<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the quarterly period ended September 30, 1998
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 name 1-8142
ENGELHARD CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1586002
------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(732) 205-5000
---------------------------------------------------
(Registrant's telephone number including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if change since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at October 30, 1998
- --------------------- -------------------------------
$1 par value 143,249,392
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1998 1997 1998 1997
----------- -------- ---------- ----------
Net sales ....................... $1,039,495 $836,117 $3,084,560 $2,617,052
Cost of sales ................... 889,446 696,000 2,613,767 2,180,681
----------- -------- ---------- ----------
Gross profit ............... 150,049 140,117 470,793 436,371
Selling, administrative and other
expenses ...................... 76,765 69,896 241,773 223,827
----------- -------- ---------- ----------
Earnings from operations ... 73,284 70,221 229,020 212,544
Equity in earnings (losses) of
affiliates .................... 1,456 (3,071) 8,929 (2,587)
Gain on sale of investment ...... - - - 305
Net interest expense ............ (16,450) (12,427) (43,934) (38,707)
----------- -------- ---------- ----------
Earnings before income taxes 58,290 54,723 194,015 171,555
Income tax expense .............. 13,045 15,903 54,712 50,952
----------- -------- ---------- ----------
Net earnings ............... $ 45,245 $ 38,820 $ 139,303 $ 120,603
=========== ======== ========== ==========
Basic earnings per share ........ $ 0.31 $ 0.27 $ 0.96 $ 0.84
=========== ======== ========== ==========
Diluted earnings per share ...... $ 0.31 $ 0.27 $ 0.96 $ 0.83
=========== ======== ========== ==========
Cash dividends paid per share ... $ 0.10 $ 0.10 $ 0.30 $ 0.28
=========== ======== ========== ==========
Average number of shares
outstanding - Basic ........... 144,313 144,349 144,461 144,201
=========== ======== ========== ==========
Average number of shares
outstanding - Diluted ......... 145,438 146,068 145,344 145,900
=========== ======== ========== ==========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
2
<PAGE>
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
September 30, December 31,
1998 1997
------------- ------------
Cash .................................. $ 20,208 $ 28,765
Receivables ........................... 378,144 323,330
Committed metal positions ............. 482,515 502,494
Inventories ........................... 365,602 356,403
Other current assets .................. 73,537 44,180
------------- ------------
Total current assets ............. 1,320,006 1,255,172
Investments ........................... 155,240 160,082
Property, plant and equipment, net .... 922,098 788,178
Intangible assets, net ................ 330,021 214,929
Other noncurrent assets ............... 156,503 167,962
------------- ------------
Total assets ..................... $2,883,868 $2,586,323
============= ============
Short-term borrowings ................. $ 389,959 $ 249,368
Accounts payable ...................... 197,646 180,499
Hedged metal obligations .............. 509,436 572,266
Other current liabilities ............. 234,986 238,003
------------- ------------
Total current liabilities ........ 1,332,027 1,240,136
Long-term debt ........................ 501,420 373,574
Other noncurrent liabilities .......... 194,758 187,353
Shareholders' equity .................. 855,663 785,260
------------- ------------
Total liabilities and
shareholders' equity ........ $2,883,868 $2,586,323
============= ============
See the Accompanying Notes to the Condensed Consolidated Financial Statements
3
<PAGE>
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
---------- ----------
Cash flows from operating activities
Net earnings ........................................ $ 139,303 $ 120,603
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion and amortization ......... 74,101 64,798
Equity results, net of dividends ................. (6,906) 6,390
Net change in assets and liabilities
Metal related ............................... (31,029) 86,986
All other ................................... (74,504) (60,296)
---------- ----------
Net cash provided by operating activities ........ 100,965 218,481
---------- ----------
Cash flows from investing activities
Capital expenditures, net ........................... (83,853) (80,454)
Acquisitions and investments, net ................... (245,401) (24,541)
Other ............................................... 7,016 (765)
---------- ----------
Net cash used in investing activities ............ (322,238) (105,760)
---------- ----------
Cash flows from financing activities
Net change in short-term borrowings ................. 140,307 11,801
Net change in hedged metal obligations .............. (1,806) (82,696)
Proceeds from issuance of long-term debt ............ 119,744 950
Repayment of long-term debt ......................... (114) (1,732)
Purchase of treasury stock .......................... (8,412) -
Stock bonus and option plan transactions ............ 8,173 11,355
Dividends paid ...................................... (43,381) (40,404)
---------- ----------
Net cash provided by (used in) financing
activities ..................................... 214,511 (100,726)
Effect of exchange rate changes on cash ............... (1,795) (1,045)
---------- ----------
Net change in cash ............................... (8,557) 10,950
Cash at beginning of year ........................ 28,765 39,683
---------- ----------
Cash at end of period ............................ $ 20,208 $ 50,633
========== ==========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
4
<PAGE>
ENGELHARD CORPORATION
BUSINESS SEGMENT INFORMATION
(Thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1998 1997 1998 1997
----------- -------- ----------- -----------
Net Sales
Catalysts and Chemicals ........ $ 243,662 $217,316 $ 734,191 $ 671,927
Pigments and Additives ......... 140,965 154,953 442,894 449,447
Engineered Materials and
Industrial Commodities
Management ................. 654,868 463,848 1,907,475 1,495,678
----------- -------- ----------- -----------
$1,039,495 $836,117 $3,084,560 $2,617,052
=========== ======== =========== ===========
Operating Earnings
Catalysts and Chemicals ........ $ 44,154 $ 28,724 $ 127,421 $ 101,591
Pigments and Additives ......... 20,525 30,524 74,122 86,665
Engineered Materials and
Industrial Commodities
Management ................. 18,454 18,230 55,714 43,230
----------- -------- ----------- -----------
83,133 77,478 257,257 231,486
Equity in earnings (losses)
of affiliates ................. 1,456 (3,071) 8,929 (2,587)
Gain on sale of investment ...... - - - 305
Interest and other expenses, net (26,299) (19,684) (72,171) (57,649)
----------- -------- ----------- -----------
Earnings before income taxes $ 58,290 $ 54,723 $ 194,015 $ 171,555
=========== ======== =========== ===========
See the Accompanying Notes to the Condensed Consolidated Financial Statements
5
<PAGE>
Notes to the Condensed Consolidated Financial Statements
- --------------------------------------------------------
Note 1 - Basis of Presentation
- ------------------------------
The unaudited condensed consolidated financial statements of Engelhard
Corporation and subsidiaries (the "Company") contain all adjustments, which, in
the opinion of management, are necessary for a fair statement of the results for
the interim periods presented. The financial statement results for interim
periods are not necessarily indicative of financial results for the full year.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1997 Annual
Report to Shareholders. Unless otherwise indicated, all per-share amounts are
presented as basic earnings per share, as calculated under SFAS NO. 128,
"Earnings per Share".
