<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1994
Commission File Number 1-3720
W. R. GRACE & CO.
NEW YORK 13-3461988
---------------------- -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Town Center Road
Boca Raton, Florida 33486-1010
(407) 362-2000
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
----- -----
93,974,981 shares of Common Stock, $1.00 par value, were outstanding at July 29,
1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
W. R. GRACE & CO. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations I-1
Consolidated Statement of Cash Flows I-2
Consolidated Balance Sheet I-3
Notes to Consolidated Financial Statements I-4 to I-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition I-8 to I-14
PART II. Other Information
Item 1. Legal Proceedings II-1
Item 4. Submission of Matters to a Vote of Security Holders II-1
Item 5. Other Information II-3
Item 6. Exhibits and Reports on Form 8-K II-3
As used in this Report, the term "Company" refers to W. R. Grace & Co., and the
term "Grace" refers to the Company and/or one or more of its subsidiaries.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended Six Months Ended
Consolidated Statement of Operations (Unaudited) June 30, June 30,
------------------------------------------------------------- ----------------------- -----------------------
$ millions (except per share) 1994 1993 1994 1993
------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues. . . . . . . . . . . . . . . . . . . . . . $1,236.9 $1,094.1 $2,313.7 $2,080.3
Other income. . . . . . . . . . . . . . . . . . . . . . . . . 4.0 17.2 36.5 27.9
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240.9 1,111.3 2,350.2 2,108.2
-------- -------- -------- --------
Cost of goods sold and operating expenses . . . . . . . . . . 721.5 644.1 1,402.1 1,236.5
Selling, general and administrative expenses. . . . . . . . . 292.1 259.2 557.5 498.8
Depreciation and amortization . . . . . . . . . . . . . . . . 61.3 56.6 120.6 111.4
Interest expense and related financing costs. . . . . . . . . 24.6 21.4 45.7 41.3
Research and development expenses . . . . . . . . . . . . . . 32.0 35.9 66.0 72.4
Provision relating to asbestos-related
insurance coverage . . . . . . . . . . . . . . . . . . . 316.0 -- 316.0 --
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447.5 1,017.2 2,507.9 1,960.4
-------- -------- -------- --------
(Loss)/income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . (206.6) 94.1 (157.7) 147.8
(Benefit)/provision for income taxes. . . . . . . . . . . . . (72.3) 40.2 (61.6) 62.2
-------- -------- -------- --------
(Loss)/income from continuing operations. . . . . . . . . . . (134.3) 53.9 (96.1) 85.6
Loss from discontinued operations . . . . . . . . . . . . . . -- (105.0) -- (108.4)
-------- -------- -------- --------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (134.3) $ (51.1) $ (96.1) $ (22.8)
-------- -------- -------- --------
-------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------
(Loss)/earnings per share:
Continuing operations . . . . . . . . . . . . . . . . . . . $ (1.43) $ .60 $ (1.03) $ .95
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.43) $ (.57) $ (1.03) $ (.26)
Fully diluted earnings per share:
Continuing operations . . . . . . . . . . . . . . . . . . . $ --(1) $ .56 $ --(1) $ .92
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ --(1) $ --(1) $ --(1) $ --(1)
Dividends declared per common share . . . . . . . . . . . . . $ .35 $ .35 $ .70 $ .70
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Not presented as the effect is anti-dilutive.
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of this statement.
I-1
<PAGE>
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Six Months Ended
Consolidated Statement of Cash Flows (Unaudited) June 30,
- ---------------------------------------------------------------------------------------------- -----------------------
$ millions 1994 1993
- ---------------------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
OPERATING ACTIVITIES
(Loss)/income from continuing operations before income taxes. . . . . . . . . . . . . . . . $(157.7) $ 147.8
Reconciliation to cash provided by/(used for) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120.6 111.4
Provision relating to asbestos-related insurance coverage . . . . . . . . . . . . . . . 316.0 --
Changes in assets and liabilities, excluding businesses
acquired/divested and foreign exchange effect:
Increase in notes and accounts receivable, net. . . . . . . . . . . . . . . . . . . . (109.2) (50.0)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19.1) (49.2)
Net proceeds from asbestos-related insurance settlements. . . . . . . . . . . . . . . 96.3 40.3
Net expenditures for asbestos-related litigation. . . . . . . . . . . . . . . . . . . (86.6) (95.8)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (126.5) (53.5)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.8 (6.8)
------- -------
Net pretax cash provided by operating activities
of continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.6 44.2
Net pretax cash provided by/(used for) operating activities
of discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4 (77.6)
------- -------
Net pretax cash provided by/(used for) operating activities . . . . . . . . . . . . . . . . 76.0 (33.4)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47.1) (39.2)
------- -------
Net cash provided by/(used for) operating activities. . . . . . . . . . . . . . . . . . . . 28.9 (72.6)
------- -------
INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (171.3) (123.9)
Businesses acquired in purchase transactions, net of cash acquired. . . . . . . . . . . . . (170.6) (236.6)
Net proceeds from divestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.8 418.4
Net proceeds from sale/leaseback transactions . . . . . . . . . . . . . . . . . . . . . . . -- 67.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.1) 2.6
------- -------
Net cash (used for)/provided by investing activities. . . . . . . . . . . . . . . . . . . . (223.2) 127.9
------- -------
FINANCING ACTIVITIES
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65.9) (63.1)
Repayments of borrowings having original maturities in excess of three months . . . . . . . (70.2) (92.4)
Increase in borrowings having original maturities in excess of three months . . . . . . . . 101.7 357.4
Net increase/(decrease) in borrowings having original maturities
of less than three months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256.3 (235.1)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 5.7
------- -------
Net cash provided by/(used for) financing activities. . . . . . . . . . . . . . . . . . . . 237.4 (27.5)
------- -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . -- (2.3)
------- -------
Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.1 $ 25.5
------- -------
------- -------
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
I-2
<PAGE>
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
- ----------------------------------------------------------------------------------------------
June 30, December 31,
$ millions (except par value) 1994 1993
- ---------------------------------------------------------------------------------------------- -------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90.7 $ 47.6
Notes and accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819.9 657.4
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479.8 441.0
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 709.9 761.3
