UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the transition period from ________ to _________
Commission file number 1-8142
ENGELHARD CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1586002
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(732) 205-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at April 30, 2001
--------------------- -----------------------------
$1 par value 130,759,136
1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2001 2000
----------- -----------
Net sales ......................................... $1,611,317 $1,183,905
Cost of sales ..................................... 1,445,069 991,880
----------- -----------
Gross profit ................................. 166,248 192,025
Selling, administrative and other expenses ........ 87,579 94,413
----------- -----------
Operating earnings ........................... 78,669 97,612
Equity in earnings of affiliates .................. 5,453 10,000
Loss on sale of investments........................ - (6,000)
Interest expense, net.............................. (14,343) (16,880)
----------- -----------
Earnings before income taxes ................. 69,779 84,732
Income tax expense ................................ 21,980 26,691
----------- -----------
Net earnings ................................. $ 47,799 $ 58,041
=========== ===========
Basic earnings per share .......................... $ 0.37 $ 0.46
=========== ===========
Diluted earnings per share ........................ $ 0.37 $ 0.45
=========== ===========
Cash dividends paid per share ..................... $ 0.10 $ 0.10
=========== ===========
Average number of shares outstanding - Basic ...... 128,233 126,100
=========== ===========
Average number of shares outstanding - Diluted .... 130,311 127,619
=========== ===========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
2
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
March 31, December 31,
2001 2000
------------ ------------
Cash ............................................. $ 43,586 $ 33,534
Receivables, net.................................. 476,005 459,753
Committed metal positions ........................ 1,247,936 720,659
Inventories ...................................... 396,203 371,767
Other current assets ............................. 162,202 155,992
---------- ----------
Total current assets ...................... 2,325,932 1,741,705
Investments ...................................... 192,562 200,070
Property, plant and equipment, net ............... 770,559 767,687
Intangible assets, net ........................... 297,086 302,843
Other noncurrent assets .......................... 139,380 154,527
---------- ----------
Total assets .............................. $3,725,519 $3,166,832
========== ==========
Short-term borrowings ............................ $ 460,755 $ 502,172
Accounts payable ................................. 754,178 220,827
Hedged metal obligations ......................... 775,278 676,460
Other current liabilities ........................ 348,101 427,240
---------- ----------
Total current liabilities ................. 2,338,312 1,826,699
Long-term debt ................................... 239,923 248,566
Other noncurrent liabilities ..................... 210,961 217,000
Shareholders' equity ............................. 936,323 874,567
---------- ----------
Total liabilities and
shareholders' equity .................... $3,725,519 $3,166,832
========== ==========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
3
ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
--------- --------
Cash flows from operating activities
Net earnings .........................................$ 47,799 $ 58,041
Adjustments to reconcile net earnings to net cash
(used in)/provided by operating activities
Depreciation and depletion ...................... 22,895 25,885
Amortization of intangible assets ............... 3,325 3,321
Loss on sale of investments...................... - 6,000
Equity results, net of dividends ................ (5,453) (10,000)
Net change in assets and liabilities
Metal related ..............................(102,916) (29,493)
All other .................................. (59,679) (16,851)
--------- ---------
Net cash (used in)/provided by operating
activities..................................... (94,029) 36,903
--------- ---------
Cash flows from investing activities
Capital expenditures ................................. (30,562) (21,607)
Proceeds from sale of investments..................... 3,400 6,500
--------- ---------
Net cash used in investing activities ........... (27,162) (15,107)
--------- ---------
Cash flows from financing activities
Decrease in short-term borrowings..................... (41,295) (20,255)