Note 2 - Acquisition
- --------------------
On May 1, 1998, the Company acquired the chemical catalysts businesses of
Mallinckrodt, Inc. ("Mallinckrodt businesses") for approximately $210 million in
cash. The Company initially financed the acquisition with a combination of
commercial paper and bank borrowings. The purchase price exceeded the
preliminary assessment of the fair value of net assets acquired by approximately
$90 million, which is being amortized on a straight-line basis over 40 years.
The results of the Mallinckrodt businesses are included in the accompanying
financial statements from the date of acquisition: For the third quarter and
first nine months of 1998, the acquisition increased net sales by $19.5 million
and $42.7 million, respectively; operating earnings by $2.5 million and $8.8
million, respectively; and earnings per share by $.00 and $.02, respectively.
Earnings per share include the impact of higher interest expense related to the
acquisition. Management anticipates modest levels of profitability from the
Mallinckrodt businesses for the remainder of 1998.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1 of each year:
Pro Forma Information (in millions, except per share data):
Nine Months Ended
September 30,
-----------------------
1998 1997
---- ----
Net sales .......................... $3,133.3 $2,681.9
Net earnings ....................... 140.2 119.8
Basic earnings per share ........... .97 .83
Diluted earnings per share ......... .96 .82
The 1997 amounts above include the Mallinckrodt businesses results for the
first nine months of 1997. The 1998 amounts above include the Mallinckrodt
businesses results for the first four months of 1998 prior to the acquisition,
and the five months in 1998 postacquisition. The pro forma amounts are based
upon certain assumptions and estimates, and do not reflect any benefit from
6
<PAGE>
economies that might be achieved from combined operations. The pro forma results
do not necessarily represent results that would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
Note 3 - Inventories
- --------------------
Inventories consist of the following (in thousands):
September 30, 1998 December 31, 1997
------------------ -----------------
Raw materials ................... $ 89,722 $ 99,150
Work in process ................. 54,501 31,903
Finished goods .................. 189,362 191,890
Precious metals ................. 32,017 33,460
------------------ -----------------
Total inventories ............... $ 365,602 $ 356,403
================== =================
The amount of inventory acquired from the Mallinckrodt businesses was
$16.3 million.
All precious metals are stated at LIFO cost. The precious metals
inventories exceeded cost by $75.0 million and $49.7 million at September 30,
1998 and December 31, 1997, respectively. In order to make more efficient use of
the Company's assets, the Company reduced certain elements of precious metals
inventories. As a result, operating earnings and net earnings included $4.1
million and $2.4 million, respectively, for the third quarter and first nine
months of 1998 as a result of selling inventory accounted for under the LIFO
method. These gains are included in the Industrial Commodities Management Group
of the Engineered Materials and Industrial Commodities Management segment.
Note 4 - Other Matters
- ----------------------
With respect to the fraud involving base metal inventory held in
third-party warehouses in Japan described in the paragraph entitled "Subsequent
Event" in Engelhard's Form 10-K for the year ended December 31, 1997, the
Company: is continuing to pursue recovery of its losses from its insurance
carriers and various third parties; recorded a related receivable in the first
quarter of 1998; and commenced litigation against certain of these third parties
in the second quarter of 1998. This matter did not have a material effect on
earnings in the first nine months of 1998.
7
<PAGE>
Note 5 - Comprehensive Income
- -----------------------------
In accordance with Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income", comprehensive income is summarized as follows
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1998 1997 1998 1997
-------- --------- -------- --------
Net earnings ........................ $45,245 $38,820 $139,303 $120,603
Other comprehensive income (loss):
Foreign currency translation
adjustment ..................... 18,177 (3,972) (1,575) (49,223)
-------- --------- -------- --------
Comprehensive income ................ $63,422 $34,848 $137,728 $ 71,380
======== ========= ======== ========
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.
Note 6 - Accounting Change
- --------------------------
Engelhard has certain deferred compensation arrangements where shares
earned under the Engelhard stock bonus plan are deferred and placed in a "Rabbi
Trust". Under certain conditions, these plans permit the employees at the time
of settlement to receive cash in lieu of Engelhard stock. In the third quarter
of 1998, the Company adopted the provisions of Emerging Issues Task Force
("EITF") 97-14 "Accounting for Deferred Compensation Arrangements Where Amounts
Earned Are Held in a Rabbi Trust and Invested". This EITF requires Engelhard to
consolidate into its financial statements the net assets of the trust. The
impact to the accompanying consolidated financial statements is: a $20.1 million
increase in treasury stock (measured at historical cost); the recording of a
$23.7 million deferred compensation obligation (measured on the reporting date
by fair value of the Engelhard common stock held in the trust on behalf of the
employees); and a charge to equity for the $3.6 million difference (referred to
as the "transition differential"). After the transition date but prior to final
settlement, increases/decreases in the deferred compensation liability would be
recognized (1) in equity to the extent that the share price change falls within
the transition differential, or (2) in income to the extent that the share
change falls outside the transition differential.
8
<PAGE>
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
- ------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the Third Quarter of 1998
with the Third Quarter of 1997
- ----------------------------------------
Net earnings increased 17% to $45.2 million in the third quarter of 1998
from $38.8 million in the same period of 1997. Earnings before income taxes for
the third quarter of 1998 increased 7% to $58.3 million from $54.7 million for
the same period of 1997. Operating earnings for the third quarter of 1998
increased 7%. The Catalysts and Chemicals segment and the Engineered Materials
and Industrial Commodities Management segment reported higher earnings which
more than offset the lower results of the Pigments and Additives segment.
The Company has entered into negotiations to dispose of underutilized real
estate. As a result of this program, capital gains are anticipated to be
realized in the last quarter of 1998, as well as in 1999. The effective tax rate
for the third quarter of 1998 was reduced to reflect the reversal of a valuation
allowance related to capital loss carryforwards. The effective tax rate was
22.4% in the third quarter of 1998 compared with 29.1% for the same period last
year.
The Company's share of earnings from affiliates was $1.5 million for the
third quarter of 1998 compared with a loss of $3.1 million for the same period
of 1997. The increase was principally attributable to Engelhard-CLAL's improved
operating results as well as the absence of losses from Engelhard/ICC, which has
been restructured. Management anticipates continued profitability from its
affiliates for the remainder of 1998 compared to losses incurred last year.
