**UNITED
STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





**FORM
10-Q**




(Mark
One)




**x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE**


**SECURITIES
EXCHANGE ACT OF 1934**





For the
quarterly period ended March 31, 2005




OR




**o  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**
      (State
      or other jurisdiction of
      incorporation
      or organization)
    **22-1586002**
      (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  x No o




Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes x No o




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
      $1
      par value
    Outstanding at April 29, 2005
      120,623,757



















PART I -
FINANCIAL INFORMATION






**Item
1. Financial
Statements**




**ENGELHARD
CORPORATION**


**CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS**


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


**(Unaudited)**




**Three
      Months Ended**
      **March
      31,**
    ********
    ****
    **2005**
    ****
    **2004**Net
      sales
    
    $
    1,026,670
    
    $
    1,040,032Cost
      of sales
    
    
    858,176
    
    
    880,676Gross
      profit
    
    
    168,494
    
    
    159,356Selling,
      administrative and other expenses
    
    
    99,068
    
    
    94,849Operating
      earnings
    
    
    69,426
    
    
    64,507Equity
      in earnings of affiliates
    
    
    8,109
    
    
    4,939Gain
      on investment
    
    
    119
    
    
    —Interest
      income
    
    
    2,076
    
    
    966Interest
      expense
    
    
    (6,856
    )
    
    (5,872
    )Earnings before
      income taxes
    
    
    72,874
    
    
    64,540Income
      tax expense
    
    
    14,922
    
    
    14,199Net
      earnings
    
    $
    57,952
    
    $
    50,341Earnings
      per share - basic
    
    $
    0.48
    
    $
    0.41Earnings
      per share - diluted
    
    $
    0.47
    
    $
    0.40Cash
      dividends paid per share
    
    $
    0.12
    
    $
    0.11Average
      number of shares outstanding - basic
    
    
    121,702
    
    
    124,157Average
      number of shares outstanding - diluted
    
    
    123,905
    
    
    126,468







See the
Accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements









2







**ENGELHARD
CORPORATION**


**CONDENSED
CONSOLIDATED BALANCE SHEETS**


**(Thousands)**


**(Unaudited)**




March
      31,
      2005
    
    December
      31,
      2004Cash
    
    $
    52,662
    
    $
    126,229Receivables,
      net
    
    
    456,472
    
    
    410,382Committed
      metal positions
    
    
    390,657
    
    
    457,570Inventories
    
    
    469,473
    
    
    459,637Other
      current assets
    
    
    142,711
    
    
    135,631Total
      current assets
    
    
    1,511,975
    
    
    1,589,449Investments
    
    
    200,932
    
    
    179,160Property,
      plant and equipment, net
    
    
    902,027
    
    
    911,029Goodwill
    
    
    389,904
    
    
    330,798Other
      intangible and noncurrent assets
    
    
    160,228
    
    
    168,156Total
      assets
    
    $
    3,165,066
    
    $
    3,178,592Short-term
      borrowings
    
    $
    46,574
    
    $
    12,025Accounts
      payable
    
    
    334,271
    
    
    375,890Hedged
      metal obligations
    
    
    292,258
    
    
    292,880Other
      current liabilities
    
    
    245,296
    
    
    248,872Total
      current liabilities
    
    
    918,399
    
    
    929,667Long-term
      debt
    
    
    490,186
    
    
    513,680Other
      noncurrent liabilities
    
    
    328,660
    
    
    320,933Shareholders’
      equity
    
    
    1,427,821
    
    
    1,414,312Total
      liabilities and shareholders’ equity
    
    $
    3,165,066
    
    $
    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)**




**Three
      Months Ended**
      **March
      31,**
    ********
    ****
    **2005**
    ****
    **2004**Cash
      flows from operating activitiesNet
      earnings
    
    $
    57,952
    
    $
    50,341Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and depletion
    
    
    31,368
    
    
    31,016Amortization
      of intangible assets
    
    
    1,117
    
    
    933Equity
      results, net of dividends
    
    
    (5,050
    )
    
    (3,418
    )Net
      change in assets and liabilities:Materials
      Services related
    
    
    (14,662
    )
    
    (11,700
    )All
      other
    
    
    (29,101
    )
    
    (23,173
    )Net
      cash provided by operating activities
    
    
    41,624
    
    
    43,999Cash
      flows from investing activitiesCapital
      expenditures
    
    
    (24,967
    )
    
    (21,918
    )Proceeds
      from investments
    
    
    —
    
    
    1,988Acquisitions
      and other investments, net of cash acquired of $16,023
    
    
    (55,084
    )
    
    —Net
      cash used in investing activities
    
    
    (80,051
    )
    
    (19,930
    )Cash
      flows from financing activitiesIncrease
      (decrease) in short-term borrowings
    
    
    20,532
    
    
    (22,579
    )Proceeds
      from long-term debt
    
    
    69
    
    
    7,720Purchase
      of treasury stock
    
    
    (46,016
    )
    
    (39,669
    )Cash
      from exercise of stock options
    
    
    2,709
    
    
    7,264Dividends
      paid
    
    
    (14,636
    )
    
    (13,670
    )Net
      cash used in financing activities
    
    
    (37,342
    )
    
    (60,934
    )Effect
      of exchange rate changes on cash
    
    
    2,202
    
    
    (186
    )Net
      decrease in cash
    
    
    (73,567
    )
    
    (37,051
    )Cash
      at beginning of year
    
    
    126,229
    
    
    87,889Cash
      at end of period
    
    $
    52,662
    
    $
    50,838







See the
Accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements





4







**ENGELHARD
CORPORATION**


**BUSINESS
SEGMENT INFORMATION**


**(Thousands)**


**(Unaudited)**




**Three
      Months Ended**
      **March
      31,**
    ********
    ****
    **2005**
    ****
    **2004**Net
      SalesEnvironmental
      Technologies
    
