since January 1995. Vice
President, Investor Relations and Corporate
Communications of the Company from prior thereto.
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 21
of the Proxy Statement for the 1995 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 1995 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 3, pages 3 through 6, page 7, and page
10, respectively, of the Proxy Statement for the 1995 Annual Meeting of
Shareholders and is incorporated herein by reference.
-51-
PART IV
Exhibits, Financial Statement
Item 14. Schedules and Reports on Form 8-K
- ------- ---------------------------------
Page
----
(a) (1) Financial Statements and Schedules
Report of Independent Accountants 48
Consolidated Statements of Earnings for each of the 26
three years in the period ended December 31, 1994
Consolidated Balance Sheets at December 31, 1994 and 1993 27
Consolidated Statements of Cash Flows for each of the 28
three years in the period ended December 31, 1994
Consolidated Statements of Shareholders' Equity for each 29
of the three years in the period ended December 31, 1994
Notes to Consolidated Financial Statements 30-47
(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 30-47 on this 10-K.
-52-
Location:
--------
(3) Exhibits
(3a) 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).
(3b) By-laws of the Company as amended September 17, 1981 *
(incorporated by reference to Form 10-Q for the
quarter ended September 30, 1981).
(3c) 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).
(3d) 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).
(3e) 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).
(10) Material Contracts.
(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).
(b) Engelhard Corporation Non-Qualified Stock Option *
Plan of 1981 (incorporated by reference to the Proxy
Statement for 1981 Annual Meeting of Shareholders of
the Engelhard Minerals & Chemicals Corporation).
(c) Amendment to the Engelhard Corporation Non-Qualified *
Stock Option Plan of 1981 adopted January 7, 1982
(incorporated by reference to the Engelhard
Corporation Annual Report, Form 10-K for the fiscal
year ended December 31, 1981).
(d) Supplementary Supply Agreement between Rustenburg **
Platinum Mines Limited and Engelhard Minerals &
Chemicals Corporation, effective as of January 1,
1972 (incorporated by reference to the Engelhard
Minerals & Chemicals Corporation Annual Report, Form
10-K for the fiscal year ended December 31, 1972).
* Incorporated by reference as indicated.
** Incorporated by reference as indicated and granted confidential treatment
pursuant to an application filed by Engelhard Minerals & Chemicals Corp.
-53-
Location:
(e) Amendment to the Supplementary Supply Agreement **
between Rustenburg Platinum Mines Limited and
Engelhard Minerals & Chemicals Corporation,
effective as of January 1, 1972 dated April 1,
1973 (incorporated by reference to the Engelhard
Minerals & Chemicals Corporation Annual Report,
Form 10-K for the fiscal year ended December 31,
1973).
(f) Addendum to the Supplementary Supply Agreement **
between Rustenburg Platinum Mines Limited and
Engelhard Minerals & Chemicals Corporation dated
June 18 and July 5, 1974 (incorporated by
reference to Form 10-K, as amended on Form 8
filed with the Securities and Exchange Commission
on May 19, 1981).
(g) Amendment dated December 14, 1977 as supplemented **
January 10, 1978 to the Main Supply Agreement and
Supplementary Supply Agreement between Rustenburg
Platinum Mines Limited and Engelhard Minerals &
Chemicals Corporation (incorporated by reference
to the Engelhard Minerals & Chemicals Corporation
AnnualReport, Form 10-K for the fiscal year ended
December 31, 1977).
(h) Amendment dated April 3, 1979 to the Supplemental **
Supply Agreement between Rustenburg Platinum Mines
Limited and Engelhard Minerals & Chemicals
Corporation (incorporated by reference to the
Engelhard Minerals & Chemicals Corporation Annual
Report, Form 10-K for the fiscal year ended December
31, 1979).
(i) Main Supply Agreement between P.G.M. (Brakspruit) **
(Proprietary) Limited and Engelhard Industries
International Limited effective as of January 1, 1972
and supplementary letter with respect thereto
(incorporated by reference to the Engelhard Minerals
& Chemicals Corporation Annual Report, Form 10-K for
the fiscal year ended December 31, 1972).
(j) Agreement between Rustenburg Platinum Mines Limited **
and Engelhard Minerals & Chemicals Corporation,
dated November 3, 1972 (incorporated by reference to
the Engelhard Minerals & Chemicals Corporation Annual
Report, Form 10-K for the fiscal year ended December
31, 1972).
(k) Amendment to the Engelhard Corporation Stock Option *
Plan of 1981 adopted January 6, 1983 (incorporated
by reference to the Engelhard Corporation
Registration Statement on Form S-8 dated June 15,
1983).
* Incorporated by reference as indicated.
** Incorporated by reference as indicated and granted confidential treatment
pursuant to an application filed by Engelhard Minerals & Chemicals Corp.
-54-
Location:
(l) Form of agreement with elected officers with *
employment agreements in the event of an
acquisition of a control interest in the
Company (incorporated by reference to the
Engelhard Corporation Annual Report, Form 10-K
for the fiscal year ended December 31, 1983).
