RESTATED CONSOLIDATED FINANCIAL STATEMENTS
of W. R. Grace & Co.
For the Three- and Six-Month Interim Periods Ended June 30, 1995 and 1994
As used in the following financial statements, 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 Six Months Ended
Consolidated Statement of Operations (Unaudited) (1) June 30, June 30,
- ------------------------------------------------------- ------------------------- ------------------------
Dollars in millions, except per share 1995 1994 1995 1994
- ------------------------------------------------------- ------ ------ ------ ------
Sales and revenues . . . . . . . . . . . . . . . . . . . . $932.3 $ 782.9 $1,785.7 $1,458.3
Other income . . . . . . . . . . . . . . . . . . . . . . . 4.5 3.1 8.8 34.2
------ --------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . 936.8 786.0 1,794.5 1,492.5
------ --------- -------- --------
Cost of goods sold and operating expenses . . . . . . . . 550.7 464.5 1,051.6 902.3
Selling, general and administrative expenses . . . . . . . 219.7 180.5 450.5 358.9
Depreciation and amortization . . . . . . . . . . . . . . 40.2 38.4 78.4 75.6
Interest expense and related financing costs . . . . . . . 18.7 11.3 34.5 21.9
Research and development expenses . . . . . . . . . . . . 31.1 27.0 61.6 54.1
Corporate expenses previously allocated to the
health care segment . . . . . . . . . . . . . . . . . 11.6 9.3 21.7 18.4
Provision relating to asbestos-related
insurance coverage . . . . . . . . . . . . . . . . . . - 316.0 - 316.0
------ --------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . 872.0 1,047.0 1,698.3 1,747.2
------ --------- -------- --------
Income/(loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . 64.8 (261.0) 96.2 (254.7)
Provision for/(benefit from) income taxes. . . . . . . . . 19.8 (96.9) 28.3 (105.4)
------ --------- -------- --------
Income/(loss) from continuing operations . . . . . . . . . 45.0 (164.1) 67.9 (149.3)
Income from discontinued operations. . . . . . . . . . . . 33.7 29.8 58.3 53.2
------ --------- -------- --------
Net income/(loss). . . . . . . . . . . . . . . . . . . . . $ 78.7 $ (134.3) $ 126.2 $ (96.1)
------ --------- -------- --------
------ --------- -------- --------
- ---------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per share:
Continuing operations . . . . . . . . . . . . . . . . . $ .47 $ (1.75) $ .71 $ (1.59)
Net income/(loss). . . . . . . . . . . . . . . . . . . . $ .83 $ (1.43) $ 1.33 $ (1.03)
Fully diluted earnings per share:
Continuing operations . . . . . . . . . . . . . . . . . . $ .46 $ - (2) $ .70 $ - (2)
Net income/(loss) . . . . . . . . . . . . . . . . . . . . $ .80 $ - (2) $ 1.30 $ - (2)
Dividends declared per common share . . . . . . . . . . . . $ .35 $ .35 $ .70 $ .70
- ---------------------------------------------------------------------------------------------------------------------
(1) This Consolidated Statement of Operations has been restated to (a) reflect
the classification of corporate overhead and certain corporate research expenses
that were previously allocated to the health care segment to continuing
operations and (b) reflect tax expense with respect to discontinued operations
as if the health care segment were a stand-alone taxpayer.
(2) Not presented as the effect is anti-dilutive.
The Notes to Consolidated Financial Statements
are an integral part of this statement.