    $
    241,361
    
    $
    238,437Process
      Technologies
    
    
    147,981
    
    
    132,219Appearance
      and Performance Technologies
    
    
    173,875
    
    
    166,293Technology
      segments
    
    
    563,217
    
    
    536,949Materials
      Services
    
    
    450,481
    
    
    491,099All
      Other
    
    
    12,972
    
    
    11,984Total
      net sales
    
    $
    1,026,670
    
    $
    1,040,032Operating
      EarningsEnvironmental
      Technologies
    
    $
    36,500
    
    $
    36,989Process
      Technologies
    
    
    19,057
    
    
    16,296Appearance
      and Performance Technologies
    
    
    18,063
    
    
    15,051Technology
      segments
    
    
    73,620
    
    
    68,336Materials
      Services
    
    
    4,393
    
    
    3,367All
      Other
    
    
    (8,587
    )
    
    (7,196
    )Total
      operating earnings
    
    
    69,426
    
    
    64,507Equity
      in earnings of affiliates
    
    
    8,109
    
    
    4,939Gain
      on investment
    
    
    119
    
    
    —Interest
      income
    
    
    2,076
    
    
    966Interest
      expense
    
    
    (6,856
    )
    
    (5,872
    )Earnings
      before income taxes
    
    
    72,874
    
    
    64,540Income
      tax expense
    
    
    14,922
    
    
    14,199Net
      earnings
    
    $
    57,952
    
    $
    50,341






See the
Accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements








5






**Notes
to the Unaudited  Condensed Consolidated Financial
Statements**


****


**Notes
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.
  The prior
year presentation of the “Condensed Consolidated Statements of Cash Flows” has
been changed to conform to the current year presentation. Specifically,
“Increase in hedged metal obligations” has been reclassified from “Net cash used
in financing activities” to “Net cash provided by operating activities,” and is
included in the “Materials Services related” line. The net effect of this
reclassification is an increase to “Net cash provided by operating activities”
of $30 million and an increase to “Net cash used in financing activities” of an
equivalent amount.
 ****


**Notes
2 - Acquisitions**





In March
2005, the Company acquired a majority stake in Coletica, S.A., a French publicly
traded, high-growth 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) and has made a tender offer for the remaining
publicly held shares. The offer translates to a purchase price of €65.85 million
($85 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.


Also during
the quarter, 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.” Additional consideration received by the Company as part of this
transaction has a fair value of $1.7 million. The Company also acquired an
additional 0.7% of NECC through a public tender offer. These transactions
increased the Company’s ownership percentage in NECC from 38.8% to
42.1%.


****


**Note
3 - 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.
  6


The following
table represents the change in the Company’s asset retirement obligation
liability (in millions):
  **March
      31, 2005**
    ****
    **March
      31, 2004**Balance
      at beginning of year
    
    $
    10.8
    
    $
    10.5Accretion
      expense
    
    
    0.2
    
    
    0.2Payments
    
    
    (0.3
    )
    
    (0.2
    )Asset
      retirement obligation at end of period
    
    $
    10.7
    
    $
    10.5


****


**Note
4 - Inventories**





Inventories
consist of the following (in millions):
 **March
      31, 2005**
    ****
    **December
      31, 2004**Raw
      materials
    
    $
    136.4
    
    $
    137.5Work
      in process
    
    
    52.2
    
    
    49.3Finished
      goods
    
    
    263.7
    
    
    255.1Precious
      metals
    
    
    17.2
    
    
    17.7Total
      inventories
    
    $
    469.5
    
    $
    459.6
 
 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 $80.6 million and $73.1 million at March 31, 2005 and December 31, 2004,
respectively.


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


****


**Note
5 - Comprehensive Income**





Comprehensive income
is summarized as follows (in millions): ****


**Three
      Months Ended**
      **March
      31,**
    ********
    ****
    **2005**
    ****
    **2004**Net
      earnings
    
    $
    58.0
    
    $
    50.3Other
      comprehensive income (loss):Foreign
      currency translation adjustment
    
    
    (1.4
    )
    
    0.5Cash
      flow derivative adjustment, net of tax
    
    
    8.5
    
    
    1.4Minimum
      pension liability adjustment, net of tax
    
    
    0.2
    
    
    —Investment
      adjustment, net of tax
    
    
    —
    
    
    (0.3
    )Other
    
    
    1.7
    
    
    —Other
      comprehensive income
    
    
    9.0
    
    
    1.6Comprehensive
      income
    
    $
    67.0
    
    $
    51.9The
      foreign currency translation adjustments are not currently adjusted for
      income taxes as they relate to permanent investments in non-U.S.
      entities.
  
 7
  
 **Note
6 - 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**
      **March
      31,**(in
      millions, except per-share data):
    
    **2005**
    ****
    **2004**Basic
      EPS ComputationNet
      earnings applicable to common shares
    
    $
    58.0
    
    $
    50.3Average
      number of shares outstanding - basic
    
    
    121.7
    
    
    124.2Basic
      earnings per share
    
    $
    0.48
    
    $
    0.41Diluted
      EPS ComputationNet
      earnings applicable to common shares
    
    $
    58.0
    
    $
    50.3Average
      number of shares outstanding - basic
    
    
    121.7
    
    
    124.2Effect
      of dilutive stock options and other incentives
    
    
    2.2
    
    
    2.3Average
      number of shares outstanding - diluted
    
    
    123.9
    
    
    126.5Diluted
      earnings per share
    
    $
    0.47
    
    $
    0.40


****


**Note
7 - 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-month periods ended
March 31, 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 transaction.

