4.4 |
| | First Amendment and Consent to Credit Agreement and First Amendment to Security Agreement, dated as of November 25, 2015, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., Grace GmbH & Co. KG, Alltech Associates, Inc., each lender from time to time party thereto, and Goldman Sachs Bank USA, as Administrative Agent and lender.
| | | | | | Exhibit No. | | Exhibit 10.1 to Form 8-K (filed 11/25/15) SEC File No.: 001-13953 | 4.5 |
| | Location | 4.4 | | | | Exhibit 4.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.5 | | Guarantee Agreement (PI) dated as of February 3, 2014 by and between W. R. Grace & Co. and the WRG Asbestos PI Trust. | | Exhibit 4.03 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.6 | | Obligation Termination Agreement dated August 1, 2014, by and between W. R. Grace & Co.-Conn., W. R. Grace & Co. and the WRG Asbestos PI Trust. | | Exhibit 10.1 to Form 8-K (filed 9/9/14) SEC File No.: 001-13953 | 4.7 | | Deferred Payment Agreement (PD) dated as of February 3, 2014 by and between W. R. Grace & Co.-Conn.–Conn. and the WRG Asbestos PD Trust. | | Exhibit 4.04 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.84.6 |
| | | | Exhibit 4.05 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.94.7 |
| | | | Exhibit 4.06 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.104.8 |
| | | | Exhibit 4.07 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.114.9 |
| | | | Exhibit 4.08 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.124.10 |
| | Warrant Agreement dated as of February 3, 2014 by and among W. R. Grace & Co., the WRG Asbestos PI Trust and Computershare. | | Exhibit 4.09 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.13 | | [Warrant] Implementation Letter dated as of October 25, 2012 by and between W. R. Grace & Co., the Official Committee of Asbestos Personal Injury Claimants, the Asbestos PI Future Claimants’ Representative and the Official Committee of Equity Security Holders. | | Exhibit 4.10 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.14 | | [Warrant] Registration Rights Agreement dated as of February 3, 2014 by and between W. R. Grace & Co. and the WRG Asbestos PI Trust. | | Exhibit 4.11 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 4.15 | | | | Exhibit 4.1 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953 | 4.164.11 |
| | | | Exhibit 4.2 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953 | 4.174.12 |
| | | | Exhibit 4.3 (included as Exhibit A-1 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953 | 4.184.13 |
| | | | Exhibit 4.4 (included as Exhibit A-2 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953 | 10.1 | | WRG Asbestos PI Trust Agreement dated as of February 3, 2014 by and between W. R. Grace & Co., the Asbestos PI Future Claimants’ Representative, the Official Committee of Asbestos Personal Injury Claimants, the Asbestos PI Trustees, the Wilmington Trust Company, and the members of the Trust Advisory Committee.
| | Exhibit 10.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 10.2 | | | | Exhibit 10.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953 | 10.310.2 |
| | Settlement Agreement dated December 23, 2013 by and between W. R. Grace & Co. and the other debtors named therein and the holders of Grace's pre-petition credit facilities named therein. | | Exhibit 10.3 to Form 10-K (filed 2/27/14) SEC File No.: 001-13953 |
| | | | | | Exhibit No. | | Exhibit | | Location | 10.4 | | W. R. Grace & Co. 2000 Stock Incentive Plan, as amended. | | Exhibit 10 to Form 10-Q (filed 8/14/00) SEC File No.: 001-13953* | 10.5 | | W. R. Grace & Co. 2011 Stock Incentive Plan. | | Exhibit 10.1 to Form 8-K (filed 4/13/11) SEC File No.: 001-13953* | 10.6 | | W. R. Grace & Co. Amended and Restated 2011 Stock Incentive Plan. | | Exhibit 10.1 to Form 8-K (filed 5/01/13) SEC File No.: 001-13953* | 10.710.3 |
| | | | Exhibit 10.03 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953* | 10.810.4 |
| | | | Exhibit 10.2 to Form 10-Q8-K (filed 8/02/13)2/09/16) SEC File No.: 001-13953* | 10.910.5 |
| | | | Exhibit 10.210.1 to Form 8-K (filed 4/13/11)2/09/16) SEC File No.: 001-13953* | 10.1010.6 |
| | | | Exhibit 10.410.3 to Form 8-K (filed 5/8/14)2/09/16) SEC File No.: 001-13953* | 10.1010.7 |
| | | | Exhibit 10.7 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953* | 10.1110.8 |
| | | | Exhibit 10.8 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953* | 10.1210.9 |
| | | | Exhibit 10.17 to Form 10-K (filed 3/13/03) SEC File No.: 001-13953* | 10.13 | | Severance Pay Plan for Salaried Employees. | | Exhibit 10.17 to Form 10-K (filed 3/02/07) SEC File No.: 001-13953* | 10.14 | | Form of Retention Agreement between Grace and certain officers (includes enhanced severance provision). | | Exhibit 10.28 to Form 10-K (filed 4/16/01) SEC File No.: 001-13953* | 10.15 | | Annual Incentive Compensation Program. | | Exhibit 10.15 to Form 10-Q (filed 5/8/14) SEC File No.: 001-13953* | 10.16 | | Letter Agreement dated May 27, 2009 between John F. Akers, on behalf of Grace, and Fred Festa (includes enhanced severance provision). | | Exhibit 10.1 to Form 8-K (filed 5/29/09) SEC File No.: 001-13953* | 10.17 | | Letter Agreement dated February 28, 2008 between Fred Festa, on behalf of Grace, and Hudson La Force III (includes enhanced severance provision) | | Exhibit 10.1 to Form 8-K (filed 3/07/08) SEC File No.: 001-13953* | 10.18 | | Letter Agreement dated June 19, 2009 between Fred Festa, on behalf of Grace, and Pamela Wagoner (includes enhanced severance provision). | | Exhibit 10.18 to Form 10-K (filed 2/27/14) SEC File No.: 001-13953* | 10.19 | | Letter Agreement dated September 24, 2014, between Fred Festa, on behalf of Grace, and Pamela K. Wagoner. | | Exhibit 10.1 to Form 10-Q (filed 11/06/14) SEC File No.: 001-13953* | 10.20 | | Letter Agreement dated November 13, 2013, between Fred Festa, on behalf of Grace, and Keith N. Cole | | Filed herewith | 12 | | Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends. | | Filed herewith | 21 | | List of Subsidiaries of W. R. Grace & Co. | | Filed herewith | 23 | | Consent of Independent Accountants. | | Filed herewith | 24 | | Powers of Attorney. | | Filed herewith | 31.(i).1 | | Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| | | | | | | Exhibit No. | | Exhibit | | Location | 10.10 |
| | | | Exhibit 10.2 to Form 8-K (filed 2/04/16) SEC File No.: 001-13953* | 10.11 |
| | | | Exhibit 10.1 to Form 8-K (filed 5/12/15) SEC File No.: 001-13953* | 10.12 |
| | | | Exhibit 10.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953 | 10.13 |
| | | | Exhibit 10.1 to Form 8-K (filed 5/29/09) SEC File No.: 001-13953* | 10.14 |
| | | | Exhibit 10.1 to Form 8-K (filed 3/07/08) SEC File No.: 001-13953* | 10.15 |
| | | | Exhibit 10.20 to Form 10-K (filed 2/25/15) SEC File No.: 001-13953* | 10.16 |
| | | | Exhibit 10.1 to Form 10-Q (filed 5/07/15) SEC File No.: 001-13953* | 10.17 |
| | | | Exhibit 10.10 to Form 10-Q (filed 5/05/16) SEC File No.: 001-13953* | 12 |
| | | | Filed herewith | 21 |
| | | | Filed herewith | 23 |
| | | | Filed herewith | 24 |
| | | | Filed herewith | 31.(i).1 |
| | | | Filed herewith | 31.(i).2 |
| | | | Filed herewith | 32 |
| | | | Filed herewith | 95 |
| | | | Filed herewith | 101.INS |
| | XBRL Instance Document | | Filed herewith | 101.SCH |
| | XBRL Taxonomy Extension Schema | | Filed herewith | 101.CAL |
| | XBRL Taxonomy Extension Calculation Linkbase | | Filed herewith | 101.DEF |
| | XBRL Taxonomy Extension Definition Linkbase | | Filed herewith | 101.LAB |
| | XBRL Taxonomy Extension Label Linkbase | | Filed herewith | 101.PRE |
| | XBRL Taxonomy Extension Presentation Linkbase | | Filed herewith |
| | * | Management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report. |
36Item 16. FORM 10-K SUMMARY
None.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. | | | | | W. R. GRACE & CO. | | By: | /s/ A. E. FESTA | | | A. E. Festa (Chairman and Chief Executive Officer) | | By: | /s/ HUDSON LA FORCE IIITHOMAS E. BLASER | | | Hudson La Force IIIThomas E. Blaser
(Senior Vice President and Chief Financial Officer) | | By: | /s/ WILLIAM C. DOCKMAN | | | William C. Dockman (Vice President and Controller) |
Dated: February 25, 201522, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 25, 201522, 2018. | | | | | | Signature | | | | Title | H. F. Baldwin* | | } | | | R. C. Cambre* | | } | | | R. F. Cummings, Jr.* | | } | | | M. A. Fox*J. Fasone Holder* | | } | | | D. H. Gulyas* | | } | | Directors | J. K. Henry*H. La Force* | | } | | | J. N. Quinn* | | } | | | C. J. Steffen* | | } | | | M. E. Tomkins* | | } | | |
| | | | /s/ A. E. FESTA | | Chairman, Chief Executive Officer and Director (Principal Executive Officer) | (A. E. Festa) | | /s/ HUDSON LA FORCE IIITHOMAS E. BLASER | | Senior Vice President and Chief Financial Officer (Principal (Principal Financial Officer) | (Hudson La Force III)Thomas E. Blaser) | | /s/ WILLIAM C. DOCKMAN | | Vice President and Controller (Principal Accounting Officer) | (William C. Dockman) | |
| | * | By signing his name hereto, Mark A. Shelnitz is signing this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. |
| | | | | By: | /s/ MARK A. SHELNITZ | | | Mark A. Shelnitz (Attorney-in-Fact) |
FINANCIAL SUPPLEMENT W. R. GRACE & CO. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20142017
TABLE OF CONTENTS The Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Financial statements of less than majority-owned persons and other persons accounted for by the equity method have been omitted as provided in Rule 3-09 of the United States Securities and Exchange Commission's (SEC)(the "SEC") Regulation S-X. Financial Statement Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
Management's Report on Financial Information and Internal Controls Responsibility For Financial Information—We are responsible for the preparation, accuracy, integrity and objectivity of the Consolidated Financial Statements and the other financial information included in this report. Such information has been prepared in conformity with accounting principles generally accepted in the United States of America and accordingly, includes certain amounts that represent management's best estimates and judgments. Actual amounts could differ from those estimates. Responsibility For Internal Controls—We and our management are also responsible for establishing and maintaining adequate internal controls over financial reporting. These internal controls consist of policies and procedures that are designed to assess and monitor the effectiveness of the control environment including risk identification, governance structure, delegations of authority, information flow, communications and control activities. A chartered Disclosure Committee oversees Grace's public financial reporting process and key managers are required to confirm their compliance with Grace's policies and internal controls quarterly. While no system of internal controls can ensure elimination of all errors and irregularities, Grace's internal controls, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed, transactions are properly executed and reported, and appropriate disclosures are made. The concept of reasonable assurance is based on the recognition that there are limitations in all systems of internal control and that the costs of such systems should be balanced with their benefits. The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with Grace's senior financial management, internal auditors and independent registered public accounting firm to review audit plans and results, as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal controls. The Audit Committee is responsible for the selection and compensation of the independent registered public accounting firm. Grace's financial management, internal auditors and independent registered public accounting firm have direct and confidential access to the Audit Committee at all times. Report On Internal Control Over Financial Reporting—We and our management have evaluated Grace's internal control over financial reporting as of December 31, 20142017. This evaluation was based on criteria for effective internal control over financial reporting set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we and our management have concluded that Grace's internal control over financial reporting is effective as of December 31, 20142017. Grace's independent registered public accounting firm that audited our financial statements included in Item 15 has also audited the effectiveness of Grace's internal control over financial reporting as of December 31, 20142017, as stated in their report, which appears on the following page. Report On Disclosure Controls And Procedures—As of December 31, 20142017, we and our management carried out an evaluation of the effectiveness of the design and operation of Grace's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, we concluded that Grace's disclosure controls and procedures are effective in ensuring that information required to be disclosed in Grace's periodic filings and submissions under the Exchange Act is accumulated and communicated to us and our management to allow timely decisions regarding required disclosures, and such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. | | | | /s/ A. E. FESTA | | /s/ HUDSON LA FORCE IIITHOMAS E. BLASER | A. E. Festa Chief Executive Officer | | Hudson La Force IIIThomas E. Blaser
Senior Vice President and Chief Financial Officer | February 25, 201522, 2018 | | |
Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of W. R. Grace & Co.: In our opinion,Opinions on the consolidated financial statements listed inFinancial Statements and Internal Control over Financial Reporting
We have audited the accompanying index accompanying consolidated balance sheets of W. R. Grace & Co. and its subsidiaries (“the Company”) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, of comprehensive income, of equity, and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts and reserves for each of the three years in the period ended December 31, 2017 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of W. R. Grace & Co. and its subsidiaries (the “Company”) atthe Company as of December 31, 20142017 and December 31, 2013, 2016, and the results of theiroperations and theircash flows for each of the three years in the period ended December 31, 2014 2017in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying: Management'saccompanying Management’s Report on Financial Information and Internal Controls. Our responsibility is to express opinions on these the Company’s consolidatedfinancial statements on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidatedfinancial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidatedfinancial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP Baltimore, Maryland February 25, 201522, 2018 We have served as the Company’s auditor since 1906.
Consent of Independent Registered Public Accounting Firm We hereby consent to the incorporation by reference in the Registration StatementStatements on Form S-8 (No.S‑8 (Nos. 333-194171, 333-173785, 333-37024)333-173785) of W. R. Grace & Co. of our reportdated February 25, 201522, 2018 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.
/s/ PricewaterhouseCoopers LLP Baltimore, Maryland February 25, 201522, 2018
W. R. Grace & Co. and Subsidiaries Consolidated Statements of Operations | | | Year Ended December 31, | Year Ended December 31, | (In millions, except per share amounts) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Net sales | $ | 3,243.0 |
| | $ | 3,060.7 |
| | $ | 3,155.5 |
| $ | 1,716.5 |
| | $ | 1,598.6 |
| | $ | 1,628.2 |
| Cost of goods sold | 2,050.6 |
| | 1,918.6 |
| | 2,041.1 |
| 1,053.2 |
| | 942.7 |
| | 976.5 |
| Gross profit | 1,192.4 |
| | 1,142.1 |
| | 1,114.4 |
| 663.3 |
| | 655.9 |
| | 651.7 |
| Selling, general and administrative expenses | 664.0 |
| | 505.7 |
| | 635.2 |
| 302.6 |
| | 308.8 |
| | 318.9 |
| Research and development expenses | 79.5 |
| | 65.2 |
| | 64.5 |
| 53.5 |
| | 48.8 |
| | 47.1 |
| Restructuring and repositioning expenses | | 26.7 |
| | 38.6 |
| | 20.4 |
| Equity in earnings of unconsolidated affiliate | | (25.9 | ) | | (29.8 | ) | | (20.4 | ) | Provision for environmental remediation | | 24.4 |
| | 28.7 |
| | 6.4 |
| Interest expense and related financing costs | 61.5 |
| | 43.8 |
| | 46.5 |
| 79.5 |
| | 81.5 |
| | 99.4 |
| Interest accretion on deferred payment obligations | 65.7 |
| | — |
| | — |
| | Gain on termination of postretirement plans | (39.5 | ) | | — |
| | — |
| | Chapter 11 expenses, net of interest income | 11.0 |
| | 15.3 |
| | 16.6 |
| | Default interest settlement | — |
| | 129.0 |
| | — |
| | Asbestos and bankruptcy-related charges, net | 7.1 |
| | 21.9 |
| | 384.6 |
| | Equity in earnings of unconsolidated affiliate | (19.7 | ) | | (22.9 | ) | | (18.5 | ) | | Other expense, net | 28.5 |
| | 23.5 |
| | 6.1 |
| | Other (income) expense, net | | (8.4 | ) | | 13.3 |
| | (13.8 | ) | Total costs and expenses | 858.1 |
| | 781.5 |
| | 1,135.0 |
| 452.4 |
| | 489.9 |
| | 458.0 |
| Income (loss) before income taxes | 334.3 |
| | 360.6 |
| | (20.6 | ) | | Benefit from (provision for) income taxes | (57.0 | ) | | (102.9 | ) | | 61.6 |
| | Net income | 277.3 |
| | 257.7 |
| | 41.0 |
| | Less: Net income attributable to noncontrolling interests | (1.0 | ) | | (1.6 | ) | | (1.0 | ) | | Net income attributable to W. R. Grace & Co. shareholders | $ | 276.3 |
| | $ | 256.1 |
| | $ | 40.0 |
| | Income (loss) from continuing operations before income taxes | | 210.9 |
| | 166.0 |
| | 193.7 |
| (Provision for) benefit from income taxes | | (200.5 | ) | | (59.0 | ) | | (69.8 | ) | Income (loss) from continuing operations | | 10.4 |
| | 107.0 |
| | 123.9 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (12.9 | ) | | 20.2 |
| Net income (loss) | | 10.4 |
| | 94.1 |
| | 144.1 |
| Less: Net (income) loss attributable to noncontrolling interests | | 0.8 |
| | — |
| | 0.1 |
| Net income (loss) attributable to W. R. Grace & Co. shareholders | | $ | 11.2 |
| | $ | 94.1 |
| | $ | 144.2 |
| Amounts Attributable to W. R. Grace & Co. Shareholders: | | | | | | | Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders | | $ | 11.2 |
| | $ | 107.0 |
| | $ | 124.0 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (12.9 | ) | | 20.2 |
| Net income (loss) attributable to W. R. Grace & Co. shareholders | | $ | 11.2 |
| | $ | 94.1 |
| | $ | 144.2 |
| Earnings Per Share Attributable to W. R. Grace & Co. Shareholders | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | Net income attributable to W. R. Grace & Co. shareholders | $ | 3.67 |
| | $ | 3.35 |
| | $ | 0.53 |
| | Income (loss) from continuing operations | | $ | 0.16 |
| | $ | 1.53 |
|
| $ | 1.72 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (0.19 | ) | | 0.28 |
| Net income (loss) | | $ | 0.16 |
| | $ | 1.34 |
|
| $ | 2.00 |
| Weighted average number of basic shares | 75.3 |
| | 76.4 |
| | 74.9 |
| 68.1 |
| | 70.1 |
| | 72.0 |
| Diluted earnings per share: | | | | | | | | | | | Net income attributable to W. R. Grace & Co. shareholders | $ | 3.63 |
| | $ | 3.30 |
| | $ | 0.52 |
| | Income (loss) from continuing operations | | $ | 0.16 |
| | $ | 1.52 |
|
| $ | 1.71 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (0.19 | ) | | 0.28 |
| Net income (loss) | | $ | 0.16 |
| | $ | 1.33 |
|
| $ | 1.99 |
| Weighted average number of diluted shares | 76.2 |
| | 77.7 |
| | 76.3 |
| 68.2 |
| | 70.5 |
| | 72.6 |
| Dividends per common share | | $ | 0.84 |
| | $ | 0.51 |
| | $ | — |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | Net income | $ | 277.3 |
| | $ | 257.7 |
| | $ | 41.0 |
| Other comprehensive income (loss): | | | | | | Defined benefit pension and other postretirement plans, net of income taxes | (2.6 | ) | | 4.6 |
| | 2.3 |
| Currency translation adjustments | (28.0 | ) | | (23.6 | ) | | 5.5 |
| Gain (loss) from hedging activities, net of income taxes | (4.5 | ) | | (0.2 | ) | | 2.4 |
| Other than temporary impairment of investment | 0.8 |
| | — |
| | — |
| Gain (loss) on securities available for sale, net of income taxes | (0.1 | ) | | 0.1 |
| | — |
| Total other comprehensive income (loss) attributable to noncontrolling interests | (2.2 | ) | | (0.9 | ) | | 0.8 |
| Total other comprehensive income (loss) | (36.6 | ) | | (20.0 | ) | | 11.0 |
| Comprehensive income | 240.7 |
| | 237.7 |
| | 52.0 |
| Less: comprehensive (income) loss attributable to noncontrolling interests | 1.2 |
| | (0.7 | ) | | (1.8 | ) | Comprehensive income attributable to W. R. Grace & Co. shareholders | $ | 241.9 |
| | $ | 237.0 |
| | $ | 50.2 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements. F-7
W. R. Grace & Co. and Subsidiaries Consolidated Statements of Cash FlowsComprehensive Income | | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | OPERATING ACTIVITIES | | | | | | Net income | $ | 277.3 |
| | $ | 257.7 |
| | $ | 41.0 |
| Reconciliation to net cash provided by operating activities: | | | | | | Depreciation and amortization | 137.1 |
| | 123.1 |
| | 119.0 |
| Equity in earnings of unconsolidated affiliate | (19.7 | ) | | (22.9 | ) | | (18.5 | ) | Dividends received from unconsolidated affiliate | 11.2 |
| | 2.8 |
| | 6.3 |
| Chapter 11 expenses, net of interest income | 11.0 |
| | 15.3 |
| | 16.6 |
| Chapter 11 expenses paid | (31.6 | ) | | (15.0 | ) | | (15.5 | ) | Asbestos and bankruptcy-related charges, net | 7.1 |
| | 21.9 |
| | 384.6 |
| Cash paid to resolve liabilities subject to Chapter 11 | (1,316.5 | ) | | — |
| | — |
| Cash paid to settle deferred payment obligation | (632.0 | ) | | — |
| | — |
| Provision for (benefit from) income taxes | 57.0 |
| | 102.9 |
| | (61.6 | ) | Income taxes paid, net of refunds | (34.4 | ) | | (60.4 | ) | | (82.6 | ) | Excess tax benefits from stock-based compensation | (1.2 | ) | | 35.4 |
| | (36.8 | ) | Interest accretion on deferred payment obligations | 65.7 |
| | — |
| | — |
| Interest accrued on credit arrangements | 23.3 |
| | 38.1 |
| | 40.4 |
| Interest paid on credit arrangements | (28.4 | ) | | (5.5 | ) | | (4.1 | ) | Default interest settlement | — |
| | 129.0 |
| | — |
| Defined benefit pension (income) expense | 160.3 |
| | (23.2 | ) | | 149.6 |
| Payments under defined benefit pension arrangements | (100.0 | ) | | (68.3 | ) | | (126.8 | ) | Expenditures for environmental remediation | (12.4 | ) | | (14.0 | ) | | (13.0 | ) | Changes in assets and liabilities, excluding effect of currency translation and businesses acquired: | | | | | | Trade accounts receivable | (25.8 | ) | | 13.5 |
| | (3.0 | ) | Inventories | (52.1 | ) | | 8.6 |
| | 53.2 |
| Accounts payable | (17.2 | ) | | 4.2 |
| | (11.7 | ) | All other items, net | 49.2 |
| | (27.3 | ) | | 16.5 |
| Net cash (used for) provided by operating activities | (1,472.1 | ) | | 515.9 |
| | 453.6 |
| INVESTING ACTIVITIES | | | | | | Capital expenditures | (169.8 | ) | | (156.2 | ) | | (138.5 | ) | Businesses acquired, net of cash acquired | — |
| | (526.2 | ) | | (80.0 | ) | Transfer from (to) restricted cash and cash equivalents | 395.4 |
| | (197.8 | ) | | (61.1 | ) | Other investing activities | 9.7 |
| | (0.5 | ) | | (0.7 | ) | Net cash provided by (used for) investing activities | 235.3 |
| | (880.7 | ) | | (280.3 | ) | FINANCING ACTIVITIES | | | | | | Borrowings under credit arrangements | 1,123.4 |
| | 57.5 |
| | 68.9 |
| Repayments under credit arrangements | (770.3 | ) | | (69.4 | ) | | (28.7 | ) | Proceeds from issuance of bonds | 1,000.0 |
| | — |
| | — |
| Payments for debt financing costs | (46.6 | ) | | — |
| | — |
| Proceeds from exercise of stock options | 23.4 |
| | 34.4 |
| | 32.2 |
| Payments for repurchases of common stock | (469.5 | ) | | — |
| | — |
| Excess tax benefits from stock-based compensation | 1.2 |
| | (35.4 | ) | | 36.8 |
| Purchase of interest in consolidated joint venture | (12.4 | ) | | — |
| | — |
| Other financing activities | 0.7 |
| | 4.5 |
| | 1.1 |
| Net cash provided by (used for) financing activities | 849.9 |
| | (8.4 | ) | | 110.3 |
| Effect of currency exchange rate changes on cash and cash equivalents | (20.4 | ) | | 1.1 |
| | 5.0 |
| (Decrease) increase in cash and cash equivalents | (407.3 | ) | | (372.1 | ) | | 288.6 |
| Cash and cash equivalents, beginning of period | 964.8 |
| | 1,336.9 |
| | 1,048.3 |
| Cash and cash equivalents, end of period | $ | 557.5 |
| | $ | 964.8 |
| | $ | 1,336.9 |
| | | | | | | Supplemental disclosure of cash flow information | | | | | | Cash paid for interest | $ | 696.5 |
| | $ | 5.5 |
| | $ | 4.1 |
|
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Net income (loss) | $ | 10.4 |
| | $ | 94.1 |
| | $ | 144.1 |
| Other comprehensive income (loss), net of income taxes: | | | | | | Defined benefit pension and other postretirement plans | (1.3 | ) | | (0.6 | ) | | (1.0 | ) | Currency translation adjustments | (26.0 | ) | | (1.8 | ) | | (43.3 | ) | Gain (loss) from hedging activities | 0.8 |
| | 0.3 |
| | 1.3 |
| Total other comprehensive income (loss) attributable to noncontrolling interests | — |
| | 2.6 |
| | 0.2 |
| Total other comprehensive income (loss), net of income taxes | (26.5 | ) | | 0.5 |
| | (42.8 | ) | Comprehensive income (loss) | (16.1 | ) | | 94.6 |
| | 101.3 |
| Less: comprehensive (income) loss attributable to noncontrolling interests | 0.8 |
| | (2.6 | ) | | (0.1 | ) | Comprehensive income (loss) attributable to W. R. Grace & Co. shareholders | $ | (15.3 | ) | | $ | 92.0 |
| | $ | 101.2 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements. F-8
W. R. Grace & Co. and Subsidiaries Consolidated Balance SheetsStatements of Cash Flows | | | | | | | | | (In millions, except par value and shares) | December 31, 2014 | | December 31, 2013 | ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 557.5 |
| | $ | 964.8 |
| Restricted cash and cash equivalents | — |
| | 395.4 |
| Trade accounts receivable, less allowance of $5.8 (2013—$6.0) | 481.1 |
| | 481.8 |
| Inventories | 332.8 |
| | 295.3 |
| Deferred income taxes | 235.4 |
| | 58.1 |
| Other current assets | 84.1 |
| | 99.0 |
| Total Current Assets | 1,690.9 |
| | 2,294.4 |
| Properties and equipment, net of accumulated depreciation and amortization of $1,818.4 (2013—$1,876.8) | 833.5 |
| | 829.9 |
| Goodwill | 452.9 |
| | 457.5 |
| Technology and other intangible assets, net | 288.0 |
| | 315.5 |
| Deferred income taxes | 612.0 |
| | 845.9 |
| Asbestos-related insurance | — |
| | 500.0 |
| Overfunded defined benefit pension plans | 44.1 |
| | 16.7 |
| Investment in unconsolidated affiliate | 113.1 |
| | 96.2 |
| Other assets | 60.7 |
| | 40.0 |
| Total Assets | $ | 4,095.2 |
| | $ | 5,396.1 |
| LIABILITIES AND EQUITY | | | | Liabilities Not Subject to Compromise | | | | Current Liabilities | | | | Debt payable within one year | $ | 96.8 |
| | $ | 81.1 |
| Accounts payable | 255.3 |
| | 262.5 |
| PI warrant liability | 490.0 |
| | — |
| Other current liabilities | 340.0 |
| | 292.0 |
| Total Current Liabilities | 1,182.1 |
| | 635.6 |
| Debt payable after one year | 1,919.0 |
| | 29.6 |
| Deferred income taxes | 19.3 |
| | 18.2 |
| Income tax contingencies | 24.0 |
| | 5.0 |
| Underfunded and unfunded defined benefit pension plans | 457.5 |
| | 299.6 |
| Other liabilities | 124.3 |
| | 60.8 |
| Total Liabilities Not Subject to Compromise | 3,726.2 |
| | 1,048.8 |
| Liabilities Subject to Compromise—Note 2 | — |
| | 3,776.1 |
| Total Liabilities | 3,726.2 |
| | 4,824.9 |
| Commitments and Contingencies—Note 11 |
| |
| Equity | | | | Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 72,922,565 (2013—77,046,143) | 0.7 |
| | 0.8 |
| Paid-in capital | 526.1 |
| | 533.4 |
| Retained earnings | 292.1 |
| | 15.8 |
| Treasury stock, at cost: shares: 4,524,688 (2013—0) | (429.2 | ) | | — |
| Accumulated other comprehensive (loss) income | (23.8 | ) | | 10.6 |
| Total W. R. Grace & Co. Shareholders' Equity | 365.9 |
| | 560.6 |
| Noncontrolling interests | 3.1 |
| | 10.6 |
| Total Equity | 369.0 |
| | 571.2 |
| Total Liabilities and Equity | $ | 4,095.2 |
| | $ | 5,396.1 |
|
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | OPERATING ACTIVITIES | | | | | | Net income (loss) | $ | 10.4 |
| | $ | 94.1 |
| | $ | 144.1 |
| Less: loss (income) from discontinued operations | — |
| | 12.9 |
| | (20.2 | ) | Income (loss) from continuing operations | 10.4 |
| | 107.0 |
|
| 123.9 |
| Reconciliation to net cash provided by (used for) operating activities from continuing operations: | | | | | | Depreciation and amortization | 111.5 |
| | 100.3 |
| | 99.2 |
| Equity in earnings of unconsolidated affiliate | (25.9 | ) | | (29.8 | ) | | (20.4 | ) | Dividends received from unconsolidated affiliate | 19.0 |
| | 31.0 |
| | 11.8 |
| Costs related to legacy product, environmental, and other claims | 30.8 |
| | 35.4 |
| | 6.1 |
| Cash paid for legacy product, environmental, and other claims | (54.5 | ) | | (24.6 | ) | | (507.4 | ) | Provision for (benefit from) income taxes | 200.5 |
| | 59.0 |
| | 69.8 |
| Cash paid for income taxes | (61.8 | ) | | (96.6 | ) | | (40.7 | ) | Income tax refunds received | 34.2 |
| | 11.4 |
| | 5.9 |
| Interest expense and related financing costs | 79.5 |
| | 81.5 |
| | 99.4 |
| Cash paid for interest | (70.2 | ) | | (75.7 | ) | | (89.5 | ) | Loss on early extinguishment of debt | — |
| | 11.1 |
| | — |
| Defined benefit pension expense (income) | 64.1 |
| | 72.6 |
| | 50.9 |
| Cash paid under defined benefit pension arrangements | (17.8 | ) | | (15.9 | ) | | (15.4 | ) | Accounts receivable reserve—Venezuela | 10.0 |
| | — |
| | — |
| Changes in assets and liabilities, excluding effect of currency translation and acquisitions: | | | | | | Trade accounts receivable | (4.9 | ) | | (15.7 | ) | | (18.0 | ) | Inventories | 4.4 |
| | (0.6 | ) | | 3.8 |
| Accounts payable | (2.5 | ) | | 32.0 |
| | 7.3 |
| All other items, net | (7.6 | ) | | (14.9 | ) | | 23.5 |
| Net cash provided by (used for) operating activities from continuing operations | 319.2 |
| | 267.5 |
| | (189.8 | ) | INVESTING ACTIVITIES | | | | | | Capital expenditures | (125.2 | ) | | (116.9 | ) | | (118.8 | ) | Business acquired | (3.5 | ) | | (246.5 | ) | | — |
| Proceeds from sale of assets | 0.6 |
| | 13.7 |
| | — |
| Other investing activities | (1.8 | ) | | 4.7 |
| | 6.8 |
| Net cash provided by (used for) investing activities from continuing operations | (129.9 | ) | | (345.0 | ) | | (112.0 | ) | FINANCING ACTIVITIES | | | | | | Borrowings under credit arrangements | 114.4 |
| | 39.4 |
| | 292.4 |
| Repayments under credit arrangements | (143.9 | ) | | (633.0 | ) | | (50.0 | ) | Cash paid for repurchases of common stock | (65.0 | ) | | (195.1 | ) | | (301.5 | ) | Proceeds from exercise of stock options | 16.4 |
| | 17.0 |
| | 26.9 |
| Dividends paid | (57.3 | ) | | (36.0 | ) | | — |
| Distribution from GCP | — |
| | 750.0 |
| | — |
| Other financing activities | 0.6 |
| | (2.5 | ) | | (8.3 | ) | Net cash provided by (used for) financing activities from continuing operations | (134.8 | ) | | (60.2 | ) | | (40.5 | ) | Effect of currency exchange rate changes on cash and cash equivalents | 7.7 |
| | (3.0 | ) | | (1.7 | ) | Increase (decrease) in cash and cash equivalents from continuing operations | 62.2 |
| | (140.7 | ) | | (344.0 | ) | Cash flows from discontinued operations | | | | | | Net cash provided by (used for) operating activities | — |
| | 23.9 |
| | 202.5 |
| Net cash provided by (used for) investing activities | — |
| | (9.5 | ) | | (32.4 | ) | Net cash provided by (used for) financing activities | — |
| | 31.4 |
| | 2.9 |
| Effect of currency exchange rate changes on cash and cash equivalents | — |
| | (1.0 | ) | | (56.6 | ) | Increase (decrease) in cash and cash equivalents from discontinued operations | — |
| | 44.8 |
| | 116.4 |
| Net increase (decrease) in cash and cash equivalents | 62.2 |
| | (95.9 | ) |
| (227.6 | ) | Less: cash and cash equivalents of discontinued operations | — |
| | (143.4 | ) | | — |
| Cash and cash equivalents, beginning of period | 90.6 |
| | 329.9 |
| | 557.5 |
| Cash and cash equivalents, end of period | $ | 152.8 |
| | $ | 90.6 |
|
| $ | 329.9 |
| | | | | | | Supplemental disclosure of cash flow information | | | | | | Capital expenditures in accounts payable | $ | 41.4 |
| | $ | 23.8 |
| | $ | 29.4 |
| Net share settled stock option exercises | 1.2 |
| | 10.5 |
| | — |
|
The Notes to Consolidated Financial Statements are an integral part of these statements. F-9
W. R. Grace & Co. and Subsidiaries Consolidated Statements of EquityBalance Sheets | | | | | | | | | | | | | | | | | | | | | | | | | (In millions) | Common Stock and Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Treasury Stock | | Accumulated Other Comprehensive (Loss) Income | | Noncontrolling Interests | | Total Equity | Balance, December 31, 2011 | $ | 473.6 |
| | $ | (280.3 | ) | | $ | (36.8 | ) | | $ | 19.5 |
| | $ | 8.1 |
| | $ | 184.1 |
| Net income | — |
| | 40.0 |
| | — |
| | — |
| | 1.0 |
| | 41.0 |
| Stock based compensation | 14.7 |
| | — |
| | — |
| | — |
| | — |
| | 14.7 |
| Exercise of stock options | 12.2 |
| | — |
| | 20.0 |
| | — |
| | — |
| | 32.2 |
| Tax benefit related to stock plans | 36.8 |
| | — |
| | — |
| | — |
| | — |
| | 36.8 |
| Other comprehensive income | — |
| | — |
| | — |
| | 10.2 |
| | 0.8 |
| | 11.0 |
| Balance, December 31, 2012 | 537.3 |
| | (240.3 | ) | | (16.8 | ) | | 29.7 |
| | 9.9 |
| | 319.8 |
| Net income | — |
| | 256.1 |
| | — |
| | — |
| | 1.6 |
| | 257.7 |
| Stock based compensation | 13.4 |
| | — |
| | — |
| | — |
| | — |
| | 13.4 |
| Exercise of stock options | 17.6 |
| | — |
| | 16.8 |
| | — |
| | — |
| | 34.4 |
| Tax benefit related to stock plans | (35.4 | ) | | — |
| | — |
| | — |
| | — |
| | (35.4 | ) | Shares issued | 1.3 |
| | — |
| | — |
| | — |
| | — |
| | 1.3 |
| Other comprehensive loss | — |
| | — |
| | — |
| | (19.1 | ) | | (0.9 | ) | | (20.0 | ) | Balance, December 31, 2013 | 534.2 |
| | 15.8 |
| | — |
| | 10.6 |
| | 10.6 |
| | 571.2 |
| Net income | — |
| | 276.3 |
| | — |
| | — |
| | 1.0 |
| | 277.3 |
| Repurchase of common stock | (0.1 | ) | | — |
| | (469.4 | ) | | — |
| | — |
| | (469.5 | ) | Stock based compensation | 12.5 |
| | — |
| | — |
| | — |
| | — |
| | 12.5 |
| Exercise of stock options | (16.8 | ) | | — |
| | 40.2 |
| | — |
| | — |
| | 23.4 |
| Purchase of noncontrolling interest | (6.1 | ) | | — |
| | — |
| | — |
| | (6.3 | ) | | (12.4 | ) | Tax benefit related to stock plans | 1.2 |
| | — |
| | — |
| | — |
| | — |
| | 1.2 |
| Shares issued | 1.9 |
| | — |
| | — |
| | — |
| | — |
| | 1.9 |
| Other comprehensive loss | — |
| | — |
| | — |
| | (34.4 | ) | | (2.2 | ) | | (36.6 | ) | Balance, December 31, 2014 | $ | 526.8 |
| | $ | 292.1 |
| | $ | (429.2 | ) | | $ | (23.8 | ) | | $ | 3.1 |
| | $ | 369.0 |
|
| | | | | | | | | | December 31, | (In millions, except par value and shares) | 2017 | | 2016 | ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 152.8 |
| | $ | 90.6 |
| Restricted cash and cash equivalents | 10.7 |
| | 10.0 |
| Trade accounts receivable, less allowance of $11.7 (2016—$2.2) | 285.2 |
| | 273.9 |
| Inventories | 230.9 |
| | 228.0 |
| Other current assets | 49.0 |
| | 52.3 |
| Total Current Assets | 728.6 |
|
| 654.8 |
| Properties and equipment, net of accumulated depreciation and amortization of $1,463.4 (2016—$1,327.5) | 799.1 |
| | 729.6 |
| Goodwill | 402.4 |
| | 394.2 |
| Technology and other intangible assets, net | 255.4 |
| | 269.1 |
| Deferred income taxes | 556.5 |
| | 709.4 |
| Investment in unconsolidated affiliate | 125.9 |
| | 117.6 |
| Other assets | 39.1 |
| | 37.1 |
| Total Assets | $ | 2,907.0 |
| | $ | 2,911.8 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Debt payable within one year | $ | 20.1 |
|
| $ | 76.5 |
| Accounts payable | 210.3 |
| | 195.4 |
| Other current liabilities | 217.8 |
| | 208.9 |
| Total Current Liabilities | 448.2 |
| | 480.8 |
| Debt payable after one year | 1,523.8 |
|
| 1,507.6 |
| Underfunded and unfunded defined benefit pension plans | 502.4 |
| | 424.3 |
| Other liabilities | 169.3 |
| | 126.7 |
| Total Liabilities | 2,643.7 |
| | 2,539.4 |
| Commitments and Contingencies—Note 10 |
| |
| Equity | | | | Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 67,780,410 (2016—68,309,431) | 0.7 |
| | 0.7 |
| Paid-in capital | 474.8 |
| | 487.3 |
| Retained earnings | 573.1 |
| | 619.3 |
| Treasury stock, at cost: shares: 9,676,217 (2016—9,147,196) | (832.1 | ) | | (804.9 | ) | Accumulated other comprehensive income (loss) | 39.9 |
| | 66.4 |
| Total W. R. Grace & Co. Shareholders' Equity | 256.4 |
| | 368.8 |
| Noncontrolling interests | 6.9 |
| | 3.6 |
| Total Equity | 263.3 |
| | 372.4 |
| Total Liabilities and Equity | $ | 2,907.0 |
| | $ | 2,911.8 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements. F-10
W. R. Grace & Co. and Subsidiaries Consolidated Statements of Equity | | | | | | | | | | | | | | | | | | | | | | | | | (In millions) | Common Stock and Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive (Loss) Income | | Noncontrolling Interests | | Total Equity | Balance, December 31, 2014 | $ | 526.8 |
| | $ | 292.1 |
| | $ | (429.2 | ) | | $ | (23.8 | ) | | $ | 3.1 |
| | $ | 369.0 |
| Net income (loss) | — |
| | 144.2 |
| | — |
| | — |
| | 0.7 |
| | 144.9 |
| Repurchase of common stock | — |
| | — |
| | (301.5 | ) | | — |
| | — |
| | (301.5 | ) | Stock-based compensation | 13.0 |
| | — |
| | — |
| | — |
| | — |
| | 13.0 |
| Exercise of stock options | (45.4 | ) | | — |
| | 72.3 |
| | — |
| | — |
| | 26.9 |
| Purchase of noncontrolling interest | (0.7 | ) | | — |
| | — |
| | — |
| | 0.7 |
| | — |
| Tax benefit related to stock plans | 1.9 |
| | — |
| | — |
| | — |
| | — |
| | 1.9 |
| Shares issued | 1.1 |
| | — |
| | — |
| | — |
| | — |
| | 1.1 |
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | (43.0 | ) | | 0.2 |
| | (42.8 | ) | Balance, December 31, 2015 | 496.7 |
| | 436.3 |
| | (658.4 | ) | | (66.8 | ) | | 4.7 |
| | 212.5 |
| Net income (loss) | — |
| | 94.1 |
| | — |
| | — |
| | — |
| | 94.1 |
| Repurchase of common stock | — |
| | — |
| | (195.1 | ) | | — |
| | — |
| | (195.1 | ) | Stock-based compensation | 11.6 |
| | — |
| | — |
| | — |
| | — |
| | 11.6 |
| Exercise of stock options | (21.1 | ) | | — |
| | 48.6 |
| | — |
| | — |
| | 27.5 |
| Tax benefit related to stock plans | — |
| | 70.4 |
| | — |
| | — |
| | — |
| | 70.4 |
| Shares issued | 0.8 |
| | — |
| | — |
| | — |
| | — |
| | 0.8 |
| Dividends declared | — |
| | (36.0 | ) | | — |
| | — |
| | — |
| | (36.0 | ) | Other comprehensive income (loss) | — |
| | — |
| | — |
| | (2.1 | ) | | 2.6 |
| | 0.5 |
| Distribution of GCP | — |
| | 54.5 |
| | — |
| | 135.3 |
| | (3.7 | ) | | 186.1 |
| Balance, December 31, 2016 | 488.0 |
| | 619.3 |
| | (804.9 | ) | | 66.4 |
| | 3.6 |
| | 372.4 |
| Net income (loss) | — |
| | 11.2 |
| | — |
| | — |
| | (0.8 | ) | | 10.4 |
| Repurchase of common stock | — |
| | — |
| | (65.0 | ) | | — |
| | — |
| | (65.0 | ) | Stock-based compensation | 11.0 |
| | — |
| | — |
| | — |
| | — |
| | 11.0 |
| Exercise of stock options | (18.9 | ) | | — |
| | 35.0 |
| | — |
| | — |
| | 16.1 |
| Payments to taxing authorities in consideration of employee tax obligations related to stock-based compensation arrangements | (2.5 | ) | | — |
| | — |
| | — |
| | — |
| | (2.5 | ) | Shares issued | (2.1 | ) | | — |
| | 2.8 |
| | — |
| | — |
| | 0.7 |
| Dividends declared | — |
| | (57.4 | ) | | — |
| | — |
| | — |
| | (57.4 | ) | Contribution from joint venture partner | — |
| | — |
| | — |
| | — |
| | 4.1 |
| | 4.1 |
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | (26.5 | ) | | — |
| | (26.5 | ) | Balance, December 31, 2017 | $ | 475.5 |
| | $ | 573.1 |
| | $ | (832.1 | ) | | $ | 39.9 |
| | $ | 6.9 |
| | $ | 263.3 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements. F-11
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies W. R. Grace & Co., through its subsidiaries, is engaged in specialty chemicals and specialty materials businesses on a global basis through three operatingtwo reportable segments: Grace Catalysts Technologies, which includes catalysts and related products and technologies used in refining, petrochemical and other chemical manufacturing applications; and Grace Materials Technologies, which includes packaging technologiesspecialty materials, including silica-based and engineeredsilica-alumina-based materials, used in coatings, consumer, industrial, coatings, and pharmaceutical applications; and Grace Construction Products, which includes specialty construction chemicals and specialty building materials used in commercial, infrastructure and residential construction.applications. W. R. Grace & Co. conducts all of its business through a single wholly owned subsidiary, W. R. Grace & Co.—–Conn. ("Grace—Grace–Conn."). Grace—Grace–Conn. owns substantially all of the assets, properties and rights of W. R. Grace & Co. on a consolidated basis, either directly or through subsidiaries. As used in these notes, the term "Company" refers to W. R. Grace & Co. The term "Grace" refers to the Company and/or one or more of its subsidiaries and, in certain cases, their respective predecessors. Chapter 11 ProceedingsSeparation Transaction On April 2, 2001January 27, 2016, Grace entered into a separation agreement with GCP Applied Technologies Inc., then a wholly-owned subsidiary of Grace ("GCP"), pursuant to which Grace agreed to transfer its Grace Construction Products operating segment and the packaging technologies business of its Grace Materials Technologies operating segment to GCP (the "Filing Date""Separation"),. Grace and 61 of its United States subsidiaries and affiliates filed voluntary petitions for reorganization (the "Filing") under Chapter 11 ofGCP completed the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") in order to resolve outstanding asbestos personal injury and property damage claims, including class-action lawsuits alleging damages from Zonolite® Attic Insulation ("ZAI"), a former Grace attic insulation product. In 2008, Grace and other parties filed a joint plan of reorganization with the Bankruptcy Court (as subsequently amended, the "Joint Plan"). Following the confirmation of the Joint Plan in 2011 by the Bankruptcy Court and in 2012 by a U.S. District Court, and the resolution of all appeals, Grace emerged from bankruptcySeparation on February 3, 2014. (See Note 22016 (the "Distribution Date"), by means of a pro rata distribution to the Company's stockholders of all of the outstanding shares of GCP common stock (the "Distribution"), with one share of GCP common stock distributed for Chapter 11 information.)each share of Company common stock held as of the close of business on January 27, 2016. As a result of the Distribution, GCP became an independent public company. GCP’s historical financial results through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations.
Principles of Consolidation The Consolidated Financial Statements include the accounts of Grace and entities as to which Grace exercises control over operating andmaintains a controlling financial policies. Grace consolidates the activities of variable interest entities in circumstances where management determines that Grace is the primary beneficiary of the variable interest entity.interest. Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies in which Grace can significantly influence operating and financial policies, but does not have a controlling financial interest, are accounted for under the equity method, unless Grace's investment is deemed to be temporary, in which case the investment is accounted for under the cost method. Noncontrolling Interests in Consolidated EntitiesGrace conducts certain of its business through joint ventures with unaffiliated third parties. For joint ventures in which Grace has a controlling financial interest, Grace consolidates the results of such joint ventures in the Consolidated Financial Statements. Grace recognizes a liability for cumulative amounts due to the third parties based on the financial results of the joint ventures, and deducts the amount of income attributable to noncontrolling interests in the measurement of its consolidated net income. During the 2014 fourth quarter, Grace acquired the remaining 50% equity interest in its Construction Products joint venture in Turkey for $11.7 million, making the business a wholly owned subsidiary of Grace.
OperatingReportable Segments Grace reports financial results of each of its operatingreportable segments that engage in business activities that generate revenues and expenses and whose operating results are regularly reviewed by Grace's Chief Executive Officer and Chief Operating Officer.
Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP)("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual amounts could differ from those estimates, and the differences could be material. Changes in estimates are recorded in the period identified. Grace's accounting measurements that are most affected by management's estimates of future events are:
Realization values of net deferred tax assets, which depend on projections of future taxable income (see Note 7); Pension and postretirement liabilities, which depend on assumptions regarding participant life spans, future inflation, discount rates and total returns on invested funds (see Note 8); Carrying values of goodwill and other intangible assets, which depend on assumptions of future earnings and cash flows (see Note 4 and Note 19); and
Notes to Consolidated Financial Statements (Continued)
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)
Contingent liabilities, which depend on an assessment of the probability of loss and an estimate of ultimate resolution cost,obligation, such as litigation (see Note 2)10), income taxes (see Note 8)7), and environmental remediation (see Note 11); Pension and postretirement liabilities that depend on assumptions regarding participant life spans, future inflation, discount rates and total returns on invested funds (see Note 9); and
Realization values of net deferred tax assets, which depend on projections of future taxable income (see Note 8)10).
Revenue Recognition Grace recognizes revenue when all of the following criteria are satisfied: risk of loss and title transfer to the customer; the price is fixed and determinable; persuasive evidence of a sales arrangement exists; and collectability is reasonably assured. RiskThe point at which risk of loss and title transfers to customers area customer is determined based on individual contractualdelivery terms, which generally specify the point of shipment. Terms of delivery are generally included in customer contracts of sale, order confirmation documents, and invoices. Certain customer arrangements include conditions for volume rebates. Grace accrues a rebate allowance and reduces recorded sales for anticipated selling price adjustments at the time of sale. Grace regularly reviews rebate accruals based on actual and anticipated sales patterns.
Certain customer arrangements include licensing of technology, combined with other deliverables. In these multiple-element arrangements, Grace typically bundles the license, the basic process design package, and training and consulting-type services into one fixed price contract. The fixed price contract revenue is accounted for as a separate unit and is recognized on a straight-line basis over the period of performance of the contract, except for contingent revenue associated with a final performance guarantee. Revenue associated with the performance guarantee is recognized when customer acceptance is obtained. Other services and optional software that are sold in connection with license arrangements qualify for separate accounting, with revenue recognized when services are rendered and in the case of process control software, when installed and functional. Services that are not part of the fixed price contract are billed on a variable basis. Selling prices of significant deliverables under these arrangements are determined based on relative sales value estimated by licensing business management using many years of historical information.
Cash Equivalents Cash equivalents consist of liquid instruments and investments with maturities of three months or less when purchased. The recorded amounts approximate fair value. Inventories Inventories are stated at the lower of cost or market. The method used to determine cost is first-in/first-out, or "FIFO." Market values for raw materials are based on current cost and, for other inventory classifications, net realizable value. Inventories are evaluated regularly for salability, and slow moving and/or obsolete items are adjusted to expected salable value. Inventory values include direct and certain indirect costs of materials and production. Abnormal costs of production are expensed as incurred. Long Lived Assets Properties and equipment are stated at cost. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful life of the asset. Estimated useful lives range from 20 to 4030 years for buildings, 3 to 7 years for information technology equipment, 3 to 10 years for operating machinery and equipment, and 5 to 10 years for furniture and fixtures. Interest is capitalized in connection with major project expenditures. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to earnings. Obligations for costs associated with asset retirements, such as requirements to restore a site to its original condition, are accrued at net present value and amortized along with the related asset. Other intangibleGrace is currently in the process of conducting a depreciation study to review the useful lives of machinery and equipment, including an evaluation of historical retirement data as well as industry review and analysis. This evaluation will be completed by the end of the 2018 first quarter. Grace expects this review to result in increased useful lives (and lower depreciation expense) and will apply the change to new and existing assets on a prospective basis as a change in accounting estimate effective January 1, 2018.
