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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
Commission File Number 1-3720
W. R. GRACE & CO.
NEW YORK 13-3461988
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Town Center Road
Boca Raton, Florida 33486-1010
(407) 362-2000
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
97,299,148 shares of Common Stock, $1.00 par value, were outstanding at October
31, 1995.
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W. R. GRACE & CO. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations I-1
Consolidated Statement of Cash Flows I-2
Consolidated Balance Sheet I-3
Notes to Consolidated Financial Statements I-4 to I-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition I-9 to I-17
PART II. Other Information
Item 1. Legal Proceedings II-1
Item 5. Other Information II-2
Item 6. Exhibits and Reports on Form 8-K II-3
As used in this Report, the term "Company" refers to W. R. Grace & Co., and the
term "Grace" refers to the Company and/or one or more of its subsidiaries.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Consolidated Statement of Operations (Unaudited) September 30, September 30,
- ------------------------------------------------ ------------------ ------------------
Dollars in millions, except per share 1995 1994 1995 1994
- ---------------------------------------- -------- -------- --------- ---------
Sales and revenues . . . . . . . . . . . . . . . . $946.4 $815.5 $2,732.1 $2,273.8
Other income . . . . . . . . . . . . . . . . . . . 4.5 4.0 13.3 38.2
-------- -------- --------- --------
Total. . . . . . . . . . . . . . . . . . . . . . 950.9 819.5 2,745.4 2,312.0
-------- -------- --------- --------
Cost of goods sold and operating expenses. . . . . 566.0 475.0 1,617.6 1,377.3
Selling, general and administrative expenses . . . 216.4 187.5 666.9 546.4
Depreciation and amortization. . . . . . . . . . . 44.6 38.4 123.0 114.0
Interest expense and related financing costs . . . 17.8 14.5 52.3 36.4
Research and development expenses. . . . . . . . . 28.4 28.7 90.0 82.8
Corporate expenses previously allocated to the
health care segment . . . . . . . . . . . . . 8.3 9.0 30.0 27.4
Restructuring costs. . . . . . . . . . . . . . . . 44.3 - 44.3 -
Provision relating to asbestos-related
insurance coverage. . . . . . . . . . . . . . - - - 316.0
-------- --------- --------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . 925.8 753.1 2,624.1 2,500.3
-------- -------- ------- -------
Income/(loss) from continuing operations before
income taxes. . . . . . . . . . . . . . . . . 25.1 66.4 121.3 (188.3)
Provision for/(benefit from) income taxes. . . . . 5.3 23.4 33.6 (82.0)
-------- --------- --------- --------
Income/(loss) from continuing operations . . . . . 19.8 43.0 87.7 (106.3)
Income from discontinued operations. . . . . . . . 1.9 33.0 60.2 86.2
-------- --------- --------- --------
Net income/(loss). . . . . . . . . . . . . . . . . $ 21.7 $ 76.0 $ 147.9 $ (20.1)
-------- --------- --------- --------
-------- --------- --------- --------
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Earnings/(loss) per share:
Continuing operations. . . . . . . . . . . . . . $ .20 $ .46 $ .92 $ (1.14)
Net income/(loss). . . . . . . . . . . . . . . . $ .22 $ .81 $ 1.55 $ (.22)
Fully diluted earnings/(loss) per share:
Continuing operations $ .20 $ .45 $ .89 $ - (1)
Net income/(loss). . . . . . . . . . . . . . . . $ .22 $ .80 $ 1.51 $ - (1)
Dividends declared per common share. . . . . . . . $ .35 $ .35 $ 1.05 $ 1.05
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(1) Not presented as the effect is anti-dilutive.
The Notes to Consolidated Financial Statements
are an integral part of this statement.
I-1
W. R. Grace & Co. and Subsidiaries Nine Months Ended
Consolidated Statement of Cash Flows (Unaudited) September 30,
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Dollars in millions 1995 1994
- ----------------------------------------------------------------------------------------- --------- ----------
OPERATING ACTIVITIES
Income/(loss) from continuing operations before income taxes . . . . . . . . . . . $ 121.3 $(188.3)
Reconciliation to cash (used for)/provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 123.0 114.0
Provision relating to asbestos-related insurance coverage . . . . . . . . . . - 316.0
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
Increase in notes and accounts receivable, net. . . . . . . . . . . . . . . (55.4) (82.5)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (81.5) (32.8)
Proceeds from asbestos-related insurance settlements. . . . . . . . . . . . 174.4 136.6
Payments made for asbestos-related litigation settlements,
judgments and defense costs . . . . . . . . . . . . . . . . . . . . . . (96.7) (150.0)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . (65.7) (99.2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.3 (5.3)
------ -------
Net pretax cash provided by operating activities of continuing operations. . . . . 150.7 8.5
Net pretax cash provided by operating activities of discontinued operations. . . . 43.1 261.5
------ -------
Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . 193.8 270.0
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207.2) (82.4)
------ -------
Net cash (used for)/provided by operating activities . . . . . . . . . . . . . . . (13.4) 187.6
------ -------
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (366.5) (279.0)
Businesses acquired in purchase transactions, net of
cash acquired and assumed debt. . . . . . . . . . . . . . . . . . . . . . . . (31.4) (206.7)
Increase in net investments in discontinued operations . . . . . . . . . . . . . . (149.1) (25.7)
Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . 49.4 191.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 55.3
------ -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . (488.3) (264.6)
------ -------
FINANCING ACTIVITIES
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100.3) (99.0)
Repayments of borrowings having original maturities in excess of three months. . . (41.6) (82.9)
Increase in borrowings having original maturities in excess of three months. . . . 52.1 458.8
Net increase in borrowings having original maturities of less than three months. . 475.3 (208.3)
Stock options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.1 17.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.8) (0.1)
------ -------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . 500.8 85.5
------ -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . 3.5 0.7
------ -------
Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 2.6 $ 9.2
------ -------
------ -------
The Notes to Consolidated Financial Statements
are integral parts of these statements.