For the
three-month periods ended March 31, 2005 and 2004, the Company reported
after-tax losses of $0.5 million and $1.5 million, respectively, in accumulated
other comprehensive income relating to the change in the fair

8


value of
derivatives designated as foreign exchange cash flow hedges. It is expected that
cumulative losses of $0.5 million as of March 31, 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 hedge ineffectiveness. As of March 31,
2005, the maximum length of time over 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
three-month periods ended March 31, 2005 and 2004, the Company reported
after-tax gains of $6.1 million and $2.6 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 $6.1 million as of March 31, 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 commodity hedges due to the probability of the
original forecasted transactions not occurring or hedge ineffectiveness. As of
March 31, 2005, the maximum length of time over which the Company has hedged its
exposure to movements in commodity prices for forecasted transactions is 12
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
two interest rate swap agreements with a total notional value of $100 million
maturing in August 2006, three interest rate swap agreements with a total
notional value of $150 million maturing in May 2013, and two additional interest
rate swap agreements with a total notional value of $120 million maturing in
June 2028. 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-month periods ending March 31, 2005 and 2004.

In March
2004, the Company entered into an additional 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. This FRA is
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.

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

9


hedge,
and as such, it is marked-to-market with the gain/loss reflected in other
comprehensive income. For the three-month period ended March 31, 2005, the
Company reported an after-tax gain of $1.0 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 two tranches (one in April 2004 and one in August 2004) of five-year
term, 5.5 billion Japanese yen notes (approximately $50 million each) with a
coupon rate of 1.1%. 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 three-month
period ended March 31, 2005, the Company reported an after-tax loss of $1.7
million in accumulated other comprehensive income, relating to the
mark-to-market of these notes.


****


**Note
8 - 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 March 31, 2005, the aggregate outstanding amount of letters of
credit supporting such obligations amounted to $139.5 million, of which $137.5
million will expire in less than one year, $1.8 million will expire in two to
three years, $0.1 million will expire in four to five years and $0.1 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):


**March
      31, 2005**
    ****
    **March
      31, 2004**Balance
      at beginning of year
    
    $
    8.7
    
    $
    10.0Payments
    
    
    (0.1
    )
    
    (1.4
    )Reversal
      of reserve
    
    
    (0.2
    )
    
    —Provision
    
    
    0.1
    
    
    2.8Balance
      at end of period
    
    $
    8.5
    
    $
    11.4


****





**Note
9 - 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.”

10








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




**As
      of March 31, 2005**
    ****
    **As
      of December 31, 2004**
    ********
    ****
    **Gross
      Carrying**
      **Amount**
    ****
    **Accumulated**
      **Amortization**
    ****
    **Gross
      Carrying**
      **Amount**
    ****
    **Accumulated**
      **Amortization**Acquired
      Amortizable Intangible AssetsUsage
      rights
    
    $
    21.3
    
    $
    6.4
    
    $
    22.2
    
    $
    6.3Supply
      agreements
    
    
    18.4
    
    
    6.4
    
    
    19.0
    
    
    6.3Technology
      licenses
    
    
    10.2
    
    
    3.9
    
    
    9.1
    
    
    3.5Other
    
    
    4.2
    
    
    2.4
    
    
    3.7
    
    
    2.3Total
    
    $
    54.1
    
    $
    19.1
    
    $
    54.0
    
    $
    18.4






Amortization
expense for the three-month period ended March 31, 2005 exceeds the increase in
accumulated amortization due to the impact of foreign exchange rate changes.
Intangible assets with indefinite useful lives, and thus not subject to
amortization, are $1.9 million as of March 31, 2005 and December 31, 2004. Total
accumulated amortization for goodwill and other intangible assets amounted to
$85.0 million and $83.9 million at March 31, 2005 and December 31, 2004,
respectively. As of March 31, 2005, the estimated aggregate amortization expense
for each of the five succeeding years is as follows (in millions):


Estimated
      Annual Amortization Expense:2005
    
    $
    3.92006
    
    
    3.82007
    
    
    3.12008
    
    
    3.12009
    
    
    3.0
  The following
table represents the changes in the carrying amount of goodwill for the
three-month period ended March 31, 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
    
    
    —
    
    
    —
    
    
    60.0
    (a)
    
    —
    
    
    60.0Foreign
      currency translation adjustment
    
    
    (0.5
    )
    
    —
    
    
    (0.4
    )
    
    —
    
    
    (0.9
    )Balance
      as of March 31, 2005
    
    $
    19.9
    
    $
    108.1
    
    $
    261.4
    
    $
    0.5
    
    $
    389.9
   (a)
    Goodwill
      addition of $60.0 million relates to the Company’s acquisition of
      Coletica, S.A. during the first quarter of 2005. This amount represents
      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.
 11


****


****


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





**March
      31, 2005**
    ****
    **December
      31, 2004**Committed
      metal positions were comprised of the following:Metals
      in a net spot long position economically hedged with
      derivatives
      (primarily forward sales)
    
    $
    347.8
    
    $
    324.2Fair
      value of hedging derivatives in a “gain” position
    
    
    7.9
    
    
    14.2Unhedged
      metal positions, net (see analysis below)
    
    
    (6.6
    )
    
    19.3Fair
      value of metals received with prices to be determined, net of hedged spot
      sales
    
    
    41.6
    
    
    99.9Total
      committed metal positions
    
    $
    390.7
    
    $
    457.6





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 committed metal positions on the
Company’s “Condensed Consolidated Balance Sheets”:




Metal
Positions Information (in millions):


**March
      31, 2005**
    ****
    **December
      31, 2004**
    ********
    ****
    **Net**
      **Position**
    ****
    **Value**
    ****
    **Net**
      **Position**
    ****
    **Value**Platinum
      group metals
    
    
    Long
    
    $
    18.2
    
    
    Long
    
    $
    19.4Gold
    
    
    Short
    
    
    (1.5)
    
    
    Flat
    
    
    —Silver
    
    
    Short
    
    
    (1.5)
    
    
    Short
    
    
    (0.9)Base
      metals
    
    
    Short
    
    
    (21.8)
    
    
    Long
    
    
    0.8Total
      unhedged metal positions
    
    
    
    
    $
    (6.6)
    
    
    
    
    $
    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 March 31, 2005 and 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 $41.6 million and $49.9 million, respectively, which is
recorded as a current liability.