Deferred income taxes, current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.1 31.8
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.0 36.2
-------- --------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,196.4 1,975.3
Properties and equipment, net of accumulated
depreciation and amortization of $1,398.9
and $1,323.7, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550.8 1,454.1
Goodwill, less accumulated amortization of $60.5
and $53.2, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593.3 481.6
Asbestos-related insurance receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560.0 962.3
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,314.9 1,235.3
-------- --------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,215.4 $6,108.6
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 761.7 $ 532.6
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305.7 414.6
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.6 126.5
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693.1 621.9
Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.0 297.0
-------- --------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,168.1 1,992.6
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,257.1 1,173.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663.7 613.8
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.7 97.4
Noncurrent liability for asbestos-related litigation . . . . . . . . . . . . . . . . . . . . . 654.2 713.7
-------- --------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,836.8 4,591.0
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.0 93.5
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303.0 287.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034.2 1,196.2
Cumulative translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60.0) (67.3)
-------- --------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,378.6 1,517.6
-------- --------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,215.4 $6,108.6
-------- --------
-------- --------
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
I-3
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ millions except per share)
(a) The financial statements in this Report at and for the three- and six-month
interim periods ended June 30, 1994 and 1993 are unaudited and should be
read in conjunction with the consolidated financial statements in the
Company's 1993 Annual Report on Form 10-K. Such interim financial
statements reflect all adjustments that, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented; all such adjustments are of a normal recurring nature. Certain
amounts in the prior periods' consolidated financial statements have been
reclassified to conform to the current periods' basis of presentation.
The results of operations for the three- and six-month interim periods
ended June 30, 1994 are not necessarily indicative of the results of
operations for the fiscal year ending December 31, 1994.
(b) As previously reported, Grace is a defendant in lawsuits relating to
previously sold asbestos-containing products and anticipates that it will
be named as a defendant in additional asbestos-related lawsuits in the
future. At June 30, 1994, Grace was a defendant in approximately 37,800
asbestos-related lawsuits (78 involving claims for property damage and the
remainder involving approximately 60,900 claims for personal injury), as
compared to approximately 38,100 lawsuits (92 involving claims for property
damage and the remainder involving approximately 56,600 claims for personal
injury) at December 31, 1993. During the first half of 1994, three
property damage lawsuits against Grace were dismissed; judgment was entered
in favor of Grace in two property damage cases (one of which had been on
appeal and is now final); fourteen additional property damage lawsuits were
settled for a total of $20; and five new property damage lawsuits were
filed. During this period, Grace also recorded settlements of
approximately 2,700 personal injury claims for $9.2 and dismissals of
approximately 1,000 personal injury claims.
On September 1, 1993, the U.S. Court of Appeals for the Second Circuit
issued a decision that had the effect of reducing the amount of insurance
coverage available to Grace with respect to asbestos property damage
litigation and claims. Grace recorded a non-cash charge of $475 ($300
after taxes) in the 1993 third quarter to reflect this reduction, but
reversed $316 ($200 after taxes) of the charge in the 1993 fourth quarter,
after the Court withdrew the September 1993 decision and agreed to rehear
the case. On May 16, 1994, the Court issued a new decision confirming its
September 1, 1993 decision. As a result, Grace recorded a non-cash charge
of $200 after taxes in the second quarter of 1994 to reflect the reduction
in asbestos property damage insurance coverage.
In July 1994, a South Carolina state court judge dismissed the claims of
most class members from a purported nationwide class action asbestos
property damage lawsuit pending in a South Carolina state court (ANDERSON
MEMORIAL HOSPITAL, ET AL. V. W. R. GRACE & CO., ET AL.). In his ruling,
the judge determined that a South Carolina statute prohibits non-residents
from pursuing claims in the South Carolina state courts with respect to
buildings located outside the state. Grace expects the ruling to be
appealed and that the plaintiffs' lawyer may attempt to sue on behalf of a
nationwide class in a different jurisdiction. In August 1994, Grace
entered into an agreement to settle IN RE: ASBESTOS SCHOOL LITIGATION, a
nationwide class action pending in the
I-4
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ millions except per share)
United States Court for the Eastern District of Pennsylvania on behalf of
public and private elementary and secondary schools that contain friable
asbestos materials (other than schools that have "opted out" of the class).
The terms of the settlement agreement (which is subject to judicial review
after class members have an opportunity to be heard) are not expected to
have a significant effect on Grace's consolidated results of operations
or financial position.
In Grace's opinion (based upon and subject to the factors discussed in
Note 2 to Grace's consolidated financial statements for the year ended
December 31, 1993), it is probable that the personal injury and property
damage lawsuits pending at June 30, 1994 can be disposed of for a total of
$754.2, inclusive of legal fees and expenses, of which Grace has recorded
$654.2 as a noncurrent liability and $100 as a current liability. This
compares to the estimated liability (current and noncurrent) of $813.7 at
December 31, 1993, the decrease being attributable to payments made by
Grace in the first half of 1994. In addition, Grace has recorded a
receivable of $560 for the insurance proceeds it expects to receive in
reimbursement for prior payments and estimated future payments to dispose
of asbestos-related litigation. The amount of this receivable has declined
from $962.3 at December 31, 1993 due to the net insurance proceeds received
during the first half of 1994 and the special non-cash charge recorded in
the second quarter of 1994 as a result of the May 16, 1994 decision
referred to above.
Grace received a total of $121.6 in the first half of 1994 pursuant to
settlements with certain insurance carriers in reimbursement for monies
previously paid by Grace in connection with asbestos-related litigation. A
portion of that amount has been paid to plaintiffs in previously settled
asbestos-related lawsuits.