I-2
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
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September 30, December 31,
Dollars in millions, except par value 1995 1994
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ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 80.9 $ 78.3
Notes and accounts receivable, net. . . . . . . . . . . . . . . . . . 582.1 975.7
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515.2 514.2
Net assets of discontinued operations - other . . . . . . . . . . . . 351.8 335.6
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 209.0 295.4
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . 24.6 29.7
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 1,763.6 2,228.9
Properties and equipment, net of accumulated
depreciation and amortization of $1,432.0
and $1,498.2, respectively. . . . . . . . . . . . . . . . . . . . . 1,625.9 1,730.1
Goodwill, less accumulated amortization of $21.0
and $71.8, respectively . . . . . . . . . . . . . . . . . . . . . . 120.4 672.5
Net assets of discontinued operations - health care. . . . . . . . . . 1,490.6 -
Asbestos-related insurance receivable. . . . . . . . . . . . . . . . . 470.4 512.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763.2 1,086.5
----------- -----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,234.1 $6,230.6
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 671.1 $ 430.9
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 269.2 433.7
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.2 197.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . 601.9 872.9
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 297.0 297.0
----------- -----------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . 1,947.4 2,231.5
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256.2 1,098.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 699.7 690.9
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 108.0 92.5
Noncurrent liability for asbestos-related litigation . . . . . . . . . 534.2 612.4
----------- -----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 4,545.5 4,726.1
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value. . . . . . . . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . 97.1 94.1
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.4 308.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195.1 1,147.5
Cumulative translation adjustments. . . . . . . . . . . . . . . . . . (28.0) (53.3)
Treasury stock, 53,153 common shares, at cost . . . . . . . . . . . . (2.4) -
----------- -----------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . 1,688.6 1,504.5
----------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,234.1 $6,230.6
----------- -----------
----------- -----------
The Notes to Consolidated Financial Statements
are integral parts of these statements.
I-3
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
(a) The financial statements in this Report at September 30, 1995 and 1994 and
for the three- and nine-month interim periods then ended are unaudited and
should be read in conjunction with the consolidated financial statements in
the Company's 1994 Annual Report on Form 10-K. Such interim financial
statements reflect all adjustments that, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented; all such adjustments are of a normal recurring nature. Certain
amounts in the prior periods' consolidated financial statements have been
reclassified to conform to the current basis of presentation. The results
of operations for the three- and nine-month interim periods ended September
30, 1995 are not necessarily indicative of the results of operations for
the fiscal year ending December 31, 1995.
In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off National Medical Care, Inc. (NMC), Grace's
wholly owned health care subsidiary, by means of a dividend to holders of
the Company's common stock that would be declared upon the satisfaction of
various conditions. As a result of the Board's approval of the plan to
spin off NMC, Grace has classified its health care segment as a
discontinued operation. The consolidated statement of operations reflects
discontinued operations separately from continuing operations for all
periods presented. The statement of cash flows reflects certain pretax
operating activities of discontinued operations separately from continuing
operations for all periods presented, and the investing and financing
activities of discontinued operations are reflected separately from
continuing operations beginning with the period in which each business was
classified as a discontinued operation. The consolidated balance sheet
reflects the net assets of discontinued operations separately from
continuing operations beginning with the period in which each business was
classified as a discontinued operation. See Note (c) below for additional
information.
(b) As previously reported, 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. Grace was a defendant in approximately 40,800 asbestos-related
lawsuits at September 30, 1995 (58 involving claims for property damage and
the remainder involving approximately 85,900 claims for personal injury),
as compared to approximately 38,700 lawsuits at December 31, 1994 (65
involving claims for property damage and the remainder involving
approximately 67,900 claims for personal injury). During the first nine
months of 1995, eight property damage lawsuits were settled for a total of
$3.6; five new property damage lawsuits were filed; three property damage
lawsuits were dismissed; and, in a case that had been on appeal and is now
final, Grace was held liable for $6.1. During the first nine months of
1995, approximately 1,400 personal injury claims against Grace were
dismissed without payment and $24.3 was recorded to reflect settlements and
judgments in approximately 7,700 personal injury claims.
Based upon and subject to the factors discussed in Note 2 to Grace's
consolidated financial statements for the year ended December 31, 1994,
Grace has attempted to estimate its future costs to dispose of the personal
injury and property damage lawsuits pending at September 30, 1995 and has
determined that it is probable that such lawsuits can be disposed of for a
total of $634.2, inclusive of legal fees and expenses, of which
I-4
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Grace has recorded $534.2 as a noncurrent liability and $100.0 as a current
liability. This compares to the estimated liability (current and
noncurrent) of $712.4 at December 31, 1994, the decrease being attributable
to payments made by Grace for judgments, settlements and defense costs in
connection with asbestos-related litigation during the first nine months of
1995. In addition, Grace has recorded a receivable of $470.4 for the
insurance proceeds it expects to receive in reimbursement for prior
payments and estimated future payments to dispose of pending asbestos-
related litigation. The amount of this receivable has declined from
$512.6 at December 31, 1994 due to the net insurance proceeds received
during the first nine months of 1995.
In the first nine months of 1995, Grace received a total of $174.4 pursuant
to settlements with certain insurance carriers in reimbursement for amounts
previously paid and to be paid by Grace in connection with asbestos-related
litigation; of this amount, $125.0 was received pursuant to settlements
entered into in 1993 and 1994 and had been classified as notes
receivable in the financial statements.
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 a September 1993
decision by the U.S. Court of Appeals for the Second Circuit that had the
effect of reducing the amount of insurance coverage available to Grace with
respect to asbestos property damage litigation and claims. Grace initiated
action to enforce the settlement agreement (which involves approximately
$226.0 of the asbestos-related receivable of $470.4 at September 30, 1995)
in connection with the settlement of a property damage case pending in the
U.S. District Court for the Eastern District of Texas. The District Court
held the agreement to be enforceable; this ruling was subsequently affirmed
by the U.S. Court of Appeals for the Fifth Circuit and, in October 1995,
the U.S. Supreme Court declined to review the Fifth Circuit decision.