Increase in hedged metal obligations.................. 148,277 20,876
Repayment of long-term debt........................... (8,810) (1,988)
Purchase of treasury stock............................ (6,396) -
Stock bonus and option plan transactions ............. 56,982 1,121
Dividends paid ....................................... (13,005) (12,759)
--------- ---------
Net cash provided by/(used in) financing
activities .................................... 135,753 (13,005)
Effect of exchange rate changes on cash ................... (4,510) (1,495)
--------- ---------
Net increase in cash.................................. 10,052 7,296
Cash at beginning of year............................. 33,534 54,375
--------- ---------
Cash at end of period............................$ 43,586 $ 61,671
========= =========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
4
ENGELHARD CORPORATION
BUSINESS SEGMENT INFORMATION
(Thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------
2001 2000
----------- ---------
Net Sales
Environmental Technologies .................. $ 168,482 $ 159,179
Process Technologies ........................ 135,714 117,690
Appearance and Performance Technologies...... 155,969 167,798
Materials Services........................... 1,143,880 729,366
----------- -----------
Reportable segments .................... 1,604,045 1,174,033
All Other ................................... 7,272 9,872
----------- -----------
$1,611,317 $1,183,905
=========== ===========
Operating Earnings
Environmental Technologies .................. $ 42,426 $ 32,850
Process Technologies ........................ 16,334 15,451
Appearance and Performance Technologies...... 10,104 17,794
Materials Services........................... 21,172 42,328
----------- -----------
Reportable segments .................... 90,036 108,423
All Other ................................... (11,367) (10,811)
----------- -----------
78,669 97,612
Equity in earnings of affiliates ................. 5,453 10,000
Loss on sale of investments....................... - (6,000)
Interest expense, net ............................ (14,343) (16,880)
----------- -----------
Earnings before income taxes ........... $ 69,779 $ 84,732
Income tax expense ............................... 21,980 26,691
----------- -----------
Net earnings ........................... $ 47,799 $ 58,041
=========== ===========
See the Accompanying Notes to the Unaudited Condensed Consolidated
Financial Statements
5
Notes to the Unaudited Condensed Consolidated Financial Statements
------------------------------------------------------------------
Note 1 - Basis of Presentation
------------------------------
The unaudited condensed consolidated financial statements of Engelhard
Corporation and subsidiaries (the "Company") contain all adjustments, which, in
the opinion of Management, are necessary for a fair statement of the results for
the interim periods presented. The financial statement results for interim
periods are not necessarily indicative of financial results for the full year.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 2000 Annual
Report to Shareholders. Certain prior-year amounts have been reclassified
to conform with the current-year presentation.
Note 2 - Inventories
--------------------
Inventories consist of the following (in thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
Raw materials ........................... $ 85,360 $ 81,063
Work in process ......................... 78,629 76,735
Finished goods .......................... 208,949 190,764
Precious metals ......................... 23,265 23,205
-------- --------
Total inventories ....................... $396,203 $371,767
======== ========
The majority of the Company's physical metal is carried in committed metal
positions with the remainder carried in inventory. All precious-metal
inventories are stated at LIFO cost. The market value of the precious-metals
inventories exceeded cost by $207.3 million and $254.1 million at March 31, 2001
and December 31, 2000, respectively.
Note 3 - Comprehensive Income
-----------------------------
Comprehensive income is summarized as follows (in thousands):
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
Net earnings ......................................... $47,799 $58,041
Other comprehensive income/(loss):
Foreign currency translation adjustment ........... (32,642) (13,298)
Cash flow derivative adjustment.................... 1,249 -
-------- --------
Comprehensive income ................................. $16,406 $44,743
======== ========
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. See Note
5 for details on the cash flow derivative adjustment.
