<PAGE>
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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 September 30, 1995
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
97,299,148 shares of Common Stock, $1.00 par value, were outstanding at October
31, 1995.
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<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-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition I-9 to I-17
PART II. Other Information
Item 1. Legal Proceedings II-1
Item 5. Other Information II-2
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 Nine Months Ended
Consolidated Statement of Operations (Unaudited) September 30, September 30,
- ------------------------------------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Dollars in millions, except per share 1995 1994 1995 1994
- ---------------------------------------- -------- -------- --------- ---------
Sales and revenues . . . . . . . . . . . . . . . . $946.4 $815.5 $2,732.1 $2,273.8
Other income . . . . . . . . . . . . . . . . . . . 4.5 4.0 13.3 38.2
-------- -------- --------- --------
Total. . . . . . . . . . . . . . . . . . . . . . 950.9 819.5 2,745.4 2,312.0
-------- -------- --------- --------
Cost of goods sold and operating expenses. . . . . 566.0 475.0 1,617.6 1,377.3
Selling, general and administrative expenses . . . 216.4 187.5 666.9 546.4
Depreciation and amortization. . . . . . . . . . . 44.6 38.4 123.0 114.0
Interest expense and related financing costs . . . 17.8 14.5 52.3 36.4
Research and development expenses. . . . . . . . . 28.4 28.7 90.0 82.8
Corporate expenses previously allocated to the
health care segment . . . . . . . . . . . . . 8.3 9.0 30.0 27.4
Restructuring costs. . . . . . . . . . . . . . . . 44.3 - 44.3 -
Provision relating to asbestos-related
insurance coverage. . . . . . . . . . . . . . - - - 316.0
-------- --------- --------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . 925.8 753.1 2,624.1 2,500.3
-------- -------- ------- -------
Income/(loss) from continuing operations before
income taxes. . . . . . . . . . . . . . . . . 25.1 66.4 121.3 (188.3)
Provision for/(benefit from) income taxes. . . . . 5.3 23.4 33.6 (82.0)
-------- --------- --------- --------
Income/(loss) from continuing operations . . . . . 19.8 43.0 87.7 (106.3)
Income from discontinued operations. . . . . . . . 1.9 33.0 60.2 86.2
-------- --------- --------- --------
Net income/(loss). . . . . . . . . . . . . . . . . $ 21.7 $ 76.0 $ 147.9 $ (20.1)
-------- --------- --------- --------
-------- --------- --------- --------
- ------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per share:
Continuing operations. . . . . . . . . . . . . . $ .20 $ .46 $ .92 $ (1.14)
Net income/(loss). . . . . . . . . . . . . . . . $ .22 $ .81 $ 1.55 $ (.22)
Fully diluted earnings/(loss) per share:
Continuing operations $ .20 $ .45 $ .89 $ - (1)
Net income/(loss). . . . . . . . . . . . . . . . $ .22 $ .80 $ 1.51 $ - (1)
Dividends declared per common share. . . . . . . . $ .35 $ .35 $ 1.05 $ 1.05
</TABLE>
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(1) Not presented as the effect is anti-dilutive.
The Notes to Consolidated Financial Statements
are an integral part of this statement.
I-1
<PAGE>
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Nine Months Ended
Consolidated Statement of Cash Flows (Unaudited) September 30,
- ----------------------------------------------------------------------------------------- ----------------------
Dollars in millions 1995 1994
- ----------------------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Income/(loss) from continuing operations before income taxes . . . . . . . . . . . $ 121.3 $(188.3)
Reconciliation to cash (used for)/provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 123.0 114.0
Provision relating to asbestos-related insurance coverage . . . . . . . . . . - 316.0
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
Increase in notes and accounts receivable, net. . . . . . . . . . . . . . . (55.4) (82.5)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (81.5) (32.8)
Proceeds from asbestos-related insurance settlements. . . . . . . . . . . . 174.4 136.6
Payments made for asbestos-related litigation settlements,
judgments and defense costs . . . . . . . . . . . . . . . . . . . . . . (96.7) (150.0)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . (65.7) (99.2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.3 (5.3)
------ -------
Net pretax cash provided by operating activities of continuing operations. . . . . 150.7 8.5
Net pretax cash provided by operating activities of discontinued operations. . . . 43.1 261.5
------ -------
Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . 193.8 270.0
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207.2) (82.4)
------ -------
Net cash (used for)/provided by operating activities . . . . . . . . . . . . . . . (13.4) 187.6
------ -------
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (366.5) (279.0)
Businesses acquired in purchase transactions, net of
cash acquired and assumed debt. . . . . . . . . . . . . . . . . . . . . . . . (31.4) (206.7)
Increase in net investments in discontinued operations . . . . . . . . . . . . . . (149.1) (25.7)
Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . 49.4 191.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 55.3
------ -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . (488.3) (264.6)
------ -------
FINANCING ACTIVITIES
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100.3) (99.0)
Repayments of borrowings having original maturities in excess of three months. . . (41.6) (82.9)
Increase in borrowings having original maturities in excess of three months. . . . 52.1 458.8
Net increase in borrowings having original maturities of less than three months. . 475.3 (208.3)
Stock options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.1 17.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.8) (0.1)
------ -------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . 500.8 85.5
------ -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . 3.5 0.7
------ -------
Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 2.6 $ 9.2
------ -------
------ -------
</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)
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September 30, December 31,
Dollars in millions, except par value 1995 1994
- --------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 80.9 $ 78.3
Notes and accounts receivable, net. . . . . . . . . . . . . . . . . . 582.1 975.7
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515.2 514.2
Net assets of discontinued operations - other . . . . . . . . . . . . 351.8 335.6
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 209.0 295.4
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . 24.6 29.7
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 1,763.6 2,228.9
Properties and equipment, net of accumulated
depreciation and amortization of $1,432.0
and $1,498.2, respectively. . . . . . . . . . . . . . . . . . . . . 1,625.9 1,730.1
Goodwill, less accumulated amortization of $21.0
and $71.8, respectively . . . . . . . . . . . . . . . . . . . . . . 120.4 672.5
Net assets of discontinued operations - health care. . . . . . . . . . 1,490.6 -
Asbestos-related insurance receivable. . . . . . . . . . . . . . . . . 470.4 512.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763.2 1,086.5
----------- -----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,234.1 $6,230.6
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 671.1 $ 430.9
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 269.2 433.7
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.2 197.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . 601.9 872.9
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 297.0 297.0
----------- -----------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . 1,947.4 2,231.5
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256.2 1,098.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 699.7 690.9
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 108.0 92.5
Noncurrent liability for asbestos-related litigation . . . . . . . . . 534.2 612.4
----------- -----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 4,545.5 4,726.1
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value. . . . . . . . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . 97.1 94.1
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.4 308.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195.1 1,147.5
Cumulative translation adjustments. . . . . . . . . . . . . . . . . . (28.0) (53.3)
Treasury stock, 53,153 common shares, at cost . . . . . . . . . . . . (2.4) -
----------- -----------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . 1,688.6 1,504.5
----------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,234.1 $6,230.6
----------- -----------
----------- -----------
</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
(Dollars in millions)
(a) The financial statements in this Report at September 30, 1995 and 1994 and
for the three- and nine-month interim periods then ended are unaudited and
should be read in conjunction with the consolidated financial statements in
the Company's 1994 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 basis of presentation. The results
of operations for the three- and nine-month interim periods ended September
30, 1995 are not necessarily indicative of the results of operations for
the fiscal year ending December 31, 1995.
In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off National Medical Care, Inc. (NMC), Grace's
wholly owned health care subsidiary, by means of a dividend to holders of
the Company's common stock that would be declared upon the satisfaction of
various conditions. As a result of the Board's approval of the plan to
spin off NMC, Grace has classified its health care segment as a
discontinued operation. The consolidated statement of operations reflects
discontinued operations separately from continuing operations for all
periods presented. The statement of cash flows reflects certain pretax
operating activities of discontinued operations separately from continuing
operations for all periods presented, and the investing and financing
activities of discontinued operations are reflected separately from
continuing operations beginning with the period in which each business was
classified as a discontinued operation. The consolidated balance sheet
reflects the net assets of discontinued operations separately from
continuing operations beginning with the period in which each business was
classified as a discontinued operation. See Note (c) below for additional
information.
(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. Grace was a defendant in approximately 40,800 asbestos-related
lawsuits at September 30, 1995 (58 involving claims for property damage and
the remainder involving approximately 85,900 claims for personal injury),
as compared to approximately 38,700 lawsuits at December 31, 1994 (65
involving claims for property damage and the remainder involving
approximately 67,900 claims for personal injury). During the first nine
months of 1995, eight property damage lawsuits were settled for a total of
$3.6; five new property damage lawsuits were filed; three property damage
lawsuits were dismissed; and, in a case that had been on appeal and is now
final, Grace was held liable for $6.1. During the first nine months of
1995, approximately 1,400 personal injury claims against Grace were
dismissed without payment and $24.3 was recorded to reflect settlements and
judgments in approximately 7,700 personal injury claims.