Based on that decision, the group of carriers paid Grace $13.9 in the
second quarter of 1995, representing the carriers' portion of the
settlement in the underlying property damage case. Grace has demanded that
the group of carriers pay the amounts due under the settlement agreement
with respect to property damage cases in other jurisdictions and is
involved in litigation in the U.S. District Court for the Southern District
of New York seeking such amounts.
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. As previously reported, the May 1994 decision of the U.S. Court of
Appeals for the Second Circuit limited the amount of insurance coverage
available with respect to property damage lawsuits and claims. Because
Grace's insurance covers both property damage and personal injury lawsuits
and claims, the May 1994 decision has had the concomitant effect of
reducing the insurance coverage available with respect to Grace's personal
injury lawsuits and claims. However, in Grace's opinion, it is probable
that recoveries from its insurance carriers, along with other funds, will
be available to satisfy the property damage and personal injury lawsuits
and claims pending at September 30, 1995. Consequently, Grace believes
that the
I-5
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
resolution of its pending asbestos-related litigation will not have a
material adverse effect on its consolidated results of operations or
financial position.
For additional information, see Note 2 to the consolidated financial
statements in the Company's 1994 Annual Report on Form 10-K.
(c) As discussed in Note (a) above, Grace has classified its health care
segment as a discontinued operation. The operating results of Grace's
cocoa business and other discontinued operations have been charged against
previously established reserves.
Summary results of operations for the health care segment are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1995 1994 1995 1994
------- ------ -------- ---------
Sales and revenues $520.9 $491.2 $1,536.2 $1,346.6
------ ------ -------- ---------
------ ------ -------- ---------
Income from discontinued operations
before income taxes $ 23.6 $ 60.1 $ 127.7 $ 157.1
Income tax provision 21.7 27.1 67.5 70.9
------ ------ -------- ---------
Income from discontinued operations $ 1.9 $ 33.0 $ 60.2 $ 86.2
------ ------- -------- --------
------ ------- -------- --------
The net operating income of the health care segment reflects the allocation of
Grace's health care related research expenses and an allocation of Grace's
interest expense based on a ratio of the net assets of the health care segment
as compared to Grace's total debt and equity capital. Interest expense
allocated to the discontinued health care segment was $23.0 and $15.7 for the
third quarters of 1995 and 1994, respectively, and $64.7 and $39.5 for the nine
months ended September 30, 1995 and 1994, respectively. Taxes have been
allocated to the health care segment as if it were a stand-alone taxpayer;
however, these allocations are not necessarily indicative of the results of the
health care segment in the future on a stand-alone basis.
In October 1995, NMC received five investigative subpoenas from the Office of
Inspector General (OIG) of the U.S. Department of Health and Human Services.
The subpoenas call for the production of extensive documents relating to various
aspects of NMC's business, and a letter accompanying the subpoenas stated that
they had been issued in conjunction with an investigation being conducted by the
OIG, the U.S. Attorney for the District of Massachusetts, and others, concerning
possible violations of federal laws relating to health care payments and
reimbursements.
The five subpoenas cover the following areas: (a) NMC's corporate management,
personnel and employees, organizational structure, financial information and
internal communications; (b) NMC's dialysis services business, principally
medical director contracts and compensation; (c) billings under the Medicare End
Stage Renal Disease program and, in particular, the effect on such billings of
the Omnibus Budget Reconciliation Act of 1993, which is described in NMC's Form
10 Registration Statement under the Securities Act of 1934 (Form 10); (d) NMC's
LifeChem laboratory business, including documents relating to
I-6
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
testing procedures, marketing, customers, competition and certain billing
matters referenced in the Form 10; and (e) NMC's Homecare Division and, in
particular, information concerning the Intradialytic Parenteral Nutrition
business, which is described in the Form 10, including billing practices related
to various services, equipment and supplies.
The results of the investigation and its impact, if any, cannot be predicted at
this time. In the event that any government agency believes that wrongdoing
related to the investigation has occurred, civil and/or criminal proceedings
could be instituted, and if any such proceedings were to be instituted and the
outcome were unfavorable, NMC could be subject to fines, penalties and damages
or could become excluded from government reimbursement programs. Any such
result could have a material adverse effect on NMC's financial position or
the results of operations of NMC and Grace.
For various reasons arising from the issuance of the subpoenas, the completion
of the spin-off of NMC, originally expected in the 1995 fourth quarter, has been
delayed.
Minority interest consists of a limited partnership interest in Grace Cocoa
Associates, L.P. (LP). LP's assets consist of Grace Cocoa's worldwide cocoa and
chocolate business, long-term notes and demand loans issued by various Grace
entities and guaranteed by the Company and its principal operating subsidiary,
and cash. 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. The intercompany
notes held by LP are eliminated in preparing the consolidated financial
statements and, therefore, have not been classified as pertaining to
discontinued operations.
