|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 THESECURITIES EXCHANGE ACT OF 1934


For the quarterly
period ended September 30, 2003


OR


|_| TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 or
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 |_|


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


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

|Class of Common Stock
$1 par value | Outstanding at October 31, 2003
125,457,142
|---------------------------------- | -------------------------------------------

|
|

|PART I  FINANCIAL
INFORMATION


Item 1. Financial
Statements


ENGELHARD CORPORATIONCONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS (Thousands, except per share data) (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Three Months
      Ended
      September 30, |  | Nine Months
      Ended
      September 30, |        
|---------------------------------------------------- | -------------------------------------------- |  | ------------------------------------------- | -------
|
|Net
      sales                                      |                                              |  | $                                           | 915,373
|Cost of sales                                        |                                              |  |                                             | 761,234
|                                                     |                                              |  |                                             |        
|Gross
      profit                                   |                                              |  |                                             | 154,139
|Selling,
      administrative and other expenses     |                                              |  |                                             | 88,038 
|Special credit,
      net                            |                                              |  |                                             |       
|                                                     |                                              |  |                                             |        
|Operating
      earnings                             |                                              |  |                                             | 66,101 
|Equity in
      earnings of affiliates               |                                              |  |                                             | 14,517 
|Equity investment
      impairment                   |                                              |  |                                             |       
|Loss on investments                                  |                                              |  |                                             |       
|Interest
      income                                |                                              |  |                                             | 1,004  
|Interest
      expense                               |                                              |  |                                             | (6,514 
|                                                     |                                              |  |                                             |        
|Earnings
      before income taxes                   |                                              |  |                                             | 75,108 
|Income tax
      expense                             |                                              |  |                                             | 15,275 
|                                                     |                                              |  |                                             |        
|Net earnings before cumulative effect of a           |                                              | 
|change in accounting principle, net of tax           |                                              |  |                                             | 59,833 
|Cumulative
      effect of a change in accounting    |                                              | 
|principle,
      net of tax of $1,390                |                                              |  |                                             |       
|                                                     |                                              |  |                                             |        
|Net
      earnings                                   |                                              |  | $                                           | 59,833 
|                                                     |                                              |  |                                             |        
|Earnings
      per share - basic:                    |                                              | 
|Earnings
      before cumulative effect of a change  |                                              | 
|in
      accounting principle                        |                                              |  | $                                           | 0.48   
|Cumulative
      effect of a change in accounting    |                                              | 
|principle,
      net of tax                          |                                              |  |                                             |       
|                                                     |                                              |  |                                             |        
|Earnings
      per share - basic                     |                                              |  | $                                           | 0.48   
|                                                     |                                              |  |                                             |        
|Earnings
      per share - diluted:                  |                                              | 
|Earnings
      before cumulative effect of a change  |                                              | 
|in
      accounting principle                        |                                              |  | $                                           | 0.47   
|Cumulative
      effect of a change in accounting    |                                              | 
|principle,
      net of tax                          |                                              |  |                                             |       
|                                                     |                                              |  |                                             |        
|Earnings
      per share - diluted                   |                                              |  | $                                           | 0.47   
|                                                     |                                              |  |                                             |        
|Cash dividends
      paid per share                  |                                              |  | $                                           | 0.10   
|                                                     |                                              |  |                                             |        
|Average number
      of shares outstanding - basic   |                                              |  |                                             | 124,683
|                                                     |                                              |  |                                             |        
|Average number
      of shares outstanding - diluted |                                              |  |                                             | 126,877
|                                                     |                                              |  |                                             |        

|See the Accompanying
Notes to the Unaudited Condensed Consolidated Financial Statements


2
|-------------------------------------------------------------------------------------------

|ENGELHARD CORPORATIONCONDENSED
CONSOLIDATED BALANCE SHEETS (Thousands)(Unaudited)
|---------------------------------------------------------------------------------

|                                                 | September
      30,
      2003 |  | December 31,
      2002 |          
|------------------------------------------------ | ------------------------------ |  | ----------------------- | ---------
|Cash                                             |                                |  | $                       | 79,377   
|Receivables,
      net                           |                                |  |                         | 345,758  
|Committed
      metal positions                  |                                |  |                         | 311,610  
|Inventories                                      |                                |  |                         | 438,661  
|Other current
      assets                       |                                |  |                         | 102,537  
|                                                 |                                |  |                         |          
|Total
      current assets                       |                                |  |                         | 1,277,943
|Investments                                      |                                |  |                         | 141,166  
|Property,
      plant and equipment, net         |                                |  |                         | 855,414  
|Goodwill                                         |                                |  |                         | 273,691  
|Other intangible
      and noncurrent assets     |                                |  |                         | 195,192  
|                                                 |                                |  |                         |          
|Total
      assets                               |                                |  | $                       | 2,743,406
|                                                 |                                |  |                         |          
|                                                 |                                |  |                         |          
|Short-term
      borrowings                      |                                |  | $                       | 86,469   
|Accounts
      payable                           |                                |  |                         | 208,387  
|Hedged metal
      obligations                   |                                |  |                         | 274,658  
|Other current
      liabilities                  |                                |  |                         | 274,401  
|                                                 |                                |  |                         |          
|Total
      current liabilities                  |                                |  |                         | 843,915  
|Long-term
      debt                             |                                |  |                         | 392,402  
|Other noncurrent
      liabilities               |                                |  |                         | 310,787  
|Shareholders
      equity                       |                                |  |                         | 1,196,302
|                                                 |                                |  |                         |          
|Total
      liabilities and shareholders equity |                                |  | $                       | 2,743,406
|                                                 |                                |  |                         |          

|See the Accompanying
Notes to the Unaudited Condensed Consolidated Financial Statements


3
|-------------------------------------------------------------------------------------------

|ENGELHARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands)(Unaudited)
|--------------------------------------------------------------------------------------------

|                                                              | Nine Months Ended
September 30, | 
|------------------------------------------------------------- | ------------------------------- | 
|
|Cash flows from operating activities                          |                                 | 
|Net earnings                                                  |                                 | 
|Adjustments to reconcile net earnings to net cash provided by |                                 | 
|operating activities:                                         |                                 | 
|Depreciation and depletion                                    |                                 | 
|Amortization of intangible assets                             |                                 | 
|Loss on investments                                           |                                 | 
|Equity results, net of dividends                              |                                 | 
|Equity investment impairment                                  |                                 | 
|Net change in assets and liabilities:                         |                                 | 
|Materials Services related                                    |                                 | 
|All other                                                     |                                 | 
|                                                              |                                 | 
|Net cash provided by operating activities                     |                                 | 
|                                                              |                                 | 
|Cash flows from investing activities                          |                                 | 
|Capital expenditures                                          |                                 | 
|Proceeds from investments                                     |                                 | 
|Acquisitions and other investments                            |                                 | 
|                                                              |                                 | 
|Net cash used in investing activities                         |                                 | 
|                                                              |                                 | 
|Cash flows from financing activities                          |                                 | 
|Proceeds from short-term borrowings                           |                                 | 
|Repayment of short-term borrowings                            |                                 | 
|(Decrease) increase in hedged metal obligations               |                                 | 
|Proceeds from issuance of long-term debt                      |                                 | 
|Repayment of long-term debt                                   |                                 | 
|Purchase of treasury stock                                    |                                 | 
|Cash from exercise of stock options                           |                                 | 
|Dividends paid                                                |                                 | 
|                                                              |                                 | 
|Net cash used in financing activities                         |                                 | 
|Effect of exchange rate changes on cash                       |                                 | 
|                                                              |                                 | 
|Net increase in cash                                          |                                 | 
|Cash at beginning of year                                     |                                 | 
|                                                              |                                 | 
|Cash at end of period                                         |                                 | 
|                                                              |                                 | 

|See the Accompanying
Notes to the Unaudited Condensed Consolidated Financial Statements