(m) Form of agreement with elected officers without *
employment agreements in the event of an
acquisition of a control interest in the Company
(incorporated by reference to the Engelhard
Corporation Annual Report, Form 10-K for the
fiscal year ended December 31, 1983).
(n) Amendment to the Engelhard Corporation Non- *
qualified Stock Option Plan of 1981 adopted
March 7, 1986 (incorporated by reference to
Engelhard Corporation Annual Report, Form 10-K
for the fiscal year ended December 31, 1986).
(o) Key Employees Stock Bonus Plan of Engelhard *
Corporation effective July 1, 1986 (incorporated
by reference to the Engelhard Corporation Annual
Report, Form 10-K for the fiscal year ended
December 31, 1986).
(p) Employee Agreement with Orin R. Smith, President *
and Chief Executive Officer of the Company, dated
May 21, 1986 (incorporated by reference to the
Engelhard Corporation Annual Report, Form 10-K
for the fiscal year ended December 31, 1986).
(q) Amendment to the Key Employees Stock Bonus Plan of *
Engelhard Corporation adopted March 7, 1991
(incorporated by reference to the Engelhard
Corporation 1991 definitive Proxy Statement as
filed with the Securities and Exchange Commission
on March 27, 1991).
(r) Stock Option Plan of 1991 (incorporated by reference *
to the Engelhard Corporation 1991 definitive Proxy
Statement as filed with the Securities and Exchange
Commission on March 27, 1991).
(s) Letters from Rustenburg Platinum Mines Limited *
dated March 13, 1992 advising that the Main Supply
and Supplementary Supply Agreement (Exhibits D
through J above) will terminate in their present
forms on December 31, 1996, the end of the initial
period.
* Incorporated by reference as indicated.
-55-
Location:
(21) Subsidiaries of the Registrant 59-60
(23) Consent of Independent Accountants 61-62
(24) Powers of Attorney 63-72
(99) (a) Annual Report on Form 11-K of the Salary 73-93
Deferral Savings Plan of Engelhard Corporation
for each of the three years in the period
ended December 31, 1994.
(b)Annual Report on Form 11-K of the Engelhard 94-109
Corporation Savings Plan for Hourly Paid Employees
for each of the three years in the period ended
December 31, 1994.
(b) Report on Form 8-K
------------------
Not applicable
-56-
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 28th day of March 1995.
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 28, 1995
- ---------------------- Officer & Director
Orin R. Smith (Principal Executive Officer)
/s/Robert L. Guyett Senior Vice President and March 28, 1995
- ---------------------- Chief Financial Officer
Robert L. Guyett & Director
(Principal Financial Officer)
/s/Martin J. Connor, Jr. Controller March 28, 1995
- --------------------------- (Principal Accounting Officer)
Martin J. Connor, Jr.
-57-
* Director March 28,1995
- ---------------------------
Linda G. Alvarado
* Director March 28, 1995
- ---------------------------
Marion H. Antonini
* Director March 28, 1995
- ---------------------------
L. Donald LaTorre
* Director March 28, 1995
- --------------------------
Anthony W. Lea
* Director March 28, 1995
- --------------------------
James V. Napier
* Director March 28, 1995
- -------------------------
Norma T. Pace
* Director March 28, 1995
- -------------------------
Reuben F. Richards
* Director March 28, 1995
- -------------------------
Henry R. Slack
* Director March 28, 1995
- -------------------------
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 28, 1995
- -------------------------------
Arthur A. Dornbusch, II
-58-
EXHIBIT 21:
SUBSIDIARIES OF THE REGISTRANT
-59-
Subsidiaries of the Registrant
------------------------------
Jurisdiction
Under Which
Incorporated
Name of Subsidiary Or Organized
- ------------------ ------------
Engelhard West, Inc. California
EC Delaware, Inc. Delaware
Engelhard Metal Plating, Inc. Delaware
Engelhard Strategic Investments, Inc. Delaware
Engelhard Supply Corporation Delaware
Porocel Corporation Delaware
Mustang Property Corporation Delaware
Engelhard Pollution Control, Inc. Delaware
Engelhard Export Corporation U.S. Virgin Islands
The Harshaw Chemical Company New Jersey
Engelhard Australia Pty Ltd Australia
Engelhard Canada Limited Canada
Engelhard Industries International Limited Canada
Engelhard Technologies Limited Canada
Engelhard Pyrocontrole S.A. France
Engelhard S.A. France
Engelhard S.R.L. Italy
Engelhard Italiana S.P.A. Italy
Engelhard Holdings GmbH Germany
Engelhard Technologies Verwaltsung GmbH Germany
Engelhard Process Chemicals GmbH Germany
Engelhard (Hong Kong) Ltd. Hong Kong
Engelhard DeMeern B.V. The Netherlands
Engelhard Terneuzen, B.V. The Netherlands
Engelhard Netherlands, B.V. The Netherlands
Engelhard (Singapore) Pte Ltd Singapore
Engelhard Metals A.G. Switzerland
Engelhard Limited United Kingdom
Engelhard Metals Limited United Kingdom
Engelhard Sales Limited United Kingdom
Engelhard Technologies Limited United Kingdom
The Sheffield Smelting Co. Ltd United Kingdom
EC Pigments OY Finland
Engelhard Metals Japan Limited Japan
Name of Affiliate
- -----------------
N. E. Chemcat Corporation Japan
Hankuk-Engelhard Corporation South Korea
Salem Engelhard Michigan
Acreon Catalysts Texas
HERAEUS Engelhard Electrochemistry Delaware
Engelhard/ICC Pennsylvania
Metreon Delaware
The names of other subsidiaries have been omitted since such subsidiaries, if
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary as that term is defined in Rule 12b-2 (17 CFR 240.12b-2)
promulgated under the Securities Exchange Act of 1934.