**March
      31, 2005**
    ****
    **December
      31, 2004**Hedged
      Metal Obligations were comprised of the following: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
    
    $
    268.8
    
    $
    265.1Fair
      value of hedging derivatives in a “loss” position
    
    
    23.5
    
    
    27.8Total
      hedged metal obligations
    
    $
    292.3
    
    $
    292.9





At March 31,
2005 and December 31, 2004, hedged metal obligations relating to 622,413 and
603,330 troy ounces of gold, respectively, were outstanding. These quantities
were sold short on a spot basis generating cash approximating $270 million and
$266 million, respectively. These spot sales were hedged with forward purchases
for the same number of ounces at an average price of $434.15 at March 31, 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.







12






Derivative
metal and foreign currency instruments are used to hedge metal positions and
obligations. As of March 31, 2005, approximately 98% of these instruments have
settlement terms of less than one year, with the remaining instruments expected
to settle within 33 months. These derivative metal and foreign currency
instruments consist of the following:




Metal
Hedging Instruments (in millions):


**March
      31, 2005**
    ****
    **December
      31, 2004**
    ********
    ****
    **Buy**
    ****
    **Sell**
    ****
    **Buy**
    ****
    **Sell**Metal
      forwards/futures
    
    $
    602.5
    
    $
    648.7
    
    $
    625.2
    
    $
    662.6Eurodollar
      futures
    
    
    31.9
    
    
    84.5
    
    
    11.2
    
    
    136.6Swaps
    
    
    33.2
    
    
    4.0
    
    
    31.2
    
    
    9.8Options
    
    
    22.0
    
    
    —
    
    
    3.9
    
    
    —Foreign
      exchange forwards/futures - Japanese yen
    
    
    —
    
    
    94.5
    
    
    —
    
    
    130.8Foreign
      exchange forwards/futures - Euro
    
    
    —
    
    
    28.4
    
    
    —
    
    
    23.4Foreign
      exchange forwards/futures - Other
    
    
    3.0
    
    
    —
    
    
    5.5
    
    
    —







**Note
11 - New Accounting Pronouncements**





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 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 on its
financial statements.
  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. The effective date of SFAS
No. 123(R) was deferred until the beginning of the first fiscal year beginning
after June 15, 2005. As a result, the Company will adopt this statement in 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.
  13
 
 
 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.
Accordingly, the Company continues to assess the new tax rules relating to the
repatriation of offshore earnings from its foreign subsidiaries and it will take
appropriate measures in the second half of 2005.  Due to the uncertainty of
the direction the Company will take in this regard, it cannot reasonably predict
the impact to the Company's financial statements in 2005.
 ****


**Note
12 - 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 March 31,**(in
      millions, except per-share data):
    
    
    **2005**
    ****
    ****
    **2004**Net
      earnings - as reported
    
    $
    58.0
    
    $
    50.3Deduct:
      Total stock-based employee compensation expense determinedunder
      fair value based
      method
      for all awards, net of tax
    
    
    (2.3
    )
    
    (2.8
    )Net
      earnings - pro forma
    
    $
    55.7
    
    $
    47.5Earnings
      Per Share:Basic
      earnings per share - as reported
    
    $
    0.48
    
    $
    0.41Basic
      earnings per share - pro forma
    
    
    0.46
    
    
    0.38Diluted
      earnings per share - as reported
    
    
    0.47
    
    
    0.40Diluted
      earnings per share - pro forma
    
    
    0.45
    
    
    0.38






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
13 - 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
  14
 
 
 periodic
benefit cost for the three-month periods ended March 31, 2005 and 2004 are shown
in the following table:
  Net
Periodic Benefit Cost (in millions):
 **Pension
      Benefits**
    ****
    **Other
      Benefits**
    ********
    ****
    **2005**
    ****
    **2004**
    ****
    **2005**
    ****
    2004Service
      cost
    
    $
    6.0
    
    $
    5.5
    
    $
    1.0
    
    $
    0.9Interest
      cost
    
    
    10.2
    
    
    9.5
    
    
    2.0
    
    
    2.4Expected
      return on plan assets
    
    
    (12.3
    )
    
    (12.1
    )
    
    -
    
    
    -Amortization
      of prior service cost
    
    
    0.6
    
    
    0.8
    
    
    (0.6
    )
    
    (0.6
    )Recognized
      actuarial loss
    
    
    3.6
    
    
    2.7
    
    
    0.2
    
    
    0.5Net
      periodic benefit cost
    
    $
    8.1
    
    $
    6.4
    
    $
    2.6
    
    $
    3.2
 
 The Company
does not anticipate any changes to the pension contribution amounts that were
previously disclosed in the Company’s 2004 Form 10-K.
  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 accordance with FASB Staff Position (FSP) No. 106-2, “Accounting and
Disclosure Requirement 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 $2.9 million for the three-month period ended March
31, 2005. Expected future benefits payments, including prescription drug
benefits, are as follows (in millions):
  Year2005
      (April 1 through December 31)
    
    $
    8.82006
    
    
    11.22007
    
    
    10.72008
    
    
    10.02009
    
    
    9.52010
      through 2014
    
    
    44.1
  The Company
expects the following reimbursements under the subsidy portion of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (in
millions):
  Year2005
      (April 1 through December 31)
    
    $
    —2006
    
    
    1.72007
    
    
    1.92008
    
    
    1.92009
    
    
    2.02010
      through 2014
    
    
    8.3


****


15








**Note
14 - 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):
 **Three
      Months Ended March 31,******
    
    **2005**
    
    **2004**Materials
      Services related:Change
      in assets and liabilities - source(use):Receivables
    
    $
    (6.6
    )
    $
    (3.0
    )Committed
      metal positions
    
    
    54.2
    
    
    (99.2
    )Inventories
    
    
    0.4
    
    
    (0.1
    )Other
      current assets
    
    
    (0.4
    )
    
    (0.2
    )Other
      noncurrent assets
    
    
    —
    
    
    (0.2
    )Accounts
      payable
    
    
    (63.6
    )
    
    65.0Hedged
      metal obligations
    
    
    3.7
    
    
    30.0Other
      current liabilities
    
    
    (2.4
    )
    