The net assets, excluding intercompany assets, of Grace's cocoa business and
other discontinued operations (classified as current assets) and Grace's health
care segment (classified as noncurrent assets) included in the consolidated
balance sheet at September 30, 1995, are as follows:
Sub- Health
Cocoa Other Total Care Total
------ ------- ------ -------- --------
Current assets $319.9 $ 18.3 $338.2 $ 606.5 $ 944.7
Properties and equipment, net 188.2 32.9 221.1 368.7 589.8
Investments in and advances to
affiliated companies - 34.5 34.5 - 34.5
Other assets 54.4 24.0 78.4 976.7 1,055.1
------ ------- ------ -------- --------
Total assets $562.5 $109.7 $672.2 $1,951.9 $2,624.1
------ ------- ------ -------- --------
Current liabilities $208.0 $ 11.1 $219.1 $ 288.8 $ 507.9
Other liabilities 91.2 10.1 101.3 172.5 273.8
------ ------- ------ -------- --------
Total liabilities $299.2 $ 21.2 $320.4 $ 461.3 $ 781.7
------ ------- ------ -------- --------
Net assets $263.3 $ 88.5 $351.8 $1,490.6 $1,842.4
------ ------- ------ -------- --------
------ ------- ------ -------- --------
I-7
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
(d) Grace has initiated a major cost management effort in all product lines,
regional centers and corporate offices to determine areas for cost
reduction. The emphasis has been on work process changes that will
simplify or eliminate tasks, make work more relevant to Grace's current
business environment and streamline its organization. The focus of the
effort is on general and administrative costs and factory administration,
with a separate study of company-wide research and development costs.
Certain actions have already been taken, including headcount reductions at
the corporate headquarters office, changes to Grace's company-wide travel
program, the termination of certain consulting arrangements, the shutdown
of the Japan research center and the phase-out of certain research
programs.
In the third quarter of 1995, Grace recorded a pretax charge of $44.3
($27.1 after-tax), primarily for severance and other termination benefits,
as well as costs relating to the shutdown of the Japan research center.
The Company expects to implement significant additional cost reductions in
the fourth quarter of 1995 and the first half of 1996, but has yet to
determine the amount of the provision that will be required in connection
with these additional cost reductions. The Company is also currently
evaluating strategic and other actions that may impact 1995 fourth quarter
results.
(e) Inventories consist of:
September 30, December 31,
1995 1994 (i)
------------ -----------
Raw and packaging materials $147.6 $129.8
In process 89.0 75.3
Finished products 323.5 352.2
------ ------
560.1 557.3
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (44.9) (43.1)
------ ------
Total Inventories $515.2 $514.2
------ ------
------ ------
(i) Inventories at December 31, 1994 include $92.4 relating to the
health care segment.
(f) Earnings per share are calculated on the basis of the following weighted
average number of common shares outstanding:
Three Months Ended September 30:
1995 - 96,708,000
1994 - 93,955,000
Nine Months Ended September 30:
1995 - 95,330,000
1994 - 93,893,000
I-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(a) Review of Operations
(1) Overview:
The following table compares results for the 1995 third quarter and first nine
months to results for the comparable periods of 1994:
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Operating Results - Overview September 30, September 30,
- --------------------------------------- ------------------ --------------------
Dollars in millions 1995 1994 1995 1994
- --------------------------------------- ------ ------ -------- ---------
Sales and revenues $946.4 $815.5 $2,732.1 $2,273.8
------ ------ -------- --------
------ ------ -------- --------
Income from continuing operations
before special items $ 53.0 $ 43.0 $ 133.4 $ 92.7
Special items (after-tax):
Corporate governance (6.1) - (18.6) -
Restructuring costs (27.1) - (27.1) -
Gain on sale of remaining interest in The
Restaurant Enterprises Group, Inc. (REG) - - - 27.0
Environmental costs/workforce reductions - - - (26.0)
Provision relating to asbestos-related
insurance coverage - - - (200.0)
------ ------ -------- --------
Income/(loss) from continuing operations $ 19.8 $ 43.0 $ 87.7 $ (106.3)
------ ------ -------- --------
------ ------ -------- --------
Sales and revenues increased 16% and 20% in the third quarter and first nine
months of 1995, respectively, over the comparable 1994 periods. Income from
continuing operations for the third quarter and first nine months of 1995
amounted to $53.0 million and $133.4 million, respectively, increases of 23% and
44% as compared to the respective 1994 periods, excluding the special items
listed above. Income from continuing operations before special items includes
corporate expenses, previously identified with the health care segment, of $8.3
million and $9.0 million for the third quarters of 1995 and 1994, respectively,
and $30.0 million and $27.4 million for the nine months ended September 30, 1995
and 1994, respectively. These costs will not be assumed by National Medical
Care, Inc. (NMC), Grace's wholly owned health care subsidiary, upon completion
of its spin-off, and it is therefore anticipated that these costs will be
eliminated. See below for additional information regarding the spin-off of NMC
and Grace's cost management effort.
As noted above and in Note (d) to the consolidated financial statements in this
Report, Grace has initiated a major cost management effort in all product lines,
regional centers and corporate offices to determine areas for cost reduction.
In the third quarter of 1995, Grace recorded a pretax charge of $44.3 million
($27.1 million after-tax), primarily for severance and other termination
benefits, as well as costs relating to the shutdown of the Japan research
center. The Company expects to implement significant additional cost reductions
in the fourth quarter of 1995 and the first half of 1996, but has yet to
determine the amount of the provision that will be required in connection with
these additional cost reductions. The Company is also currently evaluating
strategic and other actions that may impact 1995 fourth quarter results.
I-9
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Also recorded in the third quarter and first nine months of 1995 are pretax
charges of $10.0 million and $30.0 million, respectively ($6.1 million and $18.6
million after-tax, respectively), for costs associated with the termination of
the employment agreement of the Company's former President and Chief Executive
Officer, pension costs resulting from the retirement of certain directors, and
legal and other expenses related to the foregoing and other corporate governance
activities.
As discussed in Notes (a) and (c) to the consolidated financial statements in
this Report, the health care segment was classified as a discontinued operation
in the 1995 second quarter.
(2) Operating Results - Specialty Chemicals:
The following table compares results for the specialty chemicals segment for the
1995 third quarter and first nine months to results for the comparable periods
of 1994:
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Specialty Chemicals Operating Results September 30, September 30,
- --------------------------------------- ------------------ -----------------
Dollars in millions 1995 1994 1995 1994
- --------------------------------------- ------ ------ ------ ------
Sales and revenues $946.4 $815.5 $2,732.1 $2,273.8
------ ------ -------- --------
------ ------ -------- --------
Operating income before taxes (i) $105.0 $ 90.1 $ 280.4 $ 208.4
------ ------ -------- --------
------ ------ -------- --------
(i) Specialty chemicals segment results reflect the allocation of
corporate overhead and corporate research expenses; corporate interest and
financing costs and nonallocable expenses are not reflected in the
specialty chemicals segment results.