-60-
EXHIBIT 23:
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
-61-
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 2, 1995, on our audits of the consolidated financial statements of
Engelhard Corporation and Subsidiaries, as of December 31, 1994 and 1993, and
for the years ended December 31, 1994, 1993 and 1992, which report is included
in this Annual Report on Form 10-K.
COOPERS & LYBRAND, L.L.P.
New York, New York
March 28, 1995
-62-
EXHIBIT 24:
POWERS OF ATTORNEY
------------------
-63-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Linda G. Alvarado
_____________________________
Linda G. Alvarado
-64-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Marion H. Antonini
________________________________
Marion H. Antonini
-65-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ L. Donald LaTorre
________________________________
L. Donald LaTorre
-66-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Anthony W. Lea
________________________________
Anthony W. Lea
-67-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ James V. Napier
______________________________
James V. Napier
-68-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Norma T. Pace
________________________________
Norma T. Pace
-69-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Reuben F. Richards
_________________________________
Reuben F. Richards
-70-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Henry R. Slack
_______________________________
Henry R. Slack
-71-
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, 1994.
NOW, THEREFORE, the undersigned in his capacity as a director of ENGELHARD
CORPORATION hereby appoints Arthur A. Dornbusch, II and Orin R. Smith, or
either of them individually, his true and lawful attorney to execute in his
name, place and stead, in his capacity as a director of ENGELHARD CORPORATION,
said Form 10-K and any and all amendments to said Form 10-K and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable to be
done in the premises, as fully to all intents and purposes as the undersigned
might or could do in person. The undersigned hereby ratifies and approves the
acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument on
March 28, 1995.
/s/ Douglas G. Watson
_________________________________
Douglas G. Watson
-72-
EXHIBIT 99(a):
ANNUAL REPORT OF FORM 11-K OF THE
SALARY DEFERRAL SAVINGS PLAN OF ENGELHARD CORPORATION
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
-73-
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 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
--- 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)
-74-
Salary Deferral Savings Plan
of Engelhard Corporation
Table of Contents
Page
No.
-----
Financial Statements
- --------------------
Report of Independent Accountants 76
Statements of Financial Condition 77-80
at December 31, 1994 and 1993
Statements of Income and Changes in Plan Equity 81-85
for each of the three years in the period
ended December 31, 1994
Notes to Financial Statements 86-91
Supplemental Schedules
Schedule of Investments at December 31, 1994 and 1993 92-93
-75-
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 index on Page 75 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, 1994 and 1993, and the
results of its operations for each of the three years in the period ended
December 31, 1994, 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 28, 1995
-76-
<TABLE> Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1994
(Page 1 of 2)
<S> <C> <C> <C> <C> <C>
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- ----------- ------------ ----------- -----------
Assets:
Investments, at fair value
(combined cost of $73,997,123) $34,108,513 $24,825,964 $12,805,735 $3,613,654 $3,917,960
Interest Receivable - - - - -
Contributions Receivable:
Participants 145,296 173,960 121,295 39,043 43,141
Engelhard Corporation 162,752 - - - -
Promissory notes from participants 66,461 64,625 42,836 8,393 11,302
----------- ----------- ----------- ---------- ----------
Total assets 34,483,022 25,064,549 12,969,866 3,661,090 3,972,403
=========== =========== =========== ========== ==========
Plan Equity:
Plan equity $34,483,022 $25,064,549 $12,969,866 $3,661,090 $3,972,403
=========== =========== =========== ========== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-77-
<TABLE> Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1994
(Page 2 of 2)
<S> <C> <C> <C> <C> <C>
International Small Short-Term
Growth Cap Bond Loan
Fund Fund Fund Fund Combined
------------- -------- ---------- --------- ----------
Assets:
Investments, at fair value
(combined cost of $73,997,123) $1,319,115 $575,560 $129,389 $ - $81,295,890
Interest Receivable - - - 37,337 37,337
Contributions Receivable:
Participants 14,245 7,251 3,086 - 547,317
Engelhard Corporation - - - - 162,752
Promissory notes from participants 4,119 858 138 6,101,494 6,300,226
---------- -------- -------- ---------- -----------
Total assets 1,337,479 583,669 132,613 6,138,831 88,343,522
========== ======== ======== ========== ===========
Plan Equity:
Plan equity $1,337,479 $583,669 $132,613 $6,138,831 $88,343,522
========== ======== ======== ========== ===========
See Accompanying Notes to Financial Statements
</TABLE>
-78-
<TABLE> Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1993
(Page 1 of 2)
<S> <C> <C> <C> <C> <C>
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- ----------- ----------- --------- ----------
Assets:
Investments, at fair value
(combined cost of $63,441,525) $33,674,363 $23,654,085 $12,184,435 $3,927,757 $3,793,703
Interest Receivable - - - - -
Contributions Receivable:
Participants 129,468 183,807 114,801 43,473 45,689
Engelhard Corporation 158,813 - - - -
Promissory notes from participants 48,618 52,489 32,868 6,762 9,624
----------- ----------- ----------- ---------- ----------
Total assets 34,011,262 23,890,381 12,332,104 3,977,992 3,849,016
=========== =========== =========== ========== ==========
Plan Equity:
Plan equity $34,011,262 $23,890,381 $12,332,104 $3,977,992 $3,849,016
=========== =========== =========== ========== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-79-
<TABLE> Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Financial Condition
at December 31, 1993
(Page 2 of 2)
<S> <C> <C> <C> <C> <C>
International Small Short-Term
Growth Cap Bond Loan
Fund Fund Fund Fund Combined
------------- ------- ---------- ---------- ------------
Assets:
Investments, at fair value
(combined cost of $63,441,525) $729,804 $306,864 $94,267 $ - $78,365,278
Interest Receivable - - - 28,733 28,733
Contributions Receivable:
Participants 4,829 1,221 361 - 523,649
Engelhard Corporation - - - - 158,813
Promissory notes from participants 1,231 113 89 4,756,974 4,908,768
--------- -------- ------- ---------- -----------
Total assets 735,864 308,198 94,717 4,785,707 83,985,241
========= ======== ======= ========== ===========
Plan Equity:
Plan equity $735,864 $308,198 $94,717 $4,785,707 $83,985,241
========= ======== ======= ========== ===========
See Accompanying Notes to Financial Statements
</TABLE>
-80-
<TABLE> 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)
<S> <C> <C> <C> <C> <C>
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 appreciation
(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 23,890,38 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
</TABLE>
-81-
<TABLE>
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)
<S> <C> <C> <C> <C> <C>
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 appreciation
(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
</TABLE>
-82-
<TABLE> Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the year ended December 31, 1993
(Page 1 of 2)
<S> <C> <C> <C> <C> <C>
Company Fixed Equity
Stock Income Growth Balanced Index
Fund Fund Fund Fund Fund
----------- ---------- ----------- ------------ ------------
Net Investment Income:
Dividends $ 584,067 $ - $ 1,031,656 $ 253,323 $ 426,995
Interest - 1,448,963 - - -
------------ ---------- ----------- ------------ ------------
584,067 1,448,963 1,031,656 253,323 426,995
Contributions and Other Receipts:
Participants 1,713,424 2,796,904 1,897,508 694,171 679,466
Engelhard Corporation 1,894,785 - - - -
------------ ---------- ----------- ------------ ------------
3,608,209 2,796,904 1,897,508 694,171 679,466
Net realized gain (loss) on disposition
of investments 5,249,467 - 244,480 49,311 50,364
Unrealized appreciation
(depreciation) of investments (3,244,954) - 608,307 93,192 (63,307)
Transaction fees - - - - -
Distributions (3,606,977) (3,486,635) (898,613) (246,877) (156,276)
Transfers (2,007,764) (1,479,828) 382,003 765,068 292,475
----------- ----------- ----------- ---------- ----------
582,048 (720,596) 3,265,341 1,608,188 1,229,717
Plan equity, beginning of year 33,429,214 24,610,977 9,066,763 2,369,804 2,619,299
----------- ----------- ----------- ---------- ----------
Plan equity, end of year $34,011,262 $23,890,381 $12,332,104 $3,977,992 $3,849,016
=========== =========== =========== ========== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-83-
<TABLE>
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the year ended December 31, 1993
(Page 2 of 2)
<S> <C> <C> <C> <C> <C>
International Small Short-Term
Growth Cap Bond Loan
Fund Fund Fund Fund Combined
------------- --------- -------- ----------- -----------
Net Investment Income:
Dividends $ 4,951 $ 18,255 $ 1,000 $ - $ 2,320,247
Interest - - - 313,424 1,762,387
--------- -------- ------- ----------- -----------
4,951 18,255 1,000 313,424 4,082,634
Contributions and Other Receipts:
Participants 15,673 5,675 1,066 - 7,803,887
Engelhard Corporation - - - - 1,894,785
--------- -------- ------- ----------- -----------
15,673 5,675 1,066 - 9,698,672
Net realized gain (loss) on disposition
of investments 930 - (557) - 5,593,995
Unrealized appreciation
(depreciation) of investments 50,206 (9,632) (6) - (2,566,194)
Transaction fees - (3,012) - - (3,012)
Distributions - - - (161,198) (8,556,576)
Transfers 664,104 296,912 93,214 993,816 -
--------- -------- ------- ----------- -----------
735,864 308,198 94,717 1,146,042 8,249,519
Plan equity, beginning of year - - - 3,639,665 75,735,722