    (4.0
    )Net
      cash flows from changes in assets and liabilities
    
    $
    (14.7
    )
    $
    (11.7
    )All
      Other:Change
      in assets and liabilities - source(use):Receivables
    
    $
    (38.3
    )
    $
    (28.7
    )Inventories
    
    
    (13.5
    )
    
    2.0Other
      current assets
    
    
    (6.7
    )
    
    2.6Other
      noncurrent assets
    
    
    5.6
    
    
    0.8Accounts
      payable
    
    
    23.3
    
    
    10.5Other
      current liabilities
    
    
    19.4
    
    
    (5.9
    )Noncurrent
      liabilities
    
    
    (18.9
    )
    
    (4.5
    )Net
      cash flows from changes in assets and liabilities
    
    $
    (29.1
    )
    $
    (23.2
    )





**Note
15 - 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 has appealed this decision. 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. Although Engelhard Peru, S.A. is not a defendant, it may be
civilly liable in Peru if its representatives are found





16








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
16 - Income Taxes


In respect of
recurring worldwide business operations, the Company’s effective tax rate
(“ETR”) is estimated to be approximately 23% based upon current tax laws. On
occasion, however, there are nonrecurring events that will impact the ETR. These
one time events, which can be either favorable or unfavorable, will be reflected
in the quarter in which the event occurs consistent with applicable accounting
principles. During the quarter ended March 31, 2005, the Company recorded a
favorable impact ($2.7 million reduction of tax expense) resulting from an
agreement with the Internal Revenue Service (“IRS”) relating to the audit of the
Company’s tax return for 2001. Accordingly, the favorable adjustment relating to
the agreement with the IRS will reduce the Company’s ETR below its normal level
for the year. The Company is not aware of any further material adjustments that
would affect its ETR for the remainder of the year but it cannot preclude the
possibility that such an event may occur.









17






**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 operating close to capacity generating demand for the extra
yields provided by Engelhard’s advanced fluid cracking catalysts and performance
additives; (4) markets for effect pigments, colors and active ingredients in
cosmetics, personal care, auto finishes and coatings have remained positive
during the recent economic downturns and tend to be less cyclical; (5) the
coated, free-sheet paper market has strengthened, but pricing and related market
share loss continue to negatively impact the Company; and (6) margins related to
the supply of metal to industrial customers are lower 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 charges. Unallocated items include interest
expense, interest income, 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 First Quarter of 2005 with the First Quarter of
2004**

Net earnings
in the first quarter of 2005 included a tax benefit of $2.7 million resulting
from an agreement reached with the Internal Revenue Service with respect to the
Company’s tax return for 2001. Net earnings increased to $58.0 million in the
first quarter of 2005 compared to $50.3 million in the first quarter of 2004.
Operating earnings increased to $69.4 million in the first quarter compared to
$64.5 million in the same period last year. Improvements in operating earnings
came predominantly from the Company’s technology segments, as the Company
continues to leverage its technology platforms across increasingly diverse
markets. Earnings from the Company’s Asian equity method joint ventures also
improved over the first quarter of 2004. 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.

The effective
tax rate was 20.5% in the first quarter of 2005 compared to 22% for the first
quarter of 2004. As previously mentioned, the Company recognized a $2.7 million
tax benefit resulting from an agreement reached with the IRS with respect to the
Company’s 2001 tax return. The Company believes that its effective tax rate on
recurring business operations for 2005 will be approximately 23%. This effective
tax rate excludes the impact of the agreement with the IRS regarding the
Company’s 2001 tax return and any other one time events that may occur in the
remainder of 2005.

18


In connection with
the recent tax law changes, the Company continues to asses the new tax rules
relating to the repatriation of offshore earnings from its foreign subsidiaries
and it will take appropriate measures in the second half of 2005. Due to the
uncertainty of the direction the Company will take in this regard, it cannot
reasonably predict the impact to the Company’s financial statements in
2005.

The Company’s
share of equity earnings from affiliates was $8.1 million in the first quarter
of 2005 compared to $4.9 million in the same period last year. Earnings
improvement of these operations reflects the strength of the Asian automotive
markets, and reduced warranty expense. Worldwide automobile builds were down in
the first quarter, but automobile builds in Asia were higher compared to the
same period last year. Also in the period, the Company exchanged a minority
interest in its Chinese operations for an increased equity ownership position in
its Japanese affiliate, N.E. Chemcat. This transaction serves to improve the
Company’s overall position in the Asian automotive markets. The Company expects
these operations to produce earnings near current levels for the remainder of
2005.

**Environmental
Technologies**

The majority
of this segment’s sales is derived from technologies to control pollution from
mobile sources, including gasoline- and diesel-powered passenger cars,
sport-utility vehicles, trucks, buses and motorcycles. This segment’s customers
generally 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)*

Q1
      2005
    
    Q1
      2004
    
    %
      changeSales
    
    $
    241.4
    
    $
    238.4
    
    
    1.3
    %Operating
      earnings
    
    
    36.5
    
    
    37.0
    
    
    -1.4
    %
**
*Discussion*

Results from
this segment were good, as operating earnings declined 1% compared to a strong
year-ago quarter.

Revenues from
mobile-source markets were relatively flat in the first quarter of 2005 compared
with the same period in 2004. The Company serves a wide customer base, and
changes in the mix of sales to these markets are common. In the first quarter of
2005 compared to the first quarter of 2004, the mix of products sold to these
markets resulted in modestly lower revenues from light-duty markets, which was
offset by modestly higher revenues from the diesel OEM market and the positive
impact of currency exchange.

