**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





**T**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended September 30, 2005




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
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer Identification No.)





**101
          WOOD AVENUE, ISELIN, NEW JERSEY, 08830**
 
 (Address
          of principal executive offices)
  **(732)
          205-5000**
 
 (Registrant’s
          telephone number, including area code)




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
            T
            No
            *





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).


Yes
            T
            No
            *





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act).


Yes
            *
            No
            T





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Class
                of Common Stock
            
            Outstanding
                at October 31, 2005$1
                par value
            
            119,906,559









**PART
      I - FINANCIAL INFORMATION**




**Item
                1.**
            **Financial
                Statements**




**ENGELHARD
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF EARNINGS**


**(Thousands,
      except per-share data)**


**(Unaudited)**





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                sales
            
            $
            1,208,258
            
            $
            995,451
            
            $
            3,325,181
            
            $
            3,125,849Cost
                of sales
            
            
            1,033,676
            
            
            825,800
            
            
            2,796,445
            
            
            2,627,067Gross
                profit
            
            
            174,582
            
            
            169,651
            
            
            528,736
            
            
            498,782Selling,
                administrative and other expenses
            
            
            103,865
            
            
            94,846
            
            
            307,737
            
            
            285,204Operating
                earnings
            
            
            70,717
            
            
            74,805
            
            
            220,999
            
            
            213,578Equity
                in earnings of affiliates
            
            
            8,695
            
            
            6,087
            
            
            24,237
            
            
            19,390Gain/(loss)
                on investments
            
            
            (12
            )
            
            -
            
            
            168
            
            
            -Interest
                income
            
            
            3,688
            
            
            1,174
            
            
            8,626
            
            
            3,494Interest
                expense
            
            
            (11,107
            )
            
            (5,127
            )
            
            (27,372
            )
            
            (16,915
            )Earnings
                before income taxes
            
            
            71,981
            
            
            76,939
            
            
            226,658
            
            
            219,547Income
                tax expense
            
            
            13,430
            
            
            17,123
            
            
            45,394
            
            
            40,700Income
                from continuing operations
            
            
            58,551
            
            
            59,816
            
            
            181,264
            
            
            178,847Loss
                from discontinued operations, net of taxes
            
            
            (42
            )
            
            (761
            )
            
            (6,905
            )
            
            (1,455
            )Net
                earnings
            
            $
            58,509
            
            $
            59,055
            
            $
            174,359
            
            $
            177,392Earnings
                per share from continuing operations:Basic
            
            $
            0.49
            
            $
            0.49
            
            $
            1.50
            
            $
            1.45Diluted
            
            $
            0.48
            
            $
            0.48
            
            $
            1.48
            
            $
            1.42Earnings
                per share from discontinued operations:Basic
            
            $
            (0.00
            )
            $
            (0.01
            )
            $
            (0.06
            )
            $
            (0.01
            )Diluted
            
            $
            (0.00
            )
            $
            (0.01
            )
            $
            (0.06
            )
            $
            (0.01
            )Earnings
                per share:Basic
            
            $
            0.49
            
            $
            0.48
            
            $
            1.45
            
            $
            1.44Diluted
            
            $
            0.48
            
            $
            0.47
            
            $
            1.42
            
            $
            1.41Cash
                dividends per share
            
            $
            0.12
            
            $
            0.11
            
            $
            0.36
            
            $
            0.33Average
                number of shares outstanding - basic
            
            
            119,608
            
            
            122,951
            
            
            120,493
            
            
            123,584Average
                number of shares outstanding - diluted
            
            
            121,554
            
            
            125,150
            
            
            122,547
            
            
            125,829





See
      the
      Accompanying Notes to the Unaudited Condensed Consolidated Financial
      Statements





2





**ENGELHARD
      CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Thousands)**


**(Unaudited)**




**September
                30,**
              **2005**
            
            **December
                31,**
              **2004**Cash
            
            $
            29,538
            
            $
            126,229Receivables,
                net
            
            
            500,218
            
            
            406,962Committed
                metal positions
            
            
            687,037
            
            
            457,498Inventories
            
            
            530,437
            
            
            458,020Other
                current assets
            
            
            134,342
            
            
            135,468Total
                current assets
            
            
            1,881,572
            
            
            1,584,177Investments
            
            
            197,862
            
            
            179,160Property,
                plant and equipment, net
            
            
            913,018
            
            
            902,751Goodwill
            
            
            418,596
            
            
            330,798Other
                intangible and noncurrent assets
            
            
            212,845
            
            
            181,706Total
                assets
            
            $
            3,623,893
            
            $
            3,178,592Short-term
                borrowings
            
            $
            207,588
            
            $
            12,025Accounts
                payable
            
            
            398,156
            
            
            375,343Hedged
                metal obligations
            
            
            543,101
            
            
            292,880Other
                current liabilities
            
            
            285,010
            
            
            248,411Total
                current liabilities
            
            
            1,433,855
            
            
            928,659Long-term
                debt
            
            
            437,596
            
            
            513,680Other
                noncurrent liabilities
            
            
            306,503
            
            
            321,940Shareholders’
                equity
            
            
            1,445,939
            
            
            1,414,313Total
                liabilities and shareholders’ equity
            
            $
            3,623,893
            
            $
            3,178,592





See
      the
      Accompanying Notes to the Unaudited Condensed Consolidated Financial
      Statements





3





**ENGELHARD
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Thousands)**


**(Unaudited)**





**Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**Cash
                flows from operating activitiesNet
                earnings from continuing activities
            
            $
            181,264
            
            $
            178,847Adjustments
                to reconcile net earnings to net cash provided by operating
                activities:Depreciation
                and depletion
            
            
            93,538
            
            
            92,785Amortization
                of intangible assets
            
            
            3,440
            
            
            2,767Equity
                results, net of dividends
            
            
            (13,369
            )
            
            (4,608
            )Net
                change in assets and liabilities:Materials
                Services related
            
            
            (29,938
            )
            
            (47,961
            )All
                other
            
            
            (98,058
            )
            
            (51,948
            )Net
                cash provided by operating activities
            
            
            136,877
            
            
            169,882Cash
                flows from investing activitiesCapital
                expenditures
            
            
            (85,334
            )
            
            (76,335
            )Proceeds
                from investments
            
            
            -
            
            
            1,988Acquisitions
                and other investments, net of cash acquired of $16,023
            
            
            (159,303
            )
            
            (66,240
            )Net
                cash used in investing activities
            
            
            (244,637
            )
            
            (140,587
            )Cash
                flows from financing activitiesIncrease
                (decrease) in short-term borrowings
            
            
            74,732
            
            
            (54,326
            )Proceeds
                from long-term debt
            
            
            49,469
            
            
            108,972Purchase
                of treasury stock
            
            
            (91,366
            )
            
            (107,586
            )Cash
                from exercise of stock options
            
            
            7,009
            
            
            22,433Dividends
                paid
            
            
            (43,444
            )
            
            (40,819
            )Net
                cash used in financing activities
            
            
            (3,600
            )
            
            (71,326
            )Effect
                of exchange rate changes on cash
            
            
            14,669
            
            
            (2,498
            )Net
                decrease in cash
            
            
            (96,691
            )
            
            (44,529
            )Cash
                at beginning of year
            
            
            126,229
            
            
            87,889Cash
                at end of period
            
            $
            29,538
            
            $
            43,360





See
      the
      Accompanying Notes to the Unaudited Condensed Consolidated Financial
      Statements





4





**ENGELHARD
      CORPORATION**


**BUSINESS
      SEGMENT INFORMATION**


**(Thousands)**


**(Unaudited)**





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                SalesEnvironmental
                Technologies
            
            $
            254,701
            
            $
            213,432
            
            $
            738,416
            
            $
            667,901Process
                Technologies
            
            
            167,012
            
            
            147,776
            
            
            487,554
            
            
            439,209Appearance
                and Performance Technologies
            
            
            188,223
            
            
            172,187
            
            
            548,692
            
            
            523,719Technology
                segments
            
            
            609,936
            
            
            533,395
            
            
            1,774,662
            
            
            1,630,829Materials
                Services
            
            
            578,436
            
            
            446,606
            
            
            1,501,528
            
            
            1,453,627All
                Other
            
            
            19,886
            
            
            15,450
            
            
            48,991
            
            
            41,393Total
                net sales
            
            $
            1,208,258
            
            $
            995,451
            
            $
            3,325,181
            
            $
            3,125,849Operating
                EarningsEnvironmental
                Technologies
            
            $
            33,345
            
            $
            33,976
            
            $
            108,327
            
            $
            104,256Process
                Technologies
            
            
            23,270
            
            
            20,723
            
            
            65,633
            
            
            60,085Appearance
                and Performance Technologies
            
            
            16,952
            
            
            19,264
            
            
            55,499
            
            
            58,121Technology
                segments
            
            
            73,567
            
            
            73,963
            
            
            229,459
            
            
            222,462Materials
                Services
            
            
            5,800
            
            
            6,657
            
            
            16,706
            
            
            13,361All
                Other
            
            
            (8,650
            )
            
            (5,815
            )
            
            (25,166
            )
            
            (22,245
            )Total
                operating earnings
            
            
            70,717
            
            
            74,805
            
            
            220,999
            
            
            213,578Equity
                in earnings of affiliates
            
            
            8,695
            
            
            6,087
            
            
            24,237
            
            
            19,390Gain/(loss)
                on investments
            
            
            (12
            )
            
            -
            
            
            168
            
            
            -Interest
                income
            
            
            3,688
            
            
            1,174
            
            
            8,626
            
            
            3,494Interest
                expense
            
            
            (11,107
            )
            
            (5,127
            )
            
            (27,372
            )
            
            (16,915
            )Earnings
                before income taxes
            
            
            71,981
            
            
            76,939
            
            
            226,658
            
            
            219,547Income
                tax expense
            
            
            13,430
            
            
            17,123
            
            
            45,394
            
            
            40,700Income
                from continuing operations
            
            
            58,551
            
            
            59,816
            
            
            181,264
            
            
            178,847Loss
                from discontinued operations, net of taxes
            
            
            (42
            )
            
            (761
            )
            
            (6,905
            )
            
            (1,455
            )Net
                earnings
            
            $
            58,509
            
            $
            59,055
            
            $
            174,359
            
            $
            177,392





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, consisting only of
      normal recurring adjustments, which, in the opinion of management, are necessary
      for a fair presentation 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 2004 Form 10-K. The unaudited condensed consolidated
      financial statements include the accounts of the Company and its subsidiaries.
      All significant intercompany transactions and balances have been eliminated
      in
      consolidation.





**Note
      2 - Discontinued Operations**





In
      the
      second quarter of 2005, the Company committed to a plan to discontinue
      manufacturing operations at its Carteret, New Jersey facility, which
      manufactured specialty precious metal products. Operations at the Carteret,
      New
      Jersey facility ceased in the third quarter. In accordance with SFAS No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company
      has classified the results of this manufacturing operation as Discontinued
      Operations in the accompanying Condensed Consolidated Statements of Earnings.
      For the nine months ended September 30, 2005, the Company recorded charges
      related to the discontinuance of operations at its Carteret facility of $10.3
      million. These charges consist of $4.7 million related to severance and other
      employee expenses, $3.2 million related to the impairment of machinery and
      equipment, $1.3 million related to the impairment of goodwill, $1.8 million
      related to work-in-process inventory not expected to be completed or sold and
      $0.1 million of other expenses, offset by a third-quarter gain of $0.8 million
      related to sale of assets. In the third quarter of 2005, the Company made
      payments of approximately $2 million, resulting in a reserve provision balance
      of $2.7 million at September 30, 2005.





The
      above
      impairment values are based upon management’s estimate of fair value. The amount
      ultimately realized from the disposition of these assets is subject to change.
      The Company expects to incur additional pre-tax expenses of approximately $1.2
      million related to this action in the quarter ending December 31,
      2005.





Net
      sales
      and operating losses from discontinued operations were as follows (in millions):





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                Sales
            
            $
            5.4
            
            $
            6.5
            
            $
            21.1
            
            $
            23.9Operating
                loss
            
            
            (0.1
            )
            
            (1.2
            )
            
            (11.1
            )
            
            (2.3
            )





The
      assets and liabilities related to the Carteret manufacturing operation have
      been
      aggregated and included within “Other intangible and noncurrent assets” and
“Other noncurrent liabilities” in the accompanying Condensed Consolidated
      Balance Sheets. An analysis of these assets and liabilities follows (in
      millions):





**September
                30,**
            
            **December
                31,****2005**
            
            **2004**Receivables,
                net
            
            $
            1.6
            
            $
            3.4Inventories
            
            
            -
            
            
            1.7Other
                current assets
            
            
            0.2
            
            
            0.1Property,
                plant and equipment, net
            
            
            4.6
            
            
            8.3Assets
                from discontinued operations
            
            $
            6.4
            
            $
            13.5




6





**September
                30,**
            
            **December
                31,****2005**
            
            **2004**Accounts
                payable
            
            $
            -
            
            $
            0.5Accrued
                expenses
            
            
            1.6
            
            
            0.5Liabilities
                from discontinued operations
            
            $
            1.6
            
            $
            1.0





Discontinued
      Operations resulted in a cash source of $0.8 million for the nine months ended
      September 30, 2005 and a cash use of $0.7 million for the nine months ended
      September 30, 2004. These amounts are included in the “All other” line of the
      accompanying Condensed Consolidated Statements of Cash Flows.