Based upon and subject to the factors discussed in Note 2 to Grace's
consolidated financial statements for the year ended December 31, 1994,
Grace has attempted to estimate its future costs to dispose of the personal
injury and property damage lawsuits pending at September 30, 1995 and has
determined that it is probable that such lawsuits can be disposed of for a
total of $634.2, inclusive of legal fees and expenses, of which
I-4
<PAGE>
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Grace has recorded $534.2 as a noncurrent liability and $100.0 as a current
liability. This compares to the estimated liability (current and
noncurrent) of $712.4 at December 31, 1994, the decrease being attributable
to payments made by Grace for judgments, settlements and defense costs in
connection with asbestos-related litigation during the first nine months of
1995. In addition, Grace has recorded a receivable of $470.4 for the
insurance proceeds it expects to receive in reimbursement for prior
payments and estimated future payments to dispose of pending asbestos-
related litigation. The amount of this receivable has declined from
$512.6 at December 31, 1994 due to the net insurance proceeds received
during the first nine months of 1995.
In the first nine months of 1995, Grace received a total of $174.4 pursuant
to settlements with certain insurance carriers in reimbursement for amounts
previously paid and to be paid by Grace in connection with asbestos-related
litigation; of this amount, $125.0 was received pursuant to settlements
entered into in 1993 and 1994 and had been classified as notes
receivable in the financial statements.
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 a September 1993
decision by the U.S. Court of Appeals for the Second Circuit that had the
effect of reducing the amount of insurance coverage available to Grace with
respect to asbestos property damage litigation and claims. Grace initiated
action to enforce the settlement agreement (which involves approximately
$226.0 of the asbestos-related receivable of $470.4 at September 30, 1995)
in connection with the settlement of a property damage case pending in the
U.S. District Court for the Eastern District of Texas. The District Court
held the agreement to be enforceable; this ruling was subsequently affirmed
by the U.S. Court of Appeals for the Fifth Circuit and, in October 1995,
the U.S. Supreme Court declined to review the Fifth Circuit decision.
Based on that decision, the group of carriers paid Grace $13.9 in the
second quarter of 1995, representing the carriers' portion of the
settlement in the underlying property damage case. Grace has demanded that
the group of carriers pay the amounts due under the settlement agreement
with respect to property damage cases in other jurisdictions and is
involved in litigation in the U.S. District Court for the Southern District
of New York seeking such amounts.
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. As previously reported, the May 1994 decision of the U.S. Court of
Appeals for the Second Circuit limited the amount of insurance coverage
available with respect to property damage lawsuits and claims. Because
Grace's insurance covers both property damage and personal injury lawsuits
and claims, the May 1994 decision has had the concomitant effect of
reducing the insurance coverage available with respect to Grace's personal
injury lawsuits and claims. However, in Grace's opinion, it is probable
that recoveries from its insurance carriers, along with other funds, will
be available to satisfy the property damage and personal injury lawsuits
and claims pending at September 30, 1995. Consequently, Grace believes
that the
I-5
<PAGE>
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
resolution of its pending asbestos-related litigation will not have a
material adverse effect on its consolidated results of operations or
financial position.
For additional information, see Note 2 to the consolidated financial
statements in the Company's 1994 Annual Report on Form 10-K.
(c) As discussed in Note (a) above, Grace has classified its health care
segment as a discontinued operation. The operating results of Grace's
cocoa business and other discontinued operations have been charged against
previously established reserves.
Summary results of operations for the health care segment are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1995 1994 1995 1994
------- ------ -------- ---------
<S> <C> <C> <C> <C>
Sales and revenues $520.9 $491.2 $1,536.2 $1,346.6
------ ------ -------- ---------
------ ------ -------- ---------
Income from discontinued operations
before income taxes $ 23.6 $ 60.1 $ 127.7 $ 157.1
Income tax provision 21.7 27.1 67.5 70.9
------ ------ -------- ---------
Income from discontinued operations $ 1.9 $ 33.0 $ 60.2 $ 86.2
------ ------- -------- --------
------ ------- -------- --------
</TABLE>
The net operating income of the health care segment reflects the allocation of
Grace's health care related research expenses and an allocation of Grace's
interest expense based on a ratio of the net assets of the health care segment
as compared to Grace's total debt and equity capital. Interest expense
allocated to the discontinued health care segment was $23.0 and $15.7 for the
third quarters of 1995 and 1994, respectively, and $64.7 and $39.5 for the nine
months ended September 30, 1995 and 1994, respectively. Taxes have been
allocated to the health care segment as if it were a stand-alone taxpayer;
however, these allocations are not necessarily indicative of the results of the
health care segment in the future on a stand-alone basis.
In October 1995, NMC received five investigative subpoenas from the Office of
Inspector General (OIG) of the U.S. Department of Health and Human Services.
The subpoenas call for the production of extensive documents relating to various
aspects of NMC's business, and a letter accompanying the subpoenas stated that
they had been issued in conjunction with an investigation being conducted by the
OIG, the U.S. Attorney for the District of Massachusetts, and others, concerning
possible violations of federal laws relating to health care payments and
reimbursements.
The five subpoenas cover the following areas: (a) NMC's corporate management,
personnel and employees, organizational structure, financial information and
internal communications; (b) NMC's dialysis services business, principally
medical director contracts and compensation; (c) billings under the Medicare End
Stage Renal Disease program and, in particular, the effect on such billings of
the Omnibus Budget Reconciliation Act of 1993, which is described in NMC's Form
10 Registration Statement under the Securities Act of 1934 (Form 10); (d) NMC's
LifeChem laboratory business, including documents relating to
I-6
<PAGE>
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
testing procedures, marketing, customers, competition and certain billing
matters referenced in the Form 10; and (e) NMC's Homecare Division and, in
particular, information concerning the Intradialytic Parenteral Nutrition
business, which is described in the Form 10, including billing practices related
to various services, equipment and supplies.
The results of the investigation and its impact, if any, cannot be predicted at
this time. In the event that any government agency believes that wrongdoing
related to the investigation has occurred, civil and/or criminal proceedings
could be instituted, and if any such proceedings were to be instituted and the
outcome were unfavorable, NMC could be subject to fines, penalties and damages
or could become excluded from government reimbursement programs. Any such
result could have a material adverse effect on NMC's financial position or
the results of operations of NMC and Grace.
For various reasons arising from the issuance of the subpoenas, the completion
of the spin-off of NMC, originally expected in the 1995 fourth quarter, has been
delayed.
Minority interest consists of a limited partnership interest in Grace Cocoa
Associates, L.P. (LP). LP's assets consist of Grace Cocoa's worldwide cocoa and
chocolate business, long-term notes and demand loans issued by 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 as a component of discontinued operations, 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, excluding intercompany assets, of Grace's cocoa business and
other discontinued operations (classified as current assets) and Grace's health
care segment (classified as noncurrent assets) included in the consolidated
balance sheet at September 30, 1995, are as follows:
<TABLE>
<CAPTION>
Sub- Health
Cocoa Other Total Care Total
------ ------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Current assets $319.9 $ 18.3 $338.2 $ 606.5 $ 944.7
Properties and equipment, net 188.2 32.9 221.1 368.7 589.8
Investments in and advances to
affiliated companies - 34.5 34.5 - 34.5
Other assets 54.4 24.0 78.4 976.7 1,055.1
------ ------- ------ -------- --------
Total assets $562.5 $109.7 $672.2 $1,951.9 $2,624.1
------ ------- ------ -------- --------
Current liabilities $208.0 $ 11.1 $219.1 $ 288.8 $ 507.9
Other liabilities 91.2 10.1 101.3 172.5 273.8
------ ------- ------ -------- --------
Total liabilities $299.2 $ 21.2 $320.4 $ 461.3 $ 781.7
------ ------- ------ -------- --------
Net assets $263.3 $ 88.5 $351.8 $1,490.6 $1,842.4
------ ------- ------ -------- --------
------ ------- ------ -------- --------
</TABLE>
I-7
<PAGE>
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
(d) Grace has initiated a major cost management effort in all product lines,
regional centers and corporate offices to determine areas for cost
reduction. The emphasis has been on work process changes that will
simplify or eliminate tasks, make work more relevant to Grace's current
business environment and streamline its organization. The focus of the
effort is on general and administrative costs and factory administration,
with a separate study of company-wide research and development costs.
Certain actions have already been taken, including headcount reductions at
the corporate headquarters office, changes to Grace's company-wide travel
program, the termination of certain consulting arrangements, the shutdown
of the Japan research center and the phase-out of certain research
programs.
