<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 4, 1999
W. R. GRACE & CO.
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13953 65-0773649
-------- ------- ----------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
1750 Clint Moore Road, Boca Raton, Florida 33487-2707
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 561/362-2000
-----------------------------------------------
(Former name or former address, if changed since last report)
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W. R. GRACE & CO.
FORM 8-K
CURRENT REPORT
Forward-Looking Statements
This Form 8-K being filed by W. R. Grace & Co. ("Grace") contains
"forward-looking statements." These statements are indicated by future tense
verbs and words such as "anticipates." Forward-looking statements involve
various risks and uncertainties, including those contained in the section
entitled "Projections and Other Forward-Looking Information" in Grace's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and throughout
Grace's Information Statement dated February 13, 1998. As a result, future
results may differ materially from the expected results represented by the
forward-looking statements contained in this Form 8-K.
Item 5. Other Events.
On February 4, 1999, Grace announced its consolidated results of
operations for the quarter and year ended December 31, 1998, a change in the
accrual period for asbestos bodily injury liabilities, the results of its
productivity review of its administrative and operating functions, the
financial effect of certain environmental matters and the sale of its Circe
biomedical operations. Grace's February 4, 1999 press release and accompanying
financial and statistical data are filed as an exhibit hereto and are
incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The Company's February 4, 1999 press release is filed as an exhibit
hereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
W. R. GRACE & CO.
(Registrant)
By /s/David B. Siegel
--------------------------------
David B. Siegel
Senior Vice President,
General Counsel and Secretary
Dated: February 12, 1999
<PAGE>
W. R. GRACE & CO.
Current Report on Form 8-K
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
99.1 Press Release dated February 4, 1999
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#2717
CORPORATE COMMUNICATIONS
W. R. Grace & Co.
1750 Clint Moore Road
Boca Raton, FL 33487-2707
[GRACE NEWS]
CONTACT: Media Relations: Investor Relations:
Jane D. McGuinness Susan G. Eccher
(561)362-1343 (561)362-1331
GRACE REPORTS FOURTH QUARTER EARNINGS FROM UNDERLYING
BUSINESSES OF $0.33 PER SHARE
PRODUCTIVITY INITIATIVE TO RESULT IN APPROXIMATELY 8% REDUCTION
IN SALARIED STAFF
GRACE ACCRUES TOTAL LONG-TERM ASBESTOS BODILY INJURY
LIABILITY
BOCA RATON, Florida, February 4, 1999 -- W. R. Grace & Co. (NYSE: GRA)
reported a 1998 fourth quarter loss from continuing operations of $209.4
million, a loss of $2.87 per diluted share. Results for the period included the
following elements:
o income from underlying business performance of $24.3 million ($.33 per
diluted share),
o pretax net charges for restructuring totaling $21.0 million ($14.1
million after-tax, or $.19 per diluted share), principally resulting
from the previously announced administrative and operating
productivity review,
o a noncash pretax charge of $376.1 million ($244.4 million after-tax,
or $3.35 per diluted share) to reflect the estimate of Grace's
ultimate cost of current and future asbestos-related bodily injury
liabilities projected to extend through 2039, and
o pretax income of $38.2 million ($24.8 million after-tax, or $.34 per
diluted share) for the receipt of insurance proceeds related to
environmental
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matters, partially offset by a charge to reflect a change in the
environmental remediation strategy for a particular site.
"Grace's earnings performance remained solid in the quarter despite
somewhat disappointing sales in Davison and Darex," said Grace Chairman,
President and Chief Executive Officer Paul J. Norris. "We are particularly
pleased with the sales and profit performance of Grace Construction Products and
the profit increase in Darex, which together allowed us to deliver on
expectations. Also in the quarter, we completed our company-wide review of
administrative and operating productivity, and I am confident that the actions
identified by that review will allow us to drive further profitability
improvements in 1999 and beyond."
Sales for the quarter totaled $372 million, up 2% versus the prior
year's quarter. Excluding the effect of foreign currency translation, sales
increased more than 3%.
Operating income from the business segments for the quarter, based on
underlying business performance, equaled $53.2 million. Underlying business
performance, which excludes special charges, is supplemental financial data
provided for the purpose of comparability with historical information and
should be read in conjunction with Grace's consolidated financial statements.
Including the effect of net restructuring and asset impairment charges, total
operating income from the business segments was $34.4 million.
Consolidated earnings before interest and income taxes (EBIT) for the
quarter, before the special charges, were $43.6 million. Grace's consolidated
EBIT margin (EBIT as a percentage of sales) on the same basis for the quarter
was 11.7%.