**Note
      3 - Acquisitions**





In
      September 2005, the Company acquired U.S.-based Almatis AC, Inc., formerly
      the
      adsorbents and catalyst business of Almatis Holdings 1.25 BV, for approximately
      $65 million. Almatis AC, Inc. is a major developer and producer of alumina-based
      adsorbents and purification catalysts for the natural gas, petrochemical,
      compressed air and hydrogen peroxide markets. The acquisition strengthens the
      Company’s leadership position in moisture control and purification for a variety
      of industries around the world. It expands the Company’s technology portfolio to
      include high-purity alumina products, catalyst supports and alumina-based
      adsorbents and desiccants. The Company also acquired new production
      capabilities, including two manufacturing facilities in Port Allen, LA and
      Vidalia, LA. The results of operations of this acquisition, integrated into
      the
      Strategic Technologies group of the “All Other” category, are included in the
      accompanying financial statements from the date of acquisition. A portion of
      the
      purchase price has been allocated to assets acquired based on their fair values,
      while the remaining balance was recorded as goodwill. The Company is completing
      its review and determination of these fair values, and thus the allocation
      of
      the purchase price is subject to revision. Pro forma information is not provided
      as the impact of the acquisition does not have a material effect on the
      Company’s results of operations, cash flow, or financial position.





In
      June
      2005, the Company acquired the syngas catalyst business of Nanjing Chemical
      Industry Corporation (NCIC), a wholly owned subsidiary of SINOPEC, one of
      China’s largest integrated energy and chemical companies, for approximately $20
      million. As of June 30 th ,
      the
      Company has paid approximately 70% of the purchase price with the remaining
      30%
      recorded in accounts payable and expected to be paid within the next 12 months.
      The Company acquired NCIC’s syngas business operations, catalyst technology and
      Nanjing-based manufacturing assets. The acquisition supports the Company’s
      growth strategy and broadens the competencies in surface and material sciences
      as it expands the Company’s portfolio of served markets and applications. The
      results of operations of this acquisition, integrated into the Process
      Technologies segment, are included in the accompanying consolidated financial
      statements from the date of acquisition. A portion of the purchase price has
      been allocated to assets acquired based on their fair values, while the
      remaining balance was recorded as goodwill. The Company is completing its review
      and determination of these fair values, and thus the allocation of the purchase
      price is subject to revision. Pro forma information is not provided as the
      impact of the acquisition does not have a material effect on the Company’s
      results of operations, cash flow, or financial position.





In
      March
      2005, the Company acquired a majority stake in Coletica, S.A., a French company
      that develops performance-based, skin-care compounds and related technologies
      for the cosmetic and personal care industry. The Company purchased 77.87% of
      Coletica’s outstanding shares for approximately €50 million ($65 million). In
      the second quarter of 2005, the Company made a tender offer and acquired the
      remaining publicly held shares. The total purchase price of shares amounted
      to
€65.5 million ($86 million) for 100% ownership. This acquisition further
      strengthens the Company’s position as a leading global supplier of materials
      technology to the cosmetic and personal care industries. Coletica has two
      facilities in Lyon, France and sales offices in Paris, New York and Tokyo.
      A
      portion of the purchase price has been allocated to assets acquired based on
      their fair values, while the remaining balance was recorded as goodwill. The
      Company is completing its review and determination of these fair values, and
      thus the allocation of the purchase price is subject to revision. Pro forma
      information is not provided as the impact of the acquisition does not have
      a
      material effect on the Company’s results of operations, cash flows or financial
      position.





7





During
      the first quarter of 2005, the Company exchanged a 7.5% interest in its Chinese
      automotive catalyst operations for approximately 2.6% of N.E. Chemcat (NECC),
      a
      publicly-traded joint venture. This transaction was recorded as an exchange
      of
      similar productive assets in accordance with APB 29, “Accounting for Nonmonetary
      Transactions.” The Company also acquired an additional 0.7% of NECC through a
      public tender offer. These transactions increase the Company’s ownership
      percentage in NECC from 38.8% to 42.1%.





**Note
      4 - Accounting for Asset Retirement Obligations**





The
      Company’s asset retirement obligations primarily relate to kaolin mining
      operations of its Appearance and Performance Technologies segment. In order
      to
      provide kaolin-based products to the Company’s customers and the Process
      Technologies segment, the Company engages in kaolin mining operations. The
      kaolin mining process includes exploration, topsoil and overburden removal,
      extraction of kaolin and the subsequent reclamation of mined areas. The Company
      has a legal obligation to reclaim mined areas under state
      regulations.





The
      following table represents the change in the Company’s asset retirement
      obligation liability (in millions):





**September
                30,**
              **2005**
            
            **September
                30,**
              **2004**Balance
                at beginning of year
            
            $
            10.8
            
            $
            10.5Accretion
                expense
            
            
            0.5
            
            
            0.5Payments
            
            
            (0.8
            )
            
            (0.9
            )Asset
                retirement obligation at end of period
            
            $
            10.5
            
            $
            10.1





**Note
      5 - Inventories**





Inventories
      consist of the following (in millions):





**September
                30,**
              **2005**
            
            **December
                31,**
              **2004**Raw
                materials
            
            $
            171.5
            
            $
            137.2Work
                in process
            
            
            59.8
            
            
            49.3Finished
                goods
            
            
            283.0
            
            
            253.8Precious
                metals
            
            
            16.1
            
            
            17.7Total
                inventories
            
            $
            530.4
            
            $
            458.0





The
      majority of the Company’s physical metal is carried in the committed metal
      positions line on the balance sheet at fair value with the remainder carried
      in
      the inventory line at historical cost. The inventory portion of precious metals
      is stated at LIFO cost. The market value of the precious metals recorded at
      LIFO
      exceeded cost by $107.1 million and $70.8 million at September 30, 2005 and
      December 31, 2004, respectively. Net earnings include after-tax gains of $1.5
      million in each of the third quarter periods ended September 30, 2005 and 2004
      from the sale of inventory accounted for under the LIFO method.





In
      the
      normal course of business, certain customers and suppliers deposit significant
      quantities of precious metals with the Company under a variety of arrangements.
      Equivalent quantities of precious metals are returnable as product or in other
      forms. Metals held for the accounts of customers and suppliers are not reflected
      in the Company’s financial statements.





8





**Note
      6 - Comprehensive Income**





Comprehensive
      income is summarized as follows (in millions):





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                earnings
            
            $
            58.5
            
            $
            59.1
            
            $
            174.4
            
            $
            177.4Other
                comprehensive income (loss):Foreign
                currency translation adjustment
            
            
            (0.3
            )
            
            2.1
            
            
            (42.1
            )
            
            2.7Cash
                flow derivative adjustment, net of tax
            
            
            11.1
            
            
            0.7
            
            
            17.7
            
            
            1.9Investment
                adjustment, net of tax
            
            
            -
            
            
            (0.3
            )
            
            -
            
            
            (0.7
            )Minimum
                pension liability adjustment, net of tax
            
            
            -
            
            
            -
            
            
            0.6
            
            
            -Comprehensive
                income
            
            $
            69.3
            
            $
            61.6
            
            $
            150.6
            
            $
            181.3





The
      foreign currency translation adjustments are not currently adjusted for income
      taxes as they relate to permanent investments in non-U.S. entities.





**Note
      7 - Earnings Per Share**





SFAS
      No.
      128 “Earnings Per Share” specifies the computation, presentation and disclosure
      requirements for basic and diluted earnings per share (EPS). The following
      table
      represents the computation of basic and diluted EPS as required by SFAS No.
      128:




**Three
                  Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,**(in
                  millions, except per-share data):
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004**Basic
                  EPS ComputationIncome
                  from continuing operations
              
              $
              58.6
              
              $
              59.8
              
              $
              181.3
              
              $
              178.8Loss
                  from discontinued operations, net of tax
              
              
              (0.1
              )
              
              (0.7
              )
              
              (6.9
              )
              
              (1.4
              )Net
                  earnings applicable to common shares
              
              $
              58.5
              
              $
              59.1
              
              $
              174.4
              
              $
              177.4Average
                  number of shares outstanding - basic
              
              
              119.6
              
              
              123.0
              
              
              120.5
              
              
              123.6Basic
                  earnings per share from continuing operations
              
              $
              0.49
              
              $
              0.49
              
              $
              1.50
              
              $
              1.45Basic
                  earnings per share from discontinued operations
              
              
              (0.00
              )
              
              (0.01
              )
              
              (0.06
              )
              
              (0.01
              )Basic
                  earnings per share
              
              $
              0.49
              
              $
              0
                  .48
              
              $
              1.45
              
              $
              1.44





9





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,**(in
              millions, except per-share data):
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Diluted
                EPS ComputationIncome
                from continuing operations
            
            $
            58.6
            
            $
            59.8
            
            $
            181.3
            
            $
            178.8Loss
                from discontinued operations, net of tax
            
            
            (0.1
            )
            
            (0.7
            )
            
            (6.9
            )
            
            (1.4
            )Net
                earnings applicable to common shares
            
            $
            58.5
            
            $
            59.1
            
            $
            174.4
            
            $
            177.4Average
                number of shares outstanding - basic
            
            
            119.6
            
            
            123.0
            
            
            120.5
            
            
            123.6Effect
                of dilutive stock options and other incentives
            
            
            2.0
            
            
            2.2
            
            
            2.0
            
            
            2.2Average
                number of shares outstanding - diluted
            
            
            121.6
            
            
            125.2
            
            
            122.5
            
            
            125.8Diluted
                earnings per share from continuingoperations
            
            $
            0.48
            
            $
            0.48
            
            $
            1.48
            
            $
            1.42Diluted
                earnings per share from discontinuedoperations
            
            
            (0.00
            )
            
            (0.01
            )
            
            (0.06
            )
            
            (0.01
            )Diluted
                earnings per share
            
            $
            0.48
            
            $
            0.47
            
            $
            1.42
            
            $
            1.41





**Note
      8 - Derivatives and Hedging**





The
      Company reports all derivative instruments on the balance sheet at their fair
      value. Foreign exchange contracts, commodity contracts and interest rate
      derivatives are recorded within the “Other current assets” and “Other current
      liabilities” lines on the Company’s “Condensed Consolidated Balance Sheets.”
Changes in the fair value of derivatives designated as cash flow hedges are
      initially recorded in accumulated other comprehensive income and are
      reclassified to earnings in the period the hedged item is reflected in earnings.
      Changes in the fair value of derivatives that are not designated as cash flow
      hedges are reported immediately in earnings. Cash flows resulting from
      derivatives accounted for as cash flow or fair value hedges are classified
      in
      the same category as the cash flows from the underlying
      transactions.





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 precious and base metals, the Company will continue to
      mark-to-market both the hedge instrument and the related position constituting
      the risk hedged, recognizing the net effect in current earnings.





The
      Company documents all relationships between derivative instruments designated
      as
      hedging instruments and the hedged items at inception of the hedges, as well
      as
      its risk-management strategies for the hedges. For the three- and nine-month
      periods ended September 30, 2005 and 2004, there was no gain or loss recognized
      in earnings resulting from hedge ineffectiveness.





Foreign
      Exchange Contracts





The
      Company designates as cash flow hedges certain foreign currency derivative
      contracts which hedge the exposure to the foreign exchange rate variability
      of
      the functional-currency equivalent of foreign- currency
      denominated cash flows associated with forecasted sales or forecasted purchases.
      The ultimate maturities of the contracts are timed to coincide with the expected
      occurrence of the underlying forecasted transactions.





As
      of
      September 30, 2005 and 2004, the Company reported a cumulative after-tax gain
      of
      $1.2 million and a cumulative after-tax loss of $0.7 million, respectively,
      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 the cumulative gains of $1.2 million as of September 30, 2005 will be
      reclassified into earnings within the next 12 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
      the
      original forecasted transactions not occurring or as a result of hedge
      ineffectiveness. As of September 30, 2005, the maximum length of time over





10




which
      the
      Company has hedged its exposure to movements in foreign exchange rates for
      forecasted transactions is 12 months.





A
      second
      group of forward contracts entered into to hedge the exposure to foreign
      currency fluctuations associated with certain monetary assets and liabilities
      is
      not designated as hedging instruments for accounting purposes. Changes in the
      fair value of these items are recorded in earnings offsetting the foreign
      exchange gains and losses arising from the effect of changes in exchange rates
      used to measure related monetary assets and liabilities.





Commodity
      Contracts





The
      Company enters into contracts that are designated as cash flow hedges to protect
      a portion of its exposure to movements in certain commodity prices. These
      contracts primarily relate to derivatives designated as natural gas and nickel
      cash flow hedges. The ultimate maturities of the contracts are timed to coincide
      with the expected usage of these commodities.





For
      the
      nine-month periods ended September 30, 2005 and 2004, the Company reported
      cumulative after-tax gains of $13.8 million and $2.4 million, respectively,
      in
      accumulated other comprehensive income relating to the change in the fair value
      of derivatives designated as cash flow commodity hedges. It is expected that
      the
      cumulative gain of $13.8 million as of September 30, 2005 will be reclassified
      into earnings within the next 16 months. There was no gain or loss reclassified
      from accumulated other comprehensive income into earnings as a result of the
      discontinuance of cash flow commodity hedges due to the probability of the
      original forecasted transactions not occurring or hedge ineffectiveness. As
      of
      September 30, 2005, the maximum length of time over which the Company has hedged
      its exposure to movements in commodity prices for forecasted transactions is
      16
      months.





Interest
      Rate Derivatives





The
      Company uses interest rate derivatives that are designated as fair value hedges
      to help achieve its fixed and floating rate debt objectives. The Company
      currently has three interest rate swap agreements with a total notional value
      of
      $150 million maturing in May 2013. These agreements effectively change fixed
      rate debt obligations into floating rate debt obligations. The total notional
      values and maturity dates of these agreements are equal to the face values
      and
      the maturity dates of the related debt instruments. For these fair value hedges,
      there was no gain or loss recognized from hedged firm commitments no longer
      qualifying as fair value hedges for the three- and nine-month periods ended
      September 30, 2005 and 2004.