In the third quarter of 1995, Grace recorded a pretax charge of $44.3
($27.1 after-tax), primarily for severance and other termination benefits,
as well as costs relating to the shutdown of the Japan research center.
The Company expects to implement significant additional cost reductions in
the fourth quarter of 1995 and the first half of 1996, but has yet to
determine the amount of the provision that will be required in connection
with these additional cost reductions. The Company is also currently
evaluating strategic and other actions that may impact 1995 fourth quarter
results.
(e) Inventories consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994 (i)
------------ -----------
<S> <C> <C>
Raw and packaging materials $147.6 $129.8
In process 89.0 75.3
Finished products 323.5 352.2
------ ------
560.1 557.3
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (44.9) (43.1)
------ ------
Total Inventories $515.2 $514.2
------ ------
------ ------
</TABLE>
(i) Inventories at December 31, 1994 include $92.4 relating to the
health care segment.
(f) Earnings per share are calculated on the basis of the following weighted
average number of common shares outstanding:
Three Months Ended September 30:
1995 - 96,708,000
1994 - 93,955,000
Nine Months Ended September 30:
1995 - 95,330,000
1994 - 93,893,000
I-8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(a) Review of Operations
(1) Overview:
The following table compares results for the 1995 third quarter and first nine
months to results for the comparable periods of 1994:
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Operating Results - Overview September 30, September 30,
- --------------------------------------- ------------------ --------------------
Dollars in millions 1995 1994 1995 1994
- --------------------------------------- ------ ------ -------- ---------
<S> <C> <C>
Sales and revenues $946.4 $815.5 $2,732.1 $2,273.8
------ ------ -------- --------
------ ------ -------- --------
Income from continuing operations
before special items $ 53.0 $ 43.0 $ 133.4 $ 92.7
Special items (after-tax):
Corporate governance (6.1) - (18.6) -
Restructuring costs (27.1) - (27.1) -
Gain on sale of remaining interest in The
Restaurant Enterprises Group, Inc. (REG) - - - 27.0
Environmental costs/workforce reductions - - - (26.0)
Provision relating to asbestos-related
insurance coverage - - - (200.0)
------ ------ -------- --------
Income/(loss) from continuing operations $ 19.8 $ 43.0 $ 87.7 $ (106.3)
------ ------ -------- --------
------ ------ -------- --------
</TABLE>
Sales and revenues increased 16% and 20% in the third quarter and first nine
months of 1995, respectively, over the comparable 1994 periods. Income from
continuing operations for the third quarter and first nine months of 1995
amounted to $53.0 million and $133.4 million, respectively, increases of 23% and
44% as compared to the respective 1994 periods, excluding the special items
listed above. Income from continuing operations before special items includes
corporate expenses, previously identified with the health care segment, of $8.3
million and $9.0 million for the third quarters of 1995 and 1994, respectively,
and $30.0 million and $27.4 million for the nine months ended September 30, 1995
and 1994, respectively. These costs will not be assumed by National Medical
Care, Inc. (NMC), Grace's wholly owned health care subsidiary, upon completion
of its spin-off, and it is therefore anticipated that these costs will be
eliminated. See below for additional information regarding the spin-off of NMC
and Grace's cost management effort.
As noted above and in Note (d) to the consolidated financial statements in this
Report, Grace has initiated a major cost management effort in all product lines,
regional centers and corporate offices to determine areas for cost reduction.
In the third quarter of 1995, Grace recorded a pretax charge of $44.3 million
($27.1 million after-tax), primarily for severance and other termination
benefits, as well as costs relating to the shutdown of the Japan research
center. The Company expects to implement significant additional cost reductions
in the fourth quarter of 1995 and the first half of 1996, but has yet to
determine the amount of the provision that will be required in connection with
these additional cost reductions. The Company is also currently evaluating
strategic and other actions that may impact 1995 fourth quarter results.
I-9
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Also recorded in the third quarter and first nine months of 1995 are pretax
charges of $10.0 million and $30.0 million, respectively ($6.1 million and $18.6
million after-tax, respectively), for costs associated with the termination of
the employment agreement of the Company's former President and Chief Executive
Officer, pension costs resulting from the retirement of certain directors, and
legal and other expenses related to the foregoing and other corporate governance
activities.
As discussed in Notes (a) and (c) to the consolidated financial statements in
this Report, the health care segment was classified as a discontinued operation
in the 1995 second quarter.
(2) Operating Results - Specialty Chemicals:
The following table compares results for the specialty chemicals segment for the
1995 third quarter and first nine months to results for the comparable periods
of 1994:
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Specialty Chemicals Operating Results September 30, September 30,
- --------------------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Dollars in millions 1995 1994 1995 1994
- --------------------------------------- ------ ------ ------ ------
Sales and revenues $946.4 $815.5 $2,732.1 $2,273.8
------ ------ -------- --------
------ ------ -------- --------
Operating income before taxes (i) $105.0 $ 90.1 $ 280.4 $ 208.4
------ ------ -------- --------
------ ------ -------- --------
</TABLE>
(i) Specialty chemicals segment results reflect the allocation of
corporate overhead and corporate research expenses; corporate interest and
financing costs and nonallocable expenses are not reflected in the
specialty chemicals segment results.
As noted above, sales and revenues increased 16% and 20% in the third quarter
and first nine months of 1995, respectively, over the 1994 periods, reflecting
favorable volume, price/product mix and currency translation variances estimated
at 9%, 4% and 3%, respectively, for the third quarter of 1995, and 11%, 5% and
4%, respectively, for the first nine months of 1995.
In the third quarter of 1995, all product lines other than construction products
experienced volume increases as compared to the 1994 third quarter. Packaging
volume increases reflected higher sales of bags and laminates in all regions,
and higher sales of films in all regions other than Latin America. The volume
increases in catalyst and other silica-based products reflected higher sales of
fluid cracking catalysts and silicas/adsorbents products, especially in Europe
and Asia Pacific, due to market share gains. Container volume increases were
due to increased sales of specialty polymers products in Asia Pacific. The
volume increases in water treatment were due to higher sales volumes in the
paper industry process chemicals business in North America and Europe due to
market share gains and in water treatment chemicals in Europe and Latin America.
The volume decreases in construction products resulted primarily from decreases
in fireproofing materials in North America due to a small market share loss and
waterproofing materials in North America due to a slowdown in the roofing market
after a strong 1995 first quarter, partially offset by improved volumes of all
products in Asia Pacific.
I-10
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Operating income before taxes increased 17% in the third quarter of 1995
compared to the third quarter of 1994. North American results improved,
primarily reflecting strong growth in packaging (due to the volume increases
noted above), offset by the decline in construction products, as noted above.
The results for fluid cracking catalysts in North America also declined, as the
market continued to experience low refinery margins and a narrow spread between
light and heavy crude oil prices, which led customers to crack higher quality
light crude rather than heavy crude (which requires more catalysts); the
weakness in fluid cracking catalysts in North America was nearly offset by
improved results in Europe and Asia Pacific, as noted above. European results
improved significantly versus the 1994 third quarter, primarily in packaging,
due to the volume increases noted above and the absence of costs incurred in the
third quarter of 1994 associated with streamlining packaging operations. In
Asia Pacific, results were flat versus the 1994 third quarter, primarily due to
the volume increases noted above, offset by higher operating costs incurred to
increase market share in the region for container, water treatment and
construction products. Latin American 1995 third quarter results were
unfavorable versus the 1994 third quarter, primarily due to higher wage and
employee benefit costs in water treatment resulting from inflation indexation in
Brazil.
For the first nine months of 1995, operating income increased 35% over the
comparable period of 1994, primarily due to the significant growth in packaging
and catalyst and other silica-based products, as discussed above.
(3) Statement of Operations:
OTHER INCOME
Other income includes interest income, dividends, royalties from licensing
agreements, and equity in earnings of affiliated companies. Other income for
the first nine months of 1994 also included a $27.0 million gain (pre- and
after-tax) from the January 1994 sale of Grace's remaining interest in REG.
INTEREST EXPENSE AND RELATED FINANCING COSTS
Excluding amounts allocated to the discontinued health care segment (as
discussed in Note (c) to the financial statements in this Report), interest
expense and related financing costs of $17.8 million and $52.3 million in the
third quarter and first nine months of 1995, respectively, increased by 23% and
44%, respectively, versus the comparable 1994 periods. Including amounts
allocated to the health care segment, interest expense and related financing
costs increased 35% and 54% in the third quarter and first nine months of
1995, respectively, over the comparable 1994 periods, to $40.8 million and
$117.0 million, respectively, primarily due to higher average short-term
interest rates.
See "Financial Condition: Liquidity and Capital Resources" below for
information on borrowings.