Intangible assets with finite lives consist of technology, customer lists, trademarks and other intangibles and are amortized over their estimated useful lives, ranging from 1 to 30 years.
Notes to Consolidated Financial Statements (Continued)
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)
Grace reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. No impairment charge was required in 2013 or 2012; however, thereThere were no impairment charges recorded in 2014 (see Note 12).any of the periods presented. Goodwill Goodwill arises from certain business combinations. Grace reviews its goodwillcombinations, and it is reviewed for impairment on an annual basis at October 31 and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Recoverability is assessed at the reporting unit level most directly associated with the business combination that generated the goodwill. For the purpose of measuring impairment, under the provisions of ASC 350 "Intangibles—Goodwill and Other," Grace has identified its operating segments as reporting units at one level below its operating segments.units. Grace has evaluated its goodwill annually with no impairment charge required in any of the periods presented. Financial Instruments Grace uses commodity forward, swap and/or option contracts andcontracts; currency forward and/or option contracts; and interest rate swap contracts to manage exposure to fluctuations in commodity prices, and currency exchange rates, and interest rates. Grace does not hold or issue derivative financial instruments for trading purposes. Derivative instruments are recorded at fair value in the Consolidated Balance Sheets as either assets or liabilities at their fair value.liabilities. For derivative instruments designated as fair value hedges, changes in the fair values of the
Notes to Consolidated Financial Statements (Continued)
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)
derivative instruments closely offset changes in the fair values of the hedged items in "other (income) expense, net" in the Consolidated Statements of Operations. For derivative instruments designated as cash flow hedges, if the derivative instruments qualify for hedge accounting pursuant to ASC 815,gain or loss on the effective portion of any hedge is reported asin "accumulated other comprehensive income"income (loss)" in the Consolidated Balance Sheets until it is cleared to earnings during the same period in which the hedged item affects earnings. The ineffective portion of all hedges, and changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. Cash flows from derivative instruments are reported in the same category as the cash flows from the items being hedged. Income Taxes Deferred tax assets and liabilities are recognized with respect to the expected future tax consequences of events that have been recorded in the Consolidated Financial Statements. IfGrace reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that all or a portion of deferred taxsuch assets will not be realized, arealized. The need to establish valuation allowance is provided against such deferred tax assets. The assessment of realization ofallowances for deferred tax assets is performed based onassessed quarterly. In assessing the weightrequirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, Grace gives appropriate consideration to all positive and negative evidence availablerelated to indicate whether the asset is recoverable, includingrealization of the deferred tax planning strategies that are prudentassets. This assessment considers, among other matters, the nature, frequency and feasible.severity of current and cumulative losses, forecasts of future profitability, domestic and foreign source income, the duration of statutory carryforward periods, and Grace's experience with operating loss and tax credit carryforward expirations. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. Tax benefits recognized in the financial statementsConsolidated Financial Statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Grace evaluates such likelihood based on relevant facts and tax law. Grace adjusts its recorded liability for income tax matters due to changes in circumstances or new uncertainties, such as amendments to existing tax law. Grace's ultimate tax liability depends upon many factors, including negotiations with taxing authorities in the jurisdictions in which it operates, outcomes of tax litigation, and resolution of disputes arising from federal, state, and foreign tax audits. Due to the varying tax laws in each jurisdiction senior management, with the assistance of local tax advisors as necessary, assesses individual matters in each jurisdiction on a case-by-case basis. Grace researches and evaluates its income tax positions, including why it believes they are compliant with income tax regulations, and these positions are documented internally.as appropriate. Pension Benefits Grace's method of accounting for actuarial gains and losses relating to its global defined benefit pension plans is referred to as "mark-to-market accounting." Under mark-to-market accounting, Grace's pension costs consist of two elements: 1) ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2) mark-to-market gains and losses recognized annually in the fourth quarter resulting from changes in actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan assets. Should a significant event occur, Grace's pension obligation and plan assets would beare remeasured at an interim period, and the gains or losses on remeasurement would beare recognized in that period.
Notes to Consolidated Financial Statements (Continued)
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)
Stock-Based Compensation The Company recognizes expenses related to stock-based compensation payment transactions in which it receives employee services in exchange for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of equity instruments. Stock-based compensation cost for restricted stock units (RSUs) and share settled performance based units (PBUs) are measured based on the high/low average of the Company’s common stock on the date of grant. Cash settled performance based units (CSPBU) are remeasured at the end of each reporting period based on the closing fair market value of the Company’s common stock. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair value as calculated by the Black-Scholes option pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.
Notes to Consolidated Financial Statements (Continued)
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)
Currency Translation Assets and liabilities of foreign subsidiaries (other than those located in countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, while revenues, costs and expenses are translated at average exchange rates during each reporting period. The resulting translation adjustments are included in "accumulated other comprehensive loss"income (loss)" in the Consolidated Balance Sheets. The financial statements of any subsidiaries located in countries with highly inflationary economies are remeasured as if the functional currency were the U.S. dollar; the remeasurement creates translation adjustments that are reflected in net income in the Consolidated Statements of Operations. On February 8, 2013, the Venezuelan government announced that, effective February 13, 2013, the official exchange rate of the bolivar to U.S. dollar would devalue from 4.3 to 6.3. As a result of this currency devaluation, Grace incurred a charge to net income of $8.5 million in the 2013 first quarter. Of this amount, $1.6 million is included in segment operating income.
Reclassifications Certain amounts in prior years' Consolidated Financial Statements have been reclassified to conform to the current year presentation. Such reclassifications have not materially affected previously reported amounts in the Consolidated Financial Statements. Effect of NewRecently Issued Accounting Standards In July 2013, the FASB issued ASU 2013-11 "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This update is intended to improve the consistency surrounding the presentation of an unrecognized tax benefit when a net operating loss carryforward exists, requiring the unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The new requirements are effective for fiscal years beginning after December 15, 2013, and for interim periods within those fiscal years, with early adoption permitted. Grace adopted this standard for the 2014 first quarter, and it did not have a material effect on the Consolidated Financial Statements.
In April 2014, the FASB issued ASU 2014-08 "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." This update is intended to change the requirements for reporting discontinued operations and enhance convergence of the FASB’s and the International Accounting Standard Board’s (IASB) reporting requirements for discontinued operations. The new requirements are effective for fiscal years beginning on or after December 15, 2014, and for interim periods within fiscal years beginning on or after December 15, 2015, with early adoption permitted. Grace is currently evaluating its effect on the Consolidated Financial Statements and will adopt this standard when it becomes applicable.
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers." This update is intended to remove inconsistencies and weaknesses in revenue requirements; provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; provide more useful information to users of financial statements through improved disclosure requirements; and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The standard allows for two methods of adoption: (a) full retrospective adoption, meaning the standard is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying the new requirements are effective for fiscal years beginning after December 15, 2016,standard is recognized as an adjustment to the opening retained earnings balance. Grace has assessed specific areas of the standard and for interim periods within those fiscal years, with early adoptionits impact on the Consolidated Financial Statements. Grace will adopt this standard in the 2018 first quarter under the modified retrospective approach and does not permitted. Grace is currently evaluating itsexpect it to have a material effect on the Consolidated Financial StatementsStatements. In February 2016, the FASB issued ASU 2016-02 "Leases (Topic 842)." This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term, including optional payments where they are reasonably certain to occur. Currently, as a lessee, Grace is a party to a number of leases which, under existing guidance, are classified as operating leases and not recorded on the balance sheet but are expensed as incurred. Under the new standard, many of these leases will be recorded on the Consolidated Balance Sheets. Grace will adopt the standard in the 2019 first quarter and at this standardtime cannot reasonably estimate the effect of adoption. In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Grace will adopt the update in the 2018 first quarter and does not expect it becomes applicable.to have a material effect on the Consolidated Financial Statements. As of December 31, 2017 and 2016, restricted cash included in the Consolidated Balance Sheets was $10.7 million and $10.0 million, respectively.
In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805)," which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in this update also narrow the definition of the term "output" so that the term is consistent with how outputs are described in Topic 606. Public
Notes to Consolidated Financial Statements (Continued)
2. Chapter 111. Basis of Presentation and Joint PlanSummary of ReorganizationSignificant Accounting and Financial Reporting Policies (Continued)
On April2, 2001,business entities are required to apply the amendments in this update to annual periods beginning after December 15, 2017, including interim periods within those periods, with early application permitted. Grace will adopt the update when it becomes effective and 61does not expect it to have a material effect on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04 "Intangibles—Goodwill and Other (Topic 350)." This update modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its United States subsidiariesassets and affiliates filed voluntary petitionsliabilities as if that reporting unit had been acquired in a business combination ("Step 2"). Because these amendments eliminate Step 2 from the goodwill impairment test, they should reduce the cost and complexity of evaluating goodwill for reorganization under Chapter11impairment. Grace is required to adopt the amendments in this update for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Grace is currently evaluating the timing of adoption and does not expect the update to have a material effect on the Consolidated Financial Statements. In March 2017, the FASB issued ASU 2017-07 "Compensation—Retirement Benefits (Topic 715)." This update requires that the service cost component of net benefit cost be presented with other compensation costs arising from services rendered. The remaining net benefit cost is either presented as a line item in the statement of operations outside of a subtotal for income from operations, if presented, or disclosed separately. Only the service cost component of net benefit expense can be capitalized. The update will affect the classification of defined benefit pension expense within the Consolidated Statements of Operations, with changes to amounts included in "cost of goods sold," "selling, general and administrative expenses," "research and development expenses," and "other (income) expense, net." Grace will adopt the update in the 2018 first quarter. In May 2017, the FASB issued ASU 2017-09 "Compensation—Stock Compensation (Topic 718)." This update clarifies the existing definition of the Bankruptcy Code.term "modification," which is currently defined as "a change in any of the terms or conditions of a share-based payment award." The cases were consolidatedupdate requires entities to account for modifications of share-based payment awards unless the (1) fair value, (2) vesting conditions, and (3) classification as an equity instrument or a liability instrument of the modified award are the same as of the original award before modification. Grace is required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. Grace does not currently have any modifications of share-based awards and will adopt the update when it becomes effective. In January 2018, the FASB issued ASU 2018-01 "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842." This update provides an optional transition practical expedient that allows an entity to elect not to evaluate under case number01-01139 (the "Chapter11 Cases"). Grace's non-U.S. subsidiaries and certainTopic 842 existing or expired land easements not previously accounted for as leases. All land easements entered into or modified after the adoption of its U.S. subsidiaries wereTopic 842 must be evaluated under Topic 842. Grace, which typically does not includedaccount for easements under current lease accounting, will use the transition practical expedient when adopting Topic 842 in the filing.2019 first quarter and at this time cannot reasonably estimate the effect of adoption. In September 2008, GraceFebruary 2018, the FASB issued ASU 2018-02 "Income Statement—Reporting Comprehensive Income (Topic 220)." This update addresses the revaluation of deferred tax assets and liabilities due to the Tax Cuts and Jobs Act of 2017 impacting income from continuing operations, even if the initial income tax effects were recognized in other parties filedcomprehensive income. The update allows entities to reclassify the Joint Plan withtax effects that were originally in other comprehensive income from accumulated other comprehensive income to retained earnings. The update requires entities to disclose whether the Bankruptcy Court to address all pendingelection was made and future asbestos-related claims and all other pre-petition claims as outlined therein. On January31, 2011, the Bankruptcy Court issued an order (the "Confirmation Order") confirming the Joint Plan. On January31, 2012, the United States District Court for the District of Delaware (the "District Court") issued an order affirming the Confirmation Order and confirming the Joint Plan in its entirety. On February 3, 2014 (the "Effective Date"), the U.S. Court of Appeals for the Third Circuit (the "Third Circuit") dismissed the sole remaining appeal challenging the Confirmation Order and the Joint Plan became effective. Under the Joint Plan, two asbestos trusts were established and funded under Section 524(g)a description of the Bankruptcy Code.income tax effects. The Confirmation Order contains a channeling injunction which provides that all pending and future asbestos-related personal injury claims and demands ("PI Claims") have been channeled for resolution to an asbestos personal injury trust (the "PI Trust") and all pending and future asbestos-related property damage claims and demands ("PD Claims"), including PD Claims related to Grace’s former attic insulation product ("ZAI PD Claims"), have been channeled to a separate asbestos property damage trust (the "PD Trust"). Canadian ZAI PD Claims have been channeled to a separate Canadian claims fund. The trusts are the sole recourse for holders of asbestos-related claims; the channeling injunctions prohibit holders of asbestos-related claims from asserting such claims directly against Grace.
Under the terms of the Joint Plan, claims under the Chapter11 Cases were satisfied as follows:
Asbestos-Related Personal Injury Claims Asbestos personal injury claimants allege adverse health effects from exposure to asbestos-containing products formerly manufactured by Grace.
As of the Filing Date, 129,191 PI Claims were pending against Grace. Grace believes that a substantial number of additional PI Claims would have been received between the Filing Date and the Effective Date had such PI Claims not been stayed by the Bankruptcy Court.
Under the Joint Plan, all PI Claims are channeledupdate can be: (a) applied to the PI Trustperiod of adoption, or (b) applied retrospectively to each period in which the Tax Cuts and Jobs Act of 2017 is in effect. Grace is required to adopt the amendments in this update for resolution. The PI Trust will use specified trust distribution procedures to satisfy allowed PI Claims.fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. Grace is currently evaluating the timing and effect of adoption.
On the Effective Date, the PI Trust was funded with:
$557.7 million in cash from Grace (includes $464.1 million of cash from Grace and $93.6 million of cash from insurance proceeds that were held in escrow);
A warrant to acquire 10 million shares of Company common stock at an exercise price of $17.00 per share and expiring one year after the Effective Date (the "PI Warrant") (The Company repurchased the PI Warrant for a payment of $490 million in cash on February 3, 2015);
Rights to all proceeds under all of Grace's insurance policies that are available for payment of PI Claims;
$42.1 million in cash from a subsidiary of Fresenius AG, pursuant to the terms of a settlement agreement resolving asbestos-related, successor liability and fraudulent transfer claims against Fresenius; and
$856.8 million in cash and 18 million shares of Sealed Air Corporation common stock paid by Cryovac, Inc., a wholly owned subsidiary of Sealed Air, pursuant to the terms of a settlement agreement resolving asbestos-related, successor liability and fraudulent transfer claims against Cryovac and Sealed Air.
Under the Joint Plan Grace was also obligated to make deferred payments to the PI Trust of $110 million per year for 5 years beginning in 2019 and $100 million per year for 10 years beginning in 2024, which obligation was secured by the Company's obligation to issue 77,372,257 shares of Company common stock to the asbestos trusts in the event of default, subject to customary anti-dilution provisions. In September 2014, Grace paid the PI
Notes to Consolidated Financial Statements (Continued)
2. Chapter 111. Basis of Presentation and Joint PlanSummary of ReorganizationSignificant Accounting and Financial Reporting Policies (Continued)
Trust $632 million in settlementU.S. Tax Reform On December 22, 2017, the Tax Cuts and Jobs Act of Grace's deferred payment obligations. In February 2015, Grace purchased from the PI Trust the warrant to purchase 10 million shares of Company common stock issued2017 (the "Act") was signed into law, making significant changes to the PI TrustInternal Revenue Code. Changes include a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the Effective Date for $490 million.mandatory deemed repatriation of foreign earnings. Grace has no further financial obligations to the PI Trust.
Asbestos-Related Property Damage Claims The plaintiffs in asbestos property damage lawsuits generally seek to have the defendants payestimated its provision for the cost of removing, containing or repairing the asbestos-containing materials in commercial and public buildings. Various factors can affect the merit and value of PD Claims, including legal defenses, product identification, the amount and type of product involved, the age, type, size and use of the building, the legal status of the claimant, the jurisdictional history of prior cases, the court in which the case is pending, and the difficulty of asbestos abatement, if necessary.
Several class action lawsuits also were filed on behalf of homeowners alleging damage from ZAI. Based on Grace's investigation of the claims described in these lawsuits, and testing and analysis of this product by Grace and others, Grace believes that ZAI was and continues to be safe for its intended purpose and poses little or no threat to human health. The plaintiffs in the ZAI lawsuits dispute Grace's position on the safety of ZAI. In December 2006 the Bankruptcy Court issued an opinion and order holding that, although ZAI is contaminated with asbestos and can release asbestos fibers when disturbed, there is no unreasonable risk of harm from ZAI.
At Grace's request, in July 2008, the Bankruptcy Court established a claims bar date for U.S. ZAI PD Claims and approved a related notice program that required any person with a U.S. ZAI PD Claim to submit an individual proof of claim no later than October 31, 2008. Approximately 17,960 U.S. ZAI PD Claims were filed prior to the October 31, 2008, claims bar date and, as of the Effective Date, an additional 1,310 U.S. ZAI PD Claims were filed.
Under the Joint Plan, all PD Claims have been channeled to the PD Trust for resolution. The PD Trust contains two accounts, the PD Account and the ZAI PD Account. U.S. ZAI PD Claims are to be paid from the ZAI PD Account and non-ZAI PD Claims are to be paid from the PD Account. Canadian ZAI PD Claims are to be paid by a separate fund established in Canada. Each account has a separate trustee and the assets of the accounts may not be commingled.
PD Account
On the Effective Date, the PD Account of the PD Trust was funded with $39.9 million in cash from Grace and $111.4 million in cash from Cryovac and Fresenius to pay allowed non-ZAI PD Claims settled as of the Effective Date, and CDN$8.6 million in cash from Grace to fund the Canadian ZAI PD Claims fund.
Following the Effective Date, unresolved non-ZAI PD Claims are to be litigated in the Bankruptcy Court and any future non-ZAI PD Claims are to be litigated in a federal district court, in each case pursuant to procedures to be approved by the Bankruptcy Court. To the extent any such PD Claims are determined to be allowed claims, they are to be paid in cash by the PD Trust. Grace is obligated to make a payment to the PD Trust every six months in the amount of any non-ZAI PD Claims allowed during the preceding six months plus interest (if applicable) and, except for the first six months, the amount of PD Trust expenses for the preceding six months (the "PD Obligation"). The aggregate amount to be paid under the PD Obligation is not capped and Grace may be obligated to make additional payments to the PD Account in respect of the PD Obligation. Grace has accrued for those unresolved non-ZAI PD Claims that it believes are probable and estimable. Grace has not accrued for other unresolved or unasserted non-ZAI PD Claims as it does not believe that payment on any such claims is probable. As of December 31, 2014, Grace paid $0.4 million to the PD Trust since the Effective Date to fund the payment of two non-ZAI PD Claims that were filed in the Chapter 11 Cases but not resolved until after the Effective Date.
On the Effective Date, the PD Trust contributed CDN$8.6 million to a separate Canadian ZAI PD Claims fund through which Canadian ZAI PD Claims are to be resolved. Grace has no continuing or contingent obligations to make additional payments into this fund.
Notes to Consolidated Financial Statements (Continued)
2. Chapter 11 and Joint Plan of Reorganization (Continued)
ZAI PD Account
On the Effective Date, the ZAI PD Account was funded with $34.4 million in cash from Cryovac and Fresenius.
Grace is obligated to make a payment of $30 million in cash to the ZAI PD Account on the third anniversary of the Effective Date, and Grace is obligated to make up to 10 contingent deferred payments of $8 million per year to the ZAI PD Account during the 20-year period beginning on the fifth anniversary of the Effective Date, with each such payment due only if the assets of the ZAI PD Account fall below $10 million during the preceding year. The amounts that Grace will be obligated to pay to the ZAI PD Account under the Joint Plan are capped amounts. Grace is not obligated to make additional payments to the PD Trust in respect of the ZAI PD Account beyond the payments described above. Grace has accrued for the $30 million payment due on the third anniversary of the Effective Date, but has not accrued for the 10 additional payments since Grace does not currently believe they are probable.
The PD Trust is to resolve U.S. ZAI PD Claims that qualify for payment under specified trust distribution procedures by paying 55% of the claimed amount, but in no event is the PD Trust to pay more per claim than $4,125 (as adjusted for inflation each year after the fifth anniversary of the Effective Date).
All payments to the PD Trust required after the Effective Date are secured by the Company's obligation to issue 77,372,257 shares of Company common stock to the PD Trust in the event of default, subject to customary anti-dilution provisions. Grace has the right to conduct annual audits of the books, records and claim processing procedures of the PD Trust.
Asbestos-Related Liability The recorded asbestos-related liability as of December 31, 2013, was $2,092.4 million, and was included in "liabilities subject to compromise" in the accompanying Consolidated Balance Sheets. The asbestos-related liability was settled at the recorded amount on the Effective Date, including payment of cash of $499.5 million, issuance of the deferred payment obligations of $594.5 million and the warrant of $490.0 million, and transfer of all cash and rights with respect to Grace's insurance policies that provide coverage for asbestos-related claims.
The PI Trust deferred payment obligation of $110 million per year for 5 years beginning January 2, 2019, and of $100 million per year for 10 years beginning January 2, 2024, was recorded at fair value of $567 million on the Effective Date. The value of the deferred payment obligation was estimated based on (i) interest rates; (ii) Grace's credit standing and the payment period of the deferred payments; (iii) restrictive covenants and terms of Grace's other credit facilities; (iv) assessment of the risk of a default, which if default were to occur would require Grace to issue shares of Company common stock; and (v) the subordination provisions of the deferred payment agreement. In September 2014, Grace paid the PI Trust $632 million in settlement of Grace's deferred payment obligations.
Grace also recorded a deferred payment obligation of $27.5 million representing the present value of the $30 million payment due to the ZAI PD Account on February 3, 2017. This amount is included in "debt payable after one year" in the accompanying December 31, 2014, Consolidated Balance Sheet.
The warrant to acquire 10 million shares of the Company's common stock for $17.00 per share was recorded at its estimated value of $490 million on the Effective Date based on the current trading range of Company common stock, other valuation factors, and a settlement agreement. In February 2015, Grace repurchased the PI Warrant for $490 million in cash and has no further financial obligations to the PI Trust.
Other Claims As provided for in the Joint Plan, Grace paid substantially all other allowed pre-petition claims in full on or within 10 days after the Effective Date. All allowed administrative claims and all allowed priority claims were paid in cash with interest as provided in the Joint Plan. Secured claims were paid in cash with interest or by reinstatement. Allowed general unsecured claims were paid in cash, including, where applicable, post-petition interestincome taxes in accordance with the Joint Plan. The Joint Plan further provided that Grace, subject to certain non-bankruptcy limitations, satisfy all pension, retirement medical,Act and similar employee-related obligations and pay workers’ compensation claims.
Notes to Consolidated Financial Statements (Continued)
2. Chapter 11 and Joint Plan of Reorganization (Continued)
Unresolved Claims The Bankruptcy Court established a claims bar date of March 31, 2003, for claims of general unsecured creditors, PD Claims (other than ZAI PD Claims) and medical monitoring claims related to asbestos. The bar date did not apply to PI Claims or claims related to ZAI PD Claims. Unresolved claims are to be addressed through the claims objection process and the dispute resolution procedures approved by the Bankruptcy Court. Medical monitoring claims have been channeled to the PI Trust.
Grace believes that its recorded liabilities for unresolved claims represent a reasonable estimate of the ultimate allowable amount for such claims, where sufficient information isguidance available to determine whether liability is probable and estimable. If it is ultimately determined that any amounts are owed on these claims, they are to be paid in full, with interest as required. While the ultimate outcome of these claims cannot be predicted with certainty, Grace believes that the resolution of these matters will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
After the Effective Date, all persons and entities generally are forever barred from asserting against Grace any claims or demands that are based upon any act or omission, transaction, or other activity, event or occurrence that occurred prior to the Effective Date, except as expressly provided in the Joint Plan.
Effect on Company Common Stock Under the Joint Plan holders of Company common stock as of the Effective Date retained their shares, but the interestsdate of shareholders are subject to dilutionthis filing and as a result has recorded $143.0 million as additional income tax expense in the event of default with respect2017 fourth quarter, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred payment obligationtax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $120.1 million. The provisional amounts related to the PD Trust underone-time transition tax on the Company's security obligation.mandatory deemed repatriation of foreign earnings and the state and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million respectively. Additionally, Grace provisionally released valuation allowances on a portion of its state net operating losses and federal tax credits of $2.0 million and $17.4 million.
Debt Capital AsOn December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of December 31, 2013, allU.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Debtors' pre-petition debt was in default due to the Filing. The accompanying December 31, 2013, Consolidated Balance Sheet reflects the classification of the Debtors' pre-petition debt within "liabilities subject to compromise." All debt subject to compromise was paid in full. See Note 6 for a discussion of Grace's emergence financing.
Accounting Impact The accompanying 2013 Consolidated Financial Statements have been prepared inAct. In accordance with ASC 852 "Reorganizations." ASC 852 requiresSAB 118, Grace has determined that financial statementsthe $120.1 million of debtors-in-possession be prepared on a going concern basis, which contemplates continuitydeferred tax expense recorded in connection with the remeasurement of operations and realization ofcertain deferred tax assets and liquidationliabilities and the $37.4 million of liabilitiescurrent tax expense recorded in connection with the ordinary course of business.
Pursuant to ASC 852, Grace's pre-petition and post-petition liabilities that were subject to compromise were required to be reported separatelytransition tax on the balance sheet at an estimatemandatory deemed repatriation of the amount that would ultimately be allowed by the Bankruptcy Court. As of December 31, 2013, such pre-petition liabilities included fixed obligations (such as debt and contractual commitments),foreign earnings, as well as the state and foreign taxes on unremitted earnings and the release of the valuation allowances, were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary for a more detailed analysis of costsGrace's deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the 2018 quarter during which the analysis is completed, which is expected to be during the second half of 2018.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Act. Grace has not completed its analysis in order to make a policy decision on accounting for GILTI. See Note 7 for more information related to contingent liabilities (such as asbestos-related litigation, environmental remediationincome taxes and other claims). ObligationsU.S. tax reform. 2. Inventories Inventories are stated at the lower of Grace subsidiaries not covered by the Filing were required to be classified on the Consolidated Balance Sheets based upon maturity datescost or the expected dates of payment. ASC 852 also requires separate reporting of certain expenses, realized gainsnet realizable value, and losses, and provisions for losses related to the Filing as reorganization items. Grace presents reorganization items as "Chapter 11 expenses, net of interest income," a separate caption in its Consolidated Statements of Operations. In Grace's case, "liabilities subject to compromise" represented both pre-petition and post-petition liabilities ascost is determined under U.S. GAAP. Changes to pre-petition liabilities subsequent to the Filing Date reflect: (1) cash payments under approved court orders; (2) the termsusing FIFO. Inventories consisted of the Joint Plan, as discussed above, including the accrual of interest on pre-petition debt and other fixed obligations; (3) accruals for employee-related programs; and (4) changes in estimates related to other pre-petition contingent liabilities.
Notes to Consolidated Financial Statements (Continued)
2. Chapter 11 and Joint Plan of Reorganization (Continued)
The table below sets forth the components of liabilities subject to compromise as of following at December 31, 2013,2017 and the Filing Date:2016:
| | | | | | | | | (In millions) | December 31, 2013 | | Filing Date (Unaudited) | Asbestos-related contingencies | $ | 2,092.4 |
| | $ | 1,002.8 |
| Pre-petition bank debt plus accrued interest | 1,100.0 |
| | 511.5 |
| Environmental contingencies | 134.5 |
| | 164.8 |
| Unfunded special pension arrangements | 129.4 |
| | 70.8 |
| Income tax contingencies | 76.6 |
| | 242.1 |
| Postretirement benefits other than pension | 57.2 |
| | 185.4 |
| Drawn letters of credit plus accrued interest | 37.8 |
| | — |
| Accounts payable | 34.3 |
| | 43.0 |
| Retained obligations of divested businesses | 29.9 |
| | 43.5 |
| Other accrued liabilities | 94.3 |
| | 102.1 |
| Reclassification to current liabilities(1) | (10.3 | ) | | — |
| Total Liabilities Subject to Compromise | $ | 3,776.1 |
| | $ | 2,366.0 |
|
| | | | | | | | | | December 31, | (In millions) | 2017 | | 2016 | Raw materials | $ | 48.8 |
| | $ | 57.7 |
| In process | 33.0 |
| | 33.4 |
| Finished products | 124.7 |
| | 115.8 |
| Other | 24.4 |
| | 21.1 |
| | $ | 230.9 |
| | $ | 228.0 |
|
| | (1) | As of December 31, 2013, approximately $10.3 million of certain pension and postretirement benefit obligations subject to compromise have been presented in "other current liabilities" in the Consolidated Balance Sheets in accordance with ASC 715 "Compensation—Retirement Benefits."
|
The unfunded special pension arrangements reflected above exclude non-U.S. pension plans and qualified U.S. pension plans that became underfunded subsequent to the Filing.
Upon emergence from bankruptcy, Grace paid $1,340.6 million to settle certain liabilities subject to compromise. All other balances previously classified as liabilities subject to compromise were reclassified as either current or long-term liabilities based on maturity dates or expected dates of payment.
Chapter 11 Expenses
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | Legal and financial advisory fees | $ | 11.1 |
| | $ | 17.1 |
| | $ | 17.4 |
| Interest income | (0.1 | ) | | (1.8 | ) | | (0.8 | ) | Chapter 11 expenses, net of interest income | $ | 11.0 |
| | $ | 15.3 |
| | $ | 16.6 |
|
Pursuant to ASC 852, interest income earned on the Debtors' cash balances while in bankruptcy was offset against Chapter 11 expenses.
Notes to Consolidated Financial Statements (Continued)
2. Chapter 11 and Joint Plan of Reorganization (Continued)
Condensed Financial Information of the Debtors
W. R. Grace & Co.—Chapter 11 Filing Entities
Debtor-in-Possession Statements of Operations
| | | | | | | | | | Year Ended December 31, | (In millions) (Unaudited) | 2013 | | 2012 | Net sales, including intercompany | $ | 1,425.4 |
| | $ | 1,512.6 |
| Cost of goods sold, including intercompany, exclusive of depreciation and amortization shown separately below | 882.2 |
| | 951.3 |
| Selling, general and administrative expenses | 178.1 |
| | 274.9 |
| Depreciation and amortization | 69.1 |
| | 67.3 |
| Chapter 11 expenses, net of interest income | 15.3 |
| | 16.6 |
| Default interest settlement | 129.0 |
| | — |
| Asbestos and bankruptcy-related charges, net | 21.9 |
| | 384.6 |
| Research and development expenses | 37.8 |
| | 35.9 |
| Interest expense and related financing costs | 37.7 |
| | 41.5 |
| Other income, net | (75.7 | ) | | (93.2 | ) | | 1,295.4 |
| | 1,678.9 |
| Income (loss) before income taxes and equity in net income of non-filing entities | 130.0 |
| | (166.3 | ) | Benefit from (provision for) income taxes | (53.2 | ) | | 48.4 |
| Income (loss) before equity in net income of non-filing entities | 76.8 |
| | (117.9 | ) | Equity in net income of non-filing entities | 179.3 |
| | 157.9 |
| Net income attributable to W. R. Grace & Co. shareholders | $ | 256.1 |
| | $ | 40.0 |
|
In the above table, for 2013, "Asbestos and bankruptcy-related charges, net," primarily includes adjustments made to reflect the emergence-date value of the deferred payment obligations and adjustments to record the final allowed claims listing, partially offset by adjustments for interest per the terms of the Joint Plan. For 2012, "Asbestos and bankruptcy-related charges, net," includes adjustments made to our asbestos-related liability and to accrue for the Libby Medical Program settlement.
Notes to Consolidated Financial Statements (Continued)
2. Chapter 11 and Joint Plan of Reorganization (Continued)
W. R. Grace & Co.—Chapter 11 Filing Entities
Debtor-in-Possession Statements of Cash Flows
| | | | | | | | | | Year Ended December 31, | (In millions) (Unaudited) | 2013 | | 2012 | OPERATING ACTIVITIES | | | | Net income attributable to W. R. Grace & Co. shareholders | $ | 256.1 |
| | $ | 40.0 |
| Reconciliation to net cash provided by operating activities: | | | | Depreciation and amortization | 69.1 |
| | 67.3 |
| Asbestos and bankruptcy-related charges, net | 21.9 |
| | 384.6 |
| Default interest settlement | 129.0 |
| | — |
| Equity in net income of non-filing entities | (179.3 | ) | | (157.9 | ) | Provision for (benefit from) income taxes | 53.2 |
| | (48.4 | ) | Income taxes (paid), net of refunds | 13.5 |
| | (33.9 | ) | Tax benefits from stock-based compensation | 35.4 |
| | (36.8 | ) | Defined benefit pension (income) expense | (51.8 | ) | | 82.0 |
| Payments under defined benefit pension arrangements | (55.6 | ) | | (114.9 | ) | Repatriation of cash from foreign entities | 29.7 |
| | 21.6 |
| Changes in assets and liabilities, excluding the effect of foreign currency translation and business acquired: | | | | Trade accounts receivable | (6.2 | ) | | (7.1 | ) | Inventories | (23.0 | ) | | 66.7 |
| Accounts payable | 21.9 |
| | (15.1 | ) | All other items, net | 31.1 |
| | 75.9 |
| Net cash provided by operating activities | 345.0 |
| | 324.0 |
| INVESTING ACTIVITIES | | | | Capital expenditures | (94.1 | ) | | (82.6 | ) | Business acquired, net of cash acquired | (510.4 | ) | | — |
| Transfer to restricted cash and cash equivalents | (222.2 | ) | | (35.4 | ) | Net cash used for investing activities | (826.7 | ) | | (118.0 | ) | FINANCING ACTIVITIES | | | | Borrowings under credit arrangements | 0.3 |
| | — |
| Repayments under credit arrangements | (0.8 | ) | | (0.6 | ) | Proceeds from exercise of stock options | 34.4 |
| | 32.2 |
| Excess tax benefits from stock-based compensation | (35.4 | ) | | 36.8 |
| Other financing activities | 4.1 |
| | 1.2 |
| Net cash provided by financing activities | 2.6 |
| | 69.6 |
| (Decrease) increase in cash and cash equivalents | (479.1 | ) | | 275.6 |
| Cash and cash equivalents, beginning of period | 1,064.2 |
| | 788.6 |
| Cash and cash equivalents, end of period | $ | 585.1 |
| | $ | 1,064.2 |
|
Notes to Consolidated Financial Statements (Continued)
2. Chapter 11 and Joint Plan of Reorganization (Continued)
W. R. Grace & Co.—Chapter 11 Filing Entities
Debtor-in-Possession Balance Sheet
| | | | | (In millions) (Unaudited) | December 31, 2013 | ASSETS | | Current Assets | | Cash and cash equivalents | $ | 585.1 |
| Restricted cash and cash equivalents | 340.5 |
| Trade accounts receivable, net | 149.7 |
| Receivables from non-filing entities, net | 173.0 |
| Inventories | 138.9 |
| Other current assets | 69.3 |
| Total Current Assets | 1,456.5 |
| Properties and equipment, net | 484.5 |
| Goodwill | 279.9 |
| Technology and other intangible assets, net | 249.1 |
| Deferred income taxes | 817.3 |
| Asbestos-related insurance | 500.0 |
| Loans receivable from non-filing entities, net | 283.8 |
| Investment in non-filing entities | 531.3 |
| Investment in unconsolidated affiliate | 96.2 |
| Other assets | 16.5 |
| Total Assets | $ | 4,715.1 |
| LIABILITIES AND EQUITY | | Liabilities Not Subject to Compromise | | Current liabilities | $ | 247.4 |
| Underfunded defined benefit pension plans | 52.2 |
| Other liabilities | 78.7 |
| Total Liabilities Not Subject to Compromise | 378.3 |
| Liabilities Subject to Compromise | 3,776.1 |
| Total Liabilities | 4,154.4 |
| Total W. R. Grace & Co. Shareholders' Equity | 560.6 |
| Noncontrolling interests in Chapter 11 filing entities | 0.1 |
| Total Equity | 560.7 |
| Total Liabilities and Equity | $ | 4,715.1 |
|
In addition to Grace's financial reporting obligations as prescribed by the SEC, during the Chapter 11 proceeding, Grace was required, under the rules and regulations of the Bankruptcy Code, to periodically file certain statements and schedules with the Bankruptcy Court. This information is available to the public through the Bankruptcy Court and was prepared in a format that may not be comparable to information in Grace's quarterly and annual financial statements as filed with the SEC. These statements and schedules are not audited and do not purport to represent the financial position or results of operations of Grace on a consolidated basis.
This summary of the terms of various agreements does not purport to be complete and is qualified in its entirety by reference to the Joint Plan, the Confirmation Order, the Asbestos Trust Agreements, the Asbestos Insurance Transfer Agreement, the Deferred Payment Agreements, the Guarantee Agreements, the Share Issuance Agreement, the Warrant Agreement, the Warrant Implementation Letter, the Warrant Registration Rights Agreement, and the PI Deferred Payment Obligation Termination Agreement, which have been filed with the SEC.
Notes to Consolidated Financial Statements (Continued)
3. InventoriesProperties and Equipment
Inventories are stated at the lower of cost or market, and cost is determined using FIFO. Inventories consisted of the following at December 31, 2014 and 2013:
| | | | | | | | | | December 31, | (In millions) | 2014 | | 2013 | Raw materials | $ | 78.8 |
| | $ | 69.7 |
| In process | 47.2 |
| | 41.8 |
| Finished products | 177.7 |
| | 152.4 |
| Other | 29.1 |
| | 31.4 |
| | $ | 332.8 |
| | $ | 295.3 |
|
4. Properties and Equipment
| | | December 31, | December 31, | (In millions) | 2014 | | 2013 | 2017 | | 2016 | Land | $ | 18.5 |
| | $ | 20.0 |
| $ | 14.2 |
| | $ | 10.0 |
| Buildings | 530.0 |
| | 524.3 |
| 404.5 |
| | 375.4 |
| Information technology and equipment | 175.6 |
| | 172.0 |
| 136.6 |
| | 125.3 |
| Machinery, equipment and other | 1,825.3 |
| | 1,883.2 |
| 1,571.8 |
| | 1,445.8 |
| Projects under construction | 102.5 |
| | 107.2 |
| 135.4 |
| | 100.6 |
| Properties and equipment, gross | 2,651.9 |
| | 2,706.7 |
| 2,262.5 |
| | 2,057.1 |
| Accumulated depreciation and amortization | (1,818.4 | ) | | (1,876.8 | ) | (1,463.4 | ) | | (1,327.5 | ) | Properties and equipment, net | $ | 833.5 |
| | $ | 829.9 |
| $ | 799.1 |
| | $ | 729.6 |
|
Capitalized interest costs amounted to $1.5 million, $1.2$1.3 million, and $0.1$1.0 million in 2014, 2013,2017, 2016, and 2012,2015, respectively. Depreciation and lease amortization expense relating to properties and equipment was $112.5$96.1 million, $108.6$85.7 million, and $108.2$81.8 million in 2014, 2013,2017, 2016, and 2012,2015, respectively. Grace's rental expense for operating leases was $27.5$11.3 million, $28.4$10.0 million, and $26.1$10.6 million in 2014, 2013,2017, 2016, and 2012,2015, respectively. At December 31, 2014,2017, minimum future non-cancelable payments for operating leases are: | | | (In millions) | (In millions) | 2015 | $ | 23.7 |
| | 2016 | 19.3 |
| | 2017 | 11.6 |
| | 2018 | 7.5 |
| $ | 10.4 |
| 2019 | 5.1 |
| 7.3 |
| 2020 | | 5.5 |
| 2021 | | 3.0 |
| 2022 | | 2.8 |
| Thereafter | 23.0 |
| 39.3 |
| | $ | 90.2 |
| $ | 68.3 |
|
4. Goodwill and Other Intangible Assets The above minimum non-cancelable lease payments are netcarrying amount of anticipated sublease income of $0.8 milliongoodwill attributable to each reportable segment and the changes in 2015, $0.4 million in 2016, $0.2 million inthose balances during the years ended December 31, 2017 and $0.1 million in 2018.2016, are as follows:
| | | | | | | | | | | | | (In millions) | Catalysts Technologies | | Materials Technologies | | Total Grace | Balance, December 31, 2015 | $ | 292.7 |
| | $ | 43.8 |
| | $ | 336.5 |
| Goodwill acquired during the year | 63.8 |
| | — |
| | 63.8 |
| Foreign currency translation | (3.0 | ) | | (0.6 | ) | | (3.6 | ) | Write-off related to exited product lines | — |
| | (2.5 | ) | | (2.5 | ) | Balance, December 31, 2016 | 353.5 |
| | 40.7 |
| | 394.2 |
| Goodwill acquired during the year | — |
| | 2.4 |
| | 2.4 |
| Foreign currency translation | 4.2 |
| | 1.6 |
| | 5.8 |
| Balance, December 31, 2017 | $ | 357.7 |
| | $ | 44.7 |
| | $ | 402.4 |
|
Notes to Consolidated Financial Statements (Continued)
5.4. Goodwill and Other Intangible Assets
The carrying amount of goodwill attributable to each operating segment and the changes in those balances during the year ended December 31, 2014, are as follows:
| | | | | | | | | | | | | | | | | (In millions) | Grace Catalysts Technologies | | Grace Materials Technologies | | Grace Construction Products | | Total Grace | Balance, December 31, 2013 | $ | 293.4 |
| | $ | 41.2 |
| | $ | 122.9 |
| | $ | 457.5 |
| Foreign currency translation | (0.9 | ) | | (2.3 | ) | | (10.8 | ) | | (14.0 | ) | Other adjustments | 1.3 |
| | 11.5 |
| | (3.4 | ) | | 9.4 |
| Balance, December 31, 2014 | $ | 293.8 |
| | $ | 50.4 |
| | $ | 108.7 |
| | $ | 452.9 |
|
Other adjustments in the table above relate primarily to deferred income taxes for prior acquisitions that were corrected during the current period, including $8.0 million that was recorded in "benefit from (provision for) income taxes" in the Consolidated Financial Statements. Grace determined that these amounts are not material to the current or prior periods.
Grace's net book value of other intangible assets at December 31, 20142017 and 2013,2016, was $288.0$255.4 million and $315.5$269.1 million, respectively, detailed as follows: | | | | | | | | | | December 31, 2014 | (In millions) | Gross Carrying Amount | | Accumulated Amortization | Technology | $ | 257.9 |
| | $ | 49.5 |
| Customer lists | 88.5 |
| | 46.2 |
| Trademarks | 34.9 |
| | 15.0 |
| Other | 21.5 |
| | 4.1 |
| Total | $ | 402.8 |
| | $ | 114.8 |
|
| | | December 31, 2013 | December 31, 2017 | | December 31, 2016 | (In millions) | Gross Carrying Amount | | Accumulated Amortization | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | Technology | $ | 260.0 |
| | $ | 37.8 |
| $ | 214.7 |
| | $ | 41.5 |
| | $ | 222.3 |
| | $ | 38.9 |
| Customer lists | 94.9 |
| | 43.7 |
| 55.8 |
| | 8.8 |
| | 69.6 |
| | 20.3 |
| Trademarks | 36.9 |
| | 14.0 |
| 25.5 |
| | 2.6 |
| | 25.3 |
| | 1.5 |
| Other | 22.4 |
| | 3.2 |
| 16.0 |
| | 3.7 |
| | 15.7 |
| | 3.1 |
| Total | $ | 414.2 |
| | $ | 98.7 |
| $ | 312.0 |
| | $ | 56.6 |
| | $ | 332.9 |
| | $ | 63.8 |
|
Total indefinite-lived trademarks, included above, at December 31, 2014 and 2013, were $4.2 million and $4.9 million, respectively. Amortization expense related to intangible assets was $22.915.4 million, $12.713.9 million, and $10.716.2 million in 20142017, 20132016, and 20122015, respectively.
Notes to Consolidated Financial Statements (Continued)
5. Goodwill and Other Intangible Assets (Continued)
At December 31, 20142017, estimated future annual amortization expense for intangible assets is: | | | | | | (In millions) | 2015 | $ | 21.9 |
| 2016 | 18.4 |
| 2017 | 17.1 |
| 2018 | 16.9 |
| 2019 | 15.0 |
| Thereafter | 194.5 |
| Total estimated amortization expense | $ | 283.8 |
|
| | | | | | (In millions) | 2018 | $ | 15.4 |
| 2019 | 15.4 |
| 2020 | 15.1 |
| 2021 | 14.9 |
| 2022 | 14.8 |
| Thereafter | 179.8 |
| | $ | 255.4 |
|
6.5. Debt
Components of Debt | | | | | | | | | | December 31, | (In millions) | 2014 | | 2013 | 5.125% senior notes due 2021 | $ | 700.0 |
| | $ | — |
| U.S. dollar term loan, net of unamortized discount of $2.1 at December 31, 2014 | 692.6 |
| | — |
| 5.625% senior notes due 2024 | 300.0 |
| | — |
| Euro term loan, net of unamortized discount of $0.4 at December 31, 2014 | 181.2 |
| | — |
| Debt payable—unconsolidated affiliate | 31.5 |
| | 28.8 |
| Deferred payment obligation | 28.2 |
| | — |
| Other borrowings(1) | 82.3 |
| | 81.9 |
| Total debt | 2,015.8 |
| | 110.7 |
| Debt payable within one year | 96.8 |
| | 81.1 |
| Debt payable after one year | $ | 1,919.0 |
| | $ | 29.6 |
| Debt Subject to Compromise | | | | Bank borrowings(2) | $ | — |
| | $ | 500.0 |
| Accrued interest on bank borrowings | — |
| | 471.0 |
| Default interest settlement(3) | — |
| | 129.0 |
| Drawn letters of credit | — |
| | 26.7 |
| Accrued interest on drawn letters of credit | — |
| | 11.1 |
| | $ | — |
| | $ | 1,137.8 |
| Full-year weighted average interest rates on total debt | 4.3 | % | | 3.6 | % |
| | | | | | | | | | December 31, | (In millions) | 2017 | | 2016 | 5.125% senior notes due 2021, net of unamortized debt issuance costs of $5.8 at December 31, 2017 (2016—$7.3) | $ | 694.2 |
| | $ | 692.7 |
| U.S. dollar term loan, net of unamortized debt issuance costs and discounts of $4.3 at December 31, 2017 (2016—$5.7) | 404.1 |
| | 402.7 |
| 5.625% senior notes due 2024, net of unamortized debt issuance costs of $3.5 at December 31, 2017 (2016—$4.0) | 296.5 |
| | 296.0 |
| Euro term loan, net of unamortized debt issuance costs and discounts of $1.0 at December 31, 2017 (2016—$1.3) | 94.0 |
| | 82.5 |
| Debt payable to unconsolidated affiliate | 42.4 |
| | 39.5 |
| Deferred payment obligation | — |
| | 30.0 |
| Other borrowings(1) | 12.7 |
| | 40.7 |
| Total debt | 1,543.9 |
| | 1,584.1 |
| Less debt payable within one year | 20.1 |
| | 76.5 |
| Debt payable after one year | $ | 1,523.8 |
| | $ | 1,507.6 |
| Weighted average interest rates on total debt | 4.7 | % | | 4.6 | % |
| | (1) | Represents borrowings under various lines of credit and other borrowings, primarily by non-U.S. subsidiaries. |
| | (2) | Under bank revolving credit agreements in effect prior to the Filing, Grace could borrow up to $500 million at interest rates based upon the prevailing prime, federal funds and/or Eurodollar rates ($250 million under short-term facilities that expired in May 2001 and $250 million under a long-term facility that expired in May 2003). As a result of the Filing, Grace was not permitted to make payments under the bank revolving credit agreements, and accordingly, the balance as of the Filing Date was reclassified to debt subject to compromise in the Consolidated Balance Sheets. |
| | (3) | On December 31, 2013, Grace entered into an agreement to settle the final appeal pending in its Chapter 11 bankruptcy with the holders of the Company’s pre-petition bank debt (the “Bank Lenders”). The settlement called for Grace to pay the Bank Lenders $129.0 million, plus interest from December 31, 2013, in addition to the distributions provided in the Joint Plan. |
Notes to Consolidated Financial Statements (Continued)
6.5. Debt (Continued)
See Note 76 for a discussion of the fair value of Grace's debt. At December 31, 2014, the recorded values of other financial instruments such as cash equivalents and trade receivables and payables approximated their fair values, based on the short-term maturities and floating rate characteristics of these instruments. The principal maturities of debt outstanding at December 31, 2014,2017, were as follows: | | | (In millions) | (In millions) | 2015 | $ | 96.8 |
| | 2016 | 14.5 |
| | 2017 | 41.6 |
| | 2018 | 13.0 |
| $ | 20.1 |
| 2019 | 12.4 |
| 8.7 |
| 2020 | | 7.4 |
| 2021 | | 1,198.2 |
| 2022 | | 5.0 |
| Thereafter | 1,837.5 |
| 304.5 |
| Total debt | $ | 2,015.8 |
| $ | 1,543.9 |
|
Credit Agreement On February 3, 2014, Grace entered into a Credit Agreement (the "Credit Agreement") in connection with its exit financing. The Credit Agreement, as amended in connection with the Separation, provides for: | | (a) | a $700 million term loan due in 2021, with interest at LIBOR +225+200 bps with a 75 bps floor; |
| | (b) | a €150 million term loan due in 2021, with interest at EURIBOR +250+225 bps with a 75 bps floor; and |
| | (c) | a $400$300 million revolving credit facility due in 2019,2020, with interest at LIBOR +175 bps; andbps. |
| | (d) | a $250 million delayed draw term loan facility available for 12 months, with amounts drawn due in 2021, with interest at LIBOR +225 bps with a 75 bps floor. |
The term loans will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount thereof.
The Credit Agreement contains customary affirmative covenants, including but not limited to (i) maintenance of legal existence and compliance with laws and regulations; (ii) delivery of consolidated financial statements and other information; (iii) payment of taxes; (iv) delivery of notices of defaults and certain other material events; and (v) maintenance of adequate insurance. The Credit Agreement also contains customary negative covenants, including but not limited to restrictions on (i) dividends on, and redemptions of, equity interests and other restricted payments; (ii) liens; (iii) loans and investments; (iv) the sale, transfer or disposition of assets and businesses; (vi) transactions with affiliates; and (vii) a maximum total leverage ratio. Grace is in compliance with these covenants. The Credit Agreement contains conditions that would require mandatory principal payments in advance of the term loan maturity date; none of these conditions had been triggered as of December 31, 2014.2017. Events of default under the Credit Agreement include, but are not limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Agreement when due, taking into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Agreement subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v) bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security interests. To secure its obligations under the Credit Agreement, the Company has granted security interests in the shares of its Grace—Grace–Conn. and Alltech Associates, Inc. subsidiaries, substantially all of its U.S. non-real estate assets and property, and certain U.S. real estate. On January 30, 2015, Grace borrowed on theits $250 million delayed draw term loan facility then provided for under the Credit Agreement and used the funds, together with cash on hand, to repurchase the warrant issued to the PI Trust.asbestos personal injury trust (the "PI Trust") for $490 million. (See Note 10 for Chapter 11 information.)