Grace continues to be involved in litigation with certain of its insurance
carriers, including an affiliated group of carriers that had agreed to a
settlement and had made a series of payments under that agreement in 1993.
The group of carriers subsequently notified Grace that it would no longer
honor the agreement (which had not been executed) due to the September 1,
1993 U. S. Court of Appeals decision discussed above. Grace believes that
the settlement agreement (which involves approximately $200 of the
asbestos-related receivable of $560 at June 30, 1994) is binding and
initiated action to enforce the settlement agreement. In January 1994, the
U.S. District Court for the Eastern District of Texas held the agreement to
be enforceable. The affiliated group of carriers has appealed this ruling
to the U. S. Court of Appeals for the Fifth Circuit and has sought to
attack it in a collateral action in the U.S. District Court for the
Southern District of New York; however, Grace has successfully stayed this
collateral attack.
Grace's ultimate exposure in respect of its asbestos-related lawsuits and
claims will depend on the extent to which its insurance will cover damages
for which it may be held liable, amounts paid in settlement and litigation
costs. In Grace's opinion, it is probable that recoveries from its
insurance carriers (reflected in the receivable discussed above), along
with other funds, will be available to satisfy the personal injury and
property damage lawsuits and claims pending at June 30, 1994.
Consequently, Grace believes that the resolution of its asbestos-related
litigation will not have a material effect on its consolidated results of
operations or financial position.
I-5
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ millions except per share)
For additional information, see Note 2 to the consolidated financial
statements in the Company's 1993 Annual Report on Form 10-K.
(c) In the second quarter of 1993, Grace classified as discontinued operations
its cocoa and battery separators businesses; certain engineered materials
businesses, principally its printing products, electromagnetic radiation
control and material technology businesses (collectively EMS); and other
non-core businesses pending their divestment. A provision of $105 (net of
an applicable tax benefit of $22.3) was recorded in the second quarter of
1993; that provision included the expected loss on the divestment of these
businesses, their anticipated net operating results pending divestment and
a $15.7 provision for interest expense allocated to the discontinued
operations through their expected dates of divestment. At June 30, 1994,
certain of these businesses had been sold and others were in the process of
being divested.
Minority interest consists primarily of a limited partnership interest in
Grace Cocoa Associates, L.P. (LP). LP's assets consist of Grace's
worldwide cocoa and chocolate business, long-term notes and demand loans
due from various Grace entities and guaranteed by the Company and its
principal operating subsidiary, and cash. LP is a separate and distinct
legal entity from each of the Grace entities and has separate assets,
liabilities, business functions and operations. For financial reporting
purposes, the assets, liabilities, results of operations and cash flows of
LP are included in Grace's consolidated financial statements and the
outside investors' interest in LP is reflected as a minority interest. The
intercompany notes held by LP are eliminated in preparing the consolidated
financial statements and, therefore, have not been classified as pertaining
to discontinued operations.
The net assets of Grace's discontinued operations (excluding intercompany
assets) at June 30, 1994 were as follows:
<TABLE>
<CAPTION>
Battery
Separators Grace
Cocoa and EMS Energy Other Total
------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Current assets $314.6 $121.1 $ 12.0 $ 54.7 $ 502.4
Properties and equipment, net 173.6 147.3 128.1 32.0 481.0
Investments in and advances to
affiliated companies -- 5.0 4.1 37.8 46.9
Other noncurrent assets 44.2 21.3 10.1 37.4 113.0
------ ------ ------ ------ --------
Total assets $532.4 $294.7 $154.3 $161.9 $1,143.3
------ ------ ------ ------ --------
Current liabilities $210.0 $ 46.4 $ 11.8 $ 23.2 $ 291.4
Other noncurrent liabilities 82.6 41.6 20.4 (2.6) 142.0
------ ------ ------ ------ --------
Total liabilities $292.6 $ 88.0 $ 32.2 $ 20.6 $ 433.4
------ ------ ------ ------ --------
Net assets $239.8 $206.7 $122.1 $141.3 $ 709.9
------ ------ ------ ------ --------
------ ------ ------ ------ --------
</TABLE>
I-6
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ millions except per share)
(d) Inventories consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
Raw and packaging materials $118.7 $111.4
In process 75.5 59.9
Finished products 326.7 310.3
------ ------
520.9 481.6
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (41.1) (40.6)
------ ------
Total Inventories $479.8 $441.0
------ ------
------ ------
</TABLE>
(e) Earnings per share are calculated on the basis of the following weighted
average number of common shares outstanding:
Three Months Ended June 30:
1994 - 93,933,000
1993 - 90,183,000
Six Months Ended June 30:
1994 - 93,842,000
1993 - 90,083,000
I-7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(a) Review of Operations
(1) Overview:
Sales and revenues increased 13% and 11% in the second quarter and first
half of 1994, respectively, over the comparable periods of 1993. Income
from continuing operations for the second quarter and first half of 1994
increased 22% and 21%, to $65.7 million and $103.9 million, respectively,
as compared to the 1993 periods, excluding a non-cash charge of $200
million after taxes ($316 million pretax) recorded in the 1994 second
quarter to reflect a reduction in insurance coverage for asbestos property
damage lawsuits and claims (see Note (b) to the consolidated financial
statements in this Report). Including this provision, Grace reported
losses from continuing operations for the second quarter and first half of
1994 of $134.3 million and $96.1 million, respectively.
As discussed in Note (c) to the consolidated financial statements in this
Report, Grace classified certain businesses as discontinued operations in
the second quarter of 1993.