6
Note 4 - Earnings Per Share
---------------------------
The following table represents the computation of basic and diluted earnings per
share:
Three Months Ended
March 31,
----------------------
(in thousands, except per share data) 2001 2000
------------------------------------- -------- --------
Basic EPS Computation
---------------------
Net earnings applicable to common shares $ 47,799 $ 58,041
-------- --------
Average number of shares outstanding-basic 128,233 126,100
-------- --------
Basic earnings per share $ 0.37 $ 0.46
======== ========
Diluted EPS Computation
-----------------------
Net earnings applicable to common shares $ 47,799 $ 58,041
-------- --------
Average number of shares outstanding-basic 128,233 126,100
Effect of dilutive stock options
and other incentives 2,078 188
Effect of Rabbi Trust - 1,331
-------- --------
Total number of shares outstanding-diluted 130,311 127,619
-------- --------
Diluted earnings per share $ 0.37 $ 0.45
======== ========
Note 5 - Derivatives and Hedging - Adoption of SFAS Nos. 133 and 138
--------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities (an amendment of FASB Statement No. 133)" on January 1, 2001. The
Company reports all derivative instruments on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
earnings or comprehensive income, depending on the designation of the
derivative. Changes in the fair value of derivatives that are not designated as
a hedge are reported immediately in earnings.
In order to manage in a manner consistent with historical processes,
procedures and systems and to achieve operating economies, certain economic
hedge transactions are not designated as hedges for accounting purposes. In
those cases, which primarily relate to platinum group metals, the Company in
accordance with the newly adopted standards, will continue to mark to market
both the hedge instrument and the related position constituting the risk hedged,
recognizing the effect in current earnings.
The Company documents all relationships between derivative hedging
instruments and hedged items, as well as its risk-management objective and
strategy for entering into various hedge transactions.
7
The following derivative instruments impacted the Company's results in the
three month period ended March 31, 2001:
Foreign Exchange Contracts
--------------------------
The Company designates as accounting hedges certain foreign currency
forward contracts entered into as hedges against anticipated receivables or
payables which will arise from forecasted transactions that are denominated in
currencies other than the functional currency of the entity which will hold
those assets or liabilities. The ultimate maturities of the contracts are timed
to coincide with the expected occurrence of the underlying transaction.
For the three month period ended March 31, 2001, the Company reported net
gains of $1.8 million in accumulated other comprehensive income relating to the
change in the fair value of derivatives designated as foreign exchange cash flow
hedges. It is expected that this amount will be reclassified into earnings
within the next twelve months. There was no gain or loss reclassified from
accumulated other comprehensive income into earnings as a result of the
discontinuance of cash flow hedges due to the probability of forecasted
transactions not occurring. As of March 31, 2001, the maximum length of time
over which the Company is hedging its exposure to movements in foreign exchange
rates for forecasted transactions is nine months.
A second group of forward contracts entered into to hedge the exposure to
foreign currency fluctuations associated with certain monetary assets and
liabilities are not designated as hedging instruments and changes in the fair
value of these items are recorded in earnings to offset the foreign exchange
gains and losses of the monetary assets and liabilities.
Natural Gas/Nickel Contracts
----------------------------
The Company enters into contracts as a hedge to protect a portion of its
exposure to movements in natural gas and nickel prices. The ultimate maturities
of the contracts are timed to coincide with the expected usage of natural gas
and nickel in the Company's manufacturing operations.
For the three month period ended March 31, 2001, the Company reported net
losses of $0.6 million in accumulated other comprehensive income relating to the
change in the fair value of derivatives designated as natural gas and nickel
cash flow hedges. It is expected that this amount will be reclassified into
earnings within the next twelve months. As of March 31, 2001, the maximum length
of time over which the Company is hedging its exposure to movements in natural
gas and nickel prices for forecasted transactions is nine months.
8
Note 6 - Other Matters
----------------------
In 1998, Management learned that Engelhard and several other companies
operating in Japan had been victims of a fraudulent scheme involving base-metal
inventory held in third-party warehouses in Japan. The inventory loss was
approximately $40 million in 1997 and $20 million in 1998. The Company is
vigorously pursuing various recovery actions. These actions include negotiations
with the various third parties involved and, in several instances, the
commencement of litigation. In the first quarter of 1998, Engelhard recorded a
receivable from the insurance carriers and third parties involved for
approximately $20 million. This amount represented Management's and counsel's
best estimate of the minimum probable recovery from the various insurance
policies and other parties involved in the fraudulent scheme. In the first
quarter of 2001, the Company recovered $3 million from a warehouse in Japan
reducing the receivable discussed above to $17 million. The Company continues to
pursue recovery from insurance and other parties.
