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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission file number 1-3720
W. R. GRACE & CO.
Incorporated under the Laws of the I.R.S. Employer Identification No.
State of New York 13-3461988
ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010
407/362-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $1 par value } New York Stock Exchange, Inc.
Common Stock Purchase Rights } Chicago Stock Exchange, Incorporated
7-3/4% Notes Due 2002 }
(issued by W. R. Grace & Co.-Conn., } New York Stock Exchange, Inc.
a wholly owned subsidiary) and }
related Guarantees }
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in the Proxy Statement
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
---
The aggregate market value of W. R. Grace & Co. voting stock held by
nonaffiliates was approximately $3.6 billion at February 1, 1995.
At March 1, 1995, 94,250,680 shares of W. R. Grace & Co. Common
Stock, $1 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Proxy Statement for Annual Meeting to be
held May 10, 1995 (specified portions) Part III
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Strategic Restructuring . . . . . . . . . . . . . . . . . . . . . 1
Industry Segments . . . . . . . . . . . . . . . . . . . . . . . . 4
Specialty Chemicals . . . . . . . . . . . . . . . . . . . . . . 4
Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Operations. . . . . . . . . . . . . . . . . . . . . . . . . 12
Research Activities . . . . . . . . . . . . . . . . . . . . . . . 12
Environmental, Health and Safety Matters. . . . . . . . . . . . . 13
Materials and Energy. . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 23
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 24
Item 7. Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations. . . . . . . . . . . . . 24
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . . . . 25
PART III
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 25
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . 25
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
PART I
ITEM 1. BUSINESS.
INTRODUCTION
W. R. Grace & Co., through its subsidiaries, is primarily engaged in the
specialty chemical business on a worldwide basis and in specialized health care
activities. In its chemical operations, Grace develops, manufactures and
markets specialty chemicals and materials and related systems. In health care,
Grace is primarily engaged in supplying kidney dialysis services; in providing
home infusion, home respiratory therapy and home health services; and in the
manufacture and sale of products and equipment used to provide dialysis and
other medical services.
As used in this Report, the term "Company" refers to W. R. Grace & Co., a
New York corporation, and the term "Grace" refers to the Company and/or one or
more of its subsidiaries. Grace's principal executive offices are located at
One Town Center Road, Boca Raton, Florida 33486-1010, and its telephone number
is 407/362-2000. At year-end 1994, Grace had approximately 38,000 full-time
employees worldwide in its continuing operations (approximately 2,400 in
discontinued operations).
Grace's Consolidated Financial Statements for the three years in the period
ended December 31, 1994 ("Consolidated Financial Statements") and certain other
financial information included in the Company's 1994 Annual Report to
Shareholders are set forth in the Financial Supplement to this Report and
incorporated by reference herein.
STRATEGIC RESTRUCTURING
In 1991, Grace announced a new corporate strategy with the principal
objective of enhancing shareholder value. The major components of the strategy
are (a) focusing on core businesses to accelerate profitable growth; (b)
upgrading financial performance, principally by selling or monetizing noncore
businesses, managing debt levels consistent with profitable growth opportuni-
ties, and reducing overhead; and (c) integrating corporate and operating unit
functions through global product line management.
The core businesses referred to above are health care, packaging, catalysts
and other silica-based products, construction products, water treatment and
process chemicals, and container products. As part of its corporate strategy,
Grace has reorganized the management of these core businesses on the basis of
global product lines. Grace also has organized task forces that have developed
and are implementing "best practices" relating to financial systems and
processes, information systems, human resources,
logistics and other management functions; has implemented processes to better
allocate capital among its businesses; and has retired or refinanced
substantially all of its higher-cost debt.
SALE AND MONETIZATION OF NONCORE BUSINESSES. Pursuant to its strategy,
Grace has substantially completed the sale or monetization of its noncore
businesses. In 1991, Grace sold its specialty textiles business; its automotive
chemicals and sound deadening components businesses; investments in two
pharmaceutical businesses; its Trinidadian fertilizer operations; its animal
feed businesses; its polyurethane foam sealant manufacturing business; and its
Japanese microwave products business. In 1992, Grace sold its book, video and
software distribution businesses and its organic chemicals business and related
assets. In 1992, Grace also completed a transaction to monetize a portion of
its cocoa and chocolate business by selling a 21% limited partnership interest
in Grace Cocoa Associates, L.P. ("Grace Cocoa"), which owns this business and
other assets, resulting in Grace's receipt of approximately $300 million in
cash.
During 1993, Grace sold a number of noncore businesses and corporate
investments, including substantially all of its oil and gas and energy services
businesses, a 50% interest in a Japanese chemical business, a food hygiene
services business and minority investments in Grace-Sierra Horticultural
Products Company and Canonie Environmental Services Corp.
In 1994, Grace continued its strategic restructuring by disposing of
noncore businesses for gross proceeds of approximately $646 million, including
substantially all of its interest in Colowyo Coal Company; its printing products
business and a related unit; its battery separators business; its interest in
The Restaurant Enterprises Group, Inc.; its electromagnetic interference
shielding materials and thermal interface products businesses; its American
Breeders Service and Caribbean fertilizer businesses; and its specialty paper
and structural ceramics parts businesses.
Grace is actively pursuing the disposition of its remaining noncore
businesses and expects to complete their disposition in 1995.
STRATEGIC ACQUISITIONS AND OTHER INITIATIVES. As part of its strategy to
focus on core business growth, Grace has made, and expects to continue to make,
strategic acquisitions directly related to its core businesses, including
acquisitions intended to expand its core businesses outside the United States.
In 1992, Grace acquired the North American food service packaging business of Du
Pont Canada. In 1993, Grace acquired (a) the water treatment and related
operations of Aquatec Quimica S.A. of Brazil, which has significant operations
throughout South America, as well as opera-
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tions in Portugal and the United States; and (b) the Katalistics fluid cracking
catalyst additive business previously owned by a joint venture between Union
Carbide Corporation and AlliedSignal Inc.
In the 1992-93 period, Grace acquired Home Intensive Care, Inc., a United
States provider of alternate site infusion therapy and dialysis health care
services, for approximately $136 million in cash (inclusive of expenses and
assumed debt); regional United States providers of home infusion therapy
services and home support nursing services, as well as additional dialysis
centers located primarily in the United States, for a total of approximately
$128 million; Riggers Medizintechnik GmbH, a German manufacturer and distributor
of dialysis products, for approximately $30 million (inclusive of expenses and
assumed debt); the Renacare unit of Lloyds Chemists plc, the leading United
Kingdom producer of dialysis concentrate and a distributor of associated
products, for approximately $10 million in cash; and Virginia-based American
Homecare Equipment, Inc., a provider of home infusion and respiratory therapy
services, for approximately 116,000 shares of the Company's common stock and
other consideration. In 1993, Grace also formed a 51%-owned joint venture with
a large chemical and industrial concern headquartered in Volgograd, Russia, to
produce flexible packaging for sale throughout the Commonwealth of Independent
States; the joint venture began production in the third quarter of 1994.
In 1994, Grace made acquisitions totaling $351.7 million (inclusive of cash
acquired and debt assumed), primarily in its health care, construction products
and packaging product lines. These acquisitions included Home Nutritional
Services, Inc., a United States provider of home infusion therapy services, for
approximately $132 million (inclusive of expenses and assumed debt); 56 United
States dialysis clinics and 34 dialysis clinics and 8 laboratories located in
Europe, Latin America and the Asia Pacific area for a total of approximately
$146 million; the Schur Multiflex group of European flexible packaging
businesses; construction chemicals businesses; and ADTEC AB, a worldwide market-
er of pollution control equipment headquartered in Goteberg, Sweden. In
addition, during 1994 Grace and a family-owned company based in Singapore agreed
to form a joint venture in Malaysia; Grace would hold a 51% interest in the
joint venture, which would produce rigid plastic packaging products for sale
throughout Southeast Asia. In 1994, Grace also formed a 51%-owned joint venture
with an Indian company to supply water treatment products and services in India.
See Notes 3, 6, 11 and 12 to the Consolidated Financial Statements and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in the Financial Supplement for additional information.
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INDUSTRY SEGMENTS
Information concerning the sales and revenues, pretax operating profit and
identifiable assets of Grace's continuing operations by industry segment and
geographic area for 1994, 1993 and 1992 is contained in Note 17 to the
Consolidated Financial Statements in the Financial Supplement.
SPECIALTY CHEMICALS
Grace's specialty chemical operations consist principally of the
development, manufacture and sale of products and systems in five core market
groups (see "Strategic Restructuring" above). These products and systems
typically serve highly specialized markets and represent an important component
(but a relatively small portion of the cost) of the end products in which they
are used. Accordingly, competition is based primarily on technological
capability, customer service and product quality. Grace's specialty chemical
products and systems are marketed primarily through direct sales organizations.
The following is a description of the products and services provided by
each of Grace's core specialty chemical businesses.
PACKAGING. Grace's packaging business ("Grace Packaging") provides high-
performance total packaging systems on a worldwide basis, competing principally
by providing superior quality products and services for specialized customer
needs. The principal products and services provided by Grace Packaging are (a)
flexible plastic packaging systems (including material, equipment and services)
for a broad range of perishable foods such as meat, prepared foods, baked goods,
poultry, produce, cheese, and smoked and processed meat products; (b) shrink
films for packaging a variety of consumer and industrial products; (c) foam
trays for supermarkets and poultry and other food processors; and (d) rigid
plastic containers for dairy and other food and nonfood products.
Grace Packaging competes through three product groups: flexible
packaging (marketed extensively under the Cryovac[Registered Trademark]
registered trademark), Formpac-TM- foam trays, and Omicron-TM- rigid plastic
containers.
Cryovac flexible packaging products include shrink bags, shrink films,
laminated films, medical films, and equipment. The Cryovac packaging products
group developed and introduced flexible plastic vacuum shrink packaging in the
late 1940s, contributing to expanded food distribution and marketing by
providing superior protection against decay-inducing bacteria and moisture loss.
The market for Cryovac products has since shifted from industrial food
applications toward the retail food market, and Cryovac packaging
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technology has also been introduced in nonfood applications such as flexible
packaging for consumer merchandising and electronic and medical products.
The flexible packaging products group differentiates itself from its
competitors by offering a combination of the following core competencies: (1)
proprietary film processing technology; (2) resin technology, permitting the
production of materials suited to specific customer needs; (3) packaging and
food science expertise, providing better understanding of the interaction
between packaging materials and packaged products; (4) complete systems support
capability, providing a single source of supply for customer needs; (5) a
talented employee base that strives to anticipate, meet and exceed customer
expectations; and (6) an effective sales and distribution network.
Foam trays are produced by the Formpac business group of Grace Packaging,
primarily for sale to supermarkets and poultry and other food processors in the
eastern two-thirds of the United States. Formpac proprietary technology has
also been successfully used in certain packaging applications outside the United
States.
Grace Packaging's Omicron business group produces rigid plastic packaging
applications, primarily for dairy products in Australia. Omicron products use
proprietary thermoforming technology, involving the controlled thinning and
shaping of hot plastic sheets to increase strength and rigidity while minimizing
weight. As described above under "Strategic Restructuring - Strategic Acquisi-
tions and Other Initiatives," Grace plans to expand the Omicron business into
Southeast Asia through a recently formed joint venture.
Grace Packaging's sales and revenues were $1.4 billion in 1994, $1.3
billion in 1993 and $1.2 billion in 1992. Approximately 52% of Grace
Packaging's 1994 sales and revenues were generated in North America, 28% in
Europe, 12% in Asia Pacific and the remainder in Latin America. At year-end
1994, Grace Packaging employed approximately 9,400 people in 24 production
facilities (9 in North America, 6 in Europe, 5 in Latin America and 4 in Asia
Pacific) and 80 sales offices, serving approximately 18,000 customers.
Resins are the principal raw materials used by Grace Packaging. Although
prices for ethylene-based resins were volatile in the second half of 1994 due to
unscheduled supplier plant closings and increased demand, there is currently an
adequate worldwide supply of resins at generally stable prices. Grace Packaging
has typically increased the sales prices of its products in response to
increases in the prices of resins and other raw materials. In most cases,
multiple sources of resins and other raw materials exist, with at least one
source located in each global region.
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Although sales and revenues tend to be slightly higher in the fourth
quarter, seasonality is generally not significant to the business. As a result
of product introductions, marketing programs and improvements in global economic
conditions, worldwide demand for Grace Packaging products grew at a rapid pace
in 1994, placing pressure on existing capacity. To address this matter,
capacity additions in all regions (including a shrink films manufacturing plant
in Kuantan, Malaysia) are currently underway.
CATALYSTS AND OTHER SILICA-BASED PRODUCTS. This core business ("Grace
Davison") is composed of three principal product groups: fluid cracking
catalysts, polyolefin catalysts and silica and zeolite adsorbents. These
products involve silica, alumina and zeolite technology and the design and
manufacture of products to meet customer specifications; they are sold to major
oil refiners, plastics and chemical manufacturers, and consumer products compa-
nies.
Fluid cracking catalysts are used by petroleum refiners to upgrade oil to
more valuable transportation fuels such as gasoline and jet and diesel fuel. Oil
refining is a highly specialized discipline, demanding that products be tailored
to meet local variations in raw materials and operational needs. Competition is
based on technology, product performance, customer service and price.
Polyolefin catalysts and catalyst supports are essential components used in
manufacturing nearly half of all high density and linear low density
polyethylene resins, which are used in products such as plastic film and pipe.
The polyolefin catalyst business is technology-intensive and focused on
providing products specifically formulated to meet end-user applications.
Manufacturers generally compete on a worldwide basis, and competition has
intensified recently due to evolving technologies, particularly the use of
metallocenes.
Silica and zeolite adsorbents are used in plastics, toothpastes, paints,
insulated glass and other products, as well as in the refining of edible oils.
Silicas are used in coatings as flatting agents, in plastics to improve
handling, in toothpastes as thickeners and cleaners, in food to carry flavors
and prevent caking, and in the purification of edible oils.
Grace Davison's sales and revenues were $610 million in 1994, $572 million
in 1993, and $519 million in 1992; approximately 55% of Grace Davison's 1994
sales and revenues were generated in North America, 35% in Europe, 8% in Asia
Pacific and 2% in Latin America. At year-end 1994, Grace Davison employed ap-
proximately 2,700 persons worldwide in nine facilities (six in the United States
and one each in Canada, Germany and Brazil).
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Most raw materials used in the manufacture of Grace Davison products are
available from multiple sources and, in some instances, are produced or supplied
by Grace. Because of the diverse applications of products using Grace Davison
technology and the geographic areas in which such products are used, seasonality
does not have a significant effect on Grace Davison's businesses.
CONSTRUCTION PRODUCTS. Grace Construction Products ("GCP") is a leading
supplier of specialty materials and systems to the worldwide construction
industry. GCP products and systems strengthen concrete, control corrosion,
prevent water damage and protect structural steel against collapse due to fire.
These products include concrete admixtures, cement processing additives, and
fireproofing and waterproofing materials. In North America, GCP also
manufactures and distributes reinforced fiberglass building components, masonry
block additives and products, and vermiculite products used in construction and
other industrial applications. GCP's products are sold to a broad customer base,
including cement manufacturers, ready-mixed and prestressed concrete producers,
specialty subcontractors and applicators, masonry block manufacturers, building
materials distributors and other industrial manufacturers.
GCP competes with several large global suppliers and smaller regional
competitors. Competition is based largely on pricing, product performance,
proprietary technology and technical support and service.
GCP's 1994 sales and revenues totaled $387 million (69% in North America,
17% in Europe, 14% in Asia Pacific and less than 1% in Latin America). Sales
and revenues were $333 million in each of 1993 and 1992. At year-end 1994, GCP
employed approximately 2,100 persons at approximately 62 production facilities
(35 in North America, 9 in Southeast Asia, 7 in Australia, 6 in Europe, 4 in
Latin America and 1 in Japan) and 79 sales offices worldwide.
The supplies and raw materials used for manufacturing GCP products are
primarily commodities obtained from multiple sources, including commodity
chemical producers, petroleum companies, other construction industry suppliers
and paper manufacturers. In most instances, there are at least two alternative
suppliers for the raw materials used by GCP. The construction business is
seasonal, based on weather conditions, and cyclical, in response to economic
conditions and construction demand. To increase profitability and minimize the
impact of cyclical downturns in regional economies, GCP strives to introduce new
and improved products, has implemented a lower cost structure in North America
and Europe and continues to increase its presence in European and Southeast
Asian markets.
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WATER TREATMENT. Grace's water treatment and process chemicals business
("Grace Dearborn") consists of the water treatment and paper industry services
business lines, which market the following products and services: (a) chemical
treatments and related equipment and services to prevent corrosion, scale and
microbiological growth in industrial utility waters, heating and cooling
applications, and industrial wastewater applications for clarification, sludge
de-watering, odor control and water recycling; (b) paper industry process
chemicals, support equipment and related consulting services; (c) hydrocarbon
processing chemicals, related support equipment and services to protect and
optimize processing system performance; (d) chemical treatments, support
equipment and services for sugar processing, including processing sugar into
alcohol as a gasoline substitute; (e) chemical treatments to protect industrial
canned food cooking and sterilizing equipment; and (f) paint detackification
products and services to remove paint sludge from water wash paint spray sys-
tems.
Grace Dearborn sales and revenues for 1994 totaled $363 million (40% in
Europe, 39% in North America, 18% in Latin America and 3% in Asia Pacific).
Sales and revenues for 1993 and 1992 were $330 million and $302 million,
respectively. At year-end 1994, Grace Dearborn employed approximately 2,700
persons at 20 plants (6 in Latin America, 5 in Europe, 4 in each of North Amer-
ica and Asia Pacific and 1 in South Africa) and 107 sales offices.
The raw materials used in Grace Dearborn's business lines are readily
available from multiple sources, generally at stable prices. The paper industry
services business is affected by the cyclicality of the global paper market.
The water treatment services business responds to (but is not adversely affected
by) seasonal fluctuations, concentrating on boiler treatment in winter and
cooling system treatment in summer. The effects of seasonality are further
diminished by the geographic diversity of the markets served by Grace Dearborn.
CONTAINER PRODUCTS. Grace's container business ("Grace Container")
consists primarily of four product lines: container sealants, closure sealants,
coatings for metal packaging, and specialty polymers. The principal products
marketed by these product lines include sealing compounds and related
application equipment for food and beverage cans and other rigid containers;
gasketing materials for the metal crown, aluminum roll-on and plastic closure
segments of the glass/plastic container packaging markets; adhesive lacquers and
associated protective and decorative coatings for metal closures; protective and
decorative coatings and lacquers for rigid food and beverage containers; lubri-
cants used primarily in two-piece can manufacturing; and formulated engineered
polymers for printed circuit board and component assembly in the electronics,
electrical, automotive and defense industries, including surface mount and
conductive adhesives, capacitor coatings, light emitting diode encapsulants and
conformal coatings.
- 8 -
Grace Container sales and revenues were $325 million, $306 million and $322
million in 1994, 1993 and 1992, respectively. Its products are marketed
internationally, with 33% of 1994 sales and revenues in Europe, 32% in North
America, 26% in Asia Pacific and 9% in Latin America. At year-end 1994, Grace
Container employed approximately 1,700 persons at 30 plants and 59 sales offices
worldwide. Competition is based on providing high-quality customer service, as
well as on price and product quality and reliability. The raw materials used in
Grace Container's operations are generally available from multiple sources. Al-
though demand for container packaging and sealant products tends to increase
during the warmest months of the year, the impact of such seasonality on Grace
Container is offset almost entirely by the geographic diversity of the markets
it serves.
HEALTH CARE
Grace's health care business ("Grace Health Care") is primarily engaged in
supplying kidney dialysis services; in providing home infusion, home respiratory
therapy and home health services; and in the manufacture and sale of products
and equipment used to provide dialysis and other medical services.
Grace Health Care provides kidney dialysis and related services for
outpatients with chronic renal failure. At December 31, 1994, Grace Health Care
operated 590 centers providing dialysis and related services (526 in North
America, 42 in Europe, 15 in Latin America, and 7 in Asia Pacific); these
centers, substantially all of which are leased, average approximately 5,600
square feet in size. Grace Health Care also provides inpatient acute dialysis
services under contracts with hospitals in the United States (488 at December
31, 1994) and furnishes dialysis equipment and supplies to patients who elect
home treatment. At December 31, 1994, Grace Health Care was treating
approximately 40,000 patients in the United States and 5,000 patients in other
countries. Revenues from kidney dialysis services were $1.3 billion in 1994, $1
billion in 1993 and $860 million in 1992.
Grace Health Care also manufactures disposable bloodlines, dialysis
solutions, artificial kidneys (dialyzers) and dialysis machines for use in its
dialysis centers and for sale to unaffiliated dialysis providers and home
patients; distributes dialysis supplies and equipment and other medical products
and supplies manufactured by others; and provides laboratory services (including
hepatitis testing) in the United States and Portugal. Approximately 60% of the
sales of dialysis and other medical products supplies and equipment reflect
sales to patients not directly treated, or facilities not operated, by Grace
Health Care.
Grace Health Care also provides infusion and respiratory therapy services
to patients in their homes through a network of
- 9 -
108 United States locations (107 leased and 1 owned) in 36 states. Infusion
therapy consists of the intravenous delivery of an expanding range of
medications and nutritional preparations, such as chemotherapy, total parenteral
nutrition, antibiotic therapy and drugs for pain management. Respiratory
therapy consists of the delivery of oxygen and aerosolized drugs and the use of
monitors, nebulizers and ventilators. In addition, Grace Health Care provides
home health services through nine locations in California.
Grace Health Care's United States business is dependent on the continuation
of Medicare and other third-party insurance coverage for dialysis and home care
services and products. At such time as Medicare becomes a patient's primary
payor for dialysis (generally, 3 months following commencement of treatment or,
in the case of patients covered by employer-sponsored health insurance, 21
months after commencement of treatment) and/or homecare products and services,
Medicare currently reimburses suppliers of such services and products for
approximately 80% of established fees or reasonable charges; the remaining 20%
is paid by the patient and/or a non-Medicare insurance carrier.
Because in most cases the prices of dialysis services and products in the
United States are directly or indirectly regulated by Medicare, competition in
the industry is based primarily on quality and accessibility of service. In
addition, some states limit competition under laws that restrict the number of
dialysis facilities within a geographic area based on need, as determined by
state agencies. Competition in the home care business is also based on quality
of service as well as price, and, where state laws do not impose limits on
competition, there are no significant barriers to entering this business.
Further, the rapid growth of managed care (a combination of financial incentives
and management controls intended to direct patients to efficient providers in
cost-effective settings) has placed greater emphasis on service costs for
patients insured by third parties; therefore, cost efficiency is also a key
element of competition in this market. Based upon Grace's knowledge and
understanding of the health care industry in general and of other providers of
kidney dialysis and infusion therapy, as well as information obtained from
publicly available sources, Grace Health Care believes that it is among the most
cost-efficient of the companies in its field and that it is the leading United
States supplier of dialysis services and products and a leading United States
provider of infusion and respiratory therapies.
In most countries other than the United States where Grace Health Care
provides dialysis services, prices and the opening of new facilities are
directly or indirectly regulated by governments, and competition is based
primarily on the quality and availability of service.
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Except as noted in the following paragraph, Grace Health Care believes
there are adequate sources of supply for the raw materials and products used in
its health care services and medical products businesses. At year-end 1994,
Grace Health Care employed approximately 17,000 persons full-time at its
facilities worldwide. Grace Health Care's businesses generally are not seasonal
or cyclical in nature.
