EXHIBIT 99.1
[GRACE NEWS Letterhead] CORPORATE COMMUNICATIONS
W. R. Grace & Co.
7500 Grace Drive
Columbia, MD 21044
CONTACT: Media Relations: Investor Relations:
Greg Euston Bridget Sarikas
(212) 213-7060 (410) 531-4194
GRACE REPORTS SECOND QUARTER FINANCIAL RESULTS
COLUMBIA, Maryland, July 23, 2003 -- W. R. Grace & Co. (NYSE: GRA) today
reported that 2003 second quarter sales totaled $503.4 million compared with
$471.8 million in the prior year quarter, a 6.7% increase. Favorable currency
translation effects from a weaker U.S. dollar accounted for most of the
increase, with revenue from acquisitions and added volume in certain product
lines also contributing. Second quarter net income was $6.5 million, or $0.10
per share, compared with net income of $21.2 million, or $0.32 per share, in the
second quarter of 2002. Pre-tax income from core operations in the second
quarter of 2003 was $33.6 million compared with $56.6 million in the second
quarter of 2002. Operating results continued to be adversely affected by
economic weakness, particularly in U.S. commercial construction, and by higher
manufacturing and energy costs. The 2003 second quarter also includes higher
pension expense to account for the effect of negative investment returns on
Grace's defined benefit pension plans in recent years.
"We continued to experience a difficult operating environment in the second
quarter," said Grace Chairman, President and Chief Executive Officer Paul J.
Norris. "While we have seen some signs of economic recovery, demand for our
products generally remained soft. When combined with continued higher production
costs and significant increases in pension expense, we realized lower operating
profits for the quarter. We are beginning to see some improvement in our
production costs and are looking to our growth programs and cost management
initiatives to deliver a better second half of the year."
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For the first six months of 2003, Grace reported sales of $948.2 million, a 7.1%
increase over 2002. Currency translation accounted for 5.5 percentage points of
the increase, with acquisition revenue in catalyst products also contributing.
Net income and diluted EPS were $4.2 million and $0.06 per share in 2003,
compared with $33.6 million and $0.51, respectively, for the first six months of
2002. Pre-tax income from core operations was $47.1 million, compared with $90.4
million for the first six months of 2002. Year-to-date pre-tax operating margin
was 5.0%, about half of the prior year level. The decline in year-to-date
operating profit and margins was caused by a combination of lower sales of
building materials, an unfavorable regional sales mix with sales down in North
America, and overall higher costs for pensions, certain raw materials, natural
gas and plant maintenance, offset by productivity gains.
CORE OPERATIONS
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DAVISON CHEMICALS
CATALYST AND SILICA PRODUCTS
Second quarter sales for the Davison Chemicals segment were $261.6 million, up
7.8% from the prior year quarter. Excluding the effects of favorable currency
translation, sales were up 1.0% for the quarter. Sales of catalyst products,
which include refining catalysts, polyolefin catalysts and other chemical
catalysts, were $186.6 million, up 6.1% compared with the prior year quarter,
primarily attributable to currency effects and an acquisition completed in Japan
in August 2002. Catalyst sales were notably lower in North America, primarily
due to lower demand compared with the second quarter of 2002. Sales of silica
products were $75.0 million, up 12.4% compared with the second quarter of 2002,
primarily from currency effects of the stronger Euro. Volume increases from
growth programs in digital printing and separations applications were offset by
lower sales of base products.
Operating income of the Davison Chemicals segment was $27.3 million, 28.5% lower
than the 2002 second quarter; operating margin was 10.4%, lower than the prior
year quarter by 5.3 percentage points. Operating income and margins in the
second quarter of 2003 were negatively affected by higher manufacturing costs,
primarily from higher natural gas prices and maintenance requirements at certain
production facilities.
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Year-to-date sales for the Davison Chemicals segment were $500.7 million, up
9.7% from 2002 (excluding currency translation impacts, sales were up 2.9%).
Year-to-date operating income was $47.6 million, compared with $63.8 million for
the prior year, a 25.4% decrease. Year-to-date operating results reflect similar
economic and cost factors as experienced in the second quarter.
PERFORMANCE CHEMICALS
CONSTRUCTION CHEMICALS, BUILDING MATERIALS, AND SEALANTS AND COATINGS
Second quarter sales for the Performance Chemicals segment were $241.8 million,
up 5.5% from the prior year quarter. Favorable currency translation accounted
for 4.5 percentage points of the increase. Volume gains outside of North America
were offset by continued weakness in North American commercial construction.