The Company is involved in a value-added tax dispute in Peru. Management
believes the Company was targeted by corrupt officials within the former
Peruvian Government. On December 2, 1999, Engelhard Peru, S.A., a wholly owned
subsidiary, was denied refund claims of approximately $28 million. The Peruvian
tax authority also determined that Engelhard Peru, S.A. is liable for
approximately $63 million in refunds previously paid, fines and interest as of
December 31, 1999. Interest and fines continue to accrue at rates established by
Peruvian law. Engelhard Peru, S.A. is contesting these determinations
vigorously, and Management believes, based on consultation with counsel, that
Engelhard Peru, S.A. is entitled to all refunds claimed and is not liable for
these additional taxes, fines or interest. In late October 2000, a criminal
proceeding alleging tax fraud and forgery related to this value-added tax
dispute was initiated against two Lima-based officials of Engelhard Peru, S.A.
Although Engelhard Peru, S.A. is not a defendant, it may be civilly liable in
Peru if its representatives are found responsible for criminal conduct.
Accordingly, Engelhard Peru is assisting in the vigorous defense of this
proceeding. Management believes the maximum economic exposure is limited to the
aggregate value of all assets of Engelhard Peru, S.A., including unpaid refunds,
which is approximately $30 million.
9
Management's Discussion and Analysis of
Item 2. Financial Condition and Results of Operations
------- ---------------------------------------------
Results of Operations
---------------------
Comparison of the First Quarter of 2001
with the First Quarter of 2000
---------------------------------------
Net earnings decreased 18% to $47.8 million in the first quarter of 2001
from $58.0 million in the same period of 2000. Operating earnings for the first
quarter of 2001 decreased 19% to $78.7 million from $97.6 million in the same
period of 2000. Lower operating earnings from two reportable segments --
Materials Services and Appearance and Performance Technologies -- were partially
offset by higher operating earnings from Environmental Technologies and Process
Technologies.
The effective tax rate was 31.5% in the first quarter of 2001 and 2000. The
Company expects to lower its effective tax rate for the remainder of the year
due to the utilization of foreign tax credits. The effective tax rate in 2002 is
expected to be lower than the current rate of 31.5%.
The Company's share of earnings from affiliates was $5.5 million for the
first quarter of 2001 compared with $10.0 million for the same period in 2000.
The decrease was primarily due to lower equity earnings from Engelhard-CLAL, a
precious-metal-fabrication joint venture. Engelhard-CLAL's earnings in the first
quarter of 2000 included a gain of $3.8 million related to the partial
liquidation of precious metal inventories. Lower equity earnings were also
reported for Heesung Engelhard, an environmental catalyst joint venture,
primarily due to the negative impact of foreign exchange. Slightly higher equity
earnings were reported for N.E. Chemcat Corporation, a 38.8% owned publicly
traded Japanese Corporation that is a leading producer of automotive and
chemical catalysts.
Net interest expense decreased 15% to $14.3 million in the first quarter of
2001 from $16.9 million for the same period of 2000. Lower net interest expense
was primarily due to decreased borrowings, partially offset by an increase in
interest rates.
Net sales increased 36% to $1.6 billion in the first quarter of 2001 from
$1.2 billion for the same period in 2000. The Environmental Technologies,
Process Technologies and Materials Services segments reported higher sales,
which more than offset lower sales from the Appearance and Performance
Technologies segment.