National Medical Care, Inc. ("NMC") is Grace's principal health care
subsidiary. In 1993, the United States Food and Drug Administration ("FDA")
issued import alerts with respect to (a) hemodialysis bloodlines manufactured at
NMC's plant located in Reynosa, Mexico and (b) hemodialyzers manufactured in
NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not
enter the United States until the FDA approves the quality assurance systems of
the facility at which such products are manufactured. In January 1994, NMC
entered into a consent decree providing for the resumption of importation of
bloodlines and hemodialyzers following certification by NMC that the relevant
facility complies with FDA regulations and successful completion of an FDA
inspection to verify such compliance. The consent decree also requires NMC to
certify and maintain compliance with applicable FDA manufacturing requirements
at all of its United States manufacturing facilities. NMC submitted all
required certifications for its United States and non-United States facilities
in accordance with the timetable specified in the consent decree, and the
bloodline import alert was lifted in March 1994. The Dublin hemodialyzer
manufacturing facility was inspected by the FDA in December 1994, and NMC
anticipates completion of all remaining corrective actions in the second quarter
of 1995. No fines or penalties have been imposed on NMC as a result of any of
the FDA's actions or in connection with the consent decree. Neither the import
alerts nor previously reported recalls of certain NMC products have had, or are
expected to have, a material effect on Grace's results of operations or
financial condition.
HEALTH CARE INVESTMENT. Grace has a 47% common equity interest in a
company that serves hospitals and other health care institutions by recruiting
nurses and other trained health care personnel and placing them on temporary
assignments throughout the United States. Grace also owns preferred stock of
the company and options to acquire an additional 51% common equity interest in
the company; options covering a 39% common equity interest are currently exer-
cisable and expire in 2001, and options covering the remaining 12% become
exercisable in 1996 and expire in 2001.
See "Strategic Restructuring" above for information concerning 1993 and
1994 transactions involving Grace's health care business.
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OTHER OPERATIONS
THERMAL AND EMISSION CONTROL SYSTEMS. Grace's thermal and emission control
systems business (which is included in the Specialty Chemicals segment in the
Consolidated Financial Statements) consists of four principal product groups:
web processing products, industrial emission control products, mobile emission
control products, and specialty catalysts. These products are designed to
customer specifications and sold to a variety of industrial customers.
Web processing products, consisting primarily of air flotation dryers and
auxiliary equipment, are sold principally to the graphic arts, coating and
converting markets. Competition is based upon system design, service and
product performance.
The industrial emission control products group manufactures volatile
organic compound control equipment, including thermal, catalytic, and
regenerative oxidation systems. Demand for this equipment is driven principally
by government regulations, and competition is based upon technology, product
performance and price.
The mobile emission control products group sells washcoat materials and
specialty substrates. Washcoat materials are used by catalyst manufacturers to
enhance the performance of catalytic converters sold to automotive original
equipment manufacturers. Competition is based primarily on technology and
product performance. In February 1995, Grace and Engelhard Corporation an-
nounced the formation of a 50/50 joint venture to manufacture and market metal-
based catalytic converters to the automotive industry.
Specialty catalysts are used to control volatile organic compounds,
nitrogen oxides and carbon monoxide from a variety of sources.
DISCONTINUED OPERATIONS. In 1993, Grace classified its remaining noncore
businesses as discontinued operations. As described above under "Strategic
Restructuring - Sale and Monetization of Noncore Businesses," in 1993 and 1994
Grace completed the sale and monetization of a substantial portion of these
businesses. Grace is actively pursuing the disposition of its remaining
discontinued operations and expects to complete their disposition in 1995. See
Notes 3, 6 and 12 to the Consolidated Financial Statements in the Financial
Supplement and "Strategic Restructuring" above for additional information.
RESEARCH ACTIVITIES
Grace engages in active research and development programs directed toward
the development of new products and processes and
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the improvement of, and development of new uses for, existing products and
processes. Research is carried out by product line laboratories in North
America, Europe, Asia and Latin America and by the Corporate Research Division,
which has facilities in Columbia, Maryland, Lexington, Massachusetts, and
Atsugi, Japan. The Research Division's activities focus on Grace's core product
lines and include research in specialty polymers; medical products; water
treatment; catalysis; construction materials; photopolymers; specialty
packaging; and process engineering, principally involving the development of
technologies to manufacture chemical specialties and biomedical products.
Research and development expenses relating to continuing operations
amounted to $132 million in 1994, $135 million in 1993 and $130 million in 1992
(including expenses incurred in funding external research projects). The amount
of research and development expenses relating to government- and customer-
sponsored projects (as opposed to projects sponsored by Grace) is not material.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" in the Financial Supplement for additional information.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
In constructing and operating its facilities, Grace incurs capital and
operating expenditures relating to the protection of the environment, as well as
costs to remediate properties. The following table sets forth Grace's
expenditures in the past three years, and its estimated expenditures in 1995 and
1996, for (a) the operation and maintenance of environmental facilities and the
disposal of hazardous and nonhazardous wastes with respect to continuing
operations; (b) capital improvements to environmental control facilities
relating to continuing operations; and (c) the remediation of sites:
(a) (b) (c)
Operation of
Facilities and Capital
Waste Disposal Improvements Remediation
-------------- ------------ -----------
(in millions)
1992 $56 $18 $35
1993 45 20 44
1994 41 22 31
1995 (est.) 42 26 45
1996 (est.) 45 23 39
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Such expenditures have not had, and are not expected to have, a material effect
on Grace's other capital expenditures or on its earnings or competitive
position. See Note 11 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Financial Supplement.
Grace's corporate environment, health and safety ("EHS") policy was
reviewed and revised in 1994 to reflect organizational and other changes. The
revised policy affirms the Company's commitment to continuous improvement in
environment, health and safety performance. The policy is supported through
programs including specialized safety training for employees, monitoring of the
workplace environment, and training and guidance for employees with respect to
EHS regulatory compliance.
In 1994, Grace announced the creation of its Commitment to Care-SM-
program, modeled on the Responsible Care[Registered Trademark] program of the
Chemical Manufacturers Association. The Commitment to Care program extends the
basic elements of the Responsible Care program to all Grace locations worldwide,
to the extent applicable. The program embraces specific objectives in six key
areas of environment, health and safety: product stewardship, employee health
and safety, community awareness and emergency response, process safety,
distribution, and pollution prevention. The effort is coordinated worldwide to
encourage the sharing of best practices among Grace's business units.
Certain EHS management resources were consolidated into a central EHS
department in 1993. The EHS department provides environmental assistance,
training, and medical/toxicology, industrial hygiene and safety services to
support EHS programs in Grace facilities worldwide. The department also audits
operating facilities and oversees the remediation of environmentally impaired
sites for which Grace has responsibility; in 1994, the department audited Grace
facilities in all world regions.
See Item 3 of this Report for information concerning environmental
proceedings to which Grace is a party and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in the Financial Supplement
for additional information concerning environmental matters.
MATERIALS AND ENERGY
The availability and prices of the raw materials and fuels used by Grace
are subject to worldwide market conditions and governmental policies. On the
basis of existing arrangements, Grace does not anticipate any major disruptions
of its business in 1995
- 14 -
as a result of shortages of raw materials or energy. Should shortages occur,
their effect on Grace's operations would depend upon their nature, duration and
severity and consequently cannot be determined at this time. However,
arrangements have been made, and will continue to be made, for long-term
commitments for many of Grace's raw materials and fuel requirements from primary
sources of supply. See "Industry Segments" above for additional information.
ITEM 2. PROPERTIES.
Grace operates chemical, manufacturing and other types of plants and
facilities (including office and other service facilities) throughout the world.
Grace considers its major operating properties to be in good operating condition
and suitable for their current use. Although Grace believes that the productive
capacity of its plants and other facilities, taking into account planned
expansion, is generally adequate for current operations and foreseeable growth,
it conducts ongoing, long-range forecasting of its capital requirements to
assure that additional capacity will be available when and as needed (see
information regarding Grace's capital expenditures on page F-27 of the Financial
Supplement). Accordingly, Grace does not anticipate that its operations or
income will be materially affected by the absence of available capacity.
Additional information regarding Grace's properties is set forth in Item 1
above and in Notes 1, 8 and 11 to the Consolidated Financial Statements in the
Financial Supplement.
ITEM 3. LEGAL PROCEEDINGS.
ASBESTOS LITIGATION. Grace is a defendant in lawsuits relating to
previously sold asbestos-containing products and anticipates that it will be
named as a defendant in additional asbestos-related lawsuits in the future. At
year-end 1994, Grace was a defendant in approximately 38,700 asbestos-related
lawsuits representing approximately 68,000 claims (as compared to approximately
38,100 lawsuits and 56,700 claims at year-end 1993). In most of these lawsuits,
Grace is one of many defendants. Of the lawsuits pending at year-end 1994, 65
(92 at year-end 1993) involved claims for property damage allegedly caused by
the use of asbestos-containing materials in the construction of buildings. The
plaintiffs in these lawsuits generally seek, among other things, to have the
defendants absorb the cost of removing, containing or repairing the asbestos-
containing materials in the affected buildings. The remaining asbestos-related
lawsuits involved claims for personal injury.
Through year-end 1994, 126 asbestos property damage cases had been
dismissed with respect to Grace without payment of any damages or settlement
amounts; judgments had been entered in favor of Grace
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in 10 cases (excluding one case that was settled following appeal of a judgment
in favor of Grace and another case in which the plaintiff was granted a new
trial on appeal, limited to statute of limitations issues); Grace had been held
liable for a total of $74.6 million in 7 cases (3 of which are on appeal); and
159 property damage suits and claims had been settled by Grace for a total of
$341.8 million.
Included in the asbestos property damage lawsuits pending against Grace and
others at year-end 1994 were the following class actions: (1) a Pennsylvania
state court action (PRINCE GEORGE CENTER, INC. V. U.S. GYPSUM COMPANY, ET AL.,
Court of Common Pleas of Philadelphia County), certified in 1992, covering all
commercial buildings in the United States leased in whole or in part to the
United States government on or after May 30, 1986; (2) an action, conditionally
certified by the United States Court of Appeals for the Fourth Circuit in 1993
and pending in the United States District Court for the District of South
Carolina, covering all public and private colleges and universities in the
United States whose buildings contain asbestos materials (CENTRAL WESLEYAN
COLLEGE, ET AL. V. W. R. GRACE, ET AL.); and (3) a purported class action
(ANDERSON MEMORIAL HOSPITAL, ET AL. V. W. R. GRACE & CO., ET AL.), filed in 1992
in the Court of Common Pleas for Hampton County, South Carolina, on behalf of
all entities that own, in whole or in part, any building containing asbestos
materials manufactured by Grace or one of the other named defendants, other than
buildings subject to the class action lawsuits described above and any building
owned by the federal or any state government. In July 1994, the claims of most
class members in ANDERSON MEMORIAL HOSPITAL, ET AL., V. W. R. GRACE & CO., ET
AL. were dismissed due to a ruling that a South Carolina statute prohibits
nonresidents from pursuing claims in the South Carolina state courts with
respect to buildings located outside the state. The plaintiffs have requested
that the Court reconsider its decision. In August 1994, Grace entered into an
agreement to settle IN RE: ASBESTOS SCHOOL LITIGATION, a nationwide class action
brought in 1983 in the United States District Court for the Eastern District of
Pennsylvania on behalf of all public and private elementary and secondary
schools in the United States that contain friable asbestos materials (other than
schools that "opted out" of the class). The terms of the settlement agreement
(which is subject to judicial review and approval after class members have an
opportunity to be heard) are not expected to have a significant effect on
Grace's consolidated results of operations or financial position.
The remaining asbestos lawsuits pending at year-end 1994 involved claims
for personal injury. Through year-end 1994, approximately 8,400 personal injury
lawsuits involving 22,200 claims had been dismissed with respect to Grace
without payment of any damages or settlement amounts (primarily on the basis
that Grace products were not involved), and approximately 17,000 such suits
involving 20,000 claims had been disposed of for a total of $77.1
- 16 -
million (see "Insurance Litigation" below). However, as a result of various
trends (including the insolvency of other former asbestos producers and cross-
claims by co-defendants in asbestos personal injury lawsuits), the costs
incurred in disposing of such lawsuits in the past may not be indicative of the
costs of disposing of such lawsuits in the future.
In 1991, the Judicial Panel on Multi-District Litigation consolidated in
the United States District Court for the Eastern District of Pennsylvania, for
pre-trial purposes, all asbestos personal injury cases pending in the federal
courts, including approximately 7,000 cases then pending against Grace; 3,200
new cases involving 6,500 claims against Grace have subsequently been added to
the consolidated cases. To date, no action has been taken by the court handling
the consolidated cases that would indicate whether the consolidation will affect
Grace's cost of disposing of these cases or its defense costs.
Grace's ultimate exposure in respect of its asbestos-related lawsuits and
claims will depend on the extent to which its insurance will cover damages for
which it may be held liable, amounts paid in settlement and litigation costs.
While (a) Grace's insurance carriers have not acknowledged or have denied the
applicability of their insurance coverage to Grace's asbestos property damage
lawsuits and claims (except as discussed below under "Insurance Litigation"),
(b) Grace is currently in litigation with certain carriers concerning the
applicability and extent of its insurance coverage and (c) the resolution of
certain issues, primarily relating to the availability of coverage for specific
years, will require further judicial proceedings, Grace believes that its insur-
ance will cover a substantial portion of any damages, settlement amounts and
litigation costs related to its asbestos litigation and claims. Consequently,
Grace believes that the resolution of its asbestos litigation will not have a
material adverse effect on its consolidated financial position or results of
operations. See "Insurance Litigation" below and Note 2 to the Consolidated
Financial Statements in the Financial Supplement for additional information.
ENVIRONMENTAL AND OTHER PROCEEDINGS. Grace (together with other companies)
has been designated a "potentially responsible party" ("PRP") by the United
States Environmental Protection Agency ("EPA") with respect to absorbing the
costs of investigating and remediating pollution at various sites. At year-end
1994, proceedings were pending with respect to approximately 40 sites as to
which Grace has been designated a PRP. Federal law provides that all PRPs may
be held jointly and severally liable for the costs of investigating and
remediating a site. Grace is also conducting investigatory and remediation
activities at sites under the jurisdiction of state and/or local authorities.
- 17 -
In addition, Hatco Corporation ("Hatco"), which purchased the assets of a
Grace chemical business in 1978, previously instituted a lawsuit against Grace
in the United States District Court for the District of New Jersey seeking
recovery of cleanup costs for waste allegedly generated at a New Jersey facility
during the period of Grace's ownership. Grace has also filed a lawsuit against
its insurance carriers seeking indemnity against any damages assessed against
Grace in the underlying lawsuit, as well as defense costs. In decisions
rendered during 1993, the Court ruled that Grace is responsible for a
substantial portion of Hatco's costs. These decisions are currently under
review by the United States Court of Appeals for the Third Circuit. In an
earlier decision, the District Court had resolved, in a manner favorable to
Grace, certain legal issues regarding Grace's right to insurance coverage;
however, the ultimate liability of Grace's insurance carriers will be determined
at trial. Remediation costs, and Grace's share of such costs, will be
determined once ongoing site investigations are completed and a remediation plan
is approved by the State of New Jersey, which is not expected to occur before
the latter part of 1995. As a result of the above factors, the amount that
Grace may be required to pay to Hatco (which Grace expects will be partially
offset by recoveries from insurance carriers) cannot be reliably estimated at
this time.
Grace is also a party to other proceedings involving federal, state and/or
local government agencies and private parties regarding compliance with
environmental laws and regulations by its continuing operations. These
proceedings are not expected to result in significant sanctions or in any
material liability. As a voluntary participant in the EPA Toxic Substances
Control Act Compliance Audit Program, Grace agreed to undertake a corporate-wide
audit of compliance with Section 8 of such Act and to pay a stipulated civil
penalty for each study or report that EPA alleges should have been, but was not,
submitted to the EPA as required under such Section. Although final review of
the audit is not complete, Grace believes it will be required to pay the EPA
penalties aggregating from $250,000 to $400,000 for information discovered in
the course of the audit. In addition, Grace has voluntarily reported to the EPA
violations of certain notification and related requirements under such Act, and
penalties may be assessed against Grace in connection therewith; the amount of
such penalties cannot be determined at this time.
In addition, in 1993, the United States Department of Justice filed suit
against Grace in the United States District Court for the District of Montana,
Great Falls Division, alleging certain violations of the Clean Air Act in
connection with the demolition of a mill in Libby, Montana during late 1991 and
early 1992. In May 1994, Grace signed a consent decree in which it agreed to
pay penalties of $510,000 and to implement certain procedures under the Clean
Air Act at 28 facilities. The consent decree was approved by the United States
District Court for the District of Montana, Great
- 18 -
Falls Division, in December 1994, and the penalties were paid in January 1995.
Grace believes that the amount recorded in the Consolidated Financial
Statements for environmental remediation costs is adequate. In addition, Grace
is presently involved in litigation with its insurance carriers seeking to hold
them responsible for certain amounts for which Grace may be held liable with
respect to such costs. The outcome of such litigation, as well as the amount of
any recoveries that Grace may receive in connection therewith, is presently
uncertain. For further information, see Note 11 to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" in the Financial Supplement.
INSURANCE LITIGATION. Grace is involved in litigation with certain
insurance carriers with respect to asbestos-related claims and environmental
liabilities. Its asbestos-related insurance actions consist of a case styled
MARYLAND CASUALTY CO. V. W. R. GRACE & CO., pending in the United States
District Court for the Southern District of New York; STATE OF MISSISSIPPI V.
THE FLINTKOTE CO., ET AL., pending in the Circuit Court of Jackson County,
Mississippi; DAYTON INDEPENDENT SCHOOL DISTRICT V. UNITED STATES MINERAL
PRODUCTS COMPANY, ET AL., pending in the United States District Court for the
Eastern District of Texas; INDEPENDENT SCHOOL DISTRICT NO. 197, ET AL. V. W. R.
GRACE & CO. AND ACCIDENT & CASUALTY INSURANCE CO., ET AL., pending in the First
Judicial District in Minnesota; THE COUNTY OF HENNEPIN V. CENTRAL NATIONAL
INSURANCE COMPANY, ET AL., pending in the Fourth Judicial District in Minnesota;
ECOLAB, INC. V. CENTRAL NATIONAL INSURANCE CO., pending in the District Court
for Ramsey County, Minnesota; and AMERICAN EMPLOYERS' INSURANCE CO., AMERICAN
RE-INSURANCE CO., AND COMMERCIAL UNION INSURANCE CO., AND UNIGARD SECURITY
INSURANCE CO. V. W. R. GRACE & CO., CONTINENTAL CASUALTY CO., AND MARYLAND
CASUALTY CO., which is pending in the New York state courts; Grace's insurance
actions relating to environmental liabilities consist of MARYLAND CASUALTY CO.
V. W. R. GRACE & CO., pending in the United States District Court for the
Southern District of New York; and HATCO CORP. V. W. R. GRACE & CO.-CONN.,
pending in the United States District Court for the District of New Jersey. The
relief sought by Grace in these actions would provide insurance to partially
offset Grace's estimated exposure with respect to the actions' subject matter,
including amounts previously expended by Grace to defend claims and satisfy
judgments and settlements (see Note 2 to the Consolidated Financial Statements
in the Financial Supplement). The factual bases underlying these actions are
the nature of the underlying asbestos-related and environmental claims, the
language of the insurance policies sold by the carriers to Grace and the
drafting history of those policies.
- 19 -
In 1991 (in an asbestos-related case involving Maryland Casualty Co.), the
United States District Court for the Southern District of New York determined
that coverage for property damage is triggered by the "discovery of damage"
during the period covered by the relevant policy. In September 1993, the United
States Court of Appeals for the Second Circuit reversed the District Court's
ruling as to a "discovery of damage" trigger for such claims and, instead, ruled
that coverage for these claims is triggered based on the date of installation of
asbestos-containing materials. In January 1994, the United States Court of
Appeals for the Second Circuit granted Grace's petition for a rehearing
concerning the September 1993 decision, and on May 16, 1994, the Court issued a
new decision confirming its September 1993 decision. As a result, Grace
recorded a noncash charge of $200 million after taxes in the second quarter of
1994 to reflect the reduction in asbestos property damage insurance coverage.
Subsequently, the Second Circuit refused to rehear its decision, and the United
States Supreme Court denied Grace's petition for a writ of certiorari with
respect to the Second Circuit decision.
In 1991 and 1994, the Mississippi Court referred to above held that certain
of Grace's excess insurance carriers are obligated to defend and indemnify
Grace, determining that, for purposes of insurance coverage, damage to buildings
from asbestos-containing products occurs at the time such products are put in
place and that the damage continues as long as the building contains the
products (referred to as a "continuous trigger"); the 1994 ruling is being
appealed. In 1992, the Minnesota court referred to above reached a similar
decision in interpreting Grace's insurance policies. In January 1994, the
Minnesota court entered judgment against certain of Grace's carriers in the
amount of $14.2 million, but that judgment was reversed by the Minnesota Court
of Appeals in January 1995. Further review of that decision will be sought.
Prior to 1993, Grace received payments totaling $97.7 million from
insurance carriers ($66.2 million prior to 1992 and $31.5 million in 1992), the
majority of which represented the aggregate remaining obligations owed to Grace
by those carriers for primary-level insurance coverage written for the period
June 30, 1962 through June 30, 1987. In 1993, Grace received $74.6 million
under settlements with insurance carriers, in reimbursement for amounts
previously expended by Grace in connection with asbestos-related litigation;
these settlements also provide for future reimbursements of $114 million. In
1994, Grace settled with three additional insurance carriers and received $111.6
million under such settlements, and in early 1995, Grace settled with a primary-
level insurer for $100 million. As a result of these payments, insurance
litigations were dismissed as to the primary-level product liability insurance
coverage previously sold by the relevant insurers to Grace; however, litigations
continue as to certain excess-level carriers.
- 20 -
Grace continues to be involved in litigation with certain of its insurance
carriers, including an affiliated group of carriers, that had agreed to a
settlement and had made a series of payments thereunder during 1993. The group
of carriers subsequently notified Grace that it would not honor the agreement
(which had not been executed) due to the September 1993 decision of the United
States Court of Appeals for the Second Circuit referred to above. Grace
believes that the settlement agreement is binding and initiated action to
enforce the settlement agreement. In January 1994, the United States District
Court for the Eastern District of Texas held that the agreement is enforceable.
The affiliated group of carriers appealed this ruling to the United States Court
of Appeals for the Fifth Circuit and has sought to attack it in a collateral
action in the United States District Court for the Southern District of New
York; however, Grace successfully stayed this attack.
See Note 2 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Financial Supplement for additional information.
FUMED SILICA PLANT LITIGATION. In 1993, Grace initiated legal action in
the Belgian courts against the Flemish government to recover losses resulting
from the closing of Grace's fumed silica plant in Puurs, Belgium. (See Note 8
to the Consolidated Financial Statements in the Financial Supplement for
additional information.) Grace is seeking damages in excess of four billion
Belgian francs (approximately $123 million at the December 31, 1994 exchange
rate), plus interest and lost profits. This claim was dismissed at the trial
court level and is now being appealed by Grace. The trial court also determined
that Grace should repay approximately 239 million Belgian francs (approximately
$7.4 million at the December 31, 1994 exchange rate) plus interest to the
Flemish government for previously received investment grants; this decision is
also being appealed by Grace. Also pending is an arbitration involving the
engineering company that was responsible for the design and construction of the
fumed silica plant. The outcome of this proceeding may affect the action filed
against the Flemish government. During 1994, a claim by the company from which
Grace had agreed to purchase hydrogen for use in the plant under a long-term
contract was settled.