Sales of specialty construction chemicals, which include concrete admixtures,
cement additives and masonry products, were $114.0 million, up 7.1% versus the
year-ago quarter (2.1% excluding currency translation impacts). Sales were
strong in geographic regions other than North America, reflecting the success of
new product programs and sales initiatives in key economies worldwide. Sales of
specialty building materials, which include waterproofing and fire protection
products, were $59.6 million, down 0.7% (down 3.5% before translation impacts)
compared with a strong second quarter in 2002. The decline reflects continued
softness in North American construction and re-roofing activity, due partly to
an unusually rainy spring and the effects of new building codes that permit less
fire protection materials to be applied to structural steel. Sales of specialty
sealants and coatings, which include container sealants, coatings and polymers,
were $68.2 million, up 8.6% compared with the second quarter of 2002 (up 3.3%
before the effect of currency translation), reflecting growth initiatives in
coatings and closure compounds, particularly in Europe and Asia.
Operating income for the Performance Chemicals segment was $25.8 million,
compared with $28.2 million in the prior year quarter. Operating margin of 10.7%
was 1.6 percentage points lower than 2002 second quarter margin, reflecting
higher raw material and transportation costs and unfavorable regional and
product mix. Operating income, although favorably impacted by sales growth in
construction chemicals (outside North America) and in coatings and closure
compounds, was adversely affected by lower sales of building materials.
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Year-to-date sales of the Performance Chemicals segment were $447.5 million, up
4.4% from 2002 (excluding currency translation impacts, sales were up 0.4%).
Year-to-date operating income was $37.9 million, compared with $46.8 million for
the prior year, a 19.0% decrease, reflecting continued softness in U.S.
construction and weather-delayed projects.
CORPORATE COSTS
Second quarter corporate costs related to core operations were $19.5 million, a
$9.7 million increase from the prior year quarter. The increase is primarily
attributable to added costs for pension benefits to account for the negative
financial market factors that have impacted the funded status of defined benefit
pension plans in recent years.
CASH FLOW AND LIQUIDITY
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Grace's cash flow provided by operating activities was $36.0 million for the
first six months of 2003, compared with $66.3 million for the comparable period
of 2002. Year-to-date pre-tax income from core operations before depreciation
and amortization was $97.1 million, 28.9% lower than 2002, reflecting the lower
operating income described above. Cash used for investing activities was $50.2
million year-to-date, primarily for capacity expansion and capital replacements.
Cash provided by financing activities included a $30.0 million draw under
Grace's debtor-in-possession credit facility to fund the cash needs of Grace's
Chapter 11 filing entities.
At June 30, 2003, Grace had available liquidity in the form of cash ($317.9
million), net cash value of life insurance ($91.8 million) and unused credit
under its debtor-in-possession facility ($188.0 million). Grace believes that
these sources and amounts of liquidity are sufficient to support its strategic
initiatives and Chapter 11 proceedings for the foreseeable future.
CHAPTER 11 PROCEEDINGS
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On April 2, 2001 Grace and 61 of its United States subsidiaries and affiliates,
including its primary U.S. operating subsidiary W. R. Grace & Co.-Conn., filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United
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States Bankruptcy Court for the District of Delaware (the "Filing"). Grace's
non-U.S. subsidiaries and certain of its U.S. subsidiaries were not a part of
the Filing. Since the Filing, all motions necessary to conduct normal business
activities have been approved by the Bankruptcy Court.
The Bankruptcy Court had established a bar date of March 31, 2003 for claims of
general unsecured creditors, asbestos property damage claims and medical
monitoring claims related to asbestos. The bar date did not apply to
asbestos-related bodily injury claims or claims related to Zonolite(R) Attic
Insulation, which will be dealt with separately. Approximately 15,000 claims
were submitted by the bar date for all debtor entities. Grace is in the process
of assessing the validity of such claims and determining what effect such claims
may have on Grace's recorded liabilities. Grace also has begun to file
bankruptcy court motions objecting to certain of these claims.