(2) Operating Results:
The following table compares segment results for the 1994 second quarter
and first half to results for the comparable periods of 1993:
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended Six Months Ended
Operating Results June 30, June 30,
------------------------------------------------------------- ----------------------- -----------------------
$ millions 1994 1993 1994 1993
------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES AND REVENUES
Specialty Chemicals $ 782.9 $ 729.9 $1,458.3 $1,378.0
Health Care 454.0 364.2 855.4 702.3
-------- -------- -------- --------
Total $1,236.9 $1,094.1 $2,313.7 $2,080.3
-------- -------- -------- --------
-------- -------- -------- --------
OPERATING INCOME BEFORE TAXES (i)
Specialty Chemicals $ 79.0 $ 66.8 $ 119.1 $ 108.5
Health Care 57.9 46.7 101.6 81.4
-------- -------- -------- --------
Total $ 136.9 $ 113.5 $ 220.7 $ 189.9
-------- -------- -------- --------
-------- -------- -------- --------
<FN>
(i) Segment results for the 1993 periods have been reclassified to conform
to the 1994 basis of presentation. Segment results reflect the
allocation of corporate overhead and corporate research expenses.
Corporate interest, financing costs and nonallocable expenses (such as
those associated with divested businesses) are not included in the
segment results.
</TABLE>
I-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
SPECIALTY CHEMICALS
Sales and revenues increased 7% and 6% in the second quarter and first half
of 1994, respectively, as compared to the 1993 periods, reflecting
favorable volume variances estimated at 9% and 7% for the second quarter
and first half of 1994, respectively, and a favorable price/product mix
variance estimated at 1% for the first half of 1994 (no price/product mix
variance was experienced for the second quarter of 1994), offset by
unfavorable currency translation variances estimated at 2% for both the
second quarter and first half of 1994. Volume increases occurred in both
the second quarter and first half of 1994 for all core product lines,
particularly packaging (due to improved sales of bags, films and
laminates), construction products (reflecting the acquisition of concrete
admixture businesses in the first quarter of 1994 and the improving economy
in North America), water treatment (due to improving conditions in the
paper industry process chemicals business in Europe), fluid cracking
catalysts in Europe and Asia Pacific (reflecting improvement in market
share) and silica products in North America (due to strong sales of
dentifrice).
Operating income before taxes increased 18% in the second quarter of 1994
compared to the second quarter of 1993. North American results improved in
the second quarter of 1994, as strong growth occurred in packaging and
construction products (due mainly to the volume increases noted above),
partially offset by reduced profitability in fluid cracking catalysts (due
to an increase in routine customer maintenance shutdowns during the second
quarter of 1994 as compared to the second quarter of 1993). European
results were flat versus the 1993 second quarter, primarily due to costs
associated with streamlining operations in the water treatment and
container products businesses, offset by improvements in both the paper
industry process chemicals and fluid cracking catalyst businesses due to
the volume increases noted above and to improvements in cost controls. In
Asia Pacific, favorable results were achieved, primarily in fluid cracking
catalysts (due mainly to the volume increase noted above) and container
products (due to market gains and savings achieved from cost containment
efforts). In Latin America, results were favorable, primarily in packaging
(due to volume increases in bags and laminates) and water treatment (due to
strong seasonal sales to the sugar and alcohol industries).
For the first half of 1994, operating income increased 10% over the
comparable period of 1993, primarily due to the significant growth in
packaging and construction products discussed above, partially offset by
unfavorable results in water treatment, primarily due to the streamlining
costs discussed above and to Brazil's unstable economic conditions in the
first quarter of 1994.
HEALTH CARE
Sales and revenues for the second quarter and first half of 1994 increased
by 25% and 22% over the comparable periods of 1993. These improvements
were due to increases of 27% and 24%, respectively, in kidney dialysis
services and 76% and 60%, respectively, in home health care operations,
offset by decreases of 15% and 11%, respectively, in medical products
operations. The decrease in medical products operations was primarily due
to a decline in bloodline sales resulting from import alerts issued in the
1993 second quarter (see
I-9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
discussion below). Second quarter and first half 1994 results for dialysis
services and home health care include the results of Home Intensive Care,
Inc., acquired in June 1993, as well as a number of smaller businesses
acquired during the second half of 1993. Also included in home health care
operations for the 1994 second quarter are the results of Home Nutritional
Services, Inc. (HNS), a national provider of home infusion therapy services
acquired in April 1994. The number of centers providing dialysis and
related services increased 22%, from 440 at June 30, 1993 to 537 at June
30, 1994 (498 in North America, 36 in Europe , 2 in Latin America and 1 in
Asia Pacific).
Operating income before taxes in the second quarter and first half of 1994
increased by 24% and 25%, respectively, over the 1993 periods. 1994 second
quarter and first half results for all health care businesses benefited
from acquisitions made in 1993 and continued improvements in cost controls,
operating efficiencies and/or capacity utilization, partially offset by the
costs of improving and expanding quality assurance systems for medical
products manufacturing operations (see discussion below).
It is unclear at this time whether and to what extent any of the currently
proposed reforms of the U.S. health care system will affect Grace's health
care operations. However, based on its knowledge and understanding of the
health care industry in general and of other providers of kidney dialysis
and infusion therapy, as well as on publicly available information, Grace
believes that its health care operations are among the most cost-efficient
in the industry.
In 1993, the U. S. Food and Drug Administration (FDA) issued import alerts
with respect to (1) hemodialysis bloodlines manufactured at the plant of
National Medical Care, Inc. (NMC), Grace's principal health care
subsidiary, located in Reynosa, Mexico and (2) hemodialyzers manufactured
in NMC's Dublin, Ireland facility. Products subject to FDA import alerts
may not enter the U. S. 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. NMC has completed the studies, as requested.
Certification of compliance at the Dublin, Ireland facility was submitted
to the FDA in April 1994. The consent decree also requires NMC to certify
and maintain compliance with applicable FDA device manufacturing laws and
regulations at all of its U. S. manufacturing facilities. NMC has
conducted a full review of its facilities and upgraded, as necessary, all
of its quality assurance systems. 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 are expected to have a
material effect on Grace's consolidated results of operations or financial
position.