I-11
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending was flat for the third quarter of 1995 versus
the comparable 1994 period, while such spending increased by 9% for the first
nine months of 1995 versus the comparable 1994 period. As discussed in Note (d)
to the consolidated financial statements in this Report, Grace has initiated a
major cost management effort, which includes a separate study of company-wide
research and development costs. Certain actions have already been taken based
on this study, including the shutdown of the Japan research center and the
phase-out of certain research programs.
INCOME TAXES
The effective tax rates were 33.2% and 31.8%, respectively, for the third
quarter and first nine months of 1995, as compared with 35.2% and 34.1%,
respectively, for the third quarter and first nine months of 1994, excluding the
special items discussed above in "Review of Operations - Overview". As compared
to the respective periods of 1994, the lower effective tax rates in the third
quarter and first nine months of 1995 were primarily due to an overall reduction
in the foreign tax rate, reflecting a higher utilization of foreign tax credits
resulting from the allocation of interest expense to the discontinued health
care segment, and a reassessment of the valuation allowance for certain deferred
tax assets.
INCOME FROM DISCONTINUED OPERATIONS - HEALTH CARE SEGMENT
The following table compares the results for the health care segment for the
1995 third quarter and first nine months to results for the comparable periods
of 1994:
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended Nine Months Ended
Health Care Operating Results September 30, September 30,
- ---------------------------------------------- --------------------- -------------------
Dollars in millions 1995 1994 1995 1994
- ---------------------------------------------- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues $520.9 $491.2 $1,536.2 $1,346.6
------ ------ -------- --------
------ ------ -------- --------
Operating income before taxes and
special charges (i) $ 86.2 $ 75.8 $ 232.0 $ 196.6
Special charges (pretax):
Write-down of impaired assets (24.0) - (24.0) -
Provision for costs relating to phase-out of
certain health care research programs (8.8) - (8.8) -
Other (6.8) - (6.8) -
------ ------ -------- --------
Operating income before taxes $ 46.6 $ 75.8 $ 192.4 $ 196.6
------ ------ -------- --------
------ ------ -------- --------
</TABLE>
(i) Health care segment results reflect the allocation of Grace's health care
related research expenses; corporate interest and financing costs are not
reflected in the health care segment results; however, these allocations
are not necessarily indicative of the results of the health care segment
in the future on a stand-alone basis. NMC's management is currently
determining the changes that may be required to its current organization,
including corporate overhead and research activities, and other
considerations relating to NMC's status as a stand-alone company.
I-12
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Sales and revenues for the third quarter and first nine months of 1995 increased
by 6% and 14%, respectively, over the comparable periods of 1994. These
improvements were due to increases of 8% and 17%, respectively, in kidney
dialysis services; 11% and 9%, respectively, in medical products operations; and
a 6% increase in home health care for the first nine months of 1995. The
improvements for the third quarter of 1995 were partially offset by a 6%
decrease in home health care revenues resulting from a decrease in infusion
therapy due to continued managed care pricing pressure. 1995 third quarter and
first nine months results for kidney dialysis services reflect acquisitions
subsequent to the third quarter of 1994. Results for the first nine months of
1995 for home health care operations include nine months of results of Home
Nutritional Services, Inc., a national provider of home infusion therapy
services acquired in April 1994. The number of centers providing dialysis and
related services increased 22%, from 539 at September 30, 1994 to 657 at
September 30, 1995 (554 in North America, 60 in Europe, 31 in Latin America and
12 in Asia Pacific).
Operating income before taxes in the third quarter and first nine months of 1995
increased by 14% and 18%, respectively, over the 1994 periods, excluding the
special charges listed above. Results for the third quarter and first nine
months of 1995 for all health care businesses benefited from the effect of
acquisitions, along with continued expansion inside and outside the U.S. NMC
continues to focus on improvements in cost controls, operating efficiencies and
capacity utilization. See below for a discussion of items relating to NMC's
business operations and the possible material adverse effect of these items on
NMC's financial position or the results of operations of NMC and Grace.
In the third quarter of 1995, following several periods of operating losses and
due to projected operating losses, NMC management reviewed the carrying value of
its investment in a German dialysis machine manufacturing operation. The review
indicated that this investment was permanently impaired. NMC management
considered future cash flows resulting from the use of the related assets and
determined that the entire carrying value of such assets, amounting to $7.4
million (pre- and after-tax) should be written off.
In addition, during the third quarter of 1995, NMC management decided to cease
its investment in its dialyzer development operation in Ireland. As a result,
the carrying values of the related assets, including certain fixed assets of the
facility used in this project, were fully written off, resulting in a charge of
$16.6 million (pre- and after-tax).
Also during the third quarter of 1995, Grace management decided to initiate the
phase-out of certain of its health care research programs, resulting in a pretax
charge of $8.8 million ($5.6 million after-tax). Also, NMC recorded a pretax
provision of $6.8 million ($3.9 million after-tax) for additional costs
associated with Grace's long-term incentive programs that are applicable to NMC.
As more fully discussed in Note (c) to the consolidated financial statements in
this Report, in October 1995, NMC received five investigative subpoenas from the
Office of Inspector General (OIG) of the U.S. Department of Health and Human
Services. The subpoenas call for the production of extensive documents relating
to various aspects of NMC's business, and a letter accompanying the subpoenas
stated that they had been issued in conjunction
I-13
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
with an investigation being conducted by the OIG, the U.S. Attorney for the
District of Massachusetts, and others, concerning possible violations of federal
laws relating to health care payments and reimbursements. The results of the
investigation and its impact, if any, cannot be predicted at this time. In the
event that any government agency believes that wrongdoing related to the
investigation has occurred, civil and/or criminal proceedings could be
instituted, and if any such proceedings were to be instituted and the outcome
were unfavorable, NMC could be subject to fines, penalties and damages or could
become excluded from government reimbursement programs. Any such result could
have a material adverse effect on NMC's financial position or the results of
operations of NMC and Grace.
As discussed in NMC's Form 10, NMC administers Intradialytic Parenteral
Nutrition (IDPN) therapy to chronic dialysis patients who suffer from severe
gastrointestinal malfunctions. NMC and other IDPN providers are pursuing
various administrative and legal avenues, including administrative appeals, to
address the reduction in IDPN claims currently being paid by Medicare. NMC
believes that the reduction in IDPN claims currently being paid by Medicare
represents an unauthorized coverage policy change. As of September 30, 1995,
$62.0 million of claims are outstanding, increasing at the rate of approximately
$4.0 million per month. Moreover, a draft of a current coverage policy would
limit or preclude continued coverage of IDPN therapy. If NMC is unable to
collect its IDPN receivable or if IDPN coverage is reduced or eliminated,
depending on the amount of the receivable that is not collected and/or the
nature of the coverage change, NMC's business, financial position and results of
operations might be materially adversely affected.
Also as discussed in NMC's Form 10, NMC is currently involved in litigation with
respect to the policy of the Health Care Financing Administration (HCFA) with
regard to its implementation of the Omnibus Budget Reconciliation Act of 1993
(OBRA 93) as it relates to the date on which Medicare benefits commence for
certain eligible End Stage Renal Disease (ESRD) patients. HCFA's initial
implementation of OBRA 93, confirmed in a Program Memorandum dated July 15,
1994, amended the prior Medicare coverage policy so that all employer health
plans must recognize an 18-month "coordination of benefits" period during which
the plan is the primary payor. The vast majority of NMC's patients affected by
this amendment were retirees eligible for Medicare on the basis of age, who
subsequently became eligible for Medicare on the basis of ESRD, and whose
employer group health plans had been supplemental payors to Medicare. Under the
prior Medicare coverage policy, Medicare benefits for these patients commenced
three months after the initiation of chronic dialysis treatments at a dialysis
center, and not 21 months (consisting of a three-month entitlement waiting
period and the additional 18-month period referred to above). This
implementation had a positive impact on NMC's dialysis revenues because, during
the 18-month coordination of benefits period, the employer health plan was
responsible for payment, which was generally at a rate higher than that provided
under Medicare.
In a second Program Memorandum dated April 24, 1995, HCFA reversed its
implementation of OBRA 93 in a manner that would substantially diminish the
positive effect of the original implementation on NMC's dialysis business.
Under the new policy, no 18-month coordination of benefits period would arise,
and Medicare would be the primary payor beginning in the fourth month. HCFA
further proposed that its new policy be effective retroactive to August 10,
1993, the effective date of OBRA 93, and that NMC be required to
I-14
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
refund payments received from employer health plans for services provided after
August 10, 1993 under HCFA's original implementation and to re-bill Medicare for
the same services, which would result in a net loss to NMC of approximately
$120.0 million as of September 30, 1995. Effective July 1, 1995, NMC ceased to
recognize the incremental revenue realized under the original implementation,
which will result in a material reduction in dialysis operating earnings in
comparison to prior periods in which dialysis operations recognized such
incremental net revenues.