--------- -------- ------- ----------- -----------
Plan equity, end of year $735,864 $308,198 $94,717 $4,785,707 $83,985,241
========= ======== ======= ========== ===========
See Accompanying Notes to Financial Statements
</TABLE>
-84-
<TABLE> Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Income and Changes in Plan Equity
for the year ended December 31, 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Company Fixed Equity
Stock Income Growth Balanced Index Loan
Fund Fund Fund Fund Fund Fund Combined
----------- ----------- --------- --------- ---------- --------- ----------
Net Investment Income:
Dividends $ 556,274 - $ 591,169 $ 121,595 $ 171,858 - $ 1,440,896
Interest 6,843 $ 1,584,809 - - - $ 280,819 1,872,471
----------- ----------- --------- ---------- ---------- --------- -----------
563,117 1,584,809 591,169 121,595 171,858 280,819 3,313,367
Contributions and Other
Receipts:
Participants 1,422,681 3,332,197 1,854,623 461,877 602,155 - 7,673,533
Engelhard Corporation 1,881,888 - - - - - 1,881,888
----------- ----------- ---------- ---------- ---------- --------- -----------
3,304,569 3,332,197 1,854,623 461,877 602,155 - 9,555,421
Net realized gain (loss) on 3,804,552 - (20,535) 56,613 59,827 - 3,900,457
disposition of investments
Unrealized appreciation 8,805,318 - 688,496 (18,294) (62,547) - 9,412,973
(depreciation) of investments
Distributions (3,176,660) (3,913,072) (1,051,237) (318,299) (330,601) (183,905) (8,973,774)
Transfers (1,727,837) 1,069,956 (204,853) 94,837 (28,807) 796,704 -
----------- ----------- ---------- ---------- ---------- --------- -----------
11,573,059 2,073,890 1,857,663 398,329 411,885 893,618 17,208,444
Plan equity, beginning of year 21,856,155 22,537,087 7,209,100 1,971,475 2,207,414 2,746,047 58,527,278
----------- ----------- ---------- ---------- ---------- ---------- -----------
Plan equity, end of year $33,429,214 $24,610,977 $9,066,763 $2,369,804 $2,619,299 $3,639,665 $75,735,722
=========== =========== ========== ========== ========== ========== ===========
See Accompanying Notes to Financial Statements
</TABLE>
-85-
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 September 1, 1989, 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), U.S.salaried employees of the Company and its wholly-owned
(directly or indirectly) domestic subsidiaries and all non-collectively
bargained hourly employees 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 equal to 50
percent 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 eight separate investment funds
within the Trust:
a) The Company Stock Fund, which 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, which 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.
-86-
c) The Growth Fund, which 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, which 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, which 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, which 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, which 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, which 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.
Participants have the right to elect, subject to restrictions, in
which investment fund or funds their contributions are invested. All matching
contributions are initially invested in the Company Stock Fund. Participants at
their discretion after one year may elect to transfer to another fund, up to 25
percent per year, the amount of matching contribution invested in the Company
Stock Fund.
-87-
The number of Participants in each fund was as follows at December 31:
Participants
1994 1993
---- ----
Company Stock Fund 1,958 1,946
Fixed Income Fund 1,377 1,435
Growth Fund 1,069 1,064
Balanced Fund 532 529
Equity Index Fund 546 546
International Growth Fund 169 47
Small Cap Fund 93 21
Short-Term Bond Fund 42 7
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:
<TABLE>
Participant Interests
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company Fixed Equity Int'l Small Short-Term
Stock Income Growth Balanced Index Growth Cap Bond
Fund Fund Fund Fund Fund Fund Fund Fund
--------- ---------- --------- --------- --------- -------- -------- ---------
1994:
Units 1,365,664 25,064,549 1,030,172 270,391 255,295 99,589 38,937 12,875
Value per unit $25.25 $1.00 $12.59 $13.54 $15.56 $13.43 $14.99 $10.30
1993:
Units 1,228,287 23,890,381 886,564 275,294 233,983 54,468 19,668 8,690
Value per unit $27.69 $1.00 $13.91 $14.45 $16.45 $13.51 $15.67 $10.90
</TABLE>
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 Committee in
accordance with applicable laws and regulations.
-88-
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.
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.
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 - Subsequent Events
Effective January 1, 1995, the Plan was amended to allow for
after-tax contributions. Participants at their discretion may elect to make a
nondeductible after-tax contribution to the Plan subject to certain limitations
outlined in the Plan.
-89-
Note 7 - 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.