As noted above, sales and revenues increased 16% and 20% in the third quarter
and first nine months of 1995, respectively, over the 1994 periods, reflecting
favorable volume, price/product mix and currency translation variances estimated
at 9%, 4% and 3%, respectively, for the third quarter of 1995, and 11%, 5% and
4%, respectively, for the first nine months of 1995.
In the third quarter of 1995, all product lines other than construction products
experienced volume increases as compared to the 1994 third quarter. Packaging
volume increases reflected higher sales of bags and laminates in all regions,
and higher sales of films in all regions other than Latin America. The volume
increases in catalyst and other silica-based products reflected higher sales of
fluid cracking catalysts and silicas/adsorbents products, especially in Europe
and Asia Pacific, due to market share gains. Container volume increases were
due to increased sales of specialty polymers products in Asia Pacific. The
volume increases in water treatment were due to higher sales volumes in the
paper industry process chemicals business in North America and Europe due to
market share gains and in water treatment chemicals in Europe and Latin America.
The volume decreases in construction products resulted primarily from decreases
in fireproofing materials in North America due to a small market share loss and
waterproofing materials in North America due to a slowdown in the roofing market
after a strong 1995 first quarter, partially offset by improved volumes of all
products in Asia Pacific.
I-10
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Operating income before taxes increased 17% in the third quarter of 1995
compared to the third quarter of 1994. North American results improved,
primarily reflecting strong growth in packaging (due to the volume increases
noted above), offset by the decline in construction products, as noted above.
The results for fluid cracking catalysts in North America also declined, as the
market continued to experience low refinery margins and a narrow spread between
light and heavy crude oil prices, which led customers to crack higher quality
light crude rather than heavy crude (which requires more catalysts); the
weakness in fluid cracking catalysts in North America was nearly offset by
improved results in Europe and Asia Pacific, as noted above. European results
improved significantly versus the 1994 third quarter, primarily in packaging,
due to the volume increases noted above and the absence of costs incurred in the
third quarter of 1994 associated with streamlining packaging operations. In
Asia Pacific, results were flat versus the 1994 third quarter, primarily due to
the volume increases noted above, offset by higher operating costs incurred to
increase market share in the region for container, water treatment and
construction products. Latin American 1995 third quarter results were
unfavorable versus the 1994 third quarter, primarily due to higher wage and
employee benefit costs in water treatment resulting from inflation indexation in
Brazil.
For the first nine months of 1995, operating income increased 35% over the
comparable period of 1994, primarily due to the significant growth in packaging
and catalyst and other silica-based products, as discussed above.
(3) Statement of Operations:
OTHER INCOME
Other income includes interest income, dividends, royalties from licensing
agreements, and equity in earnings of affiliated companies. Other income for
the first nine months of 1994 also included a $27.0 million gain (pre- and
after-tax) from the January 1994 sale of Grace's remaining interest in REG.
INTEREST EXPENSE AND RELATED FINANCING COSTS
Excluding amounts allocated to the discontinued health care segment (as
discussed in Note (c) to the financial statements in this Report), interest
expense and related financing costs of $17.8 million and $52.3 million in the
third quarter and first nine months of 1995, respectively, increased by 23% and
44%, respectively, versus the comparable 1994 periods. Including amounts
allocated to the health care segment, interest expense and related financing
costs increased 35% and 54% in the third quarter and first nine months of
1995, respectively, over the comparable 1994 periods, to $40.8 million and
$117.0 million, respectively, primarily due to higher average short-term
interest rates.
See "Financial Condition: Liquidity and Capital Resources" below for
information on borrowings.
I-11
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending was flat for the third quarter of 1995 versus
the comparable 1994 period, while such spending increased by 9% for the first
nine months of 1995 versus the comparable 1994 period. As discussed in Note (d)
to the consolidated financial statements in this Report, Grace has initiated a
major cost management effort, which includes a separate study of company-wide
research and development costs. Certain actions have already been taken based
on this study, including the shutdown of the Japan research center and the
phase-out of certain research programs.
INCOME TAXES
The effective tax rates were 33.2% and 31.8%, respectively, for the third
quarter and first nine months of 1995, as compared with 35.2% and 34.1%,
respectively, for the third quarter and first nine months of 1994, excluding the
special items discussed above in "Review of Operations - Overview". As compared
to the respective periods of 1994, the lower effective tax rates in the third
quarter and first nine months of 1995 were primarily due to an overall reduction
in the foreign tax rate, reflecting a higher utilization of foreign tax credits
resulting from the allocation of interest expense to the discontinued health
care segment, and a reassessment of the valuation allowance for certain deferred
tax assets.
INCOME FROM DISCONTINUED OPERATIONS - HEALTH CARE SEGMENT
The following table compares the results for the health care segment for the
1995 third quarter and first nine months to results for the comparable periods
of 1994:
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Health Care Operating Results September 30, September 30,
- ---------------------------------------------- --------------------- -------------------
Dollars in millions 1995 1994 1995 1994
- ---------------------------------------------- --------- -------- -------- --------
Sales and revenues $520.9 $491.2 $1,536.2 $1,346.6
------ ------ -------- --------
------ ------ -------- --------
Operating income before taxes and
special charges (i) $ 86.2 $ 75.8 $ 232.0 $ 196.6
Special charges (pretax):
Write-down of impaired assets (24.0) - (24.0) -
Provision for costs relating to phase-out of
certain health care research programs (8.8) - (8.8) -
Other (6.8) - (6.8) -
------ ------ -------- --------
Operating income before taxes $ 46.6 $ 75.8 $ 192.4 $ 196.6
------ ------ -------- --------
------ ------ -------- --------
(i) Health care segment results reflect the allocation of Grace's health care
related research expenses; corporate interest and financing costs are not
reflected in the health care segment results; however, these allocations
are not necessarily indicative of the results of the health care segment
in the future on a stand-alone basis. NMC's management is currently
determining the changes that may be required to its current organization,
including corporate overhead and research activities, and other
considerations relating to NMC's status as a stand-alone company.
