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 _____
------------------
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)
1
Engelhard Corporation Savings Plan for Hourly Paid Employees
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 for the
Year Ended December 31, 2002 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 Engelhard Corporation Savings Plan for Hourly Paid Employees 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 audits were 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. The 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
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statements of Net Assets Available for Benefits
At December 31, 2002 and 2001
2002 2001
---- ----
Assets
------
Investments at fair value $28,626,469 $30,375,086
Receivables:
Participant Contributions 278,016 264,690
Employer Contributions 74,855 71,531
----------- -----------
Total Receivables $ 352,871 $ 336,221
----------- -----------
Net Assets Available for Benefits $28,979,340 $30,711,307
=========== ===========
See accompanying notes to Financial Statements
4
Engelhard Corporation Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits
For the year ended December 31, 2002 and 2001
2002 2001
---- ----
Additions:
Net Investment Income:
Dividends $ 301,680 $ 328,640
Interest 491,269 474,341
------------ ------------
Total Investment Income 792,949 802,981
Contributions:
Participant 3,411,217 3,463,312
Employer 926,905 884,059
Asset Transfers In - 25,861
Rollovers 50,396 1,022
------------ ------------
Total Contributions 4,388,518 4,374,254
Net Realized/Unrealized (Depreciation)
Appreciation in Fair Value of Investments (4,586,385) 2,548,809
------------ ------------
Total Additions 595,082 7,726,044
Distributions 2,253,413 1,442,596
Asset Transfers Out 72,520 -
Other deductions 1,116 1,220
------------ ------------
Total deductions 2,327,049 1,443,816
Net (Decrease) Increase (1,731,967) 6,282,228
Net Assets Available for Benefits 30,711,307 24,429,079
at Beginning of Year
------------ ------------
Net Assets Available for Benefits $ 28,979,340 $ 30,711,307
at End of Year
============ ============
See Accompanying Notes to Financial Statements
5
Notes to Financial Statements
Note 1 - Description of the Plan
The Engelhard Corporation Savings Plan for Hourly Paid Employees (the
"Plan"), effective as of January 1, 1991, 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 basis 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
-----------
Eligibility rules vary depending upon negotiated union contract.
Participants should see the Plan Document for specific rule pertaining to
employee group. The following employee groups are eligible for participation in
the plan:
a) Local 3-0233 of the Paper, Allied-Industrial, Chemical and Energy
Workers International Union (Gordon, GA)
b) Locals 3-0237 and 3-0238 of the Paper, Allied-Industrial, Chemical and
Energy Workers International Union (McIntyre, GA)
c) Locals 1668, 1668A and 1668B of the International Union, United
Aerospace and Agricultural Implement Workers of American (UAW) (Carteret, NJ)
d)Local 8-406 of the Paper, Allied Industrial, Chemical and Energy Workers
International Union (East Newark, NJ)
e) Local 66, of the Inernational Chemical Workers Union Council/UFCW
(Louisville, KY)
f) Local 73 of the International Chemical Workers Union Council/UFCW
(Elyria, OH)
g) Local 1430 of the International Brotherhood of Electrial Workers
(Peekskill, Ossining and Buchanan, NY)
h) Local 333 of the Paper, Allied-Industrial, Chemical and Energy Workers
International Union (Jackson, MS)
i) Local 174 of the United Steel workers of America (Quincy, FL)
6
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 and subject to limitations
and exclusions, either cash or common stock of the Company in an amount ranging
from 20% to 50% of the first 6%, 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 the following seventeen
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).
7
e) The Balanced Fund (Vanguard Asset Allocation Fund).
f) The Equity Index Fund (Vanguard Growth and Income Fund).
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).
p) Explorer Fund.
q) Treasury Money Market 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 any of the
other investment funds.
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 Employer Matching
Contribution. The following describes the change in the balance during the year
ended December 31, 2002 and 2001.
2002 2001
---- ----
Balance at beginning of year $ 1,398,366 $ 420,220
Dividends 20,336 13,727
Net unrealized (depreciation)/ appreciation (340,557) 219,639
Contributions 923,580 880,536
Transfer to unrestricted (351,085) (112,045)
Distributions (102,238) (29,241)
Other 2,718 5,530
---------- ----------
Balance at end of year $1,551,120 $1,398,366
========== ==========
8
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 participants account.
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.
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.
Loan Provision
--------------
Participants may borrow from their funds 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.
Distributions and Withdrawals
-----------------------------
Upon termination of employment, as provided in the Plan Document, employees
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
stock fund 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.
9
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.