Grace had no outstanding draws on its revolving credit facility as of December 31, 2017; however, the available credit under that facility was reduced to $262.8 million by outstanding letters of credit. During the 2016 first quarter, in connection with the Separation, GCP distributed $750 million to Grace. Grace used $600 million of those funds to repay $526.9 million of its U.S. dollar term loan, including the $250 million borrowed under the delayed draw facility, and €67.3 million of its euro term loan. As a result, Grace
Notes to Consolidated Financial Statements (Continued)
6.5. Debt (Continued)
Grace has reviewedrecorded a loss on early extinguishment of $11.1 million, which is included in "other (income) expense" in the impact onConsolidated Statements of Operations. See Note 20 for information related to the Credit Agreement of the planned separation of Grace into "New Grace" and "New GCP." Grace anticipates that the Credit Agreement will remain with "New Grace" but, that at the time of the separation, will require an amendment to permit the separation. Grace intends to seek such amendment as well as repay a substantial amount of the borrowings under the Credit Agreement. If an amendment is not granted, Grace will be required to repay all term loan and revolver debt and enter into a new borrowing facility.Separation.
Senior Notes On September 16, 2014, Grace-Conn.Grace–Conn. (the "Issuer") issued $1,000.0 million of senior unsecured notes (the "Notes") in two tranches: | | (a) | $700 million in aggregate principal amount of Notes due 2021 at a coupon rate of 5.125%, and |
| | (b) | $300 million in aggregate principal amount of Notes due 2024 at a coupon rate of 5.625%. |
The Notes were priced at 100% of par and were offered and sold pursuant to exemptions from registration under the Securities Act of 1933, as amended, (the "Securities Act"). The net proceeds received from issuance were $985.5 million, a portion of which was used to terminate Grace's obligations under the deferred payment agreement with the PI Trust for $632.0 million and to repay amounts outstanding under Grace's revolving credit facility. The remaining proceeds from the Notes were used to partially fund the settlement of the warrant issued to the PI Trust (as defined in Note 10) and for other general corporate purposes. Interest is payable on the Notes on each April 1 and October 1, commencing April 1, 2015.1. Grace may redeem some or all of the Notes at any time at a price equal to the greater of (i) 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and (ii) the sum, as determined by an independent investment banker, of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 50 basis points, in each case, plus accrued and unpaid interest to, but excluding, the date of redemption.interest. In the event of a change in control, Grace will be required to offer to purchase the Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest. The Notes are jointly and severally guaranteed on a full and unconditional senior unsecured basis by the Company and Alltech Associates, Inc., a wholly-owned subsidiary of the Issuer (the "Guarantors"). The Notes and guarantees are senior obligations of the Issuer and the Guarantors, respectively, and will rank equally with all of the existing and future unsubordinated obligations of the Issuer and the Guarantors, respectively. The Notes are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to the debt and other liabilities of Grace’s non-guarantor subsidiaries. The Notes were issued subject to covenants that limit the Issuer’s and certain of its subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) create or incur liens on assets, (ii) enter into any sale and leaseback transaction and (iii) in the case of the Issuer, merge or consolidate with another company. Grace is in compliance with these covenants. The Notes were also issued subjectedsubject to customary events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; breach of other agreements in the Indenture; failure to pay certain other indebtedness; failure to discharge a final judgment for payment of $75 million or more (excluding any amounts covered by insurance or indemnities) rendered against the Issuer or any of its significant subsidiaries; and certain events of bankruptcy or insolvency. Generally, if any event of default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding series of Notes may declare all the Notes of such series to be due and payable immediately. Grace has reviewed the Notes for the impactThis summary of the separation of Grace into "New Grace" and "New GCP." The Notes will remain with "New Grace" and Grace does not believe thatCredit Agreement, the separation will have any impact on payment or other terms.
Notesamendment to Consolidated Financial Statements (Continued)
6. Debt (Continued)
This summary of the Credit Agreement, the indentures, and the Notes does not purport to be complete and is qualified in its entirety by reference to the full text of such agreements, copies of which have been filed with the SEC.
7.6. Fair Value Measurements and Risk
Certain of Grace's assets and liabilities are reported at fair value on a gross basis. ASC 820 "Fair Value Measurements and Disclosures" defines fair value as the value that would be received at the measurement date
Notes to Consolidated Financial Statements (Continued)
6. Fair Value Measurements and Risk (Continued)
in the principal or "most advantageous" market. Grace uses principal market data, whenever available, to value assets and liabilities that are required to be reported at fair value. Grace has identified the following financial assets and liabilities that are subject to the fair value analysis required by ASC 820: Fair Value of Debt and Other Financial Instruments Debt payable is recorded at carrying value as discussed in Note 6.value. Fair value is determined based on Level 2 inputs, including expected future cash flows (discounted at market interest rates), estimated current market prices, and quotes from financial institutions. Grace's debt subject to compromise was paid in full. At December 31, 2014,2017, the carrying amounts and fair values of the Company'sGrace's debt were as follows: | | | December 31, 2014 | | December 31, 2013 | December 31, 2017 | | December 31, 2016 | (In millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | 5.125% senior notes due 2021(1) | $ | 700.0 |
| | $ | 720.9 |
| | $ | — |
| | $ | — |
| $ | 694.2 |
| | $ | 728.7 |
| | $ | 692.7 |
| | $ | 721.3 |
| U.S. dollar term loan(1)(2) | 692.6 |
| | 691.3 |
| | — |
| | — |
| 404.1 |
| | 409.7 |
| | 402.7 |
| | 408.2 |
| 5.625% senior notes due 2024(1) | 300.0 |
| | 312.0 |
| | — |
| | — |
| 296.5 |
| | 321.3 |
| | 296.0 |
| | 311.5 |
| Euro term loan(1)(2) | 181.2 |
| | 181.4 |
| | — |
| | — |
| 94.0 |
| | 93.7 |
| | 82.5 |
| | 82.0 |
| Other borrowings (not subject to compromise) | 142.0 |
| | 142.0 |
| | 110.7 |
| | 110.7 |
| | Other borrowings (subject to compromise) | — |
| | — |
| | 1,137.8 |
| | 1,137.8 |
| | Other borrowings | | 55.1 |
| | 55.1 |
| | 110.2 |
| | 110.2 |
| Total debt | $ | 2,015.8 |
| | $ | 2,047.6 |
| | $ | 1,248.5 |
| | $ | 1,248.5 |
| $ | 1,543.9 |
| | $ | 1,608.5 |
| | $ | 1,584.1 |
| | $ | 1,633.2 |
|
| | (1) | Carrying amounts are net of unamortized debt issuance costs of $5.8 million and $3.5 million at December 31, 2017, and $7.3 million and $4.0 million as of December 31, 2016, related to the 5.125% senior notes due 2021 and 5.625% senior notes due 2024, respectively. |
| | (2) | Carrying amounts are net of unamortized debt issuance costs and discounts of $2.1$4.3 million and $0.4$1.0 million at December 31, 2017, and $5.7 million and $1.3 million as of December 31, 2016, related to the U.S. dollar term loan and Euroeuro term loan, respectively. |
Derivatives
From time to time, Grace enters into commodity derivativesAt December 31, 2017, the recorded values of other financial instruments such as fixed-rate swaps or options with financial institutions to mitigate the risk of volatility of prices of natural gas or other commodities. Under fixed-rate swaps, Grace locks in a fixed rate with a financial institution for future purchases, purchases its commodity from a supplier at the prevailing market rate,cash equivalents and then settles with the bank for any difference in the rates, thereby "swapping" a variable rate for a fixed rate.
The valuation of Grace's fixed-rate natural gas swaps was determined using a market approach, based on natural gas futures trading prices quoted on the New York Mercantile Exchange. Commodity fixed-rate swaps with maturities of not more than 12 months are usedtrade receivables and designated as cash flow hedges of forecasted purchases of natural gas. Current open contracts hedge forecasted transactions until December 2015. The effective portion of the gain or loss on the commodity contracts is recorded in "accumulated other comprehensive (loss) income" and reclassified into income in the same period or periods that the underlying commodity purchase affects income. At December 31, 2014, the contract volume, or notional amount, of the commodity contracts was 5.0 million MMBtu (million British thermal units) with total contract value of $17.5 million.
The valuation of Grace's natural gas call options was determined using a market approach,payables approximated their fair values, based on the strike priceshort-term maturities and floating rate characteristics of the options and the natural gas futures trading prices quoted on the New York Mercantile Exchange.
Notes to Consolidated Financial Statements (Continued)
7. Fair Value Measurements and Risk (Continued)
Commodity option contracts with maturities of not more than 24 months are used and designated as cash flow hedges of forecasted purchases of natural gas. Current open option contracts hedge forecasted transactions until June 2015. The effective portion of the gain or loss on the commodity contracts is recorded in "accumulated other comprehensive (loss) income" and reclassified into income in the same period or periods that the underlying purchases affect income. At December 31, 2014, the contract volume, or notional amount, of the commodity option contracts was 0.3 million MMBtu and the natural gas futures trading price of option contracts was less than the strike price.these instruments.
The valuation of Grace's fixed-rate aluminum swaps was determined using a market approach, based on aluminum futures trading prices quoted on the London Metal Exchange. Commodity fixed-rate swaps with maturities of not more than Currency Derivatives12 months are used and designated as cash flow hedges of forecasted purchases of aluminum. Current open contracts hedge forecasted transactions until November 2015. The effective portion of the gain or loss on the commodity contracts is recorded in "accumulated other comprehensive (loss) income" and reclassified into income in the same period or periods that the underlying commodity purchase affects income. At December 31, 2014, the contract volume, or notional amount, of the commodity contracts was 1.3 million pounds with a total contract value of $1.2 million.
Because Grace does businessoperates and/or sells to customers in over 4060 countries and in more than 50over 30 currencies, its results are exposed to fluctuations in currency exchange rates. Grace seeks to minimize exposure to these fluctuations by matching sales in volatile currencies with expenditures in the same currencies, but it is not always possible to do so. From time to time, Grace will useuses financial instruments such as currency forward contracts, options, swaps, or combinations of the twothereof to reduce the risk of certain specific transactions. However, Grace does not have a policy of hedging all exposures, because management does not believe that such a level of hedging would be cost-effective. Forward contracts with maturities of not more than 36 months are used and designated as cash flow hedges of forecasted repayments of intercompany loans. The effective portion of gains and losses on these currency hedges is recorded in "accumulated other comprehensive income (loss)" and reclassified into "other (income) expense, net" to offset the remeasurement of the underlying hedged loans. Excluded components (forward points) on these hedges are amortized to income on a systematic basis. Grace also enters into foreign currency forward contracts to hedge a portion of its net outstanding monetary assets and liabilities. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of the forward contracts are recorded in "other (income) expense, net," in the Consolidated Statements of Operations. These forward contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities. The valuation of Grace's currency exchange rate forward contracts and swaps is determined using both a market approach and an income approach. Inputs used to value currency exchange rate forward contracts consist of: (1) spot rates, which are quoted by various financial institutions; (2) forward points, which are primarily affected by changes in interest
Notes to Consolidated Financial Statements (Continued)
6. Fair Value Measurements and Risk (Continued)
rates; and (3) discount rates used to present value future cash flows, which are based on the London Interbank Offered Rate (LIBOR) curve or overnight indexed swap rates. In November 2007, Grace purchased currency Total notional amounts for forward contracts to mitigate the effect of currency risk with respect to intercompany loans between its principal U.S. subsidiaryoutstanding at December 31, 2017, were $230.2 million.
Debt and a German subsidiary. These derivatives were not designated as hedging instruments under ASC 815. These contracts were settled upon Grace's emergence from bankruptcy during the 2014 first quarter. Interest Rate Swap AgreementsGrace uses interest rate swaps designated as cash flow hedges to manage fluctuations in interest rates on variable rate debt. The effective portion of gains and losses on these interest rate cash flow hedges is recorded in "accumulated other comprehensive income (loss) income"" and reclassified into "interest expense and related financing costs" during the period in which the underlyinghedged interest payments occur.period. In connection with its emergence financing, Grace entered into an interest rate swapswaps beginning on February 3, 2015, and maturing on February 3, 2020, fixing the LIBOR component of the interest on $250 million of Grace's term debt at a rate of 4.643%2.393%. The valuation of thisthese interest rate swapswaps is determined using both a market approach and an income approach, using prevailing market interest rates and discount rates to present value future cash flows based on the forward LIBOR yield curves. Credit risk is also incorporated into derivative valuations.
Notes to Consolidated Financial Statements (Continued)
7. Fair Value Measurements and Risk (Continued)
The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20142017 and 2013:2016: | | | Fair Value Measurements at December 31, 2014, Using | Fair Value Measurements at December 31, 2017, Using | (In millions) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Assets | | | | | | | | | | | | | | | Currency derivatives | $ | 3.3 |
| | $ | — |
| | $ | 3.3 |
| | $ | — |
| $ | 3.1 |
| | $ | — |
| | $ | 3.1 |
| | $ | — |
| Total Assets | $ | 3.3 |
| | $ | — |
| | $ | 3.3 |
| | $ | — |
| $ | 3.1 |
| | $ | — |
| | $ | 3.1 |
| | $ | — |
| Liabilities | | | | | | | | | | | | | | | Currency derivatives | $ | 0.1 |
| | $ | — |
| | $ | 0.1 |
| | $ | — |
| $ | 23.8 |
| | $ | — |
| | $ | 23.8 |
| | $ | — |
| Interest rate derivatives | 5.5 |
| | — |
| | 5.5 |
| | — |
| 1.8 |
| | — |
| | 1.8 |
| | — |
| Commodity derivatives | 2.6 |
| | — |
| | 2.6 |
| | — |
| | Total Liabilities | $ | 8.2 |
| | $ | — |
| | $ | 8.2 |
| | $ | — |
| $ | 25.6 |
| | $ | — |
| | $ | 25.6 |
| | $ | — |
|
| | | Fair Value Measurements at December 31, 2013, Using | Fair Value Measurements at December 31, 2016, Using | (In millions) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Assets | | | | | | | | | | | | | | | Currency derivatives | $ | 2.1 |
| | $ | — |
| | $ | 2.1 |
| | $ | — |
| $ | 8.8 |
| | $ | — |
| | $ | 8.8 |
| | $ | — |
| Total Assets | $ | 2.1 |
| | $ | — |
| | $ | 2.1 |
| | $ | — |
| $ | 8.8 |
| | $ | — |
| | $ | 8.8 |
| | $ | — |
| Liabilities | | | | | | | | | | | | | | | Interest rate derivatives | | $ | 6.0 |
| | $ | — |
| | $ | 6.0 |
| | $ | — |
| Currency derivatives | $ | 6.9 |
| | $ | — |
| | $ | 6.9 |
| | $ | — |
| 0.9 |
| | — |
| | 0.9 |
| | — |
| Commodity derivatives | 0.1 |
| | — |
| | 0.1 |
| | — |
| | Total Liabilities | $ | 7.0 |
| | $ | — |
| | $ | 7.0 |
| | $ | — |
| $ | 6.9 |
| | $ | — |
| | $ | 6.9 |
| | $ | — |
|
Notes to Consolidated Financial Statements (Continued)
6. Fair Value Measurements and Risk (Continued)
The following tables present the location and fair values of derivative instruments included in the Consolidated Balance Sheets as of December 31, 20142017 and 2013:2016: | | | Asset Derivatives | | Liability Derivatives | Asset Derivatives | | Liability Derivatives | December 31, 2014 (In millions) | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | December 31, 2017 (In millions) | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Derivatives designated as hedging instruments under ASC 815: | | | | | | | | | | | | Commodity contracts | Other current assets | | $ | — |
| | Other current liabilities | | $ | 2.6 |
| | Currency contracts | Other current assets | | 0.8 |
| | Other current liabilities | | — |
| | Currency contracts | Other assets | | 0.9 |
| | Other liabilities | | — |
| Other current assets | | $ | 2.7 |
| | Other current liabilities | | $ | 1.4 |
| Interest rate contracts | Other current assets | | — |
| | Other current liabilities | | 2.5 |
| Other current assets | | — |
| | Other current liabilities | | 1.3 |
| Currency contracts | | Other assets | | — |
| | Other liabilities | | 22.2 |
| Interest rate contracts | Other assets | | — |
| | Other liabilities | | 3.0 |
| Other assets | | — |
| | Other liabilities | | 0.5 |
| Derivatives not designated as hedging instruments under ASC 815: | | | | | | | |
| | | |
| | | Currency contracts | Other current assets | | 1.6 |
| | Other current liabilities | | 0.1 |
| Other current assets | | 0.4 |
| | Other current liabilities | | 0.2 |
| Total derivatives | | | $ | 3.3 |
| | | | $ | 8.2 |
| | $ | 3.1 |
| | $ | 25.6 |
|
Notes to Consolidated Financial Statements (Continued)
7. Fair Value Measurements and Risk (Continued)
| | | Asset Derivatives | | Liability Derivatives | Asset Derivatives | | Liability Derivatives | December 31, 2013 (In millions) | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | December 31, 2016 (In millions) | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Derivatives designated as hedging instruments under ASC 815: | | | | | | | | | | | | Commodity contracts | Other current assets | | $ | — |
| | Other current liabilities | | $ | 0.1 |
| | Currency contracts | Other current assets | | 1.0 |
| | Other current liabilities | | — |
| Other current assets | | $ | 4.0 |
| | Other current liabilities | | $ | — |
| Interest rate contracts | | Other current assets | | — |
| | Other current liabilities | | 2.8 |
| Currency contracts | Other assets | | 1.0 |
| | Other liabilities | | — |
| Other assets | | 4.0 |
| | Other liabilities | | — |
| Interest rate contracts | | Other assets | | — |
| | Other liabilities | | 3.2 |
| Derivatives not designated as hedging instruments under ASC 815: | | | | | | | | | | | | Currency contracts | Other current assets | | 0.1 |
| | Other current liabilities | | 6.9 |
| Other current assets | | 0.8 |
| | Other current liabilities | | 0.9 |
| Total derivatives | | | $ | 2.1 |
| | | | $ | 7.0 |
| | $ | 8.8 |
| | $ | 6.9 |
|
The following tables present the location and amount of gains and losses on derivative instruments included in the Consolidated Statements of Operations or, when applicable, gains and losses initially recognized in other"other comprehensive income (loss)" ("OCI") for the years ended December 31, 2014, 2013,2017, 2016, and 2012:2015: | | Year Ended December 31, 2014 (In millions) | Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion) | | Year Ended December 31, 2017 (In millions) | | Amount of Gain (Loss) Recognized in OCI on Derivatives | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | | Amount of Gain (Loss) Reclassified from OCI into Income | Derivatives in ASC 815 cash flow hedging relationships: | | | | | | | | | Interest rate contracts | $ | (5.4 | ) | | Interest expense | | $ | — |
| $ | 0.9 |
| | Interest expense | | $ | (2.7 | ) | Currency contracts(1) | 2.1 |
| | Other expense | | 1.3 |
| (3.6 | ) | | Other expense | | (2.9 | ) | Commodity contracts | (2.2 | ) | | Cost of goods sold | | 0.3 |
| | Total derivatives | $ | (5.5 | ) | | | | $ | 1.6 |
| $ | (2.7 | ) | | $ | (5.6 | ) | | | | | | | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives | | Derivatives not designated as hedging instruments under ASC 815: | | | | Currency contracts | | Other expense | | $ | 7.1 |
| |
| | (1) | Amount of gain (loss) recognized in OCI includes ($0.6 million) excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI. |
| | | | | | | | | | | Year Ended December 31, 2013 (In millions) | Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion) | Derivatives in ASC 815 cash flow hedging relationships: | | | | | | Currency contracts | $ | 2.0 |
| | Other expense | | $ | 2.4 |
| Currency contracts | (0.2 | ) | | Cost of goods sold | | (0.2 | ) | Commodity contracts | (0.3 | ) | | Cost of goods sold | | (0.4 | ) | Total derivatives | $ | 1.5 |
| | | | $ | 1.8 |
| | | | | | | | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives | Derivatives not designated as hedging instruments under ASC 815: | | | | | Currency contracts | | Other expense | | $ | (10.9 | ) |
Notes to Consolidated Financial Statements (Continued)
7.6. Fair Value Measurements and Risk (Continued)
| | Year Ended December 31, 2012 (In millions) | Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion) | | Year Ended December 31, 2016 (In millions) | | Amount of Gain (Loss) Recognized in OCI on Derivatives | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | | Amount of Gain (Loss) Reclassified from OCI into Income | Derivatives in ASC 815 cash flow hedging relationships: | Derivatives in ASC 815 cash flow hedging relationships: | | | | | | | | Interest rate contracts | | $ | (2.2 | ) | | Interest expense | | $ | (4.1 | ) | Currency contracts | $ | 1.4 |
| | Other expense | | $ | 1.6 |
| (0.1 | ) | | Other expense | | 0.8 |
| Currency contracts | 0.2 |
| | Cost of goods sold | | (0.1 | ) | | Commodity contracts | (2.3 | ) | | Cost of goods sold | | (5.9 | ) | | Total derivatives | $ | (0.7 | ) | | | | $ | (4.4 | ) | $ | (2.3 | ) | | $ | (3.3 | ) | | | | | | | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives | | Derivatives not designated as hedging instruments under ASC 815: | | | | | | Currency contracts | | Other expense | | $ | (4.4 | ) | |
| | | | | | | | | | | Year Ended December 31, 2015 (In millions) | Amount of Gain (Loss) Recognized in OCI on Derivatives | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | | Amount of Gain (Loss) Reclassified from OCI into Income | Derivatives in ASC 815 cash flow hedging relationships: | | | | | | Interest rate contracts | $ | (5.6 | ) | | Interest expense | | $ | (3.8 | ) | Currency contracts | 1.4 |
| | Other expense | | 0.7 |
| Total derivatives | $ | (4.2 | ) | | | | $ | (3.1 | ) |
The following table presents the total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are reported. | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | (In millions) | Interest expense | | Other income (expense) | | Interest expense | | Other income (expense) | | Interest expense | | Other income (expense) | Total amounts of income and expense line items in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | $ | 79.5 |
| | $ | (8.4 | ) | | $ | 81.5 |
| | $ | 13.3 |
| | $ | 99.4 |
| | $ | (13.8 | ) | Gain (loss) on cash flow hedging relationships in ASC 815 | | | | | | | | | | | | Interest rate contracts | | | | | | | | | | | | Amount of gain or (loss) reclassified from accumulated OCI into income | $ | (2.7 | ) | | $ | — |
| | $ | (4.1 | ) | | $ | — |
| | $ | (3.8 | ) | | $ | — |
| Currency contracts | | | | | | | | | | | | Amount of gain or (loss) reclassified from accumulated OCI into income | — |
| | (2.9 | ) | | — |
| | 0.8 |
| | — |
| | 0.7 |
| Amount excluded from effectiveness testing recognized in earnings based on amortization approach (included in above) | — |
| | 0.6 |
| | — |
| | — |
| | — |
| | — |
|
Net Investment HedgesGrace uses cross-currency swaps as derivative hedging instruments in certain net investment hedges of its non-U.S. subsidiaries. The effective portion of gains and losses attributable to these net investment hedges is recorded net of tax to "currency translation adjustments" within "accumulated other comprehensive income (loss)" to offset the change in the carrying value of the net investment being hedged. Recognition in earnings of amounts previously recorded to "currency translation adjustments" is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At December 31, 2017, the notional amount of €170.0 million of Grace's cross-currency swaps was designated as a hedging instrument of its net investment in its European subsidiaries. Grace also uses foreign currency denominated debt and deferred intercompany royalties as nonderivativenon-derivative hedging instruments in certain net investment hedges. The effective portion of gains and losses attributable to these net investment hedges is recorded to "currency translation adjustments" within "accumulated other comprehensive income (loss) income.." Recognition in earnings of amounts previously recorded to "currency translation adjustments" is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. During 2014, Grace designated its €148.9At December 31, 2017, €80.1 million of Grace's term loan principal
Notes to Consolidated Financial Statements (Continued)
6. Fair Value Measurements and Risk (Continued)
was designated as a hedging instrument of its net investment in its European subsidiaries. At December 31, 2017, €33.7 million of Grace's deferred intercompany royalties was designated as a hedging instrument of its net investment in European subsidiaries. The following tables present the location and amount of gains and losses on nonderivativederivative and non-derivative instruments designated as net investment hedges.hedges for the years ended December 31, 2017, 2016, and 2015. There were no reclassifications of the effective portion of net investment hedges out of OCI and into earnings for the periodperiods presented in the tabletables below. | | | | | | | | | | | Year Ended December 31, 2014 (In millions) | Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion) | Nonderivatives in ASC 815 net investment hedging relationships: | | | | | | Foreign currency denominated debt | $ | 22.7 |
| | Not applicable | | $ | — |
| Total nonderivatives | $ | 22.7 |
| | | | $ | — |
|
| | | | | Year Ended December 31, 2017 (In millions) | Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments | Derivatives in ASC 815 net investment hedging relationships: | | Cross-currency swap | $ | (21.9 | ) | Non-derivatives in ASC 815 net investment hedging relationships: | | Foreign currency denominated debt | $ | (11.2 | ) | Foreign currency denominated deferred intercompany royalties | (6.5 | ) | | $ | (17.7 | ) |
Debt and Interest Rate Swap Agreements | | | | | Year Ended December 31, 2016 (In millions) | Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments | Derivatives in ASC 815 net investment hedging relationships: | | Cross-currency swap | $ | 5.6 |
| Non-derivatives in ASC 815 net investment hedging relationships: | | Foreign currency denominated debt | $ | 4.6 |
| Foreign currency denominated deferred intercompany royalties | 2.5 |
| | $ | 7.1 |
|
| | | | | Year Ended December 31, 2015 (In millions) | Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments | Non-derivatives in ASC 815 net investment hedging relationships: | | Foreign currency denominated debt | $ | 18.3 |
|
Grace was not a party to any debt or interest rate swaps at December 31, 2013. In connection with its emergence financing, Grace entered into an interest rate swap beginning on February 3, 2015, and maturing on February 3, 2020, fixing $250 million of term debt at 4.643%.
Credit Risk Grace is exposed to credit risk in its trade accounts receivable. Customers in the petroleum refining and construction industriesindustry represent the greatest exposure. Grace's credit evaluation policies relatively short collection termsmitigate credit risk exposures, and it has a history of minimal credit losses mitigate credit risk exposures.losses. Grace does not generally require collateral for its trade accounts receivable, but may require a bank letter of credit in certain instances, particularly when selling to customers in cash restrictedcash-restricted countries.
Notes to Consolidated Financial Statements (Continued)
7. Fair Value Measurements and Risk (Continued)
Grace may also be exposed to credit risk in its derivatives contracts. Grace monitors counterparty credit risk and currently does not anticipate nonperformance by counterparties to its derivatives counterparties.derivatives. Grace's derivativesderivative contracts are with internationally recognized commercial financial institutions. 8. Income Taxes
Provision for Income Taxes
The components of income from consolidated operations before income taxes and the related provision for income taxes for 2014, 2013, and 2012 are as follows:
Income Taxes—Consolidated Operations
| | | | | | | | | | | | | (In millions) | 2014 | | 2013 | | 2012 | Income (loss) before income taxes: | | | | | | Domestic | $ | 137.5 |
| | $ | 141.4 |
| | $ | (170.3 | ) | Foreign | 196.8 |
| | 219.2 |
| | 149.7 |
| Total | $ | 334.3 |
| | $ | 360.6 |
| | $ | (20.6 | ) | Benefit from (provision for) income taxes: | | | | | | Federal—current | $ | 59.4 |
| | $ | 1.4 |
| | $ | (51.2 | ) | Federal—deferred | (45.8 | ) | | (73.1 | ) | | 82.0 |
| State and local—current | (0.7 | ) | | (0.7 | ) | | (4.4 | ) | State and local—deferred | (17.6 | ) | | 38.2 |
| | 70.2 |
| Foreign—current | (62.5 | ) | | (83.5 | ) | | (43.1 | ) | Foreign—deferred | 10.2 |
| | 14.8 |
| | 8.1 |
| Total | $ | (57.0 | ) | | $ | (102.9 | ) | | $ | 61.6 |
|
The preceding allocation of income between jurisdictions does not reflect $38.9 million, $25.9 million, and $22.1 million of domestic income resulting from repatriated earnings in 2014, 2013, and 2012, respectively.
The difference between the provision for income taxes at the U.S. federal income tax rate of 35% and Grace's overall income tax provision is summarized as follows:
Income Tax Provision Analysis
| | | | | | | | | | | | | (In millions) | 2014 | | 2013 | | 2012 | Tax benefit (provision) at U.S. federal income tax rate | $ | (117.0 | ) | | $ | (126.2 | ) | | $ | 7.2 |
| Change in benefit (provision) resulting from: | | | | | | Adjustments to uncertain tax positions | 57.7 |
| | (6.8 | ) | | (13.4 | ) | Effect of tax rates in foreign jurisdictions | 17.8 |
| | 16.6 |
| | 14.9 |
| State and local income taxes, net | (11.9 | ) | | (0.7 | ) | | 0.1 |
| Nontaxable income/non-deductible expenses | (6.0 | ) | | (9.7 | ) | | (8.1 | ) | U.S. tax on foreign earnings | 5.2 |
| | 3.7 |
| | (2.2 | ) | Release of state valuation allowance | — |
| | 24.4 |
| | 44.0 |
| Benefits from domestic production activities | — |
| | — |
| | 14.0 |
| Other | (2.8 | ) | | (4.2 | ) | | 5.1 |
| Benefit from (provision for) income taxes | $ | (57.0 | ) | | $ | (102.9 | ) | | $ | 61.6 |
|
Notes to Consolidated Financial Statements (Continued)
8.7. Income Taxes (Continued)
Deferred Tax Assets and Liabilities
At December 31, 2014Provision for Income Taxes The components of income from continuing operations before income taxes and 2013, the related provision for income taxes for 2017, 2016, and 2015 are as follows:
| | | | | | | | | | | | | (In millions) | 2017 | | 2016 | | 2015 | Income from continuing operations before income taxes: | | | | | | Domestic | $ | 28.3 |
| | $ | 72.7 |
| | $ | 97.1 |
| Foreign | 182.6 |
| | 93.3 |
| | 96.6 |
| Total | $ | 210.9 |
| | $ | 166.0 |
| | $ | 193.7 |
| Benefit from (provision for) income taxes: | | | | | | Federal—deferred | $ | (144.6 | ) | | $ | (11.8 | ) | | $ | (35.4 | ) | State and local—current | 0.2 |
| | (0.7 | ) | | 4.1 |
| State and local—deferred | (1.7 | ) | | (17.7 | ) | | (6.4 | ) | Foreign—current | (50.8 | ) | | (36.6 | ) | | (23.5 | ) | Foreign—deferred | (3.6 | ) | | 7.8 |
| | (8.6 | ) | Total | $ | (200.5 | ) | | $ | (59.0 | ) | | $ | (69.8 | ) |
The difference between the benefit from (provision for) income taxes on continuing operations at the U.S. federal income tax attributes giving riserate of 35% and Grace's overall income tax provision is summarized as follows: | | | | | | | | | | | | | (In millions) | 2017 | | 2016 | | 2015 | Tax provision at U.S. federal income tax rate | $ | (73.8 | ) | | $ | (58.1 | ) | | $ | (67.8 | ) | Change in benefit (provision) resulting from: | | | | | | Provisional charge related to U.S. tax reform | (143.0 | ) | | — |
| | — |
| Effect of tax rates in foreign jurisdictions | 13.3 |
| | 6.8 |
| | 3.0 |
| Research and development credit | 5.1 |
| | — |
| | — |
| Stock option exercises | 2.8 |
| | 6.7 |
| | — |
| Nontaxable income/non-deductible expenses | (2.6 | ) | | (2.5 | ) | | (0.9 | ) | State and local income taxes, net | (1.8 | ) | | (4.7 | ) | | (2.9 | ) | U.S. tax on foreign earnings | (1.2 | ) | | (0.9 | ) | | (1.7 | ) | Decrease (increase) in valuation allowance | (0.3 | ) | | (2.5 | ) | | 1.6 |
| Other | 1.0 |
| | (3.8 | ) | | (1.1 | ) | Benefit from (provision for) income taxes | $ | (200.5 | ) | | $ | (59.0 | ) | | $ | (69.8 | ) |
Grace has estimated its provision for income taxes in accordance with the Tax Cuts and Jobs Act of 2017 (the "Act") and guidance available as of the date of this filing and as a result has recorded a provisional income tax expense of $143.0 million in the 2017 fourth quarter, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, consisted ofbased on the following items: Deferred Tax Analysis
| | | | | | | | | (In millions) | December 31, 2014 | | December 31, 2013 | Deferred tax assets: | | | | U.S. net operating loss carryforwards | $ | 371.8 |
| | $ | — |
| Liability for asbestos-related litigation | 192.4 |
| | 700.0 |
| Pension liabilities | 114.2 |
| | 100.9 |
| State net operating loss carryforwards | 51.1 |
| | 40.4 |
| Federal tax credit carryforwards | 49.6 |
| | 16.9 |
| Reserves and allowances | 45.2 |
| | 63.9 |
| Research and development | 34.5 |
| | 34.7 |
| Liability for environmental remediation | 22.7 |
| | 50.2 |
| Foreign net operating loss carryforwards | 18.0 |
| | 18.0 |
| Other postretirement benefits | 1.0 |
| | 19.4 |
| Accrued interest on pre-petition debt | — |
| | 71.1 |
| Other | 45.4 |
| | 29.9 |
| Total deferred tax assets | $ | 945.9 |
| | $ | 1,145.4 |
| Deferred tax liabilities: | | | | Properties and equipment | $ | (52.8 | ) | | $ | (31.1 | ) | Intangible assets | (36.4 | ) | | (17.5 | ) | Pension assets | (9.4 | ) | | (3.7 | ) | Asbestos-related insurance receivable | — |
| | (186.4 | ) | Other | (8.2 | ) | | (2.7 | ) | Total deferred tax liabilities | $ | (106.8 | ) | | $ | (241.4 | ) | Valuation allowance: | | | | State net operating loss carryforwards | $ | (5.9 | ) | | $ | (13.6 | ) | Foreign net operating loss carryforwards | (4.2 | ) | | (0.3 | ) | Federal tax credit carryforwards | (2.4 | ) | | (4.4 | ) | Total valuation allowance | (12.5 | ) | | (18.3 | ) | Net deferred tax assets | $ | 826.6 |
| | $ | 885.7 |
|
Grace's deferred tax assets and liabilitiesrates at which they are expected to reverse in the future, was $120.1 million. The provisional amounts related to the liability for asbestos-related litigationone-time transition tax on the mandatory deemed repatriation of foreign earnings and the asbestos-related insurance receivable decreasedstate and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million, respectively. Grace is no longer indefinitely reinvested with respect to its historical unremitted earnings of its foreign subsidiaries. Additionally, Grace provisionally released valuation allowances on a portion of its state net operating losses and federal tax credits of $2.0 million and $17.4 million, respectively.
The Act significantly fromchanges how the prior year dueU.S. taxes corporations. The Act requires complex computations to Grace's emergence from bankruptcybe performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act and significant estimates in calculations, and the paymentpreparation and analysis of the PI deferred payment obligation. Grace generated U.S. net operating loss carryforwards during 2014 as a result of the tax deductions arising from these items.information Grace has recorded a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. Grace has considered forecasted earnings, recent past and future taxable income, the mix of earnings in the jurisdictions in which it operates and prudent and feasible tax planning strategies in determining the need for these valuation allowances. The valuation allowance decreased $5.8 million from December 31, 2013, to December 31, 2014. The decrease was primarily due to a reduction in the valuation allowance on state NOL carryforwards, partially offset by an increase in the valuation allowance on NOLs in certain foreign jurisdictions.
Notes to Consolidated Financial Statements (Continued)
8.7. Income Taxes (Continued)
not previously relevant or regularly produced. The realizationU.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from Grace's interpretation as of the date of this filing. As Grace completes its analysis of the Act, collects and prepares necessary data including finalizing total post-1986 earnings and profits of its foreign subsidiaries, and interprets any additional guidance, Grace may make adjustments to the provisional amounts that have been recorded that may materially impact its provision for income taxes in the period in which the adjustments are made. Grace expects to complete its analysis of the provisional items during the second half of 2018. Deferred Tax Assets and Liabilities As of December 31, 2017 and 2016, the tax attributes giving rise to deferred tax assets and liabilities consisted of the following items. | | | | | | | | | | December 31, | (In millions) | 2017 | | 2016 | Deferred tax assets: | | | | Federal tax credit carryforwards | $ | 269.6 |
| | $ | 183.2 |
| Pension liabilities | 104.8 |
| | 120.1 |
| U.S. net operating loss carryforwards | 89.5 |
| | 293.6 |
| State net operating loss carryforwards | 58.2 |
| | 50.9 |
| Research and development | 22.8 |
| | 35.4 |
| Prepaid royalties | 21.4 |
| | 20.8 |
| Liability for environmental remediation | 16.4 |
| | 24.6 |
| Reserves and allowances | 15.2 |
| | 31.1 |
| Foreign net operating loss carryforwards | 6.6 |
| | 5.9 |
| Liability for asbestos-related litigation | — |
| | 11.1 |
| Other | 14.5 |
| | 29.0 |
| Total deferred tax assets | $ | 619.0 |
| | $ | 805.7 |
| Deferred tax liabilities: | | | | Properties and equipment | $ | (32.0 | ) | | $ | (38.5 | ) | Intangible assets | (15.1 | ) | | (18.4 | ) | Pension assets | — |
| | (6.1 | ) | Other | (11.3 | ) | | (4.7 | ) | Total deferred tax liabilities | $ | (58.4 | ) | | $ | (67.7 | ) | Valuation allowance: | | | | Federal tax credit carryforwards | $ | (0.3 | ) | | $ | (17.7 | ) | State net operating loss carryforwards | (9.2 | ) | | (11.2 | ) | Foreign net operating loss carryforwards | (2.8 | ) | | (2.5 | ) | Total valuation allowance | (12.3 | ) | | (31.4 | ) | Net deferred tax assets | $ | 548.3 |
| | $ | 706.6 |
|
Grace's deferred tax assets decreased by $158.3 million from December 31, 2016, to December 31, 2017, largely as a result of the Act. Grace reduces the carrying amounts of deferred tax assets is dependentby a valuation allowance if, based on the generation of sufficient taxable income in the appropriate tax jurisdictions. Grace believesavailable evidence, it is more likely than not that such assets will not be realized. See Note 1. The valuation allowance decreased by $19.1 million from December 31, 2016, to December 31, 2017, due to a decrease of $19.4 million related to the remainingimpact of the Act offset by an increase of $0.3 million for foreign deferred tax assets will be realized. If Grace were to determine that it would not be able to realize a portion of its net deferred tax assets in the future, for which there is currently no valuation allowance, an adjustment to the net deferred tax assets would be charged to earnings in the period such determination was made. Conversely, if Grace were to make a determination that it is more likely than not that deferred tax assets, for which there is currently a valuation allowance, would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.assets. As a result of certain realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2014 and 2013, that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Under the with and without approach to calculating excess stock compensation, equity will increase by approximately $80 million when such deferred tax assets are ultimately realized.
U.S. Federal Net Operating Losses
Grace generated approximately $1,300 million in U.S. federal tax deductions in 2014 relating to its emergence from bankruptcy, including approximately $670 million relating to payments made upon emergence and $632 million upon payment of the PI deferred payment obligation. These items, a significant portion of which were recorded as deferred tax assets for temporary differences at December 31, 2013, will be available to reduce U.S. federal taxable income in 2014 and future years. Grace also generated $490 million in U.S. federal income tax deductions in February 2015 upon repurchase of the warrant held by the PI Trust and expects to generate U.S. federal income tax deductions of $30 million upon payment of the ZAI PD deferred payment obligation in 2017. The expected settlement amounts have already been recorded as deferred tax assets for temporary differences. Grace expects to carryforward federal NOLs generated during 2014 and 2015. Under U.S. federal income tax law, a corporation is generally permitted to carryforward NOLs for a 20-year period for deduction against future taxable income. Grace will need to generate approximately $2,100 million of U.S. federal taxable income by 2035 (or approximately $105 million per year during the carryforward period) to fully realize the U.S. federal net deferred tax assets. Grace believes that it will generate taxable income during this period sufficient to use all available NOL carryforwards and future tax deductions prior to expiration.
Unrepatriated Foreign Earnings
Grace has not provided for U.S. federal, state and foreign deferred income taxes on $1,175.1 million of undistributed earnings of foreign subsidiaries. Grace expects that these earnings will be permanently reinvested by such subsidiaries except in certain instances where repatriation attributable to current earnings results in minimal or no U.S. tax consequences. The unrecorded deferred tax liability associated with these earnings is $133.2 million. Grace repatriated earnings of $38.9 million, $25.9 million, and $22.1 million from its non-U.S. subsidiaries in 2014, 2013, and 2012, respectively, incurring an insignificant amount of U.S. income tax expense or benefit.
Unrecognized Tax Benefits
The amount of unrecognized tax benefits at December 31, 2014, was $29.7 million ($26.5 million excluding interest and penalties). The amount of unrecognized tax benefits at December 31, 2013, was $84.4 million ($80.3 million excluding interest and penalties). The amount of unrecognized tax benefits at December 31, 2012, was $88.6 million ($83.1 million excluding interest and penalties). A reconciliation of the unrecognized tax benefits, excluding interest and penalties, for the three years ended December 31, 2014, follows:
Notes to Consolidated Financial Statements (Continued)
8.7. Income Taxes (Continued)
RollforwardU.S. Federal and State Net Operating Losses and Credit Carryforwards Grace has $269.6 million in federal tax credit carryforwards. In order to fully utilize the credits before they expire from 2021 to 2027 Grace will need to generate domestic and foreign source income of approximately $1.2 billion and approximately $200 million, respectively.
Grace has U.S. federal and state net operating losses. The deferred tax asset related to federal NOLs is $89.5 million. In order to fully utilize the NOLs before they expire in 2035, Grace will need to generate approximately $440 million in U.S. taxable income. The deferred tax asset, net of federal benefit, before valuation allowance related to state NOLs is $58.2 million. In order to fully utilize the state NOLs before they expire (from 2018 to 2035), Grace would need to generate approximately $1.5 billion in state taxable income. Unrecognized Tax Benefits The balance of unrecognized tax benefits at December 31, 2017, was $17.7 million compared with $18.7 million at December 31, 2016. A rollforward of the unrecognized tax benefits for the three years ended December 31, 2017, follows. | | (In millions) | Unrecognized Tax Benefits | Unrecognized Tax Benefits | Balance, January 1, 2012 | $ | 62.4 |
| | Balance, December 31, 2014 | | $ | 26.5 |
| Additions for current year tax positions | 3.4 |
| 0.1 |
| Additions for prior year tax positions | 22.0 |
| 0.8 |
| Reductions for prior year tax positions and reclassifications | (0.8 | ) | (1.6 | ) | Reductions for expirations of statute of limitations | (2.9 | ) | (1.5 | ) | Settlements(1) | (1.0 | ) | (1.2 | ) | Balance, December 31, 2012 | 83.1 |
| | Additions for current year tax positions | 6.3 |
| | Additions for prior year tax positions | 6.4 |
| | Reductions for prior year tax positions and reclassifications(2) | (9.6 | ) | | Reductions for expirations of statute of limitations | (5.9 | ) | | Balance, December 31, 2013 | 80.3 |
| | Balance, December 31, 2015 | | 23.1 |
| Additions for current year tax positions | 0.9 |
| 6.8 |
| Additions for prior year tax positions | 11.0 |
| 0.2 |
| Reductions for prior year tax positions and reclassifications | (5.7 | ) | (0.2 | ) | Reductions for expirations of statute of limitations | (0.4 | ) | | Settlements(3) | (59.6 | ) | | Balance, December 31, 2014 | $ | 26.5 |
| | Settlements | | (3.3 | ) | Transferred to GCP upon Separation | | (7.9 | ) | Balance, December 31, 2016 | | 18.7 |
| Additions for current year tax positions | | 0.8 |
| Additions for prior year tax positions | | 0.7 |
| Reductions for prior year tax positions and reclassifications | | (2.5 | ) | Balance, December 31, 2017 | | $ | 17.7 |
|
| | (1) | In 2012, $1.0 million of unrecognized tax benefits representing withholding taxes due were paid as a result of the completion of Grace's Canadian audit for the years 2002, 2003, and 2004. |
| | (2) | In 2013, $9.6 million of unrecognized tax benefits representing agreed adjustments resulting from the 2007-2009 IRS examination were reclassified to income taxes payable. |
| | (3) | In 2014, $59.6 million of benefits associated with reserves for unrecognized tax benefits were recognized based on the status of examinations in taxing jurisdictions and relevant statutes and regulatory guidance.
|
The entire balance of unrecognized tax benefits as of December 31, 2014, 2013, and 20122017, of $25.6$17.7 million, (net of $0.9 million that would be indemnified by a third party), $79.5 million (net of $0.8 million that would be indemnified by a third party), and $82.1 million (net of $1.0 million that would be indemnified by a third party), respectively, if recognized, would affectreduce the effective tax rate. The balance of unrecognized tax benefits as of December 31, 2014, also2017, includes $6.6$17.7 million for tax positions with an indirect tax benefit that results in a corresponding deferred tax asset as of December 31, 2014.2017. Grace accrues potential interest and any associated penalties related to uncertainunrecognized tax positionsbenefits in "benefit from (provision for) income taxes" in the Consolidated Statements of Operations. The balances of unrecognized tax benefits in the preceding table do not include accrued interest and penalties. The total amount ofThere were no interest and penalties accrued on uncertainunrecognized tax positionsbenefits as of December 31, 2014, 2013,2017 and 2012 was $3.2 million, $4.1 million and $5.5 million, respectively, net of applicable federal income tax benefits.2016. Grace files U.S. federal income tax returns as well as income tax returns in various state and foreign jurisdictions. Grace's unrecognized tax benefits are related to income tax returns for tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by major jurisdiction:
Notes to Consolidated Financial Statements (Continued)
8.7. Income Taxes (Continued)
| | | | | | Tax Jurisdiction(1) | | Examination in Progress | | Examination Not Initiated | United States—Federal | None | 2007, 2009 | | 2010-20132010-2016 | United States—State | 2007-2011States | | 2012-20132010-2014 | | 2015-2016 | Germany | | 2014-2016 | | None | Sweden | | None | | 2009-2013 | Italy | None | | 2008-2013 | France | 2010-2011 | | 2012-2013 | Canada | None | | 2006-20132013-2016 |
| | (1) | Includes federal, state, provincial or local jurisdictions, as applicable. |
Grace notes that there are attributes generated in prior years that are otherwise closed by statute and were carried forward into years that are open to examination. Those attributes may still be subject to adjustment to the extent utilized in open years. As a multinational taxpayer, Grace is under continual audit by various tax authorities. Grace believes it is reasonably possible that in the next 12 months the amount of the liability for unrecognized tax benefits could decrease by approximately $3 million.will be unchanged in the next 12 months. 9.8. Pension Plans and Other Postretirement Benefit Plans
Pension Plans The following table presents the funded status of Grace's fully-funded, underfunded and unfunded pension plans: | | | | | | | December 31, | (In millions) | December 31, 2014 | | December 31, 2013 | 2017 | | 2016 | Overfunded defined benefit pension plans | $ | 44.1 |
| | $ | 16.7 |
| | Underfunded defined benefit pension plans | (79.5 | ) | | (66.2 | ) | $ | (110.5 | ) | | $ | (83.1 | ) | Unfunded defined benefit pension plans(1) | (378.0 | ) | | (233.4 | ) | (391.9 | ) | | (341.2 | ) | Total underfunded and unfunded defined benefit pension plans | (457.5 | ) | | (299.6 | ) | (502.4 | ) | | (424.3 | ) | Unfunded defined benefit pension plans included in liabilities subject to compromise(1) | — |
| | (123.6 | ) | | Pension liabilities included in other current liabilities | (15.6 | ) | | (15.0 | ) | (15.0 | ) | | (14.4 | ) | Net funded status | $ | (429.0 | ) | | $ | (421.5 | ) | $ | (517.4 | ) | | $ | (438.7 | ) |
| | (1) | At emergence, Grace paid approximately $27 million of the unfunded defined benefit pension plan liability included in liabilities subject to compromise and reclassified the remaining balance to unfunded defined benefit pension plans. |
Fully-funded plans include several advance-funded plans where the fair value of the plan assets exceeds the projected benefit obligation ("PBO"). This group of plans was overfunded by $44.1 million as of December 31, 2014, and the overfunded status is reflected as "overfunded defined benefit pension plans" in the Consolidated Balance Sheets. Underfunded plans include a group of advance-funded plans that are underfunded on a PBOprojected benefit obligation ("PBO") basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded. The combined balance of the underfunded and unfunded plans was $473.1 million as of December 31, 2014.
Grace maintains defined benefit pension plans covering current and former employees of certain business units and divested business units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. qualified pension plans ("U.S. qualified pension plans") in accordance with U.S. federal laws and regulations. Non-U.S. pension plans ("non-U.S. pension plans") are funded under a variety of methods, as required under local laws and customs. The U.S. salaried plan is closed to new entrants after January 1, 2017. U.S. salaried employees and certain U.S. hourly employees hired on or after January 1, 2017, and employees in Germany hired on or after January 1, 2016, will participate in defined contribution plans instead of defined benefit pension plans. Grace also provides, through nonqualified plans, supplemental pension benefits in excess of U.S. qualified pension plan limits imposed by federal tax law. These plans cover officers and higher-level employees and serve to increase the combined pension amount to the level that they otherwise would have received under the U.S.
Notes to Consolidated Financial Statements (Continued)
9. Pension Plans and Other Postretirement Benefit Plans (Continued)
qualified pension plans in the absence of such limits. The nonqualified plans are unfunded and Grace pays the costs of benefits as they are due to the participants. At the December 31, 2014,2017, measurement date for Grace's defined benefit pension plans, the PBO was $2,027.7$1,648.7 million as measured under U.S. GAAP compared with $1,873.2$1,543.3 million as of December 31, 2013.2016. The PBO basis reflects the present value (using a 3.95%3.57% weighted average discount rate for U.S. plans and a 2.97%1.84% weighted average discount rate for non-U.S. plans as of December 31, 2014)2017) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees.
Notes to Consolidated Financial Statements (Continued)
8. Pension Plans and Other Postretirement Benefit Plans (Continued)
On an annual basis a full remeasurement of pension assets and pension liabilities is performed based on Grace's estimates and actuarial valuations. These valuations reflect the terms of the plan and use participant-specific information as well as certain key assumptions provided by management. Postretirement Benefits Other Than Pensions Grace has provided postretirement health care and life insurance benefits for retired employees of certain U.S. business units and certain divested business units. The postretirement medical plan provided various levels of benefits to employees hired before 1993 who retire from Grace after age 55 with at least 10 years of service. These plans are unfunded and Grace pays a portion of the costs of benefits under these plans as they are incurred. Grace applies ASC 715 to these plans, which requires that the future costs of postretirement health care and life insurance benefits be accrued over the employees' years of service. Actuarial gains and losses are recognized in the Consolidated Balance Sheets as a component of Shareholders’ Equity, with amortization of the net actuarial gains and losses that exceed 10 percent of the accumulated postretirement benefit obligation recognized each quarter in the Consolidated Statements of Operations over the average future service period of active employees.