In the litigation referred to above, the court has granted NMC's motion for a
preliminary injunction to preclude HCFA from retroactively enforcing its new
policy. The litigation is continuing with respect to NMC's request to enjoin
HCFA's new policy, both retroactively and prospectively, on a permanent basis.
While there can be no assurance that a permanent injunction will be issued, NMC
believes that it will ultimately prevail in its claim that the retroactive
reversal by HCFA of its original implementation of OBRA 93 was impermissible
under applicable law. Pending the outcome of the litigation, HCFA's new policy
remains in effect for services provided after April 23, 1995. If HCFA's revised
interpretation is upheld, NMC's business, financial position and results of
operations would be materially adversely affected, particularly if the revised
interpretation is applied retroactively.
(b) Financial Condition; Liquidity and Capital Resources
During the first nine months of 1995, the net pretax cash provided by Grace's
continuing operating activities was $150.7 million, versus $8.5 million provided
in the first nine months of 1994. The increase was primarily due to net cash
inflows of $77.7 million in the first nine months of 1995 from settlements with
certain insurance carriers for asbestos-related litigation, net of amounts paid
for the defense and disposition of asbestos-related property damage and personal
injury litigation (see discussion below), as compared to the outflow of $13.4
million for asbestos-related litigation in the first nine months of 1994, along
with improved operating results. After giving effect to the pretax cash
provided by operating activities of discontinued operations (including an
increase in the use of working capital by NMC in the first nine months of 1995)
and increased payments of income taxes (attributable to taxable income resulting
from settlements of the asbestos-related litigation discussed above, and audit
adjustments in the prior years), the net cash used for operating activities was
$13.4 million in the first nine months of 1995 versus $187.6 million provided in
the first nine months of 1994.
Investing activities used $488.3 million of cash in the first nine months of
1995, largely reflecting capital expenditures of $366.5 million (of which over
80% relates to capital spending on Grace's packaging and catalyst/silica
businesses) and the acquisition of dialysis centers and medical products
facilities for a total of $31.1 million in the first quarter of 1995. Also,
investing activities of discontinued operations for the first nine months of
1995 used $149.1 million, primarily reflecting the classification of the health
care segment as a discontinued operation.
I-15
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Net cash provided by financing activities in the first nine months of 1995 was
$500.8 million, primarily reflecting an increase in total debt from December 31,
1994 and the exercise of stock options, offset by the payment of $100.3 million
of dividends. Total debt was $1,927.3 million at September 30, 1995, an
increase of $397.6 million from December 31, 1994. Grace's total debt as a
percentage of total capital (debt ratio) increased from 50.4% at December 31,
1994 to 53.3% at September 30, 1995, primarily as the result of the increase in
total debt (Grace's total debt and debt ratio were $1,881.5 million and 56.6%,
respectively, at September 30, 1994). At September 30, 1995, the net assets of
the discontinued health care segment included $117.3 million of debt.
Grace expects to satisfy its 1995 cash requirements primarily from funds
generated by operations and, to a lesser extent, from proceeds from divestments.
Any net excess or deficit will be applied to or satisfied by financings.
Although Grace expects that any net new borrowings would be short-term in
nature, the maturities and other terms of any financings will depend on market
conditions prevailing at the time. Grace has access to a variety of capital
resources, including the commercial paper and bank funding markets, in addition
to its credit agreements. Consequently, management believes that new borrowings
will be available to meet Grace's needs. Grace expects to apply a substantial
portion of the cash proceeds generated by the anticipated spin-off of NMC to the
repayment of borrowings. However, for various reasons arising from the issuance
of the subpoenas described above, the completion of the spin-off of NMC,
originally expected in the 1995 fourth quarter, has been delayed.
In the third quarter of 1995, Grace announced that its Board of Directors had
authorized management to pursue options to maximize the value of its Grace
Dearborn water treatment and process chemicals business. The options being
considered include the outright sale of Grace Dearborn and strategic alliances
with complementary companies.
In October 1995, in anticipation of the spin-off of NMC, the Company's Board of
Directors (a) declared a quarterly cash dividend of 12.5 cents per share on the
Company's Common Stock, lowering its quarterly cash dividend from 35 cents per
share, and (b) approved the repurchase of up to 10 million shares of the
Company's Common Stock from time to time in open market or private transactions.
The Company has announced that, in the future, it expects to pay dividends at a
rate of 20% - 30% of the prior year's net earnings.
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 nine months of 1995, Grace received $77.7 million under
settlements with certain insurance carriers, net of amounts paid for the defense
and disposition of asbestos-related property damage and personal injury
litigation. The balance sheet at September 30, 1995 includes a receivable due
from insurance carriers, subject to litigation, of $470.4 million. Grace has
also recorded a receivable of approximately $62.0 million for amounts to be
received in 1995 to 1999 pursuant to settlement agreements previously entered
into with certain insurance carriers.
I-16
<PAGE>
Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Although Grace cannot precisely estimate the amounts to be paid in 1995 in
respect of asbestos-related lawsuits and claims, Grace expects that the payments
to be received in 1995 from certain insurance carriers (as discussed above and
in Note (b) to the consolidated financial statements in this Report) will exceed
by approximately $30.0 million (pretax) the 1995 costs of defending and
disposing of asbestos-related lawsuits and claims. As 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
There were no significant developments relating to environmental liabilities in
the first nine months of 1995.
For additional information relating to environmental liabilities, see Note 11 to
the consolidated financial statements in the Company's 1994 Annual Report on
Form 10-K.
I-17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(a) Note (b) to the Consolidated Financial Statements in Part I of
this Report is incorporated herein by reference.
(b) Reference is made to the Company's Report on Form 8-K filed on
October 27, 1995 for information regarding the receipt of five federal
investigative subpoenas by National Medical Care, Inc. ("NMC"), the Company's
principal health care subsidiary as well as lawsuits relating to NMC. Since
that filing, the Company and/or NMC has received service of process in the
following lawsuits, all of which were filed on or about October 20, 1995, with
substantially similar allegations to those made in the lawsuits described in
Item 5(b) of such Report on Form 8-K: GLADSTEIN V. W.R. GRACE & CO., ET AL.,
filed in the United States District Court for the Southern District of Florida,
Case Number 95-8653; ROSENFELD V. W.R. GRACE & CO., ET AL., filed in the United
States District Court for the Southern District of Florida, Northern Division,
Case Number 95-8639; IZES V. W.R. GRACE & COMPANY, ET AL., filed in the United
States District Court for the Southern District of Florida, Northern Division,
Case Number 95-8632; KOVITZ, ET AL. V. NATIONAL MEDICAL CARE, INC., ET AL.,
filed in the United States District Court for the District of Massachusetts,
Case Number 95-12347REK; BERMAN V. W.R. GRACE & COMPANY, ET AL., filed in the
United States District Court for the Southern District of Florida, Northern
Division, Case Number 95-8640; ADDIS V. W.R. GRACE & CO., ET AL.,
II-1
<PAGE>
filed in the United States District Court for the Southern District of Florida,
Northern Division, Case Number 95-8635; and SWEDER V. W.R. GRACE & COMPANY, ET
AL., filed in the United States District Court for the Southern District of
Florida, Northern Division, Case Number 95-8641.
In addition, on October 20, 1995, a lawsuit purporting to be a
derivative action on behalf of the Company's shareholders was filed in the
United States District Court for the Southern District of Florida, Northern
Division, against the Company, certain of its current directors and J.P. Bolduc,
the Company's former President and Chief Executive Officer, alleging that such
individuals failed to properly supervise the activities of NMC in the conduct of
its business (BENNETT V. BOLDUC, ET AL., Case Number 95-8638).
ITEM 5. OTHER INFORMATION
In June 1995, the Company announced that it Board of Directors
had approved a plan to spin off NMC by means of a dividend to holders of the
Company's common stock that would be declared upon satisfaction of various
conditions. As a result, Grace classified it health care segment as a
discounted operation in the 1995 second quarter. The following financial
statements are being filed with and are incorporated by reference in this
Report: (a) unaudited interim financial statements for the quarters ended March
31, 1995 and 1994, restated to give effect to the classification of the health
care segment as a discontinued operation, and (b) unaudited interim financial
statements for the three- and six-month interim periods ended June 30, 1995 and
1994, restated to give effect to the classification of corporate
II-2
<PAGE>
overhead and certain corporate research expenses that were previously allocated
to the health care segment to continuing operations and to reflect tax expense
with respect to discontinued operations as if the health care segment were a
stand-alone taxpayer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following are being filed as exhibits to this
Report:
- W.R. Grace & Co. 1981 Stock Incentive Plan, as amended;
- W.R. Grace & Co. 1986 Stock Incentive Plan, as amended;
- weighted average number of shares and earnings used in per
share computations;
- financial data schedule;
- restated consolidated financial statements of Grace for
the quarters ended March 31, 1995 and 1994;
- restated financial data schedule for the quarter ended
March 31, 1995;
- restated consolidated financial statements of Grace for
the three- and six-month interim periods ended June 30,
1995 and 1994; and
- restated financial data schedule for the six-month interim
period ended June 30, 1995.
