SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
--- 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)
1
Salary Deferral Savings Plan
of Engelhard Corporation
Table of Contents
Description Page
----------- ----
Report of Independent Auditors 3
Statements of Net Assets Available for Benefits 4
at December 31, 2002 and 2001
Statement of Changes in Net Assets Available for Benefits 5
for the years ended December 31, 2002 and 2001
Notes to Financial Statements 6-11
Supplemental Schedules
Schedule of Assets (Held at end of year) 12
Schedule of Reportable Transactions 13
Consent of Independent Auditors 14
Signature 15
Exhibit 99 - Certification Accompanying Periodic Report Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 16
2
Report of Independent Auditors
------------------------------
To the Pension and Employee Benefit Committee of Engelhard Corporation:
We have audited the accompanying statements of net assets available for
benefits of the Salary Deferral Savings Plan of Engelhard Corporation as of
December 31, 2002 and 2001 and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 net assets available for benefits of the plan at
December 31, 2002 and 2001, and the changes in it's net assets available for
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
(held at end of year) as of December 31, 2002 and reportable transactions for
the year then ended are presented for purposes of additional analysis and are
not a required part of the financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in our audits of the financial statements, and in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
ERNST & YOUNG LLP
MetroPark, New Jersey
June 23, 2003
3
Salary Deferral Savings Plan of Engelhard Corporation
Statements of Net Assets Available for Benefits
At December 31, 2002 and 2001
2002 2001
---- ----
Assets
------
Investments at fair value $189,452,131 $217,059,474
Receivables:
Participant Contributions 844,781 792,925
Employer Contributions 251,314 231,744
------------ ------------
Total Receivables $ 1,096,095 $ 1,024,669
------------ ------------
Net Assets Available for Benefits $190,548,226 $218,084,143
============ ============
See Accompanying Notes to Financial Statements
4
Salary Deferral Savings Plan
of Engelhard Corporation
Statement of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 2002 and 2001
2002 2001
---- ----
Additions:
Net Investment Income:
Dividends $ 2,276,260 $ 3,251,893
Interest 2,644,807 2,610,170
------------- -------------
Total Investment Income 4,921,067 5,862,063
Contributions:
Participant 13,860,201 13,263,732
Employer 3,269,999 3,092,278
Asset Transfers In 303,817 449,964
Rollovers 247,211 798,351
------------- -------------
Total Contributions 17,681,228 17,604,325
Net Realized/Unrealized (Depreciation)
Appreciation in Fair Value of Investments (36,152,556) 7,502,036
------------- -------------
Total Additions (13,550,261) 30,968,424
Deductions:
Distributions 13,968,616 10,038,384
Other Expenses 17,040 15,500
Asset Transfer - 4,706
------------- -------------
Total Deductions 13,985,656 10,058,590
Net (Decrease)/Increase (27,535,917) 20,909,834
Net Assets Available for Benefits at 218,084,143 197,174,309
Beginning of Year
------------- -------------
Net Assets Available for Benefits at $190,548,226 $218,084,143
End of year
============= =============
See Accompanying Notes to Financial Statements
5
Notes to Financial Statements
Note 1 - Description of the Plan
The Salary Deferral Savings Plan of Engelhard Corporation (the "Plan"),
effective September 1, 1989, is designed to provide eligible employees of
Engelhard Corporation (the "Company") an opportunity to save part of their
earnings by having the Company reduce their compensation and contribute the
amount of the reduction to the Plan on a tax deferred and/or post-tax basis.
The following plan description provides only general information.
Participants of the Plan should refer to the Plan Document for a more complete
description of plan provisions.
Eligibility
-----------
Except as specifically included or excluded by the Board of Directors of
the Company (the "Board"), United States salaried employees of the Company and
its wholly-owned (directly or indirectly) domestic subsidiaries and all non-
collectively bargained hourly employees are eligible to participate in the Plan.
Contributions
-------------
The Plan permits eligible employees participating in the Plan the
opportunity to defer on a pretax basis up to 50 percent of their compensation,
as defined, subject to certain restrictions and limitations, and to have that
amount contributed to the Plan. Employees may also contribute, subject to
certain restrictions and limitations, up to 10 percent of compensation to the
Plan on a post-tax basis. The Plan allows for catch-up contributions for
employees age 50 and over as allowed under the Internal Revenue Code.