In June 2014, Grace announced plans to discontinue its postretirement medical plan for all U.S. employees effective October 31, 2014, and to eliminate certain postretirement life insurance benefits. As a result of these actions, Grace recognized a gain of $41.9 million in other comprehensive income in the 2014 second quarter. Grace amortized $39.5 million from accumulated other comprehensive income into the Consolidated Statement of Operations during the five-month period from June to October 2014. The $39.5 million gain recognized during the year ended December 31, 2014, is reported as a separate line item in the Consolidated Statement of Operations.
Defined Contribution Retirement Plan Grace sponsors a defined contribution retirement plan for its employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, Grace contributes an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Grace's cost related to this benefit plan was $13.811.5 million, $13.211.1 million, and $12.610.4 million for the years ended December 31, 20142017, 20132016, and 20122015, respectively.
Notes to Consolidated Financial Statements (Continued)
9. Pension Plans and Other Postretirement Benefit Plans (Continued)
Analysis of Plan Accounting and Funded Status The following table summarizes the changes in benefit obligations and fair values of retirement plan assets during 20142017 and 20132016: | | | Defined Benefit Pension Plans | | Other Post- Retirement Plans | Defined Benefit Pension Plans | Change in Financial Status of Retirement Plans (In millions) | U.S. | | Non-U.S. | | Total | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | |
(In millions) | | U.S. | | Non-U.S. | | Total | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | Change in Projected Benefit Obligation (PBO): | Change in Projected Benefit Obligation (PBO): | | | | | | | | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | $ | 1,326.8 |
| | $ | 1,425.6 |
| | $ | 546.4 |
| | $ | 529.3 |
| | $ | 1,873.2 |
| | $ | 1,954.9 |
| | $ | 57.2 |
| | $ | 63.9 |
| $ | 1,274.2 |
| | $ | 1,238.8 |
| | $ | 269.1 |
| | $ | 238.8 |
| | $ | 1,543.3 |
| | $ | 1,477.6 |
| Service cost | 23.5 |
| | 25.2 |
| | 10.7 |
| | 11.1 |
| | 34.2 |
| | 36.3 |
| | 0.1 |
| | 0.2 |
| 17.1 |
| | 17.8 |
| | 8.4 |
| | 6.8 |
| | 25.5 |
| | 24.6 |
| Interest cost | 60.0 |
| | 51.9 |
| | 22.2 |
| | 20.6 |
| | 82.2 |
| | 72.5 |
| | 1.1 |
| | 2.2 |
| 42.0 |
| | 40.5 |
| | 4.4 |
| | 5.1 |
| | 46.4 |
| | 45.6 |
| Plan participants' contributions | — |
| | — |
| | 0.6 |
| | 0.6 |
| | 0.6 |
| | 0.6 |
| | — |
| | — |
| | Amendments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (51.5 | ) | | (1.7 | ) | — |
| | (1.3 | ) | | — |
| | — |
| | — |
| | (1.3 | ) | Settlements/curtailments | | — |
| | — |
| | — |
| | (2.3 | ) | | — |
| | (2.3 | ) | Acquisitions | | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
| | — |
| Actuarial (gain) loss | 131.4 |
| | (96.7 | ) | | 92.4 |
| | (2.4 | ) | | 223.8 |
| | (99.1 | ) | | (1.0 | ) | | (4.3 | ) | 88.3 |
| | 62.3 |
| | 13.4 |
| | 39.9 |
| | 101.7 |
| | 102.2 |
| Medicare subsidy receipts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.2 |
| | 1.4 |
| | Benefits paid | (104.4 | ) | | (79.2 | ) | | (25.8 | ) | | (22.1 | ) | | (130.2 | ) | | (101.3 | ) | | (3.7 | ) | | (4.5 | ) | (91.2 | ) | | (83.9 | ) | | (7.8 | ) | | (7.5 | ) | | (99.0 | ) | | (91.4 | ) | Currency exchange translation adjustments | — |
| | — |
| | (56.1 | ) | | 9.3 |
| | (56.1 | ) | | 9.3 |
| | — |
| | — |
| — |
| | — |
| | 35.2 |
| | (11.7 | ) | | 35.2 |
| | (11.7 | ) | Other | | (4.8 | ) | | — |
| | — |
| | — |
| | (4.8 | ) | | — |
| Benefit obligation at end of year | $ | 1,437.3 |
| | $ | 1,326.8 |
| | $ | 590.4 |
| | $ | 546.4 |
| | $ | 2,027.7 |
| | $ | 1,873.2 |
| | $ | 2.4 |
| | $ | 57.2 |
| $ | 1,325.6 |
| | $ | 1,274.2 |
| | $ | 323.1 |
| | $ | 269.1 |
| | $ | 1,648.7 |
| | $ | 1,543.3 |
| Change in Plan Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | $ | 1,145.2 |
| | $ | 1,131.7 |
| | $ | 306.5 |
| | $ | 313.6 |
| | $ | 1,451.7 |
| | $ | 1,445.3 |
| | $ | — |
| | $ | — |
| $ | 1,086.4 |
| | $ | 1,067.2 |
| | $ | 18.2 |
| | $ | 18.7 |
| | $ | 1,104.6 |
| | $ | 1,085.9 |
| Actual return on plan assets | 112.1 |
| | 37.1 |
| | 59.1 |
| | 0.8 |
| | 171.2 |
| | 37.9 |
| | — |
| | — |
| 112.7 |
| | 95.6 |
| | 1.6 |
| | (0.5 | ) | | 114.3 |
| | 95.1 |
| Employer contributions | 109.7 |
| | 55.6 |
| | 18.1 |
| | 12.7 |
| | 127.8 |
| | 68.3 |
| | 3.5 |
| | 3.1 |
| 9.6 |
| | 7.5 |
| | 8.2 |
| | 8.4 |
| | 17.8 |
| | 15.9 |
| Plan participants' contributions | — |
| | — |
| | 0.6 |
| | 0.6 |
| | 0.6 |
| | 0.6 |
| | — |
| | — |
| | Medicare subsidy receipts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.2 |
| | 1.4 |
| | Settlements | | — |
| | — |
| | — |
| | (1.3 | ) | | — |
| | (1.3 | ) | Benefits paid | (104.4 | ) | | (79.2 | ) | | (25.8 | ) | | (22.1 | ) | | (130.2 | ) | | (101.3 | ) | | (3.7 | ) | | (4.5 | ) | (91.2 | ) | | (83.9 | ) | | (7.8 | ) | | (7.5 | ) | | (99.0 | ) | | (91.4 | ) | Currency exchange translation adjustments | — |
| | — |
| | (22.4 | ) | | 0.9 |
| | (22.4 | ) | | 0.9 |
| | — |
| | — |
| — |
| | — |
| | 1.3 |
| | 0.4 |
| | 1.3 |
| | 0.4 |
| Other | | (7.7 | ) | | — |
| | — |
| | — |
| | (7.7 | ) | | — |
| Fair value of plan assets at end of year | $ | 1,262.6 |
| | $ | 1,145.2 |
| | $ | 336.1 |
| | $ | 306.5 |
| | $ | 1,598.7 |
| | $ | 1,451.7 |
| | $ | — |
| | $ | — |
| $ | 1,109.8 |
| | $ | 1,086.4 |
| | $ | 21.5 |
| | $ | 18.2 |
| | $ | 1,131.3 |
| | $ | 1,104.6 |
| Funded status at end of year (PBO basis) | $ | (174.7 | ) | | $ | (181.6 | ) | | $ | (254.3 | ) | | $ | (239.9 | ) | | $ | (429.0 | ) | | $ | (421.5 | ) | | $ | (2.4 | ) | | $ | (57.2 | ) | $ | (215.8 | ) | | $ | (187.8 | ) | | $ | (301.6 | ) | | $ | (250.9 | ) | | $ | (517.4 | ) | | $ | (438.7 | ) | Amounts recognized in the Consolidated Balance Sheets consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | Noncurrent assets | $ | — |
| | $ | — |
| | $ | 44.1 |
| | $ | 16.7 |
| | $ | 44.1 |
| | $ | 16.7 |
| | $ | — |
| | $ | — |
| | Current liabilities | (7.1 | ) | | (5.8 | ) | | (8.5 | ) | | (9.2 | ) | | (15.6 | ) | | (15.0 | ) | | (0.1 | ) | | (4.5 | ) | $ | (7.0 | ) | | $ | (7.4 | ) | | $ | (8.0 | ) | | $ | (7.0 | ) | | $ | (15.0 | ) | | $ | (14.4 | ) | Noncurrent liabilities | (167.6 | ) | | (175.8 | ) | | (289.9 | ) | | (247.4 | ) | | (457.5 | ) | | (423.2 | ) | | (2.3 | ) | | (52.7 | ) | (208.8 | ) | | (180.4 | ) | | (293.6 | ) | | (243.9 | ) | | (502.4 | ) | | (424.3 | ) | Net amount recognized | $ | (174.7 | ) | | $ | (181.6 | ) | | $ | (254.3 | ) | | $ | (239.9 | ) | | $ | (429.0 | ) | | $ | (421.5 | ) | | $ | (2.4 | ) | | $ | (57.2 | ) | $ | (215.8 | ) | | $ | (187.8 | ) | | $ | (301.6 | ) | | $ | (250.9 | ) | | $ | (517.4 | ) | | $ | (438.7 | ) | Amounts recognized in Accumulated Other Comprehensive Income consist of: | | | | | | | | | | | | | | | | | Accumulated actuarial loss (gain) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 6.2 |
| | $ | (5.0 | ) | | Prior service cost (credit) | 0.8 |
| | 1.5 |
| | (0.3 | ) | | (0.3 | ) | | 0.5 |
| | 1.2 |
| | (12.9 | ) | | (1.7 | ) | | Amounts recognized in Accumulated Other Comprehensive (Income) Loss consist of: | | | | | | | | | | | | | Prior service credit | | $ | (3.9 | ) | | $ | (4.3 | ) | | $ | (0.1 | ) | | $ | (0.1 | ) | | $ | (4.0 | ) | | $ | (4.4 | ) | Net amount recognized | $ | 0.8 |
| | $ | 1.5 |
| | $ | (0.3 | ) | | $ | (0.3 | ) | | $ | 0.5 |
| | $ | 1.2 |
| | $ | (6.7 | ) | | $ | (6.7 | ) | $ | (3.9 | ) | | $ | (4.3 | ) | | $ | (0.1 | ) | | $ | (0.1 | ) | | $ | (4.0 | ) | | $ | (4.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | Defined Benefit Pension Plans | | Other Post- Retirement Plans | Change in Financial Status of Retirement Plans (In millions) | U.S. | | Non-U.S. | | Total | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31: | | | | | | | | | | | | | | | | Discount rate | 3.95 | % | | 4.76 | % | | 2.97 | % | | 4.25 | % | | NM | | NM | | 4.18 | % | | 4.26 | % | Rate of compensation increase | 4.70 | % | | 4.70 | % | | 3.24 | % | | 3.41 | % | | NM | | NM | | NM |
| | NM |
| Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31: | | | | | | | | | | | | | | | | Discount rate | 4.76 | % | | 3.75 | % | | 4.25 | % | | 4.06 | % | | NM | | NM | | 4.26 | % | | 3.50 | % | Expected return on plan assets | 6.00 | % | | 6.00 | % | | 5.06 | % | | 4.66 | % | | NM | | NM | | NM |
| | NM |
| Rate of compensation increase | 4.70 | % | | 4.30 | % | | 3.41 | % | | 3.37 | % | | NM | | NM | | NM |
| | NM |
|
NM—Not meaningful
Notes to Consolidated Financial Statements (Continued)
9.8. Pension Plans and Other Postretirement Benefit Plans (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of Net Periodic Benefit (Income) Cost and Other Amounts Recognized in Other Comprehensive (Income) Loss (In millions) | 2014 | | 2013 | | 2012 | U.S. | | Non-U.S. | | Other | | U.S. | | Non-U.S. | | Other | | U.S. | | Non-U.S. | | Other | Net Periodic Benefit (Income) Cost | | | | | | | | | | | | | | | | | | Service cost | $ | 23.5 |
| | $ | 10.7 |
| | $ | 0.1 |
| | $ | 25.2 |
| | $ | 11.1 |
| | $ | 0.2 |
| | $ | 21.5 |
| | $ | 8.9 |
| | $ | 0.2 |
| Interest cost | 60.0 |
| | 22.2 |
| | 1.1 |
| | 51.9 |
| | 20.6 |
| | 2.2 |
| | 55.9 |
| | 21.4 |
| | 2.5 |
| Expected return on plan assets | (69.9 | ) | | (15.2 | ) | | — |
| | (68.0 | ) | | (14.0 | ) | | — |
| | (63.3 | ) | | (14.8 | ) | | — |
| Amortization of prior service cost (credit) | 0.7 |
| | — |
| | (2.4 | ) | | 0.7 |
| | — |
| | — |
| | 0.9 |
| | (0.1 | ) | | — |
| Amortization of net deferred actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | — |
| | 0.6 |
| Annual mark-to-market adjustment | 89.2 |
| | 45.4 |
| | — |
| | (65.8 | ) | | 11.0 |
| | — |
| | 67.7 |
| | 52.2 |
| | — |
| Gain on termination of postretirement plans | — |
| | — |
| | (39.5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Net curtailment and settlement gain | — |
| | — |
| | — |
| | — |
| | (0.1 | ) | | — |
| | — |
| | — |
| | — |
| Net periodic benefit (income) cost | $ | 103.5 |
| | $ | 63.1 |
| | $ | (40.7 | ) | | $ | (56.0 | ) | | $ | 28.6 |
| | $ | 2.8 |
| | $ | 82.7 |
| | $ | 67.6 |
| | $ | 3.3 |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income) Loss | | | | | | | | | | | | | | | | | | Net deferred actuarial gain | $ | — |
| | $ | — |
| | $ | (1.0 | ) | | $ | — |
| | $ | — |
| | $ | (4.3 | ) | | $ | — |
| | $ | — |
| | $ | (2.1 | ) | Net prior service credit | — |
| | — |
| | (13.6 | ) | | — |
| | — |
| | (1.7 | ) | | — |
| | — |
| | — |
| Amortization of prior service cost (credit) | (0.7 | ) | | — |
| | 2.4 |
| | (0.7 | ) | | — |
| | — |
| | (0.9 | ) | | 0.1 |
| | — |
| Amortization of net deferred actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | (0.4 | ) | | — |
| | — |
| | (0.6 | ) | Loss on termination of postretirement plans | — |
| | — |
| | 12.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Total recognized in other comprehensive (income) loss | (0.7 | ) | | — |
| | — |
| | (0.7 | ) | | — |
| | (6.4 | ) | | (0.9 | ) | | 0.1 |
| | (2.7 | ) | Total recognized in net periodic benefit (income) cost and other comprehensive (income) loss | $ | 102.8 |
| | $ | 63.1 |
| | $ | (40.7 | ) | | $ | (56.7 | ) | | $ | 28.6 |
| | $ | (3.6 | ) | | $ | 81.8 |
| | $ | 67.7 |
| | $ | 0.6 |
|
| | | | | | | | | | | | | | Defined Benefit Pension Plans |
(In millions) | U.S. | | Non-U.S. | 2017 | | 2016 | | 2017 | | 2016 | Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31: | | | | | | | | Discount rate | 3.57 | % | | 4.06 | % | | 1.84 | % | | 1.91 | % | Rate of compensation increase | 4.10 | % | | 4.10 | % | | 2.64 | % | | 3.09 | % | Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31: | | | | | | | | Discount rate for determining service cost | 4.41 | % | | 4.68 | % | | 2.09 | % | | 2.90 | % | Discount rate for determining interest cost | 3.42 | % | | 3.38 | % | | 1.69 | % | | 2.26 | % | Expected return on plan assets | 5.50 | % | | 5.50 | % | | 4.69 | % | | 5.08 | % | Rate of compensation increase | 4.10 | % | | 4.10 | % | | 3.09 | % | | 3.09 | % |
The following table presents the components of net periodic benefit cost (income) and other amounts recognized in "other comprehensive (income) loss." | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | Net Periodic Benefit Cost (Income) | | | | | | | | | | | | Service cost | $ | 17.1 |
| | $ | 8.4 |
| | $ | 17.8 |
| | $ | 6.8 |
| | $ | 25.7 |
| | $ | 11.7 |
| Interest cost | 42.0 |
| | 4.4 |
| | 40.5 |
| | 5.1 |
| | 55.1 |
| | 16.1 |
| Expected return on plan assets | (57.5 | ) | | (0.9 | ) | | (56.7 | ) | | (1.0 | ) | | (70.4 | ) | | (13.0 | ) | Amortization of prior service cost (credit) | (0.4 | ) | | — |
| | (0.2 | ) | | — |
| | 0.3 |
| | — |
| Annual mark-to-market adjustment | 36.0 |
| | 13.2 |
| | 23.3 |
| | 40.1 |
| | 42.0 |
| | (0.1 | ) | Net curtailment and settlement gain | — |
| | — |
| | — |
| | (1.0 | ) | | — |
| | — |
| Net periodic benefit cost (income) | 37.2 |
| | 25.1 |
| | 24.7 |
| | 50.0 |
| | 52.7 |
| | 14.7 |
| Less: discontinued operations | — |
| | — |
| | — |
| | — |
| | (4.0 | ) | | (16.8 | ) | Net periodic benefit cost (income) from continuing operations | $ | 37.2 |
| | $ | 25.1 |
| | $ | 24.7 |
| | $ | 50.0 |
| | $ | 48.7 |
| | $ | (2.1 | ) | Other Changes in Plan Assets and Benefit Obligations Recognized in OCI | | | | | | | | | | | | Net prior service credit | $ | — |
| | $ | — |
| | $ | (1.3 | ) | | $ | — |
| | $ | (3.6 | ) | | $ | — |
| Amortization of prior service cost (credit) | 0.4 |
| | — |
| | 0.2 |
| | — |
| | (0.3 | ) | | — |
| Total recognized in OCI | 0.4 |
| | — |
| | (1.1 | ) | | — |
| | (3.9 | ) | | — |
| Total recognized in net periodic benefit cost (income) and OCI | $ | 37.6 |
| | $ | 25.1 |
| | $ | 23.6 |
| | $ | 50.0 |
| | $ | 44.8 |
| | $ | (2.1 | ) |
The estimated prior service costcredit for the defined benefit pension plans that will be amortized from accumulated"accumulated other comprehensive income(income) loss" into net periodic benefit cost (income) cost over the next fiscal year is $0.30.6 million. The estimated net deferred actuarial loss and prior service credit for the other postretirement plansplan that will be amortized from accumulated"accumulated other comprehensive income(income) loss" into net periodic benefit cost (income) cost over the next fiscal year are $0.70.4 million and $3.8$1.0 million, respectively.
Notes to Consolidated Financial Statements (Continued)
8. Pension Plans and Other Postretirement Benefit Plans (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | Funded Status of U.S. Pension Plans (In millions) | Fully-Funded U.S. Qualified Pension Plans(1) | | Underfunded U.S. Qualified Pension Plans(1) | | Unfunded Pay-As-You-Go U.S. Nonqualified Plans(2) | 2014 |
| 2013 |
| 2014 |
| 2013 |
| 2014 |
| 2013 | Projected benefit obligation | $ | — |
| | $ | — |
| | $ | 1,329.8 |
| | $ | 1,197.4 |
| | $ | 107.5 |
| | $ | 129.4 |
| Fair value of plan assets | — |
| | — |
| | 1,262.6 |
| | 1,145.2 |
| | — |
| | — |
| Funded status (PBO basis) | $ | — |
| | $ | — |
| | $ | (67.2 | ) | | $ | (52.2 | ) | | $ | (107.5 | ) | | $ | (129.4 | ) | Benefits paid | $ | — |
| | $ | — |
| | $ | (69.7 | ) | | $ | (73.6 | ) | | $ | (34.7 | ) | | $ | (5.6 | ) |
| | Funded Status of Non-U.S. Pension Plans (In millions) | Fully-Funded Non-U.S. Pension Plans(1) | | Underfunded Non-U.S. Pension Plans(1) | | Unfunded Pay-As-You-Go Non-U.S. Pension Plans(2) | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | Funded Status of U.S. Pension Plans (In millions) | | Underfunded U.S. Qualified Pension Plans(1) | | Unfunded Pay-As-You-Go U.S. Nonqualified Plans(2) | | 2017 |
| 2016 |
| 2017 |
| 2016 | Projected benefit obligation | $ | 245.8 |
| | $ | 247.3 |
| | $ | 58.5 |
| | $ | 56.5 |
| | $ | 286.1 |
| | $ | 242.6 |
| $ | 1,217.1 |
| | $ | 1,167.9 |
| | $ | 108.5 |
| | $ | 106.3 |
| Fair value of plan assets | 289.9 |
| | 264.0 |
| | 46.2 |
| | 42.5 |
| | — |
| | — |
| 1,109.8 |
| | 1,086.4 |
| | — |
| | — |
| Funded status (PBO basis) | $ | 44.1 |
| | $ | 16.7 |
| | $ | (12.3 | ) | | $ | (14.0 | ) | | $ | (286.1 | ) | | $ | (242.6 | ) | $ | (107.3 | ) | | $ | (81.5 | ) | | $ | (108.5 | ) | | $ | (106.3 | ) | Benefits paid | $ | (12.3 | ) | | $ | (10.0 | ) | | $ | (4.7 | ) | | $ | (4.2 | ) | | $ | (8.8 | ) | | $ | (7.9 | ) | |
| | | | | | | | | | | | | | | | | Funded Status of Non-U.S. Pension Plans (In millions) | Underfunded Non-U.S. Pension Plans(1) | | Unfunded Pay-As-You-Go Non-U.S. Pension Plans(2) | 2017 | | 2016 | | 2017 | | 2016 | Projected benefit obligation | $ | 24.7 |
| | $ | 19.8 |
| | $ | 298.4 |
| | $ | 249.3 |
| Fair value of plan assets | 21.5 |
| | 18.2 |
| | — |
| | — |
| Funded status (PBO basis) | $ | (3.2 | ) | | $ | (1.6 | ) | | $ | (298.4 | ) | | $ | (249.3 | ) |
| | (1) | Plans intended to be advance-funded. |
| | (2) | Plans intended to be pay-as-you-go. |
Notes to Consolidated Financial Statements (Continued)
9. Pension Plans and Other Postretirement Benefit Plans (Continued)
The accumulated benefit obligation for all defined benefit pension plans was approximately $1,933$1,570 million and $1,772$1,478 million as of December 31, 20142017 and 20132016, respectively. | | Pension Plans with Underfunded or Unfunded Accumulated Benefit Obligation (In millions) | U.S. | | Non-U.S. | | Total | U.S. | | Non-U.S. | | Total | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | Projected benefit obligation | $ | 352.6 |
| | $ | 347.8 |
| | $ | 306.0 |
| | $ | 259.2 |
| | $ | 658.6 |
| | $ | 607.0 |
| $ | 1,325.6 |
| | $ | 1,274.2 |
| | $ | 298.4 |
| | $ | 249.3 |
| | $ | 1,624.0 |
| | $ | 1,523.5 |
| Accumulated benefit obligation | 351.8 |
| | 344.1 |
| | 274.5 |
| | 230.7 |
| | 626.3 |
| | 574.8 |
| 1,286.0 |
| | 1,238.8 |
| | 263.6 |
| | 222.6 |
| | 1,549.6 |
| | 1,461.4 |
| Fair value of plan assets | 220.8 |
| | 201.1 |
| | 9.4 |
| | 8.9 |
| | 230.2 |
| | 210.0 |
| 1,109.8 |
| | 1,086.4 |
| | — |
| | — |
| | 1,109.8 |
| | 1,086.4 |
|
| | | | | | | | | | | | | | | | | | | | | Estimated Expected Future Benefit Payments Reflecting Future Service and Medicare Subsidy Receipts for the Fiscal Years Ending (In millions) | Pension Plans | | Other Postretirement Plans | | Total Payments Net of Subsidy | U.S.(1) | | Non-U.S.(2) | | Benefit Payments | | Medicare Subsidy Receipts | | Benefit Payments(3) | | Benefit Payments | | | | 2012 (actual) | $ | 66.4 |
| | $ | 23.1 |
| | $ | 4.6 |
| | $ | (3.3 | ) | | $ | 90.8 |
| 2013 (actual) | 79.2 |
| | 22.1 |
| | 4.5 |
| | (1.4 | ) | | 104.4 |
| 2014 (actual)(3) | 104.4 |
| | 25.8 |
| | 3.7 |
| | (0.2 | ) | | 133.7 |
| 2015 | 83.0 |
| | 21.6 |
| | 0.1 |
| | — |
| | 104.7 |
| 2016 | 83.9 |
| | 21.7 |
| | 0.1 |
| | — |
| | 105.7 |
| 2017 | 85.3 |
| | 22.6 |
| | 0.1 |
| | — |
| | 108.0 |
| 2018 | 86.7 |
| | 23.2 |
| | 0.1 |
| | — |
| | 110.0 |
| 2019 | 87.8 |
| | 24.8 |
| | 0.1 |
| | — |
| | 112.7 |
| 2020 - 2024 | 451.7 |
| | 136.2 |
| | 0.6 |
| | — |
| | 588.5 |
|
| | | | | | | | | | | | | Estimated Expected Future Benefit Payments Reflecting Future Service for the Fiscal Years Ending (In millions) | Pension Plans | | Total Payments | U.S. | | Non-U.S.(1) | | Benefit Payments | | Benefit Payments | | 2018 | $ | 82.9 |
| | $ | 8.9 |
| | $ | 91.8 |
| 2019 | 83.1 |
| | 8.4 |
| | 91.5 |
| 2020 | 83.3 |
| | 8.6 |
| | 91.9 |
| 2021 | 83.4 |
| | 8.9 |
| | 92.3 |
| 2022 | 83.7 |
| | 9.1 |
| | 92.8 |
| 2023 - 2027 | 413.2 |
| | 49.0 |
| | 462.2 |
|
| | (1) | Effective January 1, 2008, lump sum distributions from certain U.S. qualified pension plans were restricted based on the provisions of the Pension Protection Act of 2006 (the "Act"). The Act prohibited the distribution of lump sums to retiring participants while the Company was operating under Chapter 11 of the U.S. Bankruptcy Code and when the plan was less than 100% funded. After emergence from Chapter 11, the plan is permitted to distribute lump sums to retiring participants under the Act when the plan is at least 80% funded.
|
| | (2) | Non-U.S. estimated benefit payments for 20152018 and future periods have been translated at the applicable December 31, 2014,2017, exchange rates. |
| | (3) | Includes approximately $28 million of benefit payments from nonqualified plans that were previously restricted by the Bankruptcy Court while the Company was in Chapter 11 and were paid in 2014.
|
Discount Rate Assumption The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. qualified pension plans, the assumed weighted average discount rate of 3.95%3.57% as of December 31, 20142017, was selected by Grace, in consultation with its independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. As of December 31, 20142017 and 20132016, the United Kingdom pension plan and German pension plans combined represented approximately 86%91% and 92%, respectively, of the benefit obligation of the non-U.S. pension plans. The assumed weighted average discount ratesrate as of December 31, 20142017, for the United Kingdom (3.44%) and Germany (2.11%1.73%) werewas selected by Grace, in consultation with its independent
Notes to Consolidated Financial Statements (Continued)
8. Pension Plans and Other Postretirement Benefit Plans (Continued)
actuaries, based on a yield curvescurve constructed from a portfolio of sterling- and euro-denominated high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plans. The assumed discount rates for the remaining non-U.S. pension plans were determined based on the nature of the liabilities, local economic environments and available bond indices. As of December 31, 2015, Grace changed the approach used to determine the service and interest cost components of defined benefit pension expense. Previously, Grace estimated service and interest costs using a single weighted average discount rate derived from the same yield curve used to measure the projected benefit obligation. For 2016 and 2017, Grace elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. Grace believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change did not affect the measurement of the projected benefit obligation as of December 31, 2015. Grace considers this a change in accounting estimate, which is being accounted for prospectively as of January 1, 2016. Investment Guidelines for Advance-Funded Pension Plans The investment goal for the U.S. qualified pension plans subject to advance funding is to earn a long-term rate of return consistent with the related cash flow
Notes to Consolidated Financial Statements (Continued)
9. Pension Plans and Other Postretirement Benefit Plans (Continued)
profile of the underlying benefit obligation. The plans are pursuing a well-defined risk management strategy designed to reduce investment risks as their funded status improves. The U.S. qualified pension plans have adopted a diversified set of portfolio management strategies to optimize the risk reward profile of the plans: Liability hedging portfolio: primarily invested in intermediate-term and long-term investment grade corporate bonds in actively managed strategies. Growth portfolio: invested in a diversified set of assets designed to deliver performance in excess of the underlying liabilities with controls regarding the level of risk. U.S. equity securities: the portfolio contains domestic equities that are passively managed to the S&P 500 and Russell 2000 benchmarkbenchmarks and an allocation to an active portfolio benchmarked to the Russell 2000.Mid-Cap and Russell 2000 indices. Non-U.S. equity securities: the portfolio contains non-U.S. equities in an actively managed strategy.strategy benchmarked to the MSCI ACWI ex US index. Currency futures and forward contracts may be held for the sole purpose of hedging existing currency risk in the portfolio. Other investments: may include (a) high yield bonds: fixed income portfolio of securities below investment grade including up to 30% of the portfolio in non-U.S. issuers; and (b) global real estate securities: portfolio of diversified REIT and other liquid real estate related securities. These portfolios combine income generation and capital appreciation opportunities from developed markets globally. Liquidity portfolio: invested in short-term assets intended to pay periodic plan benefits and expenses. For 20142017, the expected long-term rate of return on assets for the U.S. qualified pension plans was 6.00%5.50%. Average annual returns over one-, three-, five-, and ten-year periods were approximately 10%11%, 9%6%, 9%6%, and 6%5%, respectively. The expected return on plan assets for the U.S. qualified pension plans for 20142017 was selected by Grace, in consultation with its independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results. The target allocation of investment assets at December 31, 2014, and the actual allocation at December 31, 2014 and 2013, for Grace's U.S. qualified pension plans are as follows:
| | | | | | | | | | | Target Allocation | | Percentage of Plan Assets December 31, | U.S. Qualified Pension Plans Asset Category | 2014 | | 2014 | | 2013 | U.S. equity securities | 11 | % | | 11 | % | | 10 | % | Non-U.S. equity securities | 7 | % | | 6 | % | | 6 | % | Short-term debt securities | 10 | % | | 10 | % | | 10 | % | Intermediate-term debt securities | 26 | % | | 26 | % | | 28 | % | Long-term debt securities | 44 | % | | 45 | % | | 44 | % | Other investments | 2 | % | | 2 | % | | 2 | % | Total | 100 | % | | 100 | % | | 100 | % |
Notes to Consolidated Financial Statements (Continued)
9.8. Pension Plans and Other Postretirement Benefit Plans (Continued)
The target allocation of investment assets at December 31, 2017, and the actual allocation at December 31, 2017 and 2016, for Grace's U.S. qualified pension plans are as follows: | | | | | | | | | | | Target Allocation | | Percentage of Plan Assets December 31, | U.S. Qualified Pension Plans Asset Category | 2017 | | 2017 | | 2016 | U.S. equity securities | 10 | % | | 11 | % | | 8 | % | Non-U.S. equity securities | 5 | % | | 5 | % | | 6 | % | Short-term debt securities | 10 | % | | 10 | % | | 4 | % | Intermediate-term debt securities | 32 | % | | 32 | % | | 32 | % | Long-term debt securities | 41 | % | | 40 | % | | 48 | % | Other investments | 2 | % | | 2 | % | | 2 | % | Total | 100 | % | | 100 | % | | 100 | % |
The following tables present the fair value hierarchy for the U.S. qualified pension plan assets measured at fair value as of December 31, 20142017 and 2013.2016. | | | Fair Value Measurements at December 31, 2014, Using | Fair Value Measurements at December 31, 2017, Using |
(In millions) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | U.S. equity group trust funds | $ | 134.2 |
| | $ | — |
| | $ | 134.2 |
| | $ | — |
| $ | 118.8 |
| | $ | — |
| | $ | 118.8 |
| | $ | — |
| Non-U.S. equity group trust funds | 76.8 |
| | — |
| | 76.8 |
| | — |
| 56.8 |
| | — |
| | 56.8 |
| | — |
| Corporate bond group trust funds—intermediate-term | 324.9 |
| | — |
| | 324.9 |
| | — |
| | Corporate bond group trust funds—long-term | 567.1 |
| | — |
| | 567.1 |
| | — |
| | Corporate and government bond group trust funds—intermediate-term | | 353.6 |
| | — |
| | 353.6 |
| | — |
| Corporate and government bond group trust funds—long-term | | 443.4 |
| | — |
| | 443.4 |
| | — |
| Other fixed income group trust funds | 23.7 |
| | — |
| | 23.7 |
| | — |
| 25.3 |
| | — |
| | 25.3 |
| | — |
| Common/collective trust funds | 118.8 |
| | — |
| | 118.8 |
| | — |
| 92.9 |
| | — |
| | 92.9 |
| | — |
| Annuity and immediate participation contracts | 17.1 |
| | — |
| | 17.1 |
| | — |
| 19.0 |
| | — |
| | 19.0 |
| | — |
| Total Assets | $ | 1,262.6 |
| | $ | — |
| | $ | 1,262.6 |
| | $ | — |
| $ | 1,109.8 |
| | $ | — |
| | $ | 1,109.8 |
| | $ | — |
|
Notes to Consolidated Financial Statements (Continued)
8. Pension Plans and Other Postretirement Benefit Plans (Continued)
| | | Fair Value Measurements at December 31, 2013, Using | Fair Value Measurements at December 31, 2016, Using |
(In millions) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | U.S. equity group trust funds | $ | 111.5 |
| | $ | — |
| | $ | 111.5 |
| | $ | — |
| $ | 91.5 |
| | $ | — |
| | $ | 91.5 |
| | $ | — |
| Non-U.S. equity group trust funds | 67.1 |
| | — |
| | 67.1 |
| | — |
| 62.6 |
| | — |
| | 62.6 |
| | — |
| Corporate bond group trust funds—intermediate-term | 322.6 |
| | — |
| | 322.6 |
| | — |
| 342.6 |
| | — |
| | 342.6 |
| | — |
| Corporate bond group trust funds—long-term | 502.3 |
| | — |
| | 502.3 |
| | — |
| 521.5 |
| | — |
| | 521.5 |
| | — |
| Other fixed income group trust funds | 22.9 |
| | — |
| | 22.9 |
| | — |
| 22.4 |
| | — |
| | 22.4 |
| | — |
| Common/collective trust funds | 102.3 |
| | — |
| | 102.3 |
| | — |
| 27.4 |
| | — |
| | 27.4 |
| | — |
| Annuity and immediate participation contracts | 16.5 |
| | — |
| | 16.5 |
| | — |
| 18.4 |
| | — |
| | 18.4 |
| | — |
| Total Assets | $ | 1,145.2 |
| | $ | — |
| | $ | 1,145.2 |
| | $ | — |
| $ | 1,086.4 |
| | $ | — |
| | $ | 1,086.4 |
| | $ | — |
|
Non-U.S. pension plans accounted for approximately 21%2% of total global pension assets at December 31, 20142017 and 20132016. Each of these plans, where applicable, follows local requirements and regulations. Some of the local requirements include the establishment of a local pension committee, a formal statement of investment policy and procedures, and routine valuations by plan actuaries. The target allocation of investment assets for non-U.S. pension plans varies depending on the investment goals of the individual plans. The plan assets of the United KingdomCanadian pension plan represent approximately 84% and 83%97% of the total non-U.S. pension plan assets at December 31, 20142017 and 20132016, respectively. In determining the. The expected long-term rate of return on assets for the U.K.Canadian pension plan the trustees' strategic investment policy has been considered together with long-term historical returns and investment community forecasts for each asset class. The expected return by sector has been combined with the actual asset allocation to determine the 2014 expected long-term return assumption ofwas 4.75% for 2017.
The target allocation of investment assets at December 31, 2017, and the actual allocation at December 31, 2017 and 2016, for the Canadian pension plan are as follows:
| | | | | | | | | | | Target Allocation | | Percentage of Plan Assets December 31, | Canadian Pension Plan Asset Category | 2017 | | 2017 | | 2016 | Equity securities | 28 | % | | 28 | % | | 28 | % | Bonds | 58 | % | | 58 | % | | 57 | % | Other investments | 14 | % | | 14 | % | | 15 | % | Total | 100 | % | | 100 | % | | 100 | % |
The plan assets of the other country plans represent approximately 3% in the aggregate of total non-U.S. pension plan assets at December 31, 2017 and 2016.
Notes to Consolidated Financial Statements (Continued)
9.8. Pension Plans and Other Postretirement Benefit Plans (Continued)
The target allocation of investment assets at December 31, 2014, and the actual allocation at December 31, 2014 and 2013, for the U.K. pension plan are as follows:
| | | | | | | | | | | Target Allocation | | Percentage of Plan Assets December 31, | United Kingdom Pension Plan Asset Category | 2014 | | 2014 | | 2013 | Diversified growth funds | 12 | % | | 11 | % | | 13 | % | U.K. gilts | 41 | % | | 42 | % | | 40 | % | U.K. corporate bonds | 47 | % | | 47 | % | | 47 | % | Total | 100 | % | | 100 | % | | 100 | % |
The plan assets of the Canadian pension plan represent approximately 10% and 9% of the total non-U.S. pension plan assets at December 31, 2014 and 2013, respectively. The expected long-term rate of return on assets for the Canadian pension plan was 5.75% for 2014.
The target allocation of investment assets at December 31, 2014, and the actual allocation at December 31, 2014 and 2013, for the Canadian pension plan are as follows:
| | | | | | | | | | | Target Allocation | | Percentage of Plan Assets December 31, | Canadian Pension Plan Asset Category | 2014 | | 2014 | | 2013 | Equity securities | 27 | % | | 27 | % | | 34 | % | Bonds | 58 | % | | 58 | % | | 48 | % | Other investments | 15 | % | | 15 | % | | 18 | % | Total | 100 | % | | 100 | % | | 100 | % |
The plan assets of the other country plans represent approximately 6% and 8% in the aggregate (with no country representing more than 3% individually) of total non-U.S. pension plan assets at December 31, 2014 and 2013, respectively.
The following tables presenttable presents the fair value hierarchy for the non-U.S. pension plan assets measured at fair value as of December 31, 20142017 and 2013.2016. | | | Fair Value Measurements at December 31, 2014, Using | Fair Value Measurements at December 31, 2017, Using | (In millions) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Common/collective trust funds | $ | 326.7 |
| | $ | — |
| | $ | 326.7 |
| | $ | — |
| $ | 20.7 |
| | $ | — |
| | $ | 20.7 |
| | $ | — |
| Government and agency securities | 2.6 |
| | — |
| | 2.6 |
| | — |
| | Corporate bonds | 1.1 |
| | — |
| | 1.1 |
| | — |
| 0.4 |
| | — |
| | 0.4 |
| | — |
| Insurance contracts and other investments | 4.6 |
| | — |
| | 4.6 |
| | — |
| 0.4 |
| | — |
| | 0.4 |
| | — |
| Cash | 1.1 |
| | 1.1 |
| | — |
| | — |
| | Total Assets | $ | 336.1 |
| | $ | 1.1 |
|
| $ | 335.0 |
| | $ | — |
| $ | 21.5 |
| | $ | — |
|
| $ | 21.5 |
| | $ | — |
|
Notes to Consolidated Financial Statements (Continued)
9. Pension Plans and Other Postretirement Benefit Plans (Continued)
| | | Fair Value Measurements at December 31, 2013, Using | Fair Value Measurements at December 31, 2016, Using | (In millions) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Total | | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Common/collective trust funds | $ | 294.8 |
| | $ | — |
| | $ | 294.8 |
| | $ | — |
| $ | 17.6 |
| | $ | — |
| | $ | 17.6 |
| | $ | — |
| Government and agency securities | 2.4 |
| | — |
| | 2.4 |
| | — |
| | Corporate bonds | 1.3 |
| | — |
| | 1.3 |
| | — |
| 0.3 |
| | — |
| | 0.3 |
| | — |
| Insurance contracts and other investments | 6.3 |
| | — |
| | 6.3 |
| | — |
| 0.3 |
| | — |
| | 0.3 |
| | — |
| Cash | 1.7 |
| | 1.7 |
| | — |
| | — |
| | Total Assets | $ | 306.5 |
| | $ | 1.7 |
| | $ | 304.8 |
| | $ | — |
| $ | 18.2 |
| | $ | — |
| | $ | 18.2 |
| | $ | — |
|
Plan Contributions and Funding Grace intends to satisfy its funding obligations under the U.S. qualified pension plans and to comply with all of the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). For ERISA purposes, funded status is calculated on a different basis than under U.S. GAAP. In April 2014, Grace made an accelerated contribution to the trusts that hold assets of the U.S. qualified pension plans of approximately $75 million. Based on the U.S. qualified pension plans' status as of December 31, 2014,2017, there are no minimum required payments under ERISA for 2015.2018. Grace intends to fund non-U.S. pension plans based on applicable legal requirements and actuarial and trustee recommendations. Grace expects to contribute approximately $14$9 million to its non-U.S. pension plans and $0.1 million (excluding any Medicare subsidy receipts) to its other postretirement plans in 2015. Grace plans to pay benefits as they become due under the pay-as-you-go plans and to maintain compliance with federal funding laws for its U.S. qualified pension plans.2018.
10.
Notes to Consolidated Financial Statements (Continued)
9. Other Balance Sheet Accounts
| | | | | | | December 31, | (In millions) | December 31, 2014 | | December 31, 2013 | 2017 | | 2016 | Other Current Liabilities | | | | | | | Accrued compensation | $ | 77.0 |
| | $ | 65.6 |
| $ | 60.7 |
| | $ | 49.6 |
| Customer volume rebates | 37.8 |
| | 33.3 |
| | Income tax payable | 34.1 |
| | 32.0 |
| | Environmental contingencies | 21.5 |
| | 1.3 |
| 23.5 |
| | 32.5 |
| Deferred revenue | | 19.5 |
| | 27.2 |
| Accrued interest | 21.0 |
| | 0.6 |
| 16.5 |
| | 16.2 |
| Deferred revenue | 19.4 |
| | 14.3 |
| | Pension liabilities | 15.6 |
| | 15.0 |
| 15.0 |
| | 14.4 |
| Deferred income taxes | 1.5 |
| | 0.1 |
| | Income taxes payable | | 12.2 |
| | 5.7 |
| Other accrued liabilities | 112.1 |
| | 129.8 |
| 70.4 |
| | 63.3 |
| | $ | 340.0 |
| | $ | 292.0 |
| $ | 217.8 |
| | $ | 208.9 |
|
Accrued compensation in the table above includes salaries and wages as well as estimated current amounts due under the annual and long-term incentive programs. | | | | | | | | | | December 31, | (In millions) | 2017 | | 2016 | Other Liabilities | | | | Environmental contingencies | $ | 46.8 |
| | $ | 33.8 |
| Liability to unconsolidated affiliate | 32.7 |
| | 27.0 |
| Fair value of currency and interest rate contracts | 22.7 |
| | 3.2 |
| Deferred revenue | 14.9 |
| | 2.3 |
| Asset retirement obligation | 10.4 |
| | 10.2 |
| Deferred income taxes | 8.2 |
| | 2.8 |
| Postemployment liability | 5.2 |
| | 7.2 |
| Other noncurrent liabilities | 28.4 |
| | 40.2 |
| | $ | 169.3 |
| | $ | 126.7 |
|
10. Commitments and Contingent Liabilities Over the years, Grace operated numerous types of businesses that are no longer part of its business portfolio. As Grace divested or otherwise ceased operating these businesses, it retained certain liabilities and obligations, which we refer to as legacy liabilities. The principal legacy liabilities are product and environmental liabilities. Although the outcome of each of the matters discussed below cannot be predicted with certainty, Grace has assessed its risk and has made accounting estimates as required under U.S. GAAP. Legacy Product and Environmental contingenciesLiabilities Legacy Product Liabilities Grace emerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014 (the "Effective Date"). Under its plan of reorganization, all pending and other accrued liabilitiesfuture asbestos-related claims are channeled for resolution to either a personal injury trust (the "PI Trust") or a property damage trust (the "PD Trust"). The trusts are the sole recourse for holders of asbestos-related claims. The channeling injunctions issued by the bankruptcy court prohibit holders of asbestos-related claims from asserting such claims directly against Grace. Grace has satisfied all of its financial obligations to the PI Trust. Grace has contingent financial obligations remaining to the PD Trust. With respect to property damage claims related to Grace’s former Zonolite attic insulation product installed in the table above include certain amounts reclassified at emergence from liabilities subjectU.S. ("ZAI PD Claims"), the PD Trust was funded with $34.4 million on the Effective Date and $30.0 million on February 3, 2017. Grace is also obligated to compromise.make up to 10 contingent
Notes to Consolidated Financial Statements (Continued)
11.10. Commitments and Contingent Liabilities (Continued)
Asbestos-Related Liability See Note 2deferred payments of $8 million per year to the PD Trust in respect of ZAI PD Claims during the 20-year period beginning on the fifth anniversary of the Effective Date, with each such payment due only if the assets of the PD Trust in respect of ZAI PD Claims fall below $10 million during the preceding year. Grace has not accrued for the 10 additional payments as Grace does not currently believe they are probable. Grace is not obligated to make additional payments to the PD Trust in respect of ZAI PD Claims beyond the payments described above. Grace has satisfied all of its financial obligations with respect to Canadian ZAI PD Claims.
With respect to other asbestos property damage claims ("Other PD Claims"), claims unresolved as of the Effective Date are to be litigated in the bankruptcy court and any future claims are to be litigated in a discussionfederal district court, in each case pursuant to procedures approved by the bankruptcy court. To the extent any such Other PD Claims are determined to be allowed claims, they are to be paid in cash by the PD Trust. Grace is obligated to make a payment to the PD Trust every six months in the amount of Grace's asbestos-related liabilityany Other PD Claims allowed during the preceding six months plus interest (if applicable) and future obligationsthe amount of PD Trust expenses for the preceding six months (the "PD Obligation"). Grace has not paid any Other PD Claims since emergence. Annual expenses have been approximately $0.2 million per year. The aggregate amount to be paid under the PD Obligation is not capped, and Grace may be obligated to make additional payments to the PD Trust in respect of the PD Obligation. Grace has accrued for those unresolved Other PD Claims that it believes are probable and estimable. Grace has not accrued for other unresolved or unasserted Other PD Claims as it does not believe that payment is probable. All payments to the PD Trust required after the Effective Date are secured by the Company's obligation to issue 77,372,257 shares of Company common stock to the PD Trust in the event of default, subject to customary anti-dilution provisions. This summary of the commitments and contingencies followingrelated to the effectivenessChapter 11 proceeding does not purport to be complete and is qualified in its entirety by reference to the plan of reorganization and the Joint Plan.exhibits and documents related thereto, which have been filed with the SEC. Legacy Environmental RemediationLiabilities Grace is subject to loss contingencies resulting from extensive and evolving federal, state, local and foreign environmental laws and regulations relating to its manufacturing operations. Grace has procedures in place to minimize such contingencies; nevertheless, it has liabilities associated with past operations and additional claims may arise in the generation, storage, handling, discharge, disposition and stewardship of hazardous wastes and other materials.future. To address its legacy liabilities, Grace accrues for anticipated costs associated withof response efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably estimated. These accruals do not take into account any discounting for the time value of money. Grace's environmental liabilities are reassessed wheneverregularly and adjusted when circumstances become better defined or response efforts and their costs can be better estimated.estimated, typically as a matter moves through the life-cycle of environmental investigation and remediation. These liabilities are evaluated based on currently available information, includingrelating to the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the methodnature and extent of remediation at each site, existing technology, prior experience in contaminated site remediationcontamination, risk assessments, feasibility of response actions, and the apportionment of costs amongamongst other potentially responsible parties.parties, all evaluated in light of prior experience. Estimated Investigation and Remediation Costs
At December 31, 2014,2017, Grace's estimated liability for legacy environmental investigation and remediationresponse costs (non-asbestos and asbestos-related) totaled $61.7$70.3 million, compared with $135.9$66.3 million at December 31, 2013,2016, and was included in "other current liabilities" and "other liabilities" in the Consolidated Balance Sheets. These amounts are based on funding and/or remediation agreements in place andor on Grace's estimate of costs for sites not subject to awhere no formal remediation plan for whichexists, yet there is sufficient information is available to estimate response costs. These amounts do not include certain response costs for the Libby vermiculite mine area or certain vermiculite expansion facilities, which may be material but are not currently estimable. Due to these vermiculite-related matters, it is probable that Grace's actual response costs will exceed Grace's current estimates by material amounts. Grace recorded pre-tax charges of $13.8$24.4 million,, $8.2 $29.2 million, and $3.6$6.4 million for legacy environmental matters in 2014, 2013,2017, 2016, and 2012, respectively. As2015, respectively, which is included in "provision for environmental remediation" in the Consolidated Statements of December 31, 2014, claim paymentsOperations.
Notes to Consolidated Financial Statements (Continued)
10. Commitments and 2012 were $12.4 million, $14.0 million, and $13.0 million, respectively.Contingent Liabilities (Continued)
Vermiculite-Related Matters Grace purchased a vermiculite mine in Libby, Montana, in 1963 and operated it until 1990. Vermiculite concentrate from the Libby mine was used in the manufacture of attic insulation and other products. Some of the vermiculite ore contained naturally occurring asbestos. EPA Grace is engaged with the U.S. Environmental Protection Agency (the "EPA") and Grace are engagedother federal, state and local governmental agencies in a remedial investigation and feasibility study ("RI/FS") of the Libby mine and the surrounding area. During 2010, In its 2017 Annual Project Update for the Libby Asbestos Superfund Site, the EPA began reinvestigating certain facilities onannounced a listnarrowing of 105 facilities where vermiculite concentrateits focus from the former "OU3 Study Area" to a smaller Operable Unit 3 ("OU3"). Within this revised area, the RI/FS will determine the specific areas requiring remediation and will identify possible remedial action alternatives. Possible remedial actions within OU3 are wide-ranging, from institutional controls such as land use restrictions, to more active measures involving soil removal, containment projects, or other protective measures. Based on communications from regulatory agencies, Grace expects the RI/FS and a record of decision to be completed by the end of 2019. When meaningful new information becomes available, Grace will reevaluate estimated liability for the costs for remediation of the mine and surrounding area and adjust its reserves accordingly.