Higher net interest expense was primarily due to the acquisition of the
Mallinckrodt businesses.
Net sales for the third quarter of 1998 increased 24% to $1.0 billion from
$836.1 million for the same period of 1997. The Catalysts and Chemicals segment
and the Engineered Materials and Industrial Commodities Management segment
reported higher sales which more than offset the lower sales of the Pigments and
Additives segment.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 54% to $44.2 million in the third quarter of
1998 from $28.7 million in the same period of 1997. Net sales for the third
quarter of 1998 increased 12% to $243.7 million from $217.3 million in the same
period of 1997.
Sales and operating earnings in 1998 include the impact of the acquisition
of the Mallinckrodt businesses (see "Note 2 - Acquisition" of the Notes to the
Condensed Consolidated Financial Statements).
9
<PAGE>
The Environmental Technologies Group had higher earnings largely due to
higher automotive volumes, the absence of the stationary source capital
equipment business (sold in the first quarter of 1998) and manufacturing
efficiencies of $3.8 million achieved over a twelve-month period, partially
offset by the expected lower demand in the diesel catalyst business. In the
Petroleum Catalysts Group, earnings improved dramatically primarily due to its
lower cost structure resulting from the shutdown of the Netherlands
manufacturing facility in mid- 1998. The Chemical Catalysts Group had higher
earnings driven by the strong results from the acquisition of the Mallinckrodt
businesses and higher sales of base-metal catalysts.
Pigments and Additives
- ----------------------
Operating earnings decreased 33% to $20.5 million in the third quarter of
1998 from $30.5 million in 1997. Net sales declined 9% to $141.0 million in 1998
from $155.0 million in 1997.
Significantly lower earnings from the Specialty Pigments and Additives
Group were primarily due to continuing pricing pressures, lower volumes in Asia
and the impact of a recently completed inventory reduction program. This
decrease was partially offset by an increase in the Paper Pigments and Additives
Group, which benefited from cost recoveries in the third quarter. Absent these
items, the paper group would have declined due to lower volume and pricing
pressures.
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings increased 1% to $18.5 million in the third quarter of
1998 from $18.2 million in the same period of 1997. Net sales increased 41% to
$654.9 million in 1998 from $463.8 million in 1997.
Operating earnings in 1998 of the Industrial Commodities Management Group
included a reduction in one of the Company's precious metal reserves as a result
of increased stability of the metal's market value. Also, see "Note 3 -
Inventories" of the Notes to the Condensed Consolidated Financial Statements for
the impact from the sale of inventory accounted for under the LIFO method.
The results of the Engineered Materials Group and the Industrial
Commodities Management Group were not materially different from the prior year.
However, absent the reduction in certain precious metals inventories (see "Note
3 - Inventories" of the Notes to the Condensed Consolidated Financial
Statements), the Industrial Commodities Management Group declined, principally
due to lower price volatility.
Comparison of the First Nine Months of
1998 with the First Nine Months of 1997
- ---------------------------------------
Net earnings for the first nine months of 1998 increased 16% to $139.3
million from $120.6 million for the same period in 1997. Earnings before income
taxes for the first nine months of 1998 increased 13% to $194.0 million from
$171.6 million for the same period in 1997. Operating earnings for the first
10
<PAGE>
nine months of 1998 increased 11%. The Catalysts and Chemicals segment and the
Engineered Materials and Industrial Commodities Management segment reported
higher earnings which more than offset the lower results of the Pigments and
Additives segment.
The Company has entered into negotiations to dispose of underutilized real
estate. As a result of this program, capital gains are anticipated to be
realized in the last quarter of 1998, as well as in 1999. The effective tax rate
for the nine months ended September 30, 1998 was reduced to reflect the reversal
of a valuation allowance related to capital loss carryforwards. The effective
tax rate was 28.2% for the nine months ended September 30, 1998 compared with
29.7% for the same period last year.
The Company's share of earnings from affiliates was $8.9 million for the
first nine months of 1998 compared with a loss of $2.6 million in 1997. The
increase was partially attributable to Engelhard-CLAL's improved operating
results and the absence of losses from Engelhard/ICC, which has been
restructured. Management anticipates continued profitability from its affiliates
for the remainder of 1998 compared to losses incurred last year.
Higher net interest expense was primarily due to the acquisition of the
Mallinckrodt businesses.
Net sales for the first nine months of 1998 increased 18% to $3.1 billion
from $2.6 billion for the same period in 1997. The Catalysts and Chemicals
segment and the Engineered Materials and Industrial Commodities Management
segment reported higher sales which more than offset the lower sales of the
Pigments and Additives segment.
Catalysts and Chemicals
- -----------------------
Operating earnings increased 25% to $127.4 million in the first nine months
of 1998 from $101.6 million in the same period of 1997. Net sales increased 9%
to $734.2 million in 1998 from $671.9 million in 1997.
Sales and operating earnings in 1998 include the impact of the acquisition
of the Mallinckrodt businesses (see "Note 2 - Acquisition" of the Notes to the
Condensed Consolidated Financial Statements).
The Environmental Technologies Group had higher earnings largely due to
higher automotive volumes and the absence of the stationary source capital
equipment business (sold in the first quarter of 1998), partially offset by the
expected lower demand in the diesel catalyst business. In the Petroleum
Catalysts Group, earnings improved primarily due to its lower cost structure
resulting from the shutdown of the Netherlands manufacturing facility in
mid-1998, a decline in other operating costs and a favorable product mix for
fluid catalytic cracking catalysts. Excluding the results of the Mallinckrodt
businesses, the Chemical Catalysts Group's earnings would have declined, due
primarily to the overall comparatively weaker demand in the chemical industry
and the timing associated with large, periodic customer orders.
11
<PAGE>
Pigments and Additives
- ----------------------
Operating earnings decreased 14% to $74.1 million in the first nine months
of 1998 from $86.7 million in the same period of 1997. Net sales decreased 1% to
$442.9 million in 1998 from $449.4 million in 1997.
Significantly lower earnings from the Specialty Pigments and Additives
Group were primarily due to continuing pricing pressures, lower volumes in Asia
and the negative impact of a recently completed inventory reduction program.
This decrease was partially offset by an increase in the Paper Pigments and
Additives Group, which benefited from cost recoveries in the third quarter.
Absent the cost recoveries, the paper group would have approximated prior year.
Engineered Materials and Industrial Commodities Management
- ----------------------------------------------------------
Operating earnings increased 29% to $55.7 million in the first nine months
of 1998 from $43.2 million in the same period in 1997. Net sales increased 28%
to $1.9 billion in 1998 from $1.5 billion in 1997.
