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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 1-3720
W. R. GRACE & CO.
INCORPORATED UNDER THE LAWS OF THE I.R.S. EMPLOYER IDENTIFICATION NO.
STATE OF NEW YORK 13-3461988
ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010
407/362-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1 par value ] New York Stock Exchange, Inc.
Common Stock Purchase Rights ] Chicago Stock Exchange,
Incorporated
7-3/4% Notes Due 2002 ]
(issued by W. R. Grace & Co.-Conn., ] New York Stock Exchange, Inc.
a wholly owned subsidiary) and ]
related Guarantees ]
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the Proxy Statement incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. __X__
The aggregate market value of W. R. Grace & Co. voting stock held by
nonaffiliates was approximately $4.3 billion at February 1, 1994.
At March 1, 1994, 93,856,994 shares of W. R. Grace & Co. Common Stock, $1 par
value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Proxy Statement for Annual Meeting to be
held May 10, 1994 (specified portions) Part III
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business........................................ 1
Introduction................................. 1
Strategic Restructuring...................... 1
Industry Segments............................ 3
Specialty Chemicals........................ 3
Health Care................................ 8
Other Operations............................. 11
Research Activities.......................... 11
Environmental, Health and Safety Matters..... 12
Materials and Energy......................... 13
Item 2. Properties...................................... 13
Item 3. Legal Proceedings............................... 14
Item 4. Submission of Matters to a Vote of Security
Holders...................................... 20
Executive Officers........................................ 20
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................. 21
Item 6. Selected Financial Data......................... 22
Item 7. Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations..... 22
Item 8. Financial Statements and Supplementary Data..... 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 22
PART III
Item 10. Directors and Executive Officers of the
Registrant................................... 22
Item 11. Executive Compensation.......................... 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................... 23
Item 13. Certain Relationships and Related Transactions.. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................... 23
Signatures................................................ 27
Financial Supplement...................................... F-1
PART I
Item 1. Business.
INTRODUCTION
W. R. Grace & Co., through its subsidiaries, is primarily engaged in the
specialty chemical business on a worldwide basis and in specialized health care
activities. In its chemical operations, Grace develops, manufactures and
markets specialty chemicals and materials and related systems. In health care,
Grace is primarily engaged in supplying kidney dialysis and home infusion and
respiratory therapy services and products.
As used in this Report, the term "Company" refers to W. R. Grace & Co., a
New York corporation, and the term "Grace" refers to the Company and/or one or
more of its subsidiaries. Grace's principal executive offices are located at
One Town Center Road, Boca Raton, Florida 33486-1010, and its telephone number
is 407/362-2000. At year-end 1993, Grace had approximately 34,000 full-time
employees worldwide in its continuing operations (approximately 7,000 in
discontinued operations).
Grace's Consolidated Financial Statements for the three years in the period
ended December 31, 1993 ("Consolidated Financial Statements") and certain other
financial information included in the Company's 1993 Annual Report to
Shareholders are set forth in the Financial Supplement to this Report and
incorporated by reference herein.
STRATEGIC RESTRUCTURING
In 1991, Grace announced a new corporate strategy with the principal
objective of enhancing shareholder value. The major components of the strategy
are (a) focusing on core businesses to accelerate growth; (b) upgrading
financial performance, principally by selling or monetizing non-core businesses,
lowering the ratio of debt to total capital and reducing overhead; and (c)
integrating corporate and operating unit functions through global product line
management.
The core businesses referred to above are packaging, health care, catalysts
and other silica-based products, construction products, water treatment and
process chemicals, and container products. As part of its new corporate
strategy, Grace has reorganized the management of these core businesses on the
basis of global product lines. Grace has also organized task forces that are
developing and implementing "best practices" relating to financial planning,
information systems, human resources, logistics and other management functions;
has implemented a process to better
allocate capital among its businesses; and has retired or refinanced most of its
higher-cost debt.
DIVESTMENTS AND OTHER DISPOSITIONS. Pursuant to its new strategy, Grace
has divested or monetized a number of non-core businesses and has announced
plans to divest others. In 1991, Grace sold its specialty textiles business;
its automotive chemicals and sound deadening components businesses; investments
in two pharmaceutical businesses; its Trinidadian fertilizer operations; its
animal feed businesses; its polyurethane foam sealant manufacturing business;
and its Japanese microwave products business. In 1992, Grace sold its book,
video and software distribution businesses and its organic chemicals business
and related assets. In December 1992, Grace also completed a transaction to
monetize a portion of its cocoa and chocolate business by selling a 21% limited
partnership interest in Grace Cocoa Associates, L.P. ("Grace Cocoa"), which owns
this business and other assets, resulting in Grace's receipt of approximately
$300 million in cash.
During the first half of 1993, Grace sold substantially all of its oil and
gas and energy services businesses for net cash proceeds of $386 million, and it
is in the process of liquidating the remaining miscellaneous assets and
liabilities of those businesses. Grace also sold a number of other non-core
businesses and corporate investments in 1993, including a 50% interest in a
Japanese chemical business (for approximately $31.4 million), a food hygiene
services business (for approximately $11.2 million) and minority investments in
Grace-Sierra Horticultural Products Company and Canonie Environmental Services
Corp. (for proceeds totaling $41.3 million). In January 1994, Grace received
$42.8 million in exchange for the securities of The Restaurant Enterprises
Group, Inc. held by Grace.
In the fourth quarter of 1992, Grace classified Colowyo Coal Company, a
coal mining subsidiary, as a discontinued operation. In the second quarter of
1993, after evaluating the expected contribution of its remaining non-core
businesses to its future performance and growth, Grace reclassified as
discontinued operations its cocoa and battery separators businesses; certain
engineered materials businesses (principally printing products, electromagnetic
radiation control and material technology businesses); and substantially all of
its other non-core businesses. Grace is actively pursuing the sale of these
businesses.
STRATEGIC ACQUISITIONS. As part of its strategy to focus on core business
growth, Grace has made, and expects to continue to make, strategic acquisitions
directly related to its core businesses. In 1992, Grace acquired the North
American food service packaging business of Du Pont Canada for approximately $20
million. In 1993, Grace acquired (a) the water treatment and related operations
of Aquatec Quimica S.A. of Brazil, which has significant operations throughout
South America, as well as operations in Portugal and the
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United States; and (b) the Katalistics fluid cracking catalyst additive business
previously owned by a joint venture between Union Carbide Corporation and
Allied-Signal Inc.
In the 1991-92 period, Grace acquired the Renacare unit of Lloyds Chemists
plc, the leading United Kingdom producer of dialysis concentrate and a
distributor of associated products, as well as additional dialysis centers
located primarily in the United States, for approximately $54 million in the
aggregate. In 1993, Grace acquired Home Intensive Care, Inc., a national
provider of alternate site infusion therapy and dialysis health care services,
for approximately $129 million in cash (inclusive of expenses); Virginia-based
American Homecare Equipment, Inc., a provider of home infusion and respiratory
therapy services, for approximately 116,000 shares of the Company's common stock
and other consideration; and Riggers Medizintechnik GmbH, a German manufacturer
and distributor of dialysis products. Additionally, during 1993, Grace acquired
regional providers of home infusion therapy services and home support nursing
services, as well as 26 additional dialysis centers located primarily in the
United States, for a total of approximately $92 million. In March 1994, Grace
announced that it had agreed to acquire Home Nutritional Services, Inc., a
national provider of home infusion therapy services, for approximately $120
million in cash (inclusive of expenses and debt to be assumed); completion of
the transaction is anticipated during the second quarter of 1994. Grace is
considering additional acquisitions in the health care industry, with a view to
continued development of its international health care business.
See Notes 3, 6, 9 and 11 to the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Financial Supplement for additional information.
INDUSTRY SEGMENTS
Information concerning the sales and revenues, pretax operating profit and
identifiable assets of Grace's continuing operations by industry segment and
geographic area for 1993, 1992 and 1991 is contained in Note 17 to Grace's
Consolidated Financial Statements in the Financial Supplement.
SPECIALTY CHEMICALS
Grace's specialty chemical operations consist of the development,
manufacture and sale of products and systems in five core market groups (see
"Strategic Restructuring" above). These products and systems typically serve
highly specialized markets and represent an important component (but a
relatively small portion of the cost) of the end products in which they are
used. Accordingly, competition is generally based primarily on technological
capability, customer service and product quality. Grace's specialty
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chemical products and systems are marketed primarily through direct sales
organizations.
The following is a description of the products and services provided by
each of Grace's core specialty chemical businesses.
PACKAGING. Grace's packaging business ("Grace Packaging") provides
high-performance total packaging systems on a worldwide basis, competing
principally by providing superior quality products and services for specialized
customer needs. The principal products and services provided by Grace Packaging
are (a) flexible packaging systems (including material, equipment and services)
for a broad range of perishable foods such as fresh meat, prepared foods, baked
goods, poultry, produce, cheese, and smoked and processed meat products; (b)
shrink films for packaging a variety of consumer and industrial products; (c)
foam trays for supermarkets and poultry and other food processors; and (d) rigid
plastic containers for dairy and other food and non-food products.
Grace Packaging competes through three product groups: flexible packaging
(marketed extensively under the Cryovac-R- registered trademark), foam trays,
and rigid plastic containers.
Cryovac-R- flexible packaging products include shrink bags, shrink films,
laminated films, medical films, and equipment. The Cryovac packaging products
group developed and introduced flexible plastic vacuum shrink packaging in the
late 1940s, contributing to expanded food distribution and marketing by
providing better protection against decay-inducing bacteria and moisture loss.
The market for Cryovac products has subsequently shifted from industrial food
applications toward the retail food market, and Cryovac packaging technology has
also been introduced in non-food applications such as flexible packaging for
display items and electronic and medical products.
The flexible packaging products group emphasizes five core competencies to
differentiate itself from competitors: (1) proprietary film processing
technology; (2) resin technology, permitting the production of materials suited
to specific customer needs; (3) packaging and food science expertise, providing
better understanding of the interaction between packaging materials and packaged
products; (4) complete systems support capability, to provide a single source of
supply for customer needs; and (5) strategically located production, warehousing
and distribution networks.
Foam trays are produced by the Formpac business group of Grace Packaging,
primarily for sale to supermarkets and poultry and other food processors in the
eastern United States. Formpac's proprietary technology has also been
successfully utilized in certain packaging applications outside the United
States, and Formpac is exploring opportunities to expand its business outside
North America.
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Grace Packaging's Omicron business group produces rigid plastic packaging
applications, primarily for dairy products in Australia. These products
utilize proprietary thermoforming technology, involving the controlled thinning
and shaping of hot plastic sheets to increase strength and rigidity while
minimizing weight.
Grace Packaging's sales and revenues were $1.3 billion in 1993 and $1.2
billion in each of 1991 and 1992. Approximately 50% of Grace Packaging's 1993
sales and revenues were generated in North America, 30% in Europe, 10% in Asia
Pacific, and the remainder in Latin America. At year-end 1993, Grace Packaging
employed approximately 9,000 people in 23 production facilities (9 in North
America, 6 in Europe, 5 in Latin America and 3 in Asia Pacific) and 77 sales
offices, serving more than 18,000 customers.
A majority of the raw materials used by Grace Packaging are resins that are
generally available at stable prices. In most cases, multiple sources of raw
materials exist, with at least one source being located in each regional market.
The primary external influence affecting the packaging business is the general
economy; seasonality is not significant to Grace Packaging's business.
CATALYST AND OTHER SILICA-BASED PRODUCTS. This core business ("Grace
Davison") is composed of three principal product groups: fluid cracking
catalysts, polyolefin catalysts, and silica and zeolite adsorbents. These
products involve silica, alumina and zeolite technology and the design and
manufacture of products to meet customer specifications; they are sold to major
oil refiners, plastics and chemical manufacturers, and consumer products
companies.
Fluid cracking catalysts are used by refiners to upgrade oil to more
valuable transportation fuels such as gasoline and jet and diesel fuel. Oil
refining is a highly specialized discipline, demanding that products be tailored
to meet local variations in raw materials and operational needs. Competition is
based on technology, product performance, customer service and price.
Polyolefin catalysts and catalyst supports are essential components used in
manufacturing nearly half of all high density and linear low density produced
polyethylene resins, which are used in products such as packaging film and
plastic pipe. The catalyst business is technology-intensive and focused on
providing products specifically formulated to meet end-user applications.
Manufacturers generally compete on a worldwide basis, and competition has
intensified recently due to excess capacity in the catalyst industry, with
resultant price sensitivity.
Silica and zeolite adsorbents are used in plastics, dentifrices, paints,
insulated glass and other products, and in the refining of edible oils. Silicas
are used in coatings as flatting agents, in plastics to improve handling, in
toothpastes as thickeners and
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cleaners, in food to carry flavors and prevent caking, and in the purification
of edible oils.
Grace Davison's sales and revenues were $572 million in 1993, $519 million
in 1992, and $470 million in 1991; approximately 59% of Grace Davison's 1993
sales and revenues were generated in North America, 34% in Europe, 6% in Asia
Pacific and 1% in Latin America. At year-end 1993, Grace Davison employed
approximately 2,600 persons worldwide in nine facilities (six in the United
States and one each in Canada, Germany and Brazil).
Most raw materials used in the manufacture of Grace Davison products are
available from multiple sources and, in some instances, are produced or supplied
by Grace. Because of the diverse applications of products utilizing Grace
Davison technology and the geographic areas in which such products are used,
seasonality does not have a significant effect on Grace Davison's businesses.
CONSTRUCTION PRODUCTS. Grace Construction Products ("GCP") is a leading
supplier of specialty materials and systems to the world-wide construction
industry. GCP products and systems strengthen concrete, control corrosion,
prevent water damage and protect structural steel against collapse due to fire.
These products include concrete admixtures, cement processing additives, and
fireproofing and waterproofing materials. In North America, GCP also
manufactures and distributes reinforced fiberglass building components, masonry
block additives and products, and vermiculite products used in construction and
other industrial applications. GCP's products are sold to a broad customer base,
including cement manufacturers, ready mixed and precast concrete producers,
specialty subcontractors and applicators, masonry block manufacturers, building
materials distributors and other industrial manufacturers.
GCP is a principal supplier of the products it manufactures, competing
with several large global suppliers and smaller regional competitors.
Competition is based largely on pricing, product performance, proprietary
technology and technical support and service.
GCP's 1993 sales and revenues totaled $333 million (70% in North America,
17% in Europe, 13% in Asia Pacific and less than 1% in Latin America). Sales
and revenues for 1992 and 1991 were $333 million and $345 million, respectively.
At year-end 1993, GCP employed approximately 2,000 persons at approximately 59
production facilities (33 in North America, 9 in Southeast Asia, 7 in Australia,
5 in Europe, 4 in Latin America and 1 in Japan) and 73 sales offices worldwide.
Supplies and raw materials used for manufacturing GCP products are
primarily commodities obtained from multiple sources, including commodity
chemical producers, petroleum companies, other construction industry suppliers
and paper manufacturers. In most instanc-
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ES, there are at least two alternative suppliers for the raw materials utilized
by GCP. The construction business is seasonal, based on weather conditions,
and cyclical, in response to economic conditions and construction demand. To
increase profitability and minimize the impact of cyclical downturns in regional
economies, GCP strives to introduce new and improved products, has implemented a
lower cost structure in North America and Europe and is emphasizing expansion in
European and Southeast Asian markets.
WATER TREATMENT. Grace's water treatment and process chemicals business
("Grace Dearborn") consists of the water treatment and paper industry services
business lines, which market the following products and services: (a) chemical
treatments and systems to prevent corrosion, scale and microbiological growth in
industrial process waters, heating and cooling applications, and industrial
wastewater applications for clarification, sludge de-watering, odor control and
water recycling; (b) paper industry process chemicals, support equipment and
related specialist and consulting services; (c) hydrocarbon processing
chemicals, related support equipment and services to protect and optimize
processing system performance; (d) chemical treatments, support equipment and
services for sugar processing, including processing sugar into alcohol as a
gasoline substitute; (e) chemical treatments to protect industrial canned food
cooking and sterilizing equipment; and (f) paint detackification products and
services to remove paint sludge from water wash paint spray systems.
Grace Dearborn sales and revenues for 1993 totaled $330 million (42% in
North America, 40% in Europe, 16% in Latin America and 2% in Asia Pacific).
Sales and revenues for 1992 and 1991 were $302 million and $292 million,
respectively. At year-end 1993, Grace Dearborn employed approximately 2,800
persons at 21 plants (7 in Latin America, 6 in North America and 4 in each of
Europe and Asia Pacific) and 107 sales offices.
Raw materials used in the Grace Dearborn business lines are readily
available from multiple sources, generally at stable prices. The paper industry
services business is affected by the cyclicality of the global paper market.
The water treatment services business responds to (but is not adversely affected
by) seasonal fluctuations, concentrating on boiler treatment in winter and
cooling system treatment in summer. The effects of seasonality are further
diminished by the geographic diversity of the markets in which Grace Dearborn
competes.
CONTAINER PRODUCTS. Grace's container business ("Grace Container")
consists of three product lines: container sealants, closures and coatings.
The principal products marketed by these product lines include sealing compounds
and related application equipment for food and beverage cans and other rigid
containers; gasketing materials to the metal crown, aluminum roll-on and plastic
closure segments of the glass/closure packaging markets; adhe-
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sive lacquers and associated protective and decorative coatings for plastic and
metal closures; protective and decorative coatings and lacquers for rigid food
and beverage containers; and lubricants used primarily in two-piece can
manufacturing.
Grace Container sales and revenues (excluding those of Grace Specialty
Polymers, discussed below) were $238 million, $253 million and $248 million in
1993, 1992 and 1991, respectively. Its products are marketed internationally,
with 37% of sales and revenues in Europe, 27% in North America, 25% in Asia
Pacific and 11% in Latin America. At year-end 1993, Grace Container employed
approximately 1,830 persons at 25 plants and 39 sales offices worldwide.
Competition is based on providing high-quality customer service, as well as on
price and product quality and reliability. Raw materials are generally
available from multiple sources at stable prices. Although demand for container
packaging and sealant products tends to increase during the warmest months of
the year, the impact of such seasonality on Grace Container is offset almost
entirely by the geographic diversity of the markets in which it competes.
Recently integrated with Grace Container is Grace Specialty Polymers, which
develops formulated engineered polymers for printed circuit board and component
assembly in the electronics, electrical, automotive and defense industries.
These include surface mount and conductive adhesives, capacitor coatings, light
emitting diode encapsulants and conformal coatings. The integration of these
product lines reflects the reliance of both businesses on polymer technology as
an integral feature of the products they manufacture.
HEALTH CARE
Grace's health care business ("Grace Health Care") is primarily engaged in
supplying kidney dialysis and home infusion and respiratory therapy services,
and in the manufacture and sale of products used to provide dialysis and other
medical services.
Grace Health Care provides kidney dialysis and related services for
outpatients with chronic renal failure. At December 31, 1993, Grace Health Care
operated 501 centers providing dialysis and related services (471 in the United
States and Puerto Rico, 23 in Portugal, 4 in Spain, 2 in the Czech Republic and
1 in Argentina); these centers, substantially all of which are leased, average
ap- proximately 5,600 square feet in size. Grace Health Care also provides
inpatient acute dialysis services under contracts with hospitals in the United
States (385 at December 31, 1993) and furnishes dialysis equipment and supplies
to patients who elect home treatment. At December 31, 1993, Grace Health Care
was treating approximately 37,000 patients in the U.S. and 3,000 patients in
other
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countries. Revenues from kidney dialysis services were $1,012 million in 1993,
$860 million in 1992 and $720 million in 1991.
Additionally, Grace Health Care manufactures disposable bloodlines,
dialysis solutions and artificial kidneys (dialyzers), for use in its dialysis
centers and for sale to unaffiliated dialysis facilities and home patients;
distributes dialysis supplies and equipment and other medical products and
supplies manufactured by others; and provides laboratory services (including
hepatitis testing) to dialysis patients. More than two-thirds of the sales of
dialysis and other medical products supplies and equipment reflect sales to
patients not directly treated, or facilities not operated, by Grace Health Care.
Grace Health Care also provides infusion and respiratory therapy services
and other medical equipment and supplies to patients for home use through a
network of 97 locations (96 leased and 1 owned). Infusion therapy includes
intravenous delivery of an expanding range of medications and nutritional
preparations, such as chemotherapy, total parenteral nutrition, antibiotic
therapy and drugs for pain management. Respiratory therapy includes delivery of
oxygen and aerosolized drugs and the use of ventilators. In addition, Grace
Health Care provides home nursing support services through nine branch
locations.
Grace Health Care's business is dependent on the continuation of Medicare
and other third-party insurance coverage for dialysis and home care services and
products. At such time as Medicare becomes a patient's primary payor for
dialysis (generally, 3 months following commencement of treatment or, in the
case of patients covered by employer-sponsored health insurance, 21 months after
commencement of treatment) and/or homecare products and services, Medicare
currently reimburses suppliers of such services and products for approximately
80% of established fees or reasonable charges; the remaining 20% is paid by the
patient and/or his non-Medicare insurance carrier.
Because in most cases the prices of dialysis services and products in the
U.S. are directly or indirectly regulated by Medicare, competition in the
industry is based primarily on quality and accessibility of service. In
addition, some states limit competition under laws that restrict the number of
dialysis facilities within a geographic area based on need, as determined by
state agencies. Competition in the home care business is also based on quality
of service as well as price, and, where state laws do not impose limits on
competition, there are no significant barriers to entering this business. Cost
efficiency, therefore, is also a key element of competition in this market.
Based upon Grace's knowledge and understanding of the health care industry in
general and of other providers of kidney dialysis and infusion therapy, as well
as information obtained from publicly available sources, Grace Health Care
believes that it is among the most cost-efficient of
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the companies in its field and that it is the leading United States supplier of
dialysis services and products and a leading United States provider of infusion
therapy.
Except as noted in the following paragraph, Grace Health Care believes
there are adequate sources of supply for the raw materials and products utilized
in its health care services and medical products businesses. At year-end 1993,
Grace Health Care employed a total of approximately 13,600 persons full-time at
its facilities worldwide. Grace Health Care's businesses generally are not
seasonal or cyclical in nature. It is unclear at this time whether and to what
extent any of the currently proposed reforms in U.S. health care law will affect
Grace Health Care's operations.
National Medical Care, Inc. ("NMC") is Grace's principal health care
subsidiary. In 1993, the United States Food and Drug Administration ("FDA")
issued import alerts with respect to (a) hemodialysis bloodlines manufactured at
NMC's plant located in Reynosa, Mexico and (b) hemodialyzers manufactured in
NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not
enter the United States until the FDA approves the quality assurance systems of
the facility at which such products are manufactured. In January 1994, NMC
entered into a consent decree providing for the resumption of importation of
bloodlines and hemodialyzers following certification by NMC that the relevant
facility complies with FDA regulations and successful completion of an FDA
inspection to verify such compliance. In accordance with the consent decree,
NMC certified compliance to the FDA with respect to the Reynosa, Mexico facility
in January 1994 and the FDA lifted the bloodline import alert in March 1994,
following a thorough reinspection by the FDA and a commitment by NMC to finish
certain studies by May 1994 and, in the interim, to perform additional product
testing. Certification of compliance at the Dublin, Ireland facility is
anticipated in the second quarter of 1994. The consent decree also requires NMC
to certify and maintain compliance with applicable FDA device manufacturing laws
and regulations at all of its United States manufacturing facilities. NMC has
conducted a full review of such facilities and upgraded its quality assurance
systems as necessary, and all certifications required with respect to such
facilities have been filed. No fines or penalties were imposed on NMC as a
result of any of the FDA's actions relating to the import alerts or in
connection with the consent decree. Neither the import alerts nor previously
reported recalls of certain NMC products have had, nor are they expected to
have, a material effect on Grace's results of operations or financial position.
HEALTH CARE INVESTMENT. Grace has a 47% common equity interest in a
company that serves hospitals and other health care institutions by recruiting
nurses and other trained health care personnel and placing them on temporary
assignments throughout the United States. Grace also owns preferred stock of
the company and op-
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tions, exercisable commencing in 1994, to acquire the balance of such
company's common equity.
See "Strategic Restructuring" above for information concerning 1993 and
early 1994 transactions involving Grace's health care business.
OTHER OPERATIONS
THERMAL AND EMISSION CONTROL SYSTEMS. In 1993, Grace combined its web
processing equipment business and its air emission control catalysts and systems
business to form a new product line in thermal and emission control systems,
named "Grace TEC Systems". The principal products currently marketed by this
product line are (a) air flotation dryers and auxiliary web processing equipment
for the printing, coating and converting industries, and (b) air emission
control catalysts and systems to control volatile organic compounds, carbon
monoxide and nitrogen oxides emissions from power generation, industrial and
automotive sources.
DISCONTINUED OPERATIONS. In the fourth quarter of 1992, Grace classified
Colowyo Coal Company ("Colowyo") as a discontinued operation. Colowyo, a
partnership wholly owned by Grace, operates the largest surface coal mine in
Colorado under federal and state leases covering proven and/or probable surface
reserves of approximately 195 million tons of low-sulfur coal.
In the second quarter of 1993, Grace classified as discontinued operations
its remaining non-core businesses, including Grace Cocoa, an international
producer and supplier of high-quality intermediate cocoa and chocolate products
to the bakery, confectionery, dairy and beverage industries; Grace's battery
separators business; and certain engineered materials businesses, principally
printing products, electromagnetic radiation control and material technology
businesses.
Grace is actively pursuing the divestment of these discontinued operations
and those referred to under "Strategic Restructuring" above. See Notes 3 and 6
to Grace's Consolidated Financial Statements in the Financial Supplement and
"Strategic Restructuring" for additional information.
RESEARCH ACTIVITIES
Grace engages in active research and development programs directed toward
the development of new products and processes and the improvement of, and
development of new uses for, existing products and processes. Research is
carried out by divisional laboratories in the United States, Europe and Japan
and by the Corporate Research Division, which has facilities in Columbia,
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Maryland; Lexington, Massachusetts and Atsugi, Japan. The Research Division's
activities focus on Grace's core product lines and include specialty polymers;
biomedical devices; catalysis; construction materials; photopolymers; specialty
packaging; and process engineering, principally involving the development of
technologies to manufacture chemical specialties and biomedical products. As
part of Grace's commitment to focus resources on core businesses, corporate
research programs for the core product lines are being increased, while funding
in support of non-core businesses and discontinued operations is being
eliminated. In addition, product line and corporate research programs are being
integrated and concentrated on key projects.
Research and development expenses relating to continuing operations
amounted to $135 million in 1993, $130 million in 1992 and $128.1 million in
1991 (including expenses incurred in funding external research projects). The
amount of research and development expenses relating to government- and
customer-sponsored projects (as opposed to projects sponsored by Grace) is not
material.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
In constructing and operating its facilities, Grace incurs capital and
operating expenditures relating to the protection of the environment, as well as
costs to remediate previously contaminated properties. Costs incurred to
operate and maintain environmental facilities and dispose of hazardous and
non-hazardous wastes with respect to continuing operations were $45 million in
1993, $56 million in 1992 and $38 million in 1991, and are estimated to be $50
million and $54 million in 1994 and 1995, respectively. Grace's capital
expenditures for environmental control facilities relating to continuing
operations were approximately $20 million, $18 million and $17 million in 1993,
1992 and 1991, respectively, and are estimated to be $19 million and $23 million
during 1994 and 1995, respectively. Costs incurred to remediate previously
contaminated sites were $44 million, $35 million and $18 million in 1993, 1992
and 1991, respectively, and are estimated to be $44 million and $35 million in
1994 and 1995, respectively. Such expenditures have not had, and are not
expected to have, a material effect on Grace's other capital expenditures or on
its earnings or competitive position. See Note 11 to Grace's Consolidated
Financial Statements and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" in the Financial Supplement.
Grace has established an Environmental, Health and Safety ("EHS") policy
and related programs that include specialized safety training for employees,
monitoring of the workplace environment, and training and guidance for employees
with respect to EHS regulatory compliance. These programs are supported by a
central EHS department organized in 1993. This department also audits oper-
- 12 -
ating facilities and manages Grace's environmental remediation activities.
The Responsible Care program of the Chemical Manufacturers Association, in
which Grace's United States chemical operations have participated, has been
extended to Grace operations worldwide under the name "Commitment to Care". The
goal of this program is to promote best management practices in the areas of
product stewardship, employee health and safety, community awareness and
emergency response, process safety, distribution practices and pollution
prevention. Grace's EHS auditing program has also been expanded to include all
facilities worldwide; this program involves the onsite inspection of facilities
for compliance with applicable laws, as well as Grace's policies, standards and
guidelines.
See Item 3, "Legal Proceedings", in this Report, and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Financial Supplement, for information concerning environmental proceedings to
which Grace is a party.
MATERIALS AND ENERGY
The availability and prices of the raw materials and fuels used by Grace
are subject to worldwide market conditions and governmental policies. On the
basis of existing arrangements, Grace does not anticipate any major disruptions
of its business in 1994 as a result of shortages of raw materials or energy.
Should shortages occur, their effect on Grace's operations would depend upon
their nature, duration and severity and consequently cannot be determined at
this time. However, arrangements have been made, and will continue to be made,
for long-term commitments for many of Grace's raw materials and fuel
requirements from primary sources of supply.
ITEM 2. PROPERTIES.
Grace operates chemical, manufacturing and other types of plants and
facilities (including office and other service facilities) throughout the world.
Grace considers its major operating properties to be in good operating condition
and suitable for their current use. Although Grace believes that the productive
capacity of most of its plants and other facilities is adequate for current
operations and foreseeable growth, it conducts ongoing, long-range forecasting
of its capital requirements to assure that additional capacity will be available
when and as needed (see information regarding Grace's capital expenditures on
page F-28 of the Financial Supplement). Accordingly, Grace does not anticipate
that its operations or income will be materially affected by the absence of
available capacity.
- 13 -
Additional information regarding Grace's properties is set forth in Item 1
above, in Schedules V and VI on pages F-35 and F-36 of the Financial Supplement
and in Notes 1, 8 and 11 to Grace's Consolidated Financial Statements in the
Financial Supplement.
ITEM 3. LEGAL PROCEEDINGS.
ASBESTOS LITIGATION. Grace is a defendant in lawsuits relating to
previously sold asbestos-containing products and anticipates that it will be
named as a defendant in additional asbestos-related lawsuits in the future. At
year-end 1993, Grace was a defendant in approximately 38,100 asbestos-related
lawsuits representing approximately 56,700 claims (as compared to approximately
30,900 lawsuits and 53,000 claims at year-end 1992). 92 of the lawsuits pending
at year-end 1993 involved claims for property damage allegedly caused by the use
of asbestos-containing materials in the construction of buildings. The
plaintiffs in these lawsuits generally seek, among other things, to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. The remaining
asbestos-related lawsuits involve claims for personal injury. In most of
Grace's asbestos-related lawsuits, it is one of many defendants.
Through year-end 1993, 120 asbestos property damage cases had been
dismissed with respect to Grace without payment of any damages or settlement
amounts; judgments were entered in favor of Grace in twelve cases; in six cases
(four of which are on appeal), Grace was held liable for a total of $68.3
million; and 131 property damage suits and claims had been settled by Grace for
a total of $300.0 million. Grace has recorded a receivable for the insurance
pro- ceeds it expects to receive in connection with these adverse verdicts and
settlements, as well as defense costs initially paid by Grace (see "Insurance
Litigation" below and Note 2 to Grace's Consolidated Financial Statements in the
Financial Supplement).
Included in the asbestos property damage lawsuits pending against Grace and
others at year-end 1993 are the following class actions: (1) a Pennsylvania
state court action (PRINCE GEORGE CENTER, INC. V. U.S. GYPSUM COMPANY, ET AL.,
Court of Common Pleas of Philadelphia County) covering all commercial buildings
in the United States leased in whole or in part to the United States government
on or after May 30, 1986; (2) an action, conditionally certified by the United
States Court of Appeals for the Fourth Circuit in September 1993 and pending in
the United States District Court for the District of South Carolina, covering
all public and private colleges and universities in the United States whose
buildings contain asbestos materials (CENTRAL WESLEYAN COLLEGE, ET AL. V. W. R.
GRACE, ET AL.); (3) an action (IN RE: ASBESTOS SCHOOL LITIGATION), brought in
1983 in the United States District Court for the Eastern District of
Pennsylvania, on behalf of all public and private elementary and secondary
schools in the United States
- 14 -
that contain asbestos materials, which action has been scheduled for trial in
late 1994 on a limited number of issues; and (4) a purported class action
(ANDERSON MEMORIAL HOSPITAL, ET AL. V. W. R. GRACE & CO., ET AL.), filed in 1992
in the Court of Common Pleas for Hampton County, South Carolina, on behalf of
all entities that own, in whole or in part, any building containing asbestos
materials manufactured by Grace or one of the other named defendants, other than
buildings subject to the class action lawsuits described above and any building
owned by the federal or any state government.
The remaining asbestos lawsuits pending at year-end 1993 involved claims
for personal injury. Through year-end 1993, approximately 7,000 personal injury
lawsuits involving 17,900 claims had been dismissed with respect to Grace
without payment of any damages or settlement amounts (primarily on the basis
that Grace products were not involved), and approximately 11,300 such suits
involving 13,400 claims had been settled for a total of $52.2 million (see
"Insurance Litigation" below). In January 1993, in EDWARD M. CARLOUGH, ET AL.
V. AMCHEM PRODUCTS, INC., ET AL., the United States District Court for the
Eastern District of Pennsylvania conditionally certified a class of all future
asbestos personal injury claimants, including individuals who have been
occupationally exposed to asbestos-containing materials but who do not presently
allege asbestos-related injury. Although Grace is not among the defendants
named in the class action complaint, dissemination of the required class notice
may generate additional litigation against Grace.
In 1991, the Judicial Panel on Multi-District Litigation consolidated in
the United States District Court for the Eastern District of Pennsylvania, for
pre-trial purposes, all asbestos personal injury cases pending in the federal
courts (including approximately 7,000 cases against Grace). To date, no action
has been taken by the court handling the consolidated cases that would indicate
whether the consolidation will affect Grace's cost of disposing of these cases
or its defense costs.
Grace's ultimate exposure in respect of its asbestos-related lawsuits and
claims will depend on the extent to which its insurance will cover damages for
which it may be held liable, amounts paid in settlement and litigation costs.
While (a) Grace's insurance carriers have not acknowledged or have denied the
applicability of their insurance coverage to Grace's asbestos property damage
lawsuits and claims (except as discussed below under "Insurance Litigation"),
(b) Grace is currently in litigation with certain carriers concerning the
applicability and extent of its insurance coverage and (c) the resolution of
certain issues, primarily relating to the availability of coverage for specific
years, will require further judicial proceedings, Grace believes that its
insurance will cover a substantial portion of any damages, settlement amounts
and litigation costs related to its asbestos litigation and
- 15 -
claims. Consequently, Grace believes that the resolution of its asbestos
litigation will not have a material adverse effect on its consolidated financial
position or results of operations. See "Insurance Litigation" below and Note 2
to Grace's Consolidated Financial Statements in the Financial Supplement for
additional information.
ENVIRONMENTAL AND OTHER PROCEEDINGS. Grace (together with other companies)
has been designated a "potentially responsible party" ("PRP") by the United
States Environmental Protection Agency ("EPA") with respect to absorbing the
costs of investigating and remediating pollution at various sites. Grace has
not incurred any material liability with respect to sites as to which such
proceedings have been concluded by agreement with the EPA.
At year-end 1993, proceedings were pending with respect to approximately 35
sites as to which Grace has been designated a PRP. Although federal law
provides that all PRPs may be held jointly and severally liable for the costs of
investigation and remediation of a site, after consideration of the liabilities
of other PRPs with respect to these sites and their respective levels of
financial responsibility, Grace believes that the amount recorded in its
Consolidated Financial Statements for environmental remediation is adequate to
cover its exposure with respect to these sites (see Note 11 to the Consolidated
Financial Statements in the Financial Supplement for further information). In
addition, Grace is presently involved in litigation with its insurance carriers
seeking to hold them responsible for certain amounts for which Grace may be held
liable with respect to these sites. The outcome of such litigation, as well as
the amount of any recovery that Grace may receive in connection therewith, is
presently uncertain.
Grace is also involved in other litigation, including certain environmental
proceedings brought by federal, state and/or local government agencies and
private parties. No such litigation is expected to result in significant
monetary or other sanctions or in other material liabilities. However, as a
voluntary participant in the EPA Toxic Substances Control Act Compliance Audit
Program, Grace agreed to undertake a corporate-wide audit of compliance with
Section 8 of such Act and to pay a stipulated civil penalty for each study or
report that should have been, but was not, submitted to the EPA as required
under such Section. Although final review of the audit is not complete, Grace
believes it will be required to pay the EPA penalties aggregating from $250,000
to $400,000 for information discovered in the course of the audit. In addition,
Grace has voluntarily reported to the EPA violations of certain notification and
related requirements under such Act, and it is anticipated that penalties will
be assessed against Grace in connection therewith; the amount of such penalties
cannot be determined at this time. For additional information, see Note 2 to
Grace's Consolidated Financial Statements in the Financial Supplement.
- 16 -
In addition, in April 1993, the United States Department of Justice filed
suit against Grace in the United States District Court for the District of
Montana, Great Falls Division, alleging certain violations of the Clean Air Act
in connection with the demolition of a mill in Libby, Montana during late 1991
and early 1992. The complaint seeks damages of up to $25,000 per day for each
of seven alleged violations and injunctive relief against future violations, and
the Department of Justice previously informed Grace that it might seek penalties
of up to $3.3 million in connection therewith. However, subject to certain
conditions, Grace and the Department of Justice have agreed in principle to
settle this matter upon the payment by Grace of penalties substantially lower
than the amount initially contemplated by the Department of Justice.
Further, Hatco Corporation ("Hatco"), which purchased the assets of a Grace
chemical business in 1978, previously instituted a lawsuit against Grace in the
United States District Court for the District of New Jersey seeking recovery of
cleanup costs for waste allegedly generated at a New Jersey facility during the
period of Grace's ownership. Grace has also filed a lawsuit against its
insurance carriers seeking indemnity against any damages assessed against Grace
in the underlying lawsuit, as well as defense costs. In decisions rendered
during 1993, the Court ruled that Grace is responsible for a substantial portion
of Hatco's costs. In an earlier decision, the Court had resolved, in a manner
favorable to Grace, certain legal issues regarding Grace's right to insurance
coverage; however, the ultimate liability of Grace's insurance carriers will be
determined at trial. Remedial costs, and Grace's share of such costs, will be
determined once ongoing site investigations are completed and a remediation plan
is approved by the State of New Jersey, which is not expected to occur before
the latter part of 1994. As a result of the above factors, neither the amount
that Grace may be required to pay Hatco, nor the amount that Hatco may have to
absorb, nor the amount of Grace's recoveries from its insurance carriers can be
reliably estimated at this time. However, based on its investigation to date,
Grace believes that the ultimate resolution of this matter will not have a
material effect on its financial condition.
INSURANCE LITIGATION. Grace is involved in litigation with certain
insurance carriers with respect to asbestos-related claims and environmental
liabilities. Its asbestos-related insurance actions consist of two cases styled
MARYLAND CASUALTY CO. V. W. R. GRACE & CO., both pending in the United States
District Court for the Southern District of New York; STATE OF MISSISSIPPI V.
THE FLINTKOTE CO., ET AL., pending in the Circuit Court of Jackson County,
Mississippi; DAYTON INDEPENDENT SCHOOL DISTRICT V. UNITED STATES MINERAL
PRODUCTS COMPANY, ET AL., pending in the United States District Court for the
Eastern District of Texas; INDEPENDENT SCHOOL DISTRICT NO. 197, ET AL. V. W. R.
GRACE & CO. AND ACCIDENT & CASUALTY INSURANCE CO., ET AL., pending in the First
- 17 -
Judicial District in Minnesota; THE COUNTY OF HENNEPIN V. CENTRAL NATIONAL
INSURANCE COMPANY, ET AL., pending in the Fourth Judicial District in Minnesota;
ECOLAB, INC. V. CENTRAL NATIONAL INSURANCE CO., pending in the District Court
for Ramsey County, Minnesota; AMERICAN EMPLOYERS' INSURANCE CO., AMERICAN
REINSURANCE CO., AND COMMERCIAL UNION INSURANCE CO., AND UNIGARD SECURITY
INSURANCE CO. V. W. R. GRACE & CO., CONTINENTAL CASUALTY CO., AND MARYLAND
CASUALTY CO., which is pending in the New York state courts; and W. R. GRACE &
CO.-CONN. V. ADMIRAL INSURANCE CO., ET AL., pending in the Superior Court of
California for the County of Los Angeles. Grace's insurance actions relating to
environmental liabilities consist of MARYLAND CASUALTY CO. V. W. R. GRACE & CO.,
pending in the United States District Court for the Southern District of New
York; and HATCO CORP. V. W. R. GRACE & CO.-CONN., pending in the United States
District Court for the District of New Jersey. The relief sought by Grace in
these actions would provide insurance sufficient to cover Grace's estimated
exposure with respect to the actions' subject matter, including damages for
amounts previously expended by Grace to defend claims and satisfy judgments and
settlements (see Note 2 to Grace's Consolidated Financial Statements in the
Financial Supplement). The factual bases underlying these actions are the
nature of the underlying asbestos-related and environmental claims, the language
of the insurance policies sold by the carriers to Grace and the drafting history
of those policies.
In March 1991 (in one of the above asbestos-related cases involving
Maryland Casualty Co.), the United States District Court for the Southern
District of New York held that Grace's primary insurance carriers are obligated
to defend and indemnify Grace for damages (other than certain punitive damages),
settlement amounts and litigation costs with respect to asbestos-related
property damage and personal injury claims; in so holding, the Court determined
that coverage for property damage is triggered by the "discovery of damage"
during the period covered by the relevant policy. On September 1, 1993, the
United States Court of Appeals for the Second Circuit reversed the District
Court's ruling as to a "discovery of damage" trigger for such claims and,
instead, adopted a trigger based on the date of installation of
asbestos-containing materials. In January 1994, the United States Court of
Appeals for the Second Circuit granted Grace's petition for a rehearing
concerning the September 1, 1993 decision. The Second Circuit has requested
that the parties rebrief the issue of the trigger of coverage, which rebriefing
is scheduled to be concluded in April 1994. It is not known whether oral
argument concerning this issue will be scheduled in connection with the
rehearing of this case.
In December 1991, the Mississippi Court referred to above also held that
Grace's primary and excess insurance carriers are obligated to defend and
indemnify Grace, determining that, for purposes of insurance coverage, damage to
buildings from asbestos-containing products occurs at the time such products are
put in place and that the damage continues as long as the building contains the
products
- 18 -
(referred to as a "continuous trigger"). In November 1992, the Minnesota court
referred to above reached a similar decision in interpreting a Grace insurance
policy.
In 1993, Grace received $74.6 million under settlements with insurance
carriers, in reimbursement for amounts previously expended by Grace in
connection with asbestos-related litigation. These settlements also provide for
future reimbursements of $114.0 million. In early 1994, Grace settled with two
additional insurance carriers and received approximately $88.8 million under
such settlements. Prior to 1993, Grace received payments totalling $97.7
million from insurance carriers ($30.9 million prior to 1991; $35.3 million in
1991 and $31.5 million in 1992), the majority of which represented the aggregate
remaining obligations owed to Grace by those carriers for primary-level
insurance coverage written for the period June 30, 1962 through June 30, 1987.
As a result of the payments received in 1990 and 1991, insurance litigations
were dismissed as to the primary-level product liability insurance coverage
previously sold by the relevant insurers to Grace; however, litigations continue
as to certain other primary- and excess-level carriers.
Grace continues to be involved in litigation with certain of its insurance
carriers, including an affiliated group of carriers, that had agreed to a
settlement and had made a series of payments thereunder during 1993. The group
of carriers subsequently notified Grace that it would not honor the agreement
(which had not been executed) due to the September 1, 1993 decision of the
United States Court of Appeals for the Second Circuit referred to above. Grace
believes that the settlement agreement is binding and initiated action to
enforce the settlement agreement. In January 1994, the United States District
Court for the Eastern District of Texas held that the agreement is enforceable.
The affiliated group of carriers is expected to appeal this ruling to the United
States Court of Appeals for the Fifth Circuit.
See Note 2 to Grace's Consolidated Financial Statements, appearing in the
Financial Supplement for additional information.
FUMED SILICA PLANT LITIGATION. In January 1993, Grace initiated legal
action in the Belgian courts against the Flemish government to recover losses
resulting from the closing of Grace's fumed silica plant in Puurs, Belgium.
(See Note 8 to Grace's Consolidated Financial Statements in the Financial
Supplement for additional information). Grace is seeking damages in excess of
four billion Belgian francs (approximately $120 million at current exchange
rates), plus interest and loss of profits. There are also pending two separate
arbitrations, one involving the engineering company that was responsible for the
design and construction of the fumed silica plant, and the other involving a
claim by the company from which the plant had agreed to purchase hydrogen under
a long-term
- 19 -
contract. The outcomes of these proceedings may affect the action
filed against the Flemish government.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This Item is inapplicable, as no matters were submitted to a vote of the
Company's security holders during the fourth quarter of 1993.
EXECUTIVE OFFICERS
The Company's current executive officers are listed below. Executive
officers are elected to serve until the following annual meeting of the
Company's Board of Directors; the next such meeting is scheduled to be held on
May 10, 1994.
NAME AND AGE OFFICE FIRST ELECTED
------------ ------ -------------
J. P. Bolduc (54) President and 08/02/90
Chief Executive Officer 01/01/93
R. H. Beber (60) Executive Vice President 05/10/93
and General Counsel
F. Peter Boer (53) Executive Vice President 01/05/89
Hugh L. Carey (74) Executive Vice President 12/03/87
Jean-Louis Greze (62) Executive Vice President 05/10/93
Constantine L. Hampers (61) Executive Vice President 06/06/91
Donald H. Kohnken (59) Executive Vice President 12/07/89
James P. Neeves (56) Executive Vice President 09/06/90
Brian J. Smith (49) Executive Vice President 07/06/89
and Chief Financial Officer
All the above executive officers have been actively engaged in Grace's
business for the past five years.
Mr. Carey was a partner of Finley, Kumble, Wagner, Heine, Underberg,
Manley, Meyerson & Casey (a law firm) from 1983 to 1987; that firm is currently
involved in bankruptcy proceedings commenced subsequent to Mr. Carey's
departure. Mr. Carey is cooperating with the trustee in bankruptcy to secure a
plan of reorganization that would result in some limited liability for Mr.
Carey.
- 20 -
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Except as provided below, the information called for by this Item appears
in the Financial Supplement under the heading "Financial Summary" opposite the
caption "Other Statistics - Common shareholders of record" (page F-29); under
the heading "Quarterly Summary" opposite the captions "Dividends declared per
common share" and "Market price of common stock" (page F-25); and in Note 13 to
Grace's Consolidated Financial Statements (page F-19).
Each share of the Company's Common Stock has an attendant Common Stock
Purchase Right ("Right"). The Rights are not and will not become exercisable
unless and until certain events occur (as described below). Until such events
occur, the Rights will automatically trade with the Common Stock and separate
certificates for the Rights will not be distributed. The Rights will become
exercisable on the tenth business day (or such later business day as may be
fixed by the Company's Board of Directors) after a person or group (a) becomes
an "interested shareholder", as defined in Section 912 of the New York Business
Corporation Law (generally, a beneficial owner of 20% or more of the outstanding
voting stock), or (b) commences a tender offer or exchange offer that would
result in such person or group becoming an interested shareholder. The Rights
will not have any voting power at any time.
When the Rights become exercisable, each Right will initially entitle the
holder to buy from the Company one share of Common Stock for $87.50, subject to
adjustment in certain cases ("purchase price"). If, at any time after the
Rights become exercisable, (a) the Company is involved in a merger or other
business combination in which (i) the Company is not the surviving corporation
or (ii) any of the Common Stock is changed or converted into or exchanged for
stock or other securities of any other person or cash or other property, or (b)
50% of the Company's assets, cash flow or earning power is sold, each Right will
entitle the holder to buy a number of shares of common stock of the acquiring
company having a market value equal to twice the purchase price. Alternatively,
each right not owned by a person who becomes an interested shareholder would
become exercisable for Common Stock (or other consideration) having a market
value equal to twice the purchase price.
The Rights may be redeemed by the Company at $.025 per Right (payable in
cash, Common Stock or any other form of consideration deemed appropriate by the
Board) at any time through the tenth business day (or such later business day as
may be fixed by the Board) after a public announcement that a person or group
has become an interested shareholder; this right of redemption may be reinstated
if all interested shareholders reduce their holdings to
- 21 -
10% or less of the outstanding Common Stock. The Rights will expire in January
1997.
The Rights may be amended either before or after they become exercisable.
However, the basic economic terms of the Rights (such as the purchase and
redemption prices and the expiration date) cannot be changed.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item appears under the heading
"Financial Summary" (page F-29 of the Financial Supplement) and in Notes 5, 6, 9
and 16 to Grace's Consolidated Financial Statements (pages F-12, F-13, F-17 and
F-22 of the Financial Supplement). In addition, Exhibit 12 to this Report (page
F-41 of the Financial Supplement) contains the ratio of earnings to fixed
charges and combined fixed charges and preferred stock dividends for Grace for
the years 1989-1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information called for by this Item appears on pages F-30 to F-33 of
the Financial Supplement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to Consolidated Financial Statements and Financial Statement
Schedules and Exhibits on page F-1 of the Financial Supplement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
This item is inapplicable, as no such changes or disagreements have
occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for information regarding the Company's executive officers (see page
20), the information called for by this Item is incorporated in this Report by
reference to the definitive Proxy Statement for the Company's 1994 Annual
Meeting of Shareholders, except for information not deemed to be "soliciting
material" or
- 22 -
"filed" with the Securities and Exchange Commission ("SEC"), information subject
to Regulations 14A or 14C under the Securities Exchange Act of 1934 ("Exchange
Act") or information subject to the liabilities of Section 18 of the Exchange
Act.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Items 11, 12 and 13 is incorporated in this
Report by reference to the definitive Proxy Statement for the Company's 1994
Annual Meeting of Shareholders, except for information not deemed to be
"soliciting material" or "filed" with the SEC, information subject to
Regulations 14A or 14C under the Exchange Act or information subject to the
liabilities of Section 18 of the Exchange Act.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS AND SCHEDULES. See the Index to Consolidated
Financial Statements and Financial Statement Schedules and Exhibits on page F-1
of the Financial Supplement.
REPORTS ON FORM 8-K. The Company filed no Reports on Form 8-K during the
fourth quarter of 1993.
EXHIBITS. The exhibits to this Report are listed below. Other than
exhibits that are filed herewith, all exhibits listed below are incorporated
herein by reference. Exhibits indicated by an asterisk (*) are the management
contracts and compensatory plans, contracts or arrangements required to be filed
as exhibits to this Report.
EXHIBIT WHERE LOCATED
------- -------------
Certificate of Incorporation of Exhibit 3 to Form 8-K
W. R. Grace & Co., as amended (filed 6/9/88)
By-laws of W. R. Grace & Co., as Exhibit 3.2 to Form 10-K
amended (filed 3/26/93)
- 23 -
Indenture dated as of Septem- Exhibit 4.2 to Form 10-K
ber 29, 1992 among W. R. Grace (filed 3/26/93)
& Co.-Conn., W. R. Grace & Co.
and Bankers Trust Company
Indenture dated as of January Exhibit 4.4 to Form 10-K
28, 1993 among W. R. Grace (filed 3/26/93)
& Co.-Conn., W. R. Grace & Co.
and NationsBank of Georgia, N.A.
Credit Agreement dated as of Exhibit 4.2 to Form 8-K
September 1, 1992 among W. R. (filed 9/26/92)
Grace & Co., W. R. Grace & Co.-
Conn. and the Several Banks Parties
thereto and Chemical Bank, as Agent
Amended and Restated Rights Exhibit to Amendment on
Agreement dated as of June 7, Form 8 to Application for
1990 between W. R. Grace & Co. Registration on Form 8-B
and Manufacturers Hanover Trust (filed 6/19/90)
Company
W. R. Grace & Co. Executive Exhibit 19(f) to Form
Salary Protection Plan, as 8-K (filed 6/9/88)*
amended
W. R. Grace & Co. 1981 Stock Exhibit 28(a) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
W. R. Grace & Co. 1986 Stock Exhibit 28(b) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
W. R. Grace & Co. 1989 Stock Exhibit 28(c) to Form
Incentive Plan, as amended 10-Q (filed 8/13/91)*
Forms of Stock Option Agreements Exhibit 10(h) to Form
10-K (filed 3/28/92)*
Forms of Restricted Share Award Exhibit 10(i) to Form
Agreements 10-K (filed 3/28/92)*
Information Concerning W. R. Pages 10 and 11 of Proxy
Grace & Co. Incentive Compen- Statement (filed 4/10/93)*
sation Program and Deferred
Compensation Program
W. R. Grace & Co. Long-Term Exhibit 10(l) to Form
Incentive Plan 10-K (filed 3/29/91)*
W. R. Grace & Co. Retirement Exhibit 10(o) to Form
Plan for Outside Directors, as 10-K (filed 3/28/92)*
amended
- 24 -
Employment Agreement dated August Exhibit 10(r) to Form
7, 1989 between W. R. Grace & Co. 10-K (filed 3/29/91)*
and Joseph R. Wright, Jr.
Employment Agreement dated Exhibit 10(x) to Form
as of April 1, 1991 between 10-K (filed 3/28/92)*
W. R. Grace & Co.-Conn. and
Constantine L. Hampers, as
amended
Housing Loan Agreement dated Exhibit 10(q) to Form
as of August 1, 1987 between 10-K (filed 3/29/88);
W. R. Grace & Co. and J. P. Exhibit 19(i) to Form
Bolduc, related Amendment and 8-K (filed 6/9/88)*
Assignment dated May 10, 1988
Employment Agreement dated Filed herewith*
August 1, 1993 between J. P.
Bolduc and W. R. Grace & Co.
Stock Option Agreement dated Filed herewith*
June 30, 1993 between David L.
Yunich and W. R. Grace & Co.
Stock Option Agreement dated Filed herewith*
June 30, 1993 between David L.
Yunich and W. R. Grace & Co.
National Medical Care, Inc. and Exhibit 10 (aa) to Form
Subsidiaries Executive Bonus 10-K (filed 3/28/92)*
Plans
Retirement Agreement between Exhibit 10.23 to Form 10-K
W. R. Grace & Co. and J. Peter (filed 3/26/93)*
Grace dated December 21, 1992
Executive Severance Agreement Exhibit 10.24 to Form 10-K
dated as of September 1, 1992 (filed 3/26/93)*
between W. R. Grace & Co. and
J. P. Bolduc
Executive Severance Agreement Exhibit 10.26 to Form 10-K
dated September 1, 1992 (filed 3/26/93)*
between W. R. Grace & Co. and
Constantine L. Hampers
Form of Executive Severance Exhibit 10.28 to Form 10-K
Agreement between W. R. Grace (filed 3/26/93)*
& Co. and others
- 25 -
Consulting Agreement Exhibit 10.29 to Form 10-K
dated June 1, 1992 between (filed 3/26/93)*
W. R. Grace & Co. and
Kamsky Associates, Inc.
Incentive Compensation Agreement Exhibit 10.30 to Form 10-K
dated June 1, 1992 between (filed 3/26/93)*
National Medical Care, Inc.
and Kamsky Associates, Inc.
Consulting Agreement dated as of Filed herewith*
June 16, 1993 by and between
National Medical Care, Inc., The
Humphrey Group, Inc. and Gordon
J. Humphrey
Employment Termination Agreement Filed herewith*
dated June 30, 1993 between
J. R. Wright, Jr. and W. R.
Grace & Co.
W. R. Grace & Co. Supplemental Filed herewith*
Executive Retirement Plan, as
amended
Weighted Average Number of Filed herewith
Shares and Earnings Used in (in Financial Supplement
Per Share Computations to 10-K)
Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Combined (in Financial Supplement
Fixed Charges and Preferred to 10-K)
Stock Dividends
Selected Portions of the 1993 Filed herewith
Annual Report to Shareholders (in Financial Supplement
of W. R. Grace & Co. to 10-K)
List of Subsidiaries of Filed herewith
W. R. Grace & Co.
Consent of Independent Accoun- Filed herewith
tants (in Financial Supplement
to 10-K)
Powers of Attorney Filed herewith
- 26 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereun-
to duly authorized.
W. R. GRACE & CO.
By /s/ B. J. Smith
_______________________
B. J. Smith
(Executive Vice President)
Date: March 28, 1994
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated
on March 28, 1994.
SIGNATURE TITLE
--------- -----
J. P. Bolduc* President and Director
(Principal Executive Officer)
G. C. Dacey* R. C. Macauley* ]
E. W. Duffy* R. Milliken* ]
H. A. Eckmann* J. E. Phipps* ]
C. H. Erhart, Jr.* J. A. Puelicher* ]
J. P. Grace* E. W. Pyne* ] Directors
R. H. Grierson* D. W. Robbins, Jr.* ]
C. L. Hampers* G. S. Vance* ]
T. A. Holmes* D. L. Yunich* ]
G. J. Humphrey*
G. P. Jenkins*
/s/ B. J. Smith Executive Vice President
- ----------------------- (Principal Financial Officer)
(B. J. Smith)
/s/ R. N. Sukenik Vice President and Controller
- ----------------------- (Principal Accounting Officer)
(R. N. Sukenik)
____________
* By signing his name hereto, Robert B. Lamm is signing this docu-
ment on behalf of each of the persons indicated above pursuant to
powers of attorney duly executed by such persons and filed with
the Securities and Exchange Commission.
By /s/ Robert B. Lamm
------------------------
Robert B. Lamm
(Attorney-in-Fact)
- 27 -
FINANCIAL SUPPLEMENT
to
Annual Report on Form 10-K for the Year Ended December 31, 1993
W. R. GRACE & CO. AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Financial Statement Schedules and Exhibits
----------------------------------------------
PAGE
----
Report of Independent Accountants on Financial Statement Schedules. . F-2
Consent of Independent Accountants. . . . . . . . . . . . . . . . . . F-2
Report of Independent Accountants . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations for the three years in the
period ended December 31, 1993 . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the three years in the
period ended December 31, 1993 . . . . . . . . . . . . . . . F-5
Consolidated Balance Sheet as at December 31, 1993 and 1992 . . . . . F-6
Consolidated Statement of Shareholders' Equity for the three
years in the period ended December 31, 1993 . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-8-F-24
Quarterly Summary - Unaudited . . . . . . . . . . . . . . . . . . . . F-25
Quarterly Statistics. . . . . . . . . . . . . . . . . . . . . . . . . F-26
Worldwide Operations. . . . . . . . . . . . . . . . . . . . . . . . . F-27
Capital Expenditures, Net Fixed Assets and Depreciation and
Lease Amortization . . . . . . . . . . . . . . . . . . . . . F-28
Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . . . . . . . . . F-30
Financial Statement Schedules
Schedule II - Amounts receivable from officers and
employees exceeding $100,000 . . . . F-34
Schedule V - Property, plant and equipment . . . . . . . F-35
Schedule VI - Accumulated depreciation, depletion and
amortization of property, plant and
equipment . . . . . . . . . . . . . . . F-36
Schedule VIII - Valuation and qualifying account and
reserves . . . . . . . . . . . . . . . F-37
Schedule IX - Short-term borrowings . . . . . . . . . . . F-38
Schedule X - Supplementary income statement information F-39
Exhibit 11: Weighted Average Number of Shares and Earnings Used in
Per Share Computations . . . . . . . . . . . . . . . . . . . F-40
Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends . . . . F-41
The financial data listed above appearing in this Financial Supplement are
incorporated by reference herein. The Financial Statement Schedules should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. Financial statements of 50%- or less-owned persons and other persons
accounted for by the equity method have been omitted as provided in Rule 3-09 of
Securities and Exchange Commission Regulation S-X. Financial Statement
Schedules not included have been omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or Notes
thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Shareholders and Board of Directors of W. R. Grace & Co.
Our audits of the consolidated financial statements referred to in our report
dated February 8, 1994 appearing on page 25 of the 1993 Annual Report to
Shareholders of W. R. Grace & Co. (which report and consolidated financial
statements are included in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed on page F-1 in the Index to
Consolidated Financial Statements and Financial Statement Schedules and Exhibits
of this Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE
New York, New York
February 8, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Pros- pectuses
constituting parts of the Registration Statements on Form S-3 (Nos. 33-51041,
33-50983 and 33-25962) and Form S-8 (Nos. 33-7504, 33-15182 and 33-27960) of W.
R. Grace & Co. of our report dated February 8, 1994 appearing on page 25 of the
1993 Annual Report to Shareholders, which report is included at page F-3 of this
Report on Form 10-K. We also consent to the inclusion in this Report of our
report on the Financial Statement Schedules, which appears above.
PRICE WATERHOUSE
New York, New York
March 28, 1994
F-2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation, as well as the integrity and
objectivity, of the consolidated financial statements and other financial
information included in this report. Such financial information has been
prepared in conformity with generally accepted accounting principles and
accordingly includes certain amounts that represent management's best estimates
and judgments.
For many years, management has maintained internal control systems to assist
it in fulfilling its responsibility for financial reporting, including careful
selection of personnel, segregation of duties, formal business, accounting and
reporting policies and procedures and an extensive internal audit function.
While no system can ensure elimination of all errors and irregularities, Grace's
systems, which are reviewed and modified in response to changing conditions,
have been designed to provide reasonable assurance that assets are safeguarded,
policies and procedures are followed and transactions are properly executed and
reported. The concept of reasonable assurance is based on the recognition that
there are limitations in all systems and that the cost of such systems should
not exceed the benefits to be derived.
The Audit Committee of the Board of Directors, which is comprised of
directors who are neither officers nor employees of nor consultants to Grace,
meets regularly with Grace's senior financial personnel, internal auditors and
independent accountants to review audit plans and results as well as the actions
taken by management in discharging its responsibilities for accounting,
financial reporting and internal control systems. The Audit Committee reports
its findings and also recommends the selection of independent accountants to the
Board of Directors. Grace's management, internal auditors and independent
accountants have direct and confidential access to the Audit Committee at all
times.
The independent accountants are engaged to conduct audits of and render a
report on the consolidated financial statements in accordance with generally
accepted auditing standards. These standards include a review of the systems of
internal controls and tests of transactions to the extent considered necessary
by the independent accountants for purposes of supporting their opinion as set
forth in their report.
B. J. Smith
Executive Vice President
and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE February 8, 1994
1177 Avenue of the Americas
New York, NY 10036
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO.
In our opinion, the consolidated financial statements appearing on pages F-4
through F-24 of this report present fairly, in all material respects, the
financial position of W. R. Grace & Co. and subsidiaries at December 31, 1993
and 1992, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 5 and 16, the Company adopted new accounting standards
for income taxes and postretirement benefits in 1992.
F-3
CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,408.4 $4,337.0 $4,386.6
Other income (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . 42.5 69.9 55.7
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,450.9 4,406.9 4,442.3
-------- -------- --------
Cost of goods sold and operating expenses. . . . . . . . . . . . . . . . 2,596.8 2,601.5 2,649.2
Selling, general and administrative expenses . . . . . . . . . . . . . . 1,029.7 1,028.0 982.5
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 227.7 224.9 232.9
Interest expense (Note 9). . . . . . . . . . . . . . . . . . . . . . . . 81.5 90.0 115.4
Research and development expenses. . . . . . . . . . . . . . . . . . . . 135.0 130.0 128.1
Provision relating to asbestos-related insurance coverage (Note 2) . . . 159.0 -- --
Provision relating to a fumed silica plant (Note 8). . . . . . . . . . . -- 140.0 --
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,229.7 4,214.4 4,108.1
-------- -------- --------
Income from continuing operations before income taxes. . . . . . . . . . 221.2 192.5 334.2
Provision for income taxes (Note 5). . . . . . . . . . . . . . . . . . . 86.8 134.8 132.5
-------- -------- --------
Income from continuing operations. . . . . . . . . . . . . . . . . . . . 134.4 57.7 201.7
(Loss)/income from discontinued operations (Note 6). . . . . . . . . . . (108.4) (162.2) 16.9
-------- -------- --------
Income/(loss) before cumulative effect of accounting changes . . . . . . 26.0 (104.5) 218.6
Cumulative effect of accounting changes (Notes 5 and 16) . . . . . . . . -- (190.0) --
-------- -------- --------
Net income/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.0 $ (294.5) $ 218.6
-------- -------- --------
-------- -------- --------
Earnings/(loss) per share:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . $ 1.46 $ .64 $ 2.31
Cumulative effect of accounting changes. . . . . . . . . . . . . . . . $ -- $ (2.12) $ --
Net earnings/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ .28 $ (3.29) $ 2.50
Fully diluted earnings per share:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . $ 1.45 $ .62 $ 2.23
Cumulative effect of accounting changes. . . . . . . . . . . . . . . . $ -- $ --(1) $ --
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .28 $ --(1) $ 2.40
- ----------------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
(1) NOT PRESENTED AS THE EFFECT IS ANTI-DILUTIVE.
F-4
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income from continuing operations before income taxes. . . . . . . . . . . . . . . . $ 221.2 $ 192.5 $ 334.2
Reconciliation to cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . 227.7 224.9 232.9
Provision relating to asbestos-related insurance coverage. . . . . . . . . . . . . 159.0 -- --
Provision relating to a fumed silica plant . . . . . . . . . . . . . . . . . . . . -- 140.0 --
Changes in assets and liabilities, excluding businesses acquired/divested
and foreign exchange effect:
(Increase)/decrease in notes and accounts receivable, net . . . . . . . . . . . . (103.2) 48.4 171.2
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50.5) (2.3) (30.5)
Proceeds from settlements of interest rate hedge agreements . . . . . . . . . . . 67.9 3.2 --
Net expenditures for asbestos-related insurance coverage. . . . . . . . . . . . . (103.1) (70.3) (54.9)
Increase in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 50.1 29.5 11.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167.5) (207.0) (106.3)
------- ------- -------
Net pretax cash provided by operating activities of continuing operations. . . . . . 301.6 358.9 558.5
Net pretax cash provided by operating activities of discontinued operations. . . . . 44.2 178.3 161.3
------- ------- -------
Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . . 345.8 537.2 719.8
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102.7) (98.9) (117.5)
------- ------- -------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . 243.1 438.3 602.3
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (309.6) (398.4) (447.0)
Businesses acquired in purchase transactions, net of cash acquired . . . . . . . . . (306.6) (61.2) (131.0)
Increase in net investment in discontinued operations. . . . . . . . . . . . . . . . (43.1) (101.5) (55.9)
Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 464.8 221.2 366.4
Net proceeds from sale/leaseback transactions. . . . . . . . . . . . . . . . . . . . 27.2 -- --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4 2.2 (60.1)
------- ------- -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . (151.9) (337.7) (327.6)
------- ------- -------
FINANCING ACTIVITIES (1)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128.4) (125.9) (122.5)
Repayments of borrowings having original maturities in excess of three months. . . . (512.6) (274.0) (695.6)
Increase in borrowings having original maturities in excess of three months. . . . . 373.0 355.7 319.7
Net increase/(repayments) in borrowings having original maturities of less
than three months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155.7 (508.0) 271.3
Sale of limited partnership interest . . . . . . . . . . . . . . . . . . . . . . . . -- 297.0 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 13.8 45.7
------- ------- -------
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . (105.9) (241.4) (181.4)
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . (0.5) (3.5) (2.2)
------- ------- -------
(Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . (15.2) (144.3) 91.1
------- ------- -------
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . 62.8 207.1 116.0
------- ------- -------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . $ 47.6 $ 62.8 $ 207.1
------- ------- -------
------- ------- -------
- -------------------------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
(1) SEE NOTE 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR SUPPLEMENTAL
INFORMATION RELATING TO NONCASH FINANCING ACTIVITIES.
F-5
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT PAR VALUE December 31, 1993 1992
- --------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 47.6 $ 62.8
Notes and accounts receivable, net (Note 7). . . . . . . . . . . . . . . 657.4 690.4
Inventories (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . 441.0 592.9
Net assets of discontinued operations, current (Note 6). . . . . . . . . 761.3 606.3
Deferred income taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . 31.8 96.8
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 42.2
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 1,975.3 2,091.4
Properties and equipment, net (Note 8) . . . . . . . . . . . . . . . . . 1,454.1 1,707.9
Net assets of discontinued operations, noncurrent. . . . . . . . . . . . -- 108.5
Goodwill, less accumulated amortization of $53.2(1992--$50.1). . . . . . 481.6 298.6
Asbestos-related insurance receivable (Note 2) . . . . . . . . . . . . . 962.3 358.3
Other assets (Note 7). . . . . . . . . . . . . . . . . . . . . . . . . . 1,235.3 1,033.9
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,108.6 $ 5,598.6
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . $ 532.6 $ 464.7
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414.6 423.6
Income taxes (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . 126.5 158.1
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 621.9 593.2
Minority interests, current (Note 12). . . . . . . . . . . . . . . . . . 297.0 --
---------- ----------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 1,992.6 1,639.6
Long-term debt (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . 1,173.5 1,354.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . 613.8 666.1
Deferred income taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . 97.4 96.4
Liability for asbestos-related litigation (Note 2) . . . . . . . . . . . 713.7 --
Minority interests, noncurrent (Note 12) . . . . . . . . . . . . . . . . -- 297.0
---------- ----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,591.0 4,053.6
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 9 AND 11)
SHAREHOLDERS' EQUITY (NOTE 13)
Preferred stocks, $100 par value . . . . . . . . . . . . . . . . . . . . 7.4 7.5
Common stock, $1.00 par value; 300,000,000 shares authorized;
outstanding at December 31: 1993 - 93,465,000; 1992 - 89,892,000 . . . 93.5 89.9
Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287.8 151.4
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196.2 1,298.6
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . (67.3) (2.4)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . 1,517.6 1,545.0
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . $ 6,108.6 $ 5,598.6
---------- ----------
---------- ----------
- --------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
F-6
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1993 1992 1991
- -------------------------------------------------------------------------------
PREFERRED STOCKS
Balance, beginning of year . . . . . . . . . $ 7.5 $ 7.5 $ 7.5
Other. . . . . . . . . . . . . . . . . . . . (.1) -- --
-------- -------- --------
BALANCE, END OF YEAR . . . . . . . . . . . . 7.4 7.5 7.5
-------- -------- --------
Common Stock
Balance, beginning of year . . . . . . . . . 89.9 88.6 86.1
Conversion of notes and debentures . . . . . 2.8 -- --
Stock options and awards . . . . . . . . . . .7 1.3 2.5
Acquisition. . . . . . . . . . . . . . . . . .1 -- --
-------- -------- --------
BALANCE, END OF YEAR . . . . . . . . . . . . 93.5 89.9 88.6
-------- -------- --------
PAID IN CAPITAL
Balance, beginning of year . . . . . . . . . 151.4 120.1 61.6
Conversion of notes and debentures . . . . . 109.7 -- --
Stock options and awards . . . . . . . . . . 22.9 31.1 58.4
Acquisition. . . . . . . . . . . . . . . . . 3.7 -- --
Other. . . . . . . . . . . . . . . . . . . . .1 .2 .1
-------- -------- --------
BALANCE, END OF YEAR . . . . . . . . . . . . 287.8 151.4 120.1
-------- -------- --------
RETAINED EARNINGS
Balance, beginning of year . . . . . . . . . 1,298.6 1,719.0 1,622.9
Net income/(loss). . . . . . . . . . . . . . 26.0 (294.5) 218.6
Dividends paid . . . . . . . . . . . . . . . (128.4) (125.9) (122.5)
-------- -------- --------
BALANCE, END OF YEAR . . . . . . . . . . . . 1,196.2 1,298.6 1,719.0
-------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year . . . . . . . . . (2.4) 90.0 134.4
Translation adjustments . . . . . . . . . . (64.9) (92.4) (44.4)
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BALANCE, END OF YEAR . . . . . . . . . . . . (67.3) (2.4) 90.0
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . $1,517.6 $1,545.0 $2,025.2
-------- -------- --------
-------- -------- --------
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THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL
PARTS OF THESE STATEMENTS.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
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PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of W. R. Grace & Co. and all majority-owned companies (collectively
Grace). Intercompany transactions and balances are eliminated in consolidation.
Investments in affiliated companies (20% - 50% owned) are accounted for under
the equity method.
RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial
statements have been reclassified to conform to the current year's presentation
and as required with respect to discontinued operations.
CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with
maturities of three months or less when purchased. The recorded amount
approximates fair value because of the short maturities of these investments.
INVENTORIES Inventories are stated at the lower of cost or market. Due to the
diversified nature of Grace's operations, several methods of determining cost
are used, including first-in/first-out, average and, for substantially all U.S.
chemical inventories, last-in/first-out. Market value for raw and packaging
materials is based on current cost and, for other inventory classifications, on
net realizable value.
PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of
cost or net realizable value. Depreciation of properties and equipment is
generally computed using the straight-line method over the estimated useful
lives of the assets. Interest is capitalized in connection with major project
expenditures and amortized, generally on a straight-line basis, over the
estimated useful lives of the assets.
Fully depreciated assets are retained in properties and equipment and related
accumulated depreciation accounts until they are removed from service. In the
case of disposals, assets and related depreciation are removed from the accounts
and the net amount, less any proceeds from disposal, is charged or credited to
income.
GOODWILL AND OTHER AMORTIZATION Goodwill arises from certain purchase
transactions and is amortized using the straight-line method over appropriate
periods not exceeding 40 years. Patient relationships (see Note 7) are amortized
using the straight-line method over 17 years.
INCOME TAXES Effective January 1, 1992, Grace adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
Statement requires the use of an asset and liability approach for the accounting
and financial reporting of income taxes.
FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial
statements (except for those relating to countries with highly inflationary
economies) are translated into U.S. dollars at current exchange rates, except
that revenues, costs and expenses are translated at average exchange rates
during each reporting period. The financial statements of subsidiaries located
in countries with highly inflationary economies must be remeasured as if the
functional currency were the U.S. dollar. The remeasurement creates translation
adjustments that are reflected in net income. The allocation for income taxes
included in the translation adjustments account in shareholders' equity was not
significant.
EARNINGS PER SHARE Primary earnings per share are computed on the basis of the
weighted average number of common shares outstanding. Fully diluted earnings per
share assume the conversion of convertible debentures (with an increase in net
income for the after-tax interest savings) and the issuance of common stock
equivalents related to stock options.
FINANCIAL INSTRUMENTS Grace enters into interest rate swaps, options and caps,
and foreign currency contracts to manage exposure to fluctuations in interest
and foreign currency exchange rates.
The differentials paid or received on interest rate agreements are accrued
and recognized as adjustments to interest expense; gains and losses realized
upon settlement of these agreements are deferred and amortized to interest
expense over a period relevant to the agreement if the underlying hedged
instrument remains outstanding, or immediately if the underlying hedged
instrument is settled. Premiums paid on caps are amortized to interest expense
over the term of the cap.
Gains and losses on foreign currency contracts offset gains and losses
resulting from the underlying transactions. Gains and losses on contracts that
hedge specific foreign currency commitments are deferred and recognized in net
income in the period in which the transaction is consummated. Gains and losses
on contracts that hedge net investments in foreign subsidiaries are recognized
in the cumulative translation adjustments account in shareholders' equity.
F-8
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2. ASBESTOS AND RELATED INSURANCE LITIGATION
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Grace is a defendant in lawsuits relating to previously sold asbestos-containing
products and anticipates that it will be named as a defendant in additional
asbestos- related lawsuits in the future. At December 31, 1993, Grace was a
defendant in approximately 38,100 asbestos- related lawsuits representing
approximately 56,700 claims (versus approximately 30,900 lawsuits and 53,000
claims at December 31, 1992). Of the lawsuits pending at December 31, 1993, 92
(105 at December 31, 1992) involved claims for property damage allegedly caused
by the use of asbestos-containing materials in the construction of buildings.
The plaintiffs in these lawsuits generally seek, among other things, to have the
defendants absorb the cost of removing, containing or repairing the asbestos-
containing materials in the affected buildings. The remaining asbestos-related
lawsuits involved claims for personal injury. In most of these lawsuits, Grace
is one of many defendants.
PROPERTY DAMAGE LITIGATION
Through December 31, 1993, 120 asbestos property damage cases had been dismissed
with respect to Grace without payment of any damages or settlement amounts;
judgments were entered in favor of Grace in twelve cases; in six cases (four of
which are on appeal), Grace was held liable for a total of $68.3; and 131
property damage suits and claims had been settled by Grace for a total of
$300.0. Grace has recorded a receivable for the insurance proceeds it expects to
receive in connection with these adverse verdicts and settlements, as well as
for defense costs initially paid by Grace. (See "Insurance Litigation" below.)
On September 1, 1993, the U.S. Court of Appeals for the Second Circuit issued a
decision regarding the availability of insurance coverage with respect to
Grace's asbestos property damage litigation and claims. In January 1994, the
Court granted Grace's petition for a re- hearing concerning such decision.
Included in the asbestos property damage lawsuits pending against Grace and
others at year-end 1993 are the following purported class actions: (1) a
Pennsylvania state court action, certified in 1992, covering all commercial
buildings in the U.S. leased in whole or in part to the U. S. government on or
after May 30, 1986; (2) an action, certified by the U.S. Court of Appeals for
the Fourth Circuit in September 1993 and pending in a U.S. District Court in
South Carolina, covering all public and private colleges and universities in the
U. S. whose buildings contain asbestos materials; (3) an action, brought in
1983 in a U.S. District Court in Pennsylvania, on behalf of all public and
private elementary and secondary schools in the U.S. that contain asbestos
materials, which has been scheduled for trial in late 1994 on a limited number
of issues; and (4) an action filed in a South Carolina state court in 1992 on
behalf of all entities that own, in whole or in part, any building containing
asbestos materials manufactured by Grace or one of the other named defendants,
other than buildings subject to the class action lawsuits described above, as
well as any building owned by the federal or any state government.
PERSONAL INJURY LITIGATION
Through December 31, 1993, approximately 7,000 asbestos personal injury lawsuits
involving 17,900 claims had been dismissed with respect to Grace without payment
of any damages or settlement amounts (primarily on the basis that Grace products
were not involved), and approximately 11,300 such suits involving 13,400 claims
had been settled for a total of $52.2.
In January 1993, the U.S. District Court for the Eastern District of
Pennsylvania conditionally certified a class of all future asbestos personal
injury claimants, including individuals who have been occupationally exposed to
asbestos-containing materials but who do not presently allege asbestos-related
injury. Although Grace is not among the defendants named in the class action
complaint, dissemination of the required class notice may generate additional
litigation against Grace.
RANGE OF POTENTIAL EXPOSURE
Although personal injury cases are generally similar to each other (differing
only in the type of asbestos-related illness allegedly suffered by the
plaintiff), each property damage case is unique in that building type, size and
utilization and difficulty of abatement, if necessary, vary from structure to
structure; thus, the amounts involved in prior dispositions of property damage
cases are not necessarily indicative of the amounts that may be required to
dispose of such cases in the future. In addition, in property damage cases,
information regarding product identification on a building-by-building basis
(I.E., whether or not Grace products were actually used in the construction of
the building), the age, type, size and use of the building, the jurisdictional
history of prior cases and the court in which the case is pending provide the
only meaningful guidance as to potential future costs. However, much of this
information is not yet available in a majority of the property damage cases
currently pending against Grace. Accordingly, estimates of future costs to
dispose of these cases are, in most instances, based on incomplete information,
as well as assumptions that may not be accurate. Further, the filing of the
class actions and uncertainty with respect to the class certification in the
national elementary and secondary schools class action (see "Property Damage
Litigation" above) make it more difficult to reliably predict the costs Grace
will incur in disposing of asbestos-related litigation.
F-9
Subject to the preceding qualifications (which Grace believes to be
significant), Grace has attempted to determine its future costs to dispose of
this litigation and has concluded that it is probable that the personal injury
and property damage cases pending at December 31, 1993 can be disposed of for a
total amount estimated at $813.7 (inclusive of legal fees and expenses), of
which Grace has recorded $713.7 as a noncurrent liability and $100.0 as a
current liability. This compares to the estimated liability (current and
noncurrent) of $848.0 at September 30, 1993, reflecting payment