In
      September 2005, the Company terminated two interest rate swap agreements, with
      a
      total notional value of $100 million maturing in August 2006, that were
      designated as fair value hedges. The cash receipt of $0.4 million resulting
      from
      the termination of these two interest rate swap agreements will be amortized
      to
      earnings over the remaining term of the underlying debt instrument.





In
      June
      2005, the Company terminated two interest rate swap agreements, with a total
      notional value of $120 million maturing in June 2028, that were designated
      as
      fair value hedges. The termination of these two interest rate swap agreements
      resulted in a cash receipt of $20.1 million that will be amortized to earnings
      over the remaining term of the underlying debt instrument.





In
      March
      2004, the Company entered into an interest rate derivative contract. This
      derivative, referred to as a Forward Rate Agreement (FRA), economically hedged
      the Company’s interest rate exposure for the May 15, 2004 LIBOR rate reset under
      a pre-existing interest rate swap agreement. In June 2004, the Company entered
      into two additional FRA contracts, which economically hedged the Company’s
      interest rate exposure for the December 1, 2004 LIBOR rate reset under a
      pre-existing interest rate swap agreement. These FRAs have been marked-to-market
      with the gain/loss being reflected in earnings.





In
      January 2005, the Company entered into two additional FRA contracts, which
      economically hedged the Company’s interest rate exposure for the May 16, 2005
      and the June 1, 2005 LIBOR rate reset under two pre-existing interest rate
      swap
      agreements. The FRA contracts were terminated in March 2005 due to favorable
      market conditions, and the gain was reflected in earnings.





11





In
      January 2005, the Company entered into a derivative agreement with a total
      notional value of $74.7 million maturing in January 2012. This agreement
      effectively changes a rental obligation that varies directly with short-term
      commercial paper rates to a fixed payment obligation. The total notional value
      and other terms of this agreement are equal to the rental payments and other
      terms of an operating lease for machinery and equipment used in the Process
      Technologies segment that was renewed in January 2005. This derivative is
      designated as a cash flow hedge, and as such, it is marked-to-market with the
      gain/loss reflected in other comprehensive income. For the nine-month period
      ended September 30, 2005, the Company reported an after-tax gain of $0.8 million
      in accumulated other comprehensive income. There was no gain or loss
      reclassified from accumulated comprehensive income into earnings as a result
      of
      the discontinuance of cash flow hedges due to the probability of the original
      forecasted transactions not occurring or hedge ineffectiveness.





Net
      Investment Hedges





The
      Company issued three tranches (the first tranche in April 2004, the second
      tranche in August 2004 and the third tranche in August 2005) of 5.5 billion
      Japanese yen notes (approximately $50 million for each tranche) with a blended
      coupon rate of 1.0% and maturity dates of April 2009. These notes are designated
      as an effective net investment hedge of a portion of the Company’s
      yen-denominated investments. As such, any foreign currency gains and losses
      resulting from these notes are accounted for as a component of accumulated
      other
      comprehensive income. For the nine-month periods ended September 30, 2005 and
      2004, the Company reported a cumulative after-tax gain of $2.1 million and
      $0.1
      million, respectively in accumulated other comprehensive income, relating to
      the
      mark-to-market of these notes.





In
      October 2005, the Company entered into two US dollar to euro cross-currency
      interest rate derivative contracts with a total notional value of 124 million
      euro (approximately $150 million). This transaction effectively swaps the
      Company’s US dollar floating rate exposure for a euro floating rate exposure.
      The notional euro liability of this cross-currency swap will be designated
      as a
      net investment hedge of a portion of the Company’s euro-denominated
      investments.





**Note
      9 - Guarantees and Warranties**





In
      the
      normal course of business, the Company incurs obligations with regard to
      contract completion, regulatory compliance and product performance. Under
      certain circumstances, these obligations are supported through the issuance
      of
      letters of credit. At September 30, 2005, the aggregate outstanding amount
      of
      letters of credit supporting such obligations amounted to $122.4 million, of
      which $115.4 million will expire in less than one year, $1.1 million will expire
      in two to three years, $0.2 million will expire in four to five years and $5.7
      million will expire after five years. In the opinion of management, such
      obligations will not significantly affect the Company’s financial position or
      results of operations as the Company anticipates fulfilling its performance
      obligations.





The
      Company accrues for anticipated product warranty expenses on certain products.
      Accruals for anticipated warranty liabilities are recorded based upon a review
      of historical warranty claims experience. Adjustments are made to accruals
      as
      claim data and historical experience warrant. The Company’s accrual is primarily
      comprised of warranty liabilities within the non-automotive business of the
      Environmental Technologies segment.





The
      change in the Company’s product warranty reserves is as follows (in
      millions):





**September
                30, 2005**
            
            **September
                30, 2004**Balance
                at beginning of year
            
            $
            8.7
            
            $
            10.0Payments
            
            
            (2.1
            )
            
            (3.6
            )Provision
            
            
            0.3
            
            
            3.6Reversal
                of reserve (a)
            
            
            (1.7
            )
            
            (1.5
            )Balance
                at end of period
            
            $
            5.2
            
            $
            8.5





(a)
            In
                2005, the Company reversed $1.7 million of warranty accruals ($0.8
                million
                due to favorable experience related to the Environmental Technologies
                segment and $0.9 million due to expiration of warranties). In





12




2004,
      the Company reversed a $1.5 million warranty accrual due to
      favorable experience related to the Environmental Technologies
      segment.




**Note
      10 - Goodwill and Other Intangible Assets**





Identifiable
      intangible assets, such as patents and trademarks, are amortized using the
      straight-line method over their estimated useful lives. Goodwill and other
      intangible assets that have indefinite useful lives are not amortized, but
      are
      tested for impairment based on the specific guidance of SFAS No. 142, “Goodwill
      and Other Intangible Assets.”





The
      following information relates to acquired amortizable intangible assets (in
      millions):





**As
                of September 30, 2005**
            
            **As
                of December 31, 2004****Gross
                Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Gross
                Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**Acquired
                Amortizable Intangible AssetsUsage
                rights
            
            $
            19.8
            
            $
            6.6
            
            $
            22.2
            
            $
            6.3Supply
                agreements
            
            
            18.4
            
            
            7.0
            
            
            19.0
            
            
            6.3Technology
                licenses
            
            
            11.3
            
            
            4.5
            
            
            9.1
            
            
            3.5Other
            
            
            12.3
            
            
            4.0
            
            
            3.7
            
            
            2.3Total
            
            $
            61.8
            
            $
            22.1
            
            $
            54.0
            
            $
            18.4





Intangible
      assets, other than goodwill, with indefinite useful lives, and thus not subject
      to amortization, are $1.9 million as of September 30, 2005 and December 31,
      2004. Total accumulated amortization for goodwill and other intangible assets
      amounted to $87.3 million and $83.9 million at September 30, 2005 and December
      31, 2004, respectively. As of September 30, 2005, the estimated aggregate
      amortization expense for each of the five succeeding years is as follows (in
      millions):





Estimated
                Annual Amortization Expense:2005
            
            $
            4.92006
            
            
            4.72007
            
            
            4.72008
            
            
            4.62009
            
            
            4.6




The
      following table represents the changes in the carrying amount of goodwill for
      the nine-month period ended September 30, 2005 (in millions):




**Environmental
                Technologies**
            
            **Process
                Technologies**
            
            **Appearance
                & Performance Technologies**
            
            **All
                Other**
            
            **Total**Balance
                as of January 1, 2005
            
            $
            20.4
            
            $
            108.1
            
            $
            201.8
            
            $
            0.5
            
            $
            330.8Goodwill
                additions (a)
            
            
            —
            
            
            1.5
            
            
            63.8
            
            
            34.4
            
            
            99.7Purchase
                accounting adjustments (b)
            
            
            —
            
            
            —
            
            
            (4.5
            )
            
            —
            
            
            (4.5
            )Foreign
                currency translation adjustment
            
            
            (1.4
            )
            
            —
            
            
            (4.7
            )
            
            —
            
            
            (6.1
            )Goodwill
                impairment (c)
            
            
            (1.3
            )
            
            —
            
            
            —
            
            
            —
            
            
            (1.3
            )Balance
                as of September 30, 2005
            
            $
            17.7
            
            $
            109.6
            
            $
            256.4
            
            $
            34.9
            
            $
            418.6




(a)
            Goodwill
                additions amount includes $63.8 million related to the Company’s
                acquisition of Coletica, S.A. during the first quarter of 2005, $34.4
                million related to the acquisition of Almatis AC, Inc. during the
                third
                quarter and $1.5 million related to the acquisition of the catalyst
                business of Nanjing Chemical Industry





13




Corporation during the second quarter of 2005.
                These
                amounts represent the excess of the purchase price paid over the
                fair
                market value of the net assets acquired. The Company is completing
                its
                review and determination of these fair values, and thus the allocation
                of
                the purchase price is subject to
                revision.




(b)
            Purchase
                accounting adjustment of $4.5 million relates to a revision of the
                allocation of the purchase price of The Collaborative Group, Ltd.,
                including its wholly owned subsidiary Collaborative Laboratories,
                Inc.,
                acquired by the Company in the third quarter of 2004, in accordance
                with
                SFAS No. 141, “Business
                Combinations.”





(c)
            Goodwill
                impairment charge of $1.3 million was recorded by the Company in
                the
                second quarter of 2005, in accordance with SFAS No. 142, “Goodwill and
                Other Intangible Assets,” related to the Company’s discontinuance of
                manufacturing operations at its Carteret, New Jersey
                facility.





**Note
      11 - Committed Metal Positions and Hedged Metal
      Obligations**




**September
                  30, 2005**
              
              **December
                  31, 2004**Committed
                  Metal Positions were comprised of the following (in
                  millions):Metals
                  in a net spot long position economically hedged with derivatives
                  (primarily forward sales)
              
              $
              633.8
              
              $
              324.1Fair
                  value of hedging derivatives in a “gain” position
              
              
              7.1
              
              
              14.2Unhedged
                  metal positions, net (see analysis below)
              
              
              46.1
              
              
              19.3Fair
                  value of metals received with prices to be determined, net of hedged
                  spot
                  sales
              
              
              —
              
              
              99.9Total
                  committed metal positions
              
              $
              687.0
              
              $
              457.5





Both
      spot
      metal positions and derivative instruments are stated at fair value. Fair value
      is based on relevant published market prices. The following table sets forth
      the
      Company’s unhedged metal positions included in the committed metal positions
      line on the Company’s “Condensed Consolidated Balance Sheets.”





Metal
      Positions Information (in millions):





**September
                30, 2005**
            
            **December
                31, 2004****Net**
              **Position**
            
            **Value**
            
            **Net**
              **Position**
            
            **Value**Platinum
                group metals
            
            
            Long
            
            $
            43.8
            
            
            Long
            
            $
            19.4Gold
            
            
            Long
            
            
            1.6
            
            
            Flat
            
            
            —Silver
            
            
            Long
            
            
            0.4
            
            
            Short
            
            
            (0.9
            )Base
                metals
            
            
            Long
            
            
            0.3
            
            
            Long
            
            
            0.8Total
                unhedged metal positions
            
            
            
            
            $
            46.1
            
            
            
            
            $
            19.3





Committed
      metal positions may include significant advances made for the purchase of
      precious metals that have been delivered to the Company but for which the final
      purchase price has not yet been determined. As of December 31, 2004, the
      aggregate market value of the metals purchased under a contract for which a
      provisional price has been paid was in excess of the amounts advanced by a
      total
      of $49.9 million which is recorded as a current liability.





14




**September
                30, 2005**
            
            **December
                31, 2004**Hedged
                Metal Obligations were comprised of the following (in
                millions):Metals
                in a net spot short position economically hedged with derivatives
                (primarily forward purchases) - represents a payable for the return
                of
                spot metal to counterparties
            
            $
            511.1
            
            $
            265.1Fair
                value of hedging derivatives in a “loss” position
            
            
            32.0
            
            
            27.8Total
                hedged metal obligations
            
            $
            543.1
            
            $
            292.9





At
      September 30, 2005 and December 31, 2004, hedged metal obligations relating
      to
      1,132,605 and 603,330 troy ounces of gold, respectively, were outstanding.
      These
      quantities were sold short on a spot basis generating cash approximating $518
      million and $266 million, respectively. These spot sales were hedged with
      forward purchases for the same number of ounces at an average price of $457.81
      at September 30, 2005 and $441.23 at December 31, 2004. Unless a forward
      counterparty failed to perform, there was no risk of loss in the event prices
      rose. All counterparties for such transactions are investment
      grade.





Derivative
      metal and foreign currency instruments are used to hedge metal positions and
      obligations. As of September 30, 2005, 98% of these instruments have settlement
      terms of less than one year, with the remaining instruments expected to settle
      within 42 months. These derivative metal and foreign currency instruments
      consist of the following:





Metal
      Hedging Instruments (in millions):





**September
                30, 2005**
            
            **December
                31, 2004****Buy**
            
            **Sell**
            
            **Buy**
            
            **Sell**Metal
                forwards/futures
            
            $
            781.6
            
            $
            746.9
            
            $
            625.2
            
            $
            662.6Eurodollar
                futures
            
            
            124.0
            
            
            62.3
            
            
            11.2
            
            
            136.6Swaps
            
            
            26.6
            
            
            9.2
            
            
            31.2
            
            
            9.8Options
            
            
            19.5
            
            
            9.1
            
            
            3.9
            
            
            —Foreign
                exchange forwards/futures - Japanese yen
            
            
            —
            
            
            83.8
            
            
            —
            
            
            130.8Foreign
                exchange forwards/futures - Euro
            
            
            —
            
            
            37.8
            
            
            —
            
            
            23.4Foreign
                exchange forwards/futures - Other
            
            
            3.1
            
            
            —
            
            
            5.5
            
            
            —





**Note
      12 - New Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No.
      3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154
      requires retrospective application to prior periods’ financial statements for
      voluntary changes in accounting principle unless it is impracticable. SFAS
      No.
      154 is effective for accounting changes and corrections of errors made in fiscal
      years beginning after June 1, 2005.