See "Note 3 - Inventories" of the Notes to the Condensed Consolidated
Financial Statements for the impact from the sale of inventory accounted for
under the LIFO method.
The Industrial Commodities Management Group generated higher earnings by
continuing to capitalize on unusual market volatility throughout the first six
months of 1998 and the benefit of reducing certain precious metals inventories
described above. The Engineered Materials Group had higher earnings primarily
due to increased refining business in Europe and higher demand for metal joining
products.
Financial Condition and Liquidity
---------------------------------
In July 1998, the Company filed a shelf registration for $300 million. The
net proceeds from offerings under the shelf registration are expected to be used
to retire short-term debt and for general corporate purposes. The Company
anticipates issuing $100 million of bonds under the shelf registration prior to
the end of the first quarter of 1999.
At September 30, 1998, the Company's current ratio was 1.0, the same as at
December 31, 1997. The Company's total debt to total capital ratio increased to
51% from 44% at year end, primarily due to the acquisition of the Mallinckrodt
businesses in the second quarter and the timing of investments made in the first
quarter.
The nature of the Industrial Commodities Management business can result in
significant fluctuations in cash flow. Management believes that the Company will
continue to have adequate access to credit and capital markets to meet its needs
for the foreseeable future.
12
<PAGE>
Other Matters
-------------
Year 2000 Update
- ----------------
The ability of computers, software or any equipment utilizing micro-
processors to properly recognize and process data information at the turn
of the century is commonly referred to as a Year 2000 ("Y2K") compliance issue.
The Company has approached its Y2K compliance issue by categorizing its
dependencies into two sections: Internal systems (Information Technology ("IT")
systems and Non-IT systems), and External systems of suppliers and customers.
Generally, internal systems identified as non-Y2K compliant will be replaced or
modified (reprogrammed, upgraded, etc.). Many of the internal non-compliant
systems were targeted for replacement for reasons other than Y2K issues as the
benefits of newer technology had already created an economic business case for
action. The cost of these replacement solutions will be capitalized as permitted
by applicable accounting standards whereas the cost of modification solutions
will generally be expensed as repairs. External systems will be monitored with
the cooperation of our suppliers and customers.
Internal IT systems - includes internal applications software such as
finance, manufacturing (purchasing, product costing, production reporting,
maintenance, and planning and scheduling) and logistics (distribution planning
and customer order entry). All internal IT systems have been inventoried and
assessed for Y2K compliance. The Company anticipates its Corporate-wide systems
for finance, logistics, and human resources to be Year 2000 compliant by the end
of 1998. In addition, the Company anticipates approximately 80% of manufacturing
and other plant application systems to be compliant by the end of 1998, with the
remainder being compliant by mid 1999.
Internal Non-IT systems - includes embedded chip technology such as
programmable logic controllers and related hardware/software; and personal
computers and related software. The Company's programmable logic controllers and
related hardware/software have been inventoried and assessed for Y2K compliance.
The Company anticipates that all non-compliant equipment software will be
replaced or upgraded by mid-1999. All of the Company's personal computers and
related software are currently in the process of being tested. The Company
believes that "critical" non-compliant hardware/software will be replaced or
upgraded by the end of 1998 and that remaining hardware/software will be
replaced or upgraded by mid-1999.
External systems - includes systems of customers and suppliers. The Company
is in the process of understanding the extent to which it is vulnerable to the
Y2K issues of its customers and suppliers. The Company has identified and
contacted third parties whose systems would have a significant negative impact
on operations if not Y2K compliant. The Company is in the process of assessing
the systems of these third parties and expects to complete its assessment and to
have developed requisite action plans with respect to these findings by the end
of 1998. There can be no assurance that the Y2K compliance issues of these
customers and suppliers will not have a material adverse affect on the Company.
The estimated total cost of implementing Y2K solutions is approximately
$14.2 million. The total amount expended through December 31, 1997 was $0.8
million, with an additional $9.1 million expended in the first nine months of
1998. With regard to the $9.9 million expended to date, approximately $5.4
13
<PAGE>
million has been expensed and $4.5 million capitalized in accordance with
applicable accounting standards. The remaining Y2K expenditures are estimated to
be incurred by the end of 1999, of which approximately $2.0 million will be
expensed.
The dates on which the Company plans to complete any necessary Y2K
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
The failure to correct a material Y2K compliance problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could have a material adverse impact on the operations
of the Company. The Company believes that, with the implementation of new
business systems and completion of the Y2K project as scheduled, the possibility
of significant interruptions of normal operations is reduced.
The Company currently does not have a contingency plan in place to deal
with Y2K issues, but anticipates having all contingency actions identified by
the end of the first quarter of 1999.
Subsequent Events
-----------------
Significant Shareholder Announcement
- ------------------------------------
On October 15, 1998, Minorco S.A. ("Minorco"), the Luxembourg-based company
that owns 31.8% of Engelhard's common stock, and Anglo American Corporation
announced that they had agreed in principle to combine their businesses to
establish Anglo American plc ("AA plc"). In that announcement, Minorco disclosed
that it will be divesting its interests in Engelhard Corporation.
Debt Ratings
- ------------
In October 1998, Standard & Poor's and Moody's Investors Service each
placed its ratings of Engelhard Corporation debt on credit watch. The rating
action was prompted by Engelhard's announcement that it had hired financial
advisors to help the Company explore its strategic alternatives after Minorco
announced that it will be divesting its interests in Engelhard Corporation (see
Significant Shareholder Announcement above). The debt ratings of Engelhard could
be raised or lowered depending on the disposition of the 31.8% stake, including
but not limited to the creditworthiness of the ultimate purchaser.
14
<PAGE>
Stockholder Rights Plan
- -----------------------
On October 1, 1998, the Board of Directors of the Company adopted a
Stockholder Rights Plan declaring a dividend distribution of one Right for each
outstanding share of common stock, $1.00 par value, of the Company. The
distribution is payable to stockholders of record on November 13, 1998. Each
Right entitles the registered stockholders to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred Stock at a
price of $100 per one one-thousandth of a share (subject to adjustment).
Subject to certain exceptions, the Rights may not be exercised until 10
days after a person or group acquires 15% or more of the Company's common stock,
or announces a tender offer that, if consummated, would result in such person or
group owning 15% or more of the Company's common stock. If a person or group
acquires 15% or more of the Company's common stock, each holder of a Right
(other than the acquirer) will have the right to receive common stock (or, in
certain circumstances, cash, property, or other securities of the Company)
having a value equal to two times the purchase price of the Right. In the event
that the Company is acquired in a merger or other business combination
transaction, or 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a Right will have the right to receive common stock
of the acquiring company having a value equal to two times the purchase price of
the Right.