-90-
<TABLE>
The net realized gain (loss) on disposition of investments was computed as follows:
Net realized gain (loss)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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, 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
Year ended December 31, 1993 -
Amount realized $13,588,122 $4,719,228 $ 766,445 $618,340 $ 129,032 $ 3,013 $ 463,549 $20,287,729
Cost-average 8,338,655 4,474,748 717,134 567,976 128,102 3,013 464,106 14,693,734
Net realized gain (loss) 5,249,467 244,480 49,311 50,364 930 - (557) 5,593,995
Year ended December 31, 1992 -
Amount realized $ 9,680,568 $3,350,211 $ 807,732 $810,182 - - - $14,648,693
Cost-average 5,876,016 3,370,746 751,119 750,355 - - - 10,748,236
Net realized gain (loss) 3,804,552 (20,535) 56,613 59,827 - - - 3,900,457
The net unrealized appreciation (depreciation) of investments held was computed as follows:
Net unrealized appreciation (depreciation)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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, 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
Year ended December 31, 1993 -
Balance, beginning of year $17,080,135 $ 60,690 $ 165,777 $ 183,345 - - - $17,489,947
Net change (3,244,954) 608,307 93,192 (63,307) $ 50,206 $ (9,632) (6) (2,566,194)
Balance, end of year 13,835,181 668,997 258,969 120,038 50,206 (9,632) (6) 14,923,753
Year ended December 31, 1992 -
Balance, beginning of year $ 8,274,817 $ (627,806) $ 184,071 $ 245,892 - - - $ 8,076,974
Net change 8,805,318 688,496 (18,294) (62,547) - - - 9,412,973
Balance, end of year 17,080,135 60,690 165,777 183,345 - - - 17,489,947
</TABLE>
-91-
Schedule I
Salary Deferral Savings Plan
of Engelhard Corporation
Schedule of Investments
at December 31, 1994
Approximate
Cost Market Value
----------- ------------
Company Stock Fund
- ------------------
Common Stock of $25,694,373 $33,805,315
Engelhard Corporation
(1,519,340 shares)
Cash equivalents 303,198 303,198
Fixed Income Fund
- -----------------
Vanguard Variable Rate 24,825,964 24,825,964
Investment Contract Trust
Growth Fund
- -----------
Vanguard Windsor Fund 13,527,493 12,805,735
Balanced Fund
- -------------
Vanguard Asset Allocation Fund 3,595,263 3,613,654
Equity Index Fund
- -----------------
Vanguard Quantitative Portfolio 3,991,048 3,917,960
International Growth Fund
- -------------------------
Vanguard International Growth Portfolio 1,316,791 1,319,115
Small Cap Fund
- --------------
Vanguard Small Capitalization Stock Fund 609,353 575,560
Short-term Bond Fund
- --------------------
Vanguard Fixed Income Securities Fund 133,640 129,389
----------- -----------
Total $73,997,123 $81,295,890
-92-
Schedule I
Salary Deferral Savings Plan
of Engelhard Corporation
Schedule of Investments
at December 31, 1993
Approximate
Cost Market Value
----------- ------------
Company Stock Fund
- ------------------
Common Stock of $19,610,755 $33,445,936
Engelhard Corporation
(1,372,141 shares)
Cash equivalents 228,427 228,427
Fixed Income Fund
- -----------------
Vanguard Variable Rate 23,654,085 23,654,085
Investment Contract Trust
Growth Fund
- -----------
Vanguard Windsor Fund 11,515,438 12,184,435
Balanced Fund
- -------------
Vanguard Asset Allocation Fund 3,668,788 3,927,757
Equity Index Fund
- -----------------
Vanguard Quantitative Portfolio 3,673,665 3,793,703
International Growth Fund
- -------------------------
Vanguard International Growth Portfolio 679,598 729,804
Small Cap Fund
- --------------
Vanguard Small Capitalization Stock Fund 316,496 306,864
Short-term Bond Fund
- --------------------
Vanguard Fixed Income Securities Fund 94,273 94,267
----------- -----------
Total $63,441,525 $78,365,278
-93-
EXHIBIT 99(b):
ANNUAL REPORT OF 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, 1994
-94-
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 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
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)
-95-
Engelhard Corporation Savings Plan for Hourly Paid Employees
Table of Contents
Page
No.