At
      the
      March 17, 2005 EITF (Emerging Issues Task Force) meeting, the Task Force reached
      a consensus on Issue No. 04-06, “Accounting for Stripping Costs Incurred during
      Production in the Mining Industry.” In the mining industry, companies may be
      required to remove overburden and other mine waste materials to access mineral
      deposits. The costs of removing overburden and waste materials are referred
      to
      as stripping costs. During the development of a mine (before production begins),
      it is generally accepted in practice that stripping costs are capitalized as
      part of the depreciable cost of building, developing, and constructing the
      mine.
      Those capitalized costs are typically
      amortized over the productive life of the mine using the units of production
      method. A mining company may continue to remove overburden and waste materials,
      and therefore incur stripping costs, during the production phase of the mine.
      The EITF has reached a consensus that stripping costs incurred during the
      production




15




phase of a mine are variable production costs that should
      be
      included in the costs of the inventory produced during the period that the
      stripping costs are incurred. The Board ratified this consensus at its March
      30,
      2005 meeting. The guidance in this consensus will be effective for financial
      statements issued for fiscal years beginning after December 15, 2005. The
      Company is in the process of assessing the impact of this consensus on its
      financial statements, but expects to record a charge to equity as a result
      of
      the adoption of EITF No. 04-06.




In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
      replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes
      APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R)
      requires compensation costs relating to share-based payment transactions,
      including grants of employee stock options, be recognized in the financial
      statements based on their fair values. The pro forma disclosure previously
      permitted under SFAS No. 123 will no longer be an acceptable alternative to
      recognition of expenses in the financial statements. In April 2005, the
      Securities and Exchange Commission issued a new rule that amends the effective
      date of SFAS No. 123(R) to the beginning of the next fiscal year. As a result,
      the Company will adopt this statement on January 1, 2006. The Company currently
      measures compensation costs related to share-based payments under APB No. 25,
      as
      allowed by SFAS No. 123, and provides disclosure in the notes to financial
      statements as required by SFAS No. 123. SFAS No. 123(R) provides for two
      transition alternatives: Modified-Prospective transition and
      Modified-Retrospective transition. The Company is currently evaluating the
      transition alternatives and the impact on the Company’s financial
      statements.





In
      December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1 to provide
      guidance on the application of SFAS No. 109, “Accounting for Income Taxes” to
      the provision within the American Jobs Creation Act of 2004, enacted on October
      22, 2004, that provides tax relief to U.S. domestic manufacturers. The FSP
      states that the manufacturers’ deduction provided for under the Act should be
      accounted for as a special deduction in accordance with SFAS No. 109 and not
      as
      a tax rate reduction.





In
      December 2004, FASB Staff Position (FSP) No. 109-2, “Accounting and Disclosure
      Guidance for the Foreign Earnings Repatriation Provision within the American
      Jobs Creation Act of 2004” was issued, providing guidance under SFAS No. 109,
“Accounting for Income Taxes” for recording the potential impact of the
      repatriation provisions of the American Jobs Creation Act of 2004, enacted
      on
      October 22, 2004. FSP No. 109-2 allows time beyond the financial reporting
      period of enactment to evaluate the effects of the Act before applying the
      requirements of FSP No. 109-2. The Company has assessed the new tax rules
      relating to the repatriation of offshore earnings and has decided not to
      repatriate any amounts from its foreign subsidiaries at a reduced tax rate
      under
      the Act due to its intention to increase its investments outside of the United
      States.





**Note
      13 - Stock Option and Bonus Plans**





The
      Company has several long-term incentive compensation plans that allow for the
      granting of stock options to employees. Had compensation cost for the Company’s
      stock option plans been determined based on the fair value at grant date
      consistent with the provisions of SFAS No. 123, “Accounting for Stock-Based
      Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based
      Compensation — Transition and Disclosure,” the Company’s net earnings and
      earnings per share would have been as follows:





Pro
                  Forma Information
              
              **Three
                  Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,**(in
                  millions, except per share-data):
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  earnings - as reported
              
              $
              58.5
              
              $
              59.1
              
              $
              174.4
              
              $
              177.4Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of tax
              
              
              0.8
              
              
              0.9
              
              
              3.9
              
              
              4.4Net
                  earnings - pro forma
              
              $
              57.7
              
              $
              58.2
              
              $
              170.5
              
              $
              173.0


16




Pro
                Forma Information
              
              **Three
                  Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,**(in
                millions, except per share-data):
              
              
              **2005**
              ****
              ****
              **2004**
              ****
              ****
              **2005**
              ****
              ****
              **2004**Earnings
                  Per Share:Basic
                  earnings per share - as reported
              
              $
              0.49
              
              $
              0.48
              
              $
              1.45
              
              $
              1.44Basic
                  earnings per share - pro forma
              
              
              0.48
              
              
              0.47
              
              
              1.41
              
              
              1.40Diluted
                  earnings per share - as reported
              
              
              0.48
              
              
              0.47
              
              
              1.42
              
              
              1.41Diluted
                  earnings per share - pro forma
              
              
              0.47
              
              
              0.47
              
              
              1.39
              
              
              1.37


In
      December 2004, the FASB issued SFAS No. 123(R), “Share Based Payment.” This
      standard, although not yet effective, clarifies guidance relating to stock
      options granted to employees that are eligible to retire. This guidance states
      that options granted to employees eligible to retire should be expensed on
      the
      date of grant versus over the vesting period. As a result, the Company has
      revised its pro forma stock option disclosures to reflect the change. Full
      year
      pro forma diluted EPS for 2003 and 2004 will remain unchanged at $1.79 and
      $1.82, respectively. Revised quarterly pro forma diluted EPS will be $0.38,
      $0.53, $0.47, and $0.44 for the quarters ended March 31, 2004, June 30, 2004,
      September 30, 2004, and December 31, 2004, respectively. Reported amounts for
      those same periods were $0.38, $0.53, $0.46, and $0.46.





**Note
      14 - Benefits**





The
      Company has domestic and foreign pension plans covering substantially all
      employees. The Company also provides post-employment and postretirement benefits
      to certain eligible employees. The components of net periodic benefit cost
      for
      the nine-month periods ended September 30, 2005 and 2004 are shown in the
      following table:





Net
      Periodic Benefit Cost (in millions):





**Pension
                Benefits**
            
            **Other
                Benefits****2005**
            
            **2004**
            
            **2005**
            
            **2004**Service
                cost
            
            $
            17.9
            
            $
            16.5
            
            $
            3.1
            
            $
            3.0Interest
                cost
            
            
            30.3
            
            
            28.4
            
            
            5.9
            
            
            6.3Expected
                return on plan assets
            
            
            (36.7
            )
            
            (36.1
            )
            
            —
            
            
            —Amortization
                of prior service cost
            
            
            1.9
            
            
            2.4
            
            
            (1.6
            )
            
            (1.6
            )Recognized
                actuarial loss
            
            
            10.7
            
            
            8.0
            
            
            0.7
            
            
            1.0Net
                periodic benefit cost
            
            $
            24.1
            
            $
            19.2
            
            $
            8.1
            
            $
            8.7





The
      Company made a voluntary $50.0 million contribution to its domestic defined
      benefit pension plans during the third quarter of 2005. In addition to the
      voluntary contribution, the Company made required additional contributions
      of
      approximately $7 million to its domestic and  foreign defined benefit
      pension plans during the nine months ended September 30, 2005. Contributions
      during the fourth quarter are expected to be approximately $0.5 million. The
      Company uses September 30th as its measurement date to value pension
      assets and set the applicable discount rate used in determining the projected
      benefit obligation and 2006 pension expense. Based on current economic
      conditions, it is anticipated that the Company will lower the domestic discount
      rate by 50 basis points and the foreign discount rates by 50 to 150 basis
      points. This would increase 2006 pension expense by approximately $7 million.
      Other factors including asset returns and plan experience will additionally
      increase pension expense by approximately $3 million in 2006. The Company
      expects full year 2006 pension expense to be approximately $42
      million.





On
      December 8, 2003, the President of the United States signed into law the
      Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
      Act).
      This Act introduces a prescription drug benefit under Medicare (Medicare Part
      D), as well as a federal subsidy to sponsors of retiree health care benefit
      plans that provide a benefit that is at least actuarially equivalent to Medicare
      Part D. After a review of the Company’s plan design, the Company and its
      consulting actuaries believe the Company’s plan is actuarially equivalent to
      Medicare Part D. In





17


accordance
        with FASB Staff Position (FSP) No. 106-2, “Accounting and Disclosure
        Requirements Related to the Medicare Prescription Drug, Improvement and
        Modernization Act of 2003,” the Company revalued the benefit obligation and
        determined that the reduction in the accumulated postretirement benefit
        obligation for the subsidy related to the benefits attributed to past service
        is
        $15 million. The effects of this act will reduce the net periodic benefit
        cost
        by $2.0 million for the year ended December 31, 2005.


The
      Company incurred benefit payments of $9.2 million for the nine-month period
      ended September 30, 2005. Expected future benefit payments, including
      prescription drug benefits, are as follows (in millions):





Year2005
                (October 1 through December 31)
            
            $
            3.12006
            
            
            11.22007
            
            
            10.62008
            
            
            10.02009
            
            
            9.42010
                through 2014
            
            
            44.0





The
      Company expects the following reimbursements under the subsidy portion of the
      Medicare Prescription Drug, Improvement and Modernization Act of 2003 (in
      millions):





Year2005
                (October 1 through December 31)
            
            $
            —2006
            
            
            1.72007
            
            
            1.92008
            
            
            1.92009
            
            
            2.02010
                through 2014
            
            
            8.3





**Note
      15 - Supplemental Information**





The
      following table presents certain supplementary information to the Company’s
“Condensed Consolidated Statements of Cash Flows”:





Supplementary
      Cash Flow Information (in millions):





**Nine
                  Months Ended September 30,****2005**
              
              **2004**Materials
                  Services related:Change
                  in assets and liabilities - source (use):Receivables
              
              $
              (2.1
              )
              $
              (1.8
              )Committed
                  metal positions
              
              
              (275.2
              )
              
              (83.2
              )Inventories
              
              
              0.2
              
              
              0.2Other
                  current assets
              
              
              (0.4
              )
              
              0.5Accounts
                  payable
              
              
              3.6
              
              
              39.1Hedged
                  metal obligations
              
              
              246.0
              
              
              (0.7
              )Other
                  current liabilities
              
              
              (2.0
              )
              
              (2.1
              )Net
                  cash flows from changes in assets and liabilities
              
              $
              (29.9
              )
              $
              (48.0
              )


18




**Nine
                  Months Ended September 30,****2005**
              ****
              ****
              **2004**All
                  Other:Change
                  in assets and liabilities - source (use):Receivables
              
              $
              (91.7
              )
              $
              (39.5
              )Inventories
              
              
              (67.9
              )
              
              (1.4
              )Other
                  current assets
              
              
              1.5
              
              
              (5.3
              )Other
                  noncurrent assets
              
              
              (35.9
              )
              
              6.4Accounts
                  payable
              
              
              63.2
              
              
              (2.8
              )Other
                  current liabilities
              
              
              45.4
              
              
              (6.8
              )Noncurrent
                  liabilities
              
              
              (12.7
              )
              
              (2.5
              )Net
                  cash flows from changes in assets and liabilities
              
              $
              (98.1
              )
              $
              (51.9
              )


**Note
      16 - Other Matters**





The
      Company is involved in a value-added tax dispute in Peru. Management believes
      the Company was targeted by corrupt officials within a 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. The Peruvian Tax Court ruled on February 11, 2003 that Engelhard
      Peru, S.A. was liable for these amounts, overruling precedent to apply a “form
      over substance” theory without any determination of fraudulent participation by
      Engelhard Peru, S.A. As part of its efforts to vigorously contest this
      determination, Engelhard Peru, S.A. filed a constitutional action against the
      Peruvian Tax agency and Tax Court. On May 3, 2004, the judge in this action
      ruled that none of the findings of the Peruvian tax authorities were properly
      applicable to Engelhard Peru, S.A. based on several grounds, including improper
      use of a presumption of guilt with no actual proof of irregularity in the
      transactions of Engelhard Peru, S.A. The government of Peru prevailed on appeal
      to the Superior Court and the matter is now on appeal to Peru's
      Constitutional Court. Management believes, based on consultation with counsel,
      that Engelhard Peru, S.A. is entitled to all refunds claimed and is not liable
      for any 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.
      In September 2005, a Superior prosecutor concluded that there was no basis
      for
      the criminal proceedings against several defendants, including both officials
      of
      Engelhard Peru S.A. Final dismissal of those criminal charges remains subject
      to
      judicial review and determination of the Supreme Prosecutor. 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. In its own
      investigation, and in detailed review of the materials presented in Peru,
      management has not seen any evidence of tax fraud by these officials.
      Accordingly, Engelhard Peru, S.A. 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. That amount, which is
      approximately $30 million, including unpaid refunds, has been fully provided
      for
      in the accounts of the Company.