FULL-YEAR RESULTS
For the full year 1998, Grace reported net sales of $1,463 million,
essentially flat with 1997 (excluding a divested business in the prior year)
and up 3% before the effect of currency translation. Consolidated EBIT, based
on underlying business performance, was $159.5 million for the full year 1998.
Grace's consolidated EBIT margin for 1998, on the same basis, was 10.9%.
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Earnings from continuing operations and related diluted EPS based on underlying
business performance were $88.0 million and $1.18, respectively. Including the
effect of the net restructuring and asset impairment charges, the net
environmental benefit and the charge to increase the asbestos liability, the
full-year loss from continuing operations was $145.7 million ($1.95 per share).
The full-year net loss, including results of discontinued operations and
extraordinary items, was $183.6 million ($2.46 per share).
BUSINESS PERFORMANCE
GRACE DAVISON
Grace Davison, a leading global supplier of catalysts and silica
products, reported fourth quarter sales of $190 million, up 2% from the prior
year's quarter. Excluding $3.5 million in restructuring charges, operating
income was $29.1 million, about equal to the third quarter performance, but
below a very strong year-ago quarter. Grace Davison's operating margin before
restructuring charges was 15.4%.
Grace Davison's worldwide sales of refinery catalysts, which include
fluid cracking and hydroprocessing catalysts, increased 3% versus a strong 1997
fourth quarter driven by gains in Asia Pacific and Europe. Polyolefin catalysts
sales also increased versus the fourth quarter of 1997. Sales of silicas and
adsorbents were essentially flat with the 1997 quarter.
Grace Davison's 1998 sales totaled $731 million, 3% over 1997 (6%
before currency translation). Operating income for the same period, excluding
the $3.5 million in fourth quarter charges, was $111.0 million. The full-year
operating margin before charges was 15.2%, 0.6 percentage points above 1997.
Said Norris, "While Davison results were slightly below expectations
for the quarter, we were able to improve profitability in 1998 despite adverse
business conditions in silicas and adsorbents. For the year, fluid cracking
catalyst volumes were at an all-time high and sales in our other catalyst
businesses grew to record levels."
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GRACE CONSTRUCTION PRODUCTS
Grace Construction Products, a leading global supplier of specialty
construction chemicals and building materials, reported fourth quarter sales of
$125 million, up 6% versus the 1997 quarter. Before currency translation, sales
were 8% above the year-ago quarter. Excluding $1.3 million in 1998
restructuring charges, operating income equaled $19.4 million. On this same
basis, Grace Construction Products' 15.5% operating margin was the highest
quarterly margin during 1998.
Sales in North America were up 8% over the 1997 quarter, driven by
gains in concrete, masonry and fire protection as well as the impact of
relatively favorable weather conditions on construction activity. European
sales were up 17% versus 1997, reflecting double-digit growth in all product
lines. Sales in Asia Pacific were down 15% (down 7% before currency
translation) due to the continued economic weakness in the region. Sales
continued to grow rapidly in Latin America, up 24% versus the year-ago quarter.
Grace Construction Products' 1998 sales totaled $492 million, up 3%
compared to 1997 (up 6% before currency translation). Excluding the 1998 fourth
quarter charges, 1998 operating income equaled $63.1 million. On the same
basis, Construction Products' 1998 operating margin was 12.8%.
"1998 was a record year for Grace Construction Products despite the
economic conditions in parts of Asia. We plan to continue to deliver earnings
growth in this business through our strategy of sales growth generated through
value-enhancing products, aggressive cost management and broad geographic
penetration," said Norris.
DAREX CONTAINER PRODUCTS
Darex Container Products, a leading global producer of container
sealants and closure systems, reported sales of $57 million in the quarter, 8%
lower than the 1997 quarter (2% lower before currency translation). Excluding
$9.0 million in 1998 net restructuring and asset impairment charges, operating
income equaled $5.2 million, well above 1997 due to productivity improvements
resulting in lower
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expenses. Excluding Darex's net restructuring and asset impairment charges, the
quarterly operating margin was 9.0%.
Full-year sales for Darex totaled $241 million, down 9% compared to
1997 (down 2% before currency translation). Excluding the 1998 fourth quarter
special charges, full-year operating income equaled $25.3 million. On this same
basis, Darex `s operating margin was 10.5% for the year.
"The improvement in Darex's 1998 operating margin, despite the
negative economic factors which heavily impacted their sales growth,
demonstrates our focus on bottom-line results. The restructuring steps we are
undertaking will provide the basis for profit growth in 1999 and beyond," said
Norris.