The EPA is also investigating or remediating formerly owned or operated sites that processed Libby mine may have been used, stored or processed.vermiculite into finished products. Grace is cooperating with the EPA on this reinvestigationthese investigation and remediation activities and has remediated severalrecorded a liability to the extent that its review has indicated that a probable liability has been incurred and the cost is estimable. These liabilities cover the estimated cost of these facilities. Itinvestigations and, to the extent an assessment has indicated that remediation is probablenecessary, the estimated cost of response actions. Response actions typically involve soil excavation and removal, and replacement with clean fill. The EPA may commence additional investigations in the future at other sites that EPA will request additionalprocessed Libby vermiculite, but Grace does not believe, based on its knowledge of prior and current operations and site conditions, that liability for remediation at such other facilities.sites is probable. Grace accrued $9.5 million, $24.8 million, and $6.0 million in 2017, 2016, and 2015, respectively, for future costs related to vermiculite-related matters. More than half of the 2016 amount was for the completion of the RI/FS of the Libby mine and surrounding area, which is expected to be spent over the next two years. Grace's total estimated liability for response costs that are currently estimable related to its former vermiculite operations infor the Libby mine and surrounding area, and at vermiculite processing sites outside of Libby at December 31, 20142017 and 20132016, was $19.425.8 million and $60.431.2 million, respectively, excluding interest where applicable.respectively. It is probable that Grace's ultimate liability for these vermiculite-related matters will exceed current estimates by material amounts. Grace's current recorded liability will be adjusted as Grace receives new information and amounts become reasonably estimable. Non-Vermiculite-Related Matters During 2017, Grace accrued $14.9 million to increase non-vermiculite environmental reserves. This included a $5.9 million increase to an existing reserve based on refinement of a scope of work for remediation of materials related to a legacy business located at a current manufacturing site, as well as $7.2 million to increase the liability for remediation at a former manufacturing site to maintain ten years of operation and maintenance expenses. At December 31, 20142017 and 2013,2016, Grace's estimated legacy environmental liability for response costs at sites not related to its former vermiculite mining and processing activities was $42.3$44.5 million and $75.5$35.1 million,, respectively. This liability
Notes to Consolidated Financial Statements (Continued)
11. Commitments and Contingent Liabilities (Continued)
relates to Grace's current and former businesses or operations, including its share of liability forat off-site disposal at facilities where it has been identified as a potentially responsible party.facilities. Grace's estimated liability is based upon regulatory requirements and environmental conditions at each site. As Grace receives new information, its estimated liability may change materially. Commercial and Financial Commitments and Contingencies Purchase Commitments Grace uses purchase commitments to ensure supply and to minimize the volatility of major components of direct manufacturing costs including natural gas, certain metals, rare earths, asphalt, amines and other materials. Such commitments are for quantities that Grace fully expects to use in its normal operations.
Notes to Consolidated Financial Statements (Continued)
10. Commitments and Contingent Liabilities (Continued)
Guarantees and Indemnification Obligations Grace is a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of: Product warranties with respect to certain products sold to customers in the ordinary course of business. These warranties typically provide that products will conform to specifications. Grace accrues a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale. Both the liability and annual expense related to product warranties are immaterial to the Consolidated Financial Statements. Performance guarantees offered to customers under certain licensing arrangements. Grace has not established a liability for these arrangements based on past performance. Licenses of intellectual property by Grace to third parties in which Grace has agreed to indemnify the licensee against third party infringement claims. Contracts providing for the sale of a former business unit or product line in which Grace has agreed to indemnify the buyer against liabilities arisingrelated to activities prior to the closing of the transaction, including environmental liabilities. Contracts related to the Separation in which Grace has agreed to indemnify GCP against liabilities related to activities prior to the closing of the transaction, including tax, employee, and environmental liabilities. Guarantees of real property lease obligations of third parties, typically arising out of (a) leases entered into by former subsidiaries of Grace, or (b) the assignment or sublease of a lease by Grace to a third party. Financial Assurances Financial assurances have been established for a variety of purposes, including insurance and environmental matters, trade-related commitments and other matters. At December 31, 20142017, Grace had gross financial assurances issued and outstanding of $143.1124.6 million, composed of $34.239.5 million of surety bonds issued by various insurance companies and $108.985.1 million of standby letters of credit and other financial assurances issued by various banks. In November 2017, an additional $28.3 million in performance and warranty bonds were issued. These bonds were not released to the beneficiary until 2018 and are not included above. Accounting for Contingencies Although the outcome of each of the matters discussed above cannot be predicted with certainty, Grace has assessed its risk and has made accounting estimates as required under U.S. GAAP. Claims related to certain of the items discussed above were addressed as part of Grace's Chapter 11 proceedings. Accruals for such contingencies were included in "liabilities subject to compromise" in the accompanying December 31, 2013, Consolidated Balance Sheet.
12.11. Restructuring Expenses and Asset ImpairmentsRepositioning Expenses
Restructuring ExpensesIn 2014,2017, 2016, and 2015, Grace incurred costs from restructuring actions, primarily related to workforce reductions as a result of changes in the business environment and its business structure, which are included in "other expense, net""restructuring and repositioning expenses" in the Consolidated Statements of Operations. Grace incurred $8.1 million ($2.7 millionRestructuring costs in Construction Products, $1.9 million2017 primarily related to workforce reduction programs in Catalysts Technologies, $0.3 millionManufacturing, Supply Chain, Finance and IT. Costs in 2016 primarily related to the exit of certain non-strategic product lines in the Materials Technologies and $3.2 millionreportable segment in Corporate) ofthe 2016 first half. Costs in 2015 were in part due to the Separation. The following table presents restructuring expenses during 2014, compared with $12.5 million in 2013 ($6.1 million in Construction Products, $4.0 million in Catalysts Technologies, $0.4 million in Materials Technologiesby reportable segment for the years ended December 31, 2017, 2016, and $2.0 million in Corporate). 2015. | | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Catalysts Technologies | $ | 3.7 |
| | $ | 3.4 |
| | $ | 4.8 |
| Materials Technologies | (0.1 | ) | | 15.1 |
| | 0.8 |
| Corporate | 7.9 |
| | 5.8 |
| | 5.7 |
| Total restructuring expenses | $ | 11.5 |
| | $ | 24.3 |
| | $ | 11.3 |
|
Notes to Consolidated Financial Statements (Continued)
11. Restructuring Expenses and Repositioning Expenses (Continued)
These costs are not included in segment operating income. Substantially all costs related to the 2013 programs were paid as of December 31, 2014, while substantially all costs related to the 2014 restructuring programs are expected to be paid by December 31, 2015.2018. The following table presents components of the change in restructuring liability for the years ended December 31, 2017, 2016, and 2015:
| | | | | (In millions) | Total | Balance, December 31, 2014 | $ | 2.1 |
| Accruals for severance and other costs | 11.3 |
| Payments | (5.6 | ) | Currency translation adjustments and other | (0.2 | ) | Balance, December 31, 2015 | $ | 7.6 |
| Accruals for severance and other costs | 17.8 |
| Payments | (16.0 | ) | Currency translation adjustments and other | 0.2 |
| Balance, December 31, 2016 | $ | 9.6 |
| Accruals for severance and other costs | 11.4 |
| Payments | (14.4 | ) | Currency translation adjustments and other | 0.1 |
| Balance, December 31, 2017 | $ | 6.7 |
|
Repositioning Expenses Repositioning expenses primarily include third party costs related to transformative productivity programs and costs incurred to complete the Separation. Pretax repositioning expenses included in continuing operations for the years ended December 31, 2017, 2016, and 2015 were $15.2 million, $14.3 million, and $9.1 million respectively. Expenses incurred in 2017 primarily related to third-party costs associated with productivity and transformation initiatives, as well as costs related to the Separation. Expenses incurred in 2016 and 2015 primarily related to the Separation. Substantially all of these costs have been or are expected to be settled in cash. In 2017, Grace initiated a multi-year program to transform its manufacturing and business processes to extend its competitive advantages and improve its cost position. Grace expects to significantly improve its manufacturing performance, reduce its manufacturing costs, and improve its demand and supply planning capabilities. Grace also expects to invest significant capital in its manufacturing plants to accelerate growth and improve performance.
Notes to Consolidated Financial Statements (Continued)
12. Restructuring Expenses and Asset Impairments (Continued)
During 2014, Grace incurred asset impairment charges of $14.3 million, of which $9.8 million related to the repositioning of the ready-mix process control solutions business that is part of Construction Products and $4.5 million related to an unconsolidated investment.Other (Income) Expense, net
| | | | | | | | | | | | | Restructuring Expenses and Asset Impairments (In millions) | Year Ended December 31, | 2014 | | 2013 | | 2012 | Restructuring expenses | $ | 8.1 |
| | $ | 12.5 |
| | $ | 6.9 |
| Asset impairments | 14.3 |
| | — |
| | — |
| Total restructuring expenses and asset impairments | $ | 22.4 |
| | $ | 12.5 |
| | $ | 6.9 |
|
| | | | | | | | | | | | | Restructuring Liability (In millions) | December 31, | 2014 | | 2013 | | 2012 | Balance, December 31, 2013 | $ | 4.4 |
| | $ | 3.0 |
| | $ | 5.9 |
| Accruals for severance and other costs | 7.7 |
| | 7.6 |
| | 5.6 |
| Payments | (7.9 | ) | | (6.4 | ) | | (8.4 | ) | Currency translation adjustments and other | 0.3 |
| | 0.2 |
| | (0.1 | ) | Balance, December 31, 2014 | $ | 4.5 |
| | $ | 4.4 |
| | $ | 3.0 |
|
13. Other Expense, net
Components of other (income) expense, net are as follows: | | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | Restructuring expenses and asset impairments | $ | 22.4 |
| | $ | 12.5 |
| | $ | 6.9 |
| Provision for environmental remediation | 13.8 |
| | 8.2 |
| | 3.6 |
| Net (gain) loss on sales of investments and disposals of assets | (2.2 | ) | | 0.5 |
| | 0.7 |
| Interest income | (1.4 | ) | | (1.0 | ) | | (1.0 | ) | Currency transaction effects | (1.1 | ) | | 4.0 |
| | 0.3 |
| Currency and other financial losses in Venezuela | 1.0 |
| | 8.5 |
| | — |
| Other miscellaneous income | (4.0 | ) | | (9.2 | ) | | (4.4 | ) | Other expense, net | $ | 28.5 |
| | $ | 23.5 |
| | $ | 6.1 |
|
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Business interruption insurance recoveries | $ | (26.6 | ) | | $ | — |
| | $ | — |
| Accounts receivable reserve—Venezuela | 10.0 |
| | — |
| | — |
| Currency transaction effects | 5.0 |
| | (1.0 | ) | | (1.5 | ) | Third-party acquisition-related costs | 2.9 |
| | 2.5 |
| | — |
| Net (gain) loss on sales of investments and disposals of assets | 1.6 |
| | (1.4 | ) | | (10.6 | ) | Chapter 11 expenses, net | 1.4 |
| | 3.4 |
| | 5.1 |
| Loss on early extinguishment of debt | — |
| | 11.1 |
| | — |
| Other miscellaneous expense (income) | (2.7 | ) | | (1.3 | ) | | (6.8 | ) | Total other (income) expense, net | $ | (8.4 | ) | | $ | 13.3 |
| | $ | (13.8 | ) |
In January 2017, a Catalysts Technologies customer experienced an explosion and fire resulting in an extended outage. Grace received $25.0 million in payments from its third-party insurer in 2017, under its business interruption insurance policy for a portion of profits lost as a result of the outage. The policy had a $25 million limit for this event.
During the 2017 third quarter, Grace recorded a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions. F-48See Note 5 for more information related to Grace's 2016 early extinguishment of debt.
Notes to Consolidated Financial Statements (Continued)
14.13. Other Comprehensive Income (Loss)
The following tables present the pre-tax, tax, and after-tax components of Grace's other comprehensive income (loss) for the years ended December 31, 20142017, 20132016, and 20122015: | | | | | | | | | | | | | Year Ended December 31, 2014 (In millions) | Pre-Tax Amount | | Tax Benefit/ (Expense) | | After-Tax Amount | Defined benefit pension and other postretirement plans: | | | | | | Amortization of net prior service credit included in net periodic benefit cost | $ | (1.7 | ) | | $ | 0.6 |
| | $ | (1.1 | ) | Net prior service credit arising during period | 13.6 |
| | (4.8 | ) | | 8.8 |
| Net deferred actuarial gain arising during period | 1.0 |
| | (0.4 | ) | | 0.6 |
| Loss on termination of postretirement plans | (12.2 | ) | | 1.3 |
| | (10.9 | ) | Benefit plans, net | 0.7 |
| | (3.3 | ) | | (2.6 | ) | Currency translation adjustments | (28.0 | ) | | — |
| | (28.0 | ) | Loss from hedging activities | (7.1 | ) | | 2.6 |
| | (4.5 | ) | Other than temporary impairment of investment | 0.8 |
| | — |
| | 0.8 |
| Loss on securities available for sale | (0.1 | ) | | — |
| | (0.1 | ) | Other comprehensive loss attributable to W. R. Grace & Co. shareholders | $ | (33.7 | ) | | $ | (0.7 | ) | | $ | (34.4 | ) |
| | | | | | | | | | | | | Year Ended December 31, 2017 (In millions) | Pre-Tax Amount | | Tax Benefit/ (Expense) | | After-Tax Amount | Defined benefit pension and other postretirement plans: | | | | | | Amortization of net prior service credit included in net periodic benefit cost | $ | (2.3 | ) | | $ | 0.8 |
| | $ | (1.5 | ) | Amortization of net deferred actuarial loss included in net periodic benefit cost | 0.4 |
| | (0.1 | ) | | 0.3 |
| Net deferred actuarial gain (loss) arising during period | (0.1 | ) | | — |
| | (0.1 | ) | Benefit plans, net | (2.0 | ) | | 0.7 |
| | (1.3 | ) | Currency translation adjustments(1) | (23.1 | ) | | (2.9 | ) | | (26.0 | ) | Gain (loss) from hedging activities | 2.9 |
| | (2.1 | ) | | 0.8 |
| Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders | $ | (22.2 | ) | | $ | (4.3 | ) | | $ | (26.5 | ) |
| | (1) | In the 2017 third quarter, Grace recorded an out-of-period adjustment to recognize the accumulated deferred tax liability for its euro loan net investment hedge (see Note 6). The correction resulted in a reduction in deferred tax assets and a charge to "other comprehensive income (loss)" of $16.9 million. Grace has assessed the impact of this error and concluded that it was not material to any prior-period and the impact of correcting the error in 2017 is not material. |
| | | | | | | | | | | | | Year Ended December 31, 2013 (In millions) | Pre-Tax Amount | | Tax Benefit/ (Expense) | | After-Tax Amount | Defined benefit pension and other postretirement plans: | | | | | | Amortization of net prior service cost included in net periodic benefit cost | $ | 0.7 |
| | $ | (0.2 | ) | | $ | 0.5 |
| Amortization of net deferred actuarial loss included in net periodic benefit cost | 0.4 |
| | (0.1 | ) | | 0.3 |
| Net prior service credit arising during period | 1.7 |
| | (0.6 | ) | | 1.1 |
| Net deferred actuarial gain arising during period | 4.3 |
| | (1.6 | ) | | 2.7 |
| Benefit plans, net | 7.1 |
| | (2.5 | ) | | 4.6 |
| Currency translation adjustments | (23.6 | ) | | — |
| | (23.6 | ) | Loss from hedging activities | (0.3 | ) | | 0.1 |
| | (0.2 | ) | Gain on securities available for sale | 0.1 |
| | — |
| | 0.1 |
| Other comprehensive loss attributable to W. R. Grace & Co. shareholders | $ | (16.7 | ) | | $ | (2.4 | ) | | $ | (19.1 | ) |
| | | | | | | | | | | | | Year Ended December 31, 2012 (In millions) | Pre-Tax Amount | | Tax Benefit/ (Expense) | | After-Tax Amount | Defined benefit pension and other postretirement plans: | | | | | | Amortization of net prior service cost included in net periodic benefit cost | $ | 0.8 |
| | $ | (0.3 | ) | | $ | 0.5 |
| Amortization of net deferred actuarial loss included in net periodic benefit cost | 0.6 |
| | (0.2 | ) | | 0.4 |
| Net deferred actuarial gain arising during period | 2.1 |
| | (0.7 | ) | | 1.4 |
| Benefit plans, net | 3.5 |
| | (1.2 | ) | | 2.3 |
| Currency translation adjustments | 5.5 |
| | — |
| | 5.5 |
| Gain from hedging activities | 3.7 |
| | (1.3 | ) | | 2.4 |
| Other comprehensive income attributable to W. R. Grace & Co. shareholders | $ | 12.7 |
| | $ | (2.5 | ) | | $ | 10.2 |
|
Notes to Consolidated Financial Statements (Continued)
14.13. Other Comprehensive Income (Loss) (Continued)
| | | | | | | | | | | | | Year Ended December 31, 2016 (In millions) | Pre-Tax Amount | | Tax Benefit/ (Expense) | | After-Tax Amount | Defined benefit pension and other postretirement plans: | | | | | | Amortization of net prior service credit included in net periodic benefit cost | $ | (2.4 | ) | | $ | 0.9 |
| | $ | (1.5 | ) | Amortization of net deferred actuarial loss included in net periodic benefit cost | 0.5 |
| | (0.2 | ) | | 0.3 |
| Net prior service credit arising during period | 1.4 |
| | (0.5 | ) | | 0.9 |
| Loss on curtailment of postretirement plans | (0.5 | ) | | 0.2 |
| | (0.3 | ) | Benefit plans, net | (1.0 | ) | | 0.4 |
| | (0.6 | ) | Currency translation adjustments | (1.8 | ) | | — |
| | (1.8 | ) | Gain (loss) from hedging activities | 0.6 |
| | (0.3 | ) | | 0.3 |
| Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders | $ | (2.2 | ) | | $ | 0.1 |
| | $ | (2.1 | ) |
| | | | | | | | | | | | | Year Ended December 31, 2015 (In millions) | Pre-Tax Amount | | Tax Benefit/ (Expense) | | After-Tax Amount | Defined benefit pension and other postretirement plans: | | | | | | Amortization of net prior service credit included in net periodic benefit cost | $ | (3.1 | ) | | $ | 1.0 |
| | $ | (2.1 | ) | Amortization of net deferred actuarial loss included in net periodic benefit cost | 0.7 |
| | (0.2 | ) | | 0.5 |
| Net prior service credit arising during period | 5.7 |
| | (1.9 | ) | | 3.8 |
| Net deferred actuarial gain (loss) arising during period | (0.4 | ) | | 0.1 |
| | (0.3 | ) | Loss on curtailment of postretirement plans | (4.5 | ) | | 1.6 |
| | (2.9 | ) | Benefit plans, net | (1.6 | ) | | 0.6 |
| | (1.0 | ) | Currency translation adjustments | (43.3 | ) | | — |
| | (43.3 | ) | Gain (loss) from hedging activities | 2.1 |
| | (0.8 | ) | | 1.3 |
| Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders | $ | (42.8 | ) | | $ | (0.2 | ) | | $ | (43.0 | ) |
Notes to Consolidated Financial Statements (Continued)
13. Other Comprehensive Income (Loss) (Continued)
The following tables presenttable presents the changes in accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 20142017, 20132016, and 20122015: | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2014 (In millions) | Defined Benefit Pension and Other Postretirement Plans | | Currency Translation Adjustments | | Gain (Loss) from Hedging Activities | | Unrealized Loss on Investment | | Gain (Loss) on Securities Available for Sale | | Total | Beginning balance | $ | 6.6 |
| | $ | 5.2 |
| | $ | (0.5 | ) | | $ | (0.8 | ) | | $ | 0.1 |
| | $ | 10.6 |
| Other comprehensive income (loss) before reclassifications | 9.4 |
| | (28.0 | ) | | (3.2 | ) | | — |
| | (0.7 | ) | | (22.5 | ) | Amounts reclassified from accumulated other comprehensive income | (12.0 | ) | | — |
| | (1.3 | ) | | 0.8 |
| | 0.6 |
| | (11.9 | ) | Net current-period other comprehensive income (loss) | (2.6 | ) | | (28.0 | ) | | (4.5 | ) | | 0.8 |
| | (0.1 | ) | | (34.4 | ) | Ending balance | $ | 4.0 |
| | $ | (22.8 | ) | | $ | (5.0 | ) | | $ | — |
| | $ | — |
| | $ | (23.8 | ) |
| | | | | | | | | | | | | | | | | | Defined Benefit Pension and Other Postretirement Plans | | Currency Translation Adjustments | | Gain (Loss) from Hedging Activities | | Total | Balance, December 31, 2014 | $ | 4.0 |
| | $ | (22.8 | ) | | $ | (5.0 | ) | | $ | (23.8 | ) | Other comprehensive income (loss) before reclassifications | 3.5 |
| | (43.3 | ) | | 0.6 |
| | (39.2 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | (4.5 | ) | | — |
| | 0.7 |
| | (3.8 | ) | Net current-period other comprehensive income (loss) | (1.0 | ) | | (43.3 | ) | | 1.3 |
| | (43.0 | ) | Balance, December 31, 2015 | $ | 3.0 |
| | $ | (66.1 | ) | | $ | (3.7 | ) | | $ | (66.8 | ) | Other comprehensive income (loss) before reclassifications | 0.9 |
| | (1.8 | ) | | (1.8 | ) | | (2.7 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | (1.5 | ) | | — |
| | 2.1 |
| | 0.6 |
| Net current-period other comprehensive income (loss) | (0.6 | ) | | (1.8 | ) | | 0.3 |
| | (2.1 | ) | Distribution of GCP | (0.2 | ) | | 135.5 |
| | — |
| | 135.3 |
| Balance, December 31, 2016 | $ | 2.2 |
| | $ | 67.6 |
| | $ | (3.4 | ) | | $ | 66.4 |
| Other comprehensive income (loss) before reclassifications | (0.1 | ) | | (26.0 | ) | | (2.7 | ) | | (28.8 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | (1.2 | ) | | — |
| | 3.5 |
| | 2.3 |
| Net current-period other comprehensive income (loss) | (1.3 | ) | | (26.0 | ) | | 0.8 |
| | (26.5 | ) | Balance, December 31, 2017 | $ | 0.9 |
| | $ | 41.6 |
| | $ | (2.6 | ) | | $ | 39.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2013 (In millions) | Defined Benefit Pension and Other Postretirement Plans | | Currency Translation Adjustments | | Gain (Loss) from Hedging Activities | | Unrealized Loss on Investment | | Gain (Loss) on Securities Available for Sale | | Total | Beginning balance | $ | 2.0 |
| | $ | 28.8 |
| | $ | (0.3 | ) | | $ | (0.8 | ) | | $ | — |
| | $ | 29.7 |
| Other comprehensive income (loss) before reclassifications | 3.8 |
| | (23.6 | ) | | 1.2 |
| | — |
| | 0.1 |
| | (18.5 | ) | Amounts reclassified from accumulated other comprehensive income | 0.8 |
| | — |
| | (1.4 | ) | | — |
| | — |
| | (0.6 | ) | Net current-period other comprehensive income (loss) | 4.6 |
| | (23.6 | ) | | (0.2 | ) | | — |
| | 0.1 |
| | (19.1 | ) | Ending balance | $ | 6.6 |
| | $ | 5.2 |
| | $ | (0.5 | ) | | $ | (0.8 | ) | | $ | 0.1 |
| | $ | 10.6 |
|
| | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2012 (In millions) | Defined Benefit Pension and Other Postretirement Plans | | Currency Translation Adjustments | | Gain (Loss) from Hedging Activities | | Unrealized Loss on Investment | | Total | Beginning balance | $ | (0.3 | ) | | $ | 23.3 |
| | $ | (2.7 | ) | | $ | (0.8 | ) | | $ | 19.5 |
| Other comprehensive income (loss) before reclassifications | 1.4 |
| | 5.5 |
| | (0.3 | ) | | — |
| | 6.6 |
| Amounts reclassified from accumulated other comprehensive income | 0.9 |
| | — |
| | 2.7 |
| | — |
| | 3.6 |
| Net current-period other comprehensive income | 2.3 |
| | 5.5 |
| | 2.4 |
| | — |
| | 10.2 |
| Ending balance | $ | 2.0 |
| | $ | 28.8 |
| | $ | (0.3 | ) | | $ | (0.8 | ) | | $ | 29.7 |
|
Grace is a global enterprise operating in over 40many countries with local currency generally deemed to be the functional currency for accounting purposes. The currency translation amount represents the adjustments necessary to translate the balance sheets valued in local currencies to the U.S. dollar as of the end of each period presented, and to translate revenues and expenses at average exchange rates for each period presented. See Note 76 for a discussion of hedging activities. See Note 98 for a discussion of pension plans and other postretirement benefit plans.
Notes to Consolidated Financial Statements (Continued)
15.14. Shareholders' Equity
Under its Amended and Restated Certificate of Incorporation, the Company is authorized to issue 300,000,000 shares of common stock, $0.01 par value.value per share. As of December 31, 20142017, the W. R. Grace & Co. 2014 Stock Incentive Plan (together with the 2011 Stock Incentive Plan and the Amended and Restated 2011 Stock Incentive Plan, collectively, the "Stock Incentive Plans") had 5,177,8782,219,234 shares of unissued stock reserved for issuance in the event of the exercise of stock options underor settlement of stock-based awards. Shares issuable upon the Plan. Historically allexercise of stock options exercised wereor the settlement of stock based awards are covered by reissuing treasury stock. During 2014, stock, options exercises exceededto the shares available in treasury stock and therefore the Companyextent available; otherwise they are covered through newly issued new shares, which were reserved for issuance under the Plans.shares. For the years ended December 31, 2014, 2013,2017, 2016, and 2012, 793,359, 1,464,294,2015, 386,300, 745,938, and 1,679,359728,408 stock options were exercised for aggregate proceeds of $23.4$16.4 million,, $34.4 $17.0 million,, and $32.2$26.9 million,, respectively. Additionally in 2014, 19,5602017, 10,507 common shares were issued to members of the Board of Directors.Directors, in payment of their annual retainer; 8,215 shares were issued through net share settlement; 24,432 shares were issued to settle the 2014 Restricted Stock Units (RSUs); and 6,743 shares were issued to settle tranche 1 of the 2016 RSUs.
Notes to Consolidated Financial Statements (Continued)
14. Shareholders' Equity (Continued)
The following table sets forth information relating to common stock activity for 2014the years ended December 31, 2017, 2016, and 2013:2015: | | | | Balance of outstanding shares, December 31, 20122014 | 75,565,40972,922,565 |
| Stock options exercised | 1,464,294728,408 |
| Shares issued | 16,440 |
| Balance of outstanding shares, December 31, 2013 | 77,046,143 |
| Stock options exercised | 793,3599,378 |
| Shares issuedforfeited | 19,560(3,120 | ) | Shares repurchased | (4,936,4973,123,716 | ) | Balance of outstanding shares, December 31, 20142015 | 72,922,56570,533,515 |
| Stock options exercised | 745,938 |
| Shares issued | 110,953 |
| Shares forfeited | (305,678 | ) | Shares repurchased | (2,775,297 | ) | Balance of outstanding shares, December 31, 2016 | 68,309,431 |
| Stock options exercised | 386,300 |
| Shares issued | 49,897 |
| Shares forfeited through net share exercise | (29,783 | ) | Shares repurchased | (935,435 | ) | Balance of outstanding shares, December 31, 2017 | 67,780,410 |
|
16.15. Stock Incentive Plans
The Company has granted nonstatutory stock options to certain key employees under the Stock Incentive Plans. The Stock Incentive Plans are administered by the Compensation Committee of the Board of Directors. Stock options are generally non-qualified and are at exercise prices not less than 100% of the average per share fair market value on the date of grant. Stock-based compensation awards granted under the Company's stock incentive plans are generally subject to a vesting period from the date of the grant ranging from 1 - 3 years. Currently outstanding options expire on various dates through November 2019.August 2022.
Previously outstanding stock-based compensation awards granted under equity compensation programs prior to the Separation and held by certain executives and employees were adjusted in 2016 to reflect the impact of the Separation on these awards. To preserve the aggregate intrinsic value of awards held prior to the Separation, as measured immediately before and immediately after the Separation, each holder of stock-based compensation awards generally received an adjusted award consisting of either (i) both a stock-based compensation award denominated in Company equity as it existed subsequent to the Separation and a stock-based compensation award denominated in GCP equity or (ii) solely a stock-based compensation award denominated in Company equity. In the Separation, the determination as to which type of adjustment applied to a holder’s previously outstanding award was based upon the date on which the award was originally granted under the equity compensation programs prior to the Separation. The adjustment of the original awards resulted in $0.6 million of incremental compensation cost in 2016.
Notes to Consolidated Financial Statements (Continued)
16.15. Stock Incentive Plans (Continued)
The following table sets forth information relating to such options during 20142017, 20132016, and 20122015:. | | Stock Option Activity | Number Of Shares | | Average Exercise Price | | Weighted- Average Grant Date Fair Value | Number Of Shares | | Average Exercise Price | | Weighted- Average Grant Date Fair Value | Balance, January 1, 2012 | 4,937,420 |
| | $ | 25.08 |
| | | | Balance, December 31, 2014 | | 2,523,790 |
| | $ | 55.77 |
| | | Options exercised | (1,679,359 | ) | | 19.14 |
| | | (728,408 | ) | | 36.85 |
| | | Options forfeited | (51,573 | ) | | 37.67 |
| | | (25,000 | ) | | 92.57 |
| | | Options terminated | (10,995 | ) | | 15.74 |
| |
|
| (500 | ) | | 100.29 |
| |
|
| Options granted | 828,991 |
| | 49.01 |
| | $ | 16.67 |
| 550,805 |
| | 77.31 |
| | $ | 19.28 |
| Balance, December 31, 2012 | 4,024,484 |
| | 32.33 |
| | | | Balance, December 31, 2015 | | 2,320,687 |
| | 71.01 |
| | | Options exercised | (1,464,294 | ) | | 23.46 |
| | | (745,938 | ) | | 36.97 |
| | | Options forfeited | (95,139 | ) | | 52.17 |
| | | (9,458 | ) | | 73.40 |
| | | Options terminated | (1,381 | ) | | 42.26 |
| | | (2,426 | ) | | 67.06 |
| | | Options granted | 421,385 |
| | 76.70 |
| | 19.26 |
| 377,920 |
| | 68.32 |
| | 12.90 |
| Balance, December 31, 2013 | 2,885,055 |
| | 42.60 |
| | | | Balance, December 31, 2016 | | 1,940,785 |
| | 66.83 |
| | | Options exercised | (793,359 | ) | | 29.53 |
| | | (386,300 | ) | | 45.21 |
| | | Options forfeited | (42,424 | ) | | 68.07 |
| | | (34,545 | ) | | 72.97 |
| | | Options terminated | | (23,320 | ) | | 75.60 |
| | | Options granted | 474,518 |
| | 93.39 |
| | 20.12 |
| 316,830 |
| | 71.37 |
| | 13.00 |
| Balance, December 31, 2014 | 2,523,790 |
| |
|
| |
|
| | Balance, December 31, 2017 | | 1,813,450 |
| |
|
| | |
The following is a summary of nonvested option activity for the year ended December 31, 2014:2017. | | Stock Option Activity | Number Of Shares | | Weighted- Average Grant Date Fair Value | Number Of Shares | | Weighted- Average Grant Date Fair Value | Nonvested options outstanding at beginning of year | 1,282,925 |
| | $ | 17.98 |
| 878,031 |
| | $ | 17.76 |
| Granted | 474,518 |
| | 20.12 |
| 316,830 |
| | 13.00 |
| Vested | (755,177 | ) | | 15.67 |
| (417,969 | ) | | 18.78 |
| Forfeited | (42,424 | ) | | 18.41 |
| (57,865 | ) | | 18.09 |
| Nonvested options outstanding at end of year | 959,842 |
| |
|
| 719,027 |
| |
|
|
As of December 31, 2014,2017, the intrinsic value (the difference between the exercise price and the market price) for options outstanding was $101.7$2.8 million and for options exercisable was $84.12.3 million. The total intrinsic value of all options exercised during the years ended December 31, 20142017, 20132016 and 20122015 was $53.610.3 million, $83.225.9 million and $65.346.1 million, respectively. A summary of our stock options outstanding and exercisable at December 31, 20142017, follows:
| | | | | | | | | | | | Exercise Price Range | Number Outstanding | | Number Exercisable | | Outstanding Weighted- Average Remaining Contractual Life (Years) | | Exercisable Weighted- Average Exercise Price | $60 - $70 | 586,054 |
| | 350,469 |
| | 2.02 | | 63.90 |
| $70 - $80 | 1,200,806 |
| | 724,000 |
| | 2.48 | | 75.97 |
| $80 - $90 | 26,590 |
| | 19,954 |
| | 1.16 | | 80.76 |
| | 1,813,450 |
| | 1,094,423 |
| | | | |
Notes to Consolidated Financial Statements (Continued)
16.15. Stock Incentive Plans (Continued)
| | | | | | | | | | | | | Exercise Price Range | Number Outstanding | | Number Exercisable | | Outstanding Weighted- Average Remaining Contractual Life (Years) | | Exercisable Weighted- Average Exercise Price | $20 - $30 | 432,969 |
| | 432,969 |
| | 0.34 | | $ | 27.75 |
| $30 - $40 | 6,000 |
| | 6,000 |
| | 1.61 | | 37.06 |
| $40 - $50 | 1,229,774 |
| | 997,427 |
| | 1.88 | | 44.43 |
| $60 - $70 | 21,086 |
| | 13,327 |
| | 2.92 | | 66.26 |
| $70 - $80 | 366,061 |
| | 113,780 |
| | 3.32 | | 76.66 |
| $80 - $90 | 1,928 |
| | 445 |
| | 3.49 | | 84.74 |
| $90 - $100 | 436,472 |
| | — |
| | 4.48 | | — |
| $100 - $110 | 29,500 |
| | — |
| | 4.16 | | — |
| | 2,523,790 |
| | 1,563,948 |
| | | | |
At December 31, 20142017, the weighted-average remaining contractual term of all options outstanding and exercisable was 2.31 years. Options Granted The Company granted approximately 0.50.3 million, 0.4 million, and 0.80.6 million nonstatutory stock options in 20142017, 20132016, and 20122015, respectively, under the Stock Incentive Plans. For the years ended December 31, 20142017, 20132016 and 20122015, Gracethe Company recognized non-cash stock-based compensation expense of $12.04.3 million, $12.76.0 million and $14.79.9 million, respectively, which is included in selling,"selling, general and administrative expense.expenses" in the Consolidated Statements of Operations. The actual tax benefit realized from stock options exercised totaled $7.4 million, $11.2 million, and $3.3 million for the year ended December 31, 2017, 2016 and 2015, respectively. GraceThe Company values options using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of traded options. The risk-free rate is based on the U.S. Treasury yield curve published as of the grant date, with maturities approximating the expected term of the options. The expected term of the options is estimated using the simplified method as allowed by ASC 718-20, whereby the average between the vesting period and contractual term is used. The expected volatility was estimated using both actual stock volatility and the volatility of an industry peer group. GraceThe Company believes its actual stock volatility in the last several years maywas not be representative of expected future volatility because of its previous statusduring the time it was in Chapter 11. The following summarizes the assumptions used for estimating the fair value of stock options granted during 20142017, 20132016 and 20122015, respectively.
| | | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Expected volatility | 28.2% - 28.7% | | 32.3% - 34.3% | | 35.8% - 46.4% | 24.7% - 25.1% | | 26.2% - 27.5% | | 23.0% - 27.2% | Weighted average expected volatility | 28.6% | | 33.3% | | 40.6% | 24.9% | | 26.6% | | 24.5% | Expected term | 3.00 - 4.00 years | | 3.00 - 4.00 years | | 3.00 - 4.00 years | 3.00 - 4.00 years | | 3.00 - 4.00 years | | 3.00 - 4.00 years | Risk-free rate | 1.25% | | 0.61% | | 0.55% | 1.66% | | 1.01% | | 1.30% | Dividend yield | —% | | —% | | —% | 1.2% | | 1.0% | | —% |
Total unrecognized stock-based compensation expense at December 31, 20142017, was $4.92.9 million and the weighted-average period over which this expense will be recognized is 0.80.9 years.year. Restricted Stock and Performance Based Units During 2014 and 20132017 the Company granted 110,99357,600 RSUs and 111,770115,158 Performance Based Units (PBUs), respectively, under the Company's Long-term Incentive Plan (LTIP). During 20142016 the Company granted 77,358 RSUs and 2013, 8,570124,952 PBUs under the LTIP. During 2015 the Company granted 123,846 RSUs and 5,5131,864 PBUs under the LTIP. During 2017, 2016, and 2015, awards covering 16,395, 15,197, and 10,641 shares were forfeited, respectively. The awardsPBUs cliff vest onafter the completion of the performance periods ending December 31, 20162019 and 2015,2018, and have a weighted average grant date fair value of $92.92$71.37 and $76.66,$68.50, respectively. The RSUs granted in 2017 and 2016 vest in three equal annual installments and have a weighted average grant date fair value of $71.37 and $68.90, respectively. The RSUs granted in 2015 cliff vest in May 2018 and have a weighted average grant date fair value of $67.95. Vesting for all awards is subject to continued employment through the payment date (subject to certain exceptions for retirement, death or disability, change in control scenarios, and in the discretion of the Compensation Committee). The Company anticipates that approximately 65% of the awards granted in 2017 will be settled in common stock and approximately 35% will be settled in cash, assuming full vesting. The Company anticipates that approximately 67% of the awards granted in 2016 will be settled in common stock and approximately 33% will be settled in cash, assuming full vesting. The Company anticipates that approximately 53% of the PBUs granted in 20142015 will be settled in common stock and approximately 47% will be settled in cash, assuming full vesting. The Company anticipates that approximately 54% of the PBUs granted in 2013 will be settled in common stock and approximately 46% will be settled in cash,
Notes to Consolidated Financial Statements (Continued)
16. Stock Incentive Plans (Continued)
assuming full vesting. PBUsRSUs are recorded at fair value at the date of grant. The estimated grant date fair value is based on the expected payout of the award, which may range from 0% to 200% of the payout target. The common stock settled portion is considered an equity award with the payout being valued based on the Company’s stock price on the grant date. The cash settled portion of the award is considered a liability award with payout being remeasured each reporting period based on the Company’s current stock price. BothPBU equity and cash awards are remeasured each reporting period based on the expected payout of the award;award, which may range from 0% to 200% of the targets for such
Notes to Consolidated Financial Statements (Continued)
15. Stock Incentive Plans (Continued)
awards; therefore, these portions of the awards are subject to volatility until the payout is finally determined at the end of the performance period. During 20142017, 2016, and 20132015, the Company recognized $3.5$10.3 million, $8.6 million, and $1.7$5.8 million in compensation expense for these awards. As of December 31, 2014, $9.12017, $14.1 million of total unrecognized compensation expense related to the PBUsawards is expected to be recognized over the remaining weighted-average service period of 1.51.3 years. 17.16. Earnings Per Share
The following table shows a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share. | | (In millions, except per share amounts) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Numerators | | | | | | | | | | | Net income attributable to W. R. Grace & Co. shareholders | $ | 276.3 |
| | $ | 256.1 |
| | $ | 40.0 |
| | Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders | | $ | 11.2 |
| | $ | 107.0 |
| | $ | 124.0 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (12.9 | ) | | 20.2 |
| Net income (loss) attributable to W. R. Grace & Co. shareholders | | $ | 11.2 |
| | $ | 94.1 |
| | $ | 144.2 |
| Denominators | | | | | | | | | | | Weighted average common shares—basic calculation | 75.3 |
| | 76.4 |
| | 74.9 |
| 68.1 |
| | 70.1 |
| | 72.0 |
| Dilutive effect of employee stock options | 0.9 |
| | 1.3 |
| | 1.4 |
| 0.1 |
| | 0.4 |
| | 0.6 |
| Weighted average common shares—diluted calculation | 76.2 |
| | 77.7 |
| | 76.3 |
| 68.2 |
| | 70.5 |
| | 72.6 |
| Basic earnings per share | $ | 3.67 |
| | $ | 3.35 |
| | $ | 0.53 |
| | Diluted earnings per share | $ | 3.63 |
| | $ | 3.30 |
| | $ | 0.52 |
| | Basic earnings per share attributable to W. R. Grace & Co. shareholders | | | | | | | Income (loss) from continuing operations | | $ | 0.16 |
| | $ | 1.53 |
| | $ | 1.72 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (0.19 | ) | | 0.28 |
| Net income (loss) | | $ | 0.16 |
| | $ | 1.34 |
| | $ | 2.00 |
| Diluted earnings per share attributable to W. R. Grace & Co. shareholders | | | | | | | Income (loss) from continuing operations | | $ | 0.16 |
| | $ | 1.52 |
| | $ | 1.71 |
| Income (loss) from discontinued operations, net of income taxes | | — |
| | (0.19 | ) | | 0.28 |
| Net income (loss) | | $ | 0.16 |
| | $ | 1.33 |
| | $ | 1.99 |
|
There were approximately 0.31.5 million, 0.31.3 million and 0.4 million anti-dilutive options outstanding for the years ended December 31, 20142017, 20132016 and 20122015, respectively. The effect of the warrant for 10 million shares issued under the Joint Plan, as discussed in Note 2, is not included in diluted earnings per share. On February 4, 2014, Gracethe Company announced that its Board of Directors had authorized a share repurchase program of up to $500 million, expected to bewhich it completed over the following 12 to 24 months at the discretion of management. During 2014, Grace repurchased 4,936,497 shares of Company common stock for $469.5 million pursuant to the terms of the share repurchase program. Grace completed its initial $500 million share repurchase program inon January 15, 2015. On February 5, 2015, Gracethe Company announced that its Board of Directors hashad authorized an additional share repurchase program of up to $500 million.million, which it completed on July 10, 2017. On February 8, 2017, the Company announced that its Board of Directors had authorized a new share repurchase program of up to $250 million, expected to be completed over 24 to 36 months at the discretion of management. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of Grace'sthe Company's shares, the strategic deployment of capital, and general market and economic conditions. During 2017, 2016 and 2015, the Company repurchased 935,435, 2,775,297, and 3,123,716 shares of Company common stock for $65.0 million, $195.1 million and $301.5 million, respectively, pursuant to the terms of the share repurchase programs. As of December 31, 2017, $218.9 million remained under the current authorization. 18. Operating17. Segment Information
Grace is a global producer of specialty chemicals and specialty materials. Grace manages itsGrace's two reportable business through three operating segments:segments are Grace Catalysts Technologies and Grace Materials Technologies, and Grace Construction Products.Technologies. Grace Catalysts Technologies includes catalysts and related products and technologies used in refining, petrochemical and other chemical manufacturing applications. Grace's Advanced Refining Technologies (ART) joint venture is managed in this segment. ART is an unconsolidated affiliate, and Grace accounts for ART using the equity method as discussed in Note 19. Grace Materials Technologies includes packaging technologies and engineered materials, coatings and sealants used in consumer, industrial, and pharmaceutical applications. Grace Construction Products includes specialty construction chemicals and specialty building materials used in commercial, infrastructure and residential construction. Intersegment sales are eliminated in consolidation. The table below presents information related to Grace's operating segments. Only
Notes to Consolidated Financial Statements (Continued)
18. Operating17. Segment Information (Continued)
manufacturing applications. Advanced Refining Technologies ("ART"), Grace's joint venture with Chevron Products Company, a division of Chevron U.S.A. Inc. ("Chevron"), is managed in this segment. (See Note 18.) Grace Catalysts Technologies comprises two operating segments, Grace Refining Technologies and Grace Specialty Catalysts, which are aggregated into one reportable segment based upon similar economic characteristics, the nature of the products and production processes, type and class of customer, and channels of distribution. Grace Materials Technologies includes specialty materials, including silica-based and silica-alumina-based materials, used in coatings, consumer, industrial, and pharmaceutical applications. The table below presents information related to Grace's reportable segments. Only those corporate expenses directly related to the operatingreportable segments are allocated for reporting purposes. All remaining corporate items are reported separately and labeled as such. Grace excludes defined benefit pension expense from the calculation of segment operating income. Grace believes that the exclusion of defined benefit pension expense provides a better indicator of its operatingreportable segment performance as defined benefit pension expense is not managed at an operatinga reportable segment level. Grace defines Adjusted EBIT (a non-GAAP financial measure) to be net income from continuing operations attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense,expense; income taxes,taxes; costs related to Chapter 11, asbestos-related costs,legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments,impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits, certaincredits; income and expense items related to divested businesses, product lines, and certain other investments, andinvestments; gains and losses on sales of businesses, product lines, and certain other investments. Ininvestments; third-party acquisition-related costs and the 2013 first quarter, Grace also adjusted for the currency transaction loss incurred on its Venezuelan cash balancesamortization of $6.9 million before taxes.acquired inventory fair value adjustment; and certain other items that are not representative of underlying trends.
Notes to Consolidated Financial Statements (Continued)
18. Operating17. Segment Information (Continued)
OperatingReportable Segment Data
| | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Net Sales | | | | | | | | | | | Catalysts Technologies | $ | 1,246.8 |
| | $ | 1,124.0 |
| | $ | 1,268.1 |
| $ | 1,276.5 |
| | $ | 1,163.7 |
| | $ | 1,162.1 |
| Materials Technologies | 890.6 |
| | 878.5 |
| | 862.6 |
| 440.0 |
| | 434.9 |
| | 466.1 |
| Construction Products | 1,105.6 |
| | 1,058.2 |
| | 1,024.8 |
| | Total | $ | 3,243.0 |
| | $ | 3,060.7 |
| | $ | 3,155.5 |
| $ | 1,716.5 |
| | $ | 1,598.6 |
| | $ | 1,628.2 |
| Adjusted EBIT | | | | | | | | | | | Catalysts Technologies segment operating income | $ | 378.3 |
| | $ | 327.5 |
| | $ | 393.8 |
| $ | 395.4 |
| | $ | 367.8 |
| | $ | 347.3 |
| Materials Technologies segment operating income | 185.2 |
| | 181.8 |
| | 162.0 |
| 100.6 |
| | 104.0 |
| | 96.9 |
| Construction Products segment operating income | 161.7 |
| | 151.7 |
| | 125.2 |
| | Corporate costs | (90.6 | ) | | (82.8 | ) | | (92.4 | ) | (69.0 | ) | | (59.4 | ) | | (79.9 | ) | Gain on termination of postretirement plans related to current businesses | 23.6 |
| | — |
| | — |
| | Gain on termination and curtailment of postretirement plans related to current businesses | | — |
| | 0.2 |
| | 1.9 |
| Certain pension costs | (32.0 | ) | | (27.4 | ) | | (30.4 | ) | (13.0 | ) | | (12.3 | ) | | (20.4 | ) | Total | $ | 626.2 |
| | $ | 550.8 |
| | $ | 558.2 |
| $ | 414.0 |
| | $ | 400.3 |
| | $ | 345.8 |
| Depreciation and Amortization | | | | | | | | | | | Catalysts Technologies | $ | 66.3 |
| | $ | 54.2 |
| | $ | 54.0 |
| $ | 87.1 |
| | $ | 77.4 |
| | $ | 68.1 |
| Materials Technologies | 32.1 |
| | 31.4 |
| | 29.5 |
| 19.6 |
| | 19.5 |
| | 23.2 |
| Construction Products | 31.7 |
| | 31.8 |
| | 32.9 |
| | Corporate | 7.0 |
| | 5.7 |
| | 2.6 |
| 4.8 |
| | 3.4 |
| | 7.9 |
| Total | $ | 137.1 |
| | $ | 123.1 |
| | $ | 119.0 |
| $ | 111.5 |
| | $ | 100.3 |
| | $ | 99.2 |
| Capital Expenditures | | | | | | | | | | | Catalysts Technologies | $ | 81.6 |
| | $ | 58.7 |
| | $ | 70.8 |
| $ | 100.9 |
| | $ | 84.9 |
| | $ | 66.3 |
| Materials Technologies | 35.6 |
| | 33.0 |
| | 27.1 |
| 20.9 |
| | 24.0 |
| | 24.6 |
| Construction Products | 28.3 |
| | 32.8 |
| | 26.5 |
| | Corporate | 24.3 |
| | 31.7 |
| | 14.1 |
| 3.4 |
| | 8.0 |
| | 27.9 |
| Total | $ | 169.8 |
| | $ | 156.2 |
| | $ | 138.5 |
| $ | 125.2 |
| | $ | 116.9 |
| | $ | 118.8 |
| Total Assets | | | | | | | | | | | Catalysts Technologies | $ | 1,395.4 |
| | $ | 1,361.8 |
| | $ | 794.8 |
| $ | 1,757.1 |
| | $ | 1,675.1 |
| | $ | 1,390.8 |
| Materials Technologies | 501.2 |
| | 508.9 |
| | 494.9 |
| 326.8 |
| | 313.1 |
| | 333.4 |
| Construction Products | 580.0 |
| | 609.1 |
| | 616.0 |
| | Corporate | 1,618.6 |
| | 2,916.3 |
| | 3,184.7 |
| 823.1 |
| | 923.6 |
| | 1,051.0 |
| Assets of discontinued operations | | — |
|
| — |
| | 870.5 |
| Total | $ | 4,095.2 |
| | $ | 5,396.1 |
| | $ | 5,090.4 |
| $ | 2,907.0 |
| | $ | 2,911.8 |
| | $ | 3,645.7 |
|
Corporate costs include corporate support function costs and other corporate costs such as professional fees and insurance premiums. Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits. Grace Adjusted EBIT for the years ended December 31, 2014, 2013 and 2012 is reconciled below to income before income taxes presented in the accompanying Consolidated Statements of Operations.
Notes to Consolidated Financial Statements (Continued)
18. Operating17. Segment Information (Continued)
Reconciliation of OperatingReportable Segment Data to Financial Statements Grace Adjusted EBIT for the years ended December 31, 2017, 2016 and 2015 is reconciled below to income from continuing operations before income taxes presented in the accompanying Consolidated Statements of Operations. | | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | Grace Adjusted EBIT | $ | 626.2 |
| | $ | 550.8 |
| | $ | 558.2 |
| Costs related to Chapter 11 | (11.3 | ) | | (16.4 | ) | | (15.6 | ) | Asbestos-related costs | (7.9 | ) | | (7.8 | ) | | (5.0 | ) | Asbestos and bankruptcy-related charges, net | (7.1 | ) | | (21.9 | ) | | (384.6 | ) | Default interest settlement | — |
| | (129.0 | ) | | — |
| Pension MTM adjustment and other related costs, net | (128.3 | ) | | 50.6 |
| | (119.2 | ) | Gain on termination of postretirement plans related to divested businesses | 15.9 |
| | — |
| | — |
| Restructuring expenses and asset impairments | (22.4 | ) | | (12.5 | ) | | (6.9 | ) | Gain (loss) on sale of product line | 0.2 |
| | (1.0 | ) | | (0.2 | ) | Income and expense items related to divested businesses | (5.2 | ) | | (4.1 | ) | | (2.8 | ) | Interest expense and related financing costs | (61.5 | ) | | (43.8 | ) | | (46.5 | ) | Interest accretion on deferred payment obligations | (65.7 | ) | | — |
| | — |
| Currency and other financial losses in Venezuela | (1.0 | ) | | (6.9 | ) | | — |
| Interest income | 1.4 |
| | 1.0 |
| | 1.0 |
| Net income attributable to noncontrolling interests | 1.0 |
| | 1.6 |
| | 1.0 |
| Income (loss) before income taxes | $ | 334.3 |
| | $ | 360.6 |
| | $ | (20.6 | ) |
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Grace Adjusted EBIT | $ | 414.0 |
| | $ | 400.3 |
| | $ | 345.8 |
| Pension MTM adjustment and other related costs, net | (51.1 | ) | | (60.3 | ) | | (30.5 | ) | Costs related to legacy product, environmental and other claims | (30.8 | ) | | (35.4 | ) | | (6.1 | ) | Restructuring and repositioning expenses | (26.7 | ) | | (38.6 | ) | | (20.4 | ) | Accounts receivable reserve—Venezuela | (10.0 | ) | | — |
| | — |
| Third-party acquisition-related costs | (2.9 | ) | | (2.5 | ) | | — |
| Income and expense items related to divested businesses | (2.3 | ) | | 0.1 |
| | 1.5 |
| Loss on early extinguishment of debt | — |
| | (11.1 | ) | | — |
| Amortization of acquired inventory fair value adjustment | — |
| | (8.0 | ) | | — |
| Gain (loss) on sale of product line | — |
| | 1.7 |
| | — |
| Gain on termination and curtailment of postretirement plans related to divested businesses | — |
| | 0.3 |
| | 2.6 |
| Interest expense, net | (78.5 | ) | | (80.5 | ) | | (99.1 | ) | Net income (loss) attributable to noncontrolling interests | (0.8 | ) | | — |
| | (0.1 | ) | Income (loss) from continuing operations before income taxes | $ | 210.9 |
| | $ | 166.0 |
| | $ | 193.7 |
|
The table below presents sales of similar products within each reportable segment.