**Note
      17 - Income Taxes**





The
      Company’s effective tax rate (“ETR”) is dependent upon many factors including
      (1) the impact of enacted tax laws in jurisdictions in which the Company
      operates, (2) the amount of earnings by jurisdiction due to varying tax rates
      by
      country, (3) the amount of depletion deductions related to the Company's mining
      activities, (4) the ability to utilize minimum tax credits, foreign tax credits
      and research and development tax credits and (5) the amount of extraterritorial
      income and domestic production related benefits.





The
      ETR
      on continuing operations for the nine months ended September 30, 2005 was 20%.
      Based upon the Company’s assessment of the above factors and considering tax
      settlements and changes in estimate to date, the tax rate for the full year
      2005
      is expected to approximate this rate.




19





In
      the
      first quarter of 2005, the Company recorded a $2.7 million reduction of tax
      expense resulting from an agreement with the IRS relating to the audit of the
      Company’s tax return for 2001. The Company is currently under examination for
      the 2002 and 2003 tax periods with the IRS, and the Company also seeks
      resolution with tax authorities in foreign jurisdictions in which the Company
      operates.




In
      the
      second quarter, the Company recorded a benefit of $5.7 million related to prior
      tax periods in the Netherlands and a tax expense of $3.3 million related to
      prior tax periods in Germany, due to changes in estimates based upon information
      obtained during the audit process.





In
      the
      current quarter, as a result of the Company filing its 2004 federal income
      tax
      return, the Company recorded a tax benefit of approximately $6 million due
      to a
      change in estimate in the current period associated with the American Jobs
      Creation Act (the "Act") in respect of foreign tax credits relating to its
      minority investments in certain foreign corporations which had previously been
      subject to a valuation allowance. In addition, due to the expiration of a tax
      closing agreement covering the tax years 1998-2004 with the state of New Jersey
      which the state has not agreed to extend to 2005 and beyond, the Company
      recorded an additional state income tax expense of approximately $2 million
      (after federal income tax effect). Finally, the Company has decided not to
      repatriate any amounts from its foreign subsidiaries at a reduced tax rate
      under
      the Act due to its intention to increase its investments outside of the United
      States.





20





**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**





Unless
      otherwise indicated, all per-share amounts are presented as diluted earnings
      per
      share, as calculated under SFAS No. 128, “Earnings per Share.”





**Overview**





The
      Company develops, manufactures and markets value-adding technologies based
      on
      surface and materials science for a wide spectrum of served markets. The Company
      also provides its technology segments, their customers and others with precious
      and base metals and related services. The Company’s businesses are organized
      into four reportable segments that are discussed individually below. Additional
      detailed descriptive material is included in “ITEM 1. BUSINESS” and NOTE 19,
“BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA” in the Company’s 2004 Form 10-K.
      Comparative financial data is also given in Note 19 of the Company’s 2004 Form
      10-K and on page 5 of this Form 10-Q.





One
      of
      the strengths of the Company is that its segments serve diverse markets, which
      is important for assessing the variability of future cash flows. The following
      economic comments also provide a useful context for evaluating the Company’s
      performance: (1) worldwide auto builds continue to be relatively flat, albeit
      at
      fairly high levels - industry growth for auto-emission catalysts will benefit
      from tougher environmental regulation throughout the world over the next 5-10
      years as well as developing economies, especially new Asian production; (2)
      more
      stringent diesel-emission regulations are being phased in, affording the Company
      additional opportunities for catalyst solutions; (3) worldwide petroleum
      refineries are generally operating close to capacity (recently they are
      operating at capacity due to Gulf Coast hurricanes) generating demand for the
      extra yields provided by the Company’s advanced fluid cracking catalysts and
      performance additives; (4) markets for effect pigments, colors and active
      ingredients in cosmetics, auto finishes and coatings have remained positive
      during the recent economic downturns and tend to be less cyclical; however,
      the
      Company is currently experiencing growing competition from Asian producers;
      (5)
      the coated, free-sheet paper market has strengthened, but pricing and related
      market share loss continue to negatively impact the Company; (6) inflationary
      pressures for raw materials and energy, particularly natural gas, are expected
      to have a negative impact across the Company’s technology segments compared to
      the recent low inflationary period, which the Company will attempt to mitigate
      via price increases and (7) margins related to the supply of metal to industrial
      customers have been lower in recent years because of changes in pricing and
      supply arrangements.





**Results
      of Operations**





The
      information in the discussion of each segment’s results discussed below is
      derived directly from the internal financial reporting system used for
      management purposes. Items allocated to each segment’s results include the
      majority of corporate operating expenses. Unallocated items include interest
      expense, interest income, certain royalty income, sale of precious metals
      accounted for under the last-in, first-out (LIFO) method, certain special
      charges and credits, income taxes, certain information technology development
      costs and other miscellaneous corporate items.





**Comparison
      of the Third Quarter of 2005 with the Third Quarter of
      2004**





Net
      earnings from continuing operations decreased to $58.6 million in the third
      quarter of 2005 compared with $59.8 million in the third quarter of 2004.
      Operating earnings decreased to $70.7 million in the third quarter of 2005
      compared with $74.8 million in the same period last year, due to decreased
      earnings in the Appearance and Performance Technologies segment, decreased
      earnings in the Materials Services segment and higher unallocated corporate
      and
      other expenses, partially offset by higher earnings from the Process
      Technologies segment. Earnings from equity method joint ventures increased
      in
      the quarter, reflecting strength from the Company’s Asian equity method joint
      ventures. These Asian joint ventures are an integral component of the Company’s
      growth strategy, and serve as the Company’s presence in the Japanese and Korean
      automotive markets. Loss from discontinued operations decreased in the quarter
      due to gains realized on the sale of equipment.





21





**Hurricane
      and Natural Gas Impacts**





In
      the
      current quarter, the Company experienced a negative economic impact from
      hurricanes Katrina and Rita. The Company operates a number of facilities in
      Georgia, and some facilities in Louisiana, Mississippi and Texas that were
      affected by these hurricanes. Additionally, many of the Company’s suppliers,
      customers and logistics network providers were directly impacted by these
      hurricanes. Direct impacts from these hurricanes such as customer and supplier
      force majeure declarations, lost production time, and facility damage are
      readily quantifiable and were approximately $1 million in the current quarter.
      In the third quarter of 2004, the Company experienced similar negative impacts
      from hurricanes. Indirect impacts, such as higher natural gas and other energy
      costs, higher raw material costs as a result of supplier difficulties, higher
      logistics costs due to fuel and disrupted distribution networks and short-term
      productivity costs exist but are not readily quantifiable. Already high natural
      gas prices have further increased because of Gulf Coast hurricanes. Natural
      gas
      prices have negatively impacted the Company by approximately $4 million in
      the
      current quarter compared to the same quarter last year. Natural gas prices
      are
      expected to negatively impact the Company by approximately $25 million for
      the
      full year ending December 31, 2005 compared to the prior full year.





**Equity
      Earnings**




The
      Company’s share of equity earnings from affiliates was $8.7 million in the third
      quarter of 2005 compared with $6.1 million in the same period last year,
      reflecting strength in the Asian automotive markets, and an increased ownership
      percentage in NECC. European and North American automobile builds were down
      in
      the third quarter, but automobile builds in Asia were higher compared with
      the
      same period last year. The Company serves the Japanese and Korean mobile-source
      emissions control markets through its Asian joint ventures NECC and Heesung,
      respectively. The Company expects these operations to produce earnings near
      current levels for the remainder of 2005 and the first half of 2006. It should
      be noted that growth in Asia is primarily driven by the expanding China economy,
      which the Company serves through consolidated subsidiaries included in the
      Environmental Technologies segment.





**Interest
      Income and Expense**





Interest
      expense increased to $11.1 million in the third quarter of 2005 compared with
      $5.1 million in the third quarter of 2004 due to both higher short-term
      borrowing rates and higher average debt levels. Interest income increased to
      $3.7 million in the third quarter of 2005 compared with $1.2 million in the
      third quarter of 2004. In 2002, the Company established a cash-pooling program,
      which has been expanded significantly over the past year. While this program
      allows for the efficient and cost effective funding of the Company’s foreign
      subsidiaries, primarily in Europe, it has the effect of increasing both interest
      income and interest expense in proportion to the changes in the underlying
      cash
      and short-term debt balances. In the current quarter, approximately $2.5 million
      of the increase in interest expense and interest income is due to the use of
      the
      cash pooling system. Higher debt levels were also driven by acquisitions and
      working capital requirements (please see the section on Liquidity and Capital
      Resources).





**Income
      Taxes**





The
      Company’s effective tax rate (“ETR”) is dependent upon many factors including
      (1) the impact of enacted tax laws in jurisdictions in which the Company
      operates, (2) the amount of earnings by jurisdiction due to varying tax rates
      by
      country, (3) the amount of depletion deductions related to the Company's mining
      activities, (4) the ability to utilize minimum tax credits, foreign tax credits
      and research and development tax credits and (5) the amount of extraterritorial
      income and domestic production related benefits.





The
      ETR
      on continuing operations for the nine months ended September 30, 2005 was 20%.
      Based upon the Company’s assessment of the above factors and considering tax
      settlements and changes in estimate to date, the tax rate for the full year
      2005
      is expected to approximate this rate.





In
      the
      first quarter of 2005, the Company recorded a $2.7 million reduction of tax
      expense resulting from an agreement with the IRS relating to the audit of the
      Company’s tax return for 2001. The Company is currently under examination for
      the 2002 and 2003 tax periods with the IRS, and the Company also seeks
      resolution with tax authorities in foreign jurisdictions in which the Company
      operates.





22





In
      the
      second quarter, the Company recorded a benefit of $5.7 million related to prior
      tax periods in the Netherlands and a tax expense of $3.3 million related to
      prior tax periods in Germany, due to changes in estimates based upon information
      obtained during the audit process.





In
      the
      current quarter, as a result of the Company filing its 2004 federal income
      tax
      return , the Company recorded a tax benefit of approximately $6 million due
      to a
      change in estimate in the current period associated with the American Jobs
      Creation Act (the "Act") in respect of foreign tax credits relating to its
      minority investments in certain foreign corporations which had previously been
      subject to a valuation allowance. In addition, due to the expiration of a tax
      closing agreement covering the tax years 1998-2004 with the state of New Jersey,
      which the state has not agreed to extend to 2005 and beyond, the Company
      recorded an additional state income tax expense of approximately $2 million
      (after federal income tax effect). Finally, the Company has decided not to
      repatriate any amounts from its foreign subsidiaries at a reduced tax rate
      under
      the Act due to its intention to increase its investments outside of the United
      States.





**Environmental
      Technologies**





The
      majority of this segment’s sales is derived from technologies to control harmful
      emissions from mobile sources, including gasoline- and diesel-powered passenger
      cars, sport-utility vehicles, trucks, buses and motorcycles. This segment’s
      customers are driven by increasingly stringent environmental regulations, for
      which the Company provides sophisticated emission-control technologies. The
      remainder of this segment’s sales is derived from products sold into a variety
      of industrial markets, including aerospace, power generation, process industries
      and utility engines. The Company supplies these industrial markets with
      sophisticated emission-control technologies, high-value material products made
      primarily from platinum group metals and thermal spray and coating
      technologies.





**Results
      of Operations**  *(in
      millions)*





**Q3
                2005**
            
            **Q3
                2004**
            
            **%
                change**Sales
            
            $
            254.7
            
            $
            213.4
            
            
            19.4
            %Operating
                earnings
            
            
            33.3
            
            
            34.0
            
            
            -2.1
            %





*Discussion*





Results
      from this segment were as expected, driven primarily by operations serving
      the
      overseas mobile-source environmental markets.





Revenues
      from mobile-source markets increased 19% in the third quarter of 2005 compared
      with the same period in 2004. Approximately 90% of this increase was due to
      increased pass-through substrate costs. Substrate costs were higher primarily
      due to increased demand for catalyzed soot filters (CSF) to the European light
      duty diesel market. This significantly increased the segment’s working capital
      requirements for the second consecutive quarter. This trend of increasing
      substrate costs, revenues and associated working capital requirements is
      expected to continue in the near term, as the Company continues to grow its
      CSF
      business. The Company serves a wide customer base, and changes in the mix of
      sales to these markets are common. In the third quarter of 2005 compared with
      the third quarter of 2004, sales to North American automotive customers
      decreased, while sales to European, Asian and emerging market automotive
      customers increased. Sales to the motorcycle, diesel retrofit and other niche
      mobile-source environmental markets increased compared with the year ago
      quarter.





Operating
      earnings from mobile-source markets decreased in the third quarter of 2005
      compared with the third quarter of 2004. Items negatively impacting earnings
      comparisons include: absence of warranty accrual reversals of $1.5 million
      in
      2004, higher operating costs of approximately $1 million and an increase in
      the
      allowance for doubtful accounts of $0.7 million due to the bankruptcy of Delphi.
      The Company will continue to assess counterparty risk on sales to the North
      American automotive market and establish credit limits and assess collectibility
      accordingly. Currency impacts totaling approximately $2 million positively
      impacted earnings compared to the year ago quarter. Profits from automotive
      markets were flat compared to the third quarter last year, as the
      above-mentioned increased demand for light duty diesel applications (primarily
      in Europe) was offset by decreased demand for gasoline applications (primarily
      in North America). The Company expects this trend to




23




continue near-term, as previously disclosed. The Company
      serves the large Asian markets of Japan and Korea through joint ventures
      accounted for under the equity method. Accordingly, the results of those
      operations, reflecting continued strength in the Asian markets, are included
      on
      the equity earnings line. Operating earnings from heavy-duty diesel OEM markets
      decreased against the year ago quarter, which also included a warranty accrual
      reversal of $1.5 million, as mentioned above. These diesel OEM volumes are
      expected to remain at or below current levels until the latter half of 2006,
      when regulations taking effect in 2007 begin to impact the market. Profits
      from
      motorcycle, diesel retrofit and other niche markets improved, as the Company
      continues to diversify its served market base. Diesel retrofit markets are
      largely dependent on state legislative actions, and the associated funding
      for
      these projects.