Subject to certain exceptions, if 15% or more of the Company's common stock
is acquired, the Board of Directors may exchange the Rights (other than the
acquirer's Rights which will have become void), in whole or in part, at an
exchange ratio of one share of common stock (or a fraction of a share of
Preferred Stock having the same market value) per Right (subject to adjustment).
The Rights will expire on October 1, 2008, unless exchanged or redeemed
prior to that date. The Company may redeem the Rights at a price of $.001 per
Right at any time prior to the tenth day following a public announcement that a
person or group has acquired 15% or more of the Company's common stock (for
further details on the Company's Stockholder Rights Plan, see Form 8-K which was
filed with the SEC on October 29, 1998).
Class Action
- ------------
The Company and certain of its present and former officers have agreed to a
Stipulation of Settlement ("Stipulation") of a class action filed in November
1995 which alleged misstatements and omissions in connection with press releases
issued in 1995 concerning the Company's PremAir(TM) Catalyst Systems. In the
settlement, which remains subject to Court approval, in exchange for the
dismissal of the complaint against all defendants, the Company will pay no more
than $7.2 million of a maximum settlement amount of $21.5 million. The balance
of the settlement amount will be paid by insurance carried by the Company for
such purposes. Because the final settlement amount will depend on the number of
eligible shares of the Company's common stock for which claims are submitted,
the amounts to be paid by the Company and the insurer could be less (but in no
event more) than the above-stated amounts. This matter did not have any impact
on earnings in the first nine months of 1998 and, if resolved in accordance with
the Stipulation, will not have a material adverse effect on the operating
results of the Company in future periods.
15
<PAGE>
Forward-looking Statements
--------------------------
This document contains forward-looking statements. Investors should be
aware of factors that could cause Engelhard's actual results to vary materially
from those projected in the forward-looking statements. These factors include,
but are not limited to, global economic trends; competitive pricing or product
development activities; markets, alliances, and geographic expansions developing
differently than anticipated; government legislation and/or regulation
(particularly on environmental issues); and technology, manufacturing and legal
issues; and the factors disclosed in the Year 2000 Update on pages 13 and 14 of
this Form 10-Q.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K Pages
- ------- -------------------------------- -----
(a)(10) Material Contracts.
(a) Amendment to Key Employees Stock Bonus Plan of 19-20
Engelhard Corporation, effective October 1, 1998.
(b) Amendment to Supplemental Retirement Program of 21-22
Engelhard Corporation, effective October 1, 1998.
(c) Amendment to Engelhard Corporation Directors and 23-24
Executives Deferred Compensation Plan (1986-1989),
effective October 1, 1998.
(d) Amendment to Engelhard Corporation Directors and 25-27
Executives Deferred Compensation Plan (1990-1993),
effective October 1, 1998.
(e) Amendment to Deferred Compensation Plan For Key 28-30
Employees of Engelhard Corporation, effective
October 1, 1998.
(f) Amendment to Deferred Compensation Plan For 31-34
Directors of Engelhard Corporation, effective
October 1, 1998.
(g) Amendment to Retirement Plan For Directors of 35-36
Engelhard Corporation, effective October 1, 1998.
(h) Amendment to Stock Bonus Plan For Non-Employee 37-38
Directors of Engelhard Corporation, effective
October 1, 1998.
(i) Amendment to Deferred Compensation Plan for Key 39-40
Employees of Engelhard Corporation, effective
August 6, 1998.
16
<PAGE>
(12) Computation of the Ratio of Earnings to Fixed Charges. 41-42
(b) There were no reports on Form 8-K filed during the quarter *
ended September 30, 1998. The Company has filed a Form 8-K
with the SEC on October 29, 1998 relating to the adoption of
the Stockholder Rights Plan.
* Incorporated by reference as indicated.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENGELHARD CORPORATION
-----------------------------
(Registrant)
Date November 13, 1998 /s/ Orin R. Smith
--------------------- -----------------------------
Orin R. Smith
Chairman and Chief
Executive Officer
Date November 13, 1998 /s/ Thomas P. Fitzpatrick
--------------------- -----------------------------
Thomas P. Fitzpatrick
Senior Vice President and
Chief Financial Officer
Date November 13, 1998 /s/ David C. Wajsgras
---------------------- -----------------------------
David C. Wajsgras
Controller
18
<PAGE>
EXHIBIT 10(a)
AMENDMENT TO KEY EMPLOYEES STOCK
BONUS PLAN OF ENGELHARD CORPORATION
-----------------------------------
19
<PAGE>
AMENDMENT TO KEY EMPLOYEES STOCK
BONUS PLAN OF ENGELHARD CORPORATION
-----------------------------------
The Key Employees Stock Bonus Plan of Engelhard Corporation (the "Plan") is
amended as follows, effective October 1, 1998.
1. The following new paragraph (d) is added at the end of Section 6 of
the Plan:
"(d) At the time of a Change in Control or an acquisition of a control
interest in the Company, the Company shall make an immediate cash payment
to each key employee equal, on an after tax basis (including combined
federal, state and local income, employment and excise taxes), to the
excess of (A) over (B), where (A) is equal to the combined federal, state
and local income and employment taxes payable by the key employee as a
result of the accelerated vesting of Company Common Stock due to the Change
in Control or acquisition of a control interest in the Company; and (B) is
the present value (discounted at the Applicable Federal Rate (within the
meaning of Section 1274 of the Code) at the time of payment) of the
combined federal, state and local income and employment taxes which would
be payable at the time such Company Common Stock vested if it had vested in
accordance with its original vesting schedule, assuming the fair market
value per share of Company Common Stock would then be equal to the actual
fair market value per share on the date of the Change in Control or
acquisition of a control interest, as the case may be. For purposes of this
paragraph, it shall be assumed that all income taxes are payable at the top
marginal rates in effect at the time of the payment hereunder and that
state and local income taxes are deductible for federal income tax
purposes."
20
<PAGE>
EXHIBIT 10(b)
AMENDMENT TO SUPPLEMENTAL
RETIREMENT PROGRAM OF ENGELHARD CORPORATION
-------------------------------------------
21
<PAGE>
AMENDMENT TO SUPPLEMENTAL
RETIREMENT PROGRAM OF ENGELHARD CORPORATION
-------------------------------------------
The Supplemental Retirement Program of Engelhard Corporation (the "Plan")
is amended as follows, effective October 1, 1998.