SHAREHOLDER LITIGATION. In March 1995, a lawsuit was brought against the
Company and all of the members of its Board of Directors (as well as J. P.
Bolduc, who resigned as President, Chief Executive Officer and a director of the
Company in March 1995) in New York State Supreme Court, New York County (WEISER
V. GRACE, ET AL., Index No. 95-106285). The lawsuit, which purports to be a
derivative action (I.E., an action brought on behalf of the Company), alleges
that the individual defendants breached their fiduciary duties to the Company
(a) by providing J. Peter Grace (who is currently the Chairman and a director of
the Company, but
- 21 -
who has agreed not to stand for re-election to those positions) with certain
compensation arrangements upon his retirement as the Company's Chief Executive
Officer in 1992 and (b) by approving Mr. Bolduc's severance arrangements, and
that Messrs. Grace and Bolduc breached their fiduciary duties by accepting such
benefits and payments. The lawsuit seeks unspecified damages, attorneys' fees
and costs, and such other relief as the Court deems proper. Similar claims are
made, and similar relief is sought, in a second purported derivative action
(JACOBSEN V. GRACE, ET AL., New York Supreme Court, New York County, Index No.
95-107355) brought in March 1995 against the Company, all of its directors, Mr.
Bolduc and J. Peter Grace III, a son of Mr. Grace. In addition, the second
lawsuit alleges that the defendants breached their fiduciary duties to the
Company in other respects and seeks equitable relief, including the cancellation
of Mr. Grace's consulting agreement with the Company and the repayment of
various amounts to the Company.
OTHER. The Company has been notified that the Securities and Exchange
Commission is conducting an infomral inquiry into the Company's prior
disclsoures, including disclosures regarding benefits and arrangements
provided to Mr. J. Peter Grace, Jr., and certain matters relating to
J. Peter Grace III, the son of Mr. Grace, Jr.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This Item is inapplicable, as no matters were submitted to a vote of
the Company's security holders during the fourth quarter of 1994.
EXECUTIVE OFFICERS
The Company's current executive officers are listed below. Executive
officers are elected to serve until the following annual meeting of the
Company's Board of Directors; the next such meeting is scheduled to be held on
May 10, 1995.
Name and Age Office First Elected
--------------------- ------------- -------------
R. H. Beber (61) Executive Vice President 05/10/93
and General Counsel 09/01/91
Robert J. Bettacchi (52) Vice President 02/01/90
F. Peter Boer (54) Executive Vice President 01/05/89
Jean-Louis Greze (63) Executive Vice President 05/10/93
Constantine L. Hampers (62) Executive Vice President 06/06/91
- 22 -
Thomas A. Holmes (71) Acting President and 03/02/95
Chief Executive Officer
James R. Hyde (56) Vice President 07/01/87
Donald H. Kohnken (60) Executive Vice President 12/07/89
Fred Lempereur (57) Senior Vice President 02/06/92
Ian Priestnell (51) Vice President 02/06/92
Brian J. Smith (50) Executive Vice President 07/06/89
and Chief Financial Officer
All the above executive officers have been actively engaged in Grace's
business for the past five years, other than Mr. Holmes, who retired as
chairman, president and chief executive officer of Ingersoll-Rand Company in
1988. Mr. Holmes has been a director of the Company since 1989.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Except as provided below, the information called for by this Item appears
in the Financial Supplement under the heading "Financial Summary" opposite the
caption "Other Statistics - Common shareholders of record" (page F-28); under
the heading "Quarterly Summary and Statistical Information" opposite the
captions "Dividends declared per common share" and "Market price of common
stock" (page F-25); and in Note 13 to the Consolidated Financial Statements
(page F-20).
Each share of the Company's Common Stock has an attendant Common Stock
Purchase Right ("Right"). The Rights are not and will not become exercisable
unless and until certain events occur (as described below). Until such events
occur, the Rights will automatically trade with the Common Stock and separate
certificates for the Rights will not be distributed. The Rights will become
exercisable on the tenth business day (or such later business day as may be
fixed by the Company's Board of Directors) after a person or group (a) becomes
an "interested shareholder", as defined in Section 912 of the New York Business
Corporation Law (generally, a beneficial owner of 20% or more of the outstanding
voting stock), or (b) commences a tender offer or exchange offer that would
result in such person or group becoming an interested shareholder. The Rights
will not have any voting power at any time.
- 23 -
When the Rights become exercisable, each Right will initially entitle the
holder to buy from the Company one share of Common Stock for $87.50, subject to
adjustment in certain cases ("purchase price"). If, at any time after the
Rights become exercisable, (a) the Company is involved in a merger or other
business combination in which (i) the Company is not the surviving corporation
or (ii) any of the Common Stock is changed or converted into or exchanged for
stock or other securities of any other person or cash or other
property, or (b) 50% of the Company's assets, cash flow or earning power is
sold, each Right will entitle the holder to buy a number of shares of common
stock of the acquiring company having a market value equal to twice the purchase
price. Alternatively, each right not owned by a person who becomes an
interested shareholder would become exercisable for Common Stock (or other
consideration) having a market value equal to twice the purchase price.
The Rights may be redeemed by the Company at $.025 per Right (payable in
cash, Common Stock or any other form of consideration deemed appropriate by the
Board) at any time through the tenth business day (or such later business day as
may be fixed by the Board) after a public announcement that a person or group
has become an interested shareholder; this right of redemption may be reinstated
if all interested shareholders reduce their holdings to 10% or less of the
outstanding Common Stock. The Rights will expire in January 1997.
The Rights may be amended either before or after they become exercisable.
However, the basic economic terms of the Rights (such as the purchase and
redemption prices and the expiration date) cannot be changed.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item appears under the heading
"Financial Summary" (page F-28 of the Financial Supplement) and in Notes 5, 6, 9
and 16 to the Consolidated Financial Statements (pages F-12, F-13, F-17 and F-22
of the Financial Supplement). In addition, Exhibit 12 to this Report (page F-35
of the Financial Supplement) contains the ratio of earnings to fixed charges and
combined fixed charges and preferred stock dividends for Grace for the years
1990-1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information called for by this Item appears on pages F-29 to F-32 of
the Financial Supplement.
- 24 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to Consolidated Financial Statements and Financial Statement
Schedule and Exhibits on page F-1 of the Financial Supplement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
This item is inapplicable, as no such changes or disagreements have
occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for information regarding the Company's executive officers (see
pages 22 and 23), the information called for by this Item is incorporated in
this Report by reference to the definitive Proxy Statement for the Company's
1995 Annual Meeting of Shareholders, except for information not deemed to be
"soliciting material" or "filed" with the Securities and Exchange Commission
("SEC"), information subject to Regulations 14A or 14C under the Securities
Exchange Act of 1934 ("Exchange Act") or information subject to the liabilities
of Section 18 of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Items 11, 12 and 13 is incorporated in this
Report by reference to the definitive Proxy Statement for the Company's 1995
Annual Meeting of Shareholders, except for information not deemed to be
"soliciting material" or "filed" with the SEC, information subject to
Regulations 14A or 14C under the Exchange Act or information subject to the
liabilities of Section 18 of the Exchange Act.
- 25 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
FINANCIAL STATEMENTS AND SCHEDULES. See the Index to Consolidated
Financial Statements and Financial Statement Schedule and Exhibits on page F-1
of the Financial Supplement.
REPORTS ON FORM 8-K. The Company filed one Report on Form 8-K during the
fourth quarter of 1994. The Report, which was filed on October 27, 1994,
reported the Company's results of operations for the three-month and nine-month
periods ended September 30, 1994.
EXHIBITS. The exhibits to this Report are listed below. Other than
exhibits that are filed herewith, all exhibits listed below are incorporated
herein by reference. Exhibits indicated by an asterisk (*) are the management
contracts and compensatory plans, contracts or arrangements required to be filed
as exhibits to this Report.
EXHIBIT WHERE LOCATED
Certificate of Incorporation of Exhibit 3 to Form 8-K
W. R. Grace & Co., as amended (filed 6/9/88)
By-laws of W. R. Grace & Co., as Filed herewith
amended
Indenture dated as of Septem- Exhibit 4.2 to Form 10-K
ber 29, 1992 among W. R. Grace (filed 3/26/93)
& Co.-Conn., W. R. Grace & Co.
and Bankers Trust Company
Indenture dated as of January Exhibit 4.4 to Form 10-K
28, 1993 among W. R. Grace (filed 3/26/93)
& Co.-Conn., W. R. Grace & Co.
and NationsBank of Georgia, N.A.
364-Day Credit Agreement, dated Exhibit 4.1 to Form 10-Q
as of September 1, 1994, among (filed 11/10/94)
W. R. Grace & Co.-Conn., W. R.
Grace & Co., the several banks
parties thereto and Chemical
Bank, as agent for such banks
- 26 -
Credit Agreement, dated as of Exhibit 4.2 to Form 10-Q
September 1, 1994, among W. R. (filed 11/10/94)
Grace & Co.-Conn., W. R. Grace
& Co., the several banks parties
thereto and Chemical Bank, as
agent for such banks
First Amendment, dated as of Filed herewith
December 28, 1994, to the 364-
Day Credit Agreement, dated
as of September 1, 1994
First Amendment, dated as of Filed herewith
December 28, 1994, to the
Credit Agreement, dated
as of September 1, 1994
Amended and Restated Rights Exhibit to Amendment on
Agreement dated as of June 7, Form 8 to Application for
1990 between W. R. Grace & Co. Registration on Form 8-B
and Manufacturers Hanover Trust (filed 6/19/90)
Company
W. R. Grace & Co. Executive Exhibit 19(f) to Form
Salary Protection Plan, as 8-K (filed 6/9/88)*
amended
W. R. Grace & Co. 1981 Stock Exhibit 28(a) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
W. R. Grace & Co. 1986 Stock Exhibit 28(b) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
W. R. Grace & Co. 1989 Stock Exhibit 28(c) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
W. R. Grace & Co. 1994 Stock Filed herewith*
Incentive Plan
W. R. Grace & Co. 1994 Stock Filed herewith*
Retainer Plan for Nonemployee
Directors
Forms of Stock Option Agreements Exhibit 10(h) to Form
10-K (filed 3/28/92)*
Forms of Restricted Share Award Exhibit 10(i) to Form 10-K
Agreements (filed 3/28/92)*
- 27 -
Information Concerning W. R. Pages 8-13 and 27-30 of
Grace & Co. Incentive Compen- Proxy Statement
sation Program, Deferred (filed 4/11/94)*
Compensation Program and
Long-Term Incentive Program
W. R. Grace & Co. Long-Term Exhibit 10(l) to Form
Incentive Plan 10-K (filed 3/29/91)*
W. R. Grace & Co. Retirement Exhibit 10(o) to Form
Plan for Outside Directors, as 10-K (filed 3/28/92)*
amended
Employment Agreement dated Exhibit 10(x) to Form
as of April 1, 1991 between 10-K (filed 3/28/92)*
W. R. Grace & Co.-Conn. and
Constantine L. Hampers, as
amended
Housing Loan Agreement dated Exhibit 10(q) to Form
as of August 1, 1987 between 10-K (filed 3/29/88);
W. R. Grace & Co. and J. P. Exhibit 19(i) to Form
Bolduc, related Amendment and 8-K (filed 6/9/88)*
Assignment dated May 10, 1988
Employment Agreement dated Exhibit 10.13 to Form
August 1, 1993 between J. P. 10-K (filed 3/28/94)*
Bolduc and W. R. Grace & Co.
Stock Option Agreement dated Exhibit 10.14 to Form
June 30, 1993 between David L. 10-K (filed 3/28/94)*
Yunich and W. R. Grace & Co.
Stock Option Agreement dated Exhibit 10.15 to Form
June 30, 1993 between David L. 10-K (filed 3/28/94)*
Yunich and W. R. Grace & Co.
Retirement Agreement between Exhibit 10.23 to Form 10-K
W. R. Grace & Co. and J. Peter (filed 3/26/93)*
Grace dated December 21, 1992
Executive Severance Agreement Exhibit 10.24 to Form 10-K
dated as of September 1, 1992 (filed 3/26/93)*
between W. R. Grace & Co. and
J. P. Bolduc
Executive Severance Agreement Exhibit 10.26 to Form 10-K
dated September 1, 1992 (filed 3/26/93)*
between W. R. Grace & Co. and
Constantine L. Hampers
- 28 -
Form of Executive Severance Exhibit 10.28 to Form 10-K
Agreement between W. R. Grace (filed 3/26/93)*
& Co. and others
Consulting Agreement Exhibit 10.29 to Form 10-K
dated June 1, 1992 between (filed 3/26/93)*
W. R. Grace & Co. and
Kamsky Associates, Inc.
Incentive Compensation Agreement Exhibit 10.30 to Form 10-K
dated June 1, 1992 between (filed 3/26/93)*
National Medical Care, Inc.
and Kamsky Associates, Inc.
Consulting Agreement dated as of Filed herewith*
December 1993 between National
Medical Care, Inc. and Virginia
A. Kamsky
Consulting Agreement dated as of Exhibit 10.23 to Form 10-K
June 16, 1993 by and between (filed 3/28/94)*
National Medical Care, Inc., The
Humphrey Group, Inc. and Gordon
J. Humphrey
Employment Termination Agreement Exhibit 10.24 to Form 10-K
dated June 30, 1993 between (filed 3/28/94)*
J. R. Wright, Jr. and W. R.
Grace & Co.
W. R. Grace & Co. Supplemental Exhibit 10.25 to Form 10-K
Executive Retirement Plan, as (filed 3/28/94)*
amended
Agreement dated March 1, 1995 Filed herewith*
between W. R. Grace & Co. and
Jean-Louis Greze
Agreements dated March 2 and Filed herewith*
March 7, 1995 between J. P.
Bolduc and W. R. Grace & Co.
Letter Agreement dated Filed herewith*
April 1, 1991 between National
Medical Care, Inc. and
Constantine L. Hampers
Weighted Average Number of Filed herewith
Shares and Earnings Used in (in Financial Supplement
Per Share Computations to 10-K)
- 29 -
Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Combined (in Financial Supplement
Fixed Charges and Preferred to 10-K)
Stock Dividends
Selected Portions of the 1994 Filed herewith
Annual Report to Shareholders (in Financial Supplement
of W. R. Grace & Co. to 10-K)
List of Subsidiaries of Filed herewith
W. R. Grace & Co.
Consent of Independent Accoun- Filed herewith
tants (in Financial Supplement
to 10-K)
Powers of Attorney Filed herewith
Letter of Intent dated Filed herewith
November 5, 1993 between
W. R. Grace & Co. and J.
Peter Grace III, as amended
Agency Agreement dated Filed herewith
June 13, 1994 between HSC
Holding Co., Inc. and Grace
Hotel Services Corporation
Letter Agreement dated Filed herewith
December 14, 1994 among HSC
Holding Co., Inc., Grace Hotel
Services Corporation and W. R.
Grace & Co.
Services Agreement dated Filed herewith
November 10, 1994 between HSC
Holding Co., Inc. and Grace
Hotel Services Corporation
- 30 -
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/ B. J. Smith
------------------------
B. J. Smith
(Executive Vice President)
Date: March 29, 1995
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 March 29, 1995.
SIGNATURE TITLE
T. A. Holmes* Director and Acting President
(Acting Principal Executive Officer)
G. C. Dacey* R. C. Macauley* }
E. W. Duffy* J. E. Phipps* }
C. H. Erhart, Jr.* J. A. Puelicher* }
J. W. Frick* D. W. Robbins, Jr.*} Directors
J. P. Grace* E. J. Sullivan* }
G. P. Jenkins* D. L. Yunich* }
/s/ B. J. Smith Executive Vice President
-----------------------
(B. J. Smith) (Principal Financial Officer)
/s/ R. N. Sukenik Vice President and Controller
-----------------------
(R. N. Sukenik) (Principal Accounting Officer)
____________
* By signing his name hereto, Robert B. Lamm 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/ Robert B. Lamm
-------------------------
Robert B. Lamm
(Attorney-in-Fact)
- 31 -
FINANCIAL SUPPLEMENT
to
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994
W. R. GRACE & CO. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
----------------------------------------------
PAGE
Report of Independent Accountants on Financial Statement Schedule F-2
Consent of Independent Accountants . . . . . . . . . . . . . . . . F-2
Report of Independent Accountants. . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations for the three years in the
period ended December 31, 1994 . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the three years in the
period ended December 31, 1994 . . . . . . . . . . . . . . . . . F-5
Consolidated Balance Sheet as at December 31, 1994 and 1993. . . . F-6
Consolidated Statement of Shareholders' Equity for the three
years in the period ended December 31, 1994. . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-8-F-24
Quarterly Summary and Statistical Information - Unaudited. . . . . F-25
Worldwide Operations . . . . . . . . . . . . . . . . . . . . . . . F-26
Capital Expenditures, Net Fixed Assets and Depreciation and
Lease Amortization . . . . . . . . . . . . . . . . . . . . . . . F-27
Financial Summary. . . . . . . . . . . . . . . . . . . . . . . . . F-28
Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . . . . . . . . . . . F-29
Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Account and
Reserves. . . . . . . . . . . . . . . . . F-33
Exhibit 11: Weighted Average Number of Shares and Earnings Used in
Per Share Computations. . . . . . . . . . . . . . . . . . . . F-34
Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends. . . . . F-35
THE FINANCIAL DATA LISTED ABOVE APPEARING IN THIS FINANCIAL SUPPLEMENT ARE
INCORPORATED BY REFERENCE HEREIN. THE FINANCIAL STATEMENT SCHEDULE SHOULD BE
READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO. FINANCIAL STATEMENTS OF 50%- OR LESS-OWNED PERSONS AND OTHER PERSONS
ACCOUNTED FOR BY THE EQUITY METHOD HAVE BEEN OMITTED AS PROVIDED IN RULE 3-09 OF
SECURITIES AND EXCHANGE COMMISSION 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.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of W. R. Grace & Co.
Our audits of the consolidated financial statements referred to in our report
dated February 1, 1995 appearing on page 29 of the 1994 Annual Report to
Shareholders of W. R. Grace & Co. (which report and consolidated financial
statements are included in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed on page F-1 in the Index to
Consolidated Financial Statements and Financial Statement Schedule and Exhibits
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
February 1, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting parts of the Registration Statements on Form S-3 (Nos. 33-51041,
33-50983 and 33-25962) and Form S-8 (Nos. 33-7504, 33-15182, 33-27960, 33-54201
and 33-54203) of W. R. Grace & Co. of our report dated February 1, 1995
appearing on page 29 of the 1994 Annual Report to Shareholders, which report is
included at page F-3 of this Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
March 27, 1995
F-2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation, as well as the integrity and
objectivity, of the consolidated financial statements and other financial
information included in this report. Such financial information has been
prepared in conformity with generally accepted accounting principles and
accordingly includes certain amounts that represent management's best estimates
and judgments.
For many years, management has maintained internal control systems to assist it
in fulfilling its responsibility for financial reporting, including careful
selection of personnel; segregation of duties; formal business, accounting and
reporting policies and procedures; and an internal audit function. While no
system can ensure elimination of all errors and irregularities, Grace's systems,
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 and transactions are properly executed and reported.
The concept of reasonable assurance is based on the recognition that there are
limitations in all systems and that the cost of such systems should not exceed
the benefits to be derived.
The Audit Committee of the Board of Directors, which is comprised of directors
who are neither officers nor employees of nor consultants to Grace, meets
regularly with Grace's senior financial personnel, internal auditors and
independent accountants to review audit plans and results as well as the actions
taken by management in discharging its responsibilities for accounting,
financial reporting and internal control systems. The Audit Committee reports
its findings and also recommends the selection of independent accountants to the
Board of Directors. Grace's management, internal auditors and independent
accountants have direct and confidential access to the Audit Committee at all
times.
The independent accountants are engaged to conduct audits of and render a report
on the consolidated financial statements in accordance with generally accepted
auditing standards. These standards include a review of the systems of internal
controls and tests of transactions to the extent considered necessary by the
independent accountants for purposes of supporting their opinion as set forth in
their report.
B. J. Smith
Executive Vice President
and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP February 1, 1995
1177 Avenue of the Americas
New York, NY 10036
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO.
In our opinion, the consolidated financial statements appearing on pages F-4
through F-24 of this report present fairly, in all material respects, the
financial position of W. R. Grace & Co. and subsidiaries at December 31, 1994
and 1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Grace's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 5 and 16, Grace adopted new accounting standards for
income taxes and postretirement benefits in 1992.
/S/ PRICE WATERHOUSE LLP
F-3
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------------------------
W. R. Grace & Co. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
---------------------------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,093.3 $ 4,408.4 $ 4,337.0
Other income (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . 50.5 63.2 58.8
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,143.8 4,471.6 4,395.8
---------- ---------- ----------
Cost of goods sold and operating expenses. . . . . . . . . . . . . . . 2,954.9 2,615.7 2,581.7
Selling, general and administrative expenses . . . . . . . . . . . . . 1,230.8 1,021.7 1,019.7
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 260.7 234.6 232.1
Interest expense and related financing costs (Note 9). . . . . . . . . 109.9 84.4 99.8
Research and development expenses. . . . . . . . . . . . . . . . . . . 132.4 135.0 130.0
Provision relating to asbestos-related insurance coverage (Note 2) . . 316.0 159.0 --
Provision relating to a fumed silica plant (Note 8). . . . . . . . . . -- -- 140.0
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,004.7 4,250.4 4,203.3
---------- ---------- ----------
Income from continuing operations before income taxes. . . . . . . . . 139.1 221.2 192.5
Provision for income taxes (Note 5). . . . . . . . . . . . . . . . . . 55.8 86.8 134.8
---------- ---------- ----------
Income from continuing operations. . . . . . . . . . . . . . . . . . . 83.3 134.4 57.7
Loss from discontinued operations (Note 6) . . . . . . . . . . . . . . -- (108.4) (162.2)
---------- ---------- ----------
Income/(loss) before cumulative effect of accounting changes . . . . . 83.3 26.0 (104.5)
Cumulative effect of accounting changes (Notes 5 and 16) . . . . . . . -- -- (190.0)
---------- ---------- ----------
Net income/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83.3 $ 26.0 $ (294.5)
---------- ---------- ----------
---------- ---------- ----------
Earnings/(loss) per share:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . $ .88 $ 1.46 $ .64
Cumulative effect of accounting changes. . . . . . . . . . . . . . . $ -- $ -- $ (2.12)
Net earnings/(loss). . . . . . . . . . . . . . . . . . . . . . . . . $ .88 $ .28 $ (3.29)
Fully diluted earnings per share:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . $ .88 $ 1.45 $ .62
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .88 $ .28 $ -- (1)
---------------------------------------------------------------------------------------------------------------------------
<FN>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
(1) NOT PRESENTED AS THE EFFECT IS ANTI-DILUTIVE.