Operating
earnings from mobile-source markets decreased 5% in the first quarter of 2005
compared with the first quarter of 2004. Decreased profitability from the
light-duty market and diesel retrofit market was partially offset by increased
profitability from the diesel OEM market. Light-duty automobile builds in North
America and Europe declined in the current period compared to the same period
last year, while automobile builds in Asia increased. The Company expects these
trends to continue for the remainder of 2005, as inventory levels at the
Company’s North American customers have increased. The Company expects declines
in earnings from light-duty gasoline applications to be partially offset by
improved sales of light-duty diesel applications to these markets. The Company
serves the large Asian markets of Japan and Korea through joint ventures
accounted for under the equity method. Accordingly, the positive results of
those operations, reflecting continued strength in the Asian markets, are
included on the Equity Earnings line. Diesel OEM markets are expected to remain
strong for 2005, albeit not at 2004 levels, and will see improved results
towards the end of 2006 as more stringent environmental regulations become
effective.

19


Sales to industrial
product markets increased modestly in the first quarter of 2005 compared to the
first quarter of 2004. Sales to power-generation customers were positively
impacted by one large order in the period, and are not indicative of a rebound
in the power-generation market. Sales to other industrial markets were mixed, as
increased sales to the temperature-sensing market were offset by decreased sales
to other served markets.

Earnings from
industrial product markets improved in the first quarter of 2005 compared with
the first quarter of 2004. Earnings from the power-generation market improved
versus the prior year, due primarily to the aforementioned large order in the
period. The temperature-sensing market, while relatively small, represents a
niche growth area for the Company. Increased earnings from the
temperature-sensing market, due primarily to a 2004 mid-year acquisition, were
offset by decreased earnings from other served markets. While cash flows from
other served markets remain sufficient to support existing asset values, certain
operations are being evaluated from a strategic standpoint. It is possible that
some of these assets may be sold or shut down. Fixed assets associated with
these operations, which are currently recoverable, are approximately $10
million, and the majority of the employees are covered by a collective
bargaining agreement that contains severance provisions.

There is $18
million of goodwill associated with the operations serving industrial products
markets. The fair value of these operations modestly exceeds the carrying value
of these operations. If these businesses experience cash flows below current
expectations, the carrying value of these operations could exceed the fair
value, resulting in an impairment of goodwill.

**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)*

Q1
      2005
    
    Q1
      2004
    
    %
      changeSales
    
    $
    148.0
    
    $
    132.2
    
    
    12.0
    %Operating
      earnings
    
    
    19.1
    
    
    16.3
    
    
    17.2
    %
*Discussion*

This segment
experienced improved results in the first quarter of 2005 compared to the same
period last year.

Sales of
catalyst and additives to the petroleum-refining market increased modestly in
the first quarter of 2005 compared with the first quarter of 2004. The increase
was driven by continued strong demand for catalyst products derived from the
Company’s Distributed Matrix Structure (DMS) technology platform, which sold at
premium prices. DMS technology allows refiners to increase yields. Higher
volumes of petroleum-refining additives also positively impacted sales. These
improvements were partially offset by decreased demand for older product
offerings.

Operating
earnings from products sold to petroleum-refining markets decreased modestly in
2005 compared with 2004. Earnings from increased demand for DMS technologies
were offset by higher natural gas costs of approximately $1 million, other raw
material costs, and decreased earnings from older product offerings. During
2004, strong demand for DMS technology began to exceed existing capacity at the
operating facility that produces these products. The Company has completed a
project to reduce costs and increase capacity at these facilities, but
experienced some higher costs in the current period as this project was
implemented. The Company believes that these operations will experience higher
prices and lower operating costs going forward, somewhat offset by higher raw
material costs.

Sales of
catalysts to the chemical-process markets increased significantly in the first
quarter of 2005 compared with the first quarter of 2004. The increase in
revenues came from most served markets including the oleochemical, petrochemical
and polyolefin markets. Volumes of*Lynx*polypropylene catalysts increased in 2005

20


compared
with 2004 as market acceptance continued and expanded capacity at the Company’s
facility in Tarragona, Spain is now fully operational. Price increases initiated
in 2004 and 2005 accounted for approximately $2 million of higher revenues.

Operating
earnings from products sold to chemical-process markets increased significantly,
driven by the above-mentioned increased revenues, and absence of Tarragona
start-up related costs of $2.3 million in the year ago period. The increase from
revenues was negatively impacted by the mix of products sold, as the Company
sold higher volumes of lower margin products. The Company anticipates modestly
improved results from the chemical-process markets in 2005 compared to 2004, as
customer demand, driven by high customer capacity utilization rates, continues
to improve.

**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)*

Q1
      2005
    
    Q1
      2004
    
    %
      changeSales
    
    $
    173.9
    
    $
    166.3
    
    
    4.6
    %Operating
      earnings
    
    
    18.1
    
    
    15.1
    
    
    19.9
    %

*Discussion*

Results from
this segment were good, as decreased earnings from sales to the paper market
were more than offset by increased earnings from the specialty kaolin, and
cosmetics and personal care markets.

Sales of
kaolin- and attapulgite-based products increased 5% in the first quarter of 2005
compared with the first quarter of 2004, as the Company experienced modestly
increased revenues to all served markets and higher prices to the paper market.
The Company continues to focus on non-paper kaolin markets to maximize cash
flows from these operations. These markets include plastics, construction,
automotive, agriculture and coatings.

Operating
earnings from kaolin- and attapulgite-based products increased 33% in the first
quarter of 2005 compared with a weak first quarter in 2004. Decreased earnings
from kaolin-based products to the paper market were more than offset by earnings
from kaolin-based products to other markets as discussed above. Late in 2004,
the Company initiated productivity programs designed to decrease costs related
to products sold to the paper market, and improve the manufacturing and
marketing focus on non-paper kaolin markets. To date, these programs have been
successful. Higher natural gas prices negatively impacted these operations by
approximately $2 million in the quarter. Natural gas prices are expected to
remain high for the remainder of 2005, and will negatively impact these
businesses by as much as $9 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.” Currently,
these assets are not impaired.