1. The following is added at the end of Section 8 of the Plan:
"All payments provided for under the Plan shall be paid from the
general assets of the Company; provided, however, that such payments
shall be reduced by the amount of any payments made to the participant
or his or her beneficiary from any trust or special or separate fund
established by the Company to assure such payments. The Company may
establish and maintain a trust, the assets of which shall be subject
to the claims of the Company's creditors in the event of the Company's
bankruptcy or insolvency, in order to provide a source of funds to
assist it in the meeting of its liabilities hereunder."
22
<PAGE>
EXHIBIT 10(c)
AMENDMENT TO ENGELHARD CORPORATION DIRECTORS
AND EXECUTIVES DEFERRED COMPENSATION PLAN
(1986-1989)
--------------------------------------------
23
<PAGE>
AMENDMENT TO ENGELHARD CORPORATION DIRECTORS
AND EXECUTIVES DEFERRED COMPENSATION PLAN
(1986-1989)
--------------------------------------------
The Engelhard Corporation Directors and Executives Deferred Compensation
Plan (1986-1989) the ("Plan") is amended as follows, effective October 1, 1998:
1. The second sentence of Section 6 of the Plan is amended to read as
follows:
"No participant shall have any right or interest in any such policy or
the proceeds thereof and all payments provided for under the Plan shall be
paid in cash from the general funds of the Company; provided, however, that
such payments shall be reduced by the amount of any payments made to the
participant or his or her beneficiary from any trust or special or separate
fund established by the Company to assure such payments. The Company may
establish and maintain a trust, the assets of which shall be subject to the
claims of the Company's creditors in the event of the Company's bankruptcy
or insolvency, in order to provide a source of funds to assist it in the
meeting of its liabilities hereunder."
2. The first sentence of the second paragraph of Section 9 of the Plan is
amended by adding the following at the end of such sentence:
"; provided, however, that a participant may change his election with
respect to a Change In Control provided such change is made at least six
months in advance of the date of the Change In Control."
3. Section 9 of the Plan is amended by adding the following new paragraph
at the end thereof:
"If a participant has elected, pursuant to this Section 9, to receive
a lump sum payment either upon a Change In Control or upon termination of
his employment following a Change In Control, then at the time such lump
sum payment is made the Company shall also make an immediate cash payment
to such participant equal, on an after-tax basis (including combined
federal, state and local income, employment and excise taxes), to the
excess of (A) over (B), where (A) is equal to the present value (discounted
at the Applicable Federal Rate (within the meaning of Section 1274 of the
Code) in effect at the time of payment) of: (x) the participant's benefit
payments assuming they would have been paid in accordance with the Plan and
the participant's elections thereunder, without regard to the Change In
Control, multiplied by (y) one minus the federal income tax rate (expressed
as a decimal) in effect at the time of the payment; and (B) is the amount
of the participant's lump sum payment hereunder, as reduced by federal,
state and local income taxes payable on such lump sum payment. For purposes
of this paragraph, it shall be assumed that income taxes are payable at the
top marginal rates and that state and local income taxes are deductible for
federal income tax purposes."
24
<PAGE>
EXHIBIT 10(d)
AMENDMENT TO ENGELHARD CORPORATION DIRECTORS
AND EXECUTIVES DEFERRED COMPENSATION PLAN
(1990-1993)
--------------------------------------------
25
<PAGE>
AMENDMENT TO ENGELHARD CORPORATION DIRECTORS
AND EXECUTIVES DEFERRED COMPENSATION PLAN
(1990-1993)
--------------------------------------------
The Engelhard Corporation Directors and Executives Deferred Compensation
Plan (1990-1993) (the "Plan") is amended as follows, effective October 1, 1998:
1. The second sentence of Section 6 of the Plan is amended to read as
follows:
"No participant shall have any right or interest in
any such policy or the proceeds thereof and all
payments provided for under the Plan shall be paid in
cash from the general funds of the Company; provided,
however, that such payments shall be reduced by the
amount of any payments made to the participant or his
or her beneficiary from any trust or special or
separate fund established by the Company to assure
such payments. The Company may establish and
maintain a trust, the assets of which shall be
subject to the claims of the Company's creditors in
the event of the Company's bankruptcy or insolvency,
in order to provide a source of funds to assist it in
the meeting of its liabilities hereunder."
2. The first sentence of the second paragraph of Section 9 of the Plan is
amended by adding the following at the end of such sentence:
"; provided, however, that a participant may change
his election with respect to a Change In Control
provided such change is made at least six months in
advance of the date of the Change In Control."
3. The second to the last paragraph in Section 9 of the Plan is hereby
deleted.
4. Section 9 of the Plan is amended by adding the following new paragraph
at the end thereof:
"If a participant has elected, pursuant to this
Section 9, to receive a lump sum payment either upon
a Change In Control or upon termination of his
employment following a Change In Control, then at the
time such lump sum payment is made the Company shall
also make an immediate cash payment to such
participant equal, on an after-tax basis (including
combined federal, state and local income, employment
and excise taxes), to the excess of (A) over (B),
26
<PAGE>
where (A) is equal to the present value (discounted
at the Applicable Federal Rate (within the meaning of
Section 1274 of the Code) in effect at the time of
payment) of: (x) the participant's benefit payments
assuming they would have been paid in accordance with
the Plan and the participant's elections thereunder,
without regard to the Change In Control, multiplied
by (y) one minus the federal income tax rate
(expressed as a decimal) in effect at the time of the
payment; and (B) is the amount of the participant's
lump sum payment hereunder, as reduced by federal,
state and local income taxes payable on such lump sum
payment. For purposes of this paragraph, it shall be
assumed that income taxes are payable at the top
marginal rates and that state and local income taxes
are deductible for federal income tax purposes."
27
<PAGE>
EXHIBIT 10(e)
AMENDMENT TO DEFERRED COMPENSATION PLAN FOR
KEY EMPLOYEES OF ENGELHARD CORPORATION
-------------------------------------------
28
<PAGE>
AMENDMENT TO DEFERRED COMPENSATION PLAN FOR
KEY EMPLOYEES OF ENGELHARD CORPORATION
-------------------------------------------
The Deferred Compensation Plan for Key Employees of Engelhard
Corporation (the "Plan") is amended as follows, effective October 1, 1998.
1. The Plan is amended by deleting the second sentence in Section 5
thereof and replacing it with the following:
"The assets of the Trust shall be subject to the
claims of the general creditors of the Company in the
event of bankruptcy or insolvency of the Company, and
the Trust may be utilized to assist the Company in
satisfying its other obligations under the Plan."