I-10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
(3) Statement of Operations:
OTHER INCOME
Other income includes, among other things, interest income, dividends,
royalties from licensing agreements, and equity in earnings of affiliated
companies. Other income for the first half of 1994 also includes a $27
million gain (pre- and after-tax) from the January 1994 sale of Grace's
remaining interest in The Restaurant Enterprise Group, Inc. (REG).
INTEREST EXPENSE AND RELATED FINANCING COSTS
Interest expense and related financing costs increased by 15% and 11% in
the second quarter and first half of 1994, respectively, versus the
comparable 1993 periods, due to an increase in related financing costs and
reductions in interest allocated to discontinued operations, partially
offset by decreases reflecting lower effective interest rates due to both
the replacement of certain fixed-rate debt with lower-cost floating-rate
borrowings and the use of financial instruments.
Grace enters into various types of interest rate hedge agreements to manage
interest costs and risks associated with changing interest rates; most of
these agreements effectively convert underlying fixed-rate debt into
variable-rate debt. Exposure to market risk on interest rate hedge
agreements results from actual or expected future fluctuations in floating
rate indices during the periods in which the agreements are outstanding.
See "Financial Condition: Liquidity and Capital Resources" below for
information on borrowings.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending decreased by 11% and 9% in the second
quarter and first half of 1994, respectively, versus the 1993 periods.
Research and development spending is now directed primarily toward Grace's
core specialty chemicals and health care businesses.
INCOME TAXES
The effective tax rates for the second quarter and first half of 1994
decreased to 35.0% and 39.1%, respectively, as compared with 42.7% and
42.1%, respectively, for the second quarter and first half of 1993.
Excluding the provision for asbestos-related litigation and claims
discussed above, the effective tax rate was 39.9% for the second quarter of
1994. The effective tax rate for the first half of 1994 was also 39.9%,
excluding the asbestos-related provision, the gain on the REG transaction
and the $26 million provision ($40 million pretax) for environmental costs
and workforce reductions recorded in the first quarter of 1994.
I-11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
In the third quarter of 1993, Grace recorded the effects of the Omnibus
Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993.
Among other things, OBRA increased the highest U.S. Federal corporate tax
rate to 35%, effective January 1, 1993. However, neither this increase in
the U.S. Federal corporate tax rate (from 34%), nor the other provisions of
OBRA, had a material effect on Grace's results of operations.
LOSS FROM DISCONTINUED OPERATIONS
In the second quarter of 1993, Grace restated its financial statements to
reflect the classification of certain businesses as discontinued
operations. See Note (c) to the consolidated financial statements in this
Report for further information.
(b) Financial Condition; Liquidity and Capital Resources
During the first half of 1994, the net pretax cash flow provided by Grace's
continuing operating activities was $60.6 million, versus $44.2 million in
the first half of 1993. The increase was primarily due to the net cash
inflow of $9.7 million, reflecting settlements with certain insurance
carriers, net of amounts paid in the first half of 1994 for the defense and
disposition of asbestos-related property damage and personal injury
litigation (see discussion below), compared with a net cash outflow of
$55.5 million in the first half of 1993. After giving effect to
discontinued operations and payments of income taxes, the net cash provided
by operating activities was $28.9 million in the first half of 1994 versus
$72.6 million of net cash used for operating activities in the first half
of 1993.
Investing activities used $223.2 million of cash in the first half of 1994,
largely reflecting capital expenditures and business acquisitions and
investments, primarily the acquisitions of HNS for approximately $90
million (exclusive of expenses and assumed debt of approximately $30
million) and of concrete admixture businesses by Grace Construction
Products. These investing activities were offset by net proceeds of $118.8
million from divestments, primarily the disposition of Grace's remaining
interest in REG in the first quarter of 1994 and the second quarter 1994
divestments of Grace's blow-molded plastic case business; its Endura
Products Division, a custom saturator and coater of specialty papers for
the tape industry; and its Diamonite Products Division, a manufacturer of
technical ceramics for a broad range of industrial applications.
Net cash provided by financing activities in the first half of 1994 was
$237.4 million, primarily reflecting an increase in total debt from
year-end 1993, offset by the payment of $65.9 million of dividends. Total
debt was approximately $2 billion at June 30, 1994, an increase of $312.7
million from December 31, 1993. Grace's total debt as a percentage of
total capital (debt ratio) increased from 52.9% at December 31, 1993 to
59.4% at June 30, 1994, as a result of the $200 million provision recorded
in the 1994 second quarter, as discussed in Note (b) to the consolidated
financial statements in this Report, and the increase in total debt.
I-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
In April 1994, Grace entered into a Selling Agency Agreement relating to
the offering from time to time of up to $300 million (issue price) of
Medium-Term Notes, Series A (MTNs). Through June 30, 1994, Grace issued
$85 million principal amount of MTNs and applied the net proceeds therefrom
to reduce commercial paper and/or bank borrowings. The MTNs mature at
various dates from 1996 to 1997 and bear interest from 6.55% to 7.09% per
annum.
Grace expects to satisfy its 1994 cash requirements from the following
sources: (1) funds generated by operations, (2) proceeds from divestments
and (3) financings. Such financings are expected to include new borrowings,
the availability and cost of which will depend upon general economic and
market conditions. In August 1994, Grace sold $300 million principal
amount of 8% Notes Due 2004. The net proceeds from the sale of these Notes
are being used to reduce commercial paper and/or bank borrowings.
On July 1, 1994, Grace announced that it had entered into a definitive
agreement to sell its American Breeders Service and Caribbean Fertilizer
businesses. Completion of the transaction is subject to various conditions
and is expected to occur during the third quarter of 1994.
On August 4, 1994, Grace announced that it had entered into a definitive
agreement to sell its battery separators business. Grace's battery
separators business involves the production of microporous insulating
sheets placed between the reactive components in automotive, industrial and
consumer batteries. Completion of the transaction is subject to various
conditions and is expected to occur later in 1994.