(b) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K on
August 2, 1995 relating to the announcement of second quarter 1995 results. The
Company filed a Report on Form 8-K on September 26, 1995 relating to the pursuit
of
II-3
<PAGE>
options to maximize the value of the Company's Grace Dearborn business,
including the outright sale of such business and strategic alliances with
complementary companies. On October 16, 1995, the Company filed a Report on
Form 8-K relating (a) to the Company's declaration of a quarterly cash dividend
at a rate lower than that previously in effect and (b) to a program to
repurchase up to 10 million shares of the Company's Common Stock in open market
or private transactions from time to time. The Company filed a Report on Form
8-K on October 27, 1995 concerning the receipt of five investigative subpoenas
by NMC, as well a lawsuits relating to NMC.
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: November 14, 1995 By /s/ Richard N. Sukenik
----------------------
Richard N. Sukenik
Vice President and Controller
(Principal Accounting Officer)
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W.R. GRACE & CO.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 W.R. Grace & Co. 1981 Stock Incentive Plan, as amended
10.2 W.R. Grace & Co. 1986 Stock Incentive Plan, as amended
11 Weighted average number of shares and earnings used in per
share computations
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule for the Quarter Ended March
31, 1995
27.3 Restated Financial Data Schedule for the Six-Month Interim Period
Ended June 30, 1995
99.1 Restated Consolidated Financial Statements of Grace for the
Quarters Ended March 31, 1995 and 1994
99.2 Restated Consolidated Financial Statements of Grace for the
Three- and Six-Month Interim Periods Ended June 30, 1995 and 1994
<PAGE>
Exhibit 10.1
W. R. GRACE & CO.
1981 STOCK INCENTIVE PLAN
(As amended through November 2, 1995)
<PAGE>
W. R. GRACE & CO.
1981 STOCK INCENTIVE PLAN
Section 1. PURPOSES: The purposes of this Plan are (a) to secure for the
Company the benefits of incentives inherent in ownership of Common Stock by Key
Employees, (b) to encourage Key Employees to increase their interest in the
future growth and prosperity of the Company and to stimulate and sustain
constructive and imaginative thinking by Key Employees, (c) to further the
identity of interests of those who hold positions of major responsibility in the
Company and its Subsidiaries with the interests of the Company's shareholders,
and (d) to induce the employment or continued employment of Key Employees and to
enable the Company to compete with other organizations offering similar or other
incentives in obtaining and retaining the services of competent executives.
Section 2. DEFINITIONS: Unless otherwise required by the context, the
following terms when used in this Plan shall have the meanings set forth in this
Section 2.
Board of Directors: The Board of Directors of the Company.
Common Stock: The common stock of the Company, par value $1.00 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 8.
Company: W. R. Grace & Co., a New York corporation.
Fair Market Value: As applied to any date, the mean between the high and
low sales prices of a share of Common Stock as reported on the Consolidated
Transactions Tape for securities listed on the New York Stock Exchange for such
date or, if no such sales were reported for such date, on the next preceding
date for which sales were so reported.
Grace - Connecticut: W. R. Grace & Co.- Conn., a Connecticut corporation
which is a subsidiary of the Company and which was formerly known as "W. R.
Grace & Co."
Incentive Committee: The committee designated by the Board of Directors to
administer stock incentive and stock option plans of the Company and its
subsidiaries.
Incentive Compensation: Bonuses, extra and other compensation payable in
addition to a salary or other base amount, whether contingent or not, whether
discretionary or required to be paid pursuant to a plan, agreement, resolution
or arrangement, and whether payable currently or on a deferred basis, in cash,
Common Stock or other property, awarded by the Company or a Subsidiary prior or
subsequent to the date of the approval and adoption of this Plan.
<PAGE>
Incentive Stock Option: An option, including an Option as the context may
require, intended to meet the requirements of section 422A of the Internal
Revenue Code and the regulations thereunder applicable to incentive stock
options adopted by the Secretary of the Treasury or his delegate, or any
provisions that may be adopted to amend or replace such section or regulations
or both.
Key Employee: An employee of the Company or of a Subsidiary, including an
officer or director who is an employee, who in the opinion of the Incentive
Committee can contribute significantly to the growth and successful operations
of the Company or a Subsidiary. The grant of a Stock Incentive to an employee by
the Incentive Committee shall be deemed a determination by the Incentive
Committee that such employee is a Key Employee.
Non-Statutory Stock Option: An option, including an Option as the context
may require, which is not an Incentive Stock Option or another form of statutory
stock option (within the meanings of sections 422, 423 and 424 of the Internal
Revenue Code and the regulations thereunder as adopted and amended from time to
time by the Secretary of the Treasury or his delegate).
Option: An option to purchase shares of Common Stock.
Plan: The 1981 Stock Incentive Plan of the Company herein set forth as the
same may from time to time be amended.
Performance Unit: A unit representing a share of Common Stock subject to a
Stock Award, the issuance, transfer or retention of which, in whole or in part,
is contingent upon or measured by the attainment of a specified performance
objective or objectives, including, without limitation, objectives determined
(on a consolidated or unconsolidated basis) by reference to or changes in (a)
the Fair Market Value, book value or earnings per share of Common Stock, or (b)
the sales and revenues, earnings, return on capital employed, asset values or
net worth of the Company or one or more of its groups, divisions, Subsidiaries
or other units, or (c) a combination of two or more of the foregoing or other
factors.
Stock Award: An issuance or transfer of shares of Common Stock at the time
the Stock Incentive is granted or as soon thereafter as practicable, or an
undertaking (other than an Option) to issue or transfer such shares in the
future, including, without limitation, such an issuance, transfer or undertaking
with respect to Performance Units.
Stock Incentive: A stock incentive granted under this Plan in one of the
forms provided for in section 3.
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Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) (a) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights) or
(b) regularly entitled to receive 50% or more of the dividends (or their
equivalents) paid on the common stock (or its equivalent) are owned, directly or
indirectly, by the Company; provided, however, that in the case of an Incentive
Stock Option, the term "Subsidiary" shall mean a Subsidiary (as defined by the
preceding clause) which is also a "subsidiary corporation" as defined in section
425(f) of the Internal Revenue Code and the regulations thereunder adopted by
the Secretary of the Treasury or his delegate, or any provisions that may be
adopted to amend or replace such section or regulations or both.
Section 3. GRANTS OF STOCK INCENTIVES:
(a) Subject to the provisions of this Plan, the Incentive Committee
may at any time, or from time to time, grant Stock Incentives under this Plan
to, and only to, Key Employees.
(b) Stock Incentives may be granted in the following forms:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
Section 4. STOCK SUBJECT TO THIS PLAN:
(a) Subject to the provisions of paragraph (c) of this section 4 and
of section 8, (i) the maximum number of shares of Common Stock which may be
issued or transferred pursuant to Stock Incentives granted under this Plan shall
not exceed 5,000,000 shares of Common Stock, (ii) the maximum number of shares
of Common Stock which may be acquired upon exercise of Options granted at any
time or from time to time under this Plan to any one Key Employee shall in no
event exceed 5% of the maximum number of shares which may be issued or
transferred pursuant to Stock Incentives granted under this Plan, and (iii) the
maximum number of shares of Common Stock which may be acquired upon exercise of
Options granted at any time or from time to time under this Plan to Key
Employees serving as directors of the Company at the time they recommend this
Plan for approval and adoption by the shareholders of the Company shall in no
event exceed 25% of the maximum number of the shares which may be issued or
transferred pursuant to Stock Incentives granted under this Plan.
(b) Authorized but unissued shares of Common Stock and shares of
Common Stock held in the treasury, whether acquired by the Company specifically
for use under this Plan or otherwise, may be used, as the Incentive Committee
may from time to time determine, for purposes of this Plan, provided, however,
that any shares acquired or held by the Company for the purposes of this Plan
shall, unless and until transferred to a Key Employee in accordance with
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<PAGE>
the terms and conditions of a Stock Incentive, be and at all times remain
treasury shares of the Company, irrespective of whether such shares are entered
in a special account for purposes of this Plan, and shall be available for any
corporate purpose.