F-4
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income from continuing operations before income taxes. . . . . . . . . . . . . . . $ 139.1 $ 221.2 $ 192.5
Reconciliation to cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 260.7 234.6 232.1
Provision relating to asbestos-related insurance coverage. . . . . . . . . . . . 316.0 159.0 --
Provision relating to a fumed silica plant . . . . . . . . . . . . . . . . . . . -- -- 140.0
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
(Increase)/decrease in notes and accounts receivable, net. . . . . . . . . . . (159.5) (103.2) 48.4
Increase in inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . (43.4) (50.5) (2.3)
Net (payments for)/proceeds from settlements of interest rate agreements . . . (4.0) 67.9 3.2
Proceeds from asbestos-related insurance settlements . . . . . . . . . . . . . 138.6 74.6 31.5
Payments made for asbestos-related litigation settlements, judgments and
defense costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (198.6) (177.7) (101.8)
Increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 50.1 29.5
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.8 (174.4) (214.2)
-------- -------- --------
Net pretax cash provided by operating activities of continuing operations. . . . . 533.0 301.6 358.9
Net pretax cash provided by operating activities of discontinued operations. . . . 6.5 44.2 178.3
-------- -------- --------
Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . 539.5 345.8 537.2
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86.0) (102.7) (98.9)
-------- -------- --------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . 453.5 243.1 438.3
-------- -------- --------
INVESTING ACTIVITIES (1)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (444.6) (309.6) (398.4)
Businesses acquired in purchase transactions, net of cash acquired and debt assumed (276.9) (306.6) (61.2)
Increase in net assets of discontinued operations. . . . . . . . . . . . . . . . . (32.9) (43.1) (101.5)
Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . 583.9 464.8 221.2
Net proceeds from sale/leaseback transactions. . . . . . . . . . . . . . . . . . . -- 27.2 --
Proceeds from disposals of assets. . . . . . . . . . . . . . . . . . . . . . . . . 34.0 15.4 38.7
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.9 -- (36.5)
-------- -------- --------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . (101.6) (151.9) (337.7)
-------- -------- --------
FINANCING ACTIVITIES (2)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (132.0) (128.4) (125.9)
Repayments of borrowings having original maturities in excess of three months. . . (141.2) (512.6) (274.0)
Increase in borrowings having original maturities in excess of three months. . . . 535.1 373.0 355.7
Net (repayments of)/increase in borrowings having original maturities
of less than three months.. . . . . . . . . . . . . . . . . . . . . . . . . . . (605.8) 155.7 (508.0)
Sale of limited partner interest . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 297.0
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 6.4 13.8
-------- -------- --------
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . (322.8) (105.9) (241.4)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . 1.6 (.5) (3.5)
-------- -------- --------
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . 30.7 (15.2) (144.3)
-------- -------- --------
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . 47.6 62.8 207.1
-------- -------- --------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . $ 78.3 $ 47.6 $ 62.8
-------- -------- --------
-------- -------- --------
-----------------------------------------------------------------------------------------------------------------------------
<FN>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
(1) SEE NOTE 3 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR SUPPLEMENTAL
INFORMATION RELATING TO NON-CASH INVESTING ACTIVITIES.
(2) SEE NOTES 3 AND 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR SUPPLEMENTAL
INFORMATION RELATING TO NON-CASH FINANCING ACTIVITIES.
F-5
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT PAR VALUE December 31, 1994 1993
--------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 78.3 $ 47.6
Notes and accounts receivable, net (Note 7). . . . . . . . . . . . . . . . 975.7 657.4
Inventories (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . 514.2 441.0
Net assets of discontinued operations (Note 6) . . . . . . . . . . . . . . 335.6 761.3
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 295.4 134.1
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.7 36.2
----------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 2,228.9 2,077.6
Properties and equipment, net (Note 8) . . . . . . . . . . . . . . . . . . 1,730.1 1,454.1
Goodwill, less accumulated amortization of $71.8 (1993 - $53.2). . . . . . 672.5 481.6
Asbestos-related insurance receivable (Note 2) . . . . . . . . . . . . . . 512.6 962.3
Other assets (Note 7). . . . . . . . . . . . . . . . . . . . . . . . . . . 1,086.5 1,133.0
----------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,230.6 $ 6,108.6
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . $ 430.9 $ 532.6
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433.7 414.6
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197.0 126.5
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 872.9 621.9
Minority interest (Note 12). . . . . . . . . . . . . . . . . . . . . . . . 297.0 297.0
----------- ----------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 2,231.5 1,992.6
Long-term debt (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . . 1,098.8 1,173.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . 690.9 613.8
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 92.5 97.4
Noncurrent liability for asbestos-related litigation (Note 2). . . . . . . 612.4 713.7
----------- ----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,726.1 4,591.0
----------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 9 and 11)
SHAREHOLDERS' EQUITY (Note 13)
Preferred stocks, $100 par value . . . . . . . . . . . . . . . . . . . . . 7.4 7.4
Common stock, $1.00 par value; 300,000,000 shares authorized;
outstanding at December 31: 1994 - 94,083,000; 1993 - 93,465,000 . . . . 94.1 93.5
Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308.8 287.8
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,147.5 1,196.2
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . . (53.3) (67.3)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . 1,504.5 1,517.6
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . $ 6,230.6 $ 6,108.6
----------- ----------
----------- ----------
--------------------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
F-6
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS
Balance, beginning of year . . . . . . . . . . . . . . . . . . . $ 7.4 $ 7.5 $ 7.5
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.1) --
-------- -------- --------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . 7.4 7.4 7.5
-------- -------- --------
COMMON STOCK
Balance, beginning of year . . . . . . . . . . . . . . . . . . . 93.5 89.9 88.6
Conversion of notes and debentures . . . . . . . . . . . . . . . -- 2.8 --
Stock options and awards . . . . . . . . . . . . . . . . . . . . .6 .7 1.3
Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . -- .1 --
-------- -------- --------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . 94.1 93.5 89.9
-------- -------- --------
PAID IN CAPITAL
Balance, beginning of year . . . . . . . . . . . . . . . . . . . 287.8 151.4 120.1
Conversion of notes and debentures . . . . . . . . . . . . . . . -- 109.7 --
Stock options and awards . . . . . . . . . . . . . . . . . . . . 20.5 22.9 31.1
Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3.7 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 .1 .2
-------- -------- --------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . 308.8 287.8 151.4
-------- -------- --------
RETAINED EARNINGS
Balance, beginning of year . . . . . . . . . . . . . . . . . . . 1,196.2 1,298.6 1,719.0
Net income/(loss). . . . . . . . . . . . . . . . . . . . . . . . 83.3 26.0 (294.5)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (132.0) (128.4) (125.9)
-------- -------- --------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . 1,147.5 1,196.2 1,298.6
-------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year . . . . . . . . . . . . . . . . . . . (67.3) (2.4) 90.0
Translation adjustments. . . . . . . . . . . . . . . . . . . . . 14.0 (64.9) (92.4)
-------- -------- --------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . (53.3) (67.3) (2.4)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . $1,504.5 $1,517.6 $1,545.0
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
--------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of W. R. Grace & Co. and majority-owned companies (collectively,
Grace). Intercompany transactions and balances are eliminated in consolidation.
Investments in affiliated companies (20%-50% owned) are accounted for under the
equity method.
RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial
statements and related notes have been reclassified to conform to the current
year's presentation and as required with respect to discontinued operations.
CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with
maturities of three months or less when purchased. The recorded amounts
approximate fair value because of the short maturities of these investments.
INVENTORIES Inventories are stated at the lower of cost or market. Several
methods of determining cost are used, including first-in/first-out, average and,
for substantially all U.S. chemical inventories, last-in/first-out. Market
value for raw and packaging materials is based on current cost and, for other
inventory classifications, on net realizable value.
PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of
cost or net realizable value. Depreciation of properties and equipment is
generally computed using the straight-line method over the estimated useful
lives of the assets. Interest is capitalized in connection with major project
expenditures and amortized, generally on a straight-line basis, over the
estimated useful lives of the assets.
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 depreciation are removed from the
accounts and the net amount, less any proceeds from disposal, is charged or
credited to income.
GOODWILL AND OTHER AMORTIZATION Goodwill arises from certain purchase
transactions and is amortized using the straight-line method over appropriate
periods not exceeding 40 years. Patient relationships (see Note 7) are
amortized using the straight-line method over 17 years.
INCOME TAXES Effective January 1, 1992, Grace adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
Statement requires the use of an asset and liability approach for the accounting
and financial reporting of income taxes.
FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial
statements (except for those relating to countries with highly inflationary
economies) are translated into U.S. dollars at current exchange rates, except
that revenues, costs and expenses are translated at average exchange rates
during each reporting period. The financial statements of subsidiaries located
in countries with highly inflationary economies must be remeasured as if the
functional currency were the U.S. dollar. The remeasurement creates translation
adjustments that are reflected in net income. Allocations for income taxes
included in the translation adjustments account in shareholders' equity were not
significant.
EARNINGS PER SHARE Primary earnings per share are computed on the basis of the
weighted average number of common shares outstanding. Fully diluted earnings
per share assume the conversion of convertible debt (with an increase in net
income for the after-tax interest savings) and the issuance of common stock
equivalents related to stock options.
FINANCIAL INSTRUMENTS Grace enters into interest rate agreements and foreign
exchange forward and option contracts to manage exposure to fluctuations in
interest and foreign currency exchange rates.
The cash differentials paid or received on interest rate agreements are
accrued and recognized as adjustments to interest expense. Gains and losses
realized upon settlement of these agreements (recorded as other noncurrent
liabilities or other assets, respectively) are deferred and either amortized to
interest expense over a period relevant to the agreement if the underlying
hedged instrument remains outstanding, or recognized immediately if the
underlying hedged instrument is settled. Premiums paid on caps are amortized to
interest expense over the term of the cap. Cash flows related to the agreements
are classified as operating activities in the Consolidated Statement of Cash
Flows, consistent with the interest payments on the underlying debt.
Gains and losses on foreign currency forward and option contracts offset
gains and losses resulting from the underlying transactions. Gains and losses
on contracts that hedge specific foreign currency commitments are deferred and
recorded in net income in the period in which the transaction is consummated.
Gains and losses on contracts that hedge net investments in foreign subsidiaries
are recorded in the cumulative translation adjustments account in shareholders'
equity. See Note 10 for additional information on financial instruments.
F-8
--------------------------------------------------------------------------------
2. ASBESTOS AND RELATED INSURANCE LITIGATION
--------------------------------------------------------------------------------
Grace is a defendant in lawsuits relating to previously sold asbestos-containing
products and anticipates that it will be named as a defendant in additional
asbestos-related lawsuits in the future. At December 31, 1994, Grace was a
defendant in approximately 38,700 asbestos-related lawsuits representing
approximately 68,000 claims (versus approximately 38,100 lawsuits and 56,700
claims at December 31, 1993). In most of these lawsuits, Grace is one of many
defendants. Of the lawsuits pending at December 31, 1994, 65 (92 at December
31, 1993) involved claims for property damage allegedly caused by the use of
asbestos-containing materials in the construction of buildings. The plaintiffs
in these lawsuits generally seek, among other things, to have the defendants
absorb the cost of removing, containing or repairing the asbestos-containing
materials in the affected buildings. The remaining asbestos-related lawsuits
involved claims for personal injury.
PROPERTY DAMAGE LITIGATION
Through December 31, 1994, 126 asbestos property damage cases had been dismissed
with respect to Grace without payment of any damages or settlement amounts;
judgments had been entered in favor of Grace in 10 cases (excluding one case
that was settled following appeal of a judgment in favor of Grace and another
case in which the plaintiff was granted a new trial on appeal, limited to
statute of limitations issues); Grace had been held liable for a total of $74.6
in 7 cases (3 of which are on appeal); and 159 property damage suits and claims
had been settled by Grace for a total of $341.8.
Included in the asbestos property damage lawsuits pending against Grace and
others at year-end 1994 were the following class actions: (1) a Pennsylvania
state court action, certified in 1992, covering all commercial buildings in the
U.S. leased in whole or in part to the U.S. government on or after May 30, 1986
and (2) an action, conditionally certified by the U.S. Court of Appeals for the
Fourth Circuit in 1993 and pending in a U.S. District Court in South Carolina,
covering all public and private colleges and universities in the U.S. whose
buildings contain asbestos materials.
In July 1994, a South Carolina state court judge dismissed the claims of
most class members from a purported nationwide class action asbestos property
damage lawsuit. In his ruling, the judge determined that a South Carolina
statute prohibits non-residents from pursuing claims in the South Carolina state
courts with respect to buildings located outside the state. The plaintiffs have
requested that the court reconsider its decision.
In August 1994, Grace entered into an agreement to settle a nationwide
class action pending in the U.S. District Court for the Eastern District of
Pennsylvania on behalf of all public and private elementary and secondary
schools that contain friable asbestos materials (other than schools that "opted
out" of the class). The terms of the settlement agreement (which is subject to
judicial review and approval after class members have an opportunity to be
heard) are not expected to have a significant effect on Grace's consolidated
results of operations or financial position.
PERSONAL INJURY LITIGATION
Through December 31, 1994, approximately 8,400 asbestos personal injury lawsuits
involving 22,200 claims had been dismissed with respect to Grace without payment
of any damages or settlement amounts (primarily on the basis that Grace products
were not involved), and approximately 17,000 such suits involving 20,000 claims
had been disposed of for a total of $77.1. However, as a result of various
trends (including the insolvency of other former asbestos producers and cross-
claims by co-defendants in asbestos personal injury lawsuits), the costs
incurred in disposing of such lawsuits in the past may not be indicative of the
costs of disposing of such lawsuits in the future.
RANGE OF POTENTIAL EXPOSURE
Although personal injury cases are generally similar to each other (differing
only in the type of asbestos-related illness allegedly suffered by the
plaintiff), each property damage case is unique in that building age, type, size
and utilization and difficulty of abatement, if necessary, vary from structure
to structure; thus, the amounts involved in prior dispositions of property
damage cases are not necessarily indicative of the amounts that may be required
to dispose of such cases in the future. In addition, in property damage cases,
information regarding product identification on a building-by-building basis
(I.E., whether or not Grace products were actually used in the construction of
the building), the age, type, size and use of the building, the jurisdictional
history of prior cases and the court in which the case is pending provide the
only meaningful guidance as to potential future costs. However, much of this
information is not yet available in a majority of the property damage cases
currently pending against Grace. Accordingly, estimates of future costs to
dispose of these cases are, in most instances, based on incomplete information,
as well as assumptions that may not be accurate. Further, uncertainty with
respect to the class actions described in "Property Damage Litigation" above
make it more difficult to reliably predict the costs Grace will incur in
disposing of asbestos-related litigation.
F-9
Subject to the preceding qualifications (which Grace believes to be
significant), Grace has attempted to estimate its future costs to dispose of
this litigation and has concluded that it is probable that the personal injury
and property damage cases pending at December 31, 1994 can be disposed of for a
total of $712.4, inclusive of legal fees and expenses, of which Grace has
recorded $612.4 as a noncurrent liability and $100.0 as a current liability.
This compares to the estimated liability (current and noncurrent) of $813.7 at
December 31, 1993, reflecting payments made and the recording in the fourth
quarter of 1994 of an additional provision of $50.0 for future costs.
INSURANCE COVERAGE AND LITIGATION
Grace's ultimate exposure in respect of its asbestos-related lawsuits and claims
will depend on the extent to which its insurance will cover damages for which it
may be held liable, amounts paid in settlement and litigation costs. Grace has
recorded a receivable of $512.6 at December 31, 1994 for the insurance proceeds
it expects to receive in reimbursement for prior payments and estimated future
payments to dispose of asbestos-related litigation. This compares to a total
receivable of $962.3 at December 31, 1993, reflecting net insurance proceeds
received, the recognition in the fourth quarter of 1994 of $50.0 in additional
insurance proceeds expected to be received, the reclassification of $100.0
received in January 1995 in settlement of a coverage dispute, and the non-cash
charge of $316.0 described below.
In September 1993, the U.S. Court of Appeals for the Second Circuit issued
a decision that had the effect of reducing the amount of insurance coverage
available to Grace with respect to asbestos property damage litigation and
claims. The Court of Appeals reversed an earlier District Court ruling that
coverage for asbestos property damage claims is triggered by the "discovery of
damage" and instead ruled that, under New York law (which governs a significant
portion of the policies that provide asbestos-related insurance coverage), such
coverage is triggered based on the date of installation of asbestos-containing
materials. As a result of this decision, Grace recorded a non-cash charge of
$475.0 ($300.0 after-taxes) in the 1993 third quarter, but reversed $316.0
($200.0 after-taxes) of the charge in the 1993 fourth quarter, after the court
withdrew its September 1993 decision and agreed to rehear the case. On May 16,
1994, the court issued a new decision confirming its September 1993 decision.
As a result, Grace reinstated a non-cash charge of $316.0 ($200.0 after-taxes)
in the second quarter of 1994 to reflect the reduction in asbestos property
damage insurance coverage.
Grace has settled coverage disputes with certain insurance carriers. At
December 31, 1994, these settlements provided for the future receipt by Grace of
$187.0, including $100.0 received in January 1995. These amounts have been
recorded as current and noncurrent notes receivable. In 1994, Grace received a
total of $138.6 pursuant to settlements with certain insurance carriers in
reimbursement for monies previously expended by Grace in connection with
asbestos-related litigation; of this amount, $27.0 was received pursuant to
settlements entered into in 1993, which had been separately classified as notes
receivable. A portion of the $138.6 has been paid to plaintiffs in previously
settled asbestos-related lawsuits. Additionally, $100.0 was received in January
1995 in settlement of a coverage dispute. Prior to 1994, Grace received
payments totalling $172.3 from insurance carriers, the majority of which
represented the aggregate remaining obligation owed to Grace by those carriers
for primary level insurance coverage written by them for the period June 30,
1962 through June 30, 1987.
Grace continues to seek to recover from its excess insurers the balance of
the payments it has made with respect to asbestos-related litigation. As part
of this effort, Grace continues to be involved in litigation with certain of its
insurance carriers, including an affiliated group of carriers that had agreed to
a settlement and had made a series of payments under that agreement in 1993.
The group of carriers subsequently notified Grace that it would no longer honor
the agreement (which had not been executed) due to the September 1993 U.S. Court
of Appeals decision discussed above. Grace believes that the settlement
agreement (which involves approximately $240.0 of the asbestos-related
receivable of $512.6 at December 31, 1994) is binding and initiated action to
enforce the settlement agreement. In January 1994, the U.S. District Court for
the Eastern District of Texas held the agreement to be enforceable. The
affiliated group of carriers has appealed this ruling to the U.S. Court of
Appeals for the Fifth Circuit and sought to attack it in a collateral action in
the U.S. District Court for the Southern District of New York; however, Grace
successfully stayed this collateral attack.
For the period October 20, 1962 through June 30, 1985 - the most relevant
period for asbestos-related litigation - Grace purchased, on an annual basis, as
much as eight levels of excess insurance coverage. In general, excess policies
provide that when claims paid exhaust coverage at one level, the insured may
seek payment from the carriers at the next higher level. For that 23-year
period, the first six levels of excess insurance available from the insurance
companies that Grace believes to be solvent (based primarily upon reports from a
leading independent insurance rating service) provide coverage of approximately
$1,400.0 (which includes the amounts reflected in the receivable discussed
above). As mentioned previously, the May 1994 decision from the U.S. Court of
Appeals for the Second Circuit has limited the amount of insurance coverage
available for property damage claims. However, if the amount available in the
first six levels should prove to be insufficient for personal injury lawsuits
and claims, Grace has substantial additional coverage available in its two
remaining levels of excess coverage. In Grace's opinion, it is probable that
recoveries from its insurance carriers (including amounts reflected in the
receivable discussed above), along with other funds, will be available to
satisfy the personal injury and property damage lawsuits and claims pending at
December 31, 1994. Consequently, Grace believes that the resolution of its
asbestos-related litigation will not have a material effect on its consolidated
results of operations or financial position.
F-10
--------------------------------------------------------------------------------
3. ACQUISITIONS AND DIVESTMENTS
--------------------------------------------------------------------------------
ACQUISITIONS
During 1994, Grace made acquisitions totalling $351.7 (inclusive of cash
acquired and debt assumed), primarily in its health care, construction products
and packaging product lines. Grace acquired Home Nutritional Services, Inc. in
the first quarter of 1994 for approximately $131.8 (inclusive of cash and
assumed debt totalling $30.4) and acquired kidney dialysis centers and other
health care businesses during 1994 for an aggregate of approximately $145.3 in
cash. In the first quarter of 1994, Grace acquired construction chemicals
businesses, and in the fourth quarter of 1994, Grace acquired a European
flexible packaging business.
In 1993, Grace acquired Home Intensive Care, Inc. for approximately $129.0
in cash and other health care businesses for an aggregate of $115.0 in cash and
$3.8 in common stock. Additionally, during 1993 Grace acquired Latin America's
largest water treatment business for approximately $57.6 in cash.
In 1992, Grace completed the purchase of the common stock of Grace Energy
Corporation (Grace Energy) not owned by Grace for $77.3 in cash. See Note 6 for
a discussion of divestment activity with respect to Grace Energy's businesses.
During 1992, Grace continued to expand its health care operations through the
acquisition of several businesses and facilities for consideration totalling
$44.2 in cash.
DIVESTMENTS
During 1994, Grace realized gross proceeds of $646.2 (inclusive of debt assumed
by the buyers) from divestments, including payments made under financing
arrangements entered into in connection with divestments in prior years.
Substantially all businesses divested during 1994 were previously classified as
discontinued operations. Divestment proceeds received in 1994 include $42.8 for
Grace's remaining interest in The Restaurant Enterprises Group, Inc. (REG).
In 1993, Grace completed the sale of substantially all of the oil and gas
operations of Grace Energy and certain corporate investments, all of which were
previously classified as discontinued operations. Other non-core businesses
divested during 1993 included a 50% interest in a Japanese chemical operation
and a food industry hygiene services business for approximately $31.4 and $11.2,
respectively.
In 1992, Grace sold its book, video and software distribution business,
which was previously classified as a discontinued operation, and its organic
chemicals business and related assets.
See Note 6 for a discussion of divestment activity related to discontinued
operations.
--------------------------------------------------------------------------------
4. OTHER INCOME
--------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------
Interest income. . . . . . . . . . . . . . . $ 1.7 $ 21.7 $ 3.9
Equity in earnings of affiliated companies . 2.9 1.0 3.4
Gains on sales of investments. . . . . . . . 27.4 22.9 12.6
Other, net . . . . . . . . . . . . . . . . . 18.5 17.6 38.9
------ ------ ------
$ 50.5 $ 63.2 $ 58.8
------ ------ ------
------ ------ ------
--------------------------------------------------------------------------------
Gains on sales of investments include a 1994 gain of $27.0 on the sale of
Grace's remaining interest in REG and a 1993 gain of $21.7 on the sale of a 50%
interest in a Japanese chemical operation (see Note 3). Interest income in 1993
includes $20.0 relating to the settlement of prior years' Federal income tax
returns.
F-11
--------------------------------------------------------------------------------
5. INCOME TAXES
--------------------------------------------------------------------------------
Effective January 1, 1992, Grace adopted SFAS No. 109, "Accounting for Income
Taxes," which applies an asset and liability approach requiring the recognition
of deferred tax assets and liabilities with respect to the expected future tax
consequences of events that have been recorded in the consolidated financial
statements and tax returns. If it is more likely than not that all or a portion
of a deferred tax asset will not be realized, a valuation allowance must be
recognized. As permitted under SFAS No. 109, Grace elected not to restate prior
periods' consolidated financial statements to give effect to SFAS No. 109.
Excluding the deferred tax benefit recognized upon the adoption of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," the
effect of the adoption of SFAS No. 109 on Grace's 1992 financial statements was
not material.