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Catalysts Technologies: | | | | | | Refining catalysts | $ | 758.1 |
| | $ | 724.9 |
| | $ | 764.5 |
| Polyolefin and chemical catalysts | 518.4 |
| | 438.8 |
| | 397.6 |
| Total | $ | 1,276.5 |
| | $ | 1,163.7 |
| | $ | 1,162.1 |
| Materials Technologies: | | | | | | Coatings | $ | 142.2 |
| | $ | 136.5 |
| | $ | 133.6 |
| Consumer/Pharma | 123.3 |
| | 121.9 |
| | 125.1 |
| Chemical process | 153.5 |
| | 142.6 |
| | 137.0 |
| Other | 21.0 |
| | 33.9 |
| | 70.4 |
| Total | $ | 440.0 |
| | $ | 434.9 |
| | $ | 466.1 |
|
Notes to Consolidated Financial Statements (Continued)
18. Operating17. Segment Information (Continued)
The table below presents information related to the geographic areas in which Grace operates. Sales are attributed to geographic areas based on customer location.
Geographic Area Data The table below presents information related to the geographic areas in which Grace operates. Sales are attributed to geographic areas based on customer location. | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Net Sales | | | | | | | | | | | United States | $ | 976.5 |
| | $ | 886.0 |
| | $ | 878.9 |
| $ | 437.3 |
| | $ | 446.2 |
| | $ | 444.7 |
| Canada and Puerto Rico | 78.7 |
| | 73.7 |
| | 88.7 |
| | Canada | | 48.7 |
| | 44.5 |
| | 45.3 |
| Total North America | 1,055.2 |
| | 959.7 |
| | 967.6 |
| 486.0 |
| | 490.7 |
| | 490.0 |
| Europe Middle East Africa | 1,097.0 |
| | 1,087.9 |
| | 1,175.6 |
| 667.7 |
| | 647.8 |
| | 621.2 |
| Asia Pacific | 716.2 |
| | 654.1 |
| | 660.3 |
| 459.8 |
| | 348.9 |
| | 390.9 |
| Latin America | 374.6 |
| | 359.0 |
| | 352.0 |
| 103.0 |
| | 111.2 |
| | 126.1 |
| Total | $ | 3,243.0 |
| | $ | 3,060.7 |
| | $ | 3,155.5 |
| $ | 1,716.5 |
| | $ | 1,598.6 |
| | $ | 1,628.2 |
| Properties and Equipment, net | | | | | | | Long-Lived Assets(1) | | | | | | | United States | $ | 526.2 |
| | $ | 497.8 |
| | $ | 438.4 |
| $ | 599.8 |
| | $ | 564.5 |
| | $ | 464.1 |
| Canada and Puerto Rico | 17.5 |
| | 19.1 |
| | 19.8 |
| | Canada | | 15.5 |
| | 13.9 |
| | 13.0 |
| Total North America | 543.7 |
| | 516.9 |
| | 458.2 |
| 615.3 |
| | 578.4 |
| | 477.1 |
| Europe Middle East Africa | 189.3 |
| | 212.4 |
| | 210.3 |
| | Germany | | 142.2 |
| | 109.7 |
| | 110.9 |
| Rest of Europe Middle East Africa | | 45.3 |
| | 39.5 |
| | 17.4 |
| Total Europe Middle East Africa | | 187.5 |
| | 149.2 |
| | 128.3 |
| Asia Pacific | 70.7 |
| | 70.9 |
| | 72.1 |
| 21.1 |
| | 21.5 |
| | 25.9 |
| Latin America | 29.8 |
| | 29.7 |
| | 29.9 |
| 7.9 |
| | 7.5 |
| | 5.5 |
| Total | $ | 833.5 |
| | $ | 829.9 |
| | $ | 770.5 |
| $ | 831.8 |
| | $ | 756.6 |
| | $ | 636.8 |
| Goodwill, Intangibles and Other Assets | | | | | | | United States | $ | 615.8 |
| | $ | 589.7 |
| | $ | 91.5 |
| | Canada and Puerto Rico | 7.6 |
| | 8.6 |
| | 7.3 |
| | Total North America | 623.4 |
| | 598.3 |
| | 98.8 |
| | Europe Middle East Africa | 90.9 |
| | 106.4 |
| | 105.2 |
| | Asia Pacific | 49.8 |
| | 52.4 |
| | 40.1 |
| | Latin America | 37.5 |
| | 55.9 |
| | 59.8 |
| | Total | $ | 801.6 |
| | $ | 813.0 |
| | $ | 303.9 |
| |
| | (1) | Long-lived assets include properties and equipment and the noncurrent asset related to a planned hydroprocessing catalyst plant to be transferred to ART upon completion. (See Note 18.) |
19.18. Unconsolidated Affiliate
Grace accounts for its 50% ownership interest in ART, its joint venture with Chevron, using the equity method of accounting. Grace's investment in ART amounted to $113.1125.9 million and $96.2117.6 million as of December 31, 20142017 and 20132016, respectively, and the amount included in "equity in earnings of unconsolidated affiliate" in the accompanying Consolidated Statements of Operations totaled $19.725.9 million, $22.929.8 million and $18.520.4 million for the years ended December 31, 20142017, 20132016 and 20122015, respectively. ART is a private, limited liability company, taxed as a partnership, and accordingly does not have a quoted market price available. The following summary listspresents ART's assets, liabilities and results of operations.
Notes to Consolidated Financial Statements (Continued)
19.18. Unconsolidated Affiliate (Continued)
| | | | | | | | | | December 31, | (In millions) | 2014 | | 2013 | Summary of Balance Sheet information: | | | | Current assets | $ | 216.9 |
| | $ | 186.7 |
| Noncurrent assets | 59.3 |
| | 62.4 |
| Total assets | $ | 276.2 |
| | $ | 249.1 |
| | | | | Current liabilities | $ | 54.7 |
| | $ | 61.4 |
| Noncurrent liabilities | — |
| | 0.6 |
| Total liabilities | $ | 54.7 |
| | $ | 62.0 |
|
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | Summary of Statement of Operations information: | | | | | | Net sales | $ | 409.9 |
| | $ | 370.4 |
| | $ | 325.0 |
| Costs and expenses applicable to net sales | 358.1 |
| | 311.2 |
| | 276.0 |
| Income before income taxes | 41.2 |
| | 46.6 |
| | 38.9 |
| Net income | 39.7 |
| | 45.6 |
| | 37.8 |
|
| | | | | | | | | | December 31, | (In millions) | 2017 | | 2016 | Summary Balance Sheet information: | | | | Current assets | $ | 239.8 |
| | $ | 249.2 |
| Noncurrent assets | 91.5 |
| | 84.8 |
| Total assets | $ | 331.3 |
| | $ | 334.0 |
| | | | | Current liabilities | $ | 82.4 |
| | $ | 102.0 |
| Noncurrent liabilities | 0.3 |
| | 0.3 |
| Total liabilities | $ | 82.7 |
| | $ | 102.3 |
|
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Summary Statement of Operations information: | | | | | | Net sales | $ | 447.3 |
| | $ | 388.9 |
| | $ | 415.3 |
| Costs and expenses applicable to net sales | 379.8 |
| | 322.1 |
| | 366.6 |
| Income before income taxes | 53.6 |
| | 60.8 |
| | 42.8 |
| Net income | 52.1 |
| | 59.3 |
| | 41.1 |
|
Grace and ART transact business on a regular basis and maintain several agreements in order to operate the joint venture. These agreements are treated as related party activities with an unconsolidated affiliate. Product manufacturing for ART is accounted for on a net basis, with a mark-up, in "cost of goods sold" in the Consolidated Statements of Operations. Grace also receives reimbursement from ART for fixed costs, research and development, selling, general and administrative services, and depreciation. Grace records reimbursements against the respective line items on Grace's Consolidated Statement of Operations. The table below presents summary financial data related to transactions between Grace and ART. | | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | Grace sales of catalysts to ART | $ | 266.4 |
| | $ | 232.0 |
| | $ | 206.9 |
| Charges for fixed costs, research and development and selling, general and administrative services to ART | 26.9 |
| | 28.8 |
| | 28.5 |
|
| | | | | | | | | | | | | | Year Ended December 31, | (In millions) | 2017 | | 2016 | | 2015 | Product manufactured for ART | $ | 213.8 |
| | $ | 210.4 |
| | $ | 258.9 |
| Mark-up on product manufactured for ART included as a reduction of Grace's cost of goods sold | 4.2 |
| | 4.2 |
| | 5.1 |
| Charges for fixed costs; research and development; selling, general and administrative services; and depreciation to ART | 41.7 |
| | 33.8 |
| | 31.6 |
|
The table below lists Grace balances related to ART. | | | | | | | | | | December 31, | (in millions) | 2017 | | 2016 | Accounts receivable | $ | 20.1 |
| | $ | 14.9 |
| Noncurrent asset | 32.7 |
| | 27.0 |
| Accounts payable | 22.3 |
| | 28.7 |
| Debt payable within one year | 8.6 |
| | 7.6 |
| Debt payable after one year | 33.8 |
| | 31.9 |
| Noncurrent liability | 32.7 |
| | 27.0 |
|
Notes to Consolidated Financial Statements (Continued)
18. Unconsolidated Affiliate (Continued)
The noncurrent asset and noncurrent liability in the table above represent spending to date related to a planned residue hydroprocessing catalyst production plant in Lake Charles, Louisiana. Grace manages the design and construction of the plant, and the asset will be included in "other assets" in Grace's Consolidated Balance Sheets until construction is completed. Grace has likewise recorded a liability for the transfer of the asset to ART upon completion, included in "other liabilities" in the Consolidated Balance Sheets. Grace and Chevron provide lines of credit in the amount of $15.0 million each at a commitment fee of 0.1% of the credit amount. These agreements expire onhave been approved by the ART Executive Committee for renewal until February 26, 2016.2019. No amounts were outstanding at December 31, 20142017 and 20132016. 19. Acquisitions On December 14, 2017, Grace signed a definitive agreement to acquire the polyolefin catalysts business of Albemarle Corporation for $416 million, subject to regulatory approvals and other customary closing conditions. This acquisition would be complementary to Grace's specialty catalysts business and would strengthen Grace's catalysts technology portfolio, commercial relationships, and manufacturing network. On June 30, 2016, Grace acquired the assets of BASF's polyolefin catalysts business for total consideration of $250.6 million, including an estimated $3.3 million holdback liability, which was paid during the 2017 second quarter. The business is included in the Specialty Catalysts operating segment of the Catalysts Technologies reportable segment. The acquisition purchase price was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values at the acquisition date in accordance with ASC 805 "Business Combinations." The excess of the purchase price over the fair value of the tangible and intangible assets acquired was recorded as goodwill. The goodwill recognized is attributable to the expected growth and operating synergies that Grace expects to realize from this acquisition. Approximately $43 million of goodwill generated from the acquisition will be deductible for U.S. income tax purposes over a period of 15 years.
| | | | | | (In millions) | Inventories | $ | 30.2 |
| Properties and equipment | 95.0 |
| Goodwill | 63.8 |
| Intangible assets | 61.6 |
| Net assets acquired | $ | 250.6 |
|
The table below presents the intangible assets acquired as part of the acquisition of the assets of BASF's polyolefin catalysts business and the periods over which they will be amortized. | | | | | | | | Amount (In millions) | | Weighted Average Amortization Period (in years) | Customer Lists | $ | 39.9 |
| | 20.0 | Trademarks | 13.4 |
| | 20.0 | Technology | 8.3 |
| | 20.0 | Total | $ | 61.6 |
| | 20.0 |
20. Discontinued Operations As a result of the Separation and Distribution, GCP is now an independent public company and its common stock is listed under the symbol “GCP” on the New York Stock Exchange. Grace does not beneficially own any shares of GCP common stock and will not consolidate the financial results of GCP in its future financial reporting, as GCP is no longer a related party to Grace subsequent to the Separation. GCP’s historical financial results
Notes to Consolidated Financial Statements (Continued)
20. Discontinued Operations (Continued)
through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations. Separation and Distribution Agreement Prior to the completion of the Separation and the Distribution, W. R. Grace & Co., Grace–Conn. and GCP entered into a Separation and Distribution Agreement and certain related agreements that govern the post-Separation relationship between Grace and GCP. The Separation and Distribution Agreement identifies the transfer of Grace's assets and liabilities that are specifically identifiable or otherwise allocable to GCP, the elimination of Grace’s equity interest in GCP, the removal of certain non-recurring separation costs directly related to the Separation and Distribution, the cash distribution from GCP to Grace, the reduction in Grace's debt using the cash received from GCP, and it provides for when and how these transfers, assumptions and assignments have occurred or will occur. Tax Sharing Agreement W. R. Grace & Co., Grace–Conn. and GCP entered into a Tax Sharing Agreement that generally governs the parties’ respective rights, responsibilities and obligations after the Distribution with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Distribution and certain related transactions to qualify under Sections 355 and certain other relevant provisions of the Internal Revenue Code (the “Code”)), tax attributes, the preparation and filing of tax returns, tax elections, tax contests, and certain other tax matters. In addition, the Tax Sharing Agreement imposes certain restrictions on GCP and its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the qualification of the Distribution and certain related transactions under Sections 355 and certain other relevant provisions of the Code. The Tax Sharing Agreement provides special rules that allocate tax liabilities in the event the Distribution, together with certain related transactions, does not so qualify. In general, under the Tax Sharing Agreement, each party is expected to be responsible for any taxes imposed on, and certain related amounts payable by, GCP or Grace that arise from the failure of the Distribution and certain related transactions, to qualify under Sections 355 and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the Tax Sharing Agreement. The foregoing is a summary of the Separation and Distribution Agreement and the Tax Sharing Agreement. Grace has filed the full texts of the Separation and Distribution Agreement and the Tax Sharing Agreement with the SEC, which are readily available on the Internet at www.sec.gov.
Notes to Consolidated Financial Statements (Continued)
20. Discontinued Operations (Continued)
GCP’s historical financial results through the Distribution Date and other effects of the Separation are presented as discontinued operations as summarized below: | | | | | | | | | | Year Ended December 31, | (In millions) | 2016 | | 2015 | Net sales | $ | 99.6 |
| | $ | 1,423.3 |
| Cost of goods sold | 62.6 |
| | 907.5 |
| Gross profit | 37.0 |
| | 515.8 |
| Selling, general and administrative expenses | 21.6 |
| | 251.2 |
| Research and development expenses | 1.7 |
| | 22.5 |
| Loss in Venezuela | — |
| | 59.6 |
| Repositioning expenses | 22.0 |
| | 55.1 |
| Interest expense and related financing costs | 0.7 |
| | 1.5 |
| Other expense, net | 3.9 |
| | 9.9 |
| Total costs and expenses | 49.9 |
| | 399.8 |
| (Loss) Income from discontinued operations before income taxes | (12.9 | ) | | 116.0 |
| Benefit from (provision for) income taxes | 0.1 |
| | (95.0 | ) | (Loss) Income from discontinued operations after income taxes | (12.8 | ) | | 21.0 |
| Less: Net income attributable to noncontrolling interests | (0.1 | ) | | (0.8 | ) | Net (loss) income from discontinued operations | $ | (12.9 | ) | | $ | 20.2 |
|
In January 2016, GCP completed the sale of $525.0 million aggregate principal amount of 9.500% Senior Notes due in 2023. GCP used a portion of these proceeds to fund a $500.0 million distribution to Grace in connection with the Separation and the Distribution. In February 2016, GCP entered into a credit agreement that provides for new senior secured credit facilities in an aggregate principal amount of $525.0 million, consisting of term loans in an aggregate principal amount of $275.0 million maturing in 2022 and of revolving loans in an aggregate principal amount of $250.0 million maturing in 2021, which were undrawn at closing. GCP used a portion of these proceeds to fund a $250.0 million distribution to Grace in connection with the Separation and the Distribution.
Notes to Consolidated Financial Statements (Continued)
21. Quarterly Summary and Statistical Information (Unaudited)
| | (In millions, except per share amounts) | March 31 | | June 30 | | September 30 | | December 31 | March 31 | | June 30 | | September 30 | | December 31(3) | 2014 | | | | | | | | | 2017 | | | | | | | | | Net sales | $ | 744.5 |
| | $ | 838.0 |
| | $ | 856.4 |
| | $ | 804.1 |
| $ | 398.0 |
| | $ | 429.5 |
| | $ | 429.5 |
| | $ | 459.5 |
| Gross profit | 269.2 |
| | 320.9 |
| | 327.8 |
| | 274.5 |
| 153.2 |
| | 169.3 |
| | 173.3 |
| | 167.5 |
| Net income | 50.1 |
| | 136.2 |
| | 74.5 |
| | 15.5 |
| | Net income per share:(1) | | | | | | | | | Basic earnings per share: | | | | | | | | | Net income | $ | 0.65 |
| | $ | 1.79 |
| | $ | 1.00 |
| | $ | 0.21 |
| | Diluted earnings per share: | | | | | | | | | Net income | 0.64 |
| | 1.77 |
| | 0.99 |
| | 0.21 |
| | Net income (loss) | | 42.9 |
| | 43.5 |
| | 47.1 |
| | (123.1 | ) | Net income (loss) attributable to W. R. Grace & Co. shareholders | | 42.9 |
| | 43.9 |
| | 47.4 |
| | (123.0 | ) | Net income (loss) per share:(1) | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | Net income (loss) | | $ | 0.63 |
| | $ | 0.64 |
| | $ | 0.70 |
| | $ | (1.81 | ) | Diluted earnings (loss) per share: | | | | | | | | | Net income (loss) | | 0.63 |
| | 0.64 |
| | 0.70 |
| | (1.81 | ) | Dividends declared per share | | 0.21 |
| | 0.21 |
| | 0.21 |
| | 0.21 |
| Market price of common stock:(2) | | | | | | | | | | | | | | | High | $ | 105.05 |
| | $ | 102.65 |
| | $ | 100.07 |
| | $ | 99.55 |
| $ | 74.63 |
| | $ | 72.72 |
| | $ | 73.77 |
| | $ | 77.37 |
| Low | 90.58 |
| | 90.40 |
| | 90.56 |
| | 79.06 |
| 67.54 |
| | 67.12 |
| | 65.84 |
| | 69.37 |
| Close | 99.17 |
| | 94.53 |
| | 90.94 |
| | 95.39 |
| 69.71 |
| | 72.01 |
| | 72.15 |
| | 70.13 |
|
| | (1) | Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented. |
| | (2) | Principal market: New York Stock Exchange. |
| | (3) | Fourth quarter "gross profit," "net income (loss)," and "net income (loss) attributable to W. R. Grace & Co. shareholders" include the effects of the annual pension mark-to-market adjustment, as well as adjustments related to the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017. |
| | (In millions, except per share amounts) | March 31 | | June 30 | | September 30 | | December 31 | March 31 | | June 30 | | September 30 | | December 31(5) | 2013 | | | | | | | | | 2016 | | | | | | | | | Net sales | $ | 709.9 |
| | $ | 802.8 |
| | $ | 771.3 |
| | $ | 776.7 |
| $ | 362.8 |
| | $ | 390.5 |
| | $ | 404.5 |
| | $ | 440.8 |
| Gross profit | 259.0 |
| | 300.9 |
| | 282.4 |
| | 299.8 |
| 152.7 |
| | 173.2 |
| | 168.2 |
| | 161.8 |
| Net income (loss) | 59.1 |
| | 90.3 |
| | 77.0 |
| | 29.7 |
| 0.3 |
| | 38.5 |
| | 39.7 |
| | 15.6 |
| Net income per share:(1) | | | | | | | | | Basic earnings per share: | | | | | | | | | Net income | $ | 0.78 |
| | $ | 1.18 |
| | $ | 1.00 |
| | $ | 0.39 |
| | Diluted earnings per share: | | | | | | | | | Net income | 0.77 |
| | 1.16 |
| | 0.99 |
| | 0.38 |
| | Market price of common stock:(2) | | | | | | | | | Net income (loss) attributable to W. R. Grace & Co. shareholders | | 0.5 |
| | 38.7 |
| | 39.6 |
| | 15.3 |
| Net income (loss) per share:(1) | | | | | | | | | Basic earnings (loss) per share: | | | | | | | | | Net income (loss) | | $ | 0.01 |
| | $ | 0.55 |
| | $ | 0.56 |
| | $ | 0.22 |
| Diluted earnings (loss) per share: | | | | | | | | | Net income (loss) | | 0.01 |
| | 0.55 |
| | 0.56 |
| | 0.22 |
| Dividends declared per share | | — |
| | 0.17 |
| | 0.17 |
| | 0.17 |
| Market price of common stock:(2)(3) | | | | | | | | | High | $ | 79.14 |
| | $ | 85.43 |
| | $ | 89.80 |
| | $ | 101.72 |
| $ | 98.15 |
| (4) | $ | 80.39 |
| | $ | 80.56 |
| | $ | 74.38 |
| Low | 68.23 |
| | 72.00 |
| | 74.46 |
| | 85.06 |
| 63.84 |
| | 70.59 |
| | 71.47 |
| | 63.37 |
| Close | 77.51 |
| | 84.04 |
| | 87.40 |
| | 98.87 |
| 71.18 |
| | 73.21 |
| | 73.80 |
| | 67.64 |
|
| | (1) | Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented. |
| | (2) | Principal market: New York Stock Exchange. |
| | (3) | Share prices subsequent to February 3, 2016, reflect the Separation and exclude separate trading of GCP common stock. |
| | (4) | Price is a pre-Separation market price of common stock. |
| | (5) | Fourth quarter "gross profit," "net income (loss)," and "net income (loss) attributable to W. R. Grace & Co. shareholders" include the effects of the annual pension mark-to-market adjustment. |
21. Subsequent Event
On February 5, 2015, Grace announced that its Board of Directors has approved a plan to separate Grace into two independent, publicly traded companies. The two companies, to be named prior to closing, will be "New Grace," consisting of the Catalysts Technologies and Materials Technologies business segments (excluding the packaging products product group), and “New GCP,” consisting of the Construction Products business segment and the packaging products product group. Grace intends that the separation transaction will be a tax-free spin-off to the Company's stockholders for U.S. federal income tax purposes and expects the transaction to be completed in approximately 12 months.
SELECTED FINANCIAL DATA(1)DATA | | | | | | | | | | | | | | | | | | | | | (In millions, except per share amounts) | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | Statement of Operations | | | | | | | | | | Net sales | $ | 3,243.0 |
| | $ | 3,060.7 |
| | $ | 3,155.5 |
| | $ | 3,211.9 |
| | $ | 2,675.0 |
| Income before income taxes(2) | 334.3 |
| | 360.6 |
| | (20.6 | ) | | 307.0 |
| | 220.3 |
| Net income | 277.3 |
| | 257.7 |
| | 41.0 |
| | 219.1 |
| | 194.1 |
| Net loss (income) attributable to noncontrolling interests | (1.0 | ) | | (1.6 | ) | | (1.0 | ) | | 0.6 |
| | (0.3 | ) | Net income attributable to W. R. Grace & Co. shareholders | 276.3 |
| | 256.1 |
| | 40.0 |
| | 219.7 |
| | 193.8 |
| Financial Position | | | | | | | | | | Cash and cash equivalents | $ | 557.5 |
| | $ | 964.8 |
| | $ | 1,336.9 |
| | $ | 1,048.3 |
| | $ | 1,015.7 |
| Property and equipment, net | 833.5 |
| | 829.9 |
| | 770.5 |
| | 723.5 |
| | 702.5 |
| Total assets | 4,095.2 |
| | 5,396.1 |
| | 5,090.4 |
| | 4,495.6 |
| | 4,243.2 |
| Total liabilities | 3,726.2 |
| | 4,824.9 |
| | 4,770.6 |
| | 4,311.4 |
| | 4,298.9 |
| Liabilities subject to compromise (a subset of total liabilities) | — |
| | 3,776.1 |
| | 3,619.9 |
| | 3,191.5 |
| | 3,171.9 |
| Shareholders' equity (deficit) | 369.0 |
| | 571.2 |
| | 319.8 |
| | 184.2 |
| | (55.7 | ) | Cash Flow | | | | | | | | | | Operating activities | $ | (1,472.1 | ) | | $ | 515.9 |
| | $ | 453.6 |
| | $ | 219.4 |
| | $ | 325.9 |
| Investing activities | 235.3 |
| | (880.7 | ) | | (280.3 | ) | | (220.9 | ) | | (243.1 | ) | Financing activities | 849.9 |
| | (8.4 | ) | | 110.3 |
| | 39.7 |
| | 41.5 |
| Net cash flow | (407.3 | ) | | (372.1 | ) | | 288.6 |
| | 32.6 |
| | 122.7 |
| Data Per Common Share (Diluted) | | | | | | | | | | Net income | $ | 3.63 |
| | $ | 3.30 |
| | $ | 0.52 |
| | $ | 2.91 |
| | $ | 2.61 |
| Average common diluted shares outstanding | 76.2 |
| | 77.7 |
| | 76.3 |
| | 75.5 |
| | 74.4 |
| Other Statistics | | | | | | | | | | Capital expenditures | $ | 169.8 |
| | $ | 156.2 |
| | $ | 138.5 |
| | $ | 144.0 |
| | $ | 111.1 |
| Common stock price range | 79.06-105.05 |
| | 68.23-101.72 |
| | 45.39-68.86 |
| | 30.25-52.50 |
| | 19.63-36.27 |
| Common shareholders of record | 5,839 |
| | 7,077 |
| | 7,591 |
| | 8,063 |
| | 8,270 |
| Number of employees (approximate) | 6,500 |
| | 6,700 |
| | 6,500 |
| | 6,300 |
| | 6,000 |
|
| | | | | | | | | | | | | | | | | | | | | (In millions, except per share amounts) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | Statement of Operations | | | | | | | | | | Net sales | $ | 1,716.5 |
| | $ | 1,598.6 |
| | $ | 1,628.2 |
| | $ | 1,757.3 |
| | $ | 1,609.5 |
| Income (loss) from continuing operations(1)(2) | 10.4 |
| | 107.0 |
| | 123.9 |
| | 116.9 |
| | 120.5 |
| Financial Position | | | | | | | | | | Total assets | 2,907.0 |
| | 2,911.8 |
| | 3,645.7 |
| | 4,057.1 |
| | 5,390.1 |
| Debt payable after one year(3) | 1,523.8 |
| | 1,507.6 |
| | 2,111.5 |
| | 1,882.5 |
| | 25.1 |
| Liabilities subject to compromise (a subset of total liabilities) | — |
| | — |
| | — |
| | — |
| | 3,776.1 |
| Shareholders' equity | 263.3 |
| | 372.4 |
| | 212.5 |
| | 369.0 |
| | 571.2 |
| Data Per Common Share | | | | | | | | | | Income (loss) from continuing operations - basic | $ | 0.16 |
| | $ | 1.53 |
| | $ | 1.72 |
| | $ | 1.55 |
| | $ | 1.58 |
| Income (loss) from continuing operations - diluted | 0.16 |
| | 1.52 |
| | 1.71 |
| | 1.54 |
| | 1.55 |
| Cash dividends declared | 0.84 |
| | 0.51 |
| | — |
| | — |
| | — |
| Other Statistics | | | | | | | | | | Common shareholders of record | 4,646 |
| | 4,895 |
| | 5,142 |
| | 5,839 |
| | 7,077 |
|
| | (1) | Certain prior-year amounts have been reclassified to conform to the 2014 presentation. |
| | (2) | Adjustments related to our asbestos-related liability,legacy liabilities, Chapter 11, and pension mark-to-market accounting are included in and affect the period-to-period comparability of "Income before income taxes.""income (loss) from continuing operations" and the related data per common share. See Note 1817 to the Consolidated Financial Statements for a detail of these items. |
| | (2) | For 2017, iIncome (loss) from continuing operations" includes a charge of $143.0 million related to the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017. |
| | (3) | Amount for 2013 excludes amounts classified within "liabilities subject to compromise." In connection with its emergence from bankruptcy in 2014, Grace entered into a Credit Agreement. Grace also issued $1,000 million of senior unsecured notes in 2014. (See Note 5.) |
Management's Discussion and Analysis of Financial Condition and Results of Operations See "Analysis of Operations" for a discussion of our non-GAAP performance measures. Our references to "advanced economies" and "emerging regions" refer to classifications established by the International Monetary Fund. Results of Operations 20142017 Performance Summary
Following is a summary of our financial performance for the year ended December 31, 20142017, compared with the prior year. Net sales increased 6.0%7.4% to $3,243.0$1,716.5 million. Income from continuing operations attributable to Grace decreased to $11.2 million,. due to the $143.0 million provisional charge to reflect the estimated effects of U.S. tax reform.Diluted earnings per share from continuing operations decreased to $0.16 per diluted share. Segment Gross MarginAdjusted EPS increased 140 basis points9.7% to 38.5%. $3.40 per diluted share.Adjusted EBIT increased 13.7%3.4% to $626.2 million.$414.0 million. Grace net income increased to $276.3 million or $3.63 per diluted share.
On February 5, 2015, we announced that the Grace Board of Directors has approved a plan to separate Grace into two independent, publicly traded companies. The two companies, to be named prior to closing, will be "New Grace," consisting of the Catalysts Technologies and Materials Technologies business segments (excluding the packaging products product group), and "New GCP," consisting of the Construction Products business segment and the packaging products product group. We intend that the separation transaction will be a tax-free spin-off to the Company's stockholders for U.S. federal income tax purposes and we expect the transaction to be completed in approximately 12 months.
Summary Description of Business We are engaged in specialty chemicals and specialty materials businesses on a worldwide basis through our three operatingtwo reportable segments, Grace Catalysts Technologies and Grace Materials Technologies, and Grace Construction Products.Technologies. See Item 1 (Business—Business Overview) of this Report for a summary description of our core business. Analysis of Operations We have set forth in the table below our key operating statistics with percentage changes for the years ended December 31, 20142017, 20132016, and 20122015. Please refer to this Analysis of Operations when reviewing this Management's Discussion and Analysis of Financial Condition and Results of Operations. In the table we present financial information in accordance with U.S. GAAP, as well as the non-GAAP financial information described below. We believe that the non-GAAP financial information provides useful supplemental information about the performance of our businesses, improves period-to-period comparability and provides clarity on the information our management uses to evaluate the performance of our businesses. In the table, we have provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully. We define Adjusted EBIT (a non-GAAP financial measure) to be net income from continuing operations attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense,expense; income taxes,taxes; costs related to Chapter 11, asbestos-related costs,legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments,impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits, certaincredits; income and expense items related to divested businesses, product lines, and certain other investments andinvestments; gains and losses on sales of businesses, product lines, and certain other investments. Ininvestments; third-party acquisition-related costs and the 2013 first quarter, we also adjusted for the currency transaction loss incurred on our Venezuelan cash balancesamortization of $6.9 million before taxes.acquired inventory fair value adjustment; and certain other items that are not representative of underlying trends. We define Adjusted EBITDA (a non-GAAP financial measure) to be Adjusted EBIT adjusted for depreciation and amortization. We define Adjusted Earnings Per Share (EPS) (a non-GAAP financial measure) to be diluted EPS adjusted for costs related to Chapter 11, asbestos-related costs, restructuring expenses and asset impairments, pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits, certain income and expense items related to divested businesses, product lines, and certain other investments, gains and losses on sales of businesses, product lines and certain other investments, and certain discrete tax items. In the 2013 first quarter, we also adjusted for the currency transaction loss incurred on our Venezuelan cash balances of $0.09 per share.
We define Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure) to be Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities.
We define SegmentAdjusted Gross Margin (a non-GAAP financial measure) to be gross margin adjusted for pension-related costs included in cost of goods sold.sold and the amortization of acquired inventory fair value adjustment. We define Adjusted Earnings Per Share (EPS) (a non-GAAP financial measure) to be diluted EPS from continuing operations adjusted for costs related to legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; certain other items that are not representative of underlying trends; and certain discrete tax items. We use Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. We use Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measures the ongoing earnings results of our strategic and operating decisions by excluding the earnings effects of our Chapter 11 proceedings, asbestos liabilities,legacy product, environmental, and other claims; restructuring activities, and repositioning activities; divested businesses.businesses; the effects of acquisitions; and certain other items that are not representative of underlying trends. We use Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use these measures in determining certain incentive compensation. We use Adjusted EBIT Return On Invested Capital in making operating and investment decisions and in balancing the growth and profitability of our operations. Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, Adjusted EBIT Return On Invested Capital, and SegmentAdjusted Gross Margin, and Adjusted EPS do not purport to represent income measures as defined under U.S. GAAP, and should not be used as alternatives to such measures as an indicator of our performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of our financial results, and to ensure that investors understand the information we use to evaluate the performance of our businesses. WeThey distinguish the operating results of Grace's current business base from the costs of Grace's legacy product, environmental and other claims; restructuring and repositioning activities; divested businesses; and certain other items. These measures may have providedmaterial limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the following tables a reconciliation of these non-GAAP measures to the most directly comparable financial measuremeasures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated in accordance with U.S. GAAP. Adjusted EBIT has material limitations as an operating performance measure because it excludes Chapter 11-costs related to legacy product, environmental and asbestos-related costsother claims, and may exclude income and expenses from restructuring and repositioning activities and divested businesses, which historically have been material components of our net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. Our business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of our costs. We compensate for the limitations of these measurements by using these indicators together with net income as measured under U.S. GAAP to present a complete analysis of our results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income attributable to Grace shareholders, measured under U.S. GAAP, for a complete understanding of our results of operations.
| | Analysis of Operations (In millions, except per share amounts) | 2014 | | 2013 | | % Change | | 2012 | | % Change | 2017 | | 2016 | | % Change | | 2015 | | % Change | Net sales: | | | | | | | | | | | | | | | | | | | Catalysts Technologies | $ | 1,246.8 |
| | $ | 1,124.0 |
| | 10.9 | % | | $ | 1,268.1 |
| | (11.4 | )% | $ | 1,276.5 |
| | $ | 1,163.7 |
| | 9.7 | % | | $ | 1,162.1 |
| | 0.1 | % | Materials Technologies | 890.6 |
| | 878.5 |
| | 1.4 | % | | 862.6 |
| | 1.8 | % | 440.0 |
| | 434.9 |
| | 1.2 | % | | 466.1 |
| | (6.7 | )% | Construction Products | 1,105.6 |
| | 1,058.2 |
| | 4.5 | % | | 1,024.8 |
| | 3.3 | % | | Total Grace net sales | $ | 3,243.0 |
| | $ | 3,060.7 |
| | 6.0 | % | | $ | 3,155.5 |
| | (3.0 | )% | $ | 1,716.5 |
| | $ | 1,598.6 |
| | 7.4 | % | | $ | 1,628.2 |
| | (1.8 | )% | Net sales by region: | | | | | | | | | | | | | | | | | | | North America | $ | 1,055.2 |
| | $ | 959.7 |
| | 10.0 | % | | $ | 967.6 |
| | (0.8 | )% | $ | 486.0 |
| | $ | 490.7 |
| | (1.0 | )% | | $ | 490.0 |
| | 0.1 | % | Europe Middle East Africa | 1,097.0 |
| | 1,087.9 |
| | 0.8 | % | | 1,175.6 |
| | (7.5 | )% | 667.7 |
| | 647.8 |
| | 3.1 | % | | 621.2 |
| | 4.3 | % | Asia Pacific | 716.2 |
| | 654.1 |
| | 9.5 | % | | 660.3 |
| | (0.9 | )% | 459.8 |
| | 348.9 |
| | 31.8 | % | | 390.9 |
| | (10.7 | )% | Latin America | 374.6 |
| | 359.0 |
| | 4.3 | % | | 352.0 |
| | 2.0 | % | 103.0 |
| | 111.2 |
| | (7.4 | )% | | 126.1 |
| | (11.8 | )% | Total net sales by region | $ | 3,243.0 |
| | $ | 3,060.7 |
| | 6.0 | % | | $ | 3,155.5 |
| | (3.0 | )% | $ | 1,716.5 |
| | $ | 1,598.6 |
| | 7.4 | % | | $ | 1,628.2 |
| | (1.8 | )% | Profitability performance measures: | | | | | | | | | | | Performance measures: | | | | | | | | | | | Adjusted EBIT(A): | | | | | | | | | | | | | | | | | | | Catalysts Technologies segment operating income | $ | 378.3 |
| | $ | 327.5 |
| | 15.5 | % | | $ | 393.8 |
| | (16.8 | )% | $ | 395.4 |
| | $ | 367.8 |
| | 7.5 | % | | $ | 347.3 |
| | 5.9 | % | Materials Technologies segment operating income | 185.2 |
| | 181.8 |
| | 1.9 | % | | 162.0 |
| | 12.2 | % | 100.6 |
| | 104.0 |
| | (3.3 | )% | | 96.9 |
| | 7.3 | % | Construction Products segment operating income | 161.7 |
| | 151.7 |
| | 6.6 | % | | 125.2 |
| | 21.2 | % | | Corporate costs | (90.6 | ) | | (82.8 | ) | | (9.4 | )% | | (92.4 | ) | | 10.4 | % | (69.0 | ) | | (59.4 | ) | | (16.2 | )% | | (79.9 | ) | | 25.7 | % | Gain on termination of postretirement plans related to current businesses | 23.6 |
| | — |
| | NM |
| | — |
| | — | % | | Gain on termination and curtailment of postretirement plans related to current businesses | | — |
| | 0.2 |
| | NM |
| | 1.9 |
| | NM |
| Certain pension costs(B) | (32.0 | ) | | (27.4 | ) | | (16.8 | )% | | (30.4 | ) | | 9.9 | % | (13.0 | ) | | (12.3 | ) | | (5.7 | )% | | (20.4 | ) | | 39.7 | % | Adjusted EBIT | 626.2 |
| | 550.8 |
| | 13.7 | % | | 558.2 |
| | (1.3 | )% | 414.0 |
| | 400.3 |
| | 3.4 | % | | 345.8 |
| | 15.8 | % | Costs related to Chapter 11 | (11.3 | ) | | (16.4 | ) | | | | (15.6 | ) | | | | Asbestos-related costs, net | (7.9 | ) | | (7.8 | ) | | | | (5.0 | ) | | | | Asbestos and bankruptcy-related charges, net | (7.1 | ) | | (21.9 | ) | | | | (384.6 | ) | | | | Default interest settlement | — |
| | (129.0 | ) | | | | — |
| | | | Pension MTM adjustment and other related costs, net | (128.3 | ) | | 50.6 |
| | | | (119.2 | ) | | | (51.1 | ) | | (60.3 | ) | | | | (30.5 | ) | | | Gain on termination of postretirement plans related to divested businesses | 15.9 |
| | — |
| | | | — |
| | | | Restructuring expenses and asset impairments | (22.4 | ) | | (12.5 | ) | | | | (6.9 | ) | | | | Costs related to legacy product, environmental and other claims, net | | (30.8 | ) | | (35.4 | ) | | | | (6.1 | ) | | | Restructuring and repositioning expenses | | (26.7 | ) | | (38.6 | ) | | | | (20.4 | ) | | | Accounts receivable reserve—Venezuela | | (10.0 | ) | | — |
| | | | — |
| | | Third-party acquisition-related costs | | (2.9 | ) | | (2.5 | ) | | | | — |
| | | Income and expense items related to divested businesses | | (2.3 | ) | | 0.1 |
| | | | 1.5 |
| | | Loss on early extinguishment of debt | | — |
| | (11.1 | ) | | | | — |
| | | Amortization of acquired inventory fair value adjustment | | — |
| | (8.0 | ) | | | | — |
| | | Gain (loss) on sale of product line | 0.2 |
| | (1.0 | ) | | | | (0.2 | ) | | | — |
| | 1.7 |
| | | | — |
| | | Income and expense items related to divested businesses | (5.2 | ) | | (4.1 | ) | | | | (2.8 | ) | | | | Interest expense and related financing costs | (61.5 | ) | | (43.8 | ) | | | | (46.5 | ) | | | | Interest accretion on deferred payment obligations | (65.7 | ) | | — |
| | | | — |
| | | | Currency and other financial losses in Venezuela | (1.0 | ) | | (6.9 | ) | | | | — |
| | | | Interest income | 1.4 |
| | 1.0 |
| | | | 1.0 |
| | | | Benefit from (provision for) income taxes | (57.0 | ) | | (102.9 | ) | | | | 61.6 |
| | | | Net income attributable to W. R. Grace & Co. shareholders | $ | 276.3 |
| | $ | 256.1 |
| | | | $ | 40.0 |
| | | | Diluted EPS (GAAP) | $ | 3.63 |
| | $ | 3.30 |
| | | | $ | 0.52 |
| | | | Adjusted EPS (non-GAAP) | $ | 4.43 |
| | $ | 4.39 |
| | | | $ | 4.53 |
| | | | Gain on termination and curtailment of postretirement plans related to divested businesses | | — |
| | 0.3 |
| | | | 2.6 |
| | | Interest expense, net | | (78.5 | ) | | (80.5 | ) | | 2.5 | % | | (99.1 | ) | | 18.8 | % | (Provision for) benefit from income taxes | | (200.5 | ) | | (59.0 | ) | | NM |
| | (69.8 | ) | | 15.5 | % | Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders | | $ | 11.2 |
| | $ | 107.0 |
| | (89.5 | )% | | $ | 124.0 |
| | (13.7 | )% | Diluted EPS from continuing operations | | $ | 0.16 |
| | $ | 1.52 |
| | (89.5 | )% | | $ | 1.71 |
| | (11.1 | )% | Adjusted EPS | | $ | 3.40 |
| | $ | 3.10 |
| | 9.7 | % | | $ | 2.18 |
| | 42.2 | % |
| | Analysis of Operations (In millions) | 2014 | | 2013 | | % Change | | 2012 | | % Change | 2017 | | 2016 | | % Change | | 2015 | | % Change | Profitability performance measures: | | | | | | | | | | | Gross margin: | | | | | | | | | | | Adjusted performance measures: | | | | | | | | | | | Gross Margin: | | | | | | | | | | | Catalysts Technologies | 42.8 | % | | 40.1 | % | | 2.7 pts |
| | 41.0 | % | | (0.9) pts |
| 40.8 | % | | 44.4 | % | | (3.6) pts |
| | 42.2 | % | | 2.2 pts |
| Materials Technologies | 35.4 | % | | 34.6 | % | | 0.8 pts |
| | 33.1 | % | | 1.5 pts |
| 37.9 | % | | 39.6 | % | | (1.7) pts |
| | 38.8 | % | | 0.8 pts |
| Construction Products | 36.3 | % | | 36.0 | % | | 0.3 pts |
| | 35.2 | % | | 0.8 pts |
| | Segment Gross Margin | 38.5 | % | | 37.1 | % | | 1.4 pts |
| | 37.0 | % | | 0.1 pts |
| | Adjusted Gross Margin | | 40.1 | % | | 43.1 | % | | (3.0) pts |
| | 41.2 | % | | 1.9 pts |
| Amortization of acquired inventory fair value adjustment | | — | % | | (0.5 | )% | | NM |
| | — | % | | NM |
| Pension costs in cost of goods sold | (1.8 | )% | | 0.2 | % | | (2.0) pts |
| | (1.6 | )% | | 1.8 pts |
| (1.5 | )% | | (1.6 | )% | | 0.1 pts |
| | (1.2 | )% | | (0.4) pts |
| Total Grace | 36.8 | % | | 37.3 | % | | (0.5) pts |
| | 35.3 | % | | 2.0 pts |
| 38.6 | % | | 41.0 | % | | (2.4) pts |
| | 40.0 | % | | 1.0 pts |
| Adjusted profitability performance measures: | | | | | | | | | | | Adjusted EBIT: | | | | | | | | | | | | | | | | | | | Catalysts Technologies | $ | 378.3 |
| | $ | 327.5 |
| | 15.5 | % | | $ | 393.8 |
| | (16.8 | )% | $ | 395.4 |
| | $ | 367.8 |
| | 7.5 | % | | $ | 347.3 |
| | 5.9 | % | Materials Technologies | 185.2 |
| | 181.8 |
| | 1.9 | % | | 162.0 |
| | 12.2 | % | 100.6 |
| | 104.0 |
| | (3.3 | )% | | 96.9 |
| | 7.3 | % | Construction Products | 161.7 |
| | 151.7 |
| | 6.6 | % | | 125.2 |
| | 21.2 | % | | Corporate | (99.0 | ) | | (110.2 | ) | | 10.2 | % | | (122.8 | ) | | 10.3 | % | | Corporate, pension, and other | | (82.0 | ) | | (71.5 | ) | | (14.7 | )% | | (98.4 | ) | | 27.3 | % | Total Grace | 626.2 |
| | 550.8 |
| | 13.7 | % | | 558.2 |
| | (1.3 | )% | 414.0 |
| | 400.3 |
| | 3.4 | % | | 345.8 |
| | 15.8 | % | Depreciation and amortization: | | | | | | | | | | | | | | | | | | | Catalysts Technologies | $ | 66.3 |
| | $ | 54.2 |
| | 22.3 | % | | $ | 54.0 |
| | 0.4 | % | $ | 87.1 |
| | $ | 77.4 |
| | 12.5 | % | | $ | 68.1 |
| | 13.7 | % | Materials Technologies | 32.1 |
| | 31.4 |
| | 2.2 | % | | 29.5 |
| | 6.4 | % | 19.6 |
| | 19.5 |
| | 0.5 | % | | 23.2 |
| | (15.9 | )% | Construction Products | 31.7 |
| | 31.8 |
| | (0.3 | )% | | 32.9 |
| | (3.3 | )% | | Corporate | 7.0 |
| | 5.7 |
| | 22.8 | % | | 2.6 |
| | 119.2 | % | 4.8 |
| | 3.4 |
| | 41.2 | % | | 7.9 |
| | (57.0 | )% | Total Grace | 137.1 |
| | 123.1 |
| | 11.4 | % | | 119.0 |
| | 3.4 | % | 111.5 |
| | 100.3 |
| | 11.2 | % | | 99.2 |
| | 1.1 | % | Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | Catalysts Technologies | $ | 444.6 |
| | $ | 381.7 |
| | 16.5 | % | | $ | 447.8 |
| | (14.8 | )% | $ | 482.5 |
| | $ | 445.2 |
| | 8.4 | % | | $ | 415.4 |
| | 7.2 | % | Materials Technologies | 217.3 |
| | 213.2 |
| | 1.9 | % | | 191.5 |
| | 11.3 | % | 120.2 |
| | 123.5 |
| | (2.7 | )% | | 120.1 |
| | 2.8 | % | Construction Products | 193.4 |
| | 183.5 |
| | 5.4 | % | | 158.1 |
| | 16.1 | % | | Corporate | (92.0 | ) | | (104.5 | ) | | 12.0 | % | | (120.2 | ) | | 13.1 | % | | Corporate, pension, and other | | (77.2 | ) | | (68.1 | ) | | (13.4 | )% | | (90.5 | ) | | 24.8 | % | Total Grace | 763.3 |
| | 673.9 |
| | 13.3 | % | | 677.2 |
| | (0.5 | )% | 525.5 |
| | 500.6 |
| | 5.0 | % | | 445.0 |
| | 12.5 | % | Operating margin: | | | | | | | | | | | Adjusted EBIT margin: | | | | | | | | | | | Catalysts Technologies | 30.3 | % | | 29.1 | % | | 1.2 pts |
| | 31.1 | % | | (2.0) pts |
| 31.0 | % | | 31.6 | % | | (0.6) pts |
| | 29.9 | % | | 1.7 pts |
| Materials Technologies | 20.8 | % | | 20.7 | % | | 0.1 pts |
| | 18.8 | % | | 1.9 pts |
| 22.9 | % | | 23.9 | % | | (1.0) pts |
| | 20.8 | % | | 3.1 pts |
| Construction Products | 14.6 | % | | 14.3 | % | | 0.3 pts |
| | 12.2 | % | | 2.1 pts |
| | Total Grace | 19.3 | % | | 18.0 | % | | 1.3 pts |
| | 17.7 | % | | 0.3 pts |
| 24.1 | % | | 25.0 | % | | (0.9) pts |
| | 21.2 | % | | 3.8 pts |
| Adjusted EBITDA margin: | | | | | | | | | | | | | | | | | | | Catalysts Technologies | 35.7 | % | | 34.0 | % | | 1.7 pts |
| | 35.3 | % | | (1.3) pts |
| 37.8 | % | | 38.3 | % | | (0.5) pts |
| | 35.7 | % | | 2.6 pts |
| Materials Technologies | 24.4 | % | | 24.3 | % | | 0.1 pts |
| | 22.2 | % | | 2.1 pts |
| 27.3 | % | | 28.4 | % | | (1.1) pts |
| | 25.8 | % | | 2.6 pts |
| Construction Products | 17.5 | % | | 17.3 | % | | 0.2 pts |
| | 15.4 | % | | 1.9 pts |
| | Total Grace | 23.5 | % | | 22.0 | % | | 1.5 pts |
| | 21.5 | % | | 0.5 pts |
| 30.6 | % | | 31.3 | % | | (0.7) pts |
| | 27.3 | % | | 4.0 pts |
|
| | Analysis of Operations (In millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Calculation of Adjusted EBIT Return On Invested Capital (trailing four quarters): | | | | | | | | | | | Adjusted EBIT | $ | 626.2 |
| | $ | 550.8 |
| | $ | 558.2 |
| $ | 414.0 |
| | $ | 400.3 |
| | $ | 345.8 |
| Invested Capital: | | | | | | | | | | | Trade accounts receivable | 481.1 |
| | 481.8 |
| | 490.4 |
| 285.2 |
| | 273.9 |
| | 254.5 |
| Inventories | 332.8 |
| | 295.3 |
| | 283.6 |
| 230.9 |
| | 228.0 |
| | 198.8 |
| Accounts payable | (255.3 | ) | | (262.5 | ) | | (252.0 | ) | (210.3 | ) | | (195.4 | ) | | (157.8 | ) | | 558.6 |
| | 514.6 |
| | 522.0 |
| 305.8 |
| | 306.5 |
| | 295.5 |
| Other current assets (excluding income taxes) | 76.9 |
| | 81.2 |
| | 62.4 |
| 42.1 |
| | 32.0 |
| | 43.2 |
| Properties and equipment, net | 833.5 |
| | 829.9 |
| | 770.5 |
| 799.1 |
| | 729.6 |
| | 621.7 |
| Goodwill | 452.9 |
| | 457.5 |
| | 196.7 |
| 402.4 |
| | 394.2 |
| | 336.5 |
| Technology and other intangible assets, net | 288.0 |
| | 315.5 |
| | 82.7 |
| 255.4 |
| | 269.1 |
| | 227.5 |
| Investment in unconsolidated affiliate | 113.1 |
| | 96.2 |
| | 85.5 |
| 125.9 |
| | 117.6 |
| | 103.2 |
| Other assets (excluding capitalized financing fees) | 23.0 |
| | 40.0 |
| | 24.5 |
| 37.4 |
| | 34.9 |
| | 31.8 |
| Other current liabilities (excluding income taxes, environmental remediation related to asbestos and divested businesses, Chapter 11, restructuring, and accrued interest) | (256.7 | ) | | (248.0 | ) | | (251.9 | ) | | Other liabilities (excluding environmental remediation related to asbestos and divested businesses) | (81.8 | ) | | (72.7 | ) | | (55.5 | ) | | Other current liabilities (excluding income taxes, legacy environmental matters, accrued interest, and restructuring) | | (158.6 | ) | | (144.4 | ) | | (158.5 | ) | Other liabilities (excluding income taxes and legacy environmental matters) | | (113.7 | ) | | (89.3 | ) | | (81.4 | ) | Total invested capital | $ | 2,007.5 |
| | $ | 2,014.2 |
| | $ | 1,436.9 |
| $ | 1,695.8 |
| | $ | 1,650.2 |
| | $ | 1,419.5 |
| Adjusted EBIT Return On Invested Capital | 31.2 | % | | 27.3 | % | | 38.8 | % | 24.4 | % | | 24.3 | % | | 24.4 | % |
Amounts may not add due to rounding. | | (A) | Grace's segment operating income includes only Grace's share of income of consolidated and unconsolidated joint ventures. |
| | (B) | Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits. Catalysts Technologies and Materials Technologies and Construction Products segment operating income and corporate costs do not include any amounts for pension expense. Other pension related costs including annual mark-to-market adjustments and actuarial gains and losses are excluded from Adjusted EBIT. These amounts are not used by management to evaluate the performance of Grace's businesses and significantly affect the peer-to-peer and period-to-period comparability of our financial results. Mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of Grace's businesses. |
NM—Not Meaningful
Grace Overview Following is an overview of our financial performance for the years ended December 31, 2014, 2013,2017, 2016, and 2012.2015. Net Sales and Gross Margin Sales were $1,716.5 million, $1,598.6 million, and $1,628.2 million for the years ended December 31, 2017, 2016, and 2015. Gross margin was38.6%, 41.0%, and 40.0% for the years ended December 31, 2017, 2016, and 2015. Adjusted Gross Margin was40.1%, 43.1%, and 41.2% for the years ended December 31, 2017, 2016, and 2015.The following tables identify the year-over-year increase or decrease in sales attributable to changes in sales volume and/or mix, product price, and the impact of currency translation. | | | 2014 as a Percentage Increase (Decrease) from 2013 | 2017 as a Percentage Increase (Decrease) from 2016 | Net Sales Variance Analysis | Volume | | Price | | Currency Translation | | Total | Volume | | Price | | Currency Translation | | Total | Catalysts Technologies | 12.8 | % | | (2.0 | )% | | 0.1 | % | | 10.9 | % | 9.7 | % | | (0.3 | )% | | 0.3 | % | | 9.7 | % | Materials Technologies | 1.4 | % | | 1.0 | % | | (1.0 | )% | | 1.4 | % | 0.3 | % | | (0.2 | )% | | 1.1 | % | | 1.2 | % | Construction Products | 4.3 | % | | 2.5 | % | | (2.3 | )% | | 4.5 | % | | Net sales | 6.7 | % | | 0.4 | % | | (1.1 | )% | | 6.0 | % | 7.2 | % | | (0.3 | )% | | 0.5 | % | | 7.4 | % | By Region: | | | | | | | | | | | | | |
| North America | 10.3 | % | | (0.1 | )% | | (0.2 | )% | | 10.0 | % | (0.5 | )% | | (0.5 | )% | | — | % | | (1.0 | )% | Europe Middle East Africa | 1.2 | % | | (0.6 | )% | | 0.2 | % | | 0.8 | % | 2.6 | % | | (0.6 | )% | | 1.1 | % | | 3.1 | % | Asia Pacific | 11.5 | % | | (0.3 | )% | | (1.7 | )% | | 9.5 | % | 31.3 | % | | 0.6 | % | | (0.1 | )% | | 31.8 | % | Latin America | 4.2 | % | | 6.2 | % | | (6.1 | )% | | 4.3 | % | (7.9 | )% | | (0.2 | )% | | 0.7 | % | | (7.4 | )% |
Sales for 20142017 increased 6.0%7.4% overall compared with the prior year. TheCatalysts sales increase wasvolumes increased primarily due to higher sales volumes (+6.7%)demand in Asia and higher pricing (+0.4%),the full-year benefit of the 2016 polyolefin catalysts acquisition, partially offset by unfavorable currency translation (-1.1%). The sales volume increaselower demand in Latin America. Lower pricing in Catalysts Technologies was primarily due to customer mix. Sales in Materials Technologies increased, primarily driven by Catalysts Technologies, duehigher sales volumes and favorable currency translation. Higher sales volumes in the silicas business, primarily in Asia, were partially offset by the impact related to catalystthe exit of certain products lines in the 2016 first half and licensing revenue from the December 2013 polypropylene acquisition and new product sales in FCC catalysts. Construction Products also experienced volume growth due to specialty constructionlower pharmaceutical fine chemicals sales in North AmericaAmerica. Gross margin decreased 240 basis points to 38.6% from 41.0% for the prior year. Adjusted Gross Margin decreased 300 basis points to 40.1% from 43.1% for the prior year. The decreases were primarily due to higher manufacturing costs, including 110 basis points related to higher raw materials costs, and Asia Pacific,product and global specialty building materials sales in commercial waterproofing. Materials Technologies had smaller sales volume gains from growth in Engineered Materials. Unfavorable currency translation negatively affected Materials Technologies and Construction Products. We expect that continued strength of the U.S. dollar against the other currencies in which we do business will have an unfavorable impact on sales in the 2015 first quarter.regional mix.