10
Environmental Technologies
--------------------------
Operating earnings increased 29% to $42.4 million in the first quarter of
2001 from $32.9 million in the same period of 2000. Net sales for the first
quarter of 2001 increased 6% to $168.5 million from $159.2 million in the same
period of 2000. Excluding results of the segment's metal-joining products
business sold in the third quarter of 2000 and the silver nitrate business sold
in the first quarter of 2001, net sales would have increased 17%.
The majority of this segment's sales and operating earnings are derived
from technologies to control pollution from mobile sources, including gasoline
and diesel-powered passenger cars, sport-utility vehicles, trucks, buses and
off-road vehicles. Earnings increased primarily in North America from
auto-emission catalysts. Earnings in North America increased as a result of
increased sales volumes and a favorable product mix from advanced technologies
for auto-emission catalysts.
Earnings also were favorably impacted by strength in the segment's
non-automotive markets, primarily from significantly higher sales volumes of
emission-control systems for gas turbines.
Process Technologies
--------------------
Operating earnings increased 6% to $16.3 million in the first quarter of
2001 from $15.5 million in the same period of 2000. Net sales for the first
quarter of 2001 increased 15% to $135.7 million from $117.7 million in the same
period of 2000.
Earnings growth from technologies for the polypropylene market and
chemical-processing technologies was partially offset by a decline in earnings
of petroleum refining technologies.
Earnings from technologies for the polypropylene market increased primarily
from the continued strong demand for Lynx 1000 polypropylene catalysts and the
inclusion of results from the acquisition of the polyolefin catalyst business in
the third quarter of 2000. Earnings from chemical-processing technologies
increased primarily from increased sales volumes and reduced costs from
supply-chain management initiatives and productivity improvements.
Earnings from petroleum refining technologies decreased as the effect of
increased volumes of fluid cracking catalysts and an improved product mix were
offset by higher energy and raw material costs.
11
Appearance and Performance Technologies
---------------------------------------
Operating earnings decreased 43% to $10.1 million in the first quarter of
2001 from $17.8 million in the same period of 2000. Net sales decreased 7% to
$156.0 million for the first quarter of 2001 from $167.8 million in the same
period of 2000.
Earnings in the minerals technologies segment were down primarily due to
higher energy costs and lower volumes to the paper and specialty markets.
Earnings in the appearance technologies segment decreased primarily from
lower volumes and prices of color pigments and specialty film products. Earnings
of effect pigments were up slightly as reduced manufacturing costs and strong
cosmetic and industrial volumes were partially offset by lower automotive
volumes.
This segment is proactively addressing opportunities to improve its
business design, asset deployment and cost structure.
Materials Services
------------------
Operating earnings declined 50% to $21.2 million in the first quarter of
2001 from $42.3 million in the same period of 2000. Net sales for the first
quarter of 2001 increased 57% to $1.1 billion from $0.7 billion in the
same period of 2000.
Earnings decreased primarily as a result of lower price volatility in
platinum group metals in the current year first quarter as compared with higher
volatility in the same period of the prior year. This decrease was partially
offset by increased earnings in the recycling (refining) of these metals.
The sales increase was due to higher platinum-group-metals prices and the
continued strong industrial demand for these metals.
12
Financial Condition and Liquidity
----------------------------------
The Company's current ratio was 1.0 at March 31, 2001 and December 31,
2000. The percentage of total debt to total capital decreased to 43% at March
31, 2001 from 46% at December 31, 2000 due to decreased short-term and
long-term borrowings and increased retained earnings.
The variance in cash flows from operating activities primarily occurred in
the Materials Services segment and reflects changes in metal positions used to
facilitate requirements of the Company, its metals customers and suppliers.