1
W. R. Grace & Co. and Subsidiaries Six Months Ended
Consolidated Statement of Cash Flows (Unaudited) (1) June 30,
- -------------------------------------------------------------------------- ----------------------------
Dollars in millions 1995 1994
- -------------------------------------------------------------------------- -------- --------
OPERATING ACTIVITIES
Income/(loss) from continuing operations before income taxes . . . . . . . . . . . . . $ 96.2 $(254.7)
Reconciliation to cash (used for)/provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 78.4 75.6
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. . . . . . . . . . . . . . . . . . (60.0) (109.2)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82.3) (19.1)
Proceeds from asbestos-related insurance settlements. . . . . . . . . . . . . . . 156.4 121.6
Payments made for asbestos-related litigation settlements,
judgments and defense costs. . . . . . . . . . . . . . . . . . . . . . . . . . (60.2) (111.9)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . (51.4) (126.5)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37.2) 27.4
------- -------
Net pretax cash provided by/(used for) operating activities
of continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 (80.8)
Net pretax cash provided by operating activities of discontinued operations. . . . . . 27.8 156.8
------- -------
Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . . . 67.7 76.0
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (91.0) (47.1)
------- -------
Net cash (used for)/provided by operating activities . . . . . . . . . . . . . . . . . . (23.3) 28.9
------- -------
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (232.6) (171.3)
Businesses acquired in purchase transactions, net of
cash acquired and assumed debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (31.1) (170.6)
Increase in net investments in discontinued operations . . . . . . . . . . . . . . . . (46.3) (14.2)
Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 118.8
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 14.1
------- -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . (300.4) (223.2)
------- -------
FINANCING ACTIVITIES
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66.3) (65.9)
Repayments of borrowings having original maturities in excess of three months. . . . . (51.2) (70.2)
Increase in borrowings having original maturities in excess of three months. . . . . . 85.3 101.7
Net increase in borrowings having original maturities of less than three months. . . . 251.0 256.3
Stock options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.3 15.6
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9.8) (0.1)
------- -------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . 293.3 237.4
------- -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . 3.5 -
------- -------
(Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ (26.9) $ 43.1
------- -------
------- -------
(1) This Consolidated Statement of Cash Flows has been restated to (a) reflect
the classification of corporate overhead and certain corporate research expenses
that were previously allocated to the health care segment to continuing
operations and (b) reflect tax expense with respect to discontinued operations
as if the health care segment were a stand-alone taxpayer.
The Notes to Consolidated Financial Statements
are integral parts of these statements.
2
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
- --------------------------------------------------------
June 30, December 31,
Dollars in millions, except par value 1995 1994
- ------------------------------------------------------- ---------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 51.4 $ 78.3
Notes and accounts receivable, net . . . . . . . . . . . 603.4 975.7
Inventories . . . . . . . . . . . . . . . . . . . . . . . 521.6 514.2
Net assets of discontinued operations - other . . . . . . 340.0 335.6
Deferred income taxes . . . . . . . . . . . . . . . . . . 200.8 295.4
Other current assets. . . . . . . . . . . . . . . . . . . 28.4 29.7
-------- ---------
Total Current Assets . . . . . . . . . . . . . . . . . 1,745.6 2,228.9
Properties and equipment, net of accumulated
depreciation and amortization of $1,418.2
and $1,498.2, respectively . . . . . . . . . . . . . . . . 1,554.5 1,730.1
Goodwill, less accumulated amortization of $20.2
and $71.8, respectively . . . . . . . . . . . . . . . . . 118.4 672.5
Net assets of discontinued operations - health care . . . . 1,400.5 -
Asbestos-related insurance receivable. . . . . . . . . . . . 472.1 512.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 789.2 1,086.5
-------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . $6,080.3 $6,230.6
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . $ 446.8 $ 430.9
Accounts payable. . . . . . . . . . . . . . . . . . . . . 285.5 433.7
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 174.9 197.0
Other current liabilities . . . . . . . . . . . . . . . . 575.0 872.9
Minority interest . . . . . . . . . . . . . . . . . . . . 297.0 297.0
-------- ---------
Total Current Liabilities. . . . . . . . . . . . . . . 1,779.2 2,231.5
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1,280.9 1,098.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 676.9 690.9
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 103.7 92.5
Noncurrent liability for asbestos-related litigation . . . . 569.4 612.4
-------- ---------
Total Liabilities . . . . . . . . . . . . . . . . . 4,410.1 4,726.1
-------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value. . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value. . . . . . . . . . . . . . . . 96.0 94.1
Paid in capital . . . . . . . . . . . . . . . . . . . . . 382.4 308.8
Retained earnings . . . . . . . . . . . . . . . . . . . . 1,207.4 1,147.5
Cumulative translation adjustments. . . . . . . . . . . . (20.2) (53.3)
Treasury stock, 62,453 common shares, at cost . . . . . . (2.8) -
-------- ---------
Total Shareholders' Equity . . . . . . . . . . . . . . 1,670.2 1,504.5
-------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $6,080.3 $6,230.6
-------- ---------
-------- ---------
The Notes to Consolidated Financial Statements
are integral parts of these statements.