I-12
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Sales and revenues for the third quarter and first nine months of 1995 increased
by 6% and 14%, respectively, over the comparable periods of 1994. These
improvements were due to increases of 8% and 17%, respectively, in kidney
dialysis services; 11% and 9%, respectively, in medical products operations; and
a 6% increase in home health care for the first nine months of 1995. The
improvements for the third quarter of 1995 were partially offset by a 6%
decrease in home health care revenues resulting from a decrease in infusion
therapy due to continued managed care pricing pressure. 1995 third quarter and
first nine months results for kidney dialysis services reflect acquisitions
subsequent to the third quarter of 1994. Results for the first nine months of
1995 for home health care operations include nine months of results of Home
Nutritional Services, Inc., a national provider of home infusion therapy
services acquired in April 1994. The number of centers providing dialysis and
related services increased 22%, from 539 at September 30, 1994 to 657 at
September 30, 1995 (554 in North America, 60 in Europe, 31 in Latin America and
12 in Asia Pacific).
Operating income before taxes in the third quarter and first nine months of 1995
increased by 14% and 18%, respectively, over the 1994 periods, excluding the
special charges listed above. Results for the third quarter and first nine
months of 1995 for all health care businesses benefited from the effect of
acquisitions, along with continued expansion inside and outside the U.S. NMC
continues to focus on improvements in cost controls, operating efficiencies and
capacity utilization. See below for a discussion of items relating to NMC's
business operations and the possible material adverse effect of these items on
NMC's financial position or the results of operations of NMC and Grace.
In the third quarter of 1995, following several periods of operating losses and
due to projected operating losses, NMC management reviewed the carrying value of
its investment in a German dialysis machine manufacturing operation. The review
indicated that this investment was permanently impaired. NMC management
considered future cash flows resulting from the use of the related assets and
determined that the entire carrying value of such assets, amounting to $7.4
million (pre- and after-tax) should be written off.
In addition, during the third quarter of 1995, NMC management decided to cease
its investment in its dialyzer development operation in Ireland. As a result,
the carrying values of the related assets, including certain fixed assets of the
facility used in this project, were fully written off, resulting in a charge of
$16.6 million (pre- and after-tax).
Also during the third quarter of 1995, Grace management decided to initiate the
phase-out of certain of its health care research programs, resulting in a pretax
charge of $8.8 million ($5.6 million after-tax). Also, NMC recorded a pretax
provision of $6.8 million ($3.9 million after-tax) for additional costs
associated with Grace's long-term incentive programs that are applicable to NMC.
As more fully discussed in Note (c) to the consolidated financial statements in
this Report, in October 1995, NMC received five investigative subpoenas from the
Office of Inspector General (OIG) of the U.S. Department of Health and Human
Services. The subpoenas call for the production of extensive documents relating
to various aspects of NMC's business, and a letter accompanying the subpoenas
stated that they had been issued in conjunction
I-13
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
with an investigation being conducted by the OIG, the U.S. Attorney for the
District of Massachusetts, and others, concerning possible violations of federal
laws relating to health care payments and reimbursements. The results of the
investigation and its impact, if any, cannot be predicted at this time. In the
event that any government agency believes that wrongdoing related to the
investigation has occurred, civil and/or criminal proceedings could be
instituted, and if any such proceedings were to be instituted and the outcome
were unfavorable, NMC could be subject to fines, penalties and damages or could
become excluded from government reimbursement programs. Any such result could
have a material adverse effect on NMC's financial position or the results of
operations of NMC and Grace.
As discussed in NMC's Form 10, NMC administers Intradialytic Parenteral
Nutrition (IDPN) therapy to chronic dialysis patients who suffer from severe
gastrointestinal malfunctions. NMC and other IDPN providers are pursuing
various administrative and legal avenues, including administrative appeals, to
address the reduction in IDPN claims currently being paid by Medicare. NMC
believes that the reduction in IDPN claims currently being paid by Medicare
represents an unauthorized coverage policy change. As of September 30, 1995,
$62.0 million of claims are outstanding, increasing at the rate of approximately
$4.0 million per month. Moreover, a draft of a current coverage policy would
limit or preclude continued coverage of IDPN therapy. If NMC is unable to
collect its IDPN receivable or if IDPN coverage is reduced or eliminated,
depending on the amount of the receivable that is not collected and/or the
nature of the coverage change, NMC's business, financial position and results of
operations might be materially adversely affected.
Also as discussed in NMC's Form 10, NMC is currently involved in litigation with
respect to the policy of the Health Care Financing Administration (HCFA) with
regard to its implementation of the Omnibus Budget Reconciliation Act of 1993
(OBRA 93) as it relates to the date on which Medicare benefits commence for
certain eligible End Stage Renal Disease (ESRD) patients. HCFA's initial
implementation of OBRA 93, confirmed in a Program Memorandum dated July 15,
1994, amended the prior Medicare coverage policy so that all employer health
plans must recognize an 18-month "coordination of benefits" period during which
the plan is the primary payor. The vast majority of NMC's patients affected by
this amendment were retirees eligible for Medicare on the basis of age, who
subsequently became eligible for Medicare on the basis of ESRD, and whose
employer group health plans had been supplemental payors to Medicare. Under the
prior Medicare coverage policy, Medicare benefits for these patients commenced
three months after the initiation of chronic dialysis treatments at a dialysis
center, and not 21 months (consisting of a three-month entitlement waiting
period and the additional 18-month period referred to above). This
implementation had a positive impact on NMC's dialysis revenues because, during
the 18-month coordination of benefits period, the employer health plan was
responsible for payment, which was generally at a rate higher than that provided
under Medicare.