Matching Contributions
----------------------
The Company will contribute, on a monthly basis, subject to certain
limitations and exclusions, either cash or common stock of the Company in an
amount equal to 50 percent of the first 6 percent contributed by the
Participants. Participants must have completed one year of service to be
eligible for a matching contribution. No matching contributions are made on
behalf of a Participant who is eligible to receive an award pursuant to the
Company's Key Employees Stock Bonus Plan or other plans as designated by the
Committee.
Investments
-----------
All contributions to the Plan are held and invested by Vanguard Fiduciary
Trust Company (the Trustee). The Trustee maintains the following fifteen
separate investment funds within the Plan:
a) The Company Stock Fund.
b) The Fixed Income Fund (Vanguard Retirement Savings Trust).
c) The Windsor II Growth Fund (Vanguard Windsor II Fund).
d) The Windsor Growth Fund (Vanguard Windsor Fund).
e) The Balanced Fund (Vanguard Asset Allocation Fund).
f) The Equity Index Fund (Vanguard Growth and Income Fund).
6
g) The Small Cap Fund (Vanguard Small-Cap Index Fund).
h) The Life Strategy Growth Fund (Vanguard Life Strategy Growth
Fund).
i) The Life Strategy Conservative Growth Fund (Vanguard Life
Strategy Conservative Growth Fund).
j) The Vanguard U.S. Growth Fund.
k) The Life Strategy Moderate Growth Fund (Vanguard Life Strategy
Moderate Growth Fund).
l) The Prime Cap Funds (Vanguard PRIMECAP Fund).
m) The International Growth Fund (Vanguard International Growth
Fund).
n) The Life Strategy Income Fund (Vanguard Life Strategy Income
Fund).
o) The Short-Term Bond Fund (Vanguard Short-Term Corporate Fund).
Participants have the right to elect, subject to restrictions, the
investment fund or funds in which their contributions are invested. All matching
contributions are initially invested in the Company Stock Fund. The Participants
matching contributions are initially restricted and become unrestricted at the
rate of 25 percent per year. Once unrestricted, funds may be moved to one of the
other investment funds. (See Note 9 for subsequent event effecting Company
match)
Included in the Statement of Net Assets Available for Benefits are
non-participant directed funds that are included in the Company Stock Fund.
These amounts represent the restricted portion of the employee matching
contribution. The following describes the change in the balances during the year
ended December 31, 2002 and 2001.
2002 2001
---- ----
Balance at beginning of year $13,111,698 $ 9,738,194
Dividends 149,161 156,572
Net unrealized (depreciation)/appreciation (2,396,175) 3,016,575
Contributions 3,250,430 3,085,003
Transfer to unrestricted (3,276,935) (2,440,828)
Distributions (623,443) (468,527)
Other 27,703 24,709
----------- -----------
Balance at end of year $10,242,439 $13,111,698
=========== ===========
Participant Accounts
--------------------
Each participant's account is credited with the participant's contributions
and allocations of (a) the Company Contributions and (b) plan earnings including
realized gains/losses, unrealized appreciation/depreciation, and an allocation
of fund expenses. Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's account.
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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
--------------
Participants may borrow from their Fund accounts a minimum of $1,000 up to
a maximum equal to 50% of their Fund balance or $50,000, whichever is less. The
loans are secured by the balance in the Participant's accounts and bear interest
at a reasonable rate as determined by the Company in accordance with applicable
laws and regulations. Principal and interest is paid ratably through monthly
payroll deductions. Loans are generally five years in duration unless the loan
is for the purchase of a primary residence in which case the term can be up to
ten years.
Plan Termination
----------------
Although it has not expressed any intent to do so, the Company has the
right under the plan to discontinue its contributions at any time and to
terminate the plan subject to the provisions of ERISA.
Distributions and Withdrawals
-----------------------------
Upon termination of employment, as provided in the Plan Document,
participants generally have the option of taking a distribution, rolling the
balance over into another qualified plan, or leaving the money in the plan until
retirement. After-tax contributions may be withdrawn at any time, however the
earnings on the contributions will be subject to current income taxes as well as
a penalty for early withdrawal unless the Participant has reached the age of 59
1/2. All distributions are made in the form of cash except the balance in the
Engelhard Company Stock Fund which may be made in the form of shares at the
Participant's discretion.