ACCRUAL PERIOD CHANGE FOR ASBESTOS BODILY INJURY LIABILITIES
A change in the accrual period for asbestos-related bodily injury
litigation resulted in a fourth quarter noncash net pretax charge of $376.1
million ($244.4 million after-tax). Since 1996, Grace has accrued for the
estimated cost of disposing of all asbestos bodily injury claims already
received plus the cost of disposing of claims expected to be received over the
ensuing five-year period. Management now believes that its experience with, and
recent trends in, asbestos bodily injury litigation enable Grace to reasonably
forecast the number and ultimate cost of all present and future bodily injury
claims expected to be asserted. Therefore, Grace will now maintain a balance
sheet accrual sufficient to cover its estimate of these costs.
The fourth quarter charge, which consists of an addition to the
asbestos liability for bodily injury indemnity and defense costs, partially
offset by expected recoveries from insurance carriers, results in a pretax
asbestos liability (including personal injury and property damage), net of
insurance, of $751.1 million as follows:
$ millions
Liability for
indemnity and Insurance
defense costs receivable Net liability
------------- ---------- -------------
Q4 Pretax Charge/(Credit) $576.9 ($200.8) $376.1
Balance at 12/31/98 $1,194.1 ($443.0) $751.1
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Commented Mr. Norris, "Our balance sheet is now based on our best
estimate of the full cost of resolving the asbestos bodily injury liabilities
over time. This change in accounting estimate does not signal a change in our
outlook on the issue, in our financial flexibility, or in our approach of
vigorously defending ourselves in litigation."
Norris continued, "I must emphasize that the amounts we have accrued
for asbestos litigation are expected to be paid out over a very long timeframe,
possibly more than forty years. The balance sheet accounts are stated before
tax and are not discounted to present values. We continue to estimate the
after-tax present value of our asbestos liability to be about $400 million,
discounted at Grace's after-tax borrowing cost."
ENVIRONMENTAL MATTERS
Grace also reported a net pretax gain of $38.2 million ($24.8 million
after-tax) related to environmental issues. As announced in November, Grace
entered into a settlement with one of its insurance carriers which provided for
a $57.6 million lump-sum cash payment to Grace for previously incurred costs
related to environmental remediation. Netted against this gain is a $19.4
million ($12.6 million after-tax) charge to reflect a change in the
environmental remediation strategy for a particular site. It is expected that
the cash associated with this incremental charge will be spent over the next
6-8 years.
OTHER FOURTH QUARTER ITEMS
PRODUCTIVITY REVIEW
Grace completed its previously announced review of various
administrative and operating functions to identify productivity improvements,
which resulted in fourth quarter net charges of $16.0 million, consisting of
the business unit charges discussed above, plus $2.2 million for corporate.
(Note: including the $5.0 million charge for Circe Biomedical discussed below,
total restructuring charges were $21.0 million.) These charges consist
primarily of severance costs associated with an approximately 8% reduction in
total Grace salaried headcount. Restructuring actions will be taken in each of
the business
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units and within the corporate organization. As previously announced, this
productivity study also resulted in the decision to close Grace's Boca Raton
office and relocate certain administrative functions to Columbia, Maryland
where Grace Davison is already headquartered.
Commented Norris, "The restructuring actions we have identified, while
difficult for the effected individuals, will clearly make our organization more
efficient and more effective and will allow us to achieve our goals for 1999
and future years. This is an important step in creating a culture of continuous
productivity improvement throughout Grace."
CIRCE
In January, Grace divested the assets of its Circe Biomedical
operation to a group of outside investors. The terms include potential royalty
payments to Grace. Related to the sale, Grace took a provision of $5.0 million
for costs associated with the severance of over 60 employees and the lease
termination of Circe's Lexington, MA facility.
DILUTED EPS CALCULATIONS
Due to the company's 1998 fourth quarter and full-year losses, no
incremental shares associated with outstanding stock options were included in
the per share amounts presented above because the effect on continuing
operations would be antidilutive.
Grace is a leading global supplier of catalysts and silica products,
specialty construction chemicals and building materials, and container sealants
and closure systems. For more information, visit Grace's Web site at
www.grace.com.
This announcement contains "forward-looking" information. Future
results may differ from those discussed in this announcement. Information
concerning some of the factors that could cause such differences can be found
under the headings "Projections and Other Forward-Looking Information" in
Grace's Annual Report on Form 10-K for 1997 and "Certain Risk Factors" in the
Company's Information Statement dated February 13, 1998.