ASBESTOS-RELATED MATTERS
As reported in Note (b) to the consolidated financial statements in this
Report, Grace is a defendant in lawsuits relating to previously sold
asbestos-containing products and is involved in related litigation with
certain of its insurance carriers. In the first half of 1994, Grace
received $9.7 million, reflecting settlements with certain insurance
carriers, net of amounts paid in the first half of 1994 for the defense and
disposition of asbestos-related property damage and personal injury
litigation. In the second quarter of 1994, Grace recorded a non-cash
charge of $200 million after taxes to reflect a court decision that had the
effect of reducing Grace's insurance coverage for asbestos property damage
lawsuits and claims. The balance sheet at June 30, 1994 includes a
receivable due from insurance carriers, subject to litigation, of $560
million. Grace has also recorded a receivable of approximately $104
million for amounts to be received in 1994 to 1999 pursuant to settlement
agreements previously entered into with certain insurance carriers.
Although Grace cannot precisely estimate the amounts to be paid in 1994 in
respect of asbestos-related lawsuits and claims, Grace expects that it will
be required to expend approximately $50 million (pretax) in 1994 to defend
and dispose of such lawsuits and claims (after giving effect to payments to
be received from certain insurance carriers, as discussed above and in Note
(b) to the consolidated financial statements in this Report). As
I-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
indicated therein, the amounts reflected in the consolidated financial
statements with respect to the probable cost of disposing of pending
asbestos lawsuits and claims and probable recoveries from insurance
carriers represent estimates; neither the outcomes of such lawsuits and
claims nor the outcomes of Grace's ongoing litigations with certain of its
insurance carriers can be predicted with certainty.
ENVIRONMENTAL MATTERS
In the first quarter of 1994, Grace recorded a charge primarily to provide
for future environmental costs relating to a previously divested business.
No other significant developments relating to environmental liabilities
occurred in the first half of 1994.
For additional information relating to environmental liabilities, see
Note 11 to the consolidated financial statements in the Company's 1993
Annual Report on Form 10-K.
I-14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Note (b) to the Consolidated Financial Statements in Part I of this
Report is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's 1994 Annual Meeting of Shareholders ("Annual Meeting")
was held on May 10, 1994. At the Annual Meeting, the Company's shareholders (a)
elected seven Class II Directors for a term expiring in 1997; (b) ratified the
selection of Price Waterhouse as independent accountants of the Company and its
consolidated subsidiaries for 1994; (c) approved the Company's 1994 Stock
Incentive Plan; (d) approved the Company's 1994 Stock Retainer Plan for
Nonemployee Directors; (e) approved the Company's Long-Term Incentive Program;
(f) defeated a shareholder proposal requesting that the Company endorse the
"CERES Principles" and take certain related actions; and (g) defeated a
shareholder proposal requesting that Grace take certain actions with respect to
its operation in Mexico.
Following the Annual Meeting, eight Class III Directors, having terms
expiring in 1995, and seven Class I Directors, having terms expiring in 1996,
continued in office.
II-1
<PAGE>
The following sets forth the results of voting at the Annual Meeting:
<TABLE>
<CAPTION>
Votes
----------------------------------------------------------------------
Matter For Against* Abstentions Broker Non-Votes
------ --- -------- ----------- ----------------
<S> <C> <C> <C> <C>
ELECTION OF DIRECTORS*
C. H. Erhart, Jr. 86,681,540 1,002,913 -0- -0-
V. A. Kamsky 86,739,076 945,376 -0- -0-
J. E. Phipps 86,611,644 1,072,808 -0- -0-
E. W. Pyne 86,629,856 1,054,597 -0- -0-
D. W. Robbins, Jr. 86,622,318 1,062,135 -0- -0-
W. Wood Prince 86,230,384 1,454,069 -0- -0-
D. L. Yunich 86,539,455 1,144,997 -0- -0-
Selection of
Independent
Accountants 87,065,271 403,641 215,540 -0-
Approval of
1994 Stock
Incentive Plan 71,558,932 15,084,313 1,041,207 -0-
Approval of
1994 Stock
Retainer Plan 83,903,666 2,661,776 1,119,010 -0-
Approval of
Long-Term
Incentive Program 82,694,133 4,278,565 711,755 -0-
Shareholder
Proposals
CERES Principles 3,560,182 67,900,308 13,452,537 2,771,425
Mexican Operations 11,450,053 66,013,595 7,449,331 2,771,474
<FN>
- -----------------------
* With respect to the election of directors, the form of proxy permitted
shareholders to check boxes indicating votes either "for" or "withheld";
votes relating to directors designated above as "against" are votes cast as
"withheld".
</TABLE>
II-2
<PAGE>
ITEM 5. OTHER INFORMATION.
(a) On July 1, 1994, Grace announced that it had completed the sales of
its Endura Products and Diamonite Products Divisions, and that it had entered
into a definitive agreement to sell its American Breeders Service and Caribbean
Fertilizer businesses to an investor group organized by Ardshiel, Inc.
Completion of the latter transaction is subject to various conditions and is
expected to occur during the third quarter of 1994. Grace expects to receive a
total of approximately $75 million from these transactions.
(b) On August 4, 1994, Grace announced that it had entered into a
definitive agreement to sell its battery separators business to a subsidiary of
The InterTech Group, Inc., a privately held company based in Charleston, South
Carolina. Grace's battery separators business involves the production of
microporous insulating sheets placed between the reactive components in
automotive, industrial and consumer batteries. Completion of the transaction is
subject to various conditions and is expected to occur later in 1994.
(c) On August 9, 1994, Grace completed the public offering of $300 million
of 8% Notes Due 2004 ("Notes") at an initial public offering price of 99.794% of
their principal amount. The net proceeds of the Notes was used to reduce
commercial paper and bank borrowings incurred to finance capital expenditures
and working capital requirements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following are being filed as exhibits to this Report:
-- Amendment, dated as of May 16, 1994, to Credit Agreement, dated
as of September 1, 1992, among W. R. Grace & Co.- Conn., W. R.