(c) If any shares of Common Stock subject to a Stock Incentive shall
not be issued or transferred and shall cease to be issuable or transferable
because of the termination, in whole or in part, of such Stock Incentive or for
any other reason, or if any such shares shall, after issuance or transfers be
reacquired by the Company or a Subsidiary because of an employee's failure to
comply with the terms and conditions of a Stock Incentive, the shares not so
issued or transferred, or the shares so reacquired by the Company or a
Subsidiary, shall no longer be charged against any of the limitations provided
for in paragraph (a) of this section 4 and may again be made subject to Stock
Incentives.
(d) For purposes of this section 4, Common Stock shall include shares
of common stock, par value $1.00 per share, of Grace-Connecticut issued or
transferred pursuant to Stock Incentives granted by Grace-Connecticut under this
Plan as in effect prior to its adoption by the Company, except that ln
determining, for purposes of this section 4, the number of shares so issued or
transferred by Grace-Connecticut prior to the two-for-one split of the common
stock of Grace-Connecticut which occurred in December 1987, adjustment shall be
made to reflect such stock split.
Section 5. STOCK AWARDS: Stock Incentives in the form of Stock Awards
shall be subject to the following provisions:
(a) A Stock Award shall be granted only in payment of Incentive
Compensation that has been earned or as Incentive Compensation to be earned,
including, without limitation, Incentive Compensation awarded concurrently with
or prior to the grant of the Stock Award.
(b) For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Common Stock subject to such Stock Award shall be valued at
not less than 100% of the Fair Market Value of such shares on the date such
Stock Award is granted, regardless of whether or when such shares are issued or
transferred to the Key Employee and whether or not such shares are subject to
restrictions which affect their value.
(c) Shares of Common Stock subject to a Stock Award may be issued or
transferred to the Key Employee at the time the Stock Award is granted, or at
any time subsequent thereto, or in installments from time to time, as the
Incentive Committee shall determine. In the event that any such issuance or
transfer shall not be made to the Key Employee at the time the Stock Award is
granted, the Incentive Committee may provide for payment to such Key Employee,
either in cash or shares of Common Stock, from time to time or at the time or
times such shares shall be issued or transferred to such Key Employee, of
amounts not exceeding the dividends
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<PAGE>
which would have been payable to such Key Employee in respect of such shares (as
adjusted under section 8) if such shares had been issued or transferred to such
Key Employee at the time such Stock Award was granted. Any amount payable in
shares of Common Stock under the terms of a Stock Award may, at the discretion
of the Company, be paid in cash, on each date on which delivery of shares would
otherwise have been made, in an amount equal to the Fair Market Value on such
date of the shares which would otherwise have been delivered.
(d) A Stock Award shall be subject to such terms and conditions,
including, without limitation, restrictions on the sale or other disposition of
the Stock Award or of the shares issued or transferred pursuant to such Stock
Award, as the Incentive Committee shall determine; provided, however, that upon
the issuance or transfer of shares pursuant to a Stock Award, the recipient
shall, with respect to such shares, be and become a shareholder of the Company
fully entitled to receive dividends, to vote and to exercise all other rights of
a shareholder except to the extent otherwise provided ln the Stock Award. Each
Stock Award shall be evidenced by a written instrument in such form as the
Incentive Committee shall determine provided the Stock Award is consistent with
this Plan and incorporates it by reference.
Section 6. OPTIONS: Except as otherwise provided in section 12, Stock
Incentives in the form of Options shall be subject to the following provisions:
(a) Subject to the provisions of section 8, the purchase price per
share shall be not less than 100% of the Fair Market Value of a share of Common
Stock on the date the Option is granted. The purchase price shall be paid in
cash or, if so provided in the Option or authorized by the Incentive Committee
(and subject to such terms and conditions as are specified in the Option or by
the Incentive Committee), in shares of Common Stock delivered to the Company or
in a combination of cash and such shares. Shares of Common Stock thus delivered
shall be valued at their Fair Market Value on the date of exercise.
(b) Each Option may be exercisable in full at the time of grant, or
may become exercisable in one or more installments and at such time or times, as
the Incentive Committee shall determine. Unless otherwise provided in the
Option, an Option, to the extent it is or becomes exercisable, may be exercised
at any time in whole or in part until the expiration or termination of the
Option.
(c) Each Option shall be exercisable during the life of the optionee
only by him, and after his death only by his estate or by a person who acquired
the right to exercise the Option by will or the laws of descent and
distribution. An Option, to the extent that it shall not have been exercised,
shall terminate when the optionee ceases to be an employee of the Company or a
Subsidiary, unless he ceases to be an employee by reason of his resignation with
the consent of the Incentive Committee (which consent may be given before or
after resignation), or by reason of his death, incapacity or retirement under a
retirement plan of the Company or a
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<PAGE>
Subsidiary. Except as provided in the next sentence, if the optionee ceases to
be an employee by reason of such resignation, the Option shall terminate three
months after he ceases to be an employee. If the optionee ceases to be an
employee by reason of such death, incapacity or retirement, or if he should die
during the three-month period referred to in the preceding sentence, the Option
shall terminate 15 months after he ceases to be an employee. Where an Option is
exercised more than three months after the optionee ceased to be an employee, it
may be exercised only to the extent it could have been exercised three months
after he ceased to be an employee. A leave of absence for military or
governmental service or for other purposes shall not, if approved by the
Incentive Committee, be deemed a termination of employment within the meaning of
this paragraph (c), provided, however, that an Option may not be exercised
during any such leave of absence. Notwithstanding the foregoing provisions of
this paragraph (c) or any other provision of this Plan, no Option shall be
exercisable after expiration of a period of ten years and one month from the
date the Option is granted. Where a Non-Statutory Stock Option is granted for a
term of less than ten years and one month, the Incentive Committee may, at any
time prior to the expiration of the Option, extend its term for a period ending
not later than ten years and one month from the date the Option was granted.
Such an extension shall not be deemed the grant of an Option under this Plan.
(d) Options shall be granted for such lawful consideration as the
Incentive Committee may determine.
(e) Neither the Company nor any Subsidiary may directly or indirectly
lend any money to any person for the purpose of assisting him to purchase or
carry shares of Common Stock issued or transferred upon the exercise of an
Option.
(f) No Option nor any right thereunder may be assigned or transferred
by the optionee except by will or the laws of descent and distribution. If so
provided in the Option or if so authorized by the Incentive Committee and
subject to such terms and conditions as are specified in the Option or by the
Incentive Committee, the Company shall, upon or without the request of the
holder of the Option and at any time or from time to time, cancel all or a
portion of the Option then subject to exercise and either (i) pay the holder an
amount of money equal to the excess, if any, of the Fair Market Value, at such
time or times, of the shares subject to the portion of the Option so canceled
over the purchase price of such shares, or (ii) issue or transfer shares of
Common Stock to the holder with a Fair Market Value, at such time or times,
equal to such excess.
(g) An Option granted under the Plan may, but need not, be an
Incentive Stock Option. All shares of Common Stock which may be made subject to
Stock Incentives under this Plan may be made subject to Incentive Stock Options;
provided that, the aggregate Fair Market Value (determined as of the time the
option is granted) of the shares subject to each installment becoming
exercisable for the first time in any calendar year under Incentive Stock
Options
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<PAGE>
granted to any employee on or after January 1, 1987 (under all plans, including
this Plan, of his employer corporation and its parent and subsidiary
corporation) shall not exceed $100,000.
(h) Each Option shall be evidenced by a written instrument, which
shall contain such terms and conditions, and shall be in such form, as the
Incentive Committee shall determine, provided the Option is consistent with this
Plan and incorporates it by reference. Notwithstanding the preceding sentence,
an Option, if so approved by the Incentive Committee, may include restrictions
and limitations in addition to those provided for in this Plan.
Section 7. COMBINATIONS OF STOCK AWARDS AND OPTIONS: Stock Incentives
authorized by paragraph (b)(iii) of section 3 in the form of combinations of
Stock Awards and Options shall be subject to the following provisions:
(a) A Stock Incentive may be a combination of any form of Stock Award
with any form of Option; provided, however, that the terms and conditions of
such Stock Incentive pertaining to a Stock Award are consistent with section 5
and the terms and conditions of such Stock Incentive pertaining to an Option are
consistent with section 6.
(b) Such combination Stock Incentive shall be subject to such other
terms and conditions as the Incentive Committee may determine, including,
without limitation, a provision terminating in whole or in part a portion
thereof upon the exercise in whole or in part of another portion thereof. Such
combination Stock Incentive shall be evidenced by a written instrument in such
form as the Incentive Committee shall determine, provided it is consistent with
this Plan and incorporates it by reference.