4
|-------------------------------------------------------------------------------------------

|ENGELHARD CORPORATION
BUSINESS SEGMENT INFORMATION (Thousands)(Unaudited)
|-------------------------------------------------------------------------

|                                                  | Three Months
      Ended
      September 30, |  | Nine Months
      Ended
      September 30, |        
|------------------------------------------------- | -------------------------------------------- |  | ------------------------------------------- | -------
|
|Net
      Sales                                   |                                              |  |                                             |        
|Environmental
      Technologies                  |                                              |  | $                                           | 202,225
|Process
      Technologies                        |                                              |  |                                             | 143,568
|Appearance
      and Performance Technologies     |                                              |  |                                             | 166,089
|                                                  |                                              |  |                                             |        
|Technology
      segments                         |                                              |  |                                             | 511,882
|Materials
      Services                          |                                              |  |                                             | 385,308
|All
      other                                   |                                              |  |                                             | 18,183 
|                                                  |                                              |  |                                             |        
|Total
      net sales                             |                                              |  | $                                           | 915,373
|                                                  |                                              |  |                                             |        
|Operating
      Earnings                          |                                              | 
|Environmental
      Technologies                  |                                              |  | $                                           | 30,980 
|Process
      Technologies                        |                                              |  |                                             | 24,629 
|Appearance
      and Performance Technologies     |                                              |  |                                             | 18,009 
|                                                  |                                              |  |                                             |        
|Technology
      segments                         |                                              |  |                                             | 73,618 
|Materials
      Services                          |                                              |  |                                             | 1,295  
|All
      other                                   |                                              |  |                                             | (8,812 
|                                                  |                                              |  |                                             |        
|Total
      operating earnings                    |                                              |  |                                             | 66,101 
|Equity in
      earnings of affiliates            |                                              |  |                                             | 14,517 
|Equity investment
      impairment                |                                              |  |                                             |       
|Loss on investments                               |                                              |  |                                             |       
|Interest
      income                             |                                              |  |                                             | 1,004  
|Interest
      expense                            |                                              |  |                                             | (6,514 
|                                                  |                                              |  |                                             |        
|Earnings
      before income taxes                |                                              |  |                                             | 75,108 
|Income tax
      expense                          |                                              |  |                                             | 15,275 
|                                                  |                                              |  |                                             |        
|Net
      earnings before cumulative effect       |                                              | 
|of
      a change in accounting principle, net    |                                              | 
|of
      tax                                      |                                              |  |                                             | 59,833 
|Cumulative
      effect of a change in accounting |                                              | 
|principle,
      net of tax of $1,390             |                                              |  |                                             |       
|                                                  |                                              |  |                                             |        
|Net
      earnings                                |                                              |  | $                                           | 59,833 
|                                                  |                                              |  |                                             |        

|See the Accompanying
Notes to the Unaudited Condensed Consolidated Financial Statements


5
|-------------------------------------------------------------------------------------------

|Notes to the Unaudited
Condensed Consolidated Financial Statements


Note 1  Basis of Presentation


The
unaudited condensed consolidated financial statements of Engelhard Corporation and
subsidiaries (the Company) contain all adjustments, which, in the opinion of
management, are necessary for a fair 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 2002 Annual Report to Shareholders. 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. Certain prior-year amounts have been reclassified to conform with the
current-year presentation.


Note 2  Special
Charges and Credits


In
the first quarter of 2003, the Company entered into a settlement agreement, releasing a
claim the Company had brought against Research Corporation and Research Corporation
Technologies in exchange for payment of $38.0 million. Accordingly, the Company recorded a
gain of $28.4 million ($17.6 million after tax) in the first quarter of 2003, net of legal
fees and the portion of the settlement related to future royalties. This gain was included
in the Companys All-Other category and in the Special credit,
net line in the Condensed Consolidated Statements of Earnings. On
October 29, 2002, a jury in the New York County Supreme Court had awarded the Company
$29.8 million in damages in a breach of contract action the Company had brought against
Research Corporation and Research Corporation Technologies in 1998. The jury found that
the defendants did not share with the Company all of the royalties to which the Company
was entitled under a royalty-sharing agreement it entered into with Research Corporation
in 1979. Statutory interest to the date of the verdict would have increased the amount
awarded to approximately $42.2 million.


Also
in the first quarter of 2003, the Company recorded charges totaling $8.7 million ($5.6
million after tax) primarily related to a management consolidation and productivity
initiative in the Environmental and Process Technologies segments and within the
All-Other category. The amounts of $5.3 million ($3.5 million after tax), $2.6
million ($1.6 million after tax) and $0.8 million ($0.5 million after tax) were reported
in the Environmental Technologies segment, the Process Technologies segment and the
All-Other category, respectively. These charges are included in the
Special credit, net line in the Condensed Consolidated Statements of
Earnings.


In
the Environmental Technologies segment, the charge of $5.3 million primarily relates to
the closure of the segments Coleford, U.K. plant ($2.8 million) and employee severance
costs related to productivity initiatives ($2.5 million). The employee severance charges
relate to the reduction of 96 salaried and 12 hourly employees. As a result of closing the
Coleford plant, the segment has outsourced the canning operations associated with
this business. The closure resulted in an impairment charge of $1.5 million to write down
fixed assets and other exit-related costs of $1.3 million. As of September 30, 2003, the
liability associated with this charge was $1.2 million.


In
the Process Technologies segment, the charge of $2.6 million primarily relates to employee
severance and the termination of an agency agreement associated with sales to the
chemical-process market. The employee severance charges relate to the reduction of 13
salaried employees. Selling activities associated with the termination of this agency
agreement will be covered by the segments internal sales force. As of September 30,
2003, the liability associated with this charge was $0.5 million.


In
the All-Other category, the charge of $0.8 million was for employee severance
costs related to the reduction of six salaried employees. As of September 30, 2003, the
liability associated with this charge was $0.2 million.