In the third quarter of 1993, Grace recorded the effects of the Omnibus
Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993.
Among other things, OBRA increased the maximum U.S. Federal corporate tax rate
to 35% (from 34%), effective January 1, 1993. However, neither this rate
increase nor the other provisions of OBRA had a material effect on Grace's
results of operations.
The components of income/(loss) from continuing operations before income
taxes are as follows:
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
Domestic . . . . . . . . . . . . . . . . . . $ 44.3 $ 125.4 $ 206.4
Foreign. . . . . . . . . . . . . . . . . . . 94.8 95.8 (13.9)
------- ------- -------
$ 139.1 $ 221.2 $ 192.5
------- ------- -------
------- ------- -------
---------------------------------------------------------------------------
The provision/(benefit) for income taxes allocated to continuing operations
consisted of:
---------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------
Federal income taxes:
Current . . . . . . . . . . . . . . . . . $ 25.3 $ 53.6 $ 75.6
Deferred. . . . . . . . . . . . . . . . . (34.8) (28.7) (20.2)
State and local income taxes - current . . . 21.8 19.1 16.5
Foreign income taxes:
Current . . . . . . . . . . . . . . . . . 49.1 44.4 57.6
Deferred. . . . . . . . . . . . . . . . . (5.6) (1.6) 5.3
------- ------- -------
$ 55.8 $ 86.8 $134.8
------- ------- -------
------- ------- -------
---------------------------------------------------------------------------
At December 31, 1994 and 1993, deferred tax assets and liabilities
consisted of the following items:
---------------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------------
Reserves not yet deductible for tax purposes . . . . . $254.4 $ 96.9
Research and development expenses. . . . . . . . . . . 107.3 112.2
Postretirement benefits other than pensions. . . . . . 93.3 92.1
Net operating loss carryforwards . . . . . . . . . . . 54.4 47.1
Tax credit carryforwards . . . . . . . . . . . . . . . 49.0 84.9
State deferred taxes . . . . . . . . . . . . . . . . . 37.5 29.2
Provision relating to asbestos-related expenses. . . . 36.2 7.8
Capitalized inventory costs and inventory reserves . . 15.3 19.4
Pension and insurance reserves . . . . . . . . . . . . 14.8 26.2
Other. . . . . . . . . . . . . . . . . . . . . . . . . 54.4 42.1
------ ------
Total deferred tax assets . . . . . . . . . . . . . 716.6 557.9
------ ------
Depreciation and amortization. . . . . . . . . . . . . 167.4 141.5
Prepaid pension cost . . . . . . . . . . . . . . . . . 72.3 71.0
Other. . . . . . . . . . . . . . . . . . . . . . . . . 21.3 4.0
------ ------
Total deferred tax liabilities. . . . . . . . . . . 261.0 216.5
------ ------
Valuation allowance for deferred tax assets. . . . . . 137.0 129.7
------ ------
Net deferred tax assets . . . . . . . . . . . . . . $318.6 $211.7
------ ------
------ ------
F-12
In connection with the adoption of SFAS No. 109, Grace recognized a valuation
allowance of $88.4, which has been adjusted to reflect subsequent events. The
valuation allowance relates to the uncertainty as to the realization of certain
deferred tax assets, including U.S. tax credit carryforwards, state and local
net operating loss carryforwards and net deferred tax assets, and net operating
loss carryforwards in certain foreign jurisdictions. Based upon anticipated
future results, Grace has concluded, after consideration of the valuation
allowance, that it is more likely than not that the net deferred tax asset
balance will be realized.
At December 31, 1994, there were $45.0 of tax credit carryforwards with
expiration periods through 1998 and $4.0 of tax credit carryforwards with no
expiration period. Additionally, there were state and local and foreign net
operating loss carryforwards with a tax effect of $54.4 and various expiration
periods.
The U.S. Federal corporate tax rate reconciles to the effective tax rate for
continuing operations as follows:
-----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
U.S. Federal corporate tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Increase/(decrease) in tax rate resulting from:
U.S. and foreign taxes on foreign operations . . . . . . . . . . . . . . . . . . . . . . . 3.8 7.3 10.8
Utilization of general business credits. . . . . . . . . . . . . . . . . . . . . . . . . . (1.5) (2.9) --
State and local income taxes, net of U.S. Federal income tax benefit . . . . . . . . . . . 6.3 4.6 5.6
Valuation allowance for deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . -- -- 26.3
Impact of U.S. and foreign tax rate changes on deferred taxes. . . . . . . . . . . . . . . -- (3.3) --
Basis difference on sale of investment . . . . . . . . . . . . . . . . . . . . . . . . . . (6.8) -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 (1.5) (6.7)
---- ---- ----
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.1% 39.2% 70.0%
---- ---- ----
---- ---- ----
------------------------------------------------------------------------------------------------------------------------------
U.S. and foreign taxes have not been provided on approximately $301.3 of
undistributed earnings of certain foreign subsidiaries, as such earnings are
being retained indefinitely by such subsidiaries for reinvestment. The
distribution of these earnings would result in additional foreign withholding
taxes of approximately $27.2 and additional U.S. Federal income taxes to the
extent they are not offset by foreign tax credits. It is not practicable to
estimate the total tax liability that would be incurred upon such a
distribution.
--------------------------------------------------------------------------------
6. DISCONTINUED OPERATIONS
--------------------------------------------------------------------------------
COCOA, BATTERY SEPARATORS AND ENGINEERED MATERIALS AND SYSTEMS
Grace's battery separators business; certain engineered materials businesses,
principally its printing products, material technology, and electromagnetic
radiation control businesses (collectively, EMS); and its cocoa business and
other non-core businesses were classified as discontinued operations in the
second quarter of 1993. At that time, a provision of $105.0 (net of an
applicable tax benefit of $22.3) was recorded to reflect the losses expected on
the divestment of these businesses. During 1994, Grace sold its battery
separators business and substantially all of EMS for gross proceeds of $316.2.
In February 1995, Grace sold its composite materials business, leaving its
microwave business as the remaining EMS business to divest. Total proceeds
received from the divestment of these businesses approximated prior estimates.
GRACE ENERGY
Grace Energy was classified as a discontinued operation in 1992. The loss from
discontinued operations in 1992 included a provision of $155.0 (net of an
applicable tax benefit of $81.8) to reflect the losses expected on the
divestment of Grace Energy's operations. In 1994, Grace sold substantially all
of its interest in Colowyo Coal Company (Colowyo), Grace Energy's only remaining
significant operation, for proceeds of $218.3, including $192.8 of proceeds from
a non-recourse financing secured by a portion of the revenues from certain long-
term coal contracts. Grace retained a limited partnership interest in Colowyo,
entitling it to share in the revenues from these coal contracts. In 1993, Grace
sold substantially all of the oil and gas operations of Grace Energy for net
cash proceeds of $386.0. Total proceeds received from the divestment of these
businesses approximated prior estimates.
GRACE DISTRIBUTION AND OTHER
In 1994, Grace sold its animal genetics and Caribbean fertilizer operations for
proceeds of $44.1. These and other businesses were classified as discontinued
operations in 1993. In 1993, Grace completed the sale of its minority interests
in Canonie Environmental Services Corporation and Grace-Sierra Horticultural
Products Company for total proceeds of $41.3.
F-13
The loss from discontinued operations in 1992 included an after-tax provision of
$12.1 relating to the loss associated with the sale of Grace's remaining
Mexican-style restaurant operation. In March 1992, Grace completed the sale of
Grace Distribution for $97.8 in cash and notes.
Operating losses of Grace's discontinued operations subsequent to their
classification as such were $14.2, $54.6, and $7.2 in 1994, 1993, and 1992,
respectively; these amounts are consistent with amounts originally estimated and
have been charged against established reserves. Operating results and sales and
revenues prior to classification as discontinued operations were as follows:
-------------------------------------------------------------------------------
1993 1992
-------------------------------------------------------------------------------
COCOA
Sales and revenues . . . . . . . . . . . . . . . . . . . $ 142.1 $ 683.5
------- -------
(Loss)/income from operations before taxes (1) . . . . . $ (5.6) $ 1.8
Income tax benefit . . . . . . . . . . . . . . . . . . . 1.0 .4
------- -------
(Loss)/income from discontinued operations . . . . . . . $ (4.6) $ 2.2
------- -------
-------------------------------------------------------------------------------
BATTERY SEPARATORS AND EMS
Sales and revenues . . . . . . . . . . . . . . . . . . . $ 93.8 $ 413.6
------- -------
Income from operations before taxes (1). . . . . . . . . $ 4.7 $ 29.1
Income tax provision . . . . . . . . . . . . . . . . . . (2.1) (10.1)
------- -------
Income from discontinued operations. . . . . . . . . . . $ 2.6 $ 19.0
------- -------
-------------------------------------------------------------------------------
GRACE ENERGY
Sales and revenues . . . . . . . . . . . . . . . . . . . $ -- $ 266.3
------- -------
Loss from operations before taxes (1). . . . . . . . . . $ -- $ (11.1)
Income tax benefit . . . . . . . . . . . . . . . . . . . -- 6.6
------- -------
Loss from discontinued operations. . . . . . . . . . . . $ -- $ (4.5)
------- -------
-------------------------------------------------------------------------------
GRACE DISTRIBUTION AND OTHER
Sales and revenues . . . . . . . . . . . . . . . . . . . $ 14.4 $ 96.5
------- -------
Loss from operations before taxes (1). . . . . . . . . . $ (1.7) $ (16.2)
Income tax benefit . . . . . . . . . . . . . . . . . . . .3 4.4
------- -------
Loss from discontinued operations. . . . . . . . . . . . $ (1.4) $ (11.8)
------- -------
Total operating results of discontinued operations . . . . $ (3.4) $ 4.9
Net pretax loss on disposals of operations . . . . . . . . (127.3) (255.1)
Income tax benefit on disposals of operations. . . . . . . 22.3 88.0
------- -------
Total loss from discontinued operations. . . . . . . . . . $(108.4) $(162.2)
------- -------
------- -------
-------------------------------------------------------------------------------
<FN>
(1) REFLECTS AN ALLOCATION OF INTEREST EXPENSE BASED ON (a) A RATIO OF THE NET
ASSETS OF THE BUSINESSES CLASSIFIED AS DISCONTINUED OPERATIONS IN THE
SECOND QUARTER OF 1993 AS COMPARED TO GRACE'S TOTAL CAPITAL AND (b) GRACE'S
INCREMENTAL BORROWING RATE APPLIED TO BOTH THE EXPECTED PROCEEDS FROM THE
DIVESTMENT OF GRACE ENERGY AND TO THE NET ASSETS OF GRACE DISTRIBUTION
THROUGH THE DATES OF THEIR RESPECTIVE SALES, ASSUMING THAT AMOUNTS RECEIVED
FROM THE DIVESTMENT OF THESE BUSINESSES WERE USED TO REDUCE DEBT. THE
ABOVE OPERATING RESULTS FOR THE PERIODS PRIOR TO CLASSIFICATION AS
DISCONTINUED OPERATIONS INCLUDE INTEREST EXPENSE ALLOCATIONS OF $2.5 AND
$38.6 FOR 1993 AND 1992, RESPECTIVELY.
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of Grace Cocoa Associates, L.P. (LP) are included in
Grace's consolidated financial statements as a component of discontinued
operations, and the outside investors' interest in LP is reflected as a minority
interest in the Consolidated Balance Sheet. See Note 12 for a further discussion
of LP.
F-14
Grace is pursuing the divestment of its cocoa business, its remaining EMS
business and other investments, and expects to conclude such transactions in
1995. Net assets of Grace's remaining discontinued operations (excluding
intercompany assets) at December 31, 1994 are as follows:
COCOA OTHER TOTAL
-------------------------------------------------------------------------------------------------------------
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 276.3 $ 21.5 $ 297.8
Properties and equipment, net. . . . . . . . . . . . . . . . . 185.4 38.2 223.6
Investments in and advances to affiliated companies. . . . . . -- 38.7 38.7
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 42.6 16.7 59.3
-------- ------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . $ 504.3 $ 115.1 $ 619.4
-------- ------- --------
Current liabilities. . . . . . . . . . . . . . . . . . . . . . $ 185.6 $ 15.8 $ 201.4
Other noncurrent liabilities . . . . . . . . . . . . . . . . . 78.9 3.5 82.4
-------- ------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . $ 264.5 $ 19.3 $ 283.8
-------- ------- --------
Net assets. . . . . . . . . . . . . . . . . . . . . . . . $ 239.8 $ 95.8 $ 335.6
-------- ------- --------
-------- ------- --------
-------------------------------------------------------------------------------------------------------------
7. OTHER BALANCE SHEET ITEMS
-------------------------------------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------------------------------------
NOTES AND ACCOUNTS RECEIVABLE
Trade receivables, less allowances of $95.1 (1993 - $49.7) . . . . . . . . . . . $ 742.0 $ 545.7
Settlements due from insurance carriers - current. . . . . . . . . . . . . . . . 127.0 27.0
Other receivables, less allowances of $.1 (1993 - $.6) . . . . . . . . . . . . . 106.7 84.7
--------- --------
$ 975.7 $ 657.4
--------- --------
--------- --------
-------------------------------------------------------------------------------------------------------------
INVENTORIES
Raw and packaging materials. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129.8 $ 111.4
In process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.3 59.9
Finished products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289.5 243.3
General merchandise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.7 67.0
Less: Adjustment of certain inventories to a last-in/first-out (LIFO) basis. . . (43.1) (40.6)
--------- --------
$ 514.2 $ 441.0
--------- --------
--------- --------
-------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Prepaid pension costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 218.2 $ 224.2
Patient relationships, less accumulated amortization of $117.2 (1993 - $96.5). . 214.9 196.4
Long-term receivables, less allowances of $20.6 (1993 - $13.4) . . . . . . . . . 152.3 177.0
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.3 110.4
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.7 175.0
Long-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.3 104.4
Investments in and advances to affiliated companies. . . . . . . . . . . . . . . 56.0 51.4
Patents and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 33.9
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76.9 60.3
--------- --------
$ 1,086.5 $1,133.0
--------- --------
--------- --------
-------------------------------------------------------------------------------------------------------------
During 1994 and 1993, Grace entered into agreements to sell up to $320.0 and
$270.0, respectively, of interests in designated pools of trade receivables. At
December 31, 1994 and 1993, $296.8 and $263.8, respectively, had been received
pursuant to such sales; these amounts are reflected as reductions to trade
accounts receivable.
Under the terms of these agreements, new interests in trade receivables are
sold as collections reduce previously sold trade receivables. There is no
recourse to Grace, nor is Grace required to repurchase any of the trade
receivables in the pools; if certain trade receivables in the pools prove to be
uncollectible, other trade receivables are substituted (to the extent
available). The costs related to such sales are expensed as incurred and
recorded as interest expense and related financing costs. There were no gains
or losses on these transactions.
Inventories valued at LIFO cost comprised 25.2% and 29.0% of inventories at
December 31, 1994 and 1993, respectively. The liquidation of prior years' LIFO
inventory layers in 1994, 1993, and 1992 did not materially affect cost of goods
sold in any of these years.
F-15
-------------------------------------------------------------------------------
8. PROPERTIES AND EQUIPMENT
-------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 52.4 $ 51.3
Buildings. . . . . . . . . . . . . . . . . . . . . . 698.3 636.1
Machinery, equipment and other . . . . . . . . . . . 2,080.2 1,842.5
Projects under construction. . . . . . . . . . . . . 397.4 247.9
--------- ---------
Properties and equipment, gross . . . . . . . . 3,228.3 2,777.8
Accumulated depreciation and amortization. . . . . . (1,498.2) (1,323.7)
--------- ---------
Properties and equipment, net . . . . . . . . . $ 1,730.1 $ 1,454.1
--------- ---------
--------- ---------
-------------------------------------------------------------------------------
Interest costs have been incurred in connection with the financing of certain
assets prior to placing them in service. Interest costs capitalized in 1994,
1993, and 1992 were $9.4, $7.4, and $20.4, respectively.
Depreciation and lease amortization expense relating to properties and
equipment amounted to $215.1, $196.1, and $202.1 in 1994, 1993, and 1992,
respectively.
Grace's rental expense for operating leases amounted to $65.8, $63.8, and
$80.0 in 1994, 1993, and 1992, respectively. See Note 11 for information
regarding contingent rentals.
At December 31, 1994, minimum future payments for operating leases
were:
-------------------------------------------------------------------------------
1995 . . . . . . . . . . . . . . . . . . . $ 65.3
1996 . . . . . . . . . . . . . . . . . . . 55.0
1997 . . . . . . . . . . . . . . . . . . . 46.2
1998 . . . . . . . . . . . . . . . . . . . 36.0
1999 . . . . . . . . . . . . . . . . . . . 28.5
Later years. . . . . . . . . . . . . . . . 66.9
--------
Total minimum lease payments . . . . . . . $ 297.9
--------
--------
-------------------------------------------------------------------------------
The above minimum lease payments reflect sublease income of $11.3 per year
for 1995 through 1999 and a total of $38.6 in later years.
In 1992, a critical raw material supplier to Grace's fumed silica plant in
Belgium was effectively denied a previously promised permit, resulting in the
shutdown of the supplier's plant. As a result, the continued operation of
Grace's plant would have required Grace to obtain other suppliers and/or take
other actions requiring significant additional investment. Consequently, Grace
closed its plant and in the third quarter of 1992 recorded a one-time provision
of $140.0, reflecting the entire net book value of the facility and certain
additional expenses. Grace is continuing to seek recovery, through litigation,
for certain losses incurred as a result of the shutdown of the plant and is
actively pursuing the sale of the plant's land and buildings.
F-16
-----------------------------------------------------------------------------------------
9. DEBT
-----------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------
SHORT-TERM DEBT
Commercial paper (3.6% weighted average interest rate
at year-end 1993) (1). . . . . . . . . . . . . . . . . . . . . $ -- $ 167.4
Current maturities of long-term debt . . . . . . . . . . . . . . 166.6 9.1
Other short-term borrowings (2). . . . . . . . . . . . . . . . . 264.3 356.1
-------- --------
$ 430.9 $ 532.6
-------- --------
-------- --------
LONG-TERM DEBT
Commercial paper (6.0% and 3.6% weighted average interest
rates at year-end 1994 and 1993, respectively) (1) . . . . . . $ 5.5 $ 30.8
Bank borrowings (5.8% and 3.6% weighted average interest
rates at year-end 1994 and 1993, respectively) (1) . . . . . . 103.5 479.6
8.0% Notes Due 2004 (3). . . . . . . . . . . . . . . . . . . . . 300.0 --
7.4% Notes Due 2000 (4). . . . . . . . . . . . . . . . . . . . . 300.0 300.0
7.75% Notes Due 2002 (5) . . . . . . . . . . . . . . . . . . . . 150.0 150.0
6.5% Notes Due 1995 (6). . . . . . . . . . . . . . . . . . . . . 150.0 150.0
Medium-Term Notes, Series A (6.9% weighted average
interest rate at year-end 1994) (7). . . . . . . . . . . . . . 128.5 --
Sundry indebtedness with various maturities through 2006 . . . . 127.9 72.2
-------- --------
1,265.4 1,182.6
Less current maturities of long-term debt. . . . . . . . . . . . 166.6 9.1
-------- --------
$1,098.8 $1,173.5
-------- --------
-------- --------
Full-year weighted average interest rate on total debt . . . . . 5.8% 5.5%
-----------------------------------------------------------------------------------------
<FN>
(1) UNDER BANK REVOLVING CREDIT AGREEMENTS IN EFFECT AT YEAR-END 1994, GRACE
MAY BORROW UP TO $700.0 AT INTEREST RATES BASED UPON THE PREVAILING PRIME,
FEDERAL FUNDS AND/OR EURODOLLAR RATES. OF THAT AMOUNT, $350.0 IS AVAILABLE
UNDER A 364-DAY CREDIT AGREEMENT EXPIRING AUGUST 31, 1995, AND $350.0 IS
AVAILABLE UNDER A LONG-TERM FACILITY EXPIRING SEPTEMBER 1, 1999. AT
DECEMBER 31, 1994, NO BORROWINGS WERE OUTSTANDING UNDER THESE CREDIT
AGREEMENTS. THESE AGREEMENTS ALSO SUPPORT THE ISSUANCE OF COMMERCIAL PAPER
AND BANK BORROWINGS, $109.0 OF WHICH WAS OUTSTANDING AT DECEMBER 31, 1994
(INCLUDED IN LONG-TERM DEBT ABOVE). AT DECEMBER 31, 1994, THE AGGREGATE
AMOUNT OF NET UNUSED AND UNRESERVED BORROWINGS UNDER THE LONG-TERM AND
364-DAY FACILITIES WAS $591.0. THESE AGREEMENTS REPLACED A CREDIT
AGREEMENT UNDER WHICH $714.6 OF 364-DAY FACILITIES AND $510.4 OF LONG-TERM
FACILITIES HAD BEEN AVAILABLE. GRACE'S ABILITY TO BORROW UNDER THE CURRENT
FACILITIES IS SUBJECT TO COMPLIANCE WITH VARIOUS COVENANTS, INCLUDING
MAINTENANCE OF TOTAL DEBT TO TOTAL CAPITALIZATION AND INTEREST COVERAGE
RATIOS.
(2) REPRESENTS BORROWINGS UNDER VARIOUS LINES OF CREDIT AND OTHER MISCELLANEOUS
BORROWINGS, PRIMARILY OF NON-U.S. SUBSIDIARIES.
(3) DURING THE THIRD QUARTER OF 1994, GRACE SOLD $300.0 OF 8.0% NOTES DUE 2004
AT AN INITIAL PUBLIC OFFERING PRICE OF 99.794% OF PAR, TO YIELD 8.03%.
INTEREST IS PAYABLE SEMIANNUALLY, AND THE NOTES MAY NOT BE REDEEMED PRIOR
TO MATURITY.
(4) DURING THE FIRST QUARTER OF 1993, GRACE SOLD AT PAR $300.0 OF 7.4% NOTES
DUE 2000. INTEREST IS PAYABLE SEMIANNUALLY, AND THE NOTES MAY NOT BE
REDEEMED PRIOR TO MATURITY.
(5) DURING THE THIRD QUARTER OF 1992, GRACE SOLD AT PAR $150.0 OF 7.75% NOTES
DUE 2002. INTEREST IS PAYABLE SEMIANNUALLY, AND THE NOTES MAY NOT BE
REDEEMED PRIOR TO MATURITY.
(6) DURING THE FOURTH QUARTER OF 1992, GRACE SOLD $150.0 OF 6.5% NOTES DUE 1995
AT AN INITIAL PUBLIC OFFERING PRICE OF 99.758% OF PAR, TO YIELD 6.59%.
INTEREST IS PAYABLE SEMIANNUALLY, AND THE NOTES MAY NOT BE REDEEMED PRIOR
TO MATURITY.
(7) DURING THE SECOND QUARTER OF 1994, GRACE ENTERED INTO AN AGREEMENT
PROVIDING FOR THE ISSUANCE AND SALE FROM TIME TO TIME OF ITS MEDIUM-TERM
NOTES, SERIES A (MTNS), WITH AN AGGREGATE ISSUE PRICE OF UP TO $300.0. THE
MTNS MAY BEAR INTEREST AT EITHER FIXED OR FLOATING RATES AND HAVE MATURITY
DATES MORE THAN NINE MONTHS FROM THEIR RESPECTIVE DATES OF ISSUANCE.