Section 8. ADJUSTMENT PROVISIONS:
(a) In the event that any reclassification, split-up or consolidation
of shares of Common Stock shall be effected, or the outstanding shares of Common
Stock are, in connection with a merger or consolidation of the Company or a sale
by the Company of all or a part of its assets, exchanged for a different number
or class of shares of stock or other securities or property of the Company or
for shares of the stock or other securities or property of any other corporation
or person, or a record date for determination of holders of Common Stock
entitled to receive a dividend payable in Common Stock shall occur, (i) the
number and class of shares or other securities or property that may be issued or
transferred pursuant to Stock Incentives thereafter granted, (ii) the number and
class of shares or other securities or property that have not been issued or
transferred under outstanding Stock Incentives, (iii) the purchase price to be
paid per share or other unit under outstanding Stock Incentives, and (iv) the
price to be paid per share or other unit by the Company or a Subsidiary for
shares or other securities or property issued or transferred pursuant to Stock
Incentives that are subject to a right of the Company or a Subsidiary
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<PAGE>
to reacquire such shares or other securities or property, shall in each case be
equitably adjusted as determined by the Incentive Committee.
(b) In the event that any spin-off or other distribution of assets of
the Company to its shareholders shall occur, (i) the number and class of shares
or other securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number and class of shares or other securities or
property that have not been issued under outstanding Stock Incentives, (iii) the
purchase price to be paid per share or other unit under outstanding Stock
Incentives, and (iv) the price to be paid per share or other unit by the Company
or a Subsidiary for shares or other securities or property issued pursuant to
Stock Incentives that are subject to a right of the Company or a Subsidiary to
reacquire such shares or other securities or property, may in each case be
equitably adjusted as may be determined by the Incentive Committee.
Section 9. TERM: This Plan was deemed adopted and became effective on the
date it was approved and adopted by the shareholders of Grace-Connecticut. This
Plan was deemed adopted as to the Company on the date of the adoption and
assumption thereof by the Board of Directors with the approval of the
shareholders of Grace-Connecticut and became effective as to the Company on the
effective date of the merger of Grace Merger Corp., a subsidiary of the Company,
with and into Grace-Connecticut. No Stock Incentives shall be granted under
this Plan after April 30, 1991.
Section 10. ADMINISTRATION:
(a) This Plan shall be administered by the Incentive Committee. No
director shall be designated as or continue to be a member of the Incentive
Committee unless he shall at the time of designation and service be a
"disinterested person" within the meaning of Rule 16b-3 of the Securities and
Exchange Commission (or any successor provision at the time in effect). A
member of the Incentive Committee shall not be eligible to be granted a Stock
Incentive while serving on the Incentive Committee. Grants of Stock Incentives
may be made by the Incentive Committee either in or without consultation with
employees, but in either case the Incentive Committee shall have full authority
to act in the matter of selection of all Key Employees and in granting Stock
Incentives to them.
(b) The Incentive Committee may establish such rules and regulations,
not inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to participate in this Plan and for the proper
administration of this Plan, and may amend or revoke any rule or regulation so
established. The Incentive Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations,
subject to the provisions of section 3.1 of the By-laws of the Company, shall be
binding and conclusive upon the Company, its Subsidiaries, its shareholders and
all employees, and upon their respective legal representatives,
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<PAGE>
beneficiaries, successors and assigns and upon all other persons claiming under
or through any of them.
(c) Any action required or permitted to be taken by the Incentive
Committee under this Plan may be taken in accordance with Article III of the
By-laws of the Company even though, because of a vacancy or vacancies as a
result of resignations or otherwise, the total number of directors who are then
members of the Incentive Committee shall be less than the number initially
designated by the Board of Directors.
(d) Members of the Board of Directors and members of the Incentive
Committee acting under this Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability except for gross
negligence or willful misconduct in the performance of their duties.
Section 11. GENERAL PROVISIONS:
(a) Nothing in this Plan nor in any instrument executed pursuant
hereto shall confer upon any employee any right to continue in the employ of the
Company or a Subsidiary, or shall affect the right of the Company or of a
Subsidiary to terminate the employment of any employee with or without cause.
(b) No shares of Common Stock shall be issued or transferred pursuant
to a Stock Incentive unless and until all legal requirements applicable to the
issuance or transfer of such shares have, in the opinion of counsel to the
Company, been compiled with. In connection with any such issuance or transfer
the person acquiring the shares shall, if requested by the Company, give
assurances, satisfactory to counsel to the Company, in respect of such matters
as the Company or a Subsidiary may deem desirable to assure compliance with all
applicable legal requirements.
(c) No employee (individually or as a member of a group), and no
beneficiary or other person claiming under or through him, shall have any right,
title or interest in or to any shares of Common Stock allocated or reserved for
the purposes of this Plan or subject to any Stock Incentive except as to such
shares of Common Stock, if any, as shall have been issued or transferred to him.
(d) The Company or a Subsidiary may, with the approval of the
Incentive Committee, enter into an agreement or other commitment to grant a
Stock Incentive in the future to a person who is or will be a Key Employee at
the time of grant, and, notwithstanding any other provision of this Plan, any
such agreement or commitment shall not be deemed the grant of a Stock Incentive
until the date on which the Incentive Committee takes action to implement such
agreement or commitment.
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<PAGE>
(e) In the case of a grant of a Stock Incentive to an employee of a
Subsidiary, such grant may, if the Incentive Committee so directs, be
implemented by the Company issuing or transferring the shares, if any, covered
by the Stock Incentive to the Subsidiary, for such consideration as the
Incentive Committee may specify, upon the condition or understanding that the
Subsidiary will transfer the shares to the employee in accordance with the terms
of the Stock Incentive specified by the Incentive Committee pursuant to the
provisions of this Plan. Notwithstanding any other provision hereof, such Stock
Incentive may be issued by and in the name of the Subsidiary and shall be deemed
granted on the date it is approved by the Incentive Committee, on the date it is
delivered by the Subsidiary or on such other date between said two dates as the
Incentive Committee shall specify.
(f) The Company or a Subsidiary may make such provisions as it may
deem appropriate for the withholding of any taxes which the Company or a
Subsidiary determines it is required to withhold in connection with any Stock
Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to employees
generally, or to any class or group of employees, which the Company or any
Subsidiary now has or may hereafter lawfully put into effect, including, without
limitation, any incentive compensation, retirement, pension, group insurance,
stock purchase, stock bonus or stock option plan.
Section 12. ACQUISITIONS: If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another company, the Company in connection therewith,
upon the approval of the Incentive Committee, (a) may assume, in whole or in
part and with or without modifications or conditions, any stock options granted
by the acquired company to its employees in their capacity as such, or (b) may
grant new Options in substitution therefor; provided that the granting of an
option with the terms and conditions of the assumed or substitute options is
permissible under either this Plan or a plan approved by the shareholders of the
acquired company. For the purposes of the preceding sentence, the
permissibility of the granting of an option under a plan shall be determined as
of the date of grant of the original option by the acquired company and not as
of the date of assumption or substitution by the Company.
Section 13. AMENDMENTS AND DISCONTINUANCE:
(a) This Plan may be amended by the Board of Directors upon the
recommendation of the Incentive Committee, provided that, without the approval
of the shareholders of the Company, no amendment shall be made which (i)
increases the maximum number of shares of Common Stock that may be issued or
transferred pursuant to Stock Incentives, the maximum number of shares of Common
Stock that may be acquired upon
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<PAGE>
exercise of Options granted to any one employee or the maximum number of shares
of Common Stock that may be acquired upon exercise of Options granted to
employees serving as directors, in each case as provided in paragraph (a) of
section 4, (ii) except as may be required to conform this Plan to changes in the
federal securities laws and the rules and regulations of the Securities and
Exchange Commission (or any successor agency), withdraws the administration of
this Plan from the Incentive Committee or amends the provisions of paragraph (a)
of section 10 with respect to eligibility and disinterest of members of the
Incentive Committee, (iii) permits any person who is not at the time a Key
Employee to be granted a Stock Incentive, (iv) amends the provisions of
paragraph (b) of section 5 or paragraph (a) of section 6 to permit shares to be
valued at, or to have a purchase price of, respectively, less than 100% of Fair
Market Value, (v) amends section 9 to extend the date set forth therein, or (vi)
amends this section 13.
(b) The Board of Directors may by resolution adopted by a majority of
the entire Board of Directors discontinue this Plan.
(c) No amendment or discontinuance of this Plan by the Board of
Directors or the shareholders of the Company shall, without the consent of the
employee, adversely affect any Stock Incentive theretofore granted to him, and
no amendment by the Incentive Committee of any such Stock Incentive shall,
without the consent of the employee, adversely affect such Stock Incentive.
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EXHIBIT 10.2
W. R. GRACE & CO.
1986 STOCK INCENTIVE PLAN
(As amended through November 2, 1995).
<PAGE>
W.R. GRACE & CO.
1986 STOCK INCENTIVE PLAN
1. PURPOSES: The purposes of this Plan are (a) to secure for Key Persons
the benefits of incentives attributