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.
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
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.
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.
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
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.
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
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.
Item 2. Properties - ------ ---------- 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
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.
Item 3. Legal Proceedings - ------ ----------------- 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.
Item 4. Security Holders - ------ ---------------- Not applicable.
PART II -------
Market for Registrant's Common Equity Item 5.
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 ------- ------ -------------- 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 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
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.
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
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.
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.
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.
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
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
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.
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
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
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
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.
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.
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.
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;
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.
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)
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
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
Changes in and Disagreements with Item 9.
Item 9. Accountants on Accounting and Financial Disclosure - ------ -------------------------------------------------- Not applicable.
PART III
Item 10.
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
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.
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.
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.
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.
PART IV
Exhibits, Financial Statement Item 14.
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.
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.
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.
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.
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
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.
* 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
EXHIBIT 21:
SUBSIDIARIES OF THE REGISTRANT
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.
EXHIBIT 23:
CONSENT OF INDEPENDENT ACCOUNTANTS ----------------------------------
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
EXHIBIT 24:
POWERS OF ATTORNEY ------------------
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
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
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
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
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
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
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
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
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
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
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)
Salary Deferral Savings Plan of Engelhard Corporation
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
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
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.
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.
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:
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.
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.
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.
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
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
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
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)
Engelhard Corporation Savings Plan for Hourly Paid Employees
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
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
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.
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
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.
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
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
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 ========== ==========
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 ========== ==========