| | | 2013 as a Percentage Increase (Decrease) from 2012 | 2016 as a Percentage Increase (Decrease) from 2015 | Net Sales Variance Analysis | Volume | | Price | | Currency Translation | | Total | Volume | | Price | | Currency Translation | | Total | Catalysts Technologies | (3.2 | )% | | (9.0 | )% | | 0.8 | % | | (11.4 | )% | 1.6 | % | | (1.2 | )% | | (0.3 | )% | | 0.1 | % | Materials Technologies | 0.8 | % | | 2.1 | % | | (1.1 | )% | | 1.8 | % | (5.6 | )% | | 0.1 | % | | (1.2 | )% | | (6.7 | )% | Construction Products | 3.7 | % | | 1.9 | % | | (2.3 | )% | | 3.3 | % | | Net sales | 0.2 | % | | (2.4 | )% | | (0.8 | )% | | (3.0 | )% | (0.5 | )% | | (0.8 | )% | | (0.5 | )% | | (1.8 | )% | By Region: | | | | | | | | | | | | | | | North America | 3.3 | % | | (4.0 | )% | | (0.1 | )% | | (0.8 | )% | 2.5 | % | | (2.4 | )% | | — | % | | 0.1 | % | Europe Middle East Africa | (6.5 | )% | | (2.5 | )% | | 1.5 | % | | (7.5 | )% | 4.9 | % | | 0.2 | % | | (0.8 | )% | | 4.3 | % | Asia Pacific | 4.4 | % | | (3.5 | )% | | (1.8 | )% | | (0.9 | )% | (9.4 | )% | | (1.1 | )% | | (0.2 | )% | | (10.7 | )% | Latin America | 6.0 | % | | 4.0 | % | | (8.0 | )% | | 2.0 | % | (10.6 | )% | | 1.4 | % | | (2.6 | )% | | (11.8 | )% |
Sales for 20132016 decreased 3.0%1.8% overall compared with the prior year. TheWeaker demand in Asia Pacific unfavorably impacted sales decrease wasvolumes for both businesses compared with the prior-year period. In addition, Catalysts Technologies sales volumes benefited from the polyolefin catalysts acquisition, and Materials Technologies sales volumes decreased due to lower pricing (-2.4%), including the effectexit of lower rare earth surchargescertain product lines earlier in the year. Lower sales volumes in Latin America were primarily due to order timing in Catalysts Technologies and unfavorable currencyduring the fourth quarter. Currency translation (-0.8%), partially offset by higher sales volumes (+0.2%).negatively impacted both reportable segments. Gross margin increased 100 basis points to 41.0% from 40.0% for the prior year. Adjusted EBIT Adjusted EBIT was $626.2 millionGross Margin increased 190 basis points to 43.1% from 41.2% for2014, an increase of 13.7% compared with the prior year. The increase wasincreases were primarily due to improved segment operating income due to sales volume growth and margin expansion in all three business segments, including through acquisitions, and a gain related to the termination of certain retiree benefit plans. Segment Gross Margin was 38.5% for 2014 compared with 37.1% for the prior year, with gross margins increasing in all three business segments. Catalysts Technologies gross margin improvement was primarily due to the polypropylene acquisition and lower manufacturing costs, partially offset byincluding 200 basis points related to lower pricing. Gross margin improvement in Materials Technologies was primarily due to improved pricing and lower manufacturing costs. Construction Products gross margin improvement was due to higher sales volumesraw materials costs, and improved pricing.productivity.
Adjusted EBITGrace Income From Continuing Operations
Income from continuing operations was $550.8$11.2 million for 2013, a decrease of 1.3%2017 compared with $107.0 million for the prior year. The decrease was primarily due to lower segment operatinga higher provision for income taxes due to a $143.0 million provisional charge for the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017 (see Note 7 to the Consolidated Financial Statements) and an accounts receivable reserve for a customer in Catalysts Technologies and unfavorable currency translation,Venezuela, partially offset by higher segment operating income, in Materials Technologieslower restructuring and Construction Productsrepositioning expenses, and a lower corporate costs. Segment Gross Marginpension mark-to-market adjustment. Income from continuing operations was 37.1%$107.0 million for 20132016, a decrease of 13.7% compared with 37.0%$124.0 million for the prior year. The increase in Segment Gross Margindecrease was primarily due to lower raw materiala higher pension mark-to-market adjustment, a higher provision for environmental remediation primarily related to vermiculite-related matters, higher restructuring and repositioning expenses, and a loss on early extinguishment of debt due to the accelerated amortization of capitalized financing costs associated with the pay down of $600 million of debt in the 2016 first quarter, partially offset by lower pricing relatedcorporate costs, higher segment operating income, and lower net interest expenses resulting from the pay-down of debt. Income in the prior year included a $9.0 million gain reflecting the final resolution of certain bankruptcy liabilities, as well as a gain on the sale of an operating asset. We are currently in the process of conducting a depreciation study to lower rare earth surcharges.review the useful lives of machinery and equipment, including an evaluation of historical retirement data as well as industry review and analysis. This
Grace Net Income
evaluation will be completed by the end of the 2018 first quarter. We expect this review to result in increased useful lives (and lower depreciation expense) and will apply the change to new and existing assets on a prospective basis as a change in accounting estimate effective January 1, 2018.Grace net incomeAdjusted EBIT
Adjusted EBIT was $276.3$414.0 million for 2014,2017, an increase of 7.9%3.4% compared with $256.1 million for the prior year.year primarily due to higher sales volumes and business interruption insurance recoveries for lost profits as a result of a customer outage. The increase was partially offset by higher manufacturing costs, unfavorable product and regional mix, and higher operating expenses. Adjusted EBIT was $400.3 million for 2016, an increase of 15.8% compared with the prior year primarily due to a 2013 charge of $129 million related to the settlement of a dispute regarding the amount of interest payable on pre-petition debthigher Adjusted Gross Margin, lower operating expenses including lower corporate costs, and in 2014, improved segment operatingincreased income including from acquisitions, a lower provision for income taxes, and a gain related to the termination of certain retiree benefit plans. These effects wereour ART joint venture, partially offset by anthe effect of lower sales volumes, lower pricing and unfavorable mark-to-market pension adjustment in 2014 compared with a favorable adjustment in thecurrency translation. The prior year, and higher interest expense and financingprepared on a discontinued operations basis, includes certain costs related to emergence financing andwhich were either assumed by GCP at the $1.0 billion debt offering in September 2014. Grace net income was $256.1 million for 2013 compared with $40.0 million for the prior year. The increase was primarily due to a favorable mark-to-market pension adjustment in 2013 compared with an unfavorable adjustment in the prior year, and a reduction in the amount of asbestos and bankruptcy related charges, partially offset by a $129 million charge related to the interest settlement.
We recorded charges of $27.4 million and $365.0 million in the 2013 and 2012 fourth quarters, respectively, to adjust our recorded asbestos-related liability. These adjustments were necessary to reflect the increased estimatestime of the value of the warrants and deferred payment obligation payable to the PI Trust under the Joint Plan.Separation or eliminated through restructuring or other cost reduction actions.
Adjusted EPS The following table reconciles our Diluted EPS (GAAP) to our Adjusted EPS (non-GAAP): | | | 2014 | 2017 | (In millions, except per share amounts) | Pre- Tax | | Tax Effect | | After- Tax | | Per Share | Pre-Tax | | Tax Effect | | After-Tax | | Per Share | Diluted Earnings Per Share (GAAP) | |
| | |
| | |
| | $ | 3.63 |
| | | | | | | $ | 0.16 |
| Costs related to Chapter 11 | $ | 11.3 |
| | $ | 2.2 |
| | $ | 9.1 |
| | 0.12 |
| | Asbestos-related costs | 7.9 |
| | 2.9 |
| | 5.0 |
| | 0.07 |
| | Asbestos and bankruptcy-related charges, net | 7.1 |
| | 2.6 |
| | 4.5 |
| | 0.06 |
| | Pension MTM adjustment and other related costs, net | 128.3 |
| | 46.9 |
| | 81.4 |
| | 1.07 |
| $ | 51.1 |
| | $ | 17.4 |
| | $ | 33.7 |
| | 0.49 |
| Gain on termination of postretirement benefits related to divested businesses | (15.9 | ) | | (5.9 | ) | | (10.0 | ) | | (0.13 | ) | | Restructuring expenses and asset impairments | 22.4 |
| | 7.6 |
| | 14.8 |
| | 0.19 |
| | Currency and other financial losses in Venezuela | 1.0 |
| | 0.3 |
| | 0.7 |
| | 0.01 |
| | Gain on sale of product line | (0.2 | ) | | (0.1 | ) | | (0.1 | ) | | — |
| | Costs related to legacy product, environmental and other claims, net | | 30.8 |
| | 11.4 |
| | 19.4 |
| | 0.28 |
| Restructuring and repositioning expenses | | 26.7 |
| | 8.9 |
| | 17.8 |
| | 0.26 |
| Accounts receivable reserve—Venezuela | | 10.0 |
| | 3.5 |
| | 6.5 |
| | 0.10 |
| Third-party acquisition-related costs | | 2.9 |
| | 1.1 |
| | 1.8 |
| | 0.03 |
| Income and expense items related to divested businesses | 5.2 |
| | 1.9 |
| | 3.3 |
| | 0.04 |
| 2.3 |
| | 0.8 |
| | 1.5 |
| | 0.02 |
| Discrete tax items: | | | | | | | | | | | | | | | Provisional charge related to the U.S. Tax Cuts and Jobs Act of 2017 | | | | (143.0 | ) | | 143.0 |
| | 2.10 |
| Discrete tax items, including adjustments to uncertain tax positions | |
| | 48.2 |
| | (48.2 | ) | | (0.63 | ) | | | 2.7 |
| | (2.7 | ) | | (0.04 | ) | Adjusted EPS (non-GAAP) | |
| | |
| | |
| | $ | 4.43 |
| | | | | | | $ | 3.40 |
|
| | | | | | | | | | | | | | | | | | 2013 | (In millions, except per share amounts) | Pre- Tax | | Tax Effect | | After- Tax | | Per Share | Diluted Earnings Per Share (GAAP) | |
| | |
| | |
| | $ | 3.30 |
| Costs related to Chapter 11 | $ | 16.4 |
| | $ | 6.0 |
| | $ | 10.4 |
| | 0.13 |
| Asbestos-related costs | 7.8 |
| | 3.0 |
| | 4.8 |
| | 0.06 |
| Asbestos and bankruptcy-related charges, net | 21.9 |
| | 8.2 |
| | 13.7 |
| | 0.18 |
| Default interest settlement | 129.0 |
| | 48.3 |
| | 80.7 |
| | 1.04 |
| Pension MTM adjustment and other related costs, net | (50.6 | ) | | (20.0 | ) | | (30.6 | ) | | (0.39 | ) | Restructuring expenses and asset impairments | 12.5 |
| | 3.5 |
| | 9.0 |
| | 0.12 |
| Currency and other financial losses in Venezuela | 6.9 |
| | — |
| | 6.9 |
| | 0.09 |
| Loss on sale of product line | 1.0 |
| | 0.4 |
| | 0.6 |
| | 0.01 |
| Income and expense items related to divested businesses | 4.1 |
| | 1.4 |
| | 2.7 |
| | 0.04 |
| Discrete tax items: | | | | | | | | Release of valuation allowances | | | 24.4 |
| | (24.4 | ) | | (0.31 | ) | Discrete tax items, including adjustments to uncertain tax positions | |
| | (9.4 | ) | | 9.4 |
| | 0.12 |
| Adjusted EPS (non-GAAP) | |
| | |
| | |
| | $ | 4.39 |
|
| | | 2012 | 2016 | (In millions, except per share amounts) | Pre- Tax | | Tax Effect | | After- Tax | | Per Share | Pre-Tax | | Tax Effect | | After-Tax | | Per Share | Diluted Earnings Per Share (GAAP) | |
| | |
| | |
| | $ | 0.52 |
| | | | | | | $ | 1.52 |
| Costs related to Chapter 11 | 15.6 |
| | $ | 3.8 |
| | $ | 11.8 |
| | 0.15 |
| | Asbestos-related costs | 5.0 |
| | 1.8 |
| | 3.2 |
| | 0.04 |
| | Asbestos and bankruptcy-related charges, net | 384.6 |
| | 142.3 |
| | 242.3 |
| | 3.18 |
| | Pension MTM adjustment and other related costs, net | 119.2 |
| | 37.9 |
| | 81.3 |
| | 1.07 |
| $ | 60.3 |
| | $ | 19.8 |
| | $ | 40.5 |
| | 0.57 |
| Restructuring expenses and asset impairments | 6.9 |
| | 2.0 |
| | 4.9 |
| | 0.06 |
| | Loss on sale of product line | 0.2 |
| | — |
| | 0.2 |
| | — |
| | Restructuring and repositioning expenses | | 38.6 |
| | 11.6 |
| | 27.0 |
| | 0.38 |
| Costs related to legacy product, environmental and other claims, net | | 35.4 |
| | 13.2 |
| | 22.2 |
| | 0.31 |
| Amortization of acquired inventory fair value adjustment | | 8.0 |
| | 3.0 |
| | 5.0 |
| | 0.07 |
| Third-party acquisition-related costs | | 2.5 |
| | 0.7 |
| | 1.8 |
| | 0.03 |
| (Gain) loss on sale of product line | | (1.7 | ) | | (0.6 | ) | | (1.1 | ) | | (0.02 | ) | Gain on termination and curtailment of postretirement plans related to divested businesses | | (0.3 | ) | | (0.1 | ) | | (0.2 | ) | | — |
| Income and expense items related to divested businesses | 2.8 |
| | 1.0 |
| | 1.8 |
| | 0.02 |
| (0.1 | ) | | — |
| | (0.1 | ) | | — |
| Loss on early extinguishment of debt | | 11.1 |
| | 4.1 |
| | 7.0 |
| | 0.10 |
| Discrete tax items: | | | | | | | | | | | | | | | Release of valuation allowances | | | 44.0 |
| | (44.0 | ) | | (0.58 | ) | | Discrete tax items, including adjustments to uncertain tax positions | |
| | (5.3 | ) | | 5.3 |
| | 0.07 |
| | | (9.8 | ) | | 9.8 |
| | 0.14 |
| Adjusted EPS (non-GAAP) | |
| | |
| | |
| | $ | 4.53 |
| | | | | | | $ | 3.10 |
|
| | | | | | | | | | | | | | | | | | 2015 | (In millions, except per share amounts) | Pre-Tax | | Tax Effect | | After-Tax | | Per Share | Diluted Earnings Per Share (GAAP) | | | | | | | $ | 1.71 |
| Pension MTM adjustment and other related costs, net | $ | 30.5 |
| | $ | 12.1 |
| | $ | 18.4 |
| | 0.25 |
| Restructuring and repositioning expenses | 20.4 |
| | 7.2 |
| | 13.2 |
| | 0.18 |
| Costs related to legacy product, environmental and other claims, net | 6.1 |
| | 2.2 |
| | 3.9 |
| | 0.05 |
| Gain on termination and curtailment of postretirement plans related to divested businesses | (2.6 | ) | | (1.0 | ) | | (1.6 | ) | | (0.02 | ) | Income and expense items related to divested businesses | (1.5 | ) | | (0.6 | ) | | (0.9 | ) | | (0.01 | ) | Discrete tax items: | | | | | | | | Discrete tax items, including adjustments to uncertain tax positions | | | (1.3 | ) | | 1.3 |
| | 0.02 |
| Adjusted EPS (non-GAAP) | | | | | | | $ | 2.18 |
|
Adjusted EBIT Return On Invested Capital Adjusted EBIT Return On Invested Capital for 20142017 was 31.2%24.4% on a trailing four quarters basis, an increase from 27.3%essentially flat compared with 2016 and 2015 on the same basis for 2013 and a decrease from 38.8% for 2012. The decrease in 2013 was primarily due to higher invested capital related to the December 2013 polypropylene acquisition. The increase in 2014 was primarily due to improved segment operating income, including the benefit of a full year of earnings from the
polypropylene acquisition.basis. We manage our operations with the objective of maximizing sales, earnings and cash flow over time. Doing so requires that we successfully balance our growth, profitability and working capital and other investments to support sustainable, long-term financial performance. We use Adjusted EBIT Return On Invested Capital as a performance measure in evaluating operating results, in making operating and investment decisions and in balancing the growth and profitability of our operations. Generally, we favor those businesses and investments that provide the highest return on invested capital.
Segment Overview—Grace Catalysts Technologies Following is an overview of the financial performance of Catalysts Technologies for the years ended December 31, 20142017, 20132016, and 20122015. Net Sales—Grace Catalysts Technologies Sales were $1,246.8$1,276.5 million for 2014,2017, an increase of 10.9%9.7% compared with the prior year. The increase was due to higher sales volumes (+12.8%(+9.7%) and favorable currency translation (+0.1%(+0.3%), partially offset by lower pricing (-2.0%(-0.3%). Sales volume growth wasHigher sales volumes were driven by higher demand, primarily in Asia, and the full-year benefit of the 2016 polyolefin catalysts acquisition. Specialty Catalysts sales volumes increased due to the December 2013 polypropylene acquisition and organic growth. The acquisition contributed 9.6%growth in the existing businesses driven by higher demand in all markets. Refining Catalysts sales volumes increased primarily in Asia, due to sales growth. Organic sales volume growth wasdemand for new products, bid business, and new customer acquisition. Sales volumes in Latin America decreased primarily due to new product introductionsa delay in FCC catalysts designed for customers running heavy feeds or shale feeds. Sales growth occurredcontract renewals in all regions except EMEA, due to weakness in Western Europe.the region and lower sales into Venezuela. Lower pricing was primarily due to lower rare earth surcharges, partially offset by higher pricing in Specialty Catalysts. Currencycustomer mix. Favorable currency translation had a minor effect on sales in 2014; however, we expect that continued strength ofaffected both product groups as the U.S. dollar weakened against multiple currencies, especially the other currencies in which we do business will have an unfavorable impact on sales ineuro, compared with the 2015 first quarter. Falling retail fuel prices during 2014 did not have a material effect on sales of our FCC catalysts. Demand for FCC catalysts is highly dependent on the economics of the petroleum industry. As our customers increase the throughput of their refineries due to demand for their petroleum products, our customers generally use more of our FCC catalysts. To the extent that volatility in retail fuel prices and economic activity affect demand for petroleum products and our customers' refinery throughput, we would expect an effect on demand for our FCC catalysts.prior year. Sales were $1,124.01,163.7 million for 20132016, a decreasean increase of 11.4%0.1% compared with the prior year. The decreaseincrease was due to lower pricing (-9.0%) and lowerhigher sales volumes (-3.2%(+1.6%), partially offset by favorablelower pricing (-1.2%) and unfavorable currency translation (+0.8%(-0.3%). The decrease in pricing was due to lower rare earth surcharges and lower FCC catalysts base pricing, partially offset by higher pricing in Specialty Catalysts. The decrease inCatalysts sales volumes was dueincreased in all regions except Latin America, with the majority of the increase coming from Europe. Sales volumes were higher in Asia despite declines in China as customers reduced inventories to align with lower projected growth rates and decreased demand for chemical catalysts. The higher Specialty Catalyst sales volumes reflected a favorable impact related to the polyolefin catalysts acquisition. In January 2016, we reduced our least efficient production capacity by 10,000 tons at our Curtis Bay plant, which contributed to a decline in Refining Catalysts sales volumes. Reductions in customer trials and higher refinery turnarounds also impacted sales volumes of FCC catalysts. During the year, FCC catalysts sales volumes decreased 7.9% from the 2013 second quarter to the 2013 third quarter and then increased 5.8% from the 2013 third quarter to the 2013 fourth quarter. The decrease in sales volumes in the 2013 third quarter resultedRefining Catalysts. Unfavorable currency translation primarily from customer trials of competitive products following our announcement of an increase in FCC catalysts base pricing in the 2013 first quarter. Sales volumes recovered in 2014 as customer trials concluded and customers began purchasing new products introduced in the 2013 third and fourth quarters designed specifically for shale oil, propylene maximization, and heavy resid feedstocks.affected Refining Catalysts. On December 2, 2013, we acquired the UNIPOL® polypropylene process licensing and related catalyst business for a cash purchase price of $500 million, before customary working capital and post-closing
adjustments. This acquisition is complementary to our specialty catalysts business and enhances our position as a leading supplier of polyolefin catalysts and technologies.
Segment Operating Income (SOI) and Margin—Grace Catalysts Technologies Gross profit was $533.7$521.2 million for 2014,2017, an increase of 18.5%0.9% compared with the prior year. Segment grossGross margin was 42.8%40.8% compared with 40.1%44.4% for the prior year. The increasesdecrease in gross profit and gross margin werewas primarily due to higher manufacturing costs, including 130 basis points related to higher raw materials costs, and product and regional mix, including the polypropylene acquisition, specificallyfull-year effect of the technology licensing business, which carries higher gross margins than traditional2016 polyolefin catalysts as well as base sales volume growth and lower manufacturing costs.acquisition. Segment operating income was $378.3$395.4 million for 2014,2017, an increase of 15.5% compared with the prior year. Segment operating margin for 2014 increased to 30.3%, an improvement of 120 basis points7.5% compared with the prior year, primarily due to higher segment gross margin due to higher sales volumes and lower manufacturing costs,business interruption insurance recoveries, partially offset by lower income from thehigher manufacturing costs and product and regional mix. The ART joint venture and highercontributed $25.9 million to operating expenses, primarily related to the polypropylene acquisition. Gross profit was $450.5 million for 2013,income, a decrease of 13.3%$3.9 million from the prior-year period, primarily due to a change in costs included in the service level agreements with ART. Segment operating margin for 2017 decreased to 31.0%, a decline of 60 basis points compared with the prior year. Segment gross margin was 40.1% compared with 41.0%
In January 2017, a Catalysts Technologies customer experienced an explosion and fire resulting in an extended outage. We recognized a benefit of and received $25.0 million in payments from our third-party insurer during 2017, under our business interruption insurance policy for a portion of profits lost as a result of the prior year.outage. The decrease in gross profitpolicy had a $25.0 million limit for this event. In the 2017 third quarter, we recorded a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and gross margin was primarilythe recent political unrest and sanctions. This charge has been excluded from Adjusted EBIT due to lower salesthe nature of our FCC catalyst products, including the effectssituation. Gross profit was $516.8 million for 2016, an increase of lower rare earth surcharges and lower operating leverage. Segment operating income was $327.5 million for 2013, a decrease of 16.8%5.4% compared with the prior year. Gross margin was 44.4% compared with 42.2% for the prior year. Gross margin increased as lower manufacturing costs, including 250 basis points related to lower raw materials costs, and improved productivity more than offset the effect of the polyolefin catalysts acquisition.
Segment operating marginincome was $367.8 million for 2013 decreased to 29.1%, a decline2016, an increase of 200 basis points5.9% compared with the prior year, primarily due to lowerimproved gross margin,margins, higher ART income, and the polyolefin catalysts acquisition, partially offset by lowerhigher operating expenses and higher earningsexpenses. The ART joint venture contributed $29.8 million to operating income, an increase of $9.4 million from the ART joint venture.prior-year period. Segment operating margin for 2016 increased to 31.6%, an improvement of 170 basis points compared with the prior year.
Operating Segment Overview—Grace Materials Technologies
Following is an overview of the financial performance of Materials Technologies for the years ended December 31, 20142017, 20132016, and 20122015. Net Sales—Grace Materials Technologies Sales were $890.6440.0 million for 20142017, an increase of 1.4%1.2% compared with the prior year. The increase was due to favorable currency translation (+1.1%) and higher sales volumes (+1.4%) and improved pricing (+1.0%(+0.3%), partially offset by unfavorable currency translationlower pricing (-1.0%-0.2%). Sales volume growth wasHigher sales volumes in the silicas business, primarily in Engineered Materials, drivenAsia, were partially offset by silicathe impact related to the exit of certain products lines in the 2016 first half and lower pharmaceutical fine chemicals sales in North America and Asia Pacific. Sales volumes declined in Packaging ProductsAmerica. Favorable currency translation was due to weaker sales in Asia Pacific and Latin America. Unfavorable currency translation primarily affected Packaging Products as the U.S. dollar strengthenedweakening against multiple currencies. We expect that continued strength ofcurrencies, especially the U.S. dollar againsteuro, compared with the other currencies in which we do business will have an unfavorable impact on sales in the 2015 first quarter.prior year. Sales were $878.5$434.9 million for 2013, an increase2016, a decrease of 1.8%6.7% compared with the prior year. The increasedecrease was due to improved pricing (+2.1%lower sales volumes (-5.6%) and higher sales volumes (+0.8%unfavorable currency translation (-1.2%), partially offset by unfavorable currency translation (-1.1%improved pricing (+0.1%). We increased pricingSales volumes declined in all regions, including a 4.8% impact related to reflect the valueexit of new, higher performance productscertain product lines. Lower sales volumes in North America were also impacted by lower demand compared with the prior year, and to offset certain currency impacts and higher raw material costs. SalesAsia sales volumes declined as customers reduced inventory levels in emerging regions increased 4.5% primarily due to growth in China and other emerging regions. Sales in mature markets were flat.the 2016 first quarter. Segment Operating Income (SOI) and Margin—Grace Materials Technologies Gross profit was $314.9$166.9 million for 2014, an increase2017, a decrease of 3.5%3.2% compared with the prior year, primarily due to product lines exited and higher manufacturing costs. Gross margin was 37.9% compared with 39.6% for the prior
year. SegmentThe decrease in gross margin was primarily due to higher manufacturing costs, including 60 basis points related to higher raw materials costs. Segment operating income was 35.4%$100.6 million for 2017, a decrease of 3.3% compared with the prior year, primarily due to higher manufacturing costs and higher operating expenses, partially offset by higher sales volumes and favorable currency translation. Segment operating margin for 34.6%2017 decreased to 22.9%, a decline of 100 basis points compared with the prior year. Gross profit was $172.4 million for 2016, a decrease of 4.7% compared with the prior year, primarily due to the exited product lines. Gross margin was 39.6% compared with 38.8% for the prior year. The increase in gross margin was primarily due to lower manufacturing costs including improved pricingproductivity, and the implementation of productivity initiatives, primarily benefiting Engineered Materials.improved pricing.
Segment operating income was $185.2$104.0 million for 2014,2016, an increase of 1.9%7.3% compared with the prior year.year, primarily due to lower operating expenses, partially offset by lower gross profit related to the exited product lines. Segment operating margin for 20142016 increased to 20.8%23.9%, an improvement of 10310 basis points compared with the prior year, primarily due to higher gross margin, partially offset by higher operating expenses. The increase in segment operating income resulted from higher sales volumes and margin expansion in Engineered Materials, partially offset by lower sales and unfavorable currency translation in Packaging Products. Gross profit was $304.2 million for 2013, an increase of 6.5% compared with the prior year. Segment gross margin was 34.6% compared with 33.1% for the prior year. The increase in gross margin was primarily due to improved pricing and lower raw material costs.
Segment operating income was $181.8 million for 2013, an increase of 12.2% compared with the prior year. Segment operating margin for 2013 increased to 20.7%, an improvement of 190 basis points compared with the prior year, primarily due to improved gross margin.
Operating Segment Overview—Grace Construction Products
Following is an overview of the financial performance of Construction Products for the years ended December 31, 2014, 2013, and 2012.
Net Sales—Grace Construction Products
Sales were $1,105.6 million for 2014, an increase of 4.5% compared with the prior year. The increase was due to higher sales volumes (+4.3%) and improved pricing (+2.5%), partially offset by unfavorable currency translation (-2.3%). Sales of Specialty Construction Chemicals benefited from increasing demand in North America and Asia Pacific throughout 2014. Improved pricing in both Specialty Construction Chemicals and Specialty Building Materials was offset by unfavorable currency translation. We expect that continued strength of the U.S. dollar against the other currencies in which we do business will have an unfavorable impact on sales in the 2015 first quarter.
Sales in emerging regions, which represented 35.9% of sales for 2014, increased 6.0% due to sales in Latin America, emerging Asia, and Eastern Europe. Sales in North America increased 3.0%, driven by growth in construction spend offset by lower sales in the residential business. Sales in Western Europe and Latin America lagged due to market conditions and the impact of currency translation, respectively.
During 2014, we realigned our residential business to more effectively serve our geographically dispersed customer base.
Sales were $1,058.2 million for 2013, an increase of 3.3% compared with the prior year. The increase was due to higher sales volumes (+3.7%) and improved pricing (+1.9%), partially offset by unfavorable currency translation (-2.3%). Sales in emerging regions, which represented 35.4% of sales for 2013, increased 5.9% due to sales in Latin America, emerging Asia, and Eastern Europe. Sales in North America increased 2.9% compared with the prior year primarily due to growth in specialty building materials and specialty construction chemicals. Sales in Western Europe declined 1.8% compared with the prior year, primarily due to our focus on higher-margin sales.
Segment Operating Income (SOI) and Margin—Grace Construction Products
Gross profit was $401.0 million for 2014, an increase of 5.3% compared with the prior year. Segment gross margin was 36.3% compared with 36.0% for the prior year, primarily due to a reclassification of certain expenses from cost of goods sold to operating expenses. Gross margins were otherwise flat as improved pricing and productivity gains were offset by unfavorable currency translation and inflation.
Segment operating income was $161.7 million for 2014, an increase of 6.6% compared with the prior year. Segment operating margin for 2014 increased to 14.6%, an improvement of 30 basis points compared with the prior year. These increases were primarily due to incremental operating leverage.
Gross profit was $380.7 million for 2013, an increase of 5.5% compared with the prior year. Segment gross margin was 36.0% compared with 35.2% for the prior year. The increase was primarily due to improved pricing and productivity gains.
Segment operating income was $151.7 million for 2013, an increase of 21.2% compared with the prior year. Segment operating margin for 2013 increased to 14.3%, an improvement of 210 basis points compared with the prior year. These increases were primarily due to improved gross margin and lower operating expenses driven by restructuring activities in Europe.and the effect of exiting lower margin product lines.
Corporate Overview Corporate costs include corporate functional costs and other corporate costs such as professional fees and insurance premiums. Corporate costs for 20142017 increased 9.4%16.2% compared with the prior year, primarily due to a favorable settlement of a claim in 2016 and higher functional costs and performance-based incentive compensation.compensation in 2017. Corporate costs for 20132016 decreased 10.4%25.7% compared with the prior yearyear. Certain costs included in the prior years were either assumed by GCP at the time of the Separation or were eliminated through restructuring or other cost reduction actions. Restructuring and Repositioning Expenses During 2017, we incurred $11.5 million of restructuring expenses primarily related to workforce reduction programs in Manufacturing, Supply Chain, Finance and IT, compared with $24.3 million in 2016 that was related to workforce reductions and the exit of certain non-strategic product lines in Materials Technologies. Restructuring costs of $11.3 million in 2015 were in part due to the impactSeparation. We incurred $15.2 million of lower performance-based incentive compensationrepositioning expenses in 2017 primarily for third-party costs related to business and other expenses.functional productivity and transformation projects, as well as costs related to the Separation. We incurred $14.3 million and $9.1 million of repositioning costs, primarily related to the Separation, in 2016 and 2015, respectively. In 2017, we initiated a multi-year program to transform our manufacturing and business processes to extend our competitive advantages and improve our cost position. We expect to significantly improve our manufacturing performance, reduce our manufacturing costs, and improve our demand and supply planning capabilities. We also expect to invest significant capital in our manufacturing plants to accelerate growth and improve performance.
Defined Benefit Pension Expense Defined benefit pension expense includes costs under U.S. and non-U.S. defined benefit pension plans that provide benefits to business segment and corporate employees, as well as retirees and former employees of divested businesses where we retained these obligations. Under mark-to-market accounting, our pension costs consist of two elements: 1) "certain pension costs"—ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2) "pension mark-to-market adjustment and other related costs, net"—mark-to-market gains and losses recognized annually in the fourth quarter, or at an interim period should a significant event occur, resulting from changes in actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan assets. Certain pension costs were $32.0$13.0 million, $27.4$12.3 million and $30.4$20.4 million for 2014, 20132017, 2016 and 2012,2015, respectively. As of December 31, 2015, we changed the approach used to determine the service and interest cost components of defined benefit pension expense. Previously, we estimated service and interest costs using a single weighted average discount rate derived from the same yield curve used to measure the projected benefit obligation. For 2016 and 2017, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. The pensionPension mark-to-market adjustment and other related income (expense),costs, net was $(128.3)were $51.1 million, $50.6$60.3 million and $(119.2)$30.5 million for 2014, 20132017, 2016 and 2012,2015, respectively. These costs are reported in "cost of goods sold" and in "selling, general and administrative expenses” in our Consolidated Financial Statements based upon the functions of the employees to which the pension costs relate. The 20142017 mark-to-market pension expense of $128.3$51.1 million was primarily due to the decrease in discount rates used to value the projected benefit obligations of our plans from year-end 20132016 to year-end 2014 and the impact of adopting new mortality assumptions,2017, partially offset by higher than expected return on assets in the U.S. and U.K. The 20132016 mark-to-market pension incomeexpense of $50.6$60.3 million was primarily due to higherthe decrease in discount rates in 2013 used to value the projected benefit obligations of our plans partially offset by the impact of adopting new mortality assumptions in the U.S. and lower than expected return on assets in the U.S. The 2012 mark-to-market pension expense of $119.2 million was primarily duefrom year-end 2015 to lower discount rates in the U.S. and Germany,year-end 2016, partially offset by higher than expected return on assets in the U.S.
Costs Related to Chapter 11
The following table presents costs related to Chapter 11:
| | | | | | | | | | | | | (In millions) | 2014 | | 2013 | | 2012 | Chapter 11 expenses, net of interest income | $ | 11.0 |
| | $ | 15.3 |
| | $ | 16.6 |
| D&O insurance costs related to Chapter 11 | 0.1 |
| | 0.2 |
| | 0.3 |
| Translation effects—intercompany loans | 4.6 |
| | (11.9 | ) | | (5.6 | ) | Value of currency forward contracts—intercompany loans | (4.5 | ) | | 10.9 |
| | 3.7 |
| Certain other currency translation costs, net | 0.1 |
| | 1.9 |
| | 0.6 |
| Costs related to Chapter 11 | $ | 11.3 |
| | $ | 16.4 |
| | $ | 15.6 |
|
The decrease in costs related to Chapter 11 for 2014 compared with 2013$30.5 million was primarily due to our emergence from bankruptcylower than expected return on assets in the 2014 first quarter. We expect to continue to incur Chapter 11 expenses in connection withU.S., partially offset by the resolution of pre-petition claims that were unresolved at the time of emergence.
The increase in costs relateddiscount rates from year-end 2014 to Chapter 11 for 2013 compared with 2012 was primarily due to the effects of currency exchange rate changes on the value of intercompany loans and related currency forward contracts and the value of cash balances held in foreign currencies.
Pursuant to ASC 852, interest income earned on U.S. cash balances while in bankruptcy was offset against Chapter 11 expenses. We present the net costs of our reorganization under Chapter 11 as "Chapter 11 expenses, net of interest income," a separate caption in our Consolidated Statements of Operations.year-end 2015.
Interest and Financing Expenses Net interest and financing expenses were $78.5 million for 2017, a decrease of 2.5% compared with 2016, primarily due to voluntary prepayments of our term loans in February and March 2016, partially offset by higher interest expense due to borrowings on our floating rate term loans and revolving credit facility. Interest and financing expenses were $61.5$80.5 million for 2014, an increase2016, a decrease of 40.4%18.8% compared with 2013,2015, primarily due to interest expense and amortization of financing costs related to new debt incurred during 2014, partially offset by the elimination of interest accruals2016 prepayments on liabilities subject to compromise following our emergence from bankruptcy. Interest expense was $43.8 million for 2013, a decrease of 5.8% compared with 2012.term loans. Income Taxes Income tax expense (benefit) for 2014, 20132017, 2016 and 20122015 was $57.0$200.5 million,, $102.9 $59.0 million and $(61.6)$69.8 million,, respectively, on income (loss) from consolidatedcontinuing operations before income taxes of $334.3$210.9 million,, $360.6 $166.0 million and $(20.6)$193.7 million in 2014, 20132017, 2016 and 2012,2015, respectively. Our 20142017 effective tax rate includes $143.0 million in charges related to U.S. Tax Cuts and Jobs Act of approximately 17%2017 (the "Act"). The effective tax rate without the impact of the Act was 27.3%, lower than the 35% U.S. statutory rate, primarily due to benefits recognized duringgeographic mix of income and the year including $59.6 million of benefits associated with the release of reserves for unrecognized tax benefits, $17.8 million due to lower taxes in non-U.S. jurisdictions, and $5.2 million related to repatriated foreign earnings, partially offset by $8.1 million in charges for discrete state income taxes and $6.0 million related to non-deductible expenses.R&D credit. Our 20132016 effective tax rate of approximately 29% was lower35.5% was slightly higher than the 35% U.S. statutory rate primarily due to benefits recognized duringrate. The benefit from the year including $24.4 million related to the partial releasegeographic mix of the valuation allowance on state deferred tax assets, $16.6 million due to lower taxes in non-U.S. jurisdictions,income and $3.7 million related to repatriated foreign earnings, partiallystock compensation windfall was nearly fully offset by $6.8 million related to uncertain tax positionsstate income taxes and $9.7 million related to non-deductible expenses.other permanent items. Our 20122015 effective tax rate of approximately (299)% was lower36% was slightly higher than the 35% U.S. statutory rate primarily due to benefits recognized during the year including $44.0 million related to the partial release of the valuation allowance on state deferred tax assets, $14.9 million due to lower taxes in non-U.S. jurisdictions, and $14.0 million related to domestic production incentives, partially offset by expenses of $8.2 million related to uncertain tax positions and other discrete items, $2.2 million related to repatriated foreign earnings and $8.1 million related to non-deductible expenses.rate. See Note 87 to the Consolidated Financial Statements for additional information regarding income taxes.
Financial Condition, Liquidity, and Capital Resources Following is an analysis of our financial condition, liquidity and capital resources at December 31, 20142017, together with a description. Our principal uses of cash are generally capital investments and acquisitions; working capital investments; compensation paid to employees, including contributions to our emergence financingdefined benefit pension plans and post-emergence liquidity. For additional information regarding our Chapter 11 casesdefined contribution plans; the repayment of debt and asbestos-related litigation, see Note 2interest payments thereon; and the return of cash to the Consolidated Financial Statements. For additional information regarding environmental matters, see Note 11 to the Consolidated Financial Statements.shareholders through repurchase of shares and dividends. On February 3, 2014,5, 2015, we emerged from Chapter 11. We paid approximately $1,900 million in claims and other costs. We funded these payments through a combination of approximately $1,360 million in cash on hand and $900 million in exit financing. Total liquidity underannounced that the exit financing consists of: | | (a) | a $700 million term loan due in 2021, with interest at LIBOR +225 bps with a 75 bps floor; |
| | (b) | a €150 million term loan due in 2021, with interest at EURIBOR +250 bps with a 75 bps floor; |
| | (c) | a $400 million revolving credit facility due in 2019, with interest at LIBOR +175 bps; and |
| | (d) | a $250 million delayed draw term loan facility available for 12 months, with amounts drawn due in 2021, with interest at LIBOR +225 bps with a 75 bps floor. |
Approximately $100 million of the revolving credit facility replaces the cash-collateralized letter of credit facility in effect during the bankruptcy. At emergence, we entered into an interest rate swap beginning on February 3, 2015, and maturing on February 3, 2020, fixing $250 million of the term loan at 4.643%.
On September 16, 2014, we issued $1,000 million of senior unsecured notes in two tranches:
$700 million in aggregate principal amount of notes due 2021 at a coupon rate of 5.125%; and
$300 million in aggregate principal amount of notes due 2024 at a coupon rate of 5.625%.
The net proceeds from issuance were used to terminate our obligations under the deferred payment agreement with the PI Trust for $632 million, repay amounts outstanding under our revolving credit facility, and for other general corporate purposes, including share repurchase.
The remaining proceeds from the notes together with the $250 million delayed draw term loan, which we borrowed under on January 30, 2015, provided cash for general corporate purposes and the liquidity to cash settle the warrant issued to the PI Trust at a cost of $490 million on February 3, 2015.
Pursuant to the $500 million share repurchase program authorized by our Board of Directors following emergence, during 2014 we repurchased 4,936,497 shares of Company common stock for $469.5 million. We completed the repurchase of the $30.5 million remaining under the initial authorization on January 15, 2015. The Board of Directors hashad authorized an additionala share repurchase program of up to $500 million, which we completed on July 10, 2017. On February 8, 2017, we announced that the Board of Directors had authorized a new share repurchase program of up to $250 million. Under these programs, during 2017 we repurchased 935,435 shares of Company common stock for $65.0 million. As of December 31, 2017, $218.9 million remained under this authorization.
In the 2016 second quarter, we began to pay a quarterly cash dividend, at an annual rate of $0.68 per share of Company common stock. On February 8, 2017, we announced that the Board of Directors had approved an increase in the annual dividend rate, to $0.84 per share of Company common stock. On February 8, 2018, we announced that the Board of Directors had approved another increase in the annual dividend rate, to $0.96 per share of Company common stock. We paid cash dividends of $57.3 million during 2017. We believe that the cash we expect to generate during 20152018 and thereafter, together with other available liquidity and capital resources, are sufficient to finance our operations, growth strategy, and share repurchase program and expected dividend payments, and meet our debt and pension obligations. On December 14, 2017, we signed a definitive agreement to acquire the polyolefin catalysts business of Albemarle Corporation for $416 million, which we expect to finance with a combination of debt and cash. We expect the transaction to close in the 2018 first quarter, subject to regulatory approvals and other customary closing conditions. Cash Resources and Available Credit Facilities At December 31, 20142017, we had available liquidity of $1,219.7$445.0 million, consisting of $557.5152.8 million in cash and cash equivalents ($316.564.0 million in the U.S.), $344.5$262.8 million available under theour revolving credit facility, $250.0 million available on the delayed draw term loan, and $67.729.4 million of available liquidity under various non-U.S. credit facilities. The $400$300 million revolving credit facility includes a $150 million sublimit for letters of credit. On January 30, 2015, we borrowed on the $250 million delayed draw term loan facility and used the funds, together with cash on hand, to repurchase the warrant issued to the PI Trust for a cash payment of $490 million.
Our non-U.S. credit facilities are extended to various subsidiaries that use them primarily to issue bank guarantees supporting trade activity and to provide working capital during occasional cash shortfalls. The credit facility in Germany is secured by third-party accounts receivable, with availability determined on the basis of eligible outstanding receivables. We generally renew these credit facilities as they expire. In December 2017, we repaid and terminated the credit facility we had maintained in Germany.