----
Financial Statements
- --------------------
Financial Statements
- --------------------
Report of Independent Accountants 97
Statements of Financial Condition 98-99
at December 31, 1994 and 1993
Statements of Income and Changes in 100-102
Plan Equity for each of the three years
in the period ended December 31, 1994
Notes to Financial Statements 103-107
Supplemental Schedules
Schedule of Investments at 108-109
December 31, 1994 and 1993
-96-
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 index on Page 96 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,
1994 and 1993, and the results of its operations for each of the three years in
the period ended December 31, 1994 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 28, 1995
-97-
<TABLE>
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Financial Condition
at December 31, 1994
<S> <C> <C> <C> <C> <C>
Company Stock Fixed Income Balanced Equity Index
Fund Fund Fund Fund Combined
------------- ------------ --------- ----------- ---------
Assets:
- ------
Investments, at fair value
(combined cost of $4,320,203) $1,776,767 $1,791,769 $339,848 $370,627 $4,279,011
Contributions Receivable:
Participants 65,023 61,281 14,710 15,832 156,846
Engelhard Corporation 10,896 - - - 10,896
---------- ---------- -------- -------- ----------
Total assets 1,852,686 1,853,050 354,558 386,459 4,446,753
========== ========== ======== ======== ==========
Plan Equity:
- -----------
Plan equity $1,852,686 $1,853,050 $354,558 $386,459 $4,446,753
========== ========== ======== ======== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-98-
<TABLE>
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Financial Condition
at December 31, 1993
<S> <C> <C> <C> <C> <C>
Company Stock Fixed Income Balanced Equity Index
Fund Fund Fund Fund Combined
------------- ------------ --------- ------------ -----------
Assets:
- ------
Investments, at fair value
(combined cost of $2,865,749) $1,320,006 $1,285,061 $224,821 $254,653 $3,084,541
Contributions Receivable:
Participants 55,852 60,162 12,009 13,250 141,273
Engelhard Corporation 10,063 - - - 10,063
---------- ---------- -------- -------- ---------
Total assets 1,385,921 1,345,223 236,830 267,903 3,235,877
========== ========== ======== ======== =========
Plan Equity:
- -----------
Plan equity $1,385,921 $1,345,223 $236,830 $267,903 $3,235,877
========== ========== ======== ======== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-99-
<TABLE>
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the year ended December 31, 1994
<S> <C> <C> <C> <C> <C>
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
</TABLE>
-100-
<TABLE>
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the year ended December 31, 1993
<S> <C> <C> <C> <C> <C>
Company Stock Fixed Income Balanced Equity Index
Fund Fund Fund Fund Combined
------------- ------------ ---------- ------------ ----------
Net Investment Income:
Dividends $ 19,236 $ - $ 14,212 $ 28,382 $ 61,830
Interest - 60,754 - - 60,754
---------- ---------- -------- -------- ----------
19,236 60,754 14,212 28,382 122,584
Contributions and Other Receipts:
Participants 499,512 570,358 102,059 115,863 1,287,792
Engelhard Corporation 91,659 - - - 91,659
---------- ---------- -------- -------- ----------
591,171 570,358 102,059 115,863 1,379,451
Net realized gain on disposition
of investments 9,261 - 891 1,785 11,937
Unrealized appreciation (depreciation)
of investments5,899- 5,214 (5,111) 6,002
Distributions (29,484) (35,054) (3,370) (9,479) (77,387)
Transfers 60,345 (48,051) (3,909) (8,385) -
---------- ---------- -------- -------- ----------
656,428 548,007 115,097 123,055 1,442,587
Plan equity, beginning of year 729,493 797,216 121,733 144,848 1,793,290
---------- ---------- -------- -------- ----------
Plan equity, end of year $1,385,921 $1,345,223 $236,830 $267,903 $3,235,877
========== ========== ======== ======== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-101-
<TABLE>
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Income and Changes in Plan Equity
for the year ended December 31, 1992
<S> <C> <C> <C> <C> <C>
Company Stock Fixed Income Balanced Equity Index
Fund Fund Fund Fund Combined
------------- ------------ ---------- ------------ -----------
Net Investment Income:
Dividends $ 10,043 $ - $ 5,363 $ 8,301 $ 23,707
Interest 97 33,944 - - 34,041
--------- ------- ---------- ---------- ----------
10,140 33,944 5,363 8,301 57,748
Contributions and Other Receipts:
Participants 248,240 485,082 72,086 80,936 886,344
Engelhard Corporation 73,438 - - - 73,438
---------- ------- ---------- ---------- ----------
321,678 485,082 72,086 80,936 959,782
Net realized gain (loss) on disposition 2,400 - 108 (6) 2,502
of investments
Unrealized appreciation of investments 181,051 - 1,656 472 183,179
Distributions (1,812) (8,223) (1,297) (240) (11,572)
Transfers 27,052 (27,973) (491) 1,412 -
---------- ------- ---------- ---------- ---------
540,509 482,830 77,425 90,875 1,191,639
Plan equity, beginning of year 188,984 314,386 44,308 53,973 601,651
---------- -------- ---------- ---------- ----------
Plan equity, end of year $729,493 $797,216 $121,733 $144,848 $1,793,290
========== ======== ========== ========== ==========
See Accompanying Notes to Financial Statements
</TABLE>
-102-
Notes to Financial Statements
Note 1 - Description of the Plan
The Engelhard Corporation Savings Plan for Hourly Paid Employees
(the Plan), effective as ofJanuary, 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,
Locals 1668, 1668A and 1668B of the United Automobile Workers, Local 170 of
the United Steelworkers of America, as of January 1, 1994, Local 8-406 of the
Oil, Chemical and Atomic Workers International Union and as of January 1, 1995
Local 663, International Chemicals 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.