INTEREST ON EACH FIXED RATE MTN IS PAYABLE SEMIANNUALLY, AND INTEREST ON
EACH FLOATING RATE MTN IS PAYABLE AS ESTABLISHED AT THE TIME OF ISSUANCE.
Payment of substantially all of Grace's borrowings may be accelerated, and its
principal borrowing agreements terminated, upon the occurrence of a default
under certain other Grace borrowings.
Scheduled maturities of debt outstanding at December 31, 1994 are:
1995 - $166.6; 1996 - $88.1; 1997 - $111.6; 1998 - $5.1; and 1999 - $13.4.
Interest expense, excluding related financing costs, for 1994, 1993, and
1992 amounted to $86.9, $81.5, and $90.0, respectively. Interest payments made
in 1994, 1993, and 1992 amounted to $106.1, $102.5, and $166.8, respectively.
A registration statement that became effective in January 1994 covers
$750.0 of debt and/or equity securities that may be sold from time to time. At
December 31, 1994, $321.5 (including up to $171.5 of MTNs) remains available
under the registration statement.
F-17
-------------------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS
-------------------------------------------------------------------------------
LONG-TERM DEBT/INTEREST RATE AGREEMENTS
To manage its exposure to changes in interest rates, Grace enters into interest
rate agreements, most of which effectively convert fixed-rate debt into
variable-rate debt based on the London Interbank Offered Rate. At December 31,
1994 and 1993, the notional amounts of outstanding interest rate swaps related
to long-term debt were $1,010.0 and $970.0, respectively. Notional amounts do
not quantify risk or represent assets or liabilities of Grace, but are used in
the calculation of cash settlements under the agreements. Management does not
currently intend to settle any of the agreements prior to maturity.
Grace's debt and interest rate management objective is to reduce its cost
of funding over the long term, considering economic conditions and their
potential impact on Grace. The strategy emphasizes improving liquidity by
developing and maintaining access to a variety of long-term and short-term
capital markets. Grace enters into standard interest rate swaps that have
readily identifiable impacts on interest cost and are characterized by broad
market liquidity.
During 1994 and 1993, Grace realized positive cash flows of $10.0 and
$87.0, respectively, from interest rate agreements. Realized gains and losses
on interest rate agreements are amortized to interest expense over a period
relevant to the agreement (1 - 10 years); at December 31, 1994 and 1993,
unamortized net gains were $43.0 and $56.0, respectively. At December 31, 1994
and 1993, Grace would have been required to pay $121.0 and $23.0, respectively,
to retire these agreements. The maturities and notional amounts of the swaps
closely match underlying debt instruments. This will result in the changes in
the fair value of swaps being substantially offset by changes in the fair value
of the debt. At December 31, 1994 and 1993, the fair value of long-term debt
was $1,070.0 and $1,210.0, respectively. The fair value of long-term debt is
determined by obtaining quotes from financial institutions.
FOREIGN CURRENCY CONTRACTS
Grace enters into a variety of foreign exchange forward and option contracts to
manage its exposure to fluctuations in foreign currency exchange rates. These
contracts generally involve the exchange of one currency for another at a future
date. At December 31, 1994 and 1993, Grace had notional principal amounts of
approximately $10.0 and $34.9, respectively, in contracts to buy or sell foreign
currency in the future. The recorded values at December 31, 1994 and 1993,
which approximated fair value based on exchange rates at December 31, 1994 and
1993, were not significant.
OTHER FINANCIAL INSTRUMENTS
At December 31, 1994 and 1993, the recorded value of financial instruments such
as cash, short-term investments, trade receivables and payables and short-term
debt approximated their fair values, based on the short-term maturities of these
instruments. Additionally, the recorded value of both long-term investments and
receivables approximated fair values. Fair value is determined based on
expected future cash flows, discounted at market interest rates, and other
appropriate valuation methodologies.
MARKET AND CREDIT RISKS
Exposure to market risk on interest rate and foreign currency contracts results
from fluctuations in interest and currency rates, respectively, during the
periods in which the contracts are outstanding. The counterparties to Grace's
interest rate swap agreements and currency exchange contracts consist of a
diversified group of major financial institutions, each of which is rated
investment grade. Grace is exposed to credit risk to the extent of potential
nonperformance by counterparties on financial instruments. Any potential credit
exposure does not exceed the fair value as stated above; Grace believes the risk
of incurring losses due to credit risk is remote.
F-18
--------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------------------------------------------------
Grace is the named tenant or guarantor with respect to certain lease obligations
of previously divested businesses. The leases, some of which extend to 2014,
have future minimum lease payments aggregating $67.3. Grace is also the named
tenant or guarantor with respect to lease obligations having future minimum
lease payments of $35.8, as to which a previously divested home center business
had been released in bankruptcy; offsetting this is $35.1 of future minimum
rental income from subtenants. Grace continues to attempt to sublease the
remaining properties and believes its ultimate exposure is not material.
Grace is the named tenant with respect to lease obligations, with future
minimum lease payments of $15.2, that have been assigned to Hermans, a
previously divested business. Grace believes its ultimate exposure under these
leases is not material and that it is fully indemnified by other parties for any
losses it may incur under these leases.
Grace is contingently liable with respect to leases entered into by REG's
subsidiaries. After undergoing a reorganization in 1993, REG (now named Family
Restaurants, Inc.) has agreed to indemnify Grace with respect to these leases.
At December 31, 1994, these leases have future minimum lease payments of $68.3.
Grace believes any risk of loss from these contingent liabilities is remote.
Grace is subject to loss contingencies resulting from environmental laws
and regulations, which, among other things, impose obligations to remove or
mitigate the effects on the environment of the disposal or release of substances
at various sites. Grace accrues for anticipated costs associated with
investigatory and remediation efforts where an assessment has indicated that a
loss is probable and can be reasonably estimated. At December 31, 1994, Grace's
liability for environmental investigatory and remediation costs related to
continuing and discontinued operations totalled approximately $216.0, as
compared to $160.0 at December 31, 1993. The principal reason for this increase
is due to a change in the estimated costs of remediation at a former
manufacturing site due to additional required remediation activities.
Additionally, a change in the estimated liability for remediation costs related
to a previously divested business, as a result of a court ruling that Grace is
responsible for a substantial portion of the costs, contributed to an increase
in the liability; Grace has separately recorded a receivable for the amount
expected to be received from its insurance carriers with respect to this
liability.
In 1994, periodic provisions were recorded for environmental and plant
closure expenses, which include the costs of future environmental investigatory
and remediation activities. Additionally, in the first quarter of 1994, Grace
recorded a provision of approximately $40.0, principally to provide for future
environmental costs. These provisions are included in the Consolidated
Statement of Operations as part of cost of goods sold and operating expenses.
Grace's current balance sheet reserves are considered adequate to cover the
aforementioned liabilities.
Grace's environmental liabilities are reassessed whenever environmental
circumstances become better defined and/or remediation efforts and their costs
can be better estimated. The measurement of the liability is evaluated
quarterly based on currently available information, including the progress of
remedial investigation at each site, the current status of discussions with
regulatory authorities regarding the method and extent of remediation at each
site, and the apportionment of costs among potentially responsible parties. As
some of the previously mentioned issues are decided (the outcome of which is
subject to various uncertainties) and/or new sites are assessed and costs can be
reasonably estimated, Grace will continue to review and analyze the need for
additional accruals.
--------------------------------------------------------------------------------
12. MINORITY INTEREST
--------------------------------------------------------------------------------
Minority interest consists of a limited partner interest in LP. The total
capital of LP at December 31, 1994 was $1,473.2. LP's assets consist of Grace
Cocoa's worldwide cocoa and chocolate business, long-term notes and demand loans
due from various Grace entities and guaranteed by W. R. Grace & Co. and its
principal operating subsidiary, and cash. Grace had $368.1 of borrowings from
LP at December 31, 1994. Four Grace entities serve as general partners of LP
and own general partner interests totalling 79.03% in LP; the sole limited
partner of LP, which initially acquired its interest in LP in exchange for a
$300.0 cash capital contribution ($297.0 of which was funded by outside
investors), owns a 20.97% limited partner interest in LP. LP is a separate and
distinct legal entity from each of the Grace entities and has separate assets,
liabilities, business functions and operations. For financial reporting
purposes, the assets, liabilities, results of operations and cash flows of LP
are included in Grace's consolidated financial statements as a component of
discontinued operations and the outside investors' interest in LP is reflected
as a minority interest.
F-19
--------------------------------------------------------------------------------
13. SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
The weighted average number of shares of common stock outstanding during 1994
was 93,936,000 (1993 - 91,461,000; 1992 - 89,543,000).
W. R. Grace & Co. is authorized to issue 300,000,000 shares of common
stock. Of the common stock unissued at December 31, 1994, approximately
11,214,000 shares are reserved for issuance pursuant to stock options and other
stock incentives. In addition, at December 31, 1994, approximately 105,297,000
shares were reserved for issuance under Common Stock Purchase Rights (Rights).
A Right is issued for each outstanding share of common stock; the Rights are not
and will not become exercisable unless and until certain events occur, and at no
time will the Rights have any voting power.
Preferred stocks authorized, issued and outstanding are:
Par value of
Shares as of December 31, 1994 Shares Outstanding
----------------------------------------- ----------------------------------
Authorized In Out-
and Issued Treasury standing 1994 1993 1992
----------------------------------------- ----------------------------------
6% Cumulative (1) 40,000 3,536 36,464 $3.6 $3.6 $3.6
8% Cumulative Class A (2) 50,000 33,644 16,356 1.6 1.6 1.7
8% Noncumulative Class B (2) 40,000 18,415 21,585 2.2 2.2 2.2
---- ---- ----
$7.4 $7.4 $7.5
---- ---- ----
---- ---- ----
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 160 VOTES PER SHARE.
(2) 16 VOTES PER SHARE.
Dividends paid on the preferred stocks amounted to $.5 in each of 1994,
1993, and 1992.
The Certificate of Incorporation also authorizes 5,000,000 shares of Class
C Preferred Stock, $1 par value, none of which has been issued.
--------------------------------------------------------------------------------
14. STOCK INCENTIVE PLANS
--------------------------------------------------------------------------------
Changes in outstanding common stock options are summarized below:
-----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------ ------------------------ ------------------------
AVERAGE Average Average
NUMBER EXERCISE Number Exercise Number Exercise
OF SHARES PRICE of Shares Price of Shares Price
-----------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year . . . 6,965,304 $36.48 6,365,187 $35.09 6,112,248 $32.01
Options granted. . . . . . . . . . 1,358,900 42.27 1,461,425 38.00 1,445,300 37.77
--------- --------- ----------
8,324,204 7,826,612 7,557,548
Options exercised. . . . . . . . . (606,444) 29.21 (683,255) 25.89 (1,132,863) 25.29
Options terminated or canceled . . (104,872) 37.33 (178,053) 40.13 (59,498) 27.97
--------- --------- ----------
Balance at end of year . . . . . . 7,612,888 38.08 6,965,304 36.48 6,365,187 35.09
--------- --------- ----------
--------- --------- ----------
-----------------------------------------------------------------------------------------------------------------------------
At December 31, 1994, options covering 5,633,761 shares (1993 - 5,056,256;
1992 - 4,025,840) were exercisable and 3,547,094 shares (1993 - 1,804,122; 1992
- 3,087,994) were available for additional grants.
F-20
--------------------------------------------------------------------------------
15. PENSION PLANS
--------------------------------------------------------------------------------
Grace maintains defined benefit pension plans covering employees of certain
units who meet age and service requirements. Benefits are generally based on
final average salary and years of service. Grace funds its U.S. pension plans
in accordance with federal laws and regulations. Non-U.S. pension plans are
funded under a variety of methods because of differing local laws and customs
and therefore cannot be summarized. Approximately 60% of U.S. and non-U.S. plan
assets at December 31, 1994 were common stocks, with the remainder primarily
fixed income securities.
Pension (benefit)/cost is comprised of the following components:
-----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------- ---------------- -----------------
U.S. NON-U.S. U.S. Non-U.S. U.S. Non-U.S.
-----------------------------------------------------------------------------------------------------------------------------
Service cost on benefits earned during the year. . . . . . . . . $ 25.6 $ 13.4 $ 17.6 $ 9.5 $ 11.1 $ 9.4
Interest cost on benefits earned in prior years. . . . . . . . . 49.8 19.3 36.3 17.1 31.7 16.5
Actual loss/(return) on plan assets. . . . . . . . . . . . . . . 17.9 10.6 (108.2) (56.7) (20.9) (30.6)
Deferred (loss)/gain on plan assets. . . . . . . . . . . . . . . (89.5) (37.4) 58.1 36.0 (30.5) 9.5
Amortization of net gains and prior service costs. . . . . . . . (7.7) (1.6) (5.3) (1.7) (8.4) (5.5)
------- ------- ------- ------- ------- -------
Net pension (benefit)/cost . . . . . . . . . . . . . . . . . . . $ (3.9) $ 4.3 $ (1.5) $ 4.2 $ (17.0) $ (.7)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
-----------------------------------------------------------------------------------------------------------------------------
The funded status of these plans was as follows:
-----------------------------------------------------------------------------------------------------------------------------
1994 1993
--------------------- ----------------------
U.S. NON-U.S. U.S. Non-U.S.
-----------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 575.2 $ 171.4 $ 614.2 $ 172.6
------- ------- ------- -------
------- ------- ------- -------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . $ 579.8 $ 179.7 $ 620.0 $ 182.2
------- ------- ------- -------
------- ------- ------- -------
Total projected benefit obligation . . . . . . . . . . . . . . . $ 636.7 $ 240.3 $ 691.4 $ 263.4
Plan assets at fair value. . . . . . . . . . . . . . . . . . . . 751.6 268.3 836.4 270.1
------- ------- ------- -------
Plan assets in excess of projected benefit obligation. . . . . . 114.9 28.0 145.0 6.7
Unamortized net gain at initial adoption . . . . . . . . . . . . (83.9) (3.8) (96.1) (6.4)
Unamortized prior service cost . . . . . . . . . . . . . . . . . 31.3 4.0 34.8 4.2
Unrecognized net loss/(gain) . . . . . . . . . . . . . . . . . . 63.4 (13.0) 47.6 .9
------- -------- ------- ------
Prepaid pension cost . . . . . . . . . . . . . . . . . . . . . . $ 125.7 $ 15.2 (1) $ 131.3 $ 5.4 (1)
------- -------- ------- ------
------- -------- ------- ------
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) INCLUDES $70.3 IN 1994 AND $66.0 IN 1993 OF DEFERRED PENSION COSTS.
The following significant assumptions were used in 1994, 1993, and 1992:
-----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------- ------------------- -------------------
U.S. NON-U.S. U.S. Non-U.S. U.S. Non-U.S.
-----------------------------------------------------------------------------------------------------------------------------
Discount rate at December 31,. . . . . . . . . . . 8.5% 5.0 - 12.0% 7.5% 4.5 - 9.2% 8.0% 6.0 - 12.0%
Expected long-term rate of return. . . . . . . . . 9.0 6.0 - 10.5 9.0 6.0 - 10.5 9.0 6.0 - 11.0
Rate of compensation increase. . . . . . . . . . . 5.5 4.0 - 7.5 5.5 3.5 - 7.5 6.0 3.5 - 7.5
-----------------------------------------------------------------------------------------------------------------------------
Grace's Retirement Plan for Salaried Employees (Plan) contains provisions
under which the Plan would automatically terminate in the event of a change in
control of W. R. Grace & Co. and Plan benefits would be secured through the
purchase of annuity contracts. Upon such termination, a portion of the Plan's
excess assets would be placed in an irrevocable trust to fund various employee
benefit plans and arrangements of Grace, and any balance would be returned to
Grace.
F-21
--------------------------------------------------------------------------------
16. OTHER POSTRETIREMENT BENEFIT PLANS
--------------------------------------------------------------------------------
Grace provides certain other postretirement health care and life insurance
benefits for retired employees of specified U.S. Units. These retiree medical
and life insurance plans provide various levels of benefits to employees
(depending on their date of hire) who retire from Grace after age 55 with at
least 10 years of service. The plans are currently unfunded.
Effective January 1, 1992, Grace adopted SFAS No. 106, which requires the
accrual method of accounting for the future costs of postretirement health care
and life insurance benefits over the employees' years of service. The "pay as
you go" method of accounting, used prior to 1992, recognized these costs on a
cash basis. The adoption of SFAS No. 106 on the immediate recognition basis,
concurrent with the adoption of SFAS No. 109, resulted in a charge to 1992
earnings of $190.0, net of $98.0 of deferred income taxes. In addition, the
application of SFAS No. 106 resulted in a decrease of $5.1 in 1992 after-tax
earnings from continuing operations. Grace's cash flow, however, is unaffected
by implementation of SFAS No. 106, as Grace continues to pay the costs of
postretirement benefits as they are incurred.
Included in noncurrent liabilities as of December 31, 1994 and 1993 are the
following:
---------------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees. . . . . . . . . . . . . . . . . . . . . $192.6 $168.9
Fully eligible participants . . . . . . . . . . . 12.1 36.9
Active ineligible participants. . . . . . . . . . 26.3 38.3
------ ------
Accumulated postretirement benefit obligation. . . . . 231.0 244.1
Unrecognized net loss . . . . . . . . . . . . . . (28.5) (40.7)
Unrecognized prior service benefit. . . . . . . . 48.6 52.9
------ ------
Accrued postretirement benefit obligation. . . . . . . $251.1 $256.3
------ ------
------ ------
---------------------------------------------------------------------------
Net periodic postretirement benefit cost for the years ended December 31,
1994, 1993, and 1992 is comprised of the following components:
-----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.1 $ 2.2 $ 3.8
Interest cost on accumulated postretirement benefit obligation . . . . . . . . . 16.2 13.2 15.6
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 .2 --
Amortization of prior service benefit. . . . . . . . . . . . . . . . . . . . . . (4.3) (4.5) (1.9)
------ ------ -----
Net periodic postretirement benefit cost . . . . . . . . . . . . . . . . . . . . $ 15.2 $ 11.1 $ 17.5
------ ------ -----
------ ------ -----
-----------------------------------------------------------------------------------------------------------------------------
As a result of classifying certain operations as discontinued, Grace
recognized reductions in the accrued postretirement benefit obligation of
approximately $16.6 and $23.5 in 1993 and 1992, respectively, which are
reflected in the reserve for discontinued operations.
During 1992, Grace's retiree medical plans were amended to increase cost
sharing by employees retiring after January 1, 1993. This amendment decreased
the accumulated postretirement benefit obligation by $48.6 at December 31, 1994
and will be amortized over an average remaining future service life of
approximately 12 years.
Medical care cost trend rates were projected at 10.9% in 1994, declining to
6.0% through 2002 and remaining level thereafter. A one percentage point
increase in each year's assumed medical care cost trend rate, holding all other
assumptions constant, would increase the annual net periodic postretirement
benefit cost by $3.0 and the accumulated postretirement benefit obligation by
$18.7. The discount rates at December 31, 1994, 1993, and 1992 were 8.5%, 7.5%,
and 8.0%, respectively.
Effective January 1, 1994, Grace adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires accrual accounting for
non-accumulating postemployment benefits. Grace's primary postemployment
obligation is for disabled workers' medical benefits. These are currently
included in accrued postretirement costs under SFAS No. 106. The adoption of
SFAS No. 112 did not have a material effect on Grace's results of operations or
financial position.
F-22
--------------------------------------------------------------------------------
17. INDUSTRY SEGMENTS AND INFORMATION ABOUT FOREIGN OPERATIONS
--------------------------------------------------------------------------------
INDUSTRY SEGMENT INFORMATION
Grace is a global producer of specialty chemicals and holds a leadership
position in specialized health care services and products. The tables below
present information related to Grace's two industry segments for the years 1994
-1992. Intersegment sales, eliminated in consolidation, are nominal and are not
disclosed separately.
Specialty Health
Chemicals Care Total
---------------------------------------------------------------------------
Sales and Revenues . . . . . . . . 1994 $3,218 $1,875 $5,093
1993 2,895 1,513 4,408
1992 3,062 1,275 4,337
Pretax Operating Income (1). . . . 1994 338 249 587
1993 284 194 478
1992 299 126 425
Identifiable Assets. . . . . . . . 1994 2,364 1,735 4,099
1993 1,996 1,297 3,293
1992 1,893 906 2,799
Capital Expenditures . . . . . . . 1994 329 86 415
1993 209 80 289
1992 224 52 276
Depreciation and Amortization. . . 1994 148 94 242
1993 138 78 216
1992 151 65 216
---------------------------------------------------------------------------
F-23
INFORMATION ABOUT FOREIGN OPERATIONS
The table below provides information pertaining to Grace's operations by
geographic area. Asia Pacific and Latin America are included in Other.
United
States Canada Europe Other Total
-----------------------------------------------------------------------------------------------------------------------------
Sales and Revenues . . . . . . . . 1994 $3,309 $122 $1,058 $604 $5,093
1993 2,855 124 932 497 4,408
1992 2,721 131 1,081 404 4,337
Pretax Operating Income (1). . . . 1994 423 9 74 81 587
1993 365 7 47 59 478
1992 291 -- 75 59 425
Identifiable Assets. . . . . . . . 1994 2,468 82 1,026 523 4,099
1993 2,063 82 753 395 3,293
1992 1,669 75 772 283 2,799
-----------------------------------------------------------------------------------------------------------------------------
Pretax operating income and total identifiable assets for both segment and
geographic results are reconciled below to income from continuing operations
before income taxes and consolidated total assets, respectively, as presented in
the Consolidated Statement of Operations and Consolidated Balance Sheet.
Capital expenditures and depreciation and amortization expense are reconciled
below to the respective amounts presented in the Consolidated Statement of Cash
Flows. Grace allocates to its industry segments general corporate overhead
expenses, general corporate research expenses and certain other income and
expense items that can be identified with segment operations.
1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
Pretax operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 587 $ 478 $ 425
Interest expense and related financing costs . . . . . . . . . . . . . . . . . . (110) (84) (100)
Provision relating to asbestos-related insurance coverage. . . . . . . . . . . . (316) (159) --
Provision relating to a fumed silica plant . . . . . . . . . . . . . . . . . . . -- -- (140)
Other (expenses)/income, net . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (14) 8
------ ------ ------
Income from continuing operations before income taxes. . . . . . . . . . . . . . $ 139 $ 221 $ 193
------ ------ ------
------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------
Identifiable assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,099 $3,293 $2,799
Asbestos-related insurance receivable. . . . . . . . . . . . . . . . . . . . . . 513 962 --
General corporate assets (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 1,093 1,235
Discontinued operations' net assets. . . . . . . . . . . . . . . . . . . . . . . 336 761 1,565
------ ------ ------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,231 $6,109 $5,599
------ ------ ------
------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 415 $ 289 $ 276
General corporate expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 30 21 34
Discontinued operations' expenditures. . . . . . . . . . . . . . . . . . . . . . -- -- 88
------ ------ ------
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 445 $ 310 $ 398
------ ------ ------
------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . $ 242 $ 216 $ 216
General corporate depreciation and amortization . . . . . . . . . . . . . . . . 19 19 16
------ ------ ------
Total depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . $ 261 $ 235 $ 232
------ ------ ------
------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 1993 AND 1992 AMOUNTS HAVE BEEN RESTATED TO INCLUDE THE ALLOCATION TO
INDUSTRY SEGMENTS OF GENERAL CORPORATE OVERHEAD EXPENSES, GENERAL CORPORATE
RESEARCH EXPENSES AND CERTAIN OTHER INCOME AND EXPENSE ITEMS TO CONFORM TO
THE 1994 PRESENTATION.