Sales
      to
      industrial product markets increased in the third quarter of 2005 compared
      with
      the third quarter of 2004. Sales to power-generation customers increased in
      the
      period, but are not indicative of a rebound in the power-generation market.
      Sales to other industrial markets were relatively flat compared with the same
      quarter last year. Results from the Company’s Carteret, NJ manufacturing
      facility are no longer included in this discussion, as these results are now
      included in discontinued operations.





Operating
      earnings from industrial product markets increased in the third quarter of
      2005
      compared with the third quarter of 2004, and have resulted in positive earnings
      in the current period. Earnings from sales to most served markets were modestly
      higher, with the exception of temperature sensing operations, which incurred
      higher costs compared to flat revenues due to the mix of products sold. The
      temperature-sensing market, while relatively small, represents a niche growth
      area for the Company. While sales and earnings from the Company’s thermal spray
      and coating operations serving the aerospace and power generation markets
      improved, more work needs to be done, and the Company has recently augmented
      operational management. The Company expects continued near-term improvement
      in
      overall earnings from industrial product markets, but continues to evaluate
      the
      long-term viability of these operations.





**Process
      Technologies**





The
      Process Technologies segment enables customers to make their processes more
      productive, efficient, environmentally sound and safer through the supply of
      advanced chemical-process catalysts, additives and sorbents.





**Results
      of Operations** *(in
      millions)*





**Q3
                2005**
            
            **Q3
                2004**
            
            **%
                change**Sales
            
            $
            167.0
            
            $
            147.8
            
            
            13.0
            %Operating
                earnings
            
            
            23.3
            
            
            20.7
            
            
            12.6
            %





*Discussion*





This
      segment experienced strong results in the third quarter of 2005 as productivity
      improvements in operations serving the petroleum refining business yielded
      strong results, and catalyst sales to the major chemical markets
      increased.





Sales
      to
      the petroleum-refining market increased 14% in the third quarter of 2005
      compared with the third quarter of 2004. Higher volumes and prices of
      petroleum-refining catalyst drove the improvement, as demand remained strong
      for
      catalyst based on the Company’s Distributed Matrix Structure (DMS) technology
      platform. DMS technology allows refiners to increase yields, and accordingly,
      these products sell at premium prices. In the second quarter of 2005, the
      Company announced price increases to this market, which have been successful.
      The Company experienced decreased demand in the quarter for certain older
      product offerings. Demand for these older product offerings is expected to
      remain near current levels for the near-term. Sales of additives, which have
      been a source of growth over the past two years, increased modestly, as these
      markets have been substantially penetrated at this point in time.





Operating
      earnings from products sold to petroleum-refining markets increased in the
      third
      quarter of 2005 compared with the third quarter of 2004 due primarily to the
      aforementioned increase in prices and volumes. These improvements were partially
      offset by higher natural gas costs of approximately $1 million, other hurricane
      Katrina




24




impacts (please see the section on Hurricane and Natural
      Gas
      Impacts), higher raw material costs and higher selling costs. During 2004,
      strong demand for DMS technology began to exceed existing capacity at the
      operating facilities that produce these products. In the second quarter of
      2005,
      the Company completed and implemented a project to reduce costs and increase
      capacity at these facilities, resulting in lower per unit manufacturing costs
      compared to the third quarter of last year. The Company plans to maintain an
      asset utilization rate of approximately 90% for DMS offerings for the
      foreseeable future. Higher natural gas expense is expected to negatively impact
      this business by approximately $3 million in the fourth quarter of 2005 compared
      with the fourth quarter of 2004.




Sales
      of
      catalysts to the chemical-process markets increased in the third quarter of
      2005
      compared with the third quarter of 2004. The increase in revenues came from
      the
      oleochemical, petrochemical and fine chemical markets, and was partially offset
      by decreased sales to the polyolefin markets. The second quarter acquisition
      of
      the catalyst business of Nanjing Chemical Industry Corporation accounted for
      $4.0 million of sales increases in the third quarter. The increased demand
      experienced in the quarter is expected to continue into the near future,
      although not at the levels of increase experienced this quarter. Volumes of
      polypropylene catalysts decreased in the third quarter of 2005 compared with
      the
      same period in 2004. Tightness in the Asian supply of monomer, and some
      decreased domestic demand negatively impacted the Company’s revenues from
      products sold to the polyolefin market in the current quarter. Price increases
      initiated in 2004 and 2005 accounted for $1.3 million of higher revenues from
      the chemical-process markets.





Operating
      earnings from products sold to chemical-process markets were flat in the third
      quarter of 2005 compared with the third quarter of 2004. Increased earnings
      from
      higher volumes and prices of products sold to the fine chemical and
      petrochemical markets were offset by decreased earnings on sales to the
      oleochemical and polyolefin markets. Earnings from oleochemical markets were
      lower due to higher fixed costs and absorption compared to the year ago period.
      The second quarter acquisition of the catalyst business of Nanjing Chemical
      Industry Corporation contributed modestly to operating earnings in the current
      quarter. Results for the quarter were also negatively impacted by higher
      SG&A spending of approximately $1 million, and higher raw material costs
      compared with the same period last year.





**Appearance
      and Performance Technologies**





The
      Appearance and Performance Technologies segment provides pigments, effect
      materials, personal care active ingredients and performance additives that
      enable its customers to market enhanced image and functionality in their
      products. This segment serves a broad array of end markets, including cosmetics
      and personal care, coatings, plastics, automotive, construction and paper.
      The
      segment’s products help customers improve the look, functionality, performance
      and overall cost of their products. In addition, the segment is the internal
      supply source of precursors for most of the Company’s advanced
      petroleum-refining catalysts.





**Results
      of Operations** *(in
      millions)*





**Q3
                2005**
            
            **Q3
                2004**
            
            **%
                change**Sales
            
            $
            188.2
            
            $
            172.2
            
            
            9.3
            %Operating
                earnings
            
            
            17.0
            
            
            19.3
            
            
            -11.9
            %





*Discussion*





Results
      from this segment were down, as higher costs in operations serving the paper
      and
      effect materials markets more than offset the impact of higher revenues from
      the
      personal care actives, colors and specialty minerals markets.





Sales
      from the Company’s mineral-based operations increased 1% in the third quarter of
      2005 compared with the third quarter of 2004. This modest increase is due to
      improved sales of kaolin-based products to non-paper specialty markets mostly
      offset by lower volumes of kaolin-based products to the paper market. Lower
      sales to the paper market were partially attributable to a continuing strike
      in
      Canada and some product rationalization, somewhat offset by higher prices.
      The
      Company has implemented price increases for mineral-based products in the
      current year, and has seen some positive results. Overall, volumes to the paper
      market were off approximately 10% versus the same quarter last year. The Company
      continues to focus on non-paper kaolin markets to maximize cash flows





25




from these assets. These markets include plastics,
      construction, automotive, agriculture, coatings and refining
      catalysts.




Operating
      earnings from mineral-based products decreased significantly in the third
      quarter of 2005 compared with the same period of 2004. Increased sales of
      kaolin-based products to specialty markets yielded flat results due to higher
      manufacturing and distribution costs. Earnings from kaolin-based products to
      the
      paper market decreased as a result of higher natural gas prices of approximately
      $2.5 million in the quarter. Natural gas prices, exacerbated by Hurricanes
      Katrina and Rita, are expected to remain high for the remainder of 2005, and
      will negatively impact these businesses by as much as $15 million for the full
      year, despite a successful hedging strategy. Cash flows from kaolin-based
      operations remain substantial, and these assets continue to be monitored with
      respect to SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets.”





Sales
      of
      effect materials, colors and personal care actives collectively increased 19%
      in
      the third quarter of 2005 compared with the same period in 2004. Earlier in
      the
      year, the Company strengthened its position in the personal care market by
      acquiring Coletica, S.A., a European company that develops performance-based,
      skin-care compounds and related technologies. In 2004, the Company acquired
      The
      Collaborative Group, a domestic company serving similar markets. These
      operations, along with previously existing operations, serve the cosmetics
      and
      personal care markets. The recent acquisitions, with third quarter sales
      increases of $10.4 million, accounted for most of the increase in sales in
      the
      third quarter of 2005 compared with the third quarter of 2004, with the
      remaining increase coming from sales of colorants. Colorant sales, which had
      decreased earlier this year versus prior periods due to excess customer
      inventory levels, have rebounded this quarter, but are expected to be below
      last
      year levels for the full year of 2005.





Operating
      earnings from effect materials, colors and personal care actives increased
      modestly in total in the third quarter of 2005 compared with the same period
      in
      2004, in relation to the increase in sales to these markets. Earnings from
      the
      above mentioned acquisitions along with increased sales of colorants were
      partially offset by higher costs in operations serving the effect materials
      markets. The combination of higher operating costs in the operations serving
      the
      effect materials markets and increased competition from Asian producers of
      effect pigments has negatively impacted the Company’s margins and
      volumes.





**Materials
      Services**





The
      Materials Services segment serves the Company’s technology segments, their
      customers and others with precious and base metals and related services. This
      is
      a distribution and materials services business that purchases and sells precious
      metals, base metals, other commodities and related products and services. It
      does so under a variety of pricing and delivery arrangements structured to
      meet
      the logistical, financial and price-risk management requirements of the Company,
      its customers and suppliers. Additionally, it offers the related services of
      precious-metal refining and storage, and produces precious-metal salts and
      solutions.





**Results
      of Operations** *(in
      millions)*





**Q3
                2005**
            
            **Q3
                2004**
            
            **%
                change**Sales
            
            $
            578.4
            
            $
            446.6
            
            
            29.5
            %Operating
                earnings
            
            
            5.8
            
            
            6.7
            
            
            -13.4
            %





*Discussion*





Sales
      for
      this segment include substantially all the Company’s sales of metals to
      industrial customers of all segments. Sales also include fees invoiced for
      services rendered ( *e.g.* refining
      charges). Because of the logistical and hedging nature of much of this business
      and the significant precious metal values included in both sales and cost of
      sales, gross margins tend to be low in relation to the Company’s technology
      segments, as does capital employed. This effect also dampens the gross margin
      percentages of the Company as a whole, but improves the return on
      investment.





While
      many customers of the Company’s platinum-group-metal catalysts purchase the
      metal from Materials Services, some choose to deliver metal from other sources
      prior to manufacture. In such cases, precious




26




metal values are not included in sales. The mix of such
      arrangements and extent of market price fluctuations can significantly affect
      the reported level of sales and cost of sales. Consequently, there is no
      necessary direct correlation between year-to-year changes in reported sales
      and
      operating earnings. The revenue increase in the third quarter of 2005 was due
      to
      higher prices and volumes of platinum group metals.




Earnings
      from metal sourcing operations declined in the third quarter of 2005 compared
      with the third quarter of 2004 due to lower base metal dealing results, but
      remained at relatively high levels. Refining and related service operations
      were
      improved compared with the same period last year, as the Company’s domestic
      refinery experienced improved volumes and operating efficiencies.





**Comparison
      of the First Nine Months of 2005 with the First Nine Months of
      2004**





Net
      earnings from continuing operations increased to $181.3 million in the first
      nine months of 2005 compared with $178.8 million in the same period of 2004.
      Operating earnings increased to $221.0 million in the first nine months of
      2005
      compared with $213.6 million in the same period last year, primarily due to
      higher earnings from the Materials Services segment, the Process Technologies
      segment and the Environmental Technologies segment, partially offset by lower
      earnings from the Appearance and Performance Technologies segment and higher
      unallocated corporate and other expenses. Earnings from equity method joint
      ventures increased to $24.2 million in the first nine months of 2005 compared
      with $19.4 million in the same period last year, due to improved earnings from
      the Company’s Asian joint ventures.





**Environmental
      Technologies**





**Results
      of Operations**  *(in
      millions)*





**First
                Nine Months 2005**
            
            **First
                Nine Months 2004**
            
            **%
                change**Sales
            
            $
            738.4
            
            $
            667.9
            
            
            10.6
            %Operating
                earnings
            
            
            108.3
            
            
            104.3
            
            
            3.8
            %





*Discussion*





Revenues
      from mobile-source markets increased 10% in the first nine months of 2005
      compared with the same period in 2004, as increased sales of light duty diesel
      automotive applications outpaced decreased sales of domestic gasoline
      applications. The majority of this increase was due to increased pass-through
      substrate costs. Substrate costs were higher primarily due to increased demand
      for catalyzed soot filters (CSF) to the light duty diesel market. Sales to
      the
      motorcycle, diesel OEM and the diesel retrofit markets increased in the first
      nine months of 2005 compared with the same period last year.





Operating
      earnings from mobile-source markets slightly decreased in the first nine months
      of 2005 compared with the first nine months of 2004. Profits from automotive
      markets were flat compared with last year, driven by the above-mentioned
      decreased demand for gasoline applications, higher operating costs, absence
      of
      warranty accrual reversals in 2004 and an increase in the allowance for doubtful
      accounts due to the bankruptcy of Delphi, offset by increased demand for light
      duty diesel applications, higher royalty income and favorable impact from
      foreign currency changes. Earnings from diesel OEM markets declined against
      a
      strong nine-month period last year, while earnings from the diesel retrofit
      and
      motorcycle markets improved.





Sales
      to
      industrial product markets increased in the first nine months of 2005 compared
      with the first nine months of 2004. Sales to power-generation customers
      increased in the period, but are not reflective of a market recovery. Sales
      to
      most other industrial markets were modestly higher compared with the same period
      last year.