6
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the second quarter of 2003, the Company recorded a charge of $7.8 million ($4.8 million
after tax) related to a previously projected provision for the fair value of the remaining
lease cost of certain minerals-storage facilities no longer needed because of productivity
initiatives. As of June 30, 2003, the Companys Appearance and Performance
Technologies segment had ceased using these facilities and, accordingly, a provision for
these remaining lease rentals was reported in the Special credit, net line in
the Condensed Consolidated Statements of Earnings. As of September 30, 2003,
the liability associated with this charge was $7.3 million.


Note 3  Accounting
for Asset Retirement Obligations


The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations, on January 1, 2003. This
statement, which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset retirement
costs, requires the fair value of a liability for an asset retirement obligation to be
recognized in the period in which it is incurred. The liability is measured at fair value
and is adjusted in subsequent periods as accretion expense is recorded. The corresponding
asset retirement costs are capitalized as part of the carrying amount of the related
long-lived asset and depreciated over the assets useful life.


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. Prior to adoption of SFAS No. 143, the Company incurred reclamation costs to
comply with state regulation and expensed costs as the mined areas were reclaimed.


At
January 1, 2003, the Company recognized transition amounts for existing asset retirement
obligation liabilities, associated capitalizable costs and accumulated depreciation. A
non-cash transition charge of $3.7 million ($2.3 million after tax or $0.02 per share on a
diluted basis) was recorded on January 1, 2003 as the cumulative effect of an accounting
change. Pro forma net income and diluted earnings per share as if the provisions of SFAS
No. 143 had been adopted on January 1, 2002, excluding the cumulative effect of an
accounting change, for the nine-month periods ended September 30, 2003 and September 30,
2002 are $172.4 million and $1.35 per share and $114.9 million and $0.88 per share,
respectively.


The
following table represents the change in the Companys asset retirement obligation
liability for the nine-month period ended September 30, 2003 (in millions):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                     | 2003 | 
|-------------------------------------------------------------------- | ---- | 
|Asset retirement obligation at January 1, 2003                       |      | 
|Liability recognized in transition                                   |      | 
|Liability recognized during the nine-months ended September 30, 2003 |      | 
|Accretion expense                                                    |      | 
|Payments                                                             |      | 
|                                                                     |      | 
|Asset retirement obligation at September 30, 2003                    |      | 
|                                                                     |      | 

|The
pro forma amount of liability for asset retirement obligation as if the provisions of SFAS
No. 143 had been applied at January 1, 2002 is $6.7 million.


7
|---------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 4  Inventories


Inventories consist of the following
(in millions):
|--------------------------------------------------------------------------

|                  | September 30, 2003 |  | December 31, 2002 |      
|----------------- | ------------------ |  | ----------------- | -----
|Raw materials     |                    |  | $                 | 116.4
|Work in process   |                    |  |                   | 51.9 
|Finished goods    |                    |  |                   | 254.1
|Precious metals   |                    |  |                   | 16.3 
|                  |                    |  |                   |      
|Total inventories |                    |  | $                 | 438.7
|                  |                    |  |                   |      

|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 LIFO cost. The market value of the precious metals recorded at LIFO exceeded
cost by $51.8 million and $58.3 million at September 30, 2003 and December 31, 2002,
respectively. Net earnings include after-tax gains of $3.1 million in each of the third
quarter periods ended September 30, 2003 and 2002 from the sale of inventory accounted for
under the LIFO method.


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


Note 5 
Comprehensive Income


Comprehensive income is summarized as
follows (in millions):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | Three Months Ended
September 30, |  | Nine Months Ended
September 30, |     
|--------------------------------------- | -------------------------------- |  | ------------------------------- | ----
|
|Net earnings                            |                                  |  | $                               | 59.8
|Other comprehensive income (loss):      |                                  | 
|Foreign currency translation adjustment |                                  |  |                                 | 8.2 
|Cash flow hedge adjustment, net of tax  |                                  |  |                                 | (1.1
|Investment adjustment, net of tax       |                                  |  |                                 | 0.1 
|                                        |                                  |  |                                 |     
|Comprehensive income                    |                                  |  | $                               | 67.0
|                                        |                                  |  |                                 |     

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


8
|----------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 6  Earnings
Per Share


The following table represents the
computation of basic and diluted earnings per share:
|---------------------------------------------------------------------------------------------------------------------

|                                                      | Three Months Ended
September 30, |  | Nine Months Ended
September 30, |      
|----------------------------------------------------- | -------------------------------- |  | ------------------------------- | -----
|
|(in millions, except per share data)                  |                                  | 
|Basic EPS Computation                                 |                                  |  |                                 |      
|Net earnings applicable to common shares              |                                  |  | $                               | 59.8 
|                                                      |                                  |  |                                 |      
|Average number of shares outstanding - basic          |                                  |  |                                 | 124.7
|                                                      |                                  |  |                                 |      
|Basic earnings per share                              |                                  |  | $                               | 0.48 
|                                                      |                                  |  |                                 |      
|Diluted EPS Computation                               |                                  | 
|Net earnings applicable to common shares              |                                  |  | $                               | 59.8 
|                                                      |                                  |  |                                 |      
|Average number of shares outstanding - basic          |                                  |  |                                 | 124.7
|Effect of dilutive stock options and other incentives |                                  |  |                                 | 2.2  
|                                                      |                                  |  |                                 |      
|Average number of shares outstanding - diluted        |                                  |  |                                 | 126.9
|                                                      |                                  |  |                                 |      
|Diluted earnings per share                            |                                  |  | $                               | 0.47 
|                                                      |                                  |  |                                 |      

|Note 7 
Derivatives and Hedging


The
Company reports all derivative instruments on the balance sheet at their fair value.
Changes in the fair value of derivatives designated as cash flow hedges are initially
recorded in 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.


In
order to manage in a manner consistent with historical processes, procedures and systems
and to achieve operating economies, certain economic hedge transactions are not designated
as hedges for accounting purposes. In those cases, which primarily relate to platinum
group metals, the Company 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 hedging instruments and items
impacted by cash flow hedges at the time the hedges are initiated, as well as its
risk-management objectives and strategy for entering into various hedge transactions. For
the three and nine-month periods ended September 30, 2003 and 2002, 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
entered into as hedges against anticipated receivables or payables which will arise from
forecasted transactions that are denominated in currencies other than the functional
currency of the entity which will hold those assets or liabilities. The ultimate
maturities of the contracts are timed to coincide with the expected occurrence of the
underlying sale or purchase transaction.


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


9
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 cash flow hedges. The ultimate maturities of the
contracts are timed to coincide with the expected usage of these commodities.


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 and three interest rate swap agreements with a total notional value of $150
million maturing in May 2013. These agreements effectively change fixed rate debt
obligations into floating rate debt obligations. The total notional values and maturity
dates of these agreements are equal to the face values and the maturity dates of the
related debt instruments. For these fair value hedges, there was no gain or loss
recognized from hedged firm commitments no longer qualifying as fair value hedges for the
three and nine-month periods ended September 30, 2003 and 2002.


Note 8  Guarantees
and Warranties


In
the normal course of business, the Company incurs obligations with regard to contract
completion and product performance. Under certain circumstances, these obligations are
supported through the issuance of letters of credit. At September 30, 2003, the aggregate
outstanding amount of letters of credit supporting such obligations amounted to $61.5
million, of which $44.7 million will expire in less than one year, $8.4 million will
expire in two to three years, $0.1 million will expire in four to five years and $8.3
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 for the nine-month period ended
September 30, 2003 is as follows (in millions):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Balance at January 1, 2003    |  |  | $ | 11.1 |  
|----------------------------- |  |  | - | ---- | -
|Payments                      |  |  |   | (3.8 | )
|Provision                     |  |  |   | 1.8  |  
|                              |  | 
|Balance at September 30, 2003 |  |  | $ | 9.1  |  
|                              |  | 

|10
|--

|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 was amortized by the straight-line
method over periods up to 40 years for all acquisitions completed prior to June 30, 2001.
Effective January 1, 2002, with the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142),
goodwill and other intangible assets that have indefinite useful lives are no longer
amortized, but are tested for impairment based on the specific guidance of SFAS No. 142.


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

|                                       | As of September 30, 2003 |  | As of December 31, 2002 |     
|-------------------------------------- | ------------------------ |  | ----------------------- | ----
|
|Acquired Amortizable Intangible Assets |                          |  |                         |     
|Usage rights                           |                          |  | $                       | 19.1
|Supply agreements                      |                          |  |                         | 16.8
|Technology licenses                    |                          |  |                         | 7.5 
|Other                                  |                          |  |                         | 3.7 
|                                       |                          |  |                         |     
|Total                                  |                          |  | $                       | 47.1
|                                       |                          |  |                         |     

|The increased
carrying amount of acquired amortizable intangible assets is primarily due to the impact
of foreign exchange.


Total
accumulated amortization for goodwill and other intangible assets amounted to $79.3
million and $76.8 million at September 30, 2003 and December 31, 2002, respectively. As of
September 30, 2003, the estimated aggregate amortization expense for each of the five
succeeding years is as follows (in millions):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Estimated Annual Amortization Expense: |  |  |   |     | 
|-------------------------------------- |  |  | - | --- | 
|2003                                   |  |  | $ | 3.3 | 
|2004                                   |  |  |   | 3.3 | 
|2005                                   |  |  |   | 3.3 | 
|2006                                   |  |  |   | 3.1 | 
|2007                                   |  |  |   | 3.1 | 

|The
following table represents the changes in the carrying amount of goodwill for the
nine-month period ended September 30, 2003 (in millions):
|-----------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Environmental
        Technologies |  | Process
        Technologies |      | Appearance
        &PerformanceTechnologies |   | AllOther |  | Total |      
|------------------------------------------ | ---------------------------------- |  | ---------------------------- | ---- | ------------------------------------------- | - | -------- |  | ----- | -----
|Balance as of January 1, 2003              |                                    |  | $                            | 13.0 |                                             | $ | 106.9    |  | $     | 152.0
|Foreign currency translation    adjustment |                                    |  |                              | 0.1  |                                             |   | 0.3      |  |       | 0.4  
|Other                                      |                                    |  |                              | 0.5  |                                             |   |         |  |       |     
|                                           |                                    |  |                              |      |                                             |   |          |  |       |      
|Balance as of September 30, 2003           |                                    |  | $                            | 13.6 |                                             | $ | 107.2    |  | $     | 152.4
|                                           |                                    |  |                              |      |                                             |   |          |  |       |      

|11
|--

|Note 10  Committed
Metal Positions and Hedged Metal Obligations


Both
spot metal positions and derivative instruments are stated at fair value.  Fair value is
based on 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):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | September 30, 2003 |  | December 31, 2002 |      
|------------------------------ | ------------------ |  | ----------------- | -----
|
|Platinum group metals          |                    |  |                   | Short
|Gold                           |                    |  |                   | Short
|Silver                         |                    |  |                   | Short
|Base metals                    |                    |  |                   | Long 
|                               |                    |  |                   |      
|Total unhedged metal positions |                    |  |                   |      
|                               |                    |  |                   |      

|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 September 30, 2003, all such contracts have been final priced and
settled without any loss to the Company.


Derivative
metal and foreign currency instruments are used to hedge metal positions and obligations.
As of September 30, 2003, over 99% of these instruments have settlement terms of less than
one year, with the remaining instruments expected to settle within three years. These
derivative metal and foreign currency instruments consist of the following:


Metal Hedging Instruments
(in millions):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | September 30, 2003 |  | December 31, 2002 |      
|--------------------------------- | ------------------ |  | ----------------- | -----
|
|Metal forwards/futures            |                    |  | $                 | 684.4
|Eurodollar futures                |                    |  |                   | 101.2
|Swaps                             |                    |  |                   | 24.4 
|Options                           |                    |  |                   | 32.6 
|Foreign exchange forwards/futures |                    |  |                   |     

|Note 11  New
Accounting Pronouncements


In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 addresses consolidation by business enterprises
of variable interest entities with certain defined characteristics. This interpretation
applies immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that date. It
applies at the end of the first fiscal year or interim period ending after December 15,
2003, to variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. The Company did not obtain an interest in any
variable interest entities after January 31, 2003. The Company believes that the
provisions of FIN 46 will not have a material impact on the Companys financial
statements.


12
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This Statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This Statement
is effective for contracts entered into or modified after June 30, 2003, with certain
exceptions, and for hedging relationships designated after June 30, 2003. The provisions
of this Statement that relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15, 2003, should continue to be
applied in accordance with their respective dates. This statement did not have any impact
on the accompanying financial statements.


In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. This Statement establishes
standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability or an asset in some
circumstances. This Statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement did not have any impact on
the accompanying financial statements.


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 Statement of Financial Accounting Standards (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:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Three Months
      Ended
      September 30,          |  | Nine Months
      Ended
      September 30, |  
|----------------------------------------------------- |  | ------------------------------------------- | -
|(in millions,
      except per share data)           
|Net
      earnings - as reported                      |  |                                             | $
|Deduct: Total
      stock-based employee compensation |  |                                            
|expense
      determined under fair value based       |  |                                            
|method
      for all awards, net of tax               |  |                                             |  
|                                                      |  |                                             |  
|Net
      earnings - pro forma                        |  |                                             | $
|                                                      |  |                                             |  
|                                                      |  |                                            
|Earnings
      Per Share:                             |  |                                            
|Basic earnings
      per share - as reported          |  |                                             | $
|Basic earnings
      per share - pro forma            |  |                                             |  
|Diluted earnings
      per share - as reported        |  |                                             |  
|Diluted earnings
      per share - pro forma          |  |                                             |  

|13
|--

|Note 13 
Supplemental Information


The
following table presents certain supplementary information to the Companys
Condensed Consolidated Statements of Cash Flows:


SUPPLEMENTARY CASH FLOW
INFORMATION
(in millions)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      | Nine Months Ended
September 30, | 
|----------------------------------------------------- | ------------------------------- | 
|
|Materials Services related:                           |                                 | 
|Change in assets and liabilities - source (use):      |                                 | 
|Receivables                                           |                                 | 
|Committed metal positions                             |                                 | 
|Inventories                                           |                                 | 
|Other current assets                                  |                                 | 
|Accounts payable                                      |                                 | 
|Accrued liabilities                                   |                                 | 
|                                                      |                                 | 
|Net cash flows from changes in assets and liabilities |                                 | 
|                                                      |                                 | 
|                                                      |                                 | 
|All Other:                                            |                                 | 
|Change in assets and liabilities - source (use):      |                                 | 
|Receivables                                           |                                 | 
|Inventories                                           |                                 | 
|Other current assets                                  |                                 | 
|Other noncurrent assets                               |                                 | 
|Accounts payable                                      |                                 | 
|Accrued liabilities                                   |                                 | 
|Noncurrent liabilities                                |                                 | 
|                                                      |                                 | 
|Net cash flows from changes in assets and liabilities |                                 | 
|                                                      |                                 | 

|Note 14  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. The Tax Court is part of the Peruvian Ministry of
Economics and Finance. Engelhard Peru, S.A. is contesting these determinations vigorously,
and management believes, based on consultation with counsel, that Engelhard Peru, S.A. is
entitled to all refunds claimed and is not liable for these additional taxes, fines or
interest. In late October 2000, a criminal proceeding alleging tax fraud and forgery
related to this value-added tax dispute was initiated against two Lima-based officials of
Engelhard Peru, S.A. Although Engelhard Peru, S.A. is not a defendant, it may be civilly
liable in Peru if its representatives are found responsible for criminal conduct. 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


14
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
15
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations


Results of
Operations


Comparison of the Third
Quarter of 2003with the Third Quarter of 2002


Net
earnings increased to $59.8 million in the third quarter of 2003 from $2.9 million in the
same period of 2002. Net earnings in the third quarter of 2002 include an equity investment
impairment charge of $57.7 million associated with the liquidation of the Companys
Engelhard-CLAL joint venture. Operating earnings for the third quarter of 2003 decreased
14% to $66.1 million from $76.9 million in the same period of 2002. Lower operating
earnings from Appearance and Performance Technologies and Materials Services were
partially offset by higher operating earnings from Environmental and Process Technologies.
Operating earnings in the Companys All-Other category decreased
primarily from increased professional fees, increased information technology expenses and
higher pension-related costs.


The
effective tax rate was 20.3% in the third quarter of 2003 compared with 19.0% (excluding
the equity investment impairment of $57.7 million) in the same period of 2002. The higher
rate in the quarter was primarily a result of a shift in the geographical mix of earnings,
a reduction to percentage depletion estimates, and a reduction of the research and
development tax credits in the quarter. The effective tax rate is expected to be
approximately 22% for the full year.


The
World Trade Organization has ruled that the extraterritorial income (ETI)
exclusion, which provides the Company with a tax benefit based on export sales, is a
prohibited export subsidy. As a result, ETI rules are presently under reconsideration by
Congress and the repeal of this benefit is likely. In fiscal year 2003, export benefits
are expected to reduce the Companys effective tax rate by approximately 3%. It is
not possible to predict at this time the eventual outcome of this matter and the impact to
the Company. However, if ETI is repealed and legislation that would result in comparable
benefits is not enacted, the loss of the tax benefit to the Company could adversely impact
the Companys effective tax rate.


The
Companys share of equity earnings from affiliates was $14.5 million for the third
quarter of 2003 compared with $3.9 million for the same period in 2002. Higher equity
earnings were primarily from Engelhard-CLAL, a 50%-owned joint venture that manufactures
and markets certain products containing precious metals. As previously disclosed, the
Company and its partner, Fimalac, are currently in the process of liquidating the
Engelhard-CLAL joint venture. Higher equity earnings from Engelhard-CLAL resulted from the
sale of platinum inventories at favorable prices, realized gains on the sale of an
inactive facility and the strengthening of the Euro versus the US dollar.


Interest
expense increased 2% to $6.5 million for the third quarter of 2003 compared with $6.4
million for the same period in 2002. Interest income was $1.0 million in the third quarter
of 2003 compared with $0.4 million for the same period in 2002. Interest expense increased
from the prior period a year ago as higher foreign short-term interest rates were
partially offset by decreased borrowings.


Net
sales increased 7% to $915.4 million in the third quarter of 2003 from $858.6 million for
the same period in 2002. Higher sales from Environmental Technologies, Process
Technologies and Materials Services were partially offset by lower sales from Appearance
and Performance Technologies.


Environmental
Technologies


Operating
earnings increased 54% to $31.0 million in the third quarter of 2003 from $20.1 million in
the same period of 2002. Net sales for the third quarter of 2003 increased 28% to $202.2
million from $158.2 million in the same period of 2002.


16
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
majority of this segments sales are derived from technologies to control pollution
from mobile sources, including gasoline and diesel-powered passenger cars, sport-utility
vehicles, trucks, buses and off-road vehicles.


Operating
earnings were higher primarily from increased volumes and a favorable product mix of
mobile environmental markets, higher volumes of emission-control systems for gas turbines
used in power generation applications and the absence of costs in the year-ago quarter
related to rework for power generation applications of $4.6 million. The increase in
operating earnings was partially offset by lower volumes to the surface coatings markets
related to lower demand from the aerospace industry, higher depreciation costs of $2.6
million and higher energy costs of $0.5 million.


Sales
increased primarily from the addition of higher pass-through substrate costs and the
favorable impact of foreign exchange, which collectively accounted for slightly less than
half the sales increase. Sales were also favorably impacted by higher volumes and a
favorable product mix in both diesel OEM and diesel retrofit markets of $5.9 million and
higher volumes and a favorable product mix of emission-control systems for gas turbines
used in power generation applications of $3.0 million. The increase in sales was partially
offset by $2.8 million on lower volumes to the surface coatings markets primarily from
lower demand from the aerospace industry.


Process Technologies


Operating
earnings increased 15% to $24.6 million in the third quarter of 2003 from $21.3 million in
the same period of 2002. Net sales for the third quarter of 2003 increased 14% to $143.6
million from $125.6 million in the same period of 2002.


Operating
earnings were higher primarily from increased demand for new technologies offered to the
petroleum-refining, polyolefin and gas-to-liquids markets, the favorable impact of foreign
exchange of $1.5 million, lower raw material costs of $1.0 million and benefits from
productivity programs. The increase in operating earnings was partially offset by higher
energy costs of $1.5 million and higher nickel costs of $1.0 million.


Sales
increased primarily from increased demand for the new technologies offered to the
petroleum-refining, polyolefin and gas-to-liquids markets which aggregated $10.0 million,
higher sales to chemical-process markets of $4.6 million primarily from the timing of
orders and the favorable impact of foreign exchange of $2.7 million. Sales were reduced by
$0.9 million due to lower precious metal prices, which are passed through to
chemical-process catalyst customers in Europe.


Appearance and
Performance Technologies


Operating
earnings decreased 33% to $18.0 million in the third quarter of 2003 from $27.0 million in
the same period of 2002. Net sales decreased 3% to $166.1 million for the third quarter of
2003 from $171.9 million in the same period of 2002.


Sales
and operating earnings decreased primarily from lower volumes of minerals-based products
sold to paper and certain other industrial end markets. Operating earnings were also lower
from higher energy costs of $3.0 million and higher manufacturing costs. The decrease in
operating earnings was partially offset by increased sales volumes to the coatings,
cosmetics/personal care and automotive markets and the favorable impact of foreign
exchange of $0.7 million.


Materials Services


Operating
earnings decreased 84% to $1.3 million in the third quarter of 2003 from $8.3 million in
the same period of 2002. Net sales increased 1% to $385.3 million in the third quarter of
2003 from $382.1 million in the same period of 2002.


Operating
earnings were down as earnings in the third quarter of 2002 were favorably impacted from
cash received related to the settlement of litigation for a customer receivable recorded
in 1997 that was previously written off ($3.0 million). In addition, earnings decreased on
lower results from recycling services due to higher costs associated with performance issues
at our domestic refinery. These issues, which are apart from the current level of
operations, are being actively addressed by management. Overall, reduced industrial demand
for certain platinum group metals continue to adversely impact this segment.


17
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Comparison of the First
Nine Months of 2003with the First Nine Months of 2002


Net
earnings increased 48% to $170.5 million in the first nine months of 2003 from $115.4
million in the same period of 2002. The Company recorded an after-tax transition charge of
$2.3 million on January 1, 2003 as the cumulative effect of an accounting change
associated with the adoption of SFAS No. 143 (see Note 3, Accounting for Asset
Retirement Obligations, for further detail). Net earnings for the first nine months
of 2002 include an equity investment impairment charge of $57.7 million associated with the
liquidation of the Companys Engelhard-CLAL joint venture. Operating earnings for the
first nine months of 2003 decreased 12% to $210.0 million from $239.2 million in the same
period of 2002. For the nine-month period ended September 30, 2003, operating earnings
include a charge of $7.8 million related to lease commitments for idle facilities,
restructuring charges totaling $8.7 million and a royalty settlement gain of $28.4
million. For the nine-month period ended September 30, 2002, operating earnings include a
restructuring charge of $3.1 million and an insurance settlement gain of $11.0 million.


Operating
earnings in the Companys All-Other category increased primarily from the
royalty settlement gain of $28.4 million reported in the first quarter of 2003.


The
effective tax rate was 22.1% in the first nine months of 2003 compared with 23.0%
(excluding the equity investment impairment of $57.7 million) for the same period of 2002.
The lower rate was primarily the result of the recognition of favorable tax variances from
the export sales exclusion and a shift in the geographical mix of earnings. The effective
tax rate is expected to be approximately 22% for the full year.


The
Companys share of equity earnings from affiliates was $27.7 million for the first
nine months of 2003 compared with $11.9 million for the same period in 2002. As previously
disclosed, the Company and its partner, Fimalac, are currently in the process of
liquidating the Engelhard-CLAL joint venture. The increase was primarily due to higher
equity earnings from Engelhard-CLAL resulting from the sale of platinum inventories at
favorable prices, realized gains on the sale of an inactive facility and the strengthening
of the Euro versus the US dollar and higher Heesung-Engelhard equity earnings. The
increase in equity earnings was partially offset by lower equity earnings from N.E.
Chemcat resulting from environmental remediation costs and a loss on the sale of
investment securities.


Interest
expense decreased 11% to $18.5 million in the first nine months of 2003 from $20.9 million
in the same period of 2002. Interest income increased to $2.7 million in the first nine
months of 2003 from $1.1 million in the same period in 2002. Lower interest expense was
due to decreased borrowings, partially offset by higher foreign short-term interest rates.


Net
sales decreased 6% to $2.7 billion in the first nine months of 2003 from $2.8 billion in
the same period in 2002. Lower sales resulted primarily from decreased sales in the
Materials Services segment as a result of lower volumes and prices for certain platinum
group metals.


Environmental
Technologies


Operating
earnings decreased 1% to $87.0 million in the first nine months of 2003 from $87.7 million
in the same period of 2002. Net sales for the first nine months of 2003 increased 27% to
$624.9 million from $493.2 million in the same period of 2002.


Operating
earnings were lower primarily from lower volumes of emission-control systems for gas
turbines used in power-generation applications and lower volumes to the surface coatings
markets. This decline resulted from a difficult comparison from an exceptionally strong
year-ago first quarter in the energy market and lower demand from the aerospace industry.
Earnings also decreased from a management consolidation and productivity initiative charge
of $5.3 million (see Note 2, Special Charges and Credits, for further detail)
recorded in the first quarter of 2003, the reversal of a warranty accrual of $4.9 million
in the first quarter of 2002 for a particular stationary-source, emission-control capital
equipment project as a result of improved catalyst technology, higher depreciation costs
of $8.4 million and higher energy costs of $2.2 million. This decrease was partially
offset by increased volumes and a favorable product mix of mobile environmental markets,
the absence of costs in the year-ago period related to rework for power generation
applications of $7.9 million, the favorable impact of foreign exchange of $3.1 million and
a manufacturing consolidation charge of $3.1 million recorded in the second quarter of
2002.


18
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sales
increased primarily from the addition of higher pass-through substrate costs and the
favorable impact of foreign exchange, which collectively accounted for approximately two-thirds of the sales increase. Sales were also favorably impacted by higher volumes and a
favorable product mix in both diesel OEM and diesel retrofit markets. Higher sales were
partially offset by $11.9 million on lower volumes of emission-control systems for gas
turbines used in power-generation applications and by $10.6 million on lower volumes to
the surface coatings markets.


Process Technologies


Operating
earnings increased 2% to $62.7 million in the first nine months of 2003 from $61.4 million
in the same period of 2002. Net sales for the first nine months of 2003 increased 6% to
$401.9 million from $377.5 million in the same period of 2002.


Operating
earnings increased primarily from increased demand for new technologies offered to the
petroleum-refining, polyolefin and gas-to-liquids markets, lower raw material costs of
$3.9 million, the favorable impact of foreign exchange of $3.9 million and benefits from
productivity programs. These decreases were partially offset by a productivity charge of
$2.6 million (see Note 2, Special Charges and Credits, for further detail)
recorded in the first quarter of 2003, higher energy costs of $5.1 million and higher
nickel costs of $1.7 million.


Sales
increased primarily from increased demand for the new technologies offered to the
petroleum-refining, polyolefin and gas-to-liquids markets which aggregated $30.1 million
and the favorable impact of foreign exchange of $10.0 million. Sales were reduced by $8.9
million due to lower precious metal prices, which are passed through to chemical-process
catalyst customers in Europe and lower sales to chemical-process markets of $1.6 million
primarily from the timing of orders.