In a second Program Memorandum dated April 24, 1995, HCFA reversed its
implementation of OBRA 93 in a manner that would substantially diminish the
positive effect of the original implementation on NMC's dialysis business.
Under the new policy, no 18-month coordination of benefits period would arise,
and Medicare would be the primary payor beginning in the fourth month. HCFA
further proposed that its new policy be effective retroactive to August 10,
1993, the effective date of OBRA 93, and that NMC be required to
I-14
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
refund payments received from employer health plans for services provided after
August 10, 1993 under HCFA's original implementation and to re-bill Medicare for
the same services, which would result in a net loss to NMC of approximately
$120.0 million as of September 30, 1995. Effective July 1, 1995, NMC ceased to
recognize the incremental revenue realized under the original implementation,
which will result in a material reduction in dialysis operating earnings in
comparison to prior periods in which dialysis operations recognized such
incremental net revenues.
In the litigation referred to above, the court has granted NMC's motion for a
preliminary injunction to preclude HCFA from retroactively enforcing its new
policy. The litigation is continuing with respect to NMC's request to enjoin
HCFA's new policy, both retroactively and prospectively, on a permanent basis.
While there can be no assurance that a permanent injunction will be issued, NMC
believes that it will ultimately prevail in its claim that the retroactive
reversal by HCFA of its original implementation of OBRA 93 was impermissible
under applicable law. Pending the outcome of the litigation, HCFA's new policy
remains in effect for services provided after April 23, 1995. If HCFA's revised
interpretation is upheld, NMC's business, financial position and results of
operations would be materially adversely affected, particularly if the revised
interpretation is applied retroactively.
(b) Financial Condition; Liquidity and Capital Resources
During the first nine months of 1995, the net pretax cash provided by Grace's
continuing operating activities was $150.7 million, versus $8.5 million provided
in the first nine months of 1994. The increase was primarily due to net cash
inflows of $77.7 million in the first nine months of 1995 from settlements with
certain insurance carriers for asbestos-related litigation, net of amounts paid
for the defense and disposition of asbestos-related property damage and personal
injury litigation (see discussion below), as compared to the outflow of $13.4
million for asbestos-related litigation in the first nine months of 1994, along
with improved operating results. After giving effect to the pretax cash
provided by operating activities of discontinued operations (including an
increase in the use of working capital by NMC in the first nine months of 1995)
and increased payments of income taxes (attributable to taxable income resulting
from settlements of the asbestos-related litigation discussed above, and audit
adjustments in the prior years), the net cash used for operating activities was
$13.4 million in the first nine months of 1995 versus $187.6 million provided in
the first nine months of 1994.
Investing activities used $488.3 million of cash in the first nine months of
1995, largely reflecting capital expenditures of $366.5 million (of which over
80% relates to capital spending on Grace's packaging and catalyst/silica
businesses) and the acquisition of dialysis centers and medical products
facilities for a total of $31.1 million in the first quarter of 1995. Also,
investing activities of discontinued operations for the first nine months of
1995 used $149.1 million, primarily reflecting the classification of the health
care segment as a discontinued operation.
I-15
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Net cash provided by financing activities in the first nine months of 1995 was
$500.8 million, primarily reflecting an increase in total debt from December 31,
1994 and the exercise of stock options, offset by the payment of $100.3 million
of dividends. Total debt was $1,927.3 million at September 30, 1995, an
increase of $397.6 million from December 31, 1994. Grace's total debt as a
percentage of total capital (debt ratio) increased from 50.4% at December 31,
1994 to 53.3% at September 30, 1995, primarily as the result of the increase in
total debt (Grace's total debt and debt ratio were $1,881.5 million and 56.6%,
respectively, at September 30, 1994). At September 30, 1995, the net assets of
the discontinued health care segment included $117.3 million of debt.
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 in
nature, 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. Grace expects to apply a substantial
portion of the cash proceeds generated by the anticipated spin-off of NMC to the
repayment of borrowings. However, for various reasons arising from the issuance
of the subpoenas described above, the completion of the spin-off of NMC,
originally expected in the 1995 fourth quarter, has been delayed.
In the third quarter of 1995, Grace announced that its Board of Directors had
authorized management to pursue options to maximize the value of its Grace
Dearborn water treatment and process chemicals business. The options being
considered include the outright sale of Grace Dearborn and strategic alliances
with complementary companies.
In October 1995, in anticipation of the spin-off of NMC, the Company's Board of
Directors (a) declared a quarterly cash dividend of 12.5 cents per share on the
Company's Common Stock, lowering its quarterly cash dividend from 35 cents per
share, and (b) approved the repurchase of up to 10 million shares of the
Company's Common Stock from time to time in open market or private transactions.
The Company has announced that, in the future, it expects to pay dividends at a
rate of 20% - 30% of the prior year's net earnings.
ASBESTOS-RELATED MATTERS
As reported in Note (b) to the consolidated financial statements in this Report,
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 the first nine months of 1995, Grace received $77.7 million under
settlements with certain insurance carriers, net of amounts paid for the defense
and disposition of asbestos-related property damage and personal injury
litigation. The balance sheet at September 30, 1995 includes a receivable due
from insurance carriers, subject to litigation, of $470.4 million. Grace has
also recorded a receivable of approximately $62.0 million for amounts to be
received in 1995 to 1999 pursuant to settlement agreements previously entered
into with certain insurance carriers.