3
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(a) The financial statements in this Report at June 30, 1995 and 1994 and for
the three- and six-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 six-month interim periods ended June 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 41,300 asbestos-related
lawsuits at June 30, 1995 (65 involving claims for property damage and the
remainder involving approximately 77,400 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 half of
1995, one property damage lawsuit was settled for a total of $0.3; three
new property damage lawsuits were filed; and two property damage lawsuits
were dismissed. In addition, a new trial was ordered in a property damage
case that had been on appeal. During the first half of 1995, approximately
900 personal injury claims against Grace were dismissed without payment and
$12.5 was recorded to reflect settlements and judgments in approximately
4,600 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 June 30, 1995 and has
determined that it is probable that such lawsuits can be disposed of for a
total of $669.4, inclusive of legal fees and expenses, of which Grace has
recorded $569.4 as a noncurrent liability and $100.0 as a current
liability. This compares
4
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
to the estimated liability (current and noncurrent) of $712.4 at December
31, 1994, the decrease being attributable to payments made by Grace for
asbestos-related litigation, judgments, settlements and defense costs in
the first half of 1995. In addition, Grace has recorded a receivable of
$472.1 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 December 31, 1994 due to the net insurance proceeds received during
the first half of 1995.
In the first half of 1995, Grace received a total of $156.4 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, $110.0 was received pursuant to settlements
entered into in 1993 and 1994, which 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 $472.1 at June 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, and this ruling has been affirmed by
the U.S. Court of Appeals for the Fifth Circuit (which has also denied a
request by the group of carriers for a rehearing). Grace anticipates that
the group of carriers will seek a review of this ruling by the U.S. Supreme
Court. Based on this ruling, 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 will
initiate legal action if payment is not received in a reasonable time.
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 June 30, 1995. Consequently, Grace believes that the
resolution of its pending asbestos-
5
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
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.
Summary results of operations for the health care segment are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
------ ------ -------- ------
Sales and revenues $523.5 $454.0 $1,015.3 $855.4
------ ------ -------- ------
------ ------ -------- ------
Income from discontinued operations
before income taxes $ 60.1 $ 54.4 $ 104.1 $ 97.0
Provision for income taxes 26.4 24.6 45.8 43.8
------ ------ -------- ------
Income from discontinued operations $ 33.7 $ 29.8 $ 58.3 $ 53.2
------ ------ -------- ------
------ ------ -------- ------
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 $21.6 and $13.3 for the second quarters of 1995 and 1994,
respectively, and $41.7 and $23.8 for the six months ended June 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.
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.
6
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
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 June 30, 1995, are as follows:
Sub- Health
Cocoa Other Total Care Total
----- ----- ----- ------- ------
Current assets $376.2 $ 17.5 $393.7 $ 583.2 $ 976.9
Properties and equipment, net 190.8 32.4 223.2 358.1 581.3
Investments in and advances to
affiliated companies - 43.0 43.0 - 43.0
Other assets 52.2 20.3 72.5 931.3 1,003.8
-------- ------- ------- -------- -------
Total assets $619.2 $ 113.2 $732.4 1,872.6 $2,605.0
-------- ------- ------- -------- -------
Current liabilities $276.2 $ 10.8 $287.0 $ 307.7 $ 594.7
Other liabilities 95.6 9.8 105.4 164.4 269.8
-------- ------- ------- -------- -------
Total liabilities $371.8 $ 20.6 $392.4 $ 472.1 $ 864.5
-------- ------- ------- -------- -------
Net assets $247.4 $ 92.6 $340.0 $1,400.5 $1,740.5
-------- ------- ------- -------- -------
-------- ------- ------- -------- -------
(d) Inventories consist of:
June 30, December 31,
1995 1994 (i)
----------- ------------
Raw and packaging materials $149.6 $129.8
In process 93.1 75.3
Finished products 323.2 352.2
----- ------
565.9 557.3
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (44.3) (43.1)
------ ------
Total Inventories $521.6 $514.2
------ ------
------ ------
(i) Inventories at December 31, 1994 include $92.4 relating to the
health care segment.
(e) Earnings per share are calculated on the basis of the following weighted
average number of common shares outstanding:
Three Months Ended June 30:
1995 - 95,116,000
1994 - 93,933,000
Six Months Ended June 30:
1995 - 94,629,000
1994 - 93,842,000
7