Appearance and
Performance Technologies


Operating
earnings decreased 17% to $55.2 million in the first nine months of 2003 from $66.9
million in the same period of 2002. Net sales for the first nine months of 2003 increased
1% to $500.5 million from $494.9 million in the same period of 2002.


Operating
earnings decreased primarily from a charge of $7.8 million recorded in the second quarter
of 2003 related to lease commitments for idle facilities, higher energy costs of $9.9
million, higher manufacturing costs and lower sales volumes of minerals-based products
sold to paper and certain other industrial end markets. The decrease in operating earnings
was partially offset by increased sales volumes to the coatings, cosmetics/personal care
and automotive markets and the favorable impact of foreign exchange of $3.4 million.


Materials Services


Operating
earnings decreased 81% to $8.8 million in the first nine months of 2003 from $45.7 million
in the same period of 2002. Net sales for the first nine months of 2003 decreased 23% to
$1.1 billion from $1.4 billion in the same period of 2002.


Operating
earnings in both years were favorably affected by several items that triggered recognition
of events reflecting operations from prior periods. Operating earnings in the first
nine-months of 2003 benefited from a contract settlement netting $9.3 million while the
year ago prior period included $22.0 million of income related to platinum-group-metal
transactions realized previously but deferred pending the resolution of certain
contractual provisions, an insurance settlement gain of $11.0 million, $5.5 million of
income related to a previously unrecognized contractual benefit and $3.0 million of income
related to cash received from the settlement of litigation for a customer receivable
recorded in 1997 that was previously written off. The benefit in the current year was
partially offset by higher costs associated with performance issues at our domestic
refinery. These issues, which are apart from the current level of operations, are being
actively addressed by management. The prior period benefits were partially offset by
unusually high operating expenses from multiple causes, including legal and compensation
expenses. Overall, reduced industrial demand for certain platinum group metals and lower
results from recycling services continue to adversely impact this segment.


19
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Financial Condition
and Liquidity


Working
capital was $434.0 million at September 30, 2003 compared with $179.8 million at December
31, 2002. The current ratio was 1.5 at September 30, 2003 compared with 1.1 at December
31, 2002. The percentage of total debt to total capitalization was 29% at September 30,
2003 compared with 36% at December 31, 2002.


The
variance in cash flows from operating activities primarily occurred in the Materials
Services segment and reflects changes in metal positions used to facilitate requirements
of the Company, its metals customers and suppliers (see Note 13, Supplemental
Information, for Materials Services variances). 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 (see
Note 10, Committed Metal Positions and Hedged Metal Obligations, for these
positions). The bulk of hedged metal obligations represent spot short positions. As these
positions generate cash, their cash effect is included in the financing activities section
of the Companys Condensed Consolidated Statements of Cash Flows. Other
than in closely monitored situations, these positions are hedged with forward purchases.
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
September 30, 2003, all such contracts have been final priced and settled without any loss
to the Company.


The
variance in cash flows from investing activities is primarily related to liquidating
distributions received in connection with the 2002 plan to unwind the Companys
Engelhard-CLAL joint venture, an additional non-equity investment in fuel-cell developer
Plug Power Inc. in 2002 and changes in capital expenditures.


The
variance in cash flows from financing activities was impacted by a change in hedged metal
obligations, proceeds received from the issuance of long-term debt in May 2003, a decrease
in short-term borrowings and lower net stock repurchase activity. The decrease in hedged
metal obligations combined with the decrease in committed metal positions for the
nine-month period ended September 30, 2003 was largely due to the conclusion of a large
metal contract, combined with lower levels of industrial demand. In October 2003, the
Company announced that it raised its quarterly dividend by 10 percent to 11 cents a share.
The new dividend is payable on December 31 to shareholders of record on December 15.


Through
a public debt offering in May 2003, the Company issued $150 million of 10-year notes.
These notes mature on May 15, 2013 and bear an interest rate of 4.25%. As discussed in
Note 7, Derivatives and Hedging, these notes were effectively changed from a
fixed rate debt obligation to a floating rate debt obligation through the use of interest
rate swap agreements. The notes were issued under the Companys existing $300 million
shelf registration, effectively reducing the shelf registration to $150 million.


In
the third quarter of 2003, the Company made a voluntary $35 million cash contribution to
its defined benefit pension plans. As a result of this contribution, the Company expects
the projected benefit obligation of all its combined defined benefit pension plans to be
approximately 80% funded. The Company has determined that its net pension cost is
projected to be approximately $27 million in 2004, compared to $21 million in 2003 and $12
million in 2002.


20
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company has consistently derived considerable cash flow from operations, which has been
used, along with both short-and long-term debt, to pay for capital expenditures,
acquisitions, treasury stock purchases, dividends and other corporate requirements. The
continuation of these levels of cash flow is expected but is subject to risk factors
disclosed in the Companys 2002 Form 10-K and in the Forward-Looking Statements
section of this Form 10-Q. In addition, the Company has always maintained investment-grade
credit ratings that it considers important for cost-effective and ready access to the
credit markets. Management fully expects to be able to obtain future funding from both
short- and long-term debt for cash requirements in excess of those from operations. In the
event that any of these sources prove to be below expectations, the Company has access to
committed lines of credit aggregating $800 million.


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 the 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 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.


Among
the risks and uncertainties that could cause actual results to differ materially are the
following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | competitive pricing or product development activities that could affect the demand for our
products, particularly competing catalyst and kaolin producers
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
Companys ability to achieve and execute internal business plans
| | - | --------------------------------------------------------------------

| |  | worldwide political instability as the Company operates primarily in the United States,
the European community, the Asia-Pacific region, the Russian Federation, South Africa and
South America
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | alliances
and geographic expansions developing differently than anticipated
| | - | ---------------------------------------------------------------------------

| |  | fluctuations in the supply and prices of precious and base metals and fluctuations in the
relationships between forward prices to spot prices
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | government
legislation and/or regulation (particularly on environmental issues), including tax
obligations
| | - | ----------------------------------------------------------------------------------------------------------

| |  | the
impact of the anticipated repeal of the current U.S. export sales tax incentive
| | - | -----------------------------------------------------------------------------------

| |  | technology,
manufacturing and legal issues
| | - | ------------------------------------------

| |  | the
impact of any economic downturns and inflation
| | - | --------------------------------------------------

| |  | interest
rate risk, foreign currency exchange rate risk, commodity price risk and credit risk
| | - | ---------------------------------------------------------------------------------------------

| |  | the
impact of higher energy and raw material costs, and the availability of natural gas and
rare earth elements
| | - | ---------------------------------------------------------------------------------------------------------------

|21
|--

| |  | the
success of research and development activities and the speed with which
regulatory authorizations and product launches may be achieved
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
impact of increased employee benefit costs and/or the resultant impact on employee
relations
| | - | ------------------------------------------------------------------------------------------------

| |  | contingencies
related to actual or alleged environmental contamination to which the Company may be a
party
| | - | ----------------------------------------------------------------------------------------------------------

| |  | the
impact of acquisitions, divestitures and restructurings
| | - | -----------------------------------------------------------

| |  | overall
demand for the Companys products, including demand from the worldwide automotive and
chemical-process markets
| | - | ----------------------------------------------------------------------------------------------------------------------

| |  | product
quality/performance issues
| | - | ----------------------------------

| |  | exposure
to product liability and other types of lawsuits
| | - | ---------------------------------------------------------

| |  | the
impact of physical inventory losses, particularly with regard to precious and base metals
| | - | ---------------------------------------------------------------------------------------------

| |  | the
loss of business from property and casualty exposure
| | - | --------------------------------------------------------

|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.