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W. R. Grace & Co.
Consolidated Statement of Operations
For the Period Ended December 31
($ Millions Except Per Share)
<TABLE>
<CAPTION>
Quarter Ended Year Ended
----------------------- -----------------------
1998 1997 (a) 1998 1997 (a)
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $ 372.4 $ 365.6 $ 1,463.4 $ 1,478.4
Other income 17.1 17.7 48.5 64.9
---------- ---------- ---------- ---------
Total $ 389.5 $ 383.3 $ 1,511.9 $ 1,543.3
---------- ---------- ---------- ---------
Cost of goods sold and operating expenses $ 222.5 $ 233.2 $ 884.8 $ 917.3
Selling, general and administrative expenses 81.3 94.5 321.4 376.8
Depreciation and amortization 25.2 24.0 93.9 93.4
Interest expense and related financing costs 5.1 6.7 20.2 25.3
Research and development expenses 15.5 10.9 47.4 42.4
Provision for restructuring and asset impairment 21.0 43.8 21.0 47.8
Provision for environmental charges (38.2) - (38.2) -
Provision relating to asbestos-related liabilities net
of anticipated insurance recoveries 376.1 - 376.1 -
Gain on sale of Specialty Polymers - - - (103.1)
---------- ---------- ---------- ---------
Total $ 708.6 413.1 1,726.6 $ 1,399.9
(Loss)/income before income taxes $ (319.0) $ (29.8) $ (214.7) $ 143.4
(Benefit from)/provision for income taxes (109.6) (10.7) (69.0) 55.2
---------- ---------- ---------- ---------
(Loss)/income from continuing operations $ (209.4) $ (19.1) $ (145.7) $ 88.2
Income/(loss) from discontinued operations - 45.2 (2.6) 172.8
Extraordinary item - loss from extinguishment
of debt, net of tax - - (35.3) -
---------- ---------- ---------- ---------
Net (loss)/income $ (209.4) $ 26.1 $ (183.6) $ 261.0
========== ========= ========= =========
Basic (loss)/earnings per share
Continuing operations $ (2.87) $ (0.26) $ (1.95) $ 1.19
Net (loss)/income $ (2.87) $ 0.35 $ (2.46) $ 3.53
Basic average number of shares (millions) 72.9 74.3 74.6 74.0
Diluted (loss)/earnings per share
Continuing operations $ (2.87) $ (0.26) $ (1.95) $ 1.17
Net (loss)/income $ (2.87) $ 0.35 $ (2.46) $ 3.45
Diluted average number of shares (millions) 72.9 74.3 74.6 75.7
</TABLE>
(a) Certain amounts have been reclassified to conform to the 1998 presentation.
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W, R, Grace & Co.
Operating Results
For the Quarter Ended December 31
($ Millions)
<TABLE>
<CAPTION>
Segment Underlying
Reporting Special Business
Basis Items Performance
1998 1998 (a) 1998 1997 (b)
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Sales
Grace Davison $ 189.7 - $ 189.7 $ 185.6
Grace Construction Products 125.5 - 125.5 118.1
Darex Container Products 57.2 - 57,2 61.9
--------- --------- --------- --------
Total sales $ 372.4 - $ 372.4 $ 366.6
Operating Income:
Grace Davison $ 25.6 $ (3.5) $ 29.1 $ 30.7
Grace Construction Products 18.1 (1.3) 19.4 8.2
Darex Container Products (3.8) (9.0) 5.2 1.1
Other Noncore (5.5) (5.0) (0.5) 2.1
--------- --------- --------- --------
$ 34.4 $ (18.8) $ 53.2 $ 42.1
Other expenses / (income):
Interest/financing $ 5.1 - $ 5.1 $ 6.7
Interest income (1.4) - (1.4) (1.5)
Corporate 11.0 - 11.0 25.3
Other (1.4) - (1.4) (2.4)
Provision for restructuring and asset
impairment, net 2.2 2.2 - 43.8 (c)
Provision for environmental charges, net (38.2) (38.2) - -
Provision relating to asbestos-related
liabilities net of anticipated Insurance
recoveries 376.1 376.1 - -
--------- --------- --------- --------
Total other expenses, net $ 353.4 $ 340.1 $ 13.3 $ 71.9
Pretax operating (loss)/income before
discontinued operations $ (319.0) $ (358.9) $ 39.9 $ (29.8)
(Benefit from)/provision for income taxes (109.6) (125.2) 15.6 (10.7)
--------- --------- --------- --------
(Loss)/income from continuing operations $ (209.4) $ (233.7) $ 24,3 $ (19.1)
Income from discontinued operations
(net of tax) - - - 45.2
--------- --------- --------- --------
Net (loss)/Income (209.4) (233.7) 24.3 26.1
========= ========= ========= ========
</TABLE>
(a) Special Items include provisions for restructuring and asset impairment,
environmental charges, and asbestos-related liabilities.