2. The fifth paragraph of Section 6 is amended by adding the
following at the end thereof:
"Notwithstanding the foregoing, a Change of Control
shall not be considered an Immediate Payment Event
hereunder with respect to the Accumulated Account of
an Eligible Employee if the Eligible Employee so
elects (in a manner acceptable to the Committee) at
least six months in advance of the Change of
Control."
3. The following paragraph is added at the end of Section 6 of the
Plan:
"At the time of an Immediate Payment Event
resulting from a Change of Control, the Company shall
also make to each Eligible Employee whose Accumulated
Account is distributed on account of the Change of
Control an immediate cash payment equal, on an after-
tax basis (including combined federal, state and
local income, employment and excise taxes), to the
excess of (A) over (B), where (A) is equal to the
present value (discounted at the Applicable Federal
Rate (within the meaning of Section 1274 of the Code)
in effect at the time of payment) of: (x) the
Eligible Employee's Accumulated Account at the time
of assumed payment (described below) as increased
from the date of the Immediate Payment Event through
the dates of assumed payment at a compound annual
rate equal to the interest equivalent rate provided
for under Section 4 of the Plan (as determined at the
time of the Immediate Payment Event), multiplied by
(y) one minus the federal income tax rate (expressed
as a decimal) in effect at the time of the Immediate
Payment Event; and (B) is the present value
(discounted at the Applicable Federal Rate at the
time of payment) of the Eligible Employee's
Accumulated Account at the time of assumed payment,
29
<PAGE>
computed assuming that the Eligible Employee's
Accumulated Account at the time of the Immediate
Payment Event is reduced at such time by federal,
state and local income taxes payable on a lump sum
distribution of the entire Accumulated Account at
such time and also assuming that such resulting
amount is increased through the dates of assumed
payment at a compound annual rate equal to (x) the
interest equivalent rate provided for under Section 4
of the Plan at the time of the Immediate Payment
Event, multiplied by (y) one minus the combined
federal, state and local income tax rate at such
time, expressed as a decimal. For purposes of this
paragraph, it shall be assumed that the Eligible
Employee's Accumulated Account will be distributed in
ten annual installments commencing at the time the
Eligible Employee reaches age 65, and it shall also
be assumed that income taxes are payable at the top
marginal rates and that state and local income taxes
are deductible for federal income tax purposes."
30
<PAGE>
EXHIBIT 10(f)
AMENDMENT TO DEFERRED COMPENSATION PLAN FOR
DIRECTORS OF ENGELHARD CORPORATION
-------------------------------------------
31
<PAGE>
AMENDMENT TO DEFERRED COMPENSATION PLAN FOR
DIRECTORS OF ENGELHARD CORPORATION
-------------------------------------------
The Deferred Compensation Plan for Directors of Engelhard Corporation (the
"Plan") is amended as follows, effective October 1, 1998.
1. The Plan is amended by deleting the first two sentences in the
third paragraph of Section 5 thereof and replacing them
with the following:
"The Company in its discretion may establish a trust to assist it in
satisfying its obligations under this Plan. The assets of the Trust shall
be subject to the claims of the general creditors of the Company in the
event of bankruptcy or insolvency of the Company."
2. Section 6 of the Plan is amended by adding the following at the
end thereof:
"Notwithstanding the foregoing, each Director may elect (in a manner
acceptable to the Company) to have his or her entire benefit under the Plan
distributed to the Director in a single lump sum at the time of a Change in
Control; provided, however, that such an election (or a revocation of such
an election) must have been made at least six months in advance of the
Change in Control.
At the time of a Change in Control, the Company shall also make to
each Director whose benefits are distributed in a lump sum on account of
the Change in Control an immediate cash payment equal, on an after- tax
basis (including combined federal, state and local income, employment and
excise taxes), to the excess of (A) over (B), where (A) is equal to the
present value (discounted at the Applicable Federal Rate (within the
meaning of Section 1274 of the Code) in effect at the time of payment) of:
(x) the Director's entire benefit at the time of assumed payment (described
below) as increased from the date of the Change in Control through the
dates of assumed payment at a compound annual rate equal to the interest
equivalent rate provided for under Section 4 of the Plan (as determined at
the time of the Change in Control), multiplied by (y) one minus the federal
income tax rate (expressed as a decimal) in effect at the time of the
Change in Control; and (B) is the present value (discounted at the
Applicable Federal Rate at the time of payment) of the Director's entire
benefit at the time of assumed payment, computed assuming that the
Director's benefits at the time of the Change in Control are reduced at
such time by federal, state and local income taxes payable on a lump sum
distribution of the entire benefit at such time and also assuming that such
resulting amount is increased through the dates of assumed payment at a
compound annual rate equal to (x) the interest equivalent rate provided for
under Section 4 of the Plan at the time of the Change in Control,
multiplied by (y) one minus the combined federal, state and local income
tax rate at such time, expressed as a decimal. For purposes of this
paragraph, it shall be assumed that the Director's benefits will be
distributed in ten annual installments commencing at the later of the time
the Director reaches age 65 or the date of the Change in Control, and it
shall also be assumed that income taxes are payable at the top marginal
rates and that state and local income taxes are deductible for federal
income tax purposes.
32
<PAGE>
For purposes hereof 'Change in Control' means:
(a) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act, (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 25% or
more of either (1) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (2)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (other than by exercise
of a conversion privilege); (ii) any acquisition by the Company
or any of its subsidiaries; (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries; (iv) any
acquisition by any corporation with respect to which, following
such acquisition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such acquisition in
substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be; or (v) any acquisition by a Person owning
more than 25% of the Outstanding Company Common Stock on the
date hereof; or
(b) during any period of two consecutive years, individuals
who, as of the beginning of such period, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the beginning of
such period whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
33
<PAGE>
(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and outstanding Company
Voting Securities immediately prior to such reorganization,
merger or consolidation, do not, following such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such reorganization,
merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case
may be; or
(d) approval by the shareholders of the Company of (1) a
complete liquidation or dissolution of the Company or (2) a
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation with respect
to which following such sale or other disposition, more than
60% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be."
34
<PAGE>
EXHIBIT 10(g)
AMENDMENT TO RETIREMENT PLAN FOR
DIRECTORS OF ENGELHARD CORPORATION
----------------------------------
35
<PAGE>
AMENDMENT TO RETIREMENT PLAN FOR
DIRECTORS OF ENGELHARD CORPORATION
----------------------------------
The Retirement Plan for Directors of Engelhard Corporation (the "Plan") is
amended as follows, effective October 1, 1998.