Most of Grace's noncore liabilities and contingencies (including
asbestos-related litigation, environmental remediation claims, tax disputes and
other potential obligations), are subject to compromise under the Chapter 11
process. The Chapter 11 proceedings, including litigation and the claims
resolution process, could result in allowable claims that differ materially from
recorded amounts. Grace will adjust its estimates of allowable claims as facts
come to light during the Chapter 11 process that justify a change, and as
Chapter 11 proceedings establish court-accepted measures of Grace's noncore
liabilities. See Grace's recent Securities and Exchange Commission filings for
discussion of noncore liabilities and contingencies.
* * * * *
Grace is a leading global supplier of catalysts and silica products, specialty
construction chemicals, building materials, and sealants and coatings. With
annual sales of approximately $1.8 billion, Grace has over 6,000 employees and
operations in nearly 40 countries. For more information, visit Grace's Web site
at www.grace.com.
* * *
This announcement contains forward-looking statements that involve risks and
uncertainties, as well as statements that are preceded by, followed by or
include the words "believes," "plans," "intends", "targets", "will," "expects,"
"anticipates," or similar expressions. For such statements, Grace claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from the results predicted, and reported results should not be
considered as an indication of future performance. Factors that could cause
actual results to differ from those contained in the forward-looking statements
include those factors set forth in Grace's most recent Annual Report on Form
10-K and quarterly reports on Form 10-Q, which have been filed with the SEC.
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[GRACE NEWS LOGO]
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W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED SIX MONTHS ENDED
(UNAUDITED) JUNE 30, JUNE 30,
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Amounts in millions, except per share amounts 2003 2002 2003 2002
- ------------------------------------------------------------- -------------- ------------- ------------- -------------
Net sales $ 503.4 $ 471.8 $ 948.2 $ 885.0
Other income 2.1 4.8 7.9 10.8
-------------- ------------- ------------- -------------
505.5 476.6 956.1 895.8
-------------- ------------- ------------- -------------
Cost of goods sold, exclusive of depreciation and
amortization shown separately below 329.7 294.2 626.4 554.1
Selling, general and administrative expenses,
exclusive of net pension expense shown
separately below 94.7 83.6 186.4 167.1
Depreciation and amortization 25.3 23.4 50.0 46.2
Research and development expenses 14.2 13.3 28.3 26.1
Net pension expense 13.2 4.5 26.7 9.6
Interest expense and related financing costs 4.1 5.6 8.3 10.4
Provision for environmental remediation 0.5 2.0 2.5 5.8
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481.7 426.6 928.6 819.3
-------------- ------------- ------------- -------------
Income before Chapter 11 expenses,
income taxes and minority interest 23.8 50.0 27.5 76.5
Chapter 11 expenses, net (6.8) (8.4) (9.5) (12.8)
Provision for income taxes (10.2) (19.1) (13.3) (29.2)
Minority interest in consolidated entities (0.3) (1.3) (0.5) (0.9)
-------------- ------------- ------------- -------------
NET INCOME $ 6.5 $ 21.2 $ 4.2 $ 33.6
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BASIC EARNINGS PER COMMON SHARE $ 0.10 $ 0.32 $ 0.06 $ 0.51
Average number of basic shares 65.6 65.4 65.6 65.4
DILUTED EARNINGS PER COMMON SHARE $ 0.10 $ 0.32 $ 0.06 $ 0.51
Average number of diluted shares 65.7 65.6 65.6 65.5
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Note: The amounts in these financial statements are unaudited and are subject to
change prior to the filing of Grace's Quarterly Report on Form 10-Q. Any changes
not deemed to be material will be reflected in the Form 10-Q. Any changes deemed
to be material will be promptly disclosed.