(b) Certain amounts have been reclassified to conform to the 1998 presentation.
(c) Includes amounts for Grace Davison and Darex Container Products.
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W. R. Grace & Co.
Operating Results
For the Year Ended December 31
($ Millions)
<TABLE>
<CAPTION>
Segment Underlying
Reporting Special Business
Basis Items Performance
1998 1998 (a) 1998 1997 (b)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
Grace Davison $ 730.8 - $ 730.8 $ 711.6
Grace Construction Products 491.7 - 491.7 477.8
Darex Container Products 240.9 - 240.9 264.1
-------- -------- -------- --------
Sales before divested business $1,463.4 - $1,463.4 $1,453.5
Specialty Polymers - - - 24.9
-------- -------- -------- --------
Total sales $1,463.4 - $1,463.4 $1,478.4
Operating Income:
Grace Davison $ 107.5 $ (3.5) $ 111.0 $ 104.0
Grace Construction Products 61.8 (1.3) 63.1 45.7
Darex Container Products 16.3 (9.0) 25.3 25.0
Other Noncore (6.7) (5.0) (1.7) 4.5
-------- -------- -------- --------
Subtotal before divested business $ 178.9 $ (18.8) $ 197.7 $ 179.2
Specialty Polymers - - - 3.8
-------- -------- -------- --------
$ 178.9 $ (18.8) $ 197.7 $ 183.0
Other expenses / (income):
Interest/financing $ 20.2 - $ 20.2 $ 25.3
Interest income (4.9) - (4.9) (9.2)
Corporate 40.9 - 40.9 86.9
Other (2.7) - (2.7) (8.1)
Provision for restructuring and asset
impairment, net 2.2 2.2 47.8 (c)
Provision for environmental charges, net (38.2) (38.2) - -
Provision relating to asbestos-related
liabilities net of anticipated
insurance recoveries 376.1 376.1 - -
Gain on sale of Specialty Polymers - - - (103.1)
-------- -------- -------- --------
Total other expenses, net $ 393.6 $ 340.1 $ 53.5 $ 39.6
Pretax operating (loss)/income before
discontinued operations and
extraordinary item $(214.7) $ (358.9) $ 144.2 $ 143.4
(Benefit from)/provision for income taxes (69.0) (125.2) 56.2 55.2
-------- -------- -------- --------
(Loss)/Income from continuing operations $(145.7) $ (233.7) $ 88.0 $ 88.2
(Loss)/Income from discontinued
operations (net of tax) (2.6) - (2.6) 172.8
Extraordinary loss from early debt
retirement (net of tax) (35.3) - (35.3) -
-------- -------- -------- --------
Net (loss)/Income $(183.6) $ (233.7) $ 50.1 $ 261.0
======= ======== ======== ========
</TABLE>
(a) Special Items include provisions for restructuring and asset impairment,
environmental charges, and asbestos-related liabilities.
(b) Certain amounts have been reclassified to conform to the 1998 presentation.
(c) Includes amounts for Grace Davison and Darex Container Products.
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W, R. Grace & Co.
Geographic Sales Data
For the Period Ended December 31
(Dollars In Millions)
<TABLE>
<CAPTION>
Quarter Ended December 31
1997 Incl. Specialty 1997 Excl.
1998 Divested Business Polymers Divested Business
------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C>
North America $ 202 $ 203 $ - $ 203
Europe 102 93 - 93
Latin America 17 18 - 18
Asia Pacific 51 51 - 51
------------- ---------------- ------------ -----------------
Total $ 372 $ 365 - $ 365
============= ================ ============ =================
<CAPTION>
Year Ended December 31
1997 lncl. Specialty 1997 Excl.
1998 Divested Business Polymers Divested Business
------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C>
North America $ 807 $ 789 $ 12 $ 777
Europe 399 408 6 402
Latin America 65 67 - 67
Asia Pacific 192 214 7 207
------------- ---------------- ------------ -----------------
Total $ 1.463 $ 1,478 25 $ 1,453
============= ================ ============ =================
</TABLE>
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