Grace
II-3
<PAGE>
& Co., the banks and other financial institutions parties thereto
(the "Banks") and Chemical Bank as agent for the Banks;
-- weighted average number of shares and earnings used in per share
computations; and
-- computation of ratio of earnings to fixed charges and combined
fixed charges and preferred stock dividends.
(b) REPORTS ON FORM 8-K. During the quarter ended June 30, 1994, the
Company filed a Report on Form 8-K dated June 14, 1994 relating to a
decision by the United States Court of Appeals for the Second Circuit
that had the effect of reducing the Company's insurance coverage
relating to asbestos property damage litigation and claims. The
Company also filed a Report on Form 8-K dated May 4, 1994 announcing
its consolidated results of operations for the quarter ended March 31,
1994. The Company also filed a Report on Form 8-K dated May 3, 1994
announcing that it had entered into a Selling Agency Agreement
relating to the offering from time to time of Medium-Term Notes,
Series A, with an aggregate issue price of up to $300 million.
II-4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
W. R. GRACE & CO.
----------------------------
(Registrant)
Date: August 11, 1994 By /s/ Richard N. Sukenik
----------------------------
Richard N. Sukenik
Vice President and Controller
(Principal Accounting Officer)
II-5
<PAGE>
W. R. GRACE & CO.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1994
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
4.1 Amendment, dated as of May 16, 1994, to
Credit Agreement, dated as of September 1,
1992, among W. R. Grace & Co.- Conn.,
W. R. Grace & Co., the banks and other
financial institutions parties thereto (the"Banks")
and Chemical Bank as agent for the Banks.
11 Weighted average number of shares and
earnings used in per share computations
12 Computation of ratio of earnings to fixed
charges and combined fixed charges and
preferred stock dividends
<PAGE>
Exhibit 4.1
AMENDMENT
AMENDMENT, dated as of May 16, 1994 (this "AMENDMENT"), to the Credit
Agreement, dated as of September 1, 1992 (as amended, supplemented or otherwise
modified prior to the date hereof, the "CREDIT AGREEMENT"), among W. R. GRACE &
CO.-CONN., a Connecticut corporation (the "COMPANY"), W. R. GRACE & CO., a New
York corporation ("GRACE NEW YORK"), the banks and other financial institutions
parties thereto (the "BANKS") and CHEMICAL BANK, a New York banking corporation,
as agent (in such capacity the "AGENT") for the Banks.
W I T N E S S E T H :
WHEREAS, the Company and Grace New York have requested the Agent and
the Banks to agree to amend certain provisions to the Credit Agreement as set
forth in this Amendment; and
WHEREAS, the Agent and the Banks are willing to agree to such
amendment, but only on the terms and subject to the conditions set forth in this
Amendment;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, Grace New York and the Agent hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined.
2. AMENDMENT. The definition of "EBIT" in subsection 1.1 of the
Credit Agreement is hereby amended by:
(a) inserting immediately after the comma at the end of clause (c)
thereof the following new clause (d):
"PLUS (d) non-cash pre-tax charges against earnings in the approximate
amount of $316,000,000 recorded by Grace New York during the fiscal
quarter ending
June 30, 1994 to recognize the reduction in insurance coverage for
asbestos property damage litigation and claims (to the extent that
such amount has been deducted in determining the amount set forth
opposite the caption "Income from continuing operations" (or the
equivalent caption) for such period),"
(b) relettering existing clause (d) thereof as clause (e), and
(c) inserting immediately before the period at the end of such
definition the
<PAGE>
following new clause (f):
"MINUS (f) any payments made in respect of asbestos property damage
litigation and claims which pertain to the charges referred to in
clause (d) of this definition for such period."
3. EFFECTIVENESS. This Amendment shall become effective upon
receipt by the Agent of evidence satisfactory to the Agent that this Amendment
has been executed and delivered by the Company, Grace New York and the Majority
Banks.
4. REPRESENTATIONS AND WARRANTIES. To induce the Agent and the
Banks to enter into this Amendment, the Company and Grace New York hereby
represent and warrant to the Agent and the Banks that, after giving effect to
the amendment provided for herein, the representations and warranties contained
in the Credit Agreement and the other Loan Documents (if any) will be true and
correct in all material respects as if made on and as of the date of
effectiveness hereof and that as of such date no Default or Event of Default
will have occurred and be continuing.
5. NO OTHER AMENDMENTS. Except as expressly amended hereby, the
Credit Agreement and the other Loan Documents (if any) shall remain in full
force and effect in accordance with their respective terms.
6. COUNTERPARTS. This Amendment may be executed by one or more of
the parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. EXPENSES. The Company and Grace New York agree to pay and
reimburse the Agent for all of the out-of-pocket costs and expenses incurred by
the Agent in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, the fees and disbursements of Simpson
Thacher & Bartlett, counsel to the Agent.
8. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the day and year first above written.
W. R. GRACE & CO.-CONN.
By:__________________________
Title:
W. R. GRACE & CO.
By:__________________________
Title:
CHEMICAL BANK, as Agent
By:_______________________________
Title:
The undersigned Banks hereby consent and agree to the foregoing
Amendment:
CHEMICAL BANK
By:_______________________________
Title:
ABN AMRO BANK N.V.
By:_______________________________
Title:
By:_______________________________
Title:
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By:_______________________________
Title:
CITIBANK, N.A.
By:_______________________________
Title:
COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY
By:_______________________________
Title:
By:_______________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:_______________________________
Title:
NATIONSBANK OF FLORIDA, N.A.
By:_______________________________
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:_______________________________
Title:
<PAGE>
THE BANK OF NOVA SCOTIA
By:_______________________________
Title:
BARCLAYS BANK PLC
By:_______________________________
Title:
CREDIT LYONNAIS ATLANTA AGENCY
By:_______________________________
Title:
DRESDNER BANK AG NEW YORK AND GRAND CAYMAN
BRANCHES
By:_______________________________
Title:
By:_______________________________
Title:
THE HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED
By:_______________________________
Title:
<PAGE>
SWISS BANK CORPORATION -- NEW YORK BRANCH
By:_______________________________
Title:
By:_______________________________
Title:
UNION BANK OF SWITZERLAND
By:_______________________________
Title:
By:_______________________________
Title:
J.P. MORGAN DELAWARE
By:_______________________________
Title:
CONTINENTAL BANK, N.A.