The Plan under certain circumstances permits hardship withdrawals. The
hardship withdrawals are only made in accordance with IRS guidelines and must be
approved in advance by the Employee Benefit Plans Administrative Committee.
Other
-----
Certain reclassifications have been made to prior years figures to conform
to current years presentation.
Note 2 - Accounting Policies
The accounts of the Plan are maintained on an accrual basis. Purchases and
sales of investments are reflected on a trade date basis. Assets of the Plan are
valued at fair value. Gains and losses on distributions to Participants and
sales of investments are based on average cost.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
8
The Plan provides for various investment options in any combination of
stocks or mutual funds. Investment securities are exposed to various risks, such
as interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to changes in
the value of investment securities, it is at least reasonably possible that
changes in market value in the near term would materially affect Participants'
account balances and the amounts reported in the Statement of Net Assets
Available for Benefits and the Statement of Changes in Net Assets Available for
Benefits.
Note 3 - Income Tax Status
The Plan has received a determination letter from the Internal Revenue
Service dated February 28, 1996, stating that the Plan is qualified under
Section 401 (a) of the Internal Revenue Code (the "Code") and, therefore, the
related trust is exempt from taxation. Subsequent to this issuance of the
determination letter, the Plan was amended. The plan has applied for but not yet
received a new determination letter from the Internal Revenue Service. Once
qualified, the Plan is required to operate in conformity with the Code to
maintain its qualification. The plan administrator believes the Plan is being
operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan, as amended, is qualified and the related
trust is tax exempt.
Note 4 - Administrative Expenses
Expenses are incurred at either the fund level or the Plan level. All
expenses incurred by the fund (commissions, management fees, etc.) are paid out
of investor assets and are therefore netted in unrealized
appreciation/depreciation of investments in the statement of changes in net
assets available for benefits. Loan administration expenses are included in
other expenses in the statement of changes in net assets available for benefits.
Commissions on the purchase of Engelhard Corporation stock incurred when such
purchases are made in the stock market are netted in unrealized
appreciation/depreciation of investments in the statement of changes in net
assets available for benefits. The Company pays all other plan administrative
expenses.
Note 5 - Concentrations of Credit Risk
Investments in securities are generally exposed to various risks, such as
interest rate, credit, and overall market volatility risks. Financial
instruments which potentially subject the plan to concentration of credit risk
consist principally of investments in the Engelhard Corporation Stock Fund. The
plan limits the concentration of credit risk by allowing participants, subject
to the lapsing of restrictions, the opportunity to invest in an array of mutual
funds offered by the Vanguard Group.
9
Note 6 - Investments
Investments in the common stock of the Company are valued at the
readily-available, quoted market price as of the valuation date and investments
in Vanguard Funds are valued based on the quoted net asset value (redemption
value) of the respective investment fund as of the valuation date.
Investments that represent more than 5% or more of fair value of the Plan's
net assets are as follows:
Investments 2002 2001
------------ ------------ ------------
Engelhard Corporation Company Stock Fund $ 45,755,081* $ 59,201,120*
Fixed Income Fund (Retirement Savings Trust) 42,616,759 38,638,981
Growth Fund (Windsor Fund) 23,022,271 29,237,340
Balanced Fund (Asset Allocation Fund) 11,859,382 13,948,093
Equity Index Fund (Growth and Income Portfolio) 15,632,759 19,719,141
Prime Cap Fund 11,421,382 14,317,977
*Includes assets that are non participant directed (see Note 1.)
Net realized/unrealized (depreciation) appreciation in fair value of
investments consists of the following at December 31, 2002 and 2001:
2002 2001
---- ----
Common Stock $(10,594,959) $ 18,437,586
Mutual Funds (25,557,597) (10,935,550)
------------ ------------
Total $(36,152,556) $ 7,502,036
============ ============
Note 7 - Related Party Transactions
For the 2002 plan year, the Company transferred 123,161 treasury stock
shares (representing a contribution dollar amount of $3,269,999) to Vanguard to
fund the employer match. The number of shares transferred each month represented
the employer matching contribution divided by the closing market price on the
day the contribution was remitted.