Materials Services routinely enters into a variety of arrangements for the
sourcing of metals. Generally, transactions are hedged on a daily basis. Hedging
is accomplished primarily through forward, future and option contracts. However,
in closely monitored situations for which exposure levels and transaction size
limits have been set by senior management, the Company from time to time holds
large unhedged industrial commodity positions that are subject to future market
fluctuations. Hedged metal obligations (primarily amounts payable for metal
purchased forward as an economic hedge) are considered financing activities and
are included in that section of the Company's "Consolidated Statements of Cash
Flows." These transactions generally cover Materials Services' sourcing
requirements. Materials Services works to ensure that the Company and its
customers have an uninterrupted source of metals, primarily platinum group
metals, utilizing supply contracts and commodities markets around the world.
Committed metal positions increased due to significant purchases of precious
metals, combined with higher prices, in the first quarter of 2001. Payment terms
reduced the immediate outflow of cash and this is reflected in the increase in
accounts payable. Hedged metal obligations also increased as a consequence of
these purchases. This metal is expected to be sold before the end of 2001
causing an offsetting reduction in these balances.
The variance in cash flows from financing activities is primarily related
to an increase in hedged metal obligations and an increase in stock option plan
transactions associated with the exercise of stock options.
In July 1998, the Company filed a shelf registration for $300 million.
Plans to issue debt in 2001 under the shelf registration are under consideration
by Management.
Management believes the Company will continue to have adequate access to
credit and other capital markets to meet its needs for the foreseeable future.
13
Forward-looking Statements
--------------------------
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
the future prospects, developments and business strategies of Engelhard. These
forward-looking statements are identified by their use of terms and phrases such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"plan," "predict," "project," "will" and similar terms and phrases, including
references to assumptions. These forward-looking statements involve risks and
uncertainties that may cause Engelhard's actual future activities and results of
operations to be materially different from those suggested or described in this
document.
These risks include: competitive pricing or product development activities;
Engelhard's ability to achieve and execute internal business plans; global
economic trends; worldwide political instability and economic growth; markets,
alliances and geographic expansions developing differently than anticipated;
fluctuations in the supply and prices of precious and base metals; government
legislation and/or regulation (particularly on environmental issues);
technology, manufacturing and legal issues; and the impact of any economic
downturns and inflation. Investors are cautioned not to place undue reliance
upon these forward-looking statements, which speak only as of their dates.
Engelhard disclaims any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
14
Part II - OTHER INFORMATION
---------------------------
Item 4. Results of Matters to a Vote of Security Holders
------- ------------------------------------------------
(a) The Company's Annual Meeting of the Shareholders was held on
Thursday, May 3, 2001.
(b) Results of votes of security holders.
1. Election of Directors For Withheld
--------------------- --- --------
James V. Napier 124,835,310 3,799,350
Norma T. Pace 127,046,984 1,587,676
2. Appointment of Arthur Andersen LLP as independent public
accountants:
For Against Abstain
--- ------- -------
127,638,404 543,173 453,083
Item 6. Exhibits and Reports on Form 8-K Pages
------- -------------------------------- -----
(a)(10) Material Contracts
(a) Consulting Agreement for Orin R. Smith 17-20
(12) Computation of the Ratio of Earnings to Fixed Charges 21-22
(b) There were no reports on Form 8-K filed during the quarter
ended March 31, 2001.