1. The first two sentences of Section 5 of the Plan are deleted and
replaced with the following:
"All payments provided for under the Plan shall be paid from
the general assets of the Corporation; provided, however,
that such payments shall be reduced by the amount of any
payments made to the Director or his or her beneficiary from
any trust or special or separate fund established by the
Corporation to assure such payments. The Corporation may
establish and maintain a trust, the assets of which shall be
subject to the claims of the Corporation's creditors in the
event of the Corporation's bankruptcy or insolvency, in
order to provide a source of funds to assist it in the
meeting of its liabilities hereunder."
36
<PAGE>
EXHIBIT 10(h)
AMENDMENT TO STOCK BONUS PLAN FOR
NON-EMPLOYEE DIRECTORS OF ENGELHARD CORPORATION
-----------------------------------------------
37
<PAGE>
AMENDMENT TO STOCK BONUS PLAN FOR
NON-EMPLOYEE DIRECTORS OF ENGELHARD CORPORATION
-----------------------------------------------
The Stock Bonus Plan for Non-Employee Directors of Engelhard Corporation
(the "Plan") is amended as follows, effective October 1, 1998.
1. The following new paragraph (d) is added at the end of Section 7
of the Plan:
"(d) At the time of a Change in Control or an
acquisition of a control interest in the Company, the
Company shall make an immediate cash payment to each
Non-Employee Director equal, on an after tax basis
(including combined federal, state and local income,
employment and excise taxes), to the excess of (A)
over (B), where (A) is equal to the combined federal,
state and local income and employment taxes payable
by the Non-Employee Director as a result of the
accelerated distribution of Company Common Stock due
to the Change in Control or acquisition of a control
interest in the Company; and (B) is the present value
(discounted at the Applicable Federal Rate (within
the meaning of Section 1274 of the Code) at the time
of payment) of the combined federal, state and local
income and employment taxes which would be payable at
the time such Company Common Stock was distributed if
it had been distributed on the date the Non-Employee
Director reached age 70, assuming the fair market
value per share of Company Common Stock would then be
equal to the actual fair market value per share on
the date of the Change in Control or acquisition of a
control interest, as the case may be. For purposes
of this paragraph, it shall be assumed that all
income taxes are payable at the top marginal rates in
effect at the time of the payment hereunder and that
state and local income taxes are deductible for
federal income tax purposes."
38
<PAGE>
EXHIBIT 10(i)
AMENDMENT TO DEFERRED COMPENSATION PLAN FOR
KEY EMPLOYEES OF ENGELHARD CORPORATION
-------------------------------------------
39
<PAGE>
AMENDMENT TO DEFERRED COMPENSATION PLAN FOR
KEY EMPLOYEES OF ENGELHARD CORPORATION
-------------------------------------------
The Deferred Compensation Plan for Key Employees of Engelhard Corporation
is amended as follows, effective August 6, 1998.
1. The first sentence of the last paragraph of Section 5 is replaced with
the following two sentences:
"During the period beginning 3 months before and ending 3 months after the
retirement of an Eligible Employee after reaching age 55, or at any time
later than six months after the retirement of an Eligible Employee after
reaching age 55, the Eligible Employee may, provided consent of the Board
of Directors is obtained before the effective date thereof, make an
election to convert all or part of the Company Common Stock units credited
to his or her bookkeeping account under this paragraph 5 into cash-based
credits in the Eligible Employee's bookkeeping account referred to in
paragraph 4 above. Such election to convert part of the Company Common
Stock units must be made in increments of 5%, but in no event less than
twenty-five percent (25%), of the total Company Common Stock units credited
to his or her bookkeeping account."
40
<PAGE>
EXHIBIT 12
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
41
<PAGE>
<TABLE>
<CAPTION>
ENGELHARD CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30, Years Ended December 31,
----------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
Earnings from continuing operations
before provision for income taxes $194,015 $85,812 $209,955 $185,312 $157,306 ($4,709)
Add/(deduct)
Portion of rents representative
of the interest factor 3,450 4,600 3,900 4,700 4,800 4,500
Interest on indebtedness 43,934 52,776 45,009 31,326 21,954 13,696
Equity dividends 2,022 3,803 2,515 3,411 3,800 2,600
Equity in (earnings) losses
of affiliates (8,929) 47,833 5,008 (695) (632) (3,443)
--------- -------- -------- --------- --------- --------
Earnings, as adjusted $234,493 $194,824 $266,387 $224,054 $187,228 $12,644
========= ======== ======== ========= ========= ========
Fixed Charges
Portion of rents representative
of the interest factor $3,450 $4,600 $3,900 $4,700 $4,800 $4,500
Interest on indebtedness 43,934 52,776 45,009 31,326 21,954 13,696
Capitalized interest 750 651 875 784 528 -
------- ------- ------- ------- -------- --------
Fixed charges $48,134 $58,027 $49,784 $36,810 $27,282 $18,196
======= ======= ======= ======= ======== ========
Ratio of Earnings to Fixed Charges 4.87 3.36 (a) 5.35 6.09 6.86 - (b)
======= ======= ======= ======= ======== ========
(a) Earnings in 1997 were negatively impacted by special and other charges of $149.6 million for a variety of events.
Without such charges the ratio of earnings to fixed charges would have been 5.94.
(b) Earnings in 1993 were insufficient to cover fixed charges by $5.6 million. Earnings were negatively impacted
by a special charge of $148.0 million for the realignment and consolidation of businesses and environmental
matters. Without such charge the ratio of earnings to fixed charges would have been 8.83.
</TABLE>
42
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,208
<SECURITIES> 0
<RECEIVABLES> 378,144
<ALLOWANCES> 0
<INVENTORY> 365,602
<CURRENT-ASSETS> 1,320,006
<PP&E> 1,681,088
<DEPRECIATION> 758,990
<TOTAL-ASSETS> 2,883,868
<CURRENT-LIABILITIES> 1,332,027
<BONDS> 501,420
0
0
<COMMON> 147,295
<OTHER-SE> 708,368
<TOTAL-LIABILITY-AND-EQUITY> 2,883,868
<SALES> 3,084,560
<TOTAL-REVENUES> 3,084,560
<CGS> 2,613,767
<TOTAL-COSTS> 2,613,767
<OTHER-EXPENSES> 241,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,934
<INCOME-PRETAX> 194,015
<INCOME-TAX> 54,712
<INCOME-CONTINUING> 139,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,303
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
</TABLE>