(2) GENERAL CORPORATE ASSETS PRINCIPALLY INCLUDE DEFERRED TAX ASSETS, DEFERRED
PENSION ASSETS AND CORPORATE RECEIVABLES AND INVESTMENTS.
F-24
-----------------------------------------------------------------------------------------------------------------------------
QUARTERLY SUMMARY AND STATISTICAL INFORMATION UNAUDITED-DOLLARS IN MILLIONS, EXCEPT PER SHARE
-----------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED 1Q 2Q 3Q 4Q
-----------------------------------------------------------------------------------------------------------------------------
1994
Specialty Chemicals. . . . . . . . . . . . . . . . $ 675.4 $ 782.9 $ 815.5 $ 944.4
Health Care. . . . . . . . . . . . . . . . . . . . 401.4 454.0 491.2 528.5
-------- -------- -------- --------
Total sales and revenues. . . . . . . . . . . $ 1,076.8 $ 1,236.9 $ 1,306.7 $ 1,472.9
Cost of goods sold and operating expenses. . . . . 680.6 721.5 755.4 797.4
Net income/(loss). . . . . . . . . . . . . . . . . 38.2 (134.3) (3) 76.0 103.4
Earnings/(loss) per share: (1)
Net earnings/(loss) . . . . . . . . . . . . . $ .41 $ (1.43) $ .81 $ 1.10
Fully diluted earnings per share:
Net earnings. . . . . . . . . . . . . . . . . $ .40 $ -- (4) $ .80 $ 1.09
Dividends declared per common share. . . . . . . . $ .35 $ .35 $ .35 $ .35
Market price of common stock: (2)
High. . . . . . . . . . . . . . . . . . . . . $ 46 1/2 $ 43 $ 42 3/8 $ 41 1/8
Low . . . . . . . . . . . . . . . . . . . . . 40 3/8 39 38 1/4 36
Close . . . . . . . . . . . . . . . . . . . . 41 1/4 39 7/8 41 1/2 38 5/8
-----------------------------------------------------------------------------------------------------------------------------
1993 (5)
Specialty Chemicals. . . . . . . . . . . . . . . . $ 648.1 $ 729.9 $ 734.7 $ 782.9
Health Care. . . . . . . . . . . . . . . . . . . . 338.1 364.2 401.4 409.1
--------- --------- --------- ---------
Total sales and revenues. . . . . . . . . . . $ 986.2 $ 1,094.1 $ 1,136.1 $ 1,192.0
Cost of goods sold and operating expenses. . . . . 592.4 644.1 660.1 719.1
Income/(loss) from continuing operations . . . . . 31.7 53.9 (236.4) (6) 285.2 (7)
Loss from discontinued operations. . . . . . . . . (3.4) (105.0) -- --
Net income/(loss). . . . . . . . . . . . . . . . . 28.3 (51.1) (236.4) 285.2
Earnings/(loss) per share: (1)
Continuing operations . . . . . . . . . . . . $ .35 $ .60 $ (2.56) $ 3.05
Net earnings/(loss) . . . . . . . . . . . . . .31 (.57) (2.56) 3.05
Fully diluted earnings per share:
Continuing operations . . . . . . . . . . . . $ .34 $ .56 $ -- (4) $ 3.03
Net earnings. . . . . . . . . . . . . . . . . .30 -- (4) -- (4) 3.03
Dividends declared per common share. . . . . . . . $ .35 $ .35 $ .35 $ .35
Market price of common stock: (2)
High. . . . . . . . . . . . . . . . . . . . . $ 40 1/8 $ 40 5/8 $ 41 1/4 $ 40 5/8
Low . . . . . . . . . . . . . . . . . . . . . 36 3/4 38 1/2 34 5/8 34 3/4
Close . . . . . . . . . . . . . . . . . . . . 38 1/2 40 1/2 34 5/8 40 5/8
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) PER SHARE RESULTS FOR THE FOUR QUARTERS DIFFER FROM FULL-YEAR PER SHARE
RESULTS, AS A SEPARATE COMPUTATION OF EARNINGS PER SHARE IS MADE FOR EACH
QUARTER PRESENTED. THE DIFFERENCE IN 1993 IS PRINCIPALLY DUE TO THE
CONVERSION IN THE THIRD QUARTER OF OUTSTANDING DEBT INTO APPROXIMATELY 2.8
MILLION SHARES OF COMMON STOCK.
(2) PRINCIPAL MARKET: NEW YORK STOCK EXCHANGE.
(3) INCLUDES A $200.0 REINSTATEMENT OF THE PROVISION RELATING TO ASBESTOS-
RELATED INSURANCE COVERAGE.
(4) NOT PRESENTED AS THE EFFECT IS ANTI-DILUTIVE.
(5) CERTAIN AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1994 PRESENTATION.
(6) INCLUDES A $300.0 PROVISION RELATING TO ASBESTOS-RELATED INSURANCE
COVERAGE.
(7) INCLUDES A $200.0 REVERSAL OF THE $300.0 PROVISION RELATING TO ASBESTOS-
RELATED INSURANCE COVERAGE.
F-25
--------------------------------------------------------------------------------
WORLDWIDE OPERATIONS DOLLARS IN MILLIONS
--------------------------------------------------------------------------------
Sales and Revenues Pretax Operating Income (1)
---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1994 (2) 1993 (3) 1992
---------------------------------------------------------------------------------------------------------------------------------
UNITED STATES/CANADA
Specialty Chemicals. . . . . . . . $1,679 $1,555 $1,455 $192 $189 $148
Health Care. . . . . . . . . . . . 1,752 1,424 1,211 240 183 109
------ ------ ------ ---- ---- ----
Total. . . . . . . . . . . . . . . 3,431 2,979 2,666 432 372 257
------ ------ ------ ---- ---- ----
---------------------------------------------------------------------------------------------------------------------------------
EUROPE
Specialty Chemicals. . . . . . . . 956 852 967 69 38 67 (4)
Health Care. . . . . . . . . . . . 102 80 58 5 9 17
------ ------ ------ ---- ---- ----
Total. . . . . . . . . . . . . . . 1,058 932 1,025 74 47 84
------ ------ ------ ---- ---- ----
---------------------------------------------------------------------------------------------------------------------------------
ASIA PACIFIC
Specialty Chemicals. . . . . . . . 366 307 278 56 44 41
Health Care. . . . . . . . . . . . 12 8 6 2 2 --
------ ------ ------ ---- ---- ----
Total. . . . . . . . . . . . . . . 378 315 284 58 46 41
------ ------ ------ ---- ---- ----
---------------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
Specialty Chemicals. . . . . . . . 217 181 120 21 13 18
Health Care. . . . . . . . . . . . 9 1 -- 2 -- --
------ ------ ------ ---- ---- ----
Total. . . . . . . . . . . . . . . 226 182 120 23 13 18
------ ------ ------ ---- ---- ----
---------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL . . . . . . . . . . . . . 5,093 4,408 4,095 587 478 400
Divested Businesses. . . . . . . . -- -- 242 -- -- 25
------ ------ ------ ---- ---- ----
TOTAL CONTINUING OPERATIONS. . . . $5,093 $4,408 $4,337 $587 $478 $425
------ ------ ------ ---- ---- ----
---------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE 1994 PRESENTATION ON A PRETAX
BASIS AND INCLUDE THE ALLOCATION TO INDUSTRY SEGMENTS OF GENERAL CORPORATE
OVERHEAD EXPENSES, GENERAL CORPORATE RESEARCH EXPENSES AND CERTAIN OTHER
INCOME AND EXPENSE ITEMS.
(2) EXCLUDES A $316 PROVISION FOR ASBESTOS-RELATED INSURANCE COVERAGE.
(3) EXCLUDES A $159 PROVISION FOR ASBESTOS-RELATED INSURANCE COVERAGE.
(4) EXCLUDES A $140 PROVISION RELATING TO A FUMED SILICA PLANT IN BELGIUM.
F-26
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION DOLLARS IN MILLIONS
-----------------------------------------------------------------------------------------------------------------------------
Depreciation and
Capital Expenditures Net Fixed Assets Lease Amortization (1)
------------------------ ------------------------ ------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
OPERATING GROUP
Specialty Chemicals. . . . . $329 $209 $200 $1,262 $1,049 $ 975 $144 $135 $131
Health Care. . . . . . . . . 86 80 52 324 277 221 56 46 38
---- ---- ---- ------ ------ ------ ---- ---- ----
Subtotal . . . . . . . . . . 415 289 252 1,586 1,326 1,196 200 181 169
General Corporate. . . . . . 30 21 34 144 128 102 15 15 15
---- ---- ---- ------ ------ ------ ---- ---- ----
Total Continuing Operations. 445 310 286 1,730 1,454 1,298 215 196 184
Divested Businesses. . . . . -- -- 24 -- -- 4 -- -- 18
Discontinued Operations. . . -- -- 88 -- -- 406 -- -- --
---- ---- ---- ------ ------ ------ ---- ---- ----
Total. . . . . . . . . . . . $445 $310 $398 $1,730 $1,454 $1,708 $215 $196 $202
---- ---- ---- ------ ------ ------ ---- ---- ----
---- ---- ---- ------ ------ ------ ---- ---- ----
-----------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC LOCATION
United States and Canada . . $272 $194 $156 $ 994 $ 854 $ 757 $129 $117 $108
Europe . . . . . . . . . . . 86 68 80 421 351 342 55 49 49
Other Areas. . . . . . . . . 57 27 16 171 121 97 16 15 12
---- ---- ---- ------ ------ ------ ---- ---- ----
Subtotal . . . . . . . . . . 415 289 252 1,586 1,326 1,196 200 181 169
General Corporate. . . . . . 30 21 34 144 128 102 15 15 15
---- ---- ---- ------ ------ ------ ---- ---- ----
Total Continuing Operations. 445 310 286 1,730 1,454 1,298 215 196 184
Divested Businesses. . . . . -- -- 24 -- -- 4 -- -- 18
Discontinued Operations. . . -- -- 88 -- -- 406 -- -- --
---- ---- ---- ------ ------ ------ ---- ---- ----
Total. . . . . . . . . . . . $445 $310 $398 $1,730 $1,454 $1,708 $215 $196 $202
---- ---- ---- ------ ------ ------ ---- ---- ----
---- ---- ---- ------ ------ ------ ---- ---- ----
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) CERTAIN 1993 AND 1992 AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1994
PRESENTATION.
F-27
--------------------------------------------------------------------------------
FINANCIAL SUMMARY (1) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Sales and revenues . . . . . . . . . . . . . . . . . . . . . $5,093.3 $4,408.4 $4,337.0 $4,386.6 $4,309.7
Cost of goods sold and operating expenses. . . . . . . . . . 2,954.9 2,615.7 2,581.7 2,629.0 2,684.4
Depreciation and amortization. . . . . . . . . . . . . . . . 260.7 234.6 232.1 241.5 227.2
Interest expense and related financing costs . . . . . . . . 109.9 84.4 99.8 126.6 138.6
Research and development expenses. . . . . . . . . . . . . . 132.4 135.0 130.0 128.1 125.4
Income from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . 139.1 (3) 221.2 (4) 192.5 (5) 334.2 272.1
Provision for income taxes . . . . . . . . . . . . . . . . . 55.8 86.8 134.8 132.5 97.5
Income from continuing operations before special items (2) . 283.3 234.4 202.8 198.2 174.6
Income from continuing operations. . . . . . . . . . . . . . 83.3 134.4 57.7 201.7 174.6
(Loss)/income from discontinued operations . . . . . . . . . -- (108.4) (162.2) 16.9 28.2
Cumulative effect of accounting changes. . . . . . . . . . . -- -- (190.0) -- --
Net income/(loss). . . . . . . . . . . . . . . . . . . . . . 83.3 26.0 (294.5) 218.6 202.8
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets . . . . . . . . . . . . . . . . . . . . . . . $2,228.9 $2,077.6 $2,091.4 $1,990.0 $2,380.1
Current liabilities. . . . . . . . . . . . . . . . . . . . . 2,231.5 1,992.6 1,639.6 1,622.1 1,680.1
Properties and equipment, net. . . . . . . . . . . . . . . . 1,730.1 1,454.1 1,707.9 2,558.2 2,462.1
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 6,230.6 6,108.6 5,598.6 6,007.1 6,226.5
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . 1,529.7 1,706.1 1,819.2 2,259.4 2,285.9
Shareholders' equity - common stock. . . . . . . . . . . . . 1,497.1 1,510.2 1,537.5 2,017.7 1,905.0
-----------------------------------------------------------------------------------------------------------------------------
DATA PER COMMON SHARE
Earnings from continuing operations before special items (2) $ 3.01 $ 2.56 $ 2.26 $ 2.27 $ 2.03
Earnings from continuing operations. . . . . . . . . . . . . .88 1.46 .64 2.31 2.03
Cumulative effect of accounting changes. . . . . . . . . . . -- -- (2.12) -- --
Earnings/(loss). . . . . . . . . . . . . . . . . . . . . . . .88 .28 (3.29) 2.50 2.36
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 1.40 1.40 1.40 1.40 1.40
Book value . . . . . . . . . . . . . . . . . . . . . . . . . 15.91 16.16 17.10 22.77 22.14
Average common shares outstanding (THOUSANDS). . . . . . . . 93,936 91,461 89,543 87,236 85,879
-----------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Dividends paid on common stock . . . . . . . . . . . . . . . $ 131.5 $ 127.9 $ 125.4 $ 122.0 $ 120.2
Capital expenditures . . . . . . . . . . . . . . . . . . . . 444.6 309.6 398.4 447.0 513.7
% Total debt to total capital. . . . . . . . . . . . . . . . 50.4% 52.9% 54.1% 52.7% 54.4%
Common shareholders of record. . . . . . . . . . . . . . . . 18,501 19,358 20,869 21,949 23,327
Common stock price range . . . . . . . . . . . . . . . . . . 46 1/2-36 41 1/4-34 5/8 45-32 40 3/4-23 3/8 33 5/8-17
Number of employees - continuing
operations (THOUSANDS). . . . . . . . . . . . . . . . . . 37.9 34.0 32.8 32.9 34.2
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) CERTAIN PRIOR YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1994
PRESENTATION.
(2) EXCLUDES PROVISIONS OF $200.0 AND $100.0 IN 1994 AND 1993, RESPECTIVELY,
RELATING TO ASBESTOS-RELATED INSURANCE COVERAGE, AND IN 1992 A $140.0
PROVISION RELATING TO A FUMED SILICA PLANT IN BELGIUM AND AN INCREMENTAL
CHARGE OF $5.1 FOR POSTRETIREMENT BENEFITS PRIOR TO PLAN AMENDMENTS, AND A
STRATEGIC RESTRUCTURING GAIN OF $3.5 IN 1991.
(3) INCLUDES A $316.0 PROVISION RELATING TO ASBESTOS-RELATED INSURANCE
COVERAGE.
(4) INCLUDES A $159.0 PROVISION RELATING TO ASBESTOS-RELATED INSURANCE
COVERAGE.
(5) INCLUDES A $140.0 PROVISION RELATING TO A FUMED SILICA PLANT IN BELGIUM.
F-28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
REVIEW OF OPERATIONS
OVERVIEW
Sales and revenues increased 16% in 1994 over 1993, as compared to an increase
of 2% in 1993 over 1992. Excluding businesses divested in 1992, 1993 sales and
revenues increased 8% as compared to 1992.
Income from continuing operations in 1994 increased 21%, to $283.3 million,
as compared to 1993, excluding non-cash charges of $200 million and $100 million
after taxes ($316 million and $159 million pretax) recorded in 1994 and 1993,
respectively, to reflect a reduction in insurance coverage for asbestos property
damage lawsuits and claims. In 1992, Grace closed its fumed silica plant in
Belgium and recorded a one-time provision of $140 million, representing the
entire net book value of the facility and certain additional expenses.
Excluding the asbestos and fumed silica charges, income from continuing
operations for 1993 increased 19%, to $234.4 million, over 1992 (including
businesses divested in 1992).
For all periods presented, the Consolidated Statement of Operations has
been restated to reflect the classification of certain businesses as
discontinued operations, as discussed in Note 6 to the Consolidated Financial
Statements.
SPECIALTY CHEMICALS
Sales and revenues increased 11% in 1994 as compared to 1993, reflecting
favorable volume, price/product mix and currency translation variances estimated
at 9%, 1% and 1%, respectively. Volume increases were experienced by all core
product lines. Packaging volume increases were due to higher sales volumes of
bags, films and laminates in all regions. The volume increases in construction
products were due to the acquisition of construction chemicals businesses in the
first quarter of 1994, improved construction markets in North America and
Europe, and improved sales of waterproofing materials in North America. Water
treatment volume increases were due to market share gains in Latin America and
North America in the water treatment chemicals business and improving conditions
in the paper industry process chemicals business in Europe. The volume
increases in container were due to increased sales of can sealing products in
Asia Pacific. Catalyst and other silica-based products volume increases were
due to strong sales of dentifrice silica in North America and market share gains
in Europe, improved polyolefin catalyst sales as a result of improved market
conditions in Europe and Asia Pacific, and improved volumes in fluid cracking
catalysts in Europe and Asia Pacific, partially offset by a decrease in fluid
cracking catalyst volume in North America as a result of customers cracking
better quality crude (requiring fewer catalysts) and an increase in customer
maintenance shutdowns in 1994.
Operating income before taxes increased by 19% in 1994 compared to 1993.
North American results in 1994 were positively affected by strong growth in
construction and packaging, mainly due to the volume increases noted above,
partially offset by reduced profitability in fluid cracking catalysts due to the
volume decreases noted above. European results improved significantly versus
1993, primarily due to improvements in fluid cracking and polyolefin catalysts
and construction products (due to the volume increases noted above), partially
offset by costs associated with streamlining European packaging, water treatment
and container operations. In Asia Pacific, favorable results were achieved
versus 1993, primarily in fluid cracking and polyolefin catalysts and container
(due to the volume increases noted above). Latin American 1994 results improved
versus 1993, primarily due to increased profitability in packaging (due to
increased volumes in bags, films and laminates). Latin American results also
benefited from improved economic conditions in Brazil; however, this was
partially offset by the devaluation of the Mexican peso in late 1994.
Excluding sales and revenues and operating income before taxes of
businesses divested in 1992 and the fumed silica provision referred to above,
sales and revenues increased by 3%, and operating income before taxes increased
by 4%, in 1993 as compared to 1992. The increase in sales and revenues
reflected favorable volume and price/product mix variances estimated at 6% and
2%, respectively, offset by an unfavorable currency translation variance
estimated at 5%. Volume increases occurred in 1993 in packaging, water
treatment, fluid cracking catalysts and silica products, and construction
products. North American results significantly improved in 1993, as strong
growth occurred in packaging, fluid cracking catalysts and silica products, and
construction products, due mainly to strong volume increases. European results
for most product lines were adversely affected by recessionary conditions,
leading to reduced profitability; however, results for European fluid cracking
catalysts and silica products improved, primarily due to increased volumes
achieved following the withdrawal of certain competitors from this market in
1992. In Asia Pacific, favorable results were achieved, primarily in packaging
and fluid cracking catalysts and silica products. In Latin America, results
were down, primarily due to the costs of integrating the operations of a new
water treatment business, partially offset by favorable results in packaging.
HEALTH CARE
Sales and revenues for 1994 increased by 24% over 1993, due to increases of 28%
and 47%, respectively, in kidney dialysis services and home health care
operations, partially offset by a decrease of 7% in medical products revenues.
The decrease in medical products operations reflects a decline in bloodline
sales resulting from import alerts issued in the 1993 second quarter (see
discussion below). 1994 results for kidney dialysis services reflect
acquisitions during 1994, and home health care operations include the results of
Home Nutritional Services, Inc. (HNS), a national provider of home infusion
therapy services acquired in April 1994. The number of centers providing
dialysis and related services increased 18%, from 501 at year-end 1993 to 590 at
year-end 1994 (526 in North America, 42 in Europe, 15 in Latin America and 7 in
Asia Pacific).
F-29
Operating income before taxes increased by 28% in 1994 over 1993. All
health care businesses benefited from acquisitions made in 1993 and 1994,
continued expansion inside and outside the U.S., and continued improvements in
cost controls, operating efficiencies and/or capacity utilization. These
favorable results were partially offset by the costs of improving and expanding
quality assurance systems for medical products manufacturing operations (see
discussion below).
Sales and revenues for 1993 increased by 19% over 1992, due to increases of
18%, 36% and 11%, respectively, in kidney dialysis services, home health care
and medical products operations. Operating income before taxes in 1993
increased by 55% over 1992, reflecting the continued growth of all health care
businesses, as well as improvements in cost controls, operating efficiencies and
capacity utilization. In addition, results for 1992 included costs related to
previously reported long-term incentive agreements with certain health care
executives.
In 1993, the U.S. Food and Drug Administration (FDA) issued import alerts
with respect to (1) hemodialysis bloodlines manufactured at the plant of
National Medical Care, Inc. (NMC), Grace's principal health care subsidiary,
located in Reynosa, Mexico and (2) hemodialyzers manufactured in NMC's Dublin,
Ireland facility. Products subject to FDA import alerts may not enter the U.S.
until the FDA approves the quality assurance systems of the facility at which
such products are manufactured. In January 1994, NMC entered into a consent
decree providing for the resumption of importation of bloodlines and
hemodialyzers following certification by NMC that the relevant facility complies
with FDA regulations and successful completion of an FDA inspection to verify
such compliance. The consent decree also requires NMC to certify and maintain
compliance with applicable FDA manufacturing requirements at all of its U.S.
manufacturing facilities. NMC submitted all required certifications for its
U.S. and non-U.S. facilities in accordance with the timetable specified in the
consent decree, and the bloodline import alert was lifted in March 1994. The
Dublin hemodialyzer manufacturing facility was inspected by the FDA in December
1994, and NMC anticipates completion of all remaining corrective actions in the
second quarter of 1995. No fines or penalties have been imposed on NMC as a
result of any of the FDA's actions or in connection with the consent decree.
Neither the import alerts nor previously reported recalls of certain NMC
products have had, or are expected to have, a material effect on Grace's results
of operations or financial position.
STATEMENT OF OPERATIONS
OTHER INCOME
See Note 4 to the Consolidated Financial Statements for information relating to
other income.
INTEREST EXPENSE AND RELATED FINANCING COSTS
Interest expense and related financing costs increased by 30% in 1994 versus
1993, primarily due to higher average short-term interest rates, coupled with an
increase in related financing costs.
Grace's debt and interest rate management objective is to reduce its cost
of funding over the long term, considering economic conditions and their
potential impact on Grace. The strategy emphasizes improving liquidity by
developing and maintaining access to a variety of long-term and short-term
capital markets. To manage its exposure to changes in interest rates, Grace
enters into interest rate agreements, most of which effectively convert fixed-
rate debt into variable-rate debt; these agreements have readily identifiable
impacts on interest cost and are characterized by broad market liquidity. See
Note 10 to the Consolidated Financial Statements for further information on
interest rate agreements.
See "Financial Condition: Liquidity and Capital Resources" below and Note
9 to the Consolidated Financial Statements for information on borrowings.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending decreased by 2% in 1994 versus 1993. In 1994
and 1993, approximately 82% and 78%, respectively, of research and development
spending was directed toward Grace's core specialty chemicals and health care
businesses.