Operating
      earnings from industrial product markets increased in the first nine months
      of
      2005 compared with the same period last year. Earnings from the power-generation
      market improved versus the prior year, commensurate with the above-mentioned
      increased sales. Earnings improved modestly from operations serving the
      temperature-sensing market due to an acquisition completed in 2004.





27





**Process
      Technologies**





**Results
      of Operations** *(in
      millions)*





**First
                Nine**
              **Months
                2005**
            
            **First
                Nine**
              **Months
                2004**
            
            **%
                change**Sales
            
            $
            487.6
            
            $
            439.2
            
            
            11.0
            %Operating
                earnings
            
            
            65.6
            
            
            60.1
            
            
            9.2
            %





*Discussion*





Sales
      to
      the petroleum-refining market increased in the first nine months of 2005
      compared with the first nine months of 2004. This increase is largely due to
      the
      increase in demand for catalyst based on the Company’s DMS technology platform.
      Sales for certain older product offerings declined in the period, while sales
      of
      additives increased. Operating earnings from products sold to petroleum-refining
      markets increased in the first nine months of 2005 compared with the same period
      of 2004, primarily due to the aforementioned increase in sales of DMS catalyst
      products and additives. These improvements were offset by higher natural gas
      costs of approximately $3 million and other raw material cost of approximately
      $2 million.





Sales
      of
      catalysts to the chemical-process markets increased 14% in the first nine months
      of 2005 compared with the same period last year. The increase in revenues came
      from most served markets including the oleochemical, petrochemical and fine
      chemical markets. Sales of approximately $6 million from the acquisition of
      the
      catalyst business of Nanjing Chemical Industry Corporation contributed to this
      increase. Price increases initiated in 2004 and 2005 accounted for approximately
      $4 million of higher revenues from the chemical-process markets. Operating
      earnings from products sold to chemical-process markets increased in the first
      nine months of 2005 compared with the first nine months of 2004 primarily due
      to
      absence of Tarragona start-up costs of $2.3 million in the first quarter last
      year. Margins were negatively impacted due to the mix of products sold. Results
      for the first nine months of 2005 were also negatively impacted by higher
      SG&A spending of approximately $3 million, as well as higher raw material
      costs compared with the same period last year.





**Appearance
      and Performance Technologies**





**Results
      of Operations** *(in
      millions)*





**First
                Nine**
              **Months
                2005**
            
            **First
                Nine**
              **Months
                2004**
            
            **%
                change**Sales
            
            $
            548.7
            
            $
            523.7
            
            
            4.8
            %Operating
                earnings
            
            
            55.5
            
            
            58.1
            
            
            -4.5
            %





*Discussion*





Sales
      from the Company’s mineral-based operations decreased 1% in the first nine
      months of 2005 compared with the first nine months of 2004. This decrease is
      due
      to lower volumes of kaolin-based products to the paper market, partially offset
      by an increase in sales of kaolin- and attapulgite-based products to specialty
      markets. Lower sales to the paper market are partially attributable to industry
      strikes in Finland in the second quarter of this year, as well as strikes in
      Canada during the second and third quarters of this year, somewhat offset by
      higher prices. Operating earnings from mineral-based products decreased
      significantly in the first nine months of 2005 compared with the same period
      of
      2004. Despite increased sales of kaolin- and attapulgite-based products to
      specialty markets, earnings decreased as a result of higher manufacturing and
      distribution costs. Earnings from kaolin-based products to the paper market
      decreased as a result of the aforementioned strike-related negative impact
      on
      volumes of approximately $3 million in the first nine months of 2005, as well
      as
      a negative impact from natural gas prices of approximately $7 million.





Sales
      of
      effect materials, colors and personal care actives increased 11% in the first
      nine months of 2005 compared with the same period in 2004. The recent
      acquisitions serving the personal care materials markets accounted for all
      of
      the increase in sales and were partially offset by decreased sales to other
      served markets.





28




Operating earnings from personal care actives increased
      in the
      first nine months of 2005 compared with the first nine months of 2004, due
      entirely to the above-mentioned acquisitions, partially offset by decreased
      earnings from effect materials and colorants.




**Materials
      Services**





**Results
      of Operations** *(in
      millions)*




**First
                  Nine**
                **Months
                  2005**
              
              **First
                  Nine**
                **Months
                  2004**
              
              **%
                  change**Sales
              
              $
              1,501.5
              
              $
              1,453.6
              
              
              3.3
              %Operating
                  earnings
              
              
              16.7
              
              
              13.4
              
              
              24.6
              %





*Discussion*





Revenues
      in the first nine months of 2005 increased compared with the first half of
      2004
      due to higher prices of platinum group metals. Earnings from metal sourcing
      operations improved in the first nine months of 2005 compared with the first
      nine months of 2004. Refining and related service operations were improved
      compared with the same period last year, as the Company’s domestic refinery
      experienced improved volumes and operating efficiencies, partially offset by
      higher administrative costs.





**Liquidity
      and Capital Resources**





**Liquidity**





Working
      capital was $447.7 million at September 30, 2005, compared with $655.5 million
      at December 31, 2004. The current ratio was 1.3 and 1.7 at September 30, 2005
      and December 31, 2004, respectively. This reflects the Company’s utilization of
      existing cash balances to fund three acquisitions (see Note 3, “Acquisitions”).
      Also impacting the current ratio are corresponding increases in the Company’s
      committed metal positions and hedged metal obligations, and an increase in
      the
      working capital requirements of the Company’s Environmental Technologies (ET)
      segment. The overall working capital of the Company’s technology segments
      (Environmental Technologies, Process Technologies and Appearance and Performance
      Technologies) is not subject to significant fluctuations from period to period;
      however, in the current year, ET has experienced a fundamental increase in
      working capital employed. This increase is due to ET’s recent market penetration
      into catalyzed soot filter technology for light duty diesel applications to
      the
      mobile-source environmental markets (see Environmental Technologies section
      for
      further discussion). This trend is expected to continue, and will negatively
      impact net cash provided by operating activities through 2006. The working
      capital of the Materials Services segment may vary due to the timing of metal
      contracts, but is monitored closely by senior management. In the recent period,
      committed metal positions and hedged metal obligations have increased due to
      the
      effects of higher prices and usage as well as a shift in the mix of metals.
      The
      current levels are expected to continue. While long-term working capital
      requirements cannot be readily predicted, it is expected that they will grow
      proportionally with the revenues of the technology segments.





Cash
      balances were $29.5 million and $126.2 million at September 30, 2005 and
      December 31, 2004, respectively. The majority of this cash is held by foreign
      subsidiaries. Where economically feasible, the Company finances its foreign
      subsidiaries locally. The Company maintains cash pooling systems among certain
      foreign operations, most notably in Europe, that allow for effective
      inter-subsidiary financing.





On
      March
      7, 2005, the Company replaced existing committed credit facilities with a new
      $800 million, five-year committed credit facility. This facility is available
      for general corporate purposes, including, without limitation, to provide
      liquidity support for the issuance of commercial paper and acquisition
      financing. As of September 30, 2005, the Company had $77.0 million of commercial
      paper outstanding, all of which matured on October 1, 2005.





In
      May
      2005, the Company entered into a five-year committed credit facility for
      approximately $33 million (270 million Chinese Renminbi) with three major
      foreign banks. The facility is available for general corporate


29




purposes for various subsidiaries within China. In
      addition, the Company has a $12 million, seven-year committed credit facility
      with two major foreign banks that expires in October 2010 related to a plant
      expansion in China.




On
      August
      12, 2005, the Company issued a third tranche of Japanese yen 5.5 billion notes
      (approximately $50 million) bearing a coupon of 0.75% in the private placement
      market. In addition to the low coupon rate, these notes serve as an effective
      net investment hedge of a portion of the Company’s yen-denominated
      investments.





Early
      in
      the fourth quarter of 2005, the Company entered into a cross-currency swap
      with
      a notional amount of $150 million. This transaction effectively swaps the
      Company’s US dollar floating rate exposure for a euro floating rate exposure.
      The notional euro amount has been designated as a net investment hedge of a
      portion of the Company’s euro-denominated investments.





The
      Company’s total debt increased to $645.2 million at September 30, 2005 from
      $525.7 million at December 31, 2004 due to acquisitions, higher working capital
      requirements and a voluntary pension contribution. The percentage of total
      debt
      to total capitalization was 31% at September 30, 2005 compared with 27% at
      December 31, 2004.





The
      Company maintains a shelf registration of $450 million to facilitate the
      Company’s ability to raise cash for general corporate purposes. The Company
      maintains investment-grade credit ratings that it considers important for
      cost-effective and ready access to the capital markets. Should the Company’s
      rating drop below investment grade, the Company would experience higher capital
      costs and may incur difficulty in procuring metals.





The
      Company’s available cash and unused committed credit lines represent a measure
      of the Company’s short-term liquidity position. The Company believes that its
      short-term liquidity position is sufficient to meet the cash requirements of
      the
      Company. In addition to the short-term liquidity, the Company’s investment grade
      rating, $450 million shelf registration and access to debt and equity markets
      are sufficient to meet the long-term liquidity requirements of the
      Company.





**Capital
      Resources**





The
      Company’s technology segments represent the most significant internal capital
      resource of the Company. The Company’s technology segments contain businesses
      that generate significant cash flow. Cash flows from the Materials Services
      segment tend to fluctuate from period to period due to the timing of metal
      contracts. The “All Other” category includes certain small manufacturing
      operations, the Strategic Technologies group and other corporate functions,
      which collectively use cash. The Strategic Technologies group develops
      technologies to commercial levels to generate future sources of cash.





Net
      cash
      provided by operating activities was $136.9 million in the first nine months
      of
      2005 compared with $169.9 million in the first nine months of 2004. In the
      current quarter, the Company voluntarily contributed $50 million to its domestic
      pension plans in response to current economic factors. Other variances in cash
      flows from operating activities occurred in the Materials Services segment
      and
      reflect changes in metal positions used to facilitate requirements of the
      Company, its metal customers and suppliers (see Note 15 “Supplemental
      Information,” for Material Services variations). Current levels of hedged metal
      obligations and committed metal positions are expected to prevail for the
      remainder of the year. 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 have been set by senior management, the Company, from time to time,
      holds
      large unhedged industrial commodity positions that are subject to future market
      price fluctuations. These positions are included in committed metal positions,
      along with hedged metal holdings. The bulk of hedged metal obligations represent
      spot short positions. Other than in closely monitored situations, these
      positions are hedged through forward purchases. Unless a forward counterparty
      fails to perform, there is no price risk for these transactions. In addition,
      the aggregate fair value of derivatives in a loss position is reported in hedged
      metal obligations (derivatives in a gain position are included in committed
      metal positions). 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 may include significant advances made for the purchase
      of precious metals that have been delivered to the Company but for which the
      final purchase price has not yet been determined.





30





The
      Company’s joint ventures operate independently of additional Company financing.
      These joint ventures returned $10.8 million of cash to the Company in the first
      nine months of 2005. The Company does not anticipate significant additional
      cash
      proceeds from its joint ventures in 2005.





The
      Company also depends upon access to debt and equity markets, as discussed in
      the
      liquidity section, as a source of cash.





The
      Company continues to invest currently to develop future sources of cash through
      self-investment, alliances, licensing agreements and acquisition. Notably,
      during the first nine months of 2005, the Company invested $85.3 million in
      capital projects and $159.3 million in acquisitions and other investments.
      Capital expenditures for 2005 are expected to be approximately $120 million
      to
      $140 million. Acquisitions during the first nine months of 2005 included
      approximately $70 million, net of cash acquired, for the acquisition of
      Coletica, S.A. and related holdings (see Note 3 - “Acquisitions”). In the second
      quarter of 2005 the Company acquired the catalyst business of Nanjing Chemical
      Industry Corporation (NCIC) for approximately $20 million (see Note 3 -
“Acquisitions”). The Company has paid $14 million of this to date, and expects
      to pay the remaining $6 million due to the former owners of NCIC within the
      next
      12 months. In the third quarter of 2005, the Company acquired Almatis AC, Inc.
      for a total purchase price of $65 million (see Note 3 - “Acquisitions”). The
      Company actively pursues investment opportunities that meet risk and return
      criteria set by senior management. The Company expects to find opportunities
      in
      the future and will act upon these opportunities accordingly.





If
      sources of cash exceed opportunities for investment, the Company will return
      value to the shareholders. This is done through share buy-back programs,
      dividends and debt repayment. In the first nine months of 2005 the Company
      purchased approximately 2.8 million outstanding shares of common stock, net
      of
      stock options exercised. In May 2005, the Company’s Board of Directors
      authorized a share repurchase program of 6 million shares. In addition, the
      Company’s Board of Directors approved an increase in the quarterly dividend from
      $0.11 per share to $0.12 per share in the first quarter of 2005. The Company
      expects to find future investment opportunities, and will be able to reduce
      the
      future amount of shares purchased when this occurs.





**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 that are based on forecasts of future results and
      estimates of amounts not yet determinable. These statements also relate to
      future prospects, developments and business strategies. 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, internal and external, that may cause the Company’s actual future
      activities and results of operations to be materially different from those
      suggested or described in this document.





Internal
      risks and uncertainties that could cause actual results to differ materially
      and
      negatively impact the Company include:





·
            *The
                Company’s ability to achieve and execute internal business
                plans*.
                The Company is engaged in growth and productivity initiatives in
                all
                technology segments, led by the Strategic Technologies group. Failure
                to
                commercialize proprietary and other technologies or to acquire businesses
                or licensing agreements to serve targeted markets would negatively
                impact
                the Company.