I-16
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Although Grace cannot precisely estimate the amounts to be paid in 1995 in
respect of asbestos-related lawsuits and claims, Grace expects that the payments
to be received in 1995 from certain insurance carriers (as discussed above and
in Note (b) to the consolidated financial statements in this Report) will exceed
by approximately $30.0 million (pretax) the 1995 costs of defending and
disposing of asbestos-related lawsuits and claims. 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 ongoing litigations with
certain of its insurance carriers can be predicted with certainty.
ENVIRONMENTAL MATTERS
There were no significant developments relating to environmental liabilities in
the first nine months of 1995.
For additional information relating to environmental liabilities, see Note 11 to
the consolidated financial statements in the Company's 1994 Annual Report on
Form 10-K.
I-17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(a) Note (b) to the Consolidated Financial Statements in Part I of
this Report is incorporated herein by reference.
(b) Reference is made to the Company's Report on Form 8-K filed on
October 27, 1995 for information regarding the receipt of five federal
investigative subpoenas by National Medical Care, Inc. ("NMC"), the Company's
principal health care subsidiary as well as lawsuits relating to NMC. Since
that filing, the Company and/or NMC has received service of process in the
following lawsuits, all of which were filed on or about October 20, 1995, with
substantially similar allegations to those made in the lawsuits described in
Item 5(b) of such Report on Form 8-K: GLADSTEIN V. W.R. GRACE & CO., ET AL.,
filed in the United States District Court for the Southern District of Florida,
Case Number 95-8653; ROSENFELD V. W.R. GRACE & CO., ET AL., filed in the United
States District Court for the Southern District of Florida, Northern Division,
Case Number 95-8639; IZES V. W.R. GRACE & COMPANY, ET AL., filed in the United
States District Court for the Southern District of Florida, Northern Division,
Case Number 95-8632; KOVITZ, ET AL. V. NATIONAL MEDICAL CARE, INC., ET AL.,
filed in the United States District Court for the District of Massachusetts,
Case Number 95-12347REK; BERMAN V. W.R. GRACE & COMPANY, ET AL., filed in the
United States District Court for the Southern District of Florida, Northern
Division, Case Number 95-8640; ADDIS V. W.R. GRACE & CO., ET AL.,
II-1
filed in the United States District Court for the Southern District of Florida,
Northern Division, Case Number 95-8635; and SWEDER V. W.R. GRACE & COMPANY, ET
AL., filed in the United States District Court for the Southern District of
Florida, Northern Division, Case Number 95-8641.
In addition, on October 20, 1995, a lawsuit purporting to be a
derivative action on behalf of the Company's shareholders was filed in the
United States District Court for the Southern District of Florida, Northern
Division, against the Company, certain of its current directors and J.P. Bolduc,
the Company's former President and Chief Executive Officer, alleging that such
individuals failed to properly supervise the activities of NMC in the conduct of
its business (BENNETT V. BOLDUC, ET AL., Case Number 95-8638).
ITEM 5. OTHER INFORMATION
In June 1995, the Company announced that it Board of Directors
had approved a plan to spin off NMC by means of a dividend to holders of the
Company's common stock that would be declared upon satisfaction of various
conditions. As a result, Grace classified it health care segment as a
discounted operation in the 1995 second quarter. The following financial
statements are being filed with and are incorporated by reference in this
Report: (a) unaudited interim financial statements for the quarters ended March
31, 1995 and 1994, restated to give effect to the classification of the health
care segment as a discontinued operation, and (b) unaudited interim financial
statements for the three- and six-month interim periods ended June 30, 1995 and
1994, restated to give effect to the classification of corporate
II-2
overhead and certain corporate research expenses that were previously allocated
to the health care segment to continuing operations and to reflect tax expense
with respect to discontinued operations as if the health care segment were a
stand-alone taxpayer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following are being filed as exhibits to this
Report:
- W.R. Grace & Co. 1981 Stock Incentive Plan, as amended;
- W.R. Grace & Co. 1986 Stock Incentive Plan, as amended;
- weighted average number of shares and earnings used in per
share computations;
- financial data schedule;
- restated consolidated financial statements of Grace for
the quarters ended March 31, 1995 and 1994;
- restated financial data schedule for the quarter ended
March 31, 1995;
- restated consolidated financial statements of Grace for
the three- and six-month interim periods ended June 30,
1995 and 1994; and
- restated financial data schedule for the six-month interim
period ended June 30, 1995.
(b) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K on
August 2, 1995 relating to the announcement of second quarter 1995 results. The
Company filed a Report on Form 8-K on September 26, 1995 relating to the pursuit
of
II-3
options to maximize the value of the Company's Grace Dearborn business,
including the outright sale of such business and strategic alliances with
complementary companies. On October 16, 1995, the Company filed a Report on
Form 8-K relating (a) to the Company's declaration of a quarterly cash dividend
at a rate lower than that previously in effect and (b) to a program to
repurchase up to 10 million shares of the Company's Common Stock in open market
or private transactions from time to time. The Company filed a Report on Form
8-K on October 27, 1995 concerning the receipt of five investigative subpoenas
by NMC, as well a lawsuits relating to NMC.
II-4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
W. R. GRACE & CO.
---------------------------
(Registrant)
Date: November 14, 1995 By /s/ Richard N. Sukenik
----------------------
Richard N. Sukenik
Vice President and Controller
(Principal Accounting Officer)
II-5
W.R. GRACE & CO.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 W.R. Grace & Co. 1981 Stock Incentive Plan, as amended
10.2 W.R. Grace & Co. 1986 Stock Incentive Plan, as amended
11 Weighted average number of shares and earnings used in per
share computations
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule for the Quarter Ended March
31, 1995
27.3 Restated Financial Data Schedule for the Six-Month Interim Period
Ended June 30, 1995
99.1 Restated Consolidated Financial Statements of Grace for the
Quarters Ended March 31, 1995 and 1994
99.2 Restated Consolidated Financial Statements of Grace for the
Three- and Six-Month Interim Periods Ended June 30, 1995 and 1994