During the year in the ordinary course of doing business, various Vanguard
funds may take a position in Engelhard Corporation common stock. On February 12,
2002, the Vanguard Windsor Fund filed Form 13G with the Securities and Exchange
Commission indicating they held 10,454,200 shares or 8.06% of Company Stock. On
February 13, 2003 and amended Form 13G was filed indicating they held 9,566,700
or 7.49% of Company Stock.
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Note 8 - Plan Amendments
The plan was amended in December of 2001 to reflect certain provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Among
the more significant changes to the plan were the following:
* Changed the limit of employee pretax contributions from a maximum of 15%
of salary to 50% of salary subject to certain plan limitations.
* Increased the compensation limit in determining after tax contributions
and IRC 415 limits to the plan from $170,000 to $200,000.
* Allows catch-up contributions for those 50 and over by the end of the
plan year. These catch up contributions allow participants to contribute
an additional $1,000 per year.
EGTRRA provides for the above amounts to be indexed each year as specified
in the legislation. These amendments are effective for plan years beginning
after December 31, 2001. The full context of these provisions is described in
the plan document and summary plan description.
Note 9 - Subsequent Events
On September 19, 2002, the Company and its partner, Fimalac, formally
agreed to adopt a plan to unwind their Paris-based joint venture,
Engelhard-CLAL LLP. As part of the distribution of assets Engelhard received
certain US-based operations. As a result, on January 1, 2003, the net assets of
the Engelhard-CLAL Salary Deferral Savings Plan were merged into the Salary
Deferral Savings Plan of Engelhard Corporation. A total of $6,157,480,
representing the net assets of Engelhard-CLAL Salary Deferral Savings Plan on
December 31, 2002, was transferred to the Salary Deferral Savings Plan of
Engelhard Corporation.
Net Assets Available for Benefits @ 12/31/02 -
per Financial Statements $190,548,226
Plus: Net assets transferred from the Engelhard-CLAL
Salary Deferral Savings Plan 6,157,480
------------
Net Assets Available for Benefits @ 12/31/02 - per Form 5500 $196,705,706
============
Effective April 1, 2003, the Plan added 2 additional investment funds -
Vanguard Total Bond Market Index Fund and Vanguard Mid-Cap Index Fund.
Effective January 1, 2003 the plan was amended to designate the Company
Stock fund as an Employee Stock Ownership Plan (ESOP). In connection with this
change, the first $400 in employer matching contributions (on an annual basis)
will be made into the Fixed Income Fund. Also, employees will have the
opportunity to receive the dividends paid on shares held in the ESOP paid out as
current income. This amendment is contingent upon the Plan receiving a favorable
determination letter from the Internal Revenue Service (IRS). The plan
administrator has filed an application for a new determination letter from the
IRS.
11
Salary Deferral Savings Plan of Engelhard Corporation
Schedule of Assets (Held at end of year)
as of December 31, 2002
(C) Description of
(B) Identity of Investment Including
Issue, Borrower, Maturity Date, Rate of
(A) Lessor, or Interest, Collateral, Par (E) Current
Similar Party or Maturity Value (D) Cost Value
--- --------------- --------------------------- ------------ --------------
* Vanguard Fiduciary Engelhard Corporation
Trust Company Company Stock Fund $39,191,520 $ 45,755,081
* Vanguard Fiduciary Fixed Income Fund 42,616,759 42,616,759
Trust Company (Retirement Savings Trust)
* Vanguard Fiduciary Windsor II Fund 6,448,274 4,943,830
Trust Company
* Vanguard Fiduciary Growth Fund 29,051,756 23,022,271
Trust Company (Windsor Fund)
* Vanguard Fiduciary Balanced Fund 13,515,930 11,859,382
Trust Company (Asset Allocation Fund)
* Vanguard Fiduciary Equity Index Fund 19,142,549 15,632,759
Trust Company (Growth and Income Portfolio)
* Vanguard Fiduciary International Growth 4,496,476 3,163,293
Trust Company Portfolio