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W. R. GRACE & CO. AND SUBSIDIARIES
CONTINUING OPERATIONS SEGMENT BASIS THREE MONTHS ENDED SIX MONTHS ENDED
(UNAUDITED) JUNE 30, JUNE 30,
============================================= ==================================== ====================================
Amounts in millions 2003 2002 % Change 2003 2002 % Change
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
NET SALES:
DAVISON CHEMICALS
Catalyst products....................... $186.6 $175.9 6.1% $354.6 $329.0 7.8%
Silica products......................... 75.0 66.7 12.4% 146.1 127.5 14.6%
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
TOTAL DAVISON CHEMICALS 261.6 242.6 7.8% 500.7 456.5 9.7%
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
PERFORMANCE CHEMICALS
Construction chemicals.................. 114.0 106.4 7.1% 204.8 190.3 7.6%
Building materials...................... 59.6 60.0 (0.7%) 113.1 117.2 (3.5%)
Sealants & coatings..................... 68.2 62.8 8.6% 129.6 121.0 7.1%
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
TOTAL PERFORMANCE CHEMICALS 241.8 229.2 5.5% 447.5 428.5 4.4%
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
TOTAL GRACE SALES $503.4 $471.8 6.7% $948.2 $885.0 7.1%
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PRE-TAX OPERATING INCOME (a)(b):
Davison Chemicals.......................... $27.3 $38.2 (28.5%) $47.6 $63.8 (25.4%)
Performance Chemicals...................... 25.8 28.2 (8.5%) 37.9 46.8 (19.0%)
Corporate operating costs.................. (19.5) (9.8) (99.0%) (38.4) (20.2) (90.1%)
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
PRE-TAX INCOME FROM CORE OPERATIONS 33.6 56.6 (40.6%) 47.1 90.4 (47.9%)
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
PRE-TAX (LOSS) FROM NONCORE ACTIVITIES....... (7.3) (3.1) (135.5%) (14.3) (6.0) (138.3%)
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
Interest expense............................. (4.1) (5.6) 26.8% (8.3) (10.4) 20.2%
Interest income.............................. 1.3 0.8 62.5% 2.5 1.6 56.3%
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
INCOME BEFORE CHAPTER 11 EXPENSES AND
INCOME TAXES 23.5 48.7 (51.7%) 27.0 75.6 (64.3%)
Chapter 11 expenses, net..................... (6.8) (8.4) 19.0% (9.5) (12.8) 25.8%
Provision for income taxes................... (10.2) (19.1) 46.6% (13.3) (29.2) 54.5%
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
NET INCOME $6.5 $21.2 (69.3%) $4.2 $33.6 (87.5%)
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KEY FINANCIAL MEASURES:
Pre-tax income from core operations as a
percentage of sales................... 6.7% 12.0% (5.3)pts. 5.0% 10.2% (5.2)pts.
Pre-tax income from core operations before
depreciation and amortization (a)..... $58.9 $80.0 (26.4%) $97.1 $136.6 (28.9%)
As a percentage of sales.............. 11.7% 17.0% (5.3)pts. 10.2% 15.4% (5.2)pts.
============================================= =========== =========== ============ =========== =========== ============
NET SALES BY REGION:
North America ............................ $219.3 $227.9 (3.8%) $423.5 $430.5 (1.6%)
Europe.................................... 175.1 141.8 23.5% 329.9 267.1 23.5%
Asia Pacific.............................. 83.9 74.5 12.6% 145.3 134.2 8.3%
Latin America............................. 25.1 27.6 (9.1%) 49.5 53.2 (7.0%)
- --------------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
TOTAL $503.4 $471.8 6.7% $948.2 $885.0 7.1%
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Note (a): Neither pre-tax income from core operations nor pre-tax income from
core operations before depreciation and amortization purport to represent income
or cash flow as defined under generally accepted accounting principles, and
should not be considered an alternative to such measures as an indicator of the
Company's performance. These measures are provided to distinguish operating
results of Grace's current business base from results and related assets and
liabilities of past businesses, discontinued products and corporate legacies.
Note (b): Pre-tax operating income for all periods presented reflects a
reallocation of the cost of earned pension benefits of active participants from
corporate to the respective business segments.