Item 4. Controls and
Procedures


The
Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, as of September 30, 2003, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to Exchange
Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and procedures as
of September 30, 2003 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 timely communicated to
them. There have been no significant changes in the Companys internal control over
financial reporting which could significantly affect internal control over financial
reporting subsequent to the date the Company carried out its evaluation.


The
Companys management, including the CEO and CFO, 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 our disclosure control system
are met and, as set forth above, the Companys Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation as of September 30, 2003, that
our disclosure controls and procedures were effective to provide reasonable assurance that
the objectives of our disclosure control system were met.


22
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II  OTHER
INFORMATION


Item 6. Exhibits and
Reports on Form 8-K
|----------------------------------------------------------------------

|    |         |                                                                                                                                                                                                                              | Pages
|--- | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----
|(a) | (10)    | Material Contracts                                                                                                                                                                                                           |      
|   
|    |         | (a) Amendment to the Supplemental Retirement Program of Engelhard Corporation,
              effective as of October 2, 2003.                                                                                                | 25   
|   
|    | (12)    | Computation of the Ratio of Earnings to Fixed Charges.                                                                                                                                                                       | 26   
|   
|    | (31)(a) | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.                                                                                                                                                           | 27   
|   
|    | (31)(b) | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.                                                                                                                                                           | 28   
|   
|    | (32)    | Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer. *                                                                                                                                        | 29   
|   
|(b) |         | In a report on Form 8-K furnished to the
        Securities and Exchange Commission (SEC) on July 29, 2003, the Company reported that it furnished
        its earnings release with the SEC for the second quarter of 2003. |      

|* 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.


23
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SIGNATURES


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

|      |                                |  | ENGELHARD CORPORATION

(Registrant)                                                    
|----- | ------------------------------ |  | -------------------------------------------------------------------------------------------------------
|     
|Date: | November 13, 2003
 |  | /s/ Barry W. Perry

Barry W. Perry
Chairman and Chief
Executive Officer                
|     
|Date: | November 13, 2003
 |  | /s/ Michael A. Sperduto

Michael A. Sperduto
Vice President and Chief
Financial Officer
|     
|Date: | November 13, 2003
 |  | /s/ Alan J. Shaw

Alan J. Shaw
Controller                                              

|24
|--

|EXHIBIT (10) (a)


AMENDMENT TO
SUPPLEMENTAL RETIREMENT PROGRAM OF ENGELHARD CORPORATION


The Supplemental Retirement Program
of Engelhard Corporation (the Program) is amended, effective as of October 2,
2003, as set forth below.



Section 6 of the
Program is amended by redesignating paragraph (d) thereof as paragraph (e) and
inserting a new paragraph (d) to read as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d)
the Participants death; or
| | ---------------------------------

|Section 5(d) of the
Program is amended to read as follows in its entirety:
|--------------------------------------------------------------------------

| | (d)
The Excess Benefit Plan and the Supplemental Executive Retirement Plan are
intended to be unfunded plans for deferred compensation. With respect to any
payments not yet made to a Participant, nothing contained in the Excess Benefit
Plan or the Supplemental Executive Retirement Plan shall give any such
Participant any rights that are greater than those of a general, unsecured
creditor of the Company; provided, however, that the Company may authorize the
creation of trusts or make other arrangements to meet the Companys obligations
under the Excess Benefit Plan or Supplemental Executive Retirement Plan, so long
as such trusts or other arrangements are consistent with the unfunded status
of the Plan for federal income tax purposes.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|List of current elected executive
officers who have entered into this Supplemental Retirement Program of Engelhard
Corporation:


Arthur A. Dornbusch, II


Mark Dresner


John C. Hess


Chung Ping Mak


Peter B. Martin


Barry W. Perry


Alan J. Shaw


Michael A. Sperduto


25
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|EXHIBIT (12)


ENGELHARD CORPORATIONCOMPUTATION
OF THE RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------

|                                           | Nine Months
EndedSeptember 30, |  | Years Ended December 31, |      
|------------------------------------------ | ------------------------------ |  | ------------------------ | -----
|
|Earnings from continuing operations before |                                |  |                          |      
|provision for income taxes and cumulative  |                                | 
|effect of an accounting change             |                                |  | $                        | 221.8
|                                           |                                | 
|Add/(deduct)                               |                                | 
|Portion of rents representative of         |                                | 
|the interest factor                        |                                |  |                          | 8.7  
|Interest on indebtedness                   |                                |  |                          | 18.5 
|Equity dividends                           |                                |  |                          | 4.5  
|Equity in (earnings) losses of             |                                | 
|affiliates                                 |                                |  |                          | (27.7
|                                           |                                |  |                          |      
|Earnings, as adjusted                      |                                |  | $                        | 225.8
|                                           |                                |  |                          |      
|                                           |                                | 
|Fixed Charges                              |                                | 
|Portion of rents representative of         |                                | 
|the interest factor                        |                                |  | $                        | 8.7  
|Interest on indebtedness                   |                                |  |                          | 18.5 
|Capitalized interest                       |                                |  |                          | 2.3  
|                                           |                                |  |                          |      
|Fixed charges                              |                                |  | $                        | 29.5 
|                                           |                                |  |                          |      
|                                           |                                | 
|Ratio of Earnings to Fixed Charges         |                                |  |                          | 7.65 
|                                           |                                |  |                          |      

|26
|--

|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)) 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) | 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
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | 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: | November 13, 2003
         |  | /s/ Barry W. Perry

Barry W. Perry
Chairman and Chief
Executive Officer
|----- | ------------------------------------- |  | ------------------------------------------------------------------------------------

|27
|--

|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)) 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) | 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
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | 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: | November 13, 2003
         |  | /s/ Michael A. Sperduto

Michael A. Sperduto
Vice President and Chief
Financial Officer
|----- | ------------------------------------- |  | ----------------------------------------------------------------------------------------------------

|28
|--

|EXHIBIT (32)


Section 1350
Certifications ofChief 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 September 30, 2003 (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: | November 13, 2003
         |  | /s/ Barry W. Perry

Barry W. Perry
Chairman and Chief
Executive Officer
|----- | ------------------------------------- |  | ------------------------------------------------------------------------------------

|Date: | November 13, 2003
         |  | /s/ Michael A. Sperduto

Michael A. Sperduto
Vice President and Chief
Financial Officer
|----- | ------------------------------------- |  | ----------------------------------------------------------------------------------------------------

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


A signed original of this written
statement required by Section 906 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.


29
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------