Investments
- -----------
All contributions to the Plan are held and invested by Vanguard Fiduciary Trust
Company (the Trustee). The Trustee maintains four separate investment funds
within the Trust:
a) The Company Stock Fund, which 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 investments in Company common stock.
-103-
b) The Fixed Income Fund, which 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 Balanced Fund, which 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.
d) The Equity Index Fund, which 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.
Participants have the right to elect, subject to restrictions, in
which investment fund or funds their contributions are invested. All matching
contributions are initially invested in the Company Stock Fund. Participants
at their discretion after one year may elect to transfer to another fund, up to
25 percent per year, the amount of matching contribution invested in the
Company Stock Fund.
The number of Participants in each fund was as follows at December 31:
Participants 1994 1993
---- ----
Company Stock Fund 633 599
Fixed Income Fund 413 396
Balanced Fund 163 136
Equity Index Fund 172 145
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
Company Stock Fixed Income Balanced Equity Index
Fund Fund Fund Fund
------------- ------------ -------- ------------
1994:
Units 73,373 1,853,050 26,186 24,837
Value per unit $25.25 $1.00 $13.54 $15.56
1993:
Units 50,051 1,345,223 16,390 16,286
Value per unit $27.69 $1.00 $14.45 $16.45
-104-
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.
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.
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.
-105-
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.
The net realized gain (loss) on disposition of investments was
computed as follows:
Common Equity
Stock Balanced Index
Net realized gain (loss) Fund Fund Fund Combined
------- --------- -------- --------
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
Year ended December 31, 1993 -
Amount realized $ 45,185 $ 12,115 $ 19,261 $ 76,561
Cost-average 35,924 11,224 17,476 64,624
Net realized gain 9,261 891 1,785 11,937
Year ended December 31, 1992 -
Amount realized $ 16,127 $ 2,542 $ 717 $ 19,386
Cost-average 13,727 2,434 723 16,884
Net realized gain (loss) 2,400 108 (6) 2,502
-106-
The net unrealized appreciation (depreciation) of investments
held was computed as follows:
Company Equity
Net unrealized appreciation Stock Balanced Index
(depreciation) Fund Fund Fund Combined
--------- --------- -------- --------
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)
Year ended December 31, 1993 -
Balance, beginning of year $ 205,405 $ 4,099 $ 3,286 $ 212,790
Net change 5,899 5,21 (5,111) 6,002
Balance, end of year 211,304 9,313 (1,825) 218,792
Year ended December 31, 1992 -
Balance, beginning of year $ 24,354 $ 2,443 $ 2,814 $ 29,611
Net change 181,051 1,656 472 183,179
Balance, end of year 205,405 4,099 3,286 212,790
-107-
Schedule I
Engelhard Corporation Savings Plan for Hourly Paid Employees
Schedule of Investments
at December 31, 1994
Approximate
Cost Market Value
---------- ------------
Company Stock Fund
- ------------------
Common Stock of $1,776,935 $1,760,954
Engelhard Corporation
(79,144 shares)
Cash equivalents 15,813 15,813
Fixed Income Fund
- -----------------
Vanguard Variable Rate 1,791,769 1,791,769
Investment Contract Trust
Balanced Fund
- -------------
Vanguard Asset Allocation 348,321 339,848
Fund
Equity Index Fund
- -----------------
Vanguard Quantitative 387,365 370,627
Portfolio
---------- ----------
Total $4,320,203 $4,279,011
========== ==========
-108-
Schedule I
Engelhard Corporation Savings Plan for Hourly Paid Employees
Schedule of Investments
at December 31, 1993
Approximate
Cost Market Value
----------- ------------
Company Stock Fund
- ------------------
Common Stock of $1,096,878 $1,308,182
Engelhard Corporation
(53,669 shares)
Cash equivalents 11,824 11,824
Fixed Income Fund
- -----------------
Vanguard Variable Rate 1,285,061 1,285,061
Investment Contract Trust
Balanced Fund
- -------------
Vanguard Asset Allocation 215,508 224,821
Fund
Equity Index Fund
- -----------------
Vanguard Quantitative 256,478 254,653
Portfolio
---------- ----------
Total $2,865,749 $3,084,541
========== ==========
-109-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> Dec-31-1994
<CASH> 26404
<SECURITIES> 0
<RECEIVABLES> 265639
<ALLOWANCES> 0
<INVENTORY> 243439
<CURRENT-ASSETS> 573637
<PP&E> 1285075
<DEPRECIATION> 744714
<TOTAL-ASSETS> 1440759
<CURRENT-LIABILITIES> 548699
<BONDS> 111762
<COMMON> 98197
0
0
<OTHER-SE> 516538
<TOTAL-LIABILITY-AND-EQUITY> 1440759
<SALES> 2385802
<TOTAL-REVENUES> 2385802
<CGS> 1970563
<TOTAL-COSTS> 1970563
<OTHER-EXPENSES> 244611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21954
<INCOME-PRETAX> 157306
<INCOME-TAX> 39326
<INCOME-CONTINUING> 117980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117980
<EPS-PRIMARY> 1.23
<EPS-DILUTED> .00