INCOME TAXES
The effective tax rate was 40.1% in 1994 versus 39.2% in 1993. The higher
effective tax rate in 1994 was due to certain foreign exchange losses that
provided no tax benefit and to increased state and local income taxes, partially
offset by lower taxes on foreign operations. Grace recognized a valuation
allowance for deferred taxes in 1992 which has been adjusted to reflect
subsequent events. The valuation allowance relates to uncertainty as to the
realization of certain deferred tax assets, including U.S. tax credit
carryforwards, state and local net operating loss carryforwards and net deferred
tax assets, and net operating loss carryforwards in certain foreign
jurisdictions. Based upon anticipated future results, Grace has concluded,
after consideration of the valuation allowance, that it is more likely than not
that the net deferred tax asset balance will be realized.
In the third quarter of 1993, Grace recorded the effects of the Omnibus
Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993.
Among other things, OBRA increased the maximum U.S. Federal corporate tax rate
to 35% (from 34%), effective January 1, 1993. However, neither this rate
increase nor the other provisions of OBRA had a material effect on Grace's
results of operations.
The 1993 effective tax rate decreased to 39.2% as compared with 43.1% in
1992, before giving effect to the 1992 provision of $51.9 million for a
valuation allowance for deferred taxes. The decrease was largely due to
reductions in certain foreign tax rates and higher utilization of research and
development and foreign tax credits, partially offset by tax costs associated
with repatriating to the U.S. earnings of foreign subsidiaries.
See Note 5 to the Consolidated Financial Statements for further information
on income taxes.
F-30
LOSS FROM DISCONTINUED OPERATIONS
In 1993, Grace restated its financial statements to reflect the classification
of certain businesses as discontinued operations. See Note 6 to the
Consolidated Financial Statements for further information.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the net pretax cash provided by Grace's continuing operating
activities was $533 million, versus $301.6 million in 1993, with the increase
primarily due to improved operating results and the receipt of $33 million in
net proceeds from the sale of accounts receivable in 1994 (as compared to the
use of $44.1 million of net cash to repurchase accounts receivable in 1993).
Net pretax cash provided by operating activities in 1994 and 1993 also included
net cash outflows of $60 million and $103.1 million, respectively, reflecting
amounts paid for the defense and disposition of asbestos-related property damage
and personal injury litigation, net of settlements with certain insurance
carriers (see discussion below). After giving effect to discontinued operations
and payments of income taxes, the net cash provided by operating activities was
$453.5 million in 1994 versus $243.1 million in 1993.
Investing activities used $101.6 million of cash in 1994, largely
reflecting capital expenditures and business acquisitions and investments,
primarily the acquisitions of HNS (for approximately $102 million, exclusive of
cash acquired and assumed debt of approximately $30 million), kidney dialysis
centers, a European flexible packaging business and construction chemicals
businesses. These investing activities were offset by net proceeds of $583.9
million from divestments of non-core businesses. Management anticipates that
the level of capital expenditures in 1995 will increase to approximately $500
million as compared to $444.6 million of capital spending in 1994.
Net cash used for financing activities in 1994 was $322.8 million,
primarily reflecting a decrease in total debt from December 31, 1993 and the
payment of $132 million of dividends. Total debt was approximately $1.5 billion
at December 31, 1994, a decrease of $176.4 million from December 31, 1993.
Grace's total debt as a percentage of total capital (debt ratio) decreased from
52.9% at December 31, 1993 to 50.4% at December 31, 1994, primarily as the
result of the reduction in total debt.
Effective September 1, 1994, Grace replaced its $1,225 million bank
revolving credit agreement with new credit agreements under which it may borrow
up to $700 million at interest rates based upon the prevailing prime, federal
funds and/or Eurodollar rates. Of that amount, $350 million is available under
a 364-Day Credit Agreement expiring August 31, 1995, and $350 million is
available under a long-term facility expiring September 1, 1999. See Note 9 to
the Consolidated Financial Statements for further information on borrowings.
Grace expects to satisfy its 1995 cash requirements primarily from funds
generated by operations and, to a lesser extent, from proceeds from divestments.
Any net excess or deficit will be applied to or satisfied by financings.
Although Grace expects that any net new borrowings would be short-term debt, the
maturities and other terms of any financings will depend on market conditions
prevailing at the time. Grace has access to a variety of capital resources,
including the commercial paper and bank funding markets, in addition to its
credit agreements. Consequently, management believes that new borrowings will
be available to meet Grace's needs.
ASBESTOS-RELATED MATTERS
As reported in Note 2 to the Consolidated Financial Statements, Grace is a
defendant in lawsuits relating to previously sold asbestos-containing products
and is involved in related litigation with certain of its insurance carriers.
In 1994, Grace paid $60 million in connection with the defense and disposition
of asbestos-related property damage and personal injury litigation, net of
amounts received under settlements with certain insurance carriers. During the
second quarter of 1994, Grace recorded a non-cash charge of $200 million after
taxes to reflect a court decision that had the effect of reducing Grace's
insurance coverage for asbestos property damage lawsuits and claims. The
balance sheet at December 31, 1994 includes a receivable due from insurance
carriers, subject to litigation, of $512.6 million. Grace has also recorded
notes receivable of approximately $187 million for amounts to be received in
1995 to 1999 pursuant to settlement agreements previously entered into with
certain insurance carriers. In January 1995, Grace received $100 million under
one of these settlement agreements.
Although Grace cannot precisely estimate the amounts to be paid in 1995 in
respect of asbestos-related lawsuits and claims, Grace expects that it will be
required to expend approximately $30 million (pretax) in 1995 to defend and
dispose of such lawsuits and claims (after giving effect to payments to be
received from certain insurance carriers, as discussed above and in Note 2 to
the Consolidated Financial Statements). As indicated therein, the amounts
reflected in the Consolidated Financial Statements with respect to the probable
cost of disposing of pending asbestos lawsuits and claims and probable
recoveries from insurance carriers represent estimates; neither the outcomes of
such lawsuits and claims nor the outcomes of Grace's continuing litigations with
certain of its insurance carriers can be predicted with certainty.
F-31
ENVIRONMENTAL MATTERS
Grace incurs costs related to environmental protection as required by laws and
regulations, Grace's commitment to industry initiatives such as Responsible
Care[REGISTRATED TRADEMARK] (the Chemical Manufacturers Association program) and
internal Grace standards. Worldwide expenses of continuing operations related
to the operation and maintenance of environmental facilities and the disposal of
hazardous and nonhazardous wastes totalled $41 million, $45 million and $56
million in 1994, 1993 and 1992, respectively. Such costs are estimated to be
approximately $42 million and $45 million in 1995 and 1996, respectively. In
addition, worldwide capital expenditures for continuing operations relating to
environmental protection totalled $22 million in 1994, compared to $20 million
and $18 million in 1993 and 1992, respectively. Capital expenditures to comply
with environmental initiatives in future years are estimated to be $26 million
and $23 million in 1995 and 1996, respectively. Grace has also incurred costs
to remediate environmentally impaired sites. These costs were $31 million, $44
million and $35 million in 1994, 1993 and 1992, respectively. These amounts
have been charged against previously established reserves. Future cash outlays
for remediation costs are expected to total $45 million in 1995 and $39 million
in 1996. Expenditures have been funded from internal sources of cash and are
not expected to have a significant effect on liquidity.
Grace accrues for anticipated costs associated with investigatory and
remediation efforts relating to the environment in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies," which
governs probability and the ability to reasonably estimate future costs. At
December 31, 1994, Grace's liability for environmental investigatory and
remediation costs related to continuing and discontinued operations totalled
approximately $216 million, which amount does not take into account any
discounting for future expenditures or possible future insurance recoveries.
The measurement of the liability is evaluated quarterly based on currently
available information. In 1994, periodic provisions were recorded for
environmental and plant closure expenses, which include the costs of future
environmental investigatory and remediation activities. Additionally, in the
first quarter of 1994, Grace recorded a provision of approximately $40 million,
principally to provide for future environmental costs.
F-32
SCHEDULE VIII
W. R. GRACE & CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
For the Year 1994
Additions (deductions)
-------------------------
Charged
Balance (credited) to Balance
beginning costs and Other at end
Description of period expenses net** of period
------------ --------- ------------- ----- ---------
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable. . . . . . . . $ 50.3 $ 102.2 $ (57.3) $ 95.2
-------- -------- --------- --------
Securities of divested businesses . . . . . . . . . . . . . $ 161.2 $ -- $ (156.3) $ 4.9
-------- -------- --------- --------
Deferred tax assets valuation allowance.. . . . . . . . . . $ 129.7 $ -- $ 7.3 $ 137.0
-------- -------- --------- --------
Reserves:
Foreign employee benefit obligations* . . . . . . . . . . . $ 64.4 $ 11.6 $ 6.5 $ 82.5
-------- -------- --------- --------
Discontinued operations . . . . . . . . . . . . . . . . . . $ 132.1 $ 107.2 $ -- $ 239.3
-------- -------- --------- --------
For the Year 1993
Additions (deductions)
-------------------------
Charged
Balance (credited) to Balance
beginning costs and Other at end
Description of period expenses net** of period
------------ --------- ------------- ----- ---------
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable. . . . . . . . $ 39.3 $ 67.4 $ (56.4) $ 50.3
-------- -------- --------- --------
Securities of divested businesses . . . . . . . . . . . . . $ 152.9 $ 8.3 $ -- $ 161.2
-------- -------- --------- --------
Deferred tax assets valuation allowance . . . . . . . . . . $ 143.1 $ -- $ (13.4) $ 129.7
-------- -------- --------- --------
Reserves:
Foreign employee benefit obligations* . . . . . . . . . . . $ 83.4 $ 12.2 $ (31.2) $ 64.4
-------- -------- --------- --------
Discontinued operations . . . . . . . . . . . . . . . . . . $ 144.7 $ (12.6) $ -- $ 132.1
-------- -------- --------- --------
For the Year 1992
Additions (deductions)
-------------------------
Charged
Balance (credited) to Balance
beginning costs and Other at end
Description of period expenses net** of period
------------ --------- ------------- ----- ---------
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable. . . . . . . . $ 41.0 $ 48.0 $ (49.7) $ 39.3
-------- -------- --------- --------
Securities of divested businesses . . . . . . . . . . . . . $ 201.0 $ (64.9) $ 16.8 $ 152.9
-------- -------- --------- --------
Deferred tax assets valuation allowance . . . . . . . . . . $ 88.4 $ 51.9 $ 2.8 $ 143.1
-------- -------- --------- --------
Reserves:
Foreign employee benefit obligations* . . . . . . . . . . . $ 82.3 $ 15.6 $ (14.5) $ 83.4
-------- -------- --------- --------
Discontinued operations . . . . . . . . . . . . . . . . . . $ 74.7 $ 70.0 $ -- $ 144.7
-------- -------- --------- --------
<FN>
* Represents legally mandated employee benefit obligations, primarily
pension benefits, relating to Grace's operations in Europe.
** Consists of additions and deductions applicable to businesses
acquired, disposals of businesses, bad debt write-offs, foreign
currency translation, reclassifications (including the deconsolidation
of amounts relating to discontinued operations) and miscellaneous
other adjustments.
F-33
Exhibit 11
W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS
The weighted average number of shares of Common Stock outstanding were as follows:
(in thousands)
--------------------------------------
1994 1993 1992
------ ------ ------
Weighted average number of shares of Common
Stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,936 91,461 89,543
Conversion of convertible debt obligations . . . . . . . . . . . . . . . . . . . -- 46 -- *
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659 680 -- *
------ ------ ------
Weighted average number of shares of Common
Stock outstanding assuming full dilution. . . . . . . . . . . . . . . . . . 94,595 92,187 89,543
------ ------ ------
------ ------ ------
Income/(loss) used in the computation of earnings per share were as follows:
(in millions, except per share)
--------------------------------------
1994 1993 1992
------ ------ ------
Net Income/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83.3 $ 26.0 $ (294.5)
Dividends paid on preferred stocks . . . . . . . . . . . . . . . . . . . . . . . (.5) (.5) (.5)
------ ------ ------
Income/(loss) used in per share computation of earnings and in
per share computation of earnings assuming full dilution. . . . . . . . . . $ 82.8 $ 25.5 $ (295.0)
------ ------ ------
------ ------ ------
Earnings/(loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .88 $ .28 $ (3.29)
Earnings per share assuming full dilution . . . . . . . . . . . . . . . . . . . $ .88 $ .28 -- *
<FN>
* The effect of the converson of convertible securities and the exercise
of outstanding options would be anti-dilutive. Therefore, they are not shown.
F-34
EXHIBIT 12
W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in millions except ratios)
(Unaudited)
Years Ended December 31, (b)
-------------------------------------------------------------------
1994 (c) 1993 (d) 1992 (e) 1991 1990
-------- -------- -------- ------ ------
Net income from continuing operations. . . . . . . . . $ 83.3 $134.4 $ 57.7 $201.7 $174.6
Add (deduct):
Provision for income taxes. . . . . . . . . . . . . 55.8 86.8 134.8 132.5 97.5
Income taxes of 50%-owned companies . . . . . . . . -- .1 2.1 1.5 1.9
Minority interest in income of
majority-owned subsidiaries . . . . . . . . . . . . -- -- -- -- 1.2
Equity in unremitted earnings of
less than 50%-owned companies . . . . . . . . . . . (2.9) (1.3) (1.8) (2.5) (2.1)
Interest expense and related financing costs,
including amortization of capitalized interest. . . 138.5 122.7 162.7 209.6 237.3
Estimated amount of rental expense
deemed to represent the interest factor . . . . . . 22.3 21.3 26.6 21.7 21.0
------ ------ ------ ------ ------
Income as adjusted . . . . . . . . . . . . . . . . . . $297.0 $364.0 $382.1 $564.5 $531.4
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Combined fixed charges and preferred stock dividends:
Interest expense and related financing costs,
including capitalized interest. . . . . . . . . . . $143.2 $122.8 $176.3 $224.5 $246.3
Estimated amount of rental expense
deemed to represent the interest factor . . . . . . 22.3 21.3 26.6 21.7 21.0
------ ------ ------ ------ ------
Fixed charges. . . . . . . . . . . . . . . . . . . . . 165.5 144.1 202.9 246.2 267.3
Preferred stock dividend requirements (a). . . . . . . .9 .9 .9 .9 .8
------ ------ ------ ------ ------
Combined fixed charges and preferred
stock dividends . . . . . . . . . . . . . . . . . . $166.4 $145.0 $203.8 $247.1 $268.1
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges . . . . . . . . . . 1.79 2.53 1.88 2.29 1.99
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to combined fixed charges and
preferred stock dividends . . . . . . . . . . . . . 1.78 2.51 1.87 2.28 1.98
------ ------ ------ ------ ------
------ ------ ------ ------ ------
<FN>
(a) Increased to an amount representing the pretax earnings required to
cover such requirements based on Grace's effective tax rate for each
period presented.
(b) Certain 1990 - 1993 amounts have been restated to conform to the 1994
presentation.
(c) Includes a provision of $316.0 relating to asbestos-related insurance
coverage.
(d) Includes a provision of $159.0 relating to asbestos-related insurance
coverage.
(e) Includes a provision of $140.0 relating to a fumed silica plant in
Belgium.
F-35
W. R. GRACE & CO.
Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1993
-------------------------------------------
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT WHERE LOCATED
------- ------- -------------
3.01 Certificate of Incorporation of Exhibit 3 to Form 8-K
W. R. Grace & Co., as amended (filed 6/9/88)
3.02 By-laws of W. R. Grace & Co., as Filed herewith*
amended
4.01 Indenture dated as of Septem- Exhibit 4.2 to Form 10-K
ber 29, 1992 among W. R. Grace (filed 3/26/93)
& Co.-Conn., W. R. Grace & Co.
and Bankers Trust Company
4.02 Indenture dated as of January Exhibit 4.4 to Form 10-K
28, 1993 among W. R. Grace (filed 3/26/93)
& Co.-Conn., W. R. Grace & Co.
and NationsBank of Georgia, N.A.
4.03 364-Day Credit Agreement, dated Exhibit 4.1 to Form 10-Q
as of September 1, 1994, among (filed 11/10/94)
W. R. Grace & Co.-Conn., W. R.
Grace & Co., the several banks
parties thereto and Chemical
Bank, as agent for such banks
4.04 Credit Agreement, dated as of Exhibit 4.2 to Form 10-Q
September 1, 1994, among W. R. (filed 11/10/94)
Grace & Co.-Conn., W. R. Grace
& Co., the several banks parties
thereto and Chemical Bank, as
agent for such banks
__________
Other than exhibits that are filed herewith, all exhibits listed in this Exhibit
Index are incorporated herein by reference. Exhibits indicated by an asterisk
(*) are the management contracts and compensatory plans, contracts or
arrangements required to be filed as exhibits to this Report. In accordance
with paragraph (b)(4)(iii) of Item 601 of Regulation S-K, certain instruments
relating to long-term debt are not being filed; W. R. Grace & Co. agrees to
furnish a copy of any such instrument to the Securities and Exchange Commission
upon request.
4.05 First Amendment, dated as of Filed herewith
December 28, 1994, to the 364-
Day Credit Agreement, dated
as of September 1, 1994
4.06 First Amendment, dated as of Filed herewith
December 28, 1994, to the
Credit Agreement, dated as of
September 1, 1994
4.07 Amended and Restated Rights Exhibit to Amendment on
Agreement dated as of June 7, Form 8 to Application
1990 between W. R. Grace & Co. for Registration on
and Manufacturers Hanover Trust Form 8-B (filed 6/19/90)
Company
10.01 W. R. Grace & Co. Executive Exhibit 19(f) to Form
Salary Protection Plan, as 8-K (filed 6/9/88)*
amended
10.02 W. R. Grace & Co. 1981 Stock Exhibit 28(a) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
10.03 W. R. Grace & Co. 1986 Stock Exhibit 28(b) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
10.04 W. R. Grace & Co. 1989 Stock Exhibit 28(c) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
10.05 W. R. Grace & Co. 1994 Stock Filed herewith*
Incentive Plan
10.06 W. R. Grace & Co. 1994 Stock Filed herewith*
Retainer Plan for Nonemployee
Directors
10.07 Forms of Stock Option Exhibit 10(h) to Form
Agreements 10-K (filed 3/28/92)*
10.08 Forms of Restricted Share Exhibit 10(i) to Form
Award Agreements 10-K (filed 3/28/92)*
10.09 Information Concerning W. R. Pages 8-13 and 27-30 of
Grace & Co. Incentive Compen- Proxy Statement
sation Program, Deferred (filed 4/11/94)*
Compensation Program and
Long-Term Incentive Program
10.10 W. R. Grace & Co. Long-Term Exhibit 10(l) to Form
Incentive Plan 10-K (filed 3/29/91)*
10.11 W. R. Grace & Co. Retirement Exhibit 10(o) to Form
Plan for Outside Directors, as 10-K (filed 3/28/92)*
amended
10.12 Employment Agreement dated Exhibit 10(x) to Form
as of April 1, 1991 between 10-K (filed 3/28/92)*
W. R. Grace & Co.-Conn. and
Constantine L. Hampers, as
amended
10.13 Housing Loan Agreement dated Exhibit 10(q) to Form
as of August 1, 1987 between 10-K (filed 3/29/88);
W. R. Grace & Co. and J. P. Exhibit 19(i) to Form
Bolduc, related Amendment and 8-K (filed 6/9/88)*
Assignment dated May 10, 1988
10.14 Employment Agreement dated Exhibit 10.13 to Form
August 1, 1993 between J. P. 10-K (filed 3/28/94)*
Bolduc and W. R. Grace & Co.
10.15 Stock Option Agreement dated Exhibit 10.14 to Form
June 30, 1993 between David L. 10-K (filed 3/28/94)*
Yunich and W. R. Grace & Co.
10.16 Stock Option Agreement dated Exhibit 10.15 to Form
June 30, 1993 between David L. 10-K (filed 3/28/94)*
Yunich and W. R. Grace & Co.
10.17 Retirement Agreement between Exhibit 10.23 to Form
W. R. Grace & Co. and J. Peter 10-K (filed 3/26/93)*
Grace dated December 21, 1992
10.18 Executive Severance Agreement Exhibit 10.24 to Form
dated as of September 1, 1992 10-K (filed 3/26/93)*
between W. R. Grace & Co. and
J. P. Bolduc
10.19 Executive Severance Agreement Exhibit 10.26 to Form
dated September 1, 1992 10-K (filed 3/26/93)*
between W. R. Grace & Co. and
Constantine L. Hampers
10.20 Form of Executive Severance Exhibit 10.28 to Form
Agreement between W. R. Grace 10-K (filed 3/26/93)*
& Co. and others
10.21 Consulting Agreement dated Exhibit 10.29 to Form
June 1, 1992 between W. R. 10-K (filed 3/26/93)*
Grace & Co. and Kamsky
Associates, Inc.
10.22 Incentive Compensation Agree- Exhibit 10.30 to Form
ment dated June 1, 1992 10-K (filed 3/26/93)*
between National Medical
Care, Inc. and Kamsky
Associates, Inc.
10.23 Consulting Agreement dated as Filed herewith*
of December 1993 between
National Medical Care, Inc. and
Virginia A. Kamsky
10.24 Consulting Agreement dated as Exhibit 10.23 to Form
of June 16, 1993 by and between 10-K (filed 3/28/94)*
National Medical Care, Inc.,
The Humphrey Group, Inc. and
Gordon J. Humphrey
10.25 Employment Termination Agreement Exhibit 10.24 to Form
dated June 30, 1993 between 10-K (filed 3/28/94)*
J. R. Wright, Jr. and W. R.
Grace & Co.
10.26 W. R. Grace & Co. Supplemental Exhibit 10.25 to Form
Executive Retirement Plan, as 10-K (filed 3/28/94)*
amended
10.27 Agreement dated March 1, 1995 Filed herewith*
between W. R. Grace & Co. and
Jean-Louis Greze
10.28 Agreements dated March 2 and Filed herewith*
March 7, 1995 between J. P.
Bolduc and W. R. Grace & Co.
10.29 Letter Agreement dated April 1, Filed herewith*
1991 between National Medical
Care, Inc. and Constantine L.
Hampers
11 Weighted Average Number of Filed herewith
Shares and Earnings Used in (in Financial Supplement
Per Share Computations to 10-K)
12 Computation of Ratio of Earn- Filed herewith
ings to Fixed Charges and (in Financial Supplement
Combined Fixed Charges and to 10-K)
Preferred Stock Dividends
13 Selected Portions of the 1994 Filed herewith
Annual Report to Shareholders (in Financial Supplement
of W. R. Grace & Co. to 10-K)
21 List of Subsidiaries of Filed herewith
W. R. Grace & Co.
23 Consent of Independent Accoun- Filed herewith
tants (in Financial Supplement
to 10-K)
24 Powers of Attorney Filed herewith
99.01 Letter of Intent dated Filed herewith
November 5, 1993 between
W.R. Grace & Co. and J. Peter
Grace III, as amended
99.02 Agency Agreement dated Filed herewith
June 13, 1994 between HSC
Holding Co., Inc. and Grace
Hotel Services Corporation
99.03 Letter Agreement dated Filed herewith
December 14, 1994 among
HSC Holding Co., Inc.,
Grace Hotel Services
Corporation and
W.R. Grace & Co.
99.04 Services Agreement dated Filed herewith
November 10, 1994 between
HSC Holding Co., Inc. and
Grace Hotel Services
Corporation