15
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENGELHARD CORPORATION
-----------------------------
(Registrant)
Date May 15, 2001 /s/ Barry W. Perry
--------------------- -----------------------------
Barry W. Perry
Chairman and Chief
Executive Officer
Date May 15, 2001 /s/ Michael A. Sperduto
---------------------- -----------------------------
Michael A. Sperduto
Chief Accounting
Officer
16
EXHIBIT (10)(a)
CONSULTING AGREEMENT
FOR
ORIN R. SMITH
--------------------
17
March 20, 2001
Dear Orin:
Engelhard Corporation ("Engelhard") wishes to engage you as a consultant to
provide advice and counseling to Engelhard's Chief Executive Officer and other
senior executives of Engelhard during calendar years 2001 and 2002. The
following are the terms and conditions that will apply to your engagement:
(1) Within thirty (30) days after your acceptance of the proposal set forth
in this letter agreement, Engelhard will pay you $150,000 for which you agree to
provide up to thirty (30) days of consulting services during calendar year 2001
on the terms and conditions set forth in this letter agreement. Provided this
letter agreement is not terminated on or prior to December 31, 2001, within
thirty (30) days after January 1, 2002 Engelhard will pay you an additional
$150,000 for which you agree to provide up to thirty (30) days of consulting
services during calendar year 2002. Engelhard does not expect to request and
does not expect you to perform more than five (5) days (40 hours) of consulting
services in any calendar month. If in calendar year 2001 or 2002 Engelhard
requests that you perform more than thirty (30) days of consulting services and
you perform more than thirty (30) days of consulting services for Engelhard in
such calendar year, then you will be compensated at the rate of $5,000.00 per
day for each day of consulting services requested and rendered in such calendar
year in excess of thirty (30) days. The foregoing is the limit of Engelhard's
liability for payments to you under this letter agreement; all expenses and
costs are for your own account unless reasonably incurred in relationship to an
assignment specifically authorized by Engelhard's Chief Executive Officer.
2. Only Engelhard's Chief Executive Officer is authorized to request you to
perform consulting services. If you are requested to perform consulting
services, you agree to perform the requested services in a timely manner and to
the best of your ability.
3. As a consultant, you will be acting at all times as an independent
contractor and not as an agent or employee of Engelhard. Neither this letter
agreement nor your performance of consulting services will entitle you to the
status of employee for eligibility or participation purposes under any Engelhard
employee benefit or welfare plan, program or policy. It is your responsibility
to pay applicable income and other taxes and to provide for your own insurance
coverage and other needs to the extent you consider appropriate.
4. All knowledge and information that may be acquired by you in performing
consulting services shall be Engelhard proprietary knowledge and information and
shall be regarded as strictly confidential and held by you in trust and shall
not, directly or indirectly, be used by you for any purpose, other than for the
purpose of performing consulting services for Engelhard under this letter
agreement, or disclosed by you to any person, persons, firm, or corporation
except (a) information which at the time of disclosure is in the public domain
or (b) information which after disclosure is published or otherwise becomes part
of the public domain through no fault of yours, or (c) information received by
you after the time of disclosure from a third party who did not require that
such information be held in confidence and who did not acquire directly or
indirectly such information under an obligation or confidence. Your obligations
under this paragraph are (a) in addition to, and not in lieu of, any other
obligations you may have to Engelhard with a respect to such matters, and (b)
survive termination of this letter agreement.
18
5. In performing consulting services for Engelhard you will at all times
comply with all applicable federal, state, local and foreign laws, rules, and
regulations and Engelhard policies.
6. This letter agreement is for your personal consulting services and as
such it may not be assigned, or the obligations delegated, in whole or in part,
by you to any person or entity.
7. During the term of this letter agreement you agree not to directly or
indirectly engage in any manner in any activity, accept employment with, render
any service in any capacity to, or have any interest in any business or
enterprise or other activity
(a) which will conflict with the interests of Engelhard or its business or
(b) which is a competitor of or in competition with Engelhard, including
that of Engelhard's subsidiaries and affiliates, (unless Engelhard has given its
prior consent in writing signed by its Chief Executive Officer) provided however
that you may acquire or hold (beneficially and of record) up to but not more
than one percent (1%) of the equity securities of any such competitor if such
equity securities are listed on the New York Stock Exchange or the American
Stock Exchange or are quoted on NASDAQ.
During the term of this letter agreement you agree not to directly or
indirectly act to affect to Engelhard's detriment (or to the detriment of any
subsidiary or affiliate of Engelhard) any relationship of Engelhard or any of
its subsidiaries or affiliates with any customer, supplier, employee,
distributor, representative, or shareholder, or cause any customer, supplier,
distributor, representative or shareholder to refrain from entrusting business
to or engaging with Engelhard or any of its subsidiaries or affiliates.
