EXHIBIT 99.1
GRACE NEWS
CORPORATE COMMUNICATIONS
W. R. Grace & Co.
7500 Grace Drive
Columbia, MD 21044
CONTACT: Media Relations: Investor Relations:
Greg Euston Bridget Sarikas
(212) 468-3734 (410) 531-4194
GRACE REPORTS THIRD QUARTER FINANCIAL RESULTS
COLUMBIA, Maryland, October 23, 2003 -- W. R. Grace & Co. (NYSE: GRA) today
reported that 2003 third quarter sales totaled $521.0 million compared with
$480.0 million in the prior year quarter, an 8.5% increase. Favorable currency
translation effects from a weaker U.S. dollar accounted for about half of the
increase, with revenue from added volume in certain product lines and from
acquisitions also contributing. Grace reported a third quarter net loss of ($9.9
million), or ($0.15) per share, compared with net income of $14.0 million, or
$0.21 per share, in the third quarter of 2002. The 2003 third quarter loss
includes a $50.0 million pre-tax charge to adjust Grace's estimated liability
for claims by the EPA for recovery of environmental cleanup costs around Libby,
Montana. Pre-tax income from core operations in the third quarter of 2003 was
$50.3 million compared with $52.9 million in the third quarter of 2002. A record
quarter from Grace's Performance Chemicals segment, which delivered a 28.2%
increase in operating earnings, was offset by lower profits from the Davison
Chemicals segment and higher U.S. pension costs.
"I am pleased with our third quarter operating results, particularly from our
Performance Chemicals group," said Grace's Chairman, President and Chief
Executive Officer Paul J. Norris. "We delivered our first improved quarter this
year from our combined business segments, capitalizing on good construction
weather in the U.S. and on our productivity initiatives. I am optimistic that we
will see continued business improvement over the remainder of the year."
For the first nine months of 2003, Grace reported sales of $1,469.2 million, a
7.6% increase over 2002. Currency translation accounted for 5.0 percentage
points of the
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increase. As a result of the $50.0 million pre-tax environmental charge in the
third quarter, Grace reported a net loss for the nine months ended September 30,
2003 of ($5.7 million) or ($0.09) per share, compared with net income of $47.6
million, or $0.73 per share, for the first nine months of 2002. Pre-tax income
from core operations was $97.4 million, compared with $143.3 million for the
first nine months of 2002. Year-to-date pre-tax operating margin was 6.6%, about
four percentage points lower than last year. The decline in year-to-date
operating profit and margins was caused by higher costs for pensions, certain
raw materials, natural gas and plant maintenance, together with unfavorable
regional and product sales mix.
CORE OPERATIONS
DAVISON CHEMICALS
CATALYST AND SILICA PRODUCTS
Third quarter sales for the Davison Chemicals segment were $267.0 million, up
8.3% from the prior year quarter. Excluding the effects of favorable currency
translation, sales were up 3.6% for the quarter. Sales of catalyst products,
which include refining catalysts, polyolefin catalysts and other chemical
catalysts, were $189.6 million, up 5.9% compared with the prior year quarter,
primarily attributable to currency effects and an acquisition completed in Japan
in August 2002. Sales of silica products were $77.4 million, up 14.7% compared
with the third quarter of 2002, primarily from currency effects of the stronger
Euro, growth programs in digital printing and separations applications, and
higher sales of adsorbents and precipitated silica products.
Operating income of the Davison Chemicals segment was $32.5 million, 8.2% lower
than the 2002 third quarter; operating margin was 12.2%, lower than the prior
year quarter by 2.2 percentage points. Although strong sales in silica products
helped to increase profitability, operating income and margins in the third
quarter of 2003 continued to be negatively affected by higher manufacturing
costs, primarily from higher natural gas prices and maintenance requirements at
certain production facilities, and from a product and regional sales mix that
resulted in lower average margins.
Year-to-date sales for the Davison Chemicals segment were $767.7 million, up
9.2% from 2002 (excluding currency translation impacts, sales were up 3.1%).
Year-to-date operating income was $80.1 million, compared with $99.2 million for
the prior year, a 19.3%
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decrease. Year-to-date operating results reflect a sluggish U.S. economy, and
higher utilities, raw materials and other manufacturing costs.
PERFORMANCE CHEMICALS
CONSTRUCTION CHEMICALS, BUILDING MATERIALS, AND SEALANTS AND COATINGS
Third quarter sales for the Performance Chemicals segment were $254.0 million,
up 8.8% from the prior year quarter. Favorable currency translation accounted
for 3.8 percentage points of the increase. Volume gains were realized in all
product groups, primarily as a result of strong demand for construction products
in the U.S. Sales of specialty construction chemicals, which include concrete
admixtures, cement additives and masonry products, were $120.1 million, up 9.4%
versus the year-ago quarter (5.0% excluding currency translation impacts). Sales
were strong in all geographic regions, reflecting the success of new product
programs and sales initiatives in key economies worldwide, as well as good
construction weather in the U.S., which allowed a catch-up in project activity
delayed due to poor weather earlier in the year. Sales of specialty building
materials, which include waterproofing and fire protection products, were $65.0
million, up 7.6% compared with the third quarter of 2002 (up 5.8% excluding
currency translation impacts). This increase also reflects good construction
weather in the U.S., as catch-up activity in new construction and re-roofing
drove strong waterproofing sales. Sales of specialty sealants and coatings,
which include container sealants, coatings and polymers, were $68.9 million, up
8.8% compared with the third quarter of 2002 (up 4.2% excluding currency
translation impacts), mainly reflecting coatings growth programs in Latin
America and Asia.
Operating income for the Performance Chemicals segment was $38.6 million,
compared with $30.1 million in the prior year quarter, a 28.2% increase.
Operating margin of 15.2% was 2.3 percentage points higher than 2002 third
quarter margin, reflecting increased sales volume and the success of cost
containment programs.
Year-to-date sales of the Performance Chemicals segment were $701.5 million, up
6.0% from 2002 (excluding currency translation impacts, sales were up 2.1%).
Year-to-date operating income was $76.5 million, about even with 2002,
reflecting the strong third quarter, offsetting a weak first half due to soft
construction activity and weather-delayed projects in the U.S.
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CORPORATE COSTS
Third quarter corporate costs related to core operations were $20.8 million, an
$8.2 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, and to higher director and officer liability
insurance premiums.
CHARGE FOR ENVIRONMENTAL LAWSUIT
The third quarter includes a $50.0 million pre-tax charge to account for the
ruling against Grace by the U.S. District Court of Montana, which requires Grace
to reimburse the EPA for environmental cleanup costs related to previously
operated vermiculite mining and processing sites near Libby, Montana. The ruling
requires Grace to reimburse the U.S. government for $54.5 million of costs
expended for cleanup activities through December 2001, and for all appropriate
future costs to complete the cleanup. Grace intends to appeal the Court's
ruling.
As a result of such charges, Grace's total estimated liability for Libby-related
reimbursable costs is now $110 million. Grace's estimate of expected
reimbursable cost is based solely on public information about EPA spending
plans. However, EPA cost estimates have increased substantially over the course
of this cleanup. Consequently, Grace's estimate may change materially as more
current public information becomes available. The payment of any amounts for
this case will be subject to Grace's Chapter 11 proceedings.
CASH FLOW AND LIQUIDITY
Grace's cash flow provided by operating activities was $63.9 million for the
first nine months of 2003, compared with $141.7 million for the comparable
period of 2002. Year-to-date pre-tax income from core operations before
depreciation and amortization was $173.5 million, 19.0% lower than 2002,
reflecting the lower operating income described above. Cash used for investing
activities was $67.0 million year-to-date, primarily for capacity expansion and
capital replacements.
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At September 30, 2003, Grace had available liquidity in the form of cash ($299.9
million), net cash value of life insurance ($90.5 million) and unused credit
under its debtor-in-possession facility ($215.7 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
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 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 affect such claims
may have on Grace's recorded liabilities. Grace has filed bankruptcy court
motions objecting to certain of these claims and expects to file additional
objections in the future.
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.
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* * * * *
Grace is a leading global supplier of catalyst 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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W. R. GRACE & CO. AND SUBSIDIARIES THREE MONTHS ENDED NINE MONTHS ENDED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) SEPTEMBER 30, SEPTEMBER 30,
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Amounts in millions, except per share amounts 2003 2002 2003 2002
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Net sales $521.0 $480.0 $1,469.2 $1,365.0
Other income 3.1 9.0 11.0 19.8
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524.1 489.0 1,480.2 1,384.8
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Cost of goods sold, exclusive of depreciation and
amortization shown separately below 336.5 300.0 962.9 854.1
Selling, general and administrative expenses,
exclusive of net pension expense shown
separately below 90.0 88.6 276.4 255.7
Depreciation and amortization 26.1 24.6 76.1 70.8
Research and development expenses 11.9 13.5 40.2 39.6
Net pension expense 13.2 5.0 39.9 14.6
Interest expense and related financing costs 4.1 4.8 12.4 15.2
Provision for environmental remediation 50.0 13.4 52.5 19.2
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531.8 449.9 1,460.4 1,269.2
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Income (loss) before Chapter 11 expenses,
income taxes and minority interest (7.7) 39.1 19.8 115.6
Chapter 11 expenses, net (2.2) (8.6) (11.7) (21.4)
Provision for income taxes (0.7) (15.1) (14.0) (44.3)
Minority interest in consolidated entities 0.7 (1.4) 0.2 (2.3)
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NET (LOSS) INCOME $(9.9) $ 14.0 $ (5.7) $ 47.6
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BASIC (LOSS) EARNINGS PER COMMON SHARE $(0.15) $ 0.21 $(0.09) $ 0.73
Average number of basic shares 65.6 65.5 65.5 65.4
DILUTED (LOSS) EARNINGS PER COMMON SHARE $(0.15) $0.21 $(0.09) $ 0.73
Average number of diluted shares 65.8 65.5 65.7 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 NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30, SEPTEMBER 30,
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Amounts in millions 2003 2002 % Change 2003 2002 % Change
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NET SALES:
DAVISON CHEMICALS
Catalyst products....................... $189.6 $179.0 5.9% $544.2 $508.0 7.1%
Silica products......................... 77.4 67.5 14.7% 223.5 195.0 14.6%
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TOTAL DAVISON CHEMICALS 267.0 246.5 8.3% 767.7 703.0 9.2%
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PERFORMANCE CHEMICALS
Construction chemicals.................. 120.1 109.8 9.4% 324.9 300.1 8.3%
Building materials...................... 65.0 60.4 7.6% 178.1 177.6 0.3%
Sealants & coatings..................... 68.9 63.3 8.8% 198.5 184.3 7.7%
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TOTAL PERFORMANCE CHEMICALS 254.0 233.5 8.8% 701.5 662.0 6.0%
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TOTAL GRACE SALES $521.0 $480.0 8.5% $1,469.2 $1,365.0 7.6%
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PRE-TAX OPERATING INCOME (a)(b):
Davison Chemicals.......................... $32.5 $35.4 (8.2%) $80.1 $99.2 (19.3%)
Performance Chemicals...................... 38.6 30.1 28.2% 76.5 76.9 (0.5%)
Corporate costs............................ (20.8) (12.6) (65.1%) (59.2) (32.8) (80.5%)
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PRE-TAX INCOME FROM CORE OPERATIONS 50.3 52.9 (4.9%) 97.4 143.3 (32.0%)
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PRE-TAX (LOSS) FROM NONCORE ACTIVITIES....... (54.1) (11.3) (378.8%) (68.4) (17.3) (295.4%)
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Interest expense............................. (4.1) (4.8) 14.6% (12.4) (15.2) 18.4%
Interest income.............................. 0.9 0.9 0.0% 3.4 2.5 36.0%
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INCOME (LOSS) BEFORE CHAPTER 11 EXPENSES
AND INCOME TAXES (7.0) 37.7 NM 20.0 113.3 (82.3%)
Chapter 11 expenses, net..................... (2.2) (8.6) 74.4% (11.7) (21.4) 45.3%
Provision for income taxes................... (0.7) (15.1) 95.4% (14.0) (44.3) 68.4%
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NET (LOSS) INCOME ($9.9) $14.0 NM ($5.7) $47.6 NM
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KEY FINANCIAL MEASURES:
Pre-tax income from core operations as a
percentage of sales................... 9.7% 11.0% (1.3) pts. 6.6% 10.5% (3.9) pts.
Pre-tax income from core operations before
depreciation and amortization (a)..... $76.4 $77.5 (1.4%) $173.5 $214.1 (19.0%)
As a percentage of sales.............. 14.7% 16.1% (1.4) pts. 11.8% 15.7% (3.9) pts.