By:_______________________________
Title:
<PAGE>
Exhibit 11
W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS
(Unaudited)
The weighted average number of shares of Common Stock outstanding were as
follows (in thousands):
<TABLE>
<CAPTION>
3 Mos. Ended 6 Mos. Ended
6/30/94 - 6/30/93 6/30/94 - 6/30/93
----------------------- ---------------------
<S> <C> <C> <C> <C>
Weighted average number of shares of Common
Stock outstanding. . . . . . . . . . . . . . . . . . . . . . . . 93,933 90,183 93,842 90,083
Conversion of convertible debt obligations . . . . . . . . . . . -- 12,187 -- 3,626
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method). . . . . . . . . . . . . . . . . . . . . . . . . . 614 782 798 782
------ ------- ------ ------
Weighted average number of shares of Common
Stock outstanding assuming full dilution . . . . . . . . . . . . 94,547 103,152 94,640 94,491
------ ------- ------ ------
------ ------- ------ ------
<CAPTION>
Loss used in the computation of earnings per share were as follows (in millions except per share):
3 Mos. Ended 6 Mos. Ended
6/30/94 - 6/30/93 6/30/94 - 6/30/93
----------------------- ---------------------
<S> <C> <C> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(134.3) $(51.1) $(96.1) $(22.8)
Dividends paid on preferred stocks . . . . . . . . . . . . . . . (.1) (.1) (.2) (.2)
------ ------ ------ ------
Loss used in per share computation of
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . (134.4) (51.2) (96.3) (23.0)
Interest, net of tax, on convertible debt
obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 4.5 -- 1.2
------ ------ ------ ------
Loss used in per share computation of
earnings assuming full dilution. . . . . . . . . . . . . . . . . $(134.4) $(46.7) $(96.3) $(21.8)
------ ------ ------ ------
------ ------ ------ ------
Loss per share . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.43) $ (.57) $(1.03) $ (.26)
Loss per share assuming full dilution. . . . . . . . . . . . . . $ (1.42) $ (.45) $(1.02) $ (.23)
</TABLE>
<PAGE>
Exhibit 12
W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in millions except ratios)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, (b) June 30,
---------------------------------------------- -----------------
1993(c) 1992(d) 1991 1990 1989 1994(e) 1993(b)
------- ------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income/(loss) from continuing operations . . . . . $134.4 $ 57.7 $201.7 $174.6 $145.9 $(96.1) $ 85.6
Add (deduct):
Provision/(benefit) for income taxes. . . . . . . . 86.8 134.8 132.5 97.5 61.3 (61.6) 62.2
Income taxes of 50%-owned companies . . . . . . . . .1 2.1 1.5 1.9 1.2 -- --
Minority interest in income of
majority-owned subsidiaries . . . . . . . . . . . -- -- -- 1.2 .6 -- --
Equity in unremitted earnings of
less than 50%-owned companies . . . . . . . . . . (1.3) (1.8) (2.5) (2.1) (.3) (1.4) (.3)
Interest expense, including amortization
of capitalized interest . . . . . . . . . . . . . 119.8 152.9 198.4 235.7 224.8 48.5 59.9
Amortization of debt discount and expense . . . . . 4.3 1.5 2.1 1.9 1.9 .6 1.2
Estimated amount of rental expense
deemed to represent the interest factor . . . . . 21.3 26.6 21.7 21.0 19.1 15.0 15.2
------ ------ ------ ------ ------ ------ ------
Income/(loss) as adjusted. . . . . . . . . . . . . . . $365.4 $373.8 $555.4 $531.7 $454.5 $(95.0) $223.8
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Combined fixed charges and preferred stock dividends:
Interest expense, including capitalized
interest. . . . . . . . . . . . . . . . . . . . . $119.9 $166.5 $213.3 $244.7 $229.3 $ 49.7 $ 60.3
Amortization of debt discount and expense . . . . . 4.3 1.5 2.1 1.9 1.9 .6 1.2
Estimated amount of rental expense
deemed to represent the interest factor . . . . . 21.3 26.6 21.7 21.0 19.1 15.0 15.2
------ ------ ------ ------ ------ ------ ------
Fixed charges. . . . . . . . . . . . . . . . . . . . . 145.5 194.6 237.1 267.6 250.3 65.3 76.7
Preferred stock dividend requirements(a) . . . . . . . .9 .9 .9 .8 .7 .4 .5
------ ------ ------ ------ ------ ------ ------
Combined fixed charges and preferred
stock dividends. . . . . . . . . . . . . . . . . . . $146.4 $195.5 $238.0 $268.4 $251.0 $ 65.7 $ 77.2
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings to fixed charges . . . . . . . . . . 2.51 1.92 2.34 1.99 1.82 (f) 2.92
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings to combined fixed charges and
preferred stock dividends. . . . . . . . . . . . . . 2.50 1.91 2.33 1.98 1.81 (f) 2.90
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
<FN>
(a) Preferred stock dividend requirements, increased to an amount
representing the pretax earnings that would be required to cover such
dividend requirements based on the effective tax rates for the periods
presented.
(b) Restated to conform to the 1994 presentation.
(c) Includes a provision of $159.0 relating to asbestos-related insurance
coverage.
(d) Includes a provision of $140.0 relating to a fumed silica plant in
Belgium.
(e) Includes a provision of $316.0 relating to asbestos-related insurance
coverage.
(f) As a result of the loss incurred for the six-month period ended June
30, 1994, Grace was unable to fully cover the indicated fixed charges.
</TABLE>