Sales of
effect materials, colors and personal care actives increased 4% in the first
quarter of 2005 compared with the same period in 2004. In the quarter, the
Company strengthened its position in the personal care market by acquiring
Coletica, S.A., a European high-growth 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. These operations, acquired in 2004, accounted for all of
the increase in sales in the first

21


quarter
of 2005 compared to the first quarter of 2004, offset by lower sales of
colorants. In late 2004, the Company experienced strong demand for its colorant
products, resulting in inventory builds at the Company’s customers.

Operating
earnings from effect materials, colors and personal care actives increased
approximately 18% in the first quarter of 2005 compared with the first quarter
of 2004, due primarily to the above-mentioned 2004 acquisition, and absence of
certain expenses associated with product development and commercialization. The
Company expects continued improvement from these markets due primarily to its
increased presence in the cosmetics and personal care markets.

**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)*

Q1
      2005
    
    Q1
      2004
    
    %
      changeSales
    
    $
    450.5
    
    $
    491.1
    
    
    -8.3
    %Operating
      earnings
    
    
    4.4
    
    
    3.4
    
    
    29.4
    %

*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 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. Revenues in the first quarter
of 2005 decreased compared to the first quarter of 2004 as lower volumes of
platinum group metals were partially offset by higher prices of platinum group
metals.

Earnings from metal
sourcing operations improved in the first quarter of 2005 compared with the
first quarter of 2004. Refining and related service operations were flat
compared to the same period last year, as improved earnings at the Company’s
domestic refinery were offset by the timing of administrative expenses.

**Liquidity
and Capital Resources**
****
**Liquidity**

Working
capital was $593.6 million at March 31, 2005, compared with $659.8 million at
December 31, 2004. The current ratio was 1.6 and 1.7 at March 31, 2005 and
December 31, 2004, respectively. This primarily reflects reduced cash balances,
as the Company utilized existing foreign cash balances to acquire Coletica, S.A.
(see Note 2, “Acquisitions”). The working capital of the Company’s technology
segments (Environmental Technologies, Process Technologies and Appearance and
Performance Technologies) is not subject to significant fluctuations from

22


period to
period. While these businesses experience some modest seasonality, it is not
enough to have a significant impact on their overall working capital
requirements. The working capital of the Materials Services segment may vary due
to the timing of metal contracts, but is monitored closely by senior management.
While long-term working capital requirements cannot be readily predicted, it is
expected that they will grow proportionally with the revenues and earnings of
the technology segments.

Cash balances
were $52.7 million and $126.2 million at March 31, 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
March 31, 2005, the Company had $24.5 million of commercial paper outstanding,
all of which matured on April 1, 2005.

The Company’s
total debt increased to $536.8 million at March 31, 2005 from $525.7 million at
December 31, 2004. The percentage of total debt to total capitalization remained
at 27% at March 31, 2005 compared to December 31, 2004.

In 2004, the
Company increased its existing $150 million shelf registration to $450 million
in order to increase 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 currently
generate cash approximating earnings. This is evidenced by the comparison of
depreciation and amortization to capital spending for these segments over a
significant period of time. 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 relatively flat compared to the same period
last year. Certain seasonal trends traditionally impact net cash provided by
operating activities in the first quarter of the year, notably higher
compensation payments and inventory builds for certain markets. Accordingly, the
first quarter is expected to be the lowest quarter for the year. Variances in
cash flows occurring in the Materials Services segment reflect changes in metal
positions used to facilitate requirements of the Company, its metal customers
and suppliers (see Note 14, “Supplemental Information,” for Materials Services
variances). 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

23


forward
purchases. Unless a forward counterparty fails to perform, there is no price
risk. 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. As of March 31,
2005, the aggregate market value of the metals purchased under a contract for
which a provisional price had been paid was in excess of the amounts advanced by
a total of $41.6 million. As a result, this amount was recorded in committed
metal positions and accounts payable at March 31, 2005.

The Company’s
joint ventures operate independently of additional Company financing. These
joint ventures returned $3.1 million of cash to the Company in the first quarter
of 2005. Full-year proceeds from the Asian and other joint ventures are expected
to be approximately $5-10 million 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, in
the first quarter of 2005, the Company invested $25.0 million in capital
projects and $55.1 million in acquisitions and other investments. Capital
expenditures for 2005 are expected to be approximately $130 million to $140
million. Acquisitions in the first quarter included approximately $50 million,
net of cash acquired, for the acquisition of 78% ownership of Coletica, S.A. and
related holdings, which strengthens the Company’s position in the personal care
market. The Company has committed to, and expects to acquire the remaining
outstanding shares in the second quarter of 2005. 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 quarter of 2005 the Company purchased approximately 1.4
million outstanding shares of common stock, net of stock options exercised. 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 currently engaged in formal productivity improvement plans
      in its Appearance and Performance Technologies and Environmental
      Technologies segments that are expected to have a positive impact on
      earnings. Failure to achieve certain milestones would negatively impact
      the Company. The Company is also engaged in growth 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.

24


·
    *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.

·
    *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.

·
    *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.*

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.

·
    *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.

25


·
    *A
      decrease in the availability or an increase in the cost of energy, notably
      natural gas.*The
      Company consumes more than 10 million MMBTUs of natural gas annually.
      Compared to other sources of energy, natural gas is subject to volatility
      in availability and price, due to transportation, processing and storage
      requirements.

·
    *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 over 6,000 employees worldwide and is subject to
      recent trends in benefit costs, notably medical
  benefits.

·
    *Higher
      interest rates.*The majority 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.

·
    *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.

·
    *The
      impact of the repeal of the U.S. export sales tax incentive and the
      enactment of theAmerican
      Jobs Creation Act of 2004.***The Company is in the process of assessing the impact of these
      actions.

·
    *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.

26


·
    *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.

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.
****


****





27




**Item
3.    Quantitive 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 the Company’s 2004 Form
10-K. There have been no significant changes to these market risks as of March
31, 2005.
 ****


**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 March 31, 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 March 31, 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 first 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 March 31,
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.