NM - Not Meaningful
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W. R. GRACE & CO. AND SUBSIDIARIES SIX MONTHS ENDED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) JUNE 30,
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Amounts in millions 2003 2002
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OPERATING ACTIVITIES
Income before Chapter 11 expenses, income taxes and
minority interest............................................................ $ 27.5 $ 76.5
Reconciliation to net cash provided by operating activities:
Depreciation and amortization ................................................ 50.0 46.2
Interest accrued on pre-petition debt subject to compromise................... 5.8 7.4
Loss on disposal of assets.................................................... 0.9 0.4
Provision for environmental remediation....................................... 2.5 5.8
Net income from life insurance policies....................................... (4.3) (4.8)
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign currency translation:
Increase in working capital items......................................... (43.4) (35.3)
Expenditures for asbestos-related litigation ............................. (4.7) (5.6)
Proceeds from asbestos-related insurance ................................. 10.2 9.5
Expenditures for environmental remediation ............................... (5.5) (10.7)
Expenditures for postretirement benefits ................................. (5.7) (11.2)
Expenditures for retained obligations of discontinued operations.......... (1.2) (1.8)
Changes in accruals and other non-cash items.............................. 26.5 12.5
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NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE INCOME TAXES AND CHAPTER 11
EXPENSES...................................................................... 58.6 88.9
Chapter 11 reorganization expenses paid, net ...................................... (10.2) (10.3)
Income taxes paid, net of refunds.................................................. (12.4) (12.3)
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NET CASH PROVIDED BY OPERATING ACTIVITIEs .................................... 36.0 66.3
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INVESTING ACTIVITIES
Capital expenditures .............................................................. (45.1) (32.0)
Businesses acquired in purchase transactions, net of cash acquired ................ (2.2) (25.0)
Investment in life insurance policies ............................................. (9.1) (12.6)
Proceeds from life insurance policies.............................................. 5.4 9.0
Proceeds from disposals of assets ................................................. 0.8 0.7
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NET CASH USED FOR INVESTING ACTIVITIES ....................................... (50.2) (59.9)
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FINANCING ACTIVITIES
Net payments of loans secured by cash value of life insurance policies............. (1.4) (3.0)
Borrowings under credit facilities, net of repayments ............................. 4.7 (0.5)
Borrowings under debtor-in-possession facility, net of fees........................ 27.0 20.0
Repayment of borrowings under debtor-in-possession facility ....................... -- (20.0)
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ......................... 30.3 (3.5)
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Effect of currency exchange rate changes on cash and cash equivalents ............. 18.2 10.1
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INCREASE IN CASH AND CASH EQUIVALENTS ........................................ 34.3 13.0
Cash and cash equivalents, beginning of period .................................... 283.6 191.9
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Cash and cash equivalents, end of period .......................................... $ 317.9 $ 204.9
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W. R. GRACE & CO. AND SUBSIDIARIES JUNE 30, DECEMBER 31,
CONSOLIDATED BALANCE SHEET (UNAUDITED) 2003 2002
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Amounts in millions, except par value and shares
ASSETS
CURRENT ASSETS
Cash and cash equivalents ......................................................... $ 317.9 $ 283.6
Accounts and other receivables, net ............................................... 349.2 316.6
Inventories ....................................................................... 208.0 173.6
Deferred income taxes ............................................................. 25.9 28.0
Other current assets............................................................... 27.7 35.9
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TOTAL CURRENT ASSETS ......................................................... 928.7 837.7
Properties and equipment, net...................................................... 637.4 622.2
Goodwill .......................................................................... 69.4 65.2
Cash value of life insurance policies, net of policy loans......................... 91.8 82.4
Deferred income taxes ............................................................. 577.9 566.7
Asbestos-related insurance expected to be realized after one year.................. 272.4 282.6
Other assets ...................................................................... 253.1 234.9
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TOTAL ASSETS ................................................................. $ 2,830.7 $ 2,691.7
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Debt payable within one year ...................................................... $ 37.4 $ 4.3
Accounts payable .................................................................. 117.0 100.3
Income taxes payable .............................................................. 12.5 11.4
Other current liabilities ......................................................... 127.2 131.3
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TOTAL CURRENT LIABILITIES .................................................... 294.1 247.3
Deferred income taxes ............................................................. 35.9 30.5
Other liabilities ................................................................. 333.1 301.4
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TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE .................................. 663.1 579.2
LIABILITIES SUBJECT TO COMPROMISE
Pre-petition debt plus accrued interest............................................ 546.5 538.8
Accounts payable................................................................... 32.3 32.4
Income taxes payable............................................................... 234.8 227.8
Asbestos-related liability......................................................... 968.5 973.2
Other liabilities.................................................................. 554.0 562.5
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TOTAL LIABILITIES SUBJECT TO COMPROMISE....................................... 2,336.1 2,334.7
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TOTAL LIABILITIES............................................................. 2,999.2 2,913.9
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SHAREHOLDERS' EQUITY (DEFICIT)
Common stock....................................................................... 0.8 0.8
Paid-in capital ................................................................... 432.1 433.0
Accumulated deficit................................................................ (111.5) (115.7)
Treasury stock, at cost............................................................ (136.0) (137.0)
Accumulated other comprehensive loss .............................................. (353.9) (403.3)
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TOTAL SHAREHOLDERS' EQUITY (DEFICIT).......................................... (168.5) (222.2)
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) ......................... $ 2,830.7 $ 2,691.7
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