The following table summarizes our non-U.S. credit facilities as of December 31, 20142017: | | | | | | | | | | | Credit Facilities (In millions) | Maximum Borrowing Amount | | Available Liquidity | | Expiration Date | Country | | | | | | Germany | $ | 61.0 |
| | $ | 3.7 |
| | 12/31/2015 | Other countries | 129.8 |
| | 64.0 |
| | Various through 2015 | Total | $ | 190.8 |
| | $ | 67.7 |
| | |
| | | | | | | | | | |
(In millions) | Maximum Borrowing Amount | | Available Liquidity | | Expiration Date | China | $ | 23.1 |
| | $ | 12.2 |
| | Various through 2020 | Other countries | 28.4 |
| | 17.2 |
| | Various through 2020 | Total | $ | 51.5 |
| | $ | 29.4 |
| | |
Analysis of Cash Flows The following table summarizes our cash flows for the years ended December 31, 20142017, 20132016, and 20122015: | | | Year Ended December 31, | Year Ended December 31, | (In millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 | Net cash (used for) provided by operating activities | $ | (1,472.1 | ) | | $ | 515.9 |
| | $ | 453.6 |
| | Net cash provided by (used for) investing activities | 235.3 |
| | (880.7 | ) | | (280.3 | ) | | Net cash provided by (used for) financing activities | 849.9 |
| | (8.4 | ) | | 110.3 |
| | Net cash provided by (used for) operating activities from continuing operations | | $ | 319.2 |
| | $ | 267.5 |
| | $ | (189.8 | ) | Net cash provided by (used for) investing activities from continuing operations | | (129.9 | ) | | (345.0 | ) | | (112.0 | ) | Net cash provided by (used for) financing activities from continuing operations | | (134.8 | ) | | (60.2 | ) | | (40.5 | ) | Effect of currency exchange rate changes on cash and cash equivalents | (20.4 | ) | | 1.1 |
| | 5.0 |
| 7.7 |
| | (3.0 | ) | | (1.7 | ) | (Decrease) increase in cash and cash equivalents | (407.3 | ) | | (372.1 | ) | | 288.6 |
| | Increase (decrease) in cash and cash equivalents from continuing operations | | 62.2 |
| | (140.7 | ) | | (344.0 | ) | Increase (decrease) in cash and cash equivalents from discontinued operations | | — |
| | 44.8 |
| | 116.4 |
| Net increase (decrease) in cash and cash equivalents | | 62.2 |
| | (95.9 | ) | | (227.6 | ) | Less: cash and cash equivalents of discontinued operations | | — |
| | (143.4 | ) | | — |
| Cash and cash equivalents, beginning of period | 964.8 |
| | 1,336.9 |
| | 1,048.3 |
| 90.6 |
| | 329.9 |
| | 557.5 |
| Cash and cash equivalents, end of period | $ | 557.5 |
| | $ | 964.8 |
| | $ | 1,336.9 |
| $ | 152.8 |
| | $ | 90.6 |
| | $ | 329.9 |
|
Net cash used for operating activities in 2014 was $1,472.1 million, compared with net cash provided by operating activities ofin 2017 was $515.9319.2 million compared with $267.5 million in the prior year. The year-over-year change in cash flow was primarily due to thehigher income from continuing operations before income taxes and lower net cash paid for income taxes, partially offset by a 2017 payment of $1,316.5$30 million to resolve liabilities subject to Chapter 11 and $632.0 million to settle thesatisfy a deferred payment obligation to the PI Trust.asbestos property damage trust required under the joint plan of reorganization. Net cash provided by operating activities in 20132016 was $515.9$267.5 million compared with $453.6net cash used for operating activities of $189.8 million in the prior year. Net cash provided by operating activities benefited from improved working capital performance and lower pension contributions. In addition,The year-over-year change in 2013 we reported an operating cash flow benefitwas primarily due to the 2015 first quarter payment of $35.4$490 million from excess tax benefits from stock-based compensation compared with an operatingto repurchase a warrant issued to the asbestos personal injury trust at emergence, partially offset by higher net cash flow use of $36.8 millionpaid for income taxes in 2012. This change resulted from our decision to accelerate the use of certain other tax attributes for U.S. federal income tax purposes and to preserve the excess tax benefits from stock-based compensation.2016. Net cash provided byused for investing activities in 20142017 was $235.3$129.9 million compared with a use of cash of $880.7$345.0 million in the prior year. Net cash used for investing activities primarily includes the net cash paid for capital expenditures, businesses acquired, and transfers in/out of restricted cash. Our capital expenditures include investments in new capacity, improved productivity, information technology, and maintenance of our manufacturing and office facilities. We expect to fund our capital expenditures from net cash provided by operating activities. We acquired the UNIPOL® polypropylene process licensing and related catalyst business for $510.4 million (including post-closing adjustments) in the 2013 fourth quarter. Net cash used for investing activities in 20132016 was $880.7345.0 million compared with $280.3$112.0 million in the prior year. In 2016, we completed the polyolefin catalysts acquisition for $246.5 million in cash, which was partially offset by $11.3 million in proceeds from the sale of assets. Net cash provided byused for financing activities in 20142017 was $849.9134.8 million compared with a use of cash of $8.4$60.2 million in the prior year. The changeIn 2016, we received a $750 million distribution of cash from GCP, of which we used $600 million to pay down our euro and U.S. dollar term loans in cash provided by financing activities is primarily due to new debt issued in 2014 partially offset by payments made to repurchasethe first quarter. Cash paid for repurchases of common stock under our share repurchase program.in 2017 was $65.0 million compared with $195.1 million in 2016. In 2017, we also paid cash dividends of $57.3 million, compared with $36.0 million in the prior year. Net cash used for financing activities in 20132016 was $8.4$60.2 million compared with net cash provided by financing activities of $110.3$40.5 million in the prior year. The change in cash provided by financing activities is primarily due to the effect$750 million distribution from GCP received in 2016 and lower 2016 payments to repurchase common stock, partially offset by the prepayment of the tax benefits from stock-based compensationdebt and the net repayments under credit facilities.cash dividends paid in 2016. Included in net cash provided by (used for) provided by operating activities from continuing operations are Chapter 11 emergence paymentslegacy product, environmental and other claims paid of $1,348.7$54.5 million, $24.6 million and payment$507.4 million; restructuring expenses paid of the deferred obligation to the PI Trust$13.8 million, $16.0 million, and $5.6 million; and repositioning expenses paid of $632.0$11.0 million, $35.5 million and $38.6 million for 2014, accelerated defined benefit pension plan contributions2017, 2016 and 2015, respectively; cash paid for third-party acquisition-related costs of $0.7 million and $2.3 million for 2017 and 2016, respectively; and cash paid for taxes related to repositioning of $5.0 million and $6.1 million for 2016 and 2015, respectively. Included in capital expenditures are $2.0 million and $7.5 million related to repositioning for 2016 and 2015, respectively. These cash flows totaled
$75.080.0 million, $50.085.4 million and $83.4 million, Chapter 11 expenses
paid of $31.6 million, $15.0 million and $15.5 million, and expenditures for asbestos-related environmental remediation of $6.8 million, $5.0 million and $7.2565.2 million for 20142017, 20132016 and 2012, respectively. These cash flows totaled $2,094.1 million, $70.0 million and $106.1 million for 2014, 2013 and 20122015, respectively. We do not include these cash flows when evaluating the performance of our businesses.
Debt and Other Contractual Obligations Total debt outstanding at December 31, 20142017, was $2,015.8 million. All pre-petition debt, including interest thereon, was paid upon emergence from bankruptcy. $1,543.9 million. Set forth below are our contractual obligations as of December 31, 20142017: | | | Payments Due by Period | Payments Due by Period | (In millions) | Total | | Less than 1 Year | | 1-3 Years | | 4-5 Years | | More Than 5 Years | Total | | Less than 1 Year | | 2-3 Years | | 4-5 Years | | More Than 5 Years | Debt | $ | 2,015.8 |
| | $ | 96.8 |
| | $ | 56.1 |
| | $ | 25.4 |
| | $ | 1,837.5 |
| $ | 1,543.9 |
| | $ | 20.1 |
| | $ | 16.1 |
| | $ | 1,203.2 |
| | $ | 304.5 |
| Expected interest payments on debt(1) | 626.7 |
| | 92.9 |
| | 172.4 |
| | 169.5 |
| | 191.9 |
| 320.3 |
| | 70.5 |
| | 141.2 |
| | 74.6 |
| | 34.0 |
| Operating lease obligations | 90.2 |
| | 23.7 |
| | 30.9 |
| | 12.6 |
| | 23.0 |
| 68.3 |
| | 10.4 |
| | 12.8 |
| | 5.8 |
| | 39.3 |
| Operating commitments(2) | 74.9 |
| | 40.6 |
| | 25.1 |
| | 9.2 |
| | — |
| 127.4 |
| | 110.4 |
| | 17.0 |
| | — |
| | — |
| Capital lease obligations | 0.7 |
| | 0.5 |
| | 0.2 |
| | — |
| | — |
| | Pension funding requirements per ERISA(3) | 0.5 |
| | — |
| | — |
| | 0.5 |
| | — |
| 17.4 |
| | — |
| | 7.4 |
| | 10.0 |
| | — |
| Pension funding requirements for non-U.S. pension plans(4) | 70.2 |
| | 13.5 |
| | 27.5 |
| | 29.2 |
| | — |
| 46.1 |
| | 9.0 |
| | 18.0 |
| | 19.1 |
| | — |
| Total Contractual Obligations | $ | 2,879.0 |
| | $ | 268.0 |
| | $ | 312.2 |
| | $ | 246.4 |
| | $ | 2,052.4 |
| $ | 2,123.4 |
| | $ | 220.4 |
| | $ | 212.5 |
| | $ | 1,312.7 |
| | $ | 377.8 |
|
| | (1) | Amounts are based on current interest rates as of December 31, 2014,2017, for principal debt outstanding as of December 31, 2014.2017. |
| | (2) | Amounts do not include open purchase commitments, which are routine in nature and normally settle within 90 days, or obligations to employees under annual or long-term incentive programs. |
| | (3) | Based on the U.S. qualified pension plans' status as of December 31, 2014,2017, minimum funding requirements under ERISA have been estimated for the next five years. Amounts in subsequent years or additional payments have not yet been determined. |
| | (4) | Based on the non-U.S. pension plans' status as of December 31, 2014,2017, funding requirements have been estimated for the next five years. Amounts in subsequent years have not yet been determined. |
See Note 1110 to the Consolidated Financial Statements for a discussion of Financial Assurances. Employee Benefit Plans See Note 98 to the Consolidated Financial Statements for further discussion of Pension Plans and Other Postretirement Benefit Plans. Defined Contribution Retirement Plan We sponsor a defined contribution retirement plan for our employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, we contribute an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Our costs related to this benefit plan were $13.811.5 million, $13.211.1 million and $12.610.4 million for the years ended December 31, 20142017, 20132016 and 20122015, respectively. Defined Benefit Pension Plans We sponsor defined benefit pension plans for our employees in the U.S., Canada, the U.K., Germany, and a number of other countries, and fund government-sponsored programs in other countries where we operate. Certain of our defined benefit pension plans are advance-funded and others are pay-as-you-go. The advance-funded plans are administered by trustees who direct the management of plan assets and arrange to have obligations paid when due. Our most significant advance-funded plans cover current and former salaried
employees in the U.S. and U.K. and employees covered by collective bargaining agreements at certain of our U.S. facilities. Our U.S. advance-funded plans are qualified under the U.S. tax code.
The following table presents the funded status of our fully-funded, underfunded and unfunded pension plans: | | Funded Status of Pension Plans | Fully-Funded Pension Plans(1) | | Underfunded Pension Plans(1) | | Unfunded Pension Plans(2) | | | | Underfunded Pension Plans(1) | | Unfunded Pension Plans(2) | (In millions) | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | 2017 | | 2016 | | 2017 | | 2016 | Projected benefit obligation | $ | 245.8 |
| | $ | 247.3 |
| | $ | 1,388.3 |
| | $ | 1,253.9 |
| | $ | 393.6 |
| | $ | 372.0 |
| $ | 1,241.8 |
| | $ | 1,187.7 |
| | $ | 406.9 |
| | $ | 355.6 |
| Fair value of plan assets | 289.9 |
| | 264.0 |
| | 1,308.8 |
| | 1,187.7 |
| | — |
| | — |
| 1,131.3 |
| | 1,104.6 |
| | — |
| | — |
| Funded status (PBO basis) | $ | 44.1 |
| | $ | 16.7 |
| | $ | (79.5 | ) | | $ | (66.2 | ) | | $ | (393.6 | ) | | $ | (372.0 | ) | $ | (110.5 | ) | | $ | (83.1 | ) | | $ | (406.9 | ) | | $ | (355.6 | ) | Benefits paid | $ | (12.3 | ) | | $ | (10.0 | ) | | $ | (74.4 | ) | | $ | (77.8 | ) | | $ | (43.5 | ) | | $ | (13.5 | ) | |
| | (1) | Plans intended to be advance-funded. |
| | (2) | Plans intended to be pay-as-you-go. |
Fully-funded plans include several advance-funded plans where the fair value of the plan assets exceeds the projected benefit obligation, or PBO. This group of plans was overfunded by $44.1 million as of December 31, 2014, and the overfunded status is reflected as "overfunded defined benefit pension plans" in the Consolidated Balance Sheets. Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis by a total of $79.5110.5 million as of December 31, 20142017. Additionally, we have several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO of $393.6406.9 million at December 31, 20142017, is unfunded. The combined balance of the underfunded and unfunded plans was $473.1517.4 million as of December 31, 20142017, and is presented as a liability on the Consolidated Balance Sheets as follows: $15.615.0 million in "other current liabilities", and $457.5502.4 million included in "underfunded and unfunded defined benefit pension plans."
At the December 31, 20142017, measurement date for the U.S. advance-funded plans, the PBO was approximately $1,3301,217 million as measured under U.S. GAAP. The PBO is measured as the present value (using a 3.953.57% weighted average discount rate as of December 31, 20142017) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees. Of the participants in the U.S. advance-funded plans, approximately 8388% are retired or former employees or employees of our former businesses, which shortens the duration of the PBO. Assets available to fund the PBO for the U.S. advance-funded plans at December 31, 20142017, were approximately $1,2631,110 million, or approximately $67107 million less than the measured obligation. The following table presents the components of cash contributions for the advance-funded and pay-as-you-go plans: | | Cash Contributions to Defined Benefit Pension Plans (In millions) | 2014 | | 2013 | | 2012 | | (In millions) | | 2017 | | 2016 | | 2015 | U.S. advance-funded plans | $ | 75.0 |
| | $ | 50.0 |
| | $ | 109.3 |
| $ | 2.1 |
| | $ | — |
| | $ | — |
| U.S. pay-as-you-go plans(1) | 6.9 |
| | 5.6 |
| | 5.6 |
| 7.5 |
| | 7.5 |
| | 7.3 |
| Non-U.S. advance-funded plans | 9.3 |
| | 4.8 |
| | 4.2 |
| 1.1 |
| | 1.3 |
| | 1.5 |
| Non-U.S. pay-as-you-go plans | 8.8 |
| | 7.9 |
| | 7.7 |
| 7.1 |
| | 7.1 |
| | 6.6 |
| Total Cash Contributions | $ | 100.0 |
| | $ | 68.3 |
| | $ | 126.8 |
| $ | 17.8 |
| | $ | 15.9 |
| | $ | 15.4 |
|
| | (1) | Excludes benefit payments of approximately $28 million which were paid from a U.S. nonqualified pension plan in connection with our emergence from bankruptcy.
|
Based on the U.S. advance-funded plans' status as of December 31, 2014,2017, there are no minimum required payments under ERISA for 2015.2018. We intend to fund non-U.S. pension plans based upon applicable legal requirements and actuarial and trustee recommendations. We contributed $18.18.2 million to these plans in 20142017.
Postretirement Benefits Other Than Pensions
We have provided postretirement health care and life insurance benefits for retired employees of certain U.S. business units and certain divested business units. These plans are unfunded, and we pay the costs of benefits under these plans as they are incurred. Our share of the net cost of benefits under this program was $3.7 million in 2014, compared with $4.5 million in 2013. We received Medicare subsidy payments of $0.2 million and $1.4 million in 2014 and 2013, respectively. Our recorded liability for postretirement benefits of $2.4 million at December 31, 2014, is stated at net present value discounted at 4.18%.
In June 2014, we announced plans to discontinue our postretirement medical plan for all U.S. employees effective October 31, 2014, and to eliminate certain postretirement life insurance benefits. As a result of these actions, we recognized a gain of $41.9 million in other comprehensive income in the 2014 second quarter. We amortized $39.5 million from accumulated other comprehensive income into the Consolidated Statement of Operations during the five-month period from June to October 2014. The $39.5 million gain recognized during the year ended December 31, 2014, is reported as a separate line item in the Consolidated Statement of Operations. The gain attributable to our current businesses is $23.6 million and is included in Adjusted EBIT. The portion attributable to divested businesses is $15.9 million and is excluded from Adjusted EBIT.
Tax Matters
We generated approximately $1,300 million in tax deductions in 2014 relating to emergence from bankruptcy including approximately $670 million for payments made upon emergence and $632 million upon payment of the PI deferred payment obligation in the third quarter. These items, a significant portion of which were previously recorded as deferred tax assets for temporary differences, will be available to reduce U.S. federal taxable income in 2014 and future years. In addition, we generated U.S. Federal income tax deductions upon repurchase of the warrant held by the PI Trust in February 2015 for $490 million in cash and expect to generate U.S. federal income tax deductions of $30 million upon payment of the ZAI PD deferred payment obligation in 2017. The expected settlement amounts have already been recorded as deferred tax assets for temporary differences.
See Note 8 to the Consolidated Financial Statements and "Income Taxes" above for additional discussion of our tax accounting matters including tax contingencies.
Other Contingencies See Note 1110 to the Consolidated Financial Statements for a discussion of our other contingent matters. Inflation We recognize that inflationary pressures may have an adverse effect on us through higher asset replacement costs and higher raw materials and other operating costs. We experienced raw materials cost inflation during the 2017 second half and expect to see continued inflation in 2018. We try to minimize these impacts through effective control of operating expenses and productivity improvements as well as price increases to customers.
We estimate that the cost of replacing our property and equipment today is greater than its historical cost. Accordingly, our depreciation expense over the life of the asset would be greater if the expense were stated on a current cost basis. Highly Inflationary Economy
Effective January 1, 2010, we began to account for Venezuela as a highly inflationary economy. As a result, the functional currency of our Venezuelan subsidiary became the U.S. dollar; therefore, all translation adjustments are reflected in net income in the accompanying Consolidated Statements of Operations. The exchange rate of 4.3 was used to remeasure our financial statements from bolivars to U.S. dollars upon Venezuela's designation as a highly inflationary economy.
Effective February 13, 2013, the official exchange rate of the bolivar to the U.S. dollar devalued from 4.3 to 6.3. As a result of this currency devaluation, we incurred a charge to net income of $8.5 million in the 2013 first quarter. Of this amount, $1.6 million was included in Adjusted EBIT.
In March 2013, the Venezuelan government launched a new foreign exchange mechanism called the "Complimentary System of Foreign Currency Acquirement" (or SICAD1, which stands for Sistema Complimentario de Administración de Divisas). The SICAD1 operates similarly to an auction system and allows entities in specific
sectors to bid for U.S. dollars to be used for specified import transactions. In March 2014, the Venezuelan government launched another foreign exchange mechanism, known as the SICAD2, which operates similarly to the SICAD1. Neither the SICAD1 nor the SICAD2 have changed or eliminated the official exchange rate of the bolivar to the U.S. dollar.
The exchange rates published by the Central Bank of Venezuela at December 31, 2014, for the three legal exchange mechanisms administered by the Venezuelan government were as follows:
| | (a) | CENCOEX (successor of CADIVI): 6.3 bolivars to 1 U.S. dollar (fixed, official rate); |
| | (b) | SICAD1: 12.0 bolivars to 1 U.S. dollar (variable); |
| | (c) | SICAD2: 50.0 bolivars to 1 U.S. dollar (variable). |
As of December 31, 2014, we have exchanged bolivars for $0.1 million through the SICAD1 and have not exchanged bolivars through the SICAD2. Based on current market conditions and the needs of the business, we expect to purchase materials through one or more of these or other alternative exchange mechanisms in the future on a limited basis to support our operations in Venezuela.
In February 2015, Venezuelan officials announced proposed changes to the current foreign exchange mechanisms. Until implementing regulations are announced, we are not able to determine how or when these changes will effect our business or our Consolidated Financial Statements.
Materials Technologies and Construction Products have operated in Venezuela for several decades with sales in that country of approximately 2% and 3%, respectively, of each segment’s sales in 2014. In the 2014 first quarter, we began seeing a significant impact to our sales and earnings as a result of Venezuela's difficult economic conditions. It has become increasingly difficult for us and our customers to operate normally in the country as currency and import controls have impacted our ability to import necessary raw materials for production. If we or our customers are unable to resume normal operations, we may experience further reductions to our sales and earnings.
There have been no changes in the official exchange rate of the bolivar to the U.S. dollar since February 13, 2013. We continue to use the official exchange rate of 6.3 bolivars to U.S. dollars for remeasurement purposes. As of December 31, 2014, our bolivar-denominated net monetary asset position was $32.4 million, and bolivar-denominated sales represented approximately 2% of total 2014 sales.
Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions affecting the assets and liabilities reported at the date of the Consolidated Financial Statements, and the revenues and expenses reported for the periods presented. We believe that our accounting estimates are appropriate and the related balances are reasonable; however, actual amounts could differ from the original estimates, requiring adjustments in future periods. Changes in estimates are recorded in the period in which the change is identified. Our accounting policies are described in Note 1 to the Consolidated Financial Statements. Critical accounting estimates are described in this section. An accounting estimate is considered critical if the estimate requires management to make assumptions and judgments about matters that were highly uncertain at the time the estimate was made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur from period to period that could have a material impact on our financial condition or results of operations. As part of our quarterly disclosure controls and procedures, management has discussed the development, selection and disclosure of the critical accounting estimates with the Audit Committee of the Board of Directors. Contingent Liabilities We have recorded a liability for the resolution of contingencies related to asbestos property damage, environmental remediation, income taxes and litigation. We record a liability if we have determined that a loss is probable and we are able to reasonably estimate the amount of the loss or have another reasonable basis for recording a liability. We have determined that each of the contingencies discussed below involves an accounting judgment that is material to our Consolidated Financial Statements.
Asbestos Property Damage LawsuitsLegacy Product Liabilities
We were a defendant in property damage and personal injury lawsuits relating to previously sold asbestos-containing products. Asemerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014, as discussed in Note 210 to the Consolidated Financial Statements, we emerged from Chapter 11 on February 3, 2014. Statements. Under the Joint Plan two asbestos trusts were establishedplan of reorganization, all pending and funded under Section 524(g) of the U.S. Bankruptcy Code as follows: Allfuture asbestos-related personal injury claims and demands have beenare channeled for resolution to either the PI Trust or the PD Trust. AsThe trusts are the sole recourse for holders of February 3, 2015, weasbestos-related claims. The channeling injunctions issued by the bankruptcy court prohibit holders of asbestos-related claims from asserting such claims directly against us.
We have no furthersatisfied all of our financial obligations to the PI Trust. See Note 2We have contingent financial obligations remaining to the Consolidated Financial Statements for further informationPD Trust. With respect to property damage claims related to ZAI PD Claims, the PD Trust was funded with $34.4 million on the resolution of these obligations. Following the Effective Date unresolved non-ZAIand $30 million on February 3, 2017. We are also obligated to make up to 10 contingent deferred payments of $8 million per year to the PD Trust in respect of ZAI PD Claims during the 20-year period beginning on the fifth anniversary of the Effective Date, with each such payment due only if the assets of the PD Trust in respect of ZAI PD Claims fall below $10 million during the preceding year. We have not accrued for the 10 additional payments as we do not currently believe they are probable. We are not obligated to make additional payments to the PD Trust in respect of ZAI PD Claims beyond the payments described above. We have satisfied all of our financial obligations with respect to Canadian ZAI PD Claims.
With respect to Other PD Claims, claims unresolved as of the Effective Date are to be litigated in the Bankruptcy Courtbankruptcy court and any future non-ZAI PD Claimsclaims are to be litigated in a federal district court, in each case pursuant to procedures to be approved by the Bankruptcy Court.bankruptcy court. To the extent any such Other PD claimsClaims are determined to be allowed claims, they are to be paid in cash by the PD Trust. We are obligated to make a payment to the PD Trust every six months in the amount of any non-ZAIOther PD Claims allowed during the preceding six months plus interest (if applicable) and except for the first six months, the amount of PD Trust expenses for the preceding six months. We have not paid any Other PD Claims since emergence. Annual expenses have been approximately $0.2 million per year. The aggregate amount to be paid under the PD Obligation is not capped, and we may be obligated to make additional payments to the PD accountTrust in respect of the PD Obligation. We have accrued for those unresolved Other PD Claims that we believe are probable and estimable. We have not accrued for other unresolved or unasserted non-ZAIOther PD Claims as we do not believe that payment on any such claims is probable. We are obligated to make a payment
All payments to the PD Trust in respect of the ZAI PD Account beyond the payments described above. We have accrued for the $30 million payment due on the third anniversary ofrequired after the Effective Date but have not accrued for the 10 additional payments since we do not currently believe they are probable. We generated approximately $1,300 million in U.S. federal tax deductions in 2014 relatingsecured by our obligation to its emergence from bankruptcy, including approximately $670 million relating to payments made upon emergence and $632 million upon paymentissue 77,372,257 shares of the PI deferred payment obligation. The value of the PI Warrant will be treated as a deductible expense for tax purposes in 2015. The deferred paymentCompany common stock to the ZAI PD Account is expectedTrust in the event of default, subject to be deductible at the time of payment. See Note 8 to the Consolidated Financial Statements for a discussion of tax deductions generated in connection with emergence from Chapter 11.customary anti-dilution provisions.
Environmental Remediation We are obligated under applicable law to remediate certain properties related to our business or former businesses. At some sites we outsource all or a portion of the remediation to third parties, and at others we perform the required remediation ourselves. Our environmental remediation obligation has a significant impact on our Consolidated Financial Statements. See disclosure in this Report in Item 1 (Business—Environment, Health and Safety Matters) and in Note 1110 to the Consolidated Financial Statements for a discussion of our environmental remediation liabilities. At sites where third parties conduct remediation, we estimate our obligations from information available to us through such third parties, including actual costs incurred, expected future costs and time to completion. At sites where we conduct remediation, we use available information, work with regulatory authorities to define compliance requirements, and then estimate the cost required to meet those requirements. We base our estimates on our historical knowledge and engineering assessments specific to conditions at each site, and we update our estimates as necessary. Our estimates can fluctuate significantly due to the extended duration of some remediation projects. The accuracy of our estimates is dependent on the validity of assumptions regarding regulatory approaches and such matters as labor rates, indirect costs and capital costs, (such as building materials), which are each difficult to forecast over extended periods. We cannotIt is not practicable to estimate the impact on our Consolidated Financial Statements of using other reasonably possible assumptions because we primarily rely on the assumptions and estimates of the applicable regulatory authorities.
assumptions. Future changes in estimates, if required, will more than likely lead to material adjustments to our Consolidated Financial Statements, and we expect the ultimate resolution of these obligations to have a material impact on our liquidity and capital resources. We operatedpurchased a vermiculite mine in Libby, Montana, in 1963 and operated it until 1990. Vermiculite concentrate from the Libby mine was used in the manufacture of attic insulation and other products. Some of the vermiculite ore that was mined at the Libby mine contained naturally occurring asbestos. We are workingengaged with the EPA and other federal, state and local governmental agencies in cooperation with EPA to investigatea remedial investigation and feasibility study of the Libby vermiculite mine and the surrounding area. We do not have sufficientIn its 2017 Annual Project Update for the Libby Asbestos Superfund Site, the EPA announced a narrowing of its focus from the former "OU3 Study Area" to a smaller Operable Unit 3 ("OU3"). Within this revised area, the RI/FS will determine the specific areas requiring remediation and will identify possible remedial action alternatives. Possible remedial actions within OU3 are wide-ranging, from institutional controls such as land use restrictions, to more active measures involving soil removal, containment projects, or other protective measures. Based on communications from regulatory agencies, we expect the RI/FS and a record of decision to be completed by the end of 2019. When meaningful new information to estimatebecomes available, we will reevaluate estimated liability for the cost of any requiredcosts for remediation of the mine and surrounding area and adjust our reserves accordingly. The EPA is also investigating or remediating formerly owned or operated sites that processed Libby mine. During 2010, EPA began reinvestigating up to 105 facilities where vermiculite concentrate from the Libby mine may have been used, stored or processed.into finished products. We are cooperating with the EPA on this reinvestigation, includingthese investigation and remediation at several facilities. Itactivities and have recorded a liability to the extent that our review has indicated that a probable liability has been incurred and the cost is probableestimable. These liabilities cover the estimated cost of investigations and, to the extent an assessment has indicated that remediation is necessary, the estimable cost of response actions. Response actions typically involve soil excavation and removal, and replacement with clean fill. The EPA will requestmay commence additional remediationinvestigations in the future at other facilities,sites that processed Libby vermiculite, but we do not have sufficient information to either identifybelieve, based on our knowledge of prior and current operations and site conditions, that liability for remediation at such other sites that might require additional remediation or estimate the costs. We will continue to monitor EPA's reinvestigation of the remaining sites and assess any information received from EPA. A liability will be recorded in the future should Grace determine that an obligation is probable and reasonably estimable.probable. Our current estimates of our environmental remediation obligations do not include the cost to remediate the Libby vermiculite mine and surrounding area or costs related to any additional EPA claims, whether resulting from the EPA's reinvestigationinvestigation of former vermiculite facilitiesprocessing sites or otherwise, which may be material but are not currently estimable. Due to these vermiculite-related matters, itIt is probable that our ultimate liability for environmental remediation will exceed our current estimates by material amounts.
Litigation We are subject to legal proceedings and claims arising out of the normal course of business. To estimate the cost to resolve our legal obligations, we review the facts of each matter to determine the merits of the case and the corresponding probability of a loss. If we determine that a loss is probable, we determine if there is sufficient information to make a reasonable estimate of the loss amount. Our estimates regarding the outcome of our legal proceedings and claims involve substantial uncertainties that could cause our actual losses to differ materially from our estimates. In estimating the likely outcome of a legal proceeding, we consider the nature of the specific claim (or unasserted claim), our experience with similar claims, the jurisdiction in which the proceeding is filed, court rulings, the status of any settlement negotiations, the likelihood of resolution through settlement or alternative dispute resolution, the proceeding's current status and other relevant information and events. We adjust our recorded liability for litigation contingencies as necessary to reflect our current evaluation of these and other factors. Goodwill We review our goodwill for impairment on an annual basis at October 31 and whenever events or a change in circumstances indicate that the carrying amount may not be fully recoverable. We testhave identified our operating segments as reporting units for goodwill for impairment at the reporting unit level, which is one level below an operating segment.testing. Our Catalysts Technologies operatingreportable segment has two reporting units for goodwill impairment testing, referred to aswhich are our Refining Technologies and Specialty Catalysts.Catalysts operating segments. Our Materials Technologies operating segment has threerepresents a single reporting unitsunit for goodwill impairment testing referred to as Engineered Materials, Packaging Products, and Discovery Sciences. Our Construction Products operating segment has two reporting units for goodwill impairment testing referred to as Specialty Construction Chemicals and Specialty Building Materials.testing. We performed a quantitative analysis as of October 31, 2014,2017, and concluded that the estimated fair value of all of our reporting units substantially exceeded their carrying values. Pension and Other Postretirement Benefits Expenses and Liabilities We sponsor defined benefit pension plans for our employees in the United States and a number of other countries, including Canada the United Kingdom and Germany, and fund government-sponsored programs in other countries where we operate. See Note 98 to the Consolidated Financial Statements for a detailed discussion of our pension plans and other postretirement benefit plans. In order to estimate our pension and other postretirement benefits expenses and liabilities we evaluate the range of possible assumptions to be used in the calculation of pension and other postretirement benefits expenses and liabilities. We select the assumptions that we believe to be most indicative of factors such as
participant demographics, past experiences and market indices, and provide the assumptions to independent actuaries. These assumptions are updated annually and primarily include factors such as discount rates, expected return on plan assets, mortality rates, retirement rates, and rate of compensation increase. The independent actuaries review our assumptions for reasonableness, and use the assumptions to calculate our estimated liability and future pension expense. We review the actuarial reports for reasonableness and adjust our expenses, assets and liabilities to reflect the amounts calculated in the actuarial reports. The two key assumptions used in determining our pension benefit obligations and pension expense are the discount rate and expected return on plan assets. Our most significant pension assets and pension liabilities relate to U.S. pension plans. The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. pension plans, the assumed weighted average discount rate was selected in consultation with our independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. We selected the expected return on plan assets for the U.S. qualified pension plans for 20142017 in consultation with our independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results.
The following table reflects the sensitivity of 20152018 pre-tax expense (excluding the effects of the annual mark-to-market adjustment) and our year-end projected benefit obligation, or PBO, to a change in the discount rate and expected rate of return on plan assets assumptions for the U.S. pension plans: | | Change in Assumption (In millions) | Effect on 2015 Pre-Tax Pension Expense | | Effect on December 31, 2014 PBO | Effect on 2018 Pre-Tax Pension Expense | | Effect on December 31, 2017 PBO | 25 basis point decrease in discount rate | $ | (1 | ) | | $ | 45 |
| $ | (1 | ) | | $ | 38 |
| 25 basis point increase in discount rate | 1 |
| | (42 | ) | 1 |
| | (36 | ) | 25 basis point decrease in expected return on plan assets | 3 |
| | — |
| 3 |
| | — |
| 25 basis point increase in expected return on plan assets | (3 | ) | | — |
| (3 | ) | | — |
|
Income Taxes We are a global enterprise with operations in more than 40 countries. This global reach results in a complexity ofOur effective tax regulations, which require assessments of applicable tax lawrate is primarily determined based on our pre-tax income and judgments in estimating our ultimatethe statutory income tax liability. See Note 8 torates in the Consolidated Financial Statementsjurisdictions in which we operate. The effective tax rate also reflects the tax impacts of items treated differently for additional details regardingtax purposes than for financial reporting purposes. Some of these differences are permanent, such as expenses that are not deductible in our estimates used in accounting fortax returns, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred income tax matters includingassets and liabilities. Deferred income tax contingencies.assets are also recorded for NOL and federal tax credit carryforwards.
Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date. We recognizereduce the carrying amounts of deferred tax benefit from an uncertain tax position onlyassets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income ("FSI"), the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment. As further described in Note 7 to the Consolidated Financial Statements, our Consolidated Balance Sheet as of December 31, 2017, includes net deferred income tax assets of $548.3 million. Included in this amount are deferred U.S. federal income tax assets representing federal tax credit carryforwards of $269.6 million, federal NOL carryforwards of $89.5 million, state NOL deferred income tax assets of $58.2 million, and foreign NOL deferred tax assets of $6.6 million. We have established valuation allowances in the amount of $12.3 million, consisting of $9.2 million for state net operating loss carryforwards, $2.8 million for foreign deferred tax assets, primarily foreign operating loss carryforwards, and $0.3 million for federal tax credits. In order to fully utilize our U.S. federal tax credits before they expire from 2021 to 2027, we will need to generate domestic and foreign source income of approximately $1.2 billion and approximately $200 million, respectively. We estimate that we will need to generate future U.S. taxable income of approximately $440 million before 2035 to fully utilize the federal net operating losses. We will need to generate approximately $1.5 billion for state income tax purposes during the respective realization periods (ranging from 2018 to 2035) in order to fully realize the net deferred income tax assets. Inherent in determining our effective tax rate are judgments regarding business plans and expectations about future operations. These judgments include the amount and geographic mix of future taxable income, the amount of FSI, limitations on the usage of NOL carryforwards, the impact of ongoing or potential tax audits, and other future tax consequences. The federal tax credit carryforwards arose primarily as a result of the payment of intercompany dividends from our foreign affiliates, from the mandatory repatriation under the Act, and from research and development credits. The federal and state NOLs arose primarily as a result of the amounts paid as a result of our bankruptcy proceedings.
Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation or insufficient future taxable income or FSI prior to expiration of certain deferred tax assets. We recognize the tax benefits of an uncertain tax position willif those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities, based on the technical merits of the position. We measure tax benefits in our financial statements from such a position as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.authorities. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. We record a liability for income tax contingencies when it issubsequently recognized at the time the more likely than not that arecognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position we have taken will not be sustained upon audit. We evaluate such likelihood based on relevant facts and tax law. We adjust our recorded liability for income tax matters due to changes in circumstances or new uncertainties, such as amendments to existing tax law. Our ultimate tax liability depends upon many factors, including negotiations with taxing authorities in the jurisdictions in which we operate, outcomes of tax litigation, and resolution of disputes arising from federal, state, and foreign tax audits. Due to the varying tax laws in each jurisdiction, senior management, with the assistance of local tax advisors as necessary, assesses individual matters in each jurisdiction on a case-by-case basis. We research and evaluate our income tax positions, including why we believe they are compliant with income tax regulations, and these positions are documented as appropriate.has expired, whichever is earlier.
Deferred income taxes result from the differences between the financial and tax basis of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. If it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is provided for such deferred tax assets. As of December 31, 2014, we have recorded a valuation allowance of $12.5 million on net deferred tax assets of $839.1 million, of which $5.9 million is related to U.S. state NOLs, $2.4 million to U.S. federal credits, and $4.2 million to foreign NOLs. The balance of net deferred tax assets, net of valuation allowance, is $826.6 million.
The following table summarizes the balance of deferred tax assets, net of deferred tax liabilities, at December 31, 2014, of $826.6 million:
| | | | | | | | | | | | | | Deferred Tax Asset (Net of Liabilities) | | Valuation Allowance | | Net Deferred Tax Asset(2) | United States—Federal(1) | $ | 740.6 |
| | $ | (2.4 | ) | | $ | 738.2 |
| United States—States(1) | 51.1 |
| | (5.9 | ) | | 45.2 |
| Germany | 40.8 |
| | — |
| | 40.8 |
| Other Foreign | 6.6 |
| | (4.2 | ) | | 2.4 |
| Total | $ | 839.1 |
| | $ | (12.5 | ) | | $ | 826.6 |
|
| | (1) | The U.S. Federal deductions generated during 2014 relating to emergence of $670 million and settlement of the PI deferred payment obligation of $632 million, plus the $490 million warrant repurchase on February 3, 2015, and the $30 million ZAI PD deferred payment obligation, account for a significant portion of the U.S. federal and state deferred tax assets. |
| | (2) | The noncurrent deferred tax asset of $612.0 million reflected in the December 31, 2014, Consolidated Balance Sheet is net of $5.7 million of income tax contingencies related to these deferred tax assets. |
We will need to generate approximately $2,100 million of U.S. federal taxable income by 2035 (or approximately $105 million per year during the carryforward period) to fully realize the U.S. federal and a majority of the U.S. state net deferred tax assets.
The following table summarizes expiration dates in jurisdictions where we have, or will have, material tax loss carryforwards:
| | | | Expiration Dates | United States—Federal | 2034 - 2035 | United States—States | 2014 - 2035 | Brazil | Unlimited Carryforward |
In evaluating our ability to realize our deferred tax assets, we consider all reasonably available positive and negative evidence, including recent earnings experience, expectations of future taxable income and the tax character of that income, the extended period of time over which the temporary differences become deductible and the carryforward and/or carryback periods available to us for tax reporting purposes in the related jurisdiction. In estimating future taxable income, we develop assumptions, including the amount of future federal, state and international pretax operating income that we can reasonably expect to generate, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more likely than not to be realized.
U.S. federal deferred tax assets associated with certain credit carryforwards have expiration dates through 2018 and are projected to expire before they can be utilized. We have recorded a valuation allowance of $2.4 million on these credits. We concluded that a valuation allowance is not required with respect to the remaining U.S. federal deferred tax assets of $738.2 million because we believe we will have sufficient U.S. taxable income to realize all future available tax deductions and remaining credits prior to their expiration.
We also considered the need for a valuation allowance on state deferred tax assets. We have considered forecasted earnings, recent past and future taxable income and allowable carryforward periods of net operating
losses in each state taxing jurisdiction in which we operate. We believe that we will generate sufficient domestic income in most state and local jurisdictions to utilize future deductions.
In the 2013 fourth quarter we determined that it is more likely than not that, with the exception of certain state NOLs that were generated in prior years, future taxable income will be sufficient to enable us to utilize our net state deferred tax assets. Accordingly, we recorded a $24.4 million release in our valuation allowance on our state deferred tax assets. The valuation allowance was also reduced by, to a lesser extent, the utilization and expiration of state net operating losses in the current year and the reduction of net operating losses resulting from prior year adjustments to taxable income. There are certain states where a portion of the NOLs generated in prior years will not be utilized prior to their expiration and for which a valuation allowance in aggregate of $5.9 million remains in place.
The realization of deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. We believe it is more likely than not that the net deferred tax assets as of December 31, 2014, will be realized. If we were to determine that we would not be able to realize a portion of our net deferred tax assets in the future, for which there is currently no valuation allowance, an adjustment to the net deferred tax assets would be charged to earnings in the period such determination was made. Conversely, if we were to make a determination that it is more likely than not that deferred tax assets, for which there is currently a valuation allowance, would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.
Recent Accounting Pronouncements See Note 1 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect on us.
W. R. GRACE & CO. AND SUBSIDIARIES FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In millions)
For the Year Ended December 31, 20142017 | | Description | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Other, net(1) | | Balance at end of period | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Other, net(1) | | Balance at end of period | Valuation and qualifying accounts deducted from assets: | | | | | | | | | | | | | | | | | | | Allowances for notes and accounts receivable(2) | $ | 7.6 |
| | $ | 2.5 |
| | $ | (4.9 | ) | | $ | 0.5 |
| | $ | 5.7 |
| $ | 2.8 |
| | $ | 10.6 |
| | $ | (1.3 | ) | | $ | (0.1 | ) | | $ | 12.0 |
| Valuation allowance for deferred tax assets(2)(3) | 18.3 |
| | 1.2 |
| | (7.0 | ) | | — |
| | 12.5 |
| 31.4 |
| | 0.3 |
| | (19.7 | ) | | — |
| | 12.0 |
| Reserves: | | | | | | | | | | | | | | | | | | | Reserves for asbestos-related litigation | 2,092.4 |
| | — |
| | (2,092.4 | ) | | — |
| | — |
| | Reserves for environmental remediation | 134.5 |
| | 14.7 |
| | (87.5 | ) | | — |
| | 61.7 |
| 66.3 |
| | 24.4 |
| | (20.4 | ) | | — |
| | 70.3 |
| Reserves for retained obligations of divested businesses | 35.0 |
| | — |
| | (21.5 | ) | | — |
| | 13.5 |
| 11.7 |
| | 1.5 |
| | (0.4 | ) | | — |
| | 12.8 |
|
For the Year Ended December 31, 20132016 | | Description | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Other, net(1) | | Balance at end of period | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Other, net(1) | | Balance at end of period | Valuation and qualifying accounts deducted from assets: | | | | | | | | | | | | | | | | | | | Allowances for notes and accounts receivable | $ | 6.9 |
| | $ | 2.2 |
| | $ | (1.6 | ) | | $ | 0.1 |
| | $ | 7.6 |
| $ | 1.4 |
| | $ | 2.4 |
| | $ | (1.1 | ) | | $ | 0.1 |
| | $ | 2.8 |
| Valuation allowance for deferred tax assets(3)(4) | 40.8 |
| | 4.4 |
| | (24.4 | ) | | (2.5 | ) | | 18.3 |
| 8.4 |
| | 11.6 |
| | (9.1 | ) | | 20.5 |
| | 31.4 |
| Reserves: | | | | | | | | | | | | | | | | | | | Reserves for asbestos-related litigation | 2,065.0 |
| | 27.4 |
| | — |
| | — |
| | 2,092.4 |
| | Reserves for environmental remediation | 140.5 |
| | 8.0 |
| | (14.0 | ) | | — |
| | 134.5 |
| 55.2 |
| | 29.2 |
| | (18.1 | ) | | — |
| | 66.3 |
| Reserves for retained obligations of divested businesses | 34.2 |
| | 0.8 |
| | — |
| | — |
| | 35.0 |
| 13.5 |
| | — |
| | (1.8 | ) | | — |
| | 11.7 |
|
For the Year Ended December 31, 20122015 | | Description | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Other, net(1) | | Balance at end of period | Balance at beginning of period | | Additions charged to costs and expenses | | Deductions | | Other, net(1) | | Balance at end of period | Valuation and qualifying accounts deducted from assets: | | | | | | | | | | | | | | | | | | | Allowances for notes and accounts receivable | $ | 9.8 |
| | $ | 1.9 |
| | $ | (4.8 | ) | | $ | — |
| | $ | 6.9 |
| $ | 1.0 |
| | $ | 0.5 |
| | $ | (0.1 | ) | | $ | — |
| | $ | 1.4 |
| Valuation allowance for deferred tax assets(4)(5) | 100.8 |
| | — |
| | (60.0 | ) | | — |
| | 40.8 |
| 10.7 |
| | 0.4 |
| | (2.6 | ) | | (0.1 | ) | | 8.4 |
| Reserves: | | | | | | | | | | | | | | | | | | | Reserves for asbestos-related litigation | 1,700.0 |
| | 365.0 |
| | — |
| | — |
| | 2,065.0 |
| | Reserves for environmental remediation | 149.9 |
| | 3.6 |
| | (13.0 | ) | | — |
| | 140.5 |
| 61.1 |
| | 6.4 |
| | (12.3 | ) | | — |
| | 55.2 |
| Reserves for retained obligations of divested businesses | 33.7 |
| | 0.7 |
| | (0.2 | ) | | — |
| | 34.2 |
| 13.5 |
| | — |
| | — |
| | — |
| | 13.5 |
|
| | (1) | Various miscellaneous adjustments against reserves and effectsEffects of currency translation.translation and the Separation. |
| | (2) | The allowance for accounts receivable increased primarily due to a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions. |
| | (3) | The valuation allowance decreased $5.8$19.4 million from December 31, 2013,2016, to December 31, 2014.2017. The decrease was primarily due to the effects of U.S. tax reform. |
| | (4) | The valuation allowance increased $23.0 million from December 31, 2015, to December 31, 2016. The increase was primarily due to the adoption of ASU 2016-09 as well as the ability to utilize NOL carryforwards as a result of the Separation. |
| | (5) | The valuation allowance decreased $2.3 million from December 31, 2014, to December 31, 2015. The decrease was primarily due to a reduction in the valuation allowance on state NOL carryforwards, partially offset by an increase in the valuation allowance on NOLs in certain foreign jurisdictions.carryforwards. |
| | (3) | In the 2013 fourth quarter, Grace determined that it is more likely than not that its deductions generated at emergence will be used before their expiration. Grace recorded a $24.4 million release of its valuation allowance on its state deferred tax assets. Further decreases resulted from the utilization and expiration of state NOLs and the reduction of NOLs resulting from prior-year adjustments to taxable income. These decreases were partially offset by the recording of valuation allowances on deferred tax assets associated with certain U.S. federal foreign tax credits. |
| | (4) | The reduction in the valuation allowance during 2012 related in part to a $44.0 million release of the valuation allowance as Grace determined that it is more likely than not that a substantial portion of its state net operating losses will be used before their expiration; the remainder related to the utilization and expiration of state NOLs in the current year and the reduction of NOLs resulting from prior-year adjustments made to income by the Internal Revenue Service. |
EXHIBIT 12 W. R. GRACE & CO. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(1)(2) (In millions, except ratios) (Unaudited)
| | | | Year Ended December 31, | | Year Ended December 31, | | | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | Net income attributable to W. R. Grace & Co. shareholders | | $ | 276.3 |
| | $ | 256.1 |
| | $ | 40.0 |
| | $ | 219.7 |
| | $ | 193.8 |
| | $ | 11.2 |
| | $ | 94.1 |
| | $ | 144.2 |
| | $ | 276.3 |
| | $ | 256.1 |
| Provision for (benefit from) income taxes | | 57.0 |
| | 102.9 |
| | (61.6 | ) | | 87.9 |
| | 26.2 |
| | 200.5 |
| | 59.0 |
| | 69.8 |
| | (12.4 | ) | | 29.2 |
| Equity in earnings of unconsolidated affiliate | | (19.7 | ) | | (22.9 | ) | | (18.5 | ) | | (15.2 | ) | | (17.8 | ) | | (25.9 | ) | | (29.8 | ) | | (20.4 | ) | | (19.7 | ) | | (22.9 | ) | Distributed income of earnings of unconsolidated affiliate | | 11.2 |
| | 2.8 |
| | 6.3 |
| | 10.9 |
| | 0.5 |
| | 19.0 |
| | 31.0 |
| | 11.8 |
| | 11.2 |
| | 2.8 |
| Interest expense and related financing costs, including amortization of capitalized interest, less interest capitalized | | 127.4 |
| | 43.9 |
| | 46.8 |
| | 43.6 |
| | 41.7 |
| | 79.6 |
| | 92.1 |
| | 99.8 |
| | 123.5 |
| | 40.7 |
| Estimated amount of rental expense deemed to represent the interest factor | | 9.4 |
| | 8.8 |
| | 7.5 |
| | 6.9 |
| | 6.9 |
| | 7.5 |
| | 8.0 |
| | 7.9 |
| | 8.2 |
| | 7.6 |
| Income as adjusted | | $ | 461.6 |
| | $ | 391.6 |
| | $ | 20.5 |
| | $ | 353.8 |
| | $ | 251.3 |
| | $ | 291.9 |
| | $ | 254.4 |
| | $ | 313.1 |
| | $ | 387.1 |
| | $ | 313.5 |
| Combined fixed charges and preferred stock dividends: | | | | | | | | | | | | | | | | | | | | | Interest expense and related financing costs, including capitalized interest | | $ | 128.7 |
| | $ | 45.0 |
| | $ | 46.9 |
| | $ | 43.6 |
| | $ | 41.3 |
| | $ | 81.0 |
| | $ | 93.2 |
| | $ | 100.5 |
| | $ | 124.8 |
| | $ | 41.8 |
| Estimated amount of rental expense deemed to represent the interest factor | | 9.4 |
| | 8.8 |
| | 7.5 |
| | 6.9 |
| | 6.9 |
| | 7.5 |
| | 8.0 |
| | 7.9 |
| | 8.2 |
| | 7.6 |
| Fixed charges | | 138.1 |
| | 53.8 |
| | 54.4 |
| | 50.5 |
| | 48.2 |
| | 88.5 |
| | 101.2 |
| | 108.4 |
| | 133.0 |
| | 49.4 |
| Combined fixed charges and preferred stock dividends | | $ | 138.1 |
| | $ | 53.8 |
| | $ | 54.4 |
| | $ | 50.5 |
| | $ | 48.2 |
| | $ | 88.5 |
| | $ | 101.2 |
| | $ | 108.4 |
| | $ | 133.0 |
| | $ | 49.4 |
| Ratio of earnings to fixed charges | | 3.34 |
| | 7.28 |
| | — |
| | 7.01 |
| | 5.21 |
| | 3.30 |
| | 2.51 |
| | 2.89 |
| | 2.91 |
| | 6.35 |
| Ratio of earnings to fixed charges and preferred stock dividends | | 3.34 |
| | 7.28 |
| | — |
| | 7.01 |
| | 5.21 |
| | 3.30 |
| | 2.51 |
| | 2.89 |
| | 2.91 |
| | 6.35 |
|
| | (1) | Grace did not have preferred stock from 20102013 through 2014.2017. |
| | (2) | The 2012 ratio of earnings to fixed charges is below a one-to-one ratio. An additional $33.9 million in earnings would be needed to attain a one-to-one ratio. |
EXHIBIT 31.(i).1 CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, A. E. Festa, certify that: | | 1. | I have reviewed this annual report on Form 10-K of W. R. Grace & Co.; |
| | 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| | 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| | 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| | (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| | (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| | (c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| | (d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| | (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: February 25, 201522, 2018 | | | | | | /s/ A. E. FESTA | | | A. E. Festa Chief Executive Officer |
EXHIBIT 31.(i).2 CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Hudson La Force III,Thomas E. Blaser, certify that: | | 1. | I have reviewed this annual report on Form 10-K of W. R. Grace & Co.; |
| | 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| | 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| | 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| | (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| | (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| | (c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| | (d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| | (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: February 25, 201522, 2018 | | | | | | /s/ HUDSON LA FORCE IIITHOMAS E. BLASER | | | Hudson La Force IIIThomas E. Blaser
Senior Vice President and Chief Financial Officer |
EXHIBIT 32 CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned certifies that (1) this Annual Report of W. R. Grace & Co. (the "Company") on Form 10-K for the period ended December 31, 20142017, as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. | | | | /s/ A. E. FESTA | | | A. E. Festa Chief Executive Officer | | | | | | /s/ HUDSON LA FORCE IIITHOMAS E. BLASER | | | Thomas E. Blaser Senior Vice President and Chief Financial Officer | | | Date: 2/25/201522/2018 | | |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
|