·
            *Future
                divestitures and restructurings.*The Company may experience changes in market conditions that cause
                the
                Company to consider divesting or restructuring operations, which
                could
                impact future earnings.





·
            *The
                success of research and development activities and the speed with
                which
                regulatory authorizations and product launches may be
                achieved.*The Company’s future cash flows depend upon the creation, acquisition and
                commercialization of new
                technologies.





31





·
            *Manufacturing
                difficulties, property loss, or casualty loss.*Although the Company maintains business interruption insurance, the
                Company is dependent upon the operating success of its manufacturing
                facilities, and does not maintain redundant capacity. Failure of
                these
                manufacturing facilities would cause short-term profitability losses
                and
                could damage customer relations in the
                long-term.





·
            *Capacity
                constraints.*Some
                of the Company’s businesses operate near current capacity levels, notably
                operations serving the petroleum refining operations. Should demand
                for
                certain products increase, the Company would experience short-term
                difficulty meeting the increased demand, hindering growth
                opportunities.





·
            *Product
                quality deficiencies.*The
                Company’s products are generally sold based upon specifications agreed
                upon with our customers. Failure to meet these specifications could
                negatively impact the Company.





·
            *The
                impact of physical inventory losses, particularly with regard to
                precious
                and base metals.*Although the Company maintains property and casualty insurance, the
                Company holds large physical quantities of precious and base metals,
                often
                for the account of third parties. These quantities are subject to
                loss by
                theft and manufacturing
                inefficiency.





·
            *Litigation
                and legal claims.*The
                Company is currently engaged in various legal disputes. Unfavorable
                resolution of these disputes would negatively impact the Company.
                Still
                unidentified future legal claims could also negatively impact the
                Company.





·
            *Contingencies
                related to actual or alleged environmental contamination to which
                the
                Company may be a party*(see
                Note 21, “Environmental Costs,” of the Company’s 2004 Form 10-K, as well
                as the section above).





·
            *Exposure
                to product liability lawsuits.*As
                a manufacturer, the Company is subject to end user product liability
                litigation associated with the Company’s products.





External
      risks, uncertainties and changes in market conditions that could cause actual
      results to differ materially and negatively impact the Company
      include:





·
            *Competitive
                pricing or product development activities affecting demand for our
                products.*The Company operates in a number of markets where overcapacity, low
                priced
                foreign competitors, and other factors create a situation where
                competitors compete for business by reducing their prices, notably
                the
                kaolin to paper market, some effect pigments markets, the colorant
                market,
                certain chemical process markets and certain components of the
                mobile-source environmental markets.





·
            *Overall
                demand for the Company’s products, which is dependent on the demand for
                our customers’ products.*As
                a supplier of materials to other manufacturers, the Company is dependent
                upon the markets for its customers’ products. Notably, some North American
                automobile producers have recently experienced financial difficulties
                and
                decreased product demand. Additionally, technological advances by
                direct
                and not-in-kind competitors could render the Company’s current products
                obsolete.





·
            *Changes
                in the solvency and liquidity of our customers*.
                Although the Company believes it has adequate credit policies, the
                creditworthiness of customers could change. Certain customers of
                the
                Company, who supply parts to the North American automobile producers,
                have
                recently experienced financial difficulties, and bankruptcy of these
                customers remains a threat. These customers represent a substantial
                portion of the Environmental Technologies segment’s business. The Company
                actively establishes and monitors credit limits to all
                customers.





32





·
            *Fluctuations
                in the supply and prices of precious and base metals and fluctuations
                in
                the relationships between forward prices to spot prices.*The Company depends upon a reliable source of precious metals, used
                in the
                manufacture of its products, for itself and its customers. These
                precious
                metals are sourced from a limited number of suppliers. Decrease in
                the
                availability of these precious metals could impact the profitability
                of
                the Company.





·
            *A
                decrease in the availability or an increase in the cost of energy,
                notably
                natural gas.*The
                Company consumes more than 11 million MMBTUs of natural gas annually.
                Compared with other sources of energy, natural gas is subject to
                volatility in availability and price, due to transportation, processing
                and storage requirements. Recent hurricanes impacting the Gulf Coast
                have
                driven up natural gas prices and availability. A prolonged continuation
                of
                these higher prices, absent the ability to recover these costs via
                price
                increases or energy surcharges, will negatively impact the Company.
                Changes could include customer and product rationalization, plant
                closures
                and asset impairments, particularly in certain minerals operations
                serving
                the paper market.





·
            *The
                availability and price of rare earth compounds*.
                The Company uses certain rare earth compounds, produced in limited
                locations worldwide.**





·
            *The
                availability and price of other raw materials*.
                The Company’s products contain a broad array of raw materials for which
                increases in price or decreases in availability could negatively
                impact
                the Company.





·
            *The
                impact of increased employee benefit costs and/or the resultant impact
                on
                employee relations and human resources.*The Company employs approximately 7,000 employees worldwide and is
                subject
                to recent adverse trends in benefit costs, notably pension and medical
                benefits.





·
            *Higher
                interest rates.*A
                portion of the Company’s debt is exposed to short-term interest rate
                fluctuations. An increase in long-term debt rates would impact the
                Company
                when the current long-term debt instruments mature, or if the Company
                requires additional long-term debt.





·
            *Changes
                in foreign currency exchange rates.*The Company regularly enters into transactions denominated in foreign
                currencies, and accordingly is exposed to changes in foreign currency
                exchange rates. The Company’s policy is to hedge the risks associated with
                monetary assets and liabilities resulting from these transactions.
                Additionally, the Company has significant foreign currency investments
                and
                earnings, which are subject to changes in foreign currency exchange
                rates
                upon translation into U.S. dollars.





·
            *Geographic
                expansions not developing as anticipated.*The Company expects markets in Asia to fuel growth for many served
                markets. China’s expected growth exceeds that of most developed countries,
                and failure of that growth to materialize would negatively impact
                the
                Company.





·
            *Economic
                downturns and inflation.*The diversity of the Company’s markets has substantially insulated the
                Company’s profitability from economic downturns in recent years. The
                Company is exposed to overall economic conditions. Recent inflationary
                pressures have resulted in higher material costs. The inability of
                the
                Company to pass these higher costs to customers via price increases
                and
                surcharges would have a negative impact on the Company.





·
            *Increased
                levels of worldwide political instability, as the Company operates
                primarily in the United States, the European community, Asia, the
                Russian
                Federation, South Africa and Brazil*.
                Much of the Company’s identified growth prospects are foreign markets. As
                such, the Company expects continued foreign investment and, therefore,
                increased exposure to foreign political instability. Additionally,
                the
                worldwide threat of terrorism can directly and indirectly impact
                the
                Company’s foreign and domestic
                profitability.





33





·
            *The
                impact of the repeal of the U.S. export sales tax incentive and the
                enactment of the**American
                Jobs Creation Act of 2004**.*The Company has decided not to repatriate any amounts from its foreign
                subsidiaries at a reduced tax rate under the Act due to its intention
                to
                increase its investments outside of the United
                States.





·
            *Government
                legislation and/or regulation particularly on environmental and taxation
                matters*.
                The Company maintains manufacturing facilities and, as a result,
                is
                subject to environmental laws. The Company will be impacted by changes
                in
                these laws. The Company operates in tax jurisdictions throughout
                the
                world, and, as a result, is subject to changes in tax laws, notably
                in the
                United States, the United Kingdom, Germany, the Netherlands, Italy,
                Switzerland, France, Spain, South Africa, Brazil, Mexico, China,
                Korea,
                Japan, India and Thailand.





·
            *A
                slowdown in the expected rate of environmental
                requirements.*The Company’s Environmental Technologies segment’s customers, and to a
                lesser extent, the Process Technologies segment’s customers, are generally
                driven by increasingly stringent environmental regulations. A slowdown
                or
                repeal of regulations could negatively impact the
                Company.





·
            *The
                impact of natural disasters.*Natural
                disasters causing damage to the Company and our customers and suppliers
                would negatively impact the Company.**





Investors
      are cautioned not to place undue reliance upon these forward-looking statements,
      which speak only as of their dates. The Company disclaims any obligation to
      update or revise any forward-looking statements, whether as a result of new
      information, future events or otherwise.





34





**Item
              3.**
            **Quantitative
                and Qualitative Disclosures about Market
                Risk**





**Market
      Risk Sensitive Transactions**





The
      Company is exposed to market risks arising from adverse changes in interest
      rates, foreign currency exchange rates and commodity prices. In the normal
      course of business, the Company uses a variety of techniques and instruments,
      including derivatives, as part of its overall risk-management strategy. The
      Company enters into derivative agreements with a diverse group of major
      financial and other institutions with individually determined credit limits
      to
      reduce exposure to the risk of nonperformance by counterparties.





A
      discussion and analysis of the Company’s market risk is included in Item 7A.
‘Quantitave and Qualitative Disclosures About Market Risk,’ Note 2 ‘Derivatives
      and Hedging’ and Note 11 ‘Committed Metal Positions and Hedged Metal
      Obligations’ of the Company’s 2004 Form 10-K. There have been no significant
      changes to these market risks as of September 30, 2005. For more information
      on
      the Company’s market risk, please see Item 2. ‘Management’s Discussion and
      Analysis of Financial Condition and Results of Operations,’ Note 8 ‘Derivatives
      and Hedging’ and Note 11 ‘Committed Metal Positions and Hedged Metal
      Obligations.’





**Item
                4.**
            **Controls
                and Procedures**




The
      Company carried out an evaluation, under the supervision and with the
      participation of the Company’s management, including the Company’s Chief
      Executive Officer and Chief Financial Officer, as of September 30, 2005, of
      the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
      the Chief Executive Officer and Chief Financial Officer concluded that the
      Company’s disclosure controls and procedures as of September 30, 2005 were
      effective to provide reasonable assurance that material information related
      to
      the Company (including its consolidated subsidiaries) required to be included
      in
      the Company’s periodic SEC filings would be communicated to them on a timely
      basis. There was no change in the Company’s internal control over financial
      reporting during the Company’s third fiscal quarter of 2005 that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting.





The
      Company’s management, including the Chief Executive Officer and Chief Financial
      Officer, do not expect that our disclosure controls or our internal control
      over
      financial reporting will prevent all errors and all fraud. A control system,
      no
      matter how well conceived and operated, can provide only reasonable, not
      absolute, assurance that the objectives of the control system are met. Further,
      the design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs. Because of the inherent limitations in all control systems, no evaluation
      of controls can provide absolute assurance that all control issues and instances
      of fraud, if any, within the Company have been detected. These inherent
      limitations include the reality that judgments and estimates can be faulty,
      and
      that breakdowns can occur because of simple error or mistake. Additionally,
      controls can be circumvented by the individual acts of some persons or by
      collusion of two or more people. The design of any system of controls also
      is
      based, in part, upon certain assumptions about the likelihood of future events,
      and there can be no assurance that any design will succeed in achieving its
      stated goals under all potential future conditions. Because of the inherent
      limitations in a cost-effective control system, misstatements due to error
      or
      fraud may occur and not be detected. Accordingly, the Company’s disclosure
      controls and procedures are designed to provide reasonable, not absolute,
      assurance that the objectives of the Company’s disclosure control system are met
      and, as set forth above, the Company’s Chief Executive Officer and Chief
      Financial Officer have concluded, based on their evaluation as of September
      30,
      2005, that the Company’s disclosure controls and procedures were effective to
      provide reasonable assurance that the objectives of the Company’s disclosure
      control system were met.





35





**PART
      II - OTHER INFORMATION**





**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**





(e)
            The
                Company has Board authorized programs for the repurchase of the Company’s
                stock. The following table represents repurchases under these programs
                for
                each of the three months of the quarter ended September 30,
                2005:





ISSUER
      PURCHASES OF EQUITY SECURITIES :





**Period**
            
            **Total
                Number****of****Shares****Purchased**
            
            **Average****Price****Paid****per
                Share**
            
            **Total
                Number of Shares****Purchased
                as Part of****Publicly
                Announced Plans****or
                Programs**
            
            **Maximum
                Number of****Shares
                that May Yet Be****Purchased
                Under the****Plans
                or Programs (a)**7/1/05
                - 7/31/05
            
            
            10,000
            (b)
            $
            28.13
            
            
            10,000
            
            
            6,059,5328/1/05
                - 8/31/05
            
            
            241,700
            
            
            28.19
            
            
            241,700
            
            
            5,817,8329/1/05
                - 9/30/05
            
            
            48,300
            
            
            28.30
            
            
            48,300
            
            
            5,769,532Total
            
            
            300,000
            
            $
            28.21
            
            
            300,000





(a)
              Share
                  repurchase program of 6 million shares authorized in October 2003
                  and the
                  share repurchase program of 6 million shares authorized by the
                  Board of
                  Directors in May 2005.


(b)
            Excludes
                337 shares obtained through dividend reinvestment by the Rabbi Trust
                under
                the Deferred Compensation Plan for Key Employees of Engelhard
                Corporation.




**Item
                6.**
              ****Exhibits****


**Pages**(31)(a)
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer.
              38(31)(b)
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer.
              39(32)
              Section
                  1350 Certifications of Chief Executive Officer and Chief Financial
                  Officer. *
              40


*
      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.





36





**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.






ENGELHARD
                CORPORATION(Registrant)Date:
            November
                8, 2005
            
            /s/
                Barry W. PerryBarry
                W. PerryChairman
                and ChiefExecutive
                OfficerDate:
            November
                8, 2005
            
            /s/
                Michael A. SperdutoMichael
                A. SperdutoVice
                President and ChiefFinancial
                OfficerDate:
            November
                8, 2005
            
            /s/
                Alan J. ShawAlan
                J. ShawController




37