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NET SALES BY REGION:
North America ............................ $238.1 $227.0 4.9% $661.6 $657.5 0.6%
Europe.................................... 171.3 149.3 14.7% 501.2 416.4 20.4%
Asia Pacific.............................. 83.1 76.8 8.2% 228.4 211.0 8.2%
Latin America............................. 28.5 26.9 5.9% 78.0 80.1 (2.6%)
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TOTAL $521.0 $480.0 8.5% $1,469.2 $1,365.0 7.6%
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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 NINE MONTHS ENDED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) SEPTEMBER 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............................................................ $ 19.8 $115.6
Reconciliation to net cash provided by operating activities:
Depreciation and amortization ................................................ 76.1 70.8
Interest accrued on pre-petition debt subject to compromise................... 8.5 11.0
Loss on disposal of assets.................................................... 1.0 (1.9)
Provision for environmental remediation....................................... 52.5 19.2
Net income from life insurance policies....................................... (4.1) (5.3)
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign currency translation:
Increase in working capital items......................................... (55.5) (20.9)
Contributions to defined benefit pension plans............................ (32.8) --
Expenditures for asbestos-related litigation ............................. (8.1) (8.2)
Proceeds from asbestos-related insurance ................................. 11.0 10.8
Expenditures for environmental remediation ............................... (7.4) (14.0)
Expenditures for postretirement benefits ................................. (8.8) (17.7)
Expenditures for retained obligations of discontinued operations.......... (2.9) (3.7)
Changes in accruals and other non-cash items.............................. 45.4 20.0
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NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE INCOME TAXES AND CHAPTER 11
EXPENSES...................................................................... 94.7 175.7
Chapter 11 reorganization expenses paid, net ...................................... (14.4) (13.3)
Income taxes paid, net of refunds.................................................. (16.4) (20.7)
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NET CASH PROVIDED BY OPERATING ACTIVITIES .................................... 63.9 141.7
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INVESTING ACTIVITIES
Capital expenditures .............................................................. (65.7) (55.4)
Businesses acquired in purchase transactions, net of cash acquired ................ (3.6) (28.5)
Investment in life insurance policies ............................................. (11.4) (16.2)
Proceeds from life insurance policies.............................................. 10.0 13.8
Proceeds from disposals of assets ................................................. 3.7 5.5
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NET CASH USED FOR INVESTING ACTIVITIES ....................................... (67.0) (80.8)
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FINANCING ACTIVITIES
Net payments of loans secured by cash value of life insurance policies............. (2.6) (4.2)
Borrowings under credit facilities, net of repayments ............................. 6.5 (0.8)
Borrowings under debtor-in-possession facility, net of fees........................ 46.7 19.1
Repayment of borrowings under debtor-in-possession facility ....................... (50.0) (20.0)
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ......................... 0.6 (5.9)
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Effect of currency exchange rate changes on cash and cash equivalents ............. 18.8 7.1
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INCREASE IN CASH AND CASH EQUIVALENTS ........................................ 16.3 62.1
Cash and cash equivalents, beginning of period .................................... 283.6 191.9
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Cash and cash equivalents, end of period .......................................... $299.9 $254.0
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W. R. GRACE & CO. AND SUBSIDIARIES SEPTEMBER 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 ......................................................... $ 299.9 $ 283.6
Accounts and other receivables, net ............................................... 361.7 316.6
Inventories ....................................................................... 208.9 173.6
Deferred income taxes ............................................................. 40.4 28.0
Other current assets............................................................... 23.6 35.9
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TOTAL CURRENT ASSETS ......................................................... 934.5 837.7
Properties and equipment, net...................................................... 635.1 622.2
Goodwill .......................................................................... 69.6 65.2
Cash value of life insurance policies, net of policy loans......................... 90.5 82.4
Deferred income taxes ............................................................. 567.1 566.7
Asbestos-related insurance expected to be realized after one year.................. 271.6 282.6
Other assets ...................................................................... 253.3 234.9
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TOTAL ASSETS ................................................................. $2,821.7 $2,691.7
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Debt payable within one year ...................................................... $ 10.9 $ 4.3
Accounts payable .................................................................. 109.0 100.3
Income taxes payable .............................................................. 12.6 11.4
Other current liabilities ......................................................... 131.4 131.3
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TOTAL CURRENT LIABILITIES .................................................... 263.9 247.3
Deferred income taxes ............................................................. 34.4 30.5
Other liabilities ................................................................. 312.4 301.4
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TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE .................................. 610.7 579.2
LIABILITIES SUBJECT TO COMPROMISE
Pre-petition debt plus accrued interest............................................ 547.5 538.8
Accounts payable................................................................... 32.2 32.4
Income taxes payable............................................................... 238.3 227.8
Asbestos-related liability......................................................... 964.6 973.2
Other liabilities.................................................................. 602.5 562.5
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TOTAL LIABILITIES SUBJECT TO COMPROMISE....................................... 2,385.1 2,334.7
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TOTAL LIABILITIES............................................................. 2,995.8 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................................................................ (121.4) (115.7)
Treasury stock, at cost............................................................ (135.9) (137.0)
Accumulated other comprehensive loss .............................................. (349.7) (403.3)
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TOTAL SHAREHOLDERS' EQUITY (DEFICIT).......................................... (174.1) (222.2)
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) ......................... $2,821.7 $2,691.7
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