****


****


28




**PART
II - OTHER INFORMATION**


****


****


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





(c)
    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 March 31,
    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)1/1/05 -
      1/31/05
    
    
    6,500(b)
    
    $
    29.34
    
    
    6,500
    
    
    2,868,0322/1/05
      - 2/28/05
    
    
    478,100(c)
    
    
    29.74
    
    
    478,100
    
    
    2,389,9323/1/05
      - 3/31/05
    
    
    1,052,900
    
    
    29.97
    
    
    1,052,900
    
    
    1,337,032Total
    
    
    1,537,500
    
    $
    29.90
    
    
    1,537,500


(a)
    Share
      repurchase program of 6 million shares authorized in October 2003. 
      Does not include share repurchase program of 6 million shares authorized
      by the Board of Directors on May 5, 2005.(b)
    Excludes
      344 shares obtained through dividend reinvestment by the Rabbi Trust under
      the Deferred Compensation Plan for Key Employees of Engelhard
      Corporation.(c)
    Excludes
      72,044 shares obtained through participant deferrals by the Rabbi Trust
      under the Deferred Compensation Plan for Key Employees of Engelhard
      Corporation. Also excludes 3,511 shares received into treasury stock under
      the Key Employees Stock Bonus Plan of Engelhard Corporation, representing
      the net shares received by the Company from employees to cover
      supplemental withholding taxes on the annual stock award vesting


**Item
4.    Submission of Matters to a Vote of Security
Holders**





(a)
    The
      Company’s Annual Meeting of the Shareholders was held on Thursday, May 5,
      2005.(b)
    The
      results of votes of security holders for the election of directors are as
      follows:





Election
      of Directors
    For
    WithheldBarry
      W. Perry
    109,094,609
    3,454,561Douglas
      G. Watson
    108,769,493
    3,779,677





Marion
      H. Antonini, David L. Burner, James V. Napier and Henry R. Slack continued
      as Directors after the annual meeting.






(c)
    The
      results of votes of security holders for the ratification of the
      appointment of Ernst & Young LLP as our independent registered public
      accounting firm are as
follows:




For
    Against
    Abstain111,361,036
    405,988
    782,146






29





**Item
      6.**
    **Exhibits**
    
    **Pages**(31)(a)
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
    32(31)(b)
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
    33(32)
    Section
      1350 Certifications of Chief Executive Officer and Chief Financial
      Officer. *
    34(b)
    
    In
      a report on Form 8-K furnished to the Securities and Exchange Commission
      (SEC) on February 8, 2005, the Company reported that it furnished its
      earnings release with the SEC for the fourth quarter and fiscal year ended
      December 31, 2004.


* 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.




30




**SIGNATURES**








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











ENGELHARD
      CORPORATION
      (Registrant)Date:    May 9,
      2005
    
    /s/  Barry
      W. PerryBarry
      W. PerryChairman
      and Chief Executive Officer

Date:   May 9, 2005
    
    /s/  Michael A.
  SperdutoMichael
      A. SperdutoVice President and
      Chief Financial Officer

Date:    May 9,
      2005
    
    /s/  Alan J. ShawAlan J.
      ShawController








31





EXHIBIT
(31)(a)





**Rule
13a-14(a)/15d-14(a)**


**Certification
of Chief Executive Officer**






I, Barry
W. Perry, Chairman and Chief Executive Officer of Engelhard Corporation (the
“Company”), certify that:
  1.
    I
      have reviewed this quarterly report on Form 10-Q of the
      Company;
  2.
    Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;
  3.
    Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;
  4.
    The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Acts Rules
      13a-15(f) and 15d-15(f)) for the registrant and we
have:
  (a)
    Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
  (b)
    Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
  (c)
    Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
and
  (d)
    Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
  5.
    The
      registrant’s other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant’s auditors and to the audit committee of registrant’s
      board of directors (or persons performing the equivalent
      function):
  (a)
    All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
and
  (b)
    Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.
 
  Date:    May 9,
      2005
    
    /s/  Barry
      W. PerryBarry
      W. PerryChairman
      and Chief Executive Officer


32
 
 EXHIBIT
(31)(b)





**Rule
13a-14(a)/15d-14(a)**
 **Certification
of Chief Financial Officer**
 ****
 
 I,
Michael A. Sperduto, Vice President and Chief Financial Officer of Engelhard
Corporation (the “Company”), certify that:
 1.
    I
      have reviewed this quarterly report on Form 10-Q of the
      Company;
  2.
    Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;
  3.
    Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;
  4.
    The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Acts Rules
      13a-15(f) and 15d-15(f)) for the registrant and we
have:
  (a)
    Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
  (b)
    Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
  (c)
    Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
and
  (d)
    Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
  5.
    The
      registrant’s other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant’s auditors and to the audit committee of registrant’s
      board of directors (or persons performing the equivalent
      function):
  (a)
    All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
and
  (b)
    Any fraud,
      whether or not material, that involves management or other employees who
      have a significant role in the registrant’s internal control over
      financial reporting.
  Date:    May 9,
      2005
    
    /s/  Michael
      A. SperdutoMichael
      A. SperdutoVice
      President and Chief Financial Officer
 ****
 33




EXHIBIT
(32)








**Section
1350 Certifications of**


**Chief
Executive Officer and Chief Financial Officer**






The
undersigned, Barry W. Perry, Chairman and Chief Executive Officer of Engelhard
Corporation (the “Company”), and Michael A. Sperduto, Vice President and Chief
Financial Officer of the Company, each hereby certifies that the Quarterly
Report of the Company on Form 10-Q for the period ended March 31, 2005 (the
“Report”) (1) fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and (2) the information contained in the Report
fairly presents, in all material respects, the financial condition and the
results of operations of the Company.


Date:    May 9,
      2005
    
    /s/  Barry
      W. PerryBarry
      W. PerryChairman
      and Chief Executive Officer

Date:   May 9, 2005
    
    /s/  Michael A.
  SperdutoMichael
      A. SperdutoVice President and
      Chief Financial Officer


This
certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 or any other provision of the Securities Exchange Act of
1934, as amended.

A signed
original of this written statement required by Section 906 or other document
authenticating, acknowledging or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.


34