8. If a third party or parties make any inquiry of you, engage in any
discussion with you, provide any information to you, and/or request you to
provide or to exchange any information, concerning or with respect to a
significant transaction with or involving Engelhard, its property, products
and/or customers (including but not limited to a transaction involving the
acquisition of all or any portion of Engelhard or any strategic alliance
concerning Engelhard), you agree to immediately notify Engelhard's Chief
Executive Officer and no one else, and to take direction from Engelhard's Chief
Executive Officer with respect to your actions concerning all such matters.
9. This letter agreement will automatically terminate immediately on the
first to occur of the following: (a) your death or physical or mental incapacity
to perform the consulting services required to be performed under this letter
agreement, (b) the expiration of the term of this letter agreement, or (c)
December 31, 2001 if you have given Engelhard at least thirty (30) days prior
notice to terminate this letter agreement as of such date. Further, either party
may immediately terminate this letter agreement if the other party is in
material breach and such breach is not cured within ten (10) days after receipt
of written notice of such breach.
19
10. This letter agreement and the rights and obligations arising hereunder
shall be construed and enforced in accordance of the laws of the State of New
Jersey without reference to such state's principles regarding conflict of laws.
11. This letter agreement may not be amended or modified except in writing
which expressly states that it is intended to modify or amend this letter
agreement and is signed by Engelhard's Chief Executive Officer or Vice President
Human Resources. This letter agreement sets forth the entire understanding of
the parties with respect to you rendering consulting services to Engelhard and
it supercedes any and all prior agreements or understandings with respect
thereto.
If you agree to provide consulting services on the terms and conditions set
forth above, please sign and date the duplicate of this letter agreement where
indicated and return it to me by April 10, 2001.
Very truly yours,
/s/ John C. Hess
I agree to perform consulting services in accordance with the terms and
conditions set forth in the above letter agreement.
Date: March 26, 2001
/s/Orin R. Smith
20
EXHIBIT 12
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
21
ENGELHARD CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31, Years Ended December 31,
------------------ -----------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Earnings from continuing operations
before provision for income taxes $69,779 $245,687 $284,118 $260,563 $ 85,812 $209,955
Add/(deduct)
Portion of rents representative
of the interest factor 2,200 8,800 7,000 3,500 3,000 3,900
Interest on indebtedness 14,343 62,649 56,555 58,887 52,776 45,009
Equity dividends - 4,363 2,431 2,022 3,803 2,515
Equity in (earnings) losses
of affiliates (5,453) (24,187) (16,266) (10,077) 47,833 5,008
-------- -------- --------- --------- -------- --------
Earnings, as adjusted $80,869 $297,312 $333,838 $314,895 $193,224 $266,387
======== ========= ========= ========= ======== ========
Fixed Charges
Portion of rents representative
of the interest factor $ 2,200 $ 8,800 $ 7,000 $ 3,500 $ 3,000 $ 3,900
Interest on indebtedness 14,343 62,649 56,555 58,887 52,776 45,009
Capitalized interest 750 3,880 2,580 1,897 651 875
-------- -------- --------- --------- -------- --------
Fixed charges $17,293 $75,329 $ 66,135 $ 64,284 $ 56,427 $ 49,784
======== ======== ========= ========= ======== ========
Ratio of Earnings to Fixed Charges 4.68 3.95 (a) 5.05 4.90 3.42 (b) 5.35
======== ======== ========= ========= ======== ========
(a) Earnings in 2000 were negatively impacted by pre-tax special and other charges of $134.2 million for a variety of
events. Excluding these charges, the ratio of earnings to fixed charges would have been 5.73.
(b) Earnings in 1997 were negatively impacted by special and other charges of $149.6 million for a variety of events.
Excluding these charges, the ratio of earnings to fixed charges would have been 5.28.
22