* Vanguard Fiduciary Small Cap Fund 5,406,221 4,181,535
Trust Company
* Vanguard Fiduciary Short-Term Corporate Fund 4,758,834 4,781,577
Trust Company
* Vanguard Fiduciary Life Strategy Growth 3,762,555 3,008,194
Trust Company Portfolio
* Vanguard Fiduciary PRIMECAP Fund 16,550,860 11,421,382
Trust Company
* Vanguard Fiduciary Life Strategy Income 1,056,000 1,020,077
Trust Company Portfolio
* Vanguard Fiduciary Life Strategy Conservative 1,469,295 1,329,311
Trust Company Growth Portfolio
* Vanguard Fiduciary U.S. Growth Fund 12,862,165 5,875,782
Trust Company
* Vanguard Fiduciary Life Strategy Moderate 3,345,751 2,832,956
Trust Company Growth Portfolio
*Promissory notes from Participants - 8,007,942
having interest at rates of 5.50% to 10.5%
with maturity dates ranging from 1 month to
10 years
------------ ------------
Total $203,674,945 $189,452,131
============ ============
*Represents party-in-interest
12
Engelhard Corporation
Salary Deferral Savings Plan
Schedule of Reportable Transactions*
Year Ended December 31, 2002
Identity of Party Description of Assets (include Purchase Selling Historical Cost Current Value
Involved interest rate and maturity in Price Price of Asset of Asset Historical
the case of a loan) on Transaction Gain(Loss)
Date
----------------- ------------------------------ ----------- ---------- ------------- ----------------- ----------
Vanguard Vanguard Retir. Savings Trust $22,930,672 $22,930,672
Vanguard Vanguard Retir. Savings Trust $18,952,633 $18,952,633 18,952,633 $ -
Engelhard Engelhard Corp. Stock Fund 14,890,182 14,890,182
Engelhard Engelhard Corp. Stock Fund 17,741,008 13,837,222 17,741,008 3,903,786
*Transactions or a series of transactions in excess of 5% of the current value of the Plan's assets as of the beginning
of the plan year as defined in section 2520.103-6 of the Department of Labor Rules and Regulations for Reporting and
and Disclosure under ERISA.
13
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in the Registration Statement
(Form S-8 Nos.: 2-72830, 2-81559, 2-84477, 2-89747, 33-28540, 33-37724,
33-40365, 33-40338, 33-43934, 33-65990, 333-02643, 333-71439, 333-39570,
333-71856, 333-88424) pertaining to the Salary Deferral Savings Plan of our
report dated June 23, 2003, with respect to the financial statements and
schedules of the Salary Deferral Savings Plan included in this Annual Report
(Form 11-K) for the year ended December 31, 2002.
/s/ Ernst & Young L.L.P.
MetroPark, New Jersey
June 23, 2003
14
Signature
---------
Form 11-K
Salary Deferral Savings Plan of Engelhard Corporation
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Pension and Employee Benefit Plans Committee of Engelhard Corporation has
duly caused this Form 11-K to be signed on its behalf by the undersigned,
thereunto duly authorized, in Iselin, New Jersey on this 23rd day of June,
2003.
/s/ John C. Hess
-------------
By: John C. Hess
Secretary to the Committee and
Vice President of Human Resources
15
Exhibit 99
Certification Accompanying Periodic Report
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)
The undersigned, Barry W. Perry, Chairman and Chief Executive Officer of
Engelhard Corporation, and Michael A. Sperduto, Vice President and Chief
Financial Officer of Engelhard Corporation, (Engelhard Corporation is the
administrator of the Salary Deferral Savings Plan of Engelhard Corporation) each
hereby certifies that the Annual Report of the Plan on Form 11-K for the year
ended December 31, 2002 (the "Report") (1) fully complies with the requirements
of Section 13(a) of the Securities Exchange Act of 1934 and (2) the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operation of the Plan.
Date: June 23, 2003 /s/ Barry W. Perry
----------------- ----------------------
Barry W. Perry
Chairman and Chief
Executive Officer
Date: June 23, 2003 /s/ Michael A. Sperduto
----------------- --------------------------
Michael A. Sperduto
Vice President and Chief
Financial Officer
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company
for purposes of Section 18 or any other provision of the Securities
Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon
request.
16