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 risks. 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 March 29, 1995, 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 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.
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.
10
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 $ 10,587,163* $ 12,885,445*
Fixed Income Fund (Retirement Savings Trust) 6,487,768 5,648,101
Balanced Fund (Asset Allocation Fund) 2,579,172 2,813,421
Equity Index Fund (Growth and Income Portfolio) 3,499,841 3,947,575
*Includes assets that are non-participant directed (see Note 1).
Net realized/unrealized appreciation (depreciation) in fair value of
investments consists of the following at December 31, 2002 and 2001:
2002 2001
---- ----
Common Stock $(2,419,914) $3,509,412
Mutual Funds (2,166,471) (960,603)
----------- ----------
Total $(4,586,385) $2,548,809
=========== ==========
Note 7 - Related Party Transactions
For the 2002 plan year the Company transferred 35,033 treasury stock shares
(representing a contribution dollar amount of $926,905) 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.
Note 8 - Subsequent Event
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 LP Plan for Hourly Paid Employees were merged into the
Engelhard Corporation Savings Plan for Hourly Paid Employees. A total of
$3,733,127, representing the net assets of the Engelhard-CLAL LP Plan for Hourly
Paid Employees on December 31, 2002, was transferred to the Engelhard
Corporation Savings Plan for Hourly Paid Employees.
Net Assets Available for Benefits @ 12/31/02 -
per Financial Statements $ 28,979,340
Plus: Net assets transferred from the Engelhard-CLAL LP
Plan for Hourly Paid Employees 3,733,127
------------
Net Assets Available for Benefits @ 12/31/02 - per Form 5500 $ 32,712,467
============
11
Engelhard Corporation Savings Plan for Hourly Paid Employees
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 $10,018,368 $10,587,163
* Vanguard Fiduciary Fixed Income Fund 6,487,768 6,487,768
Trust Company (Retirement Savings Trust)
* Vanguard Fiduciary Explorer Fund 583,276 435,919
Trust Company
* Vanguard Fiduciary Balanced Fund 3,080,144 2,579,172
Trust Company (Asset Allocation Fund)
* Vanguard Fiduciary Equity Index Fund 4,532,155 3,499,841
Trust Company (Growth and Income Portfolio)
* Vanguard Fiduciary International Growth Fund 707,545 518,170
Trust Company
* Vanguard Fiduciary Treasury Money Market Fund 279,521 279,521
Trust Company
* Vanguard Fiduciary Life Strategy Growth Fund 202,928 160,394
Trust Company
* Vanguard Fiduciary Prime Cap Fund 875,772 619,807
Trust Company
* Vanguard Fiduciary U.S. Growth Portfolio 299,055 158,761
Trust Company
* Vanguard Fiduciary Growth Fund 310,889 249,220
Trust Company (Windsor Fund)
* Vanguard Fiduciary Windsor II Fund 155,579 130,550
Trust Company
* Vanguard Fiduciary Life Strategy Conservative 46,260 43,201
Trust Company Growth Fund
* Vanguard Fiduciary Life Strategy Moderate 48,989 43,412
Trust Company Growth Fund
* Vanguard Fiduciary Life Strategy Income Fund 17,470 17,236
Trust Company
* Vanguard Fiduciary Short-Term Corporate Fund 155,678 156,539
Trust Company
* Vanguard Fiduciary Small Cap Fund 127,273 106,212
Trust Company
*Promissory notes from Participants - 2,553,583
having interest at rates of 5.75% to 10.50%
and maturity dates ranging from 1 month
to 10 years
----------- -----------
Total $27,928,670 $28,626,469
=========== ===========
*Represents party-in-interest
12
Engelhard Corporation Plan for
Hourly Paid Employees
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 Growth & Income $1,208,040 $1,208,040
Vanguard Vanguard Growth & Income $ 684,600 $ 804,055 684,600 $(119,455)
Vanguard Vanguard Retir. Savings Trust 2,687,438 2,687,438
Vanguard Vanguard Retir. Savings Trust 1,847,772 1,847,772 1,847,772
Engelhard Engelhard Corp. Stock Fund 2,735,942 2,735,942
Engelhard Engelhard Corp. Stock Fund 2,614,310 2,055,422 2,614,310 558,888
*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 Savings Plan for Hourly Paid Employees
report dated June 23, 2003, with respect to the financial statements and
schedules of the Savings Plan for Hourly Paid Employees 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
Engelhard Corporation Savings Plan for Hourly Paid Employees
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 Engelhard Corporation Savings Plan for Hourly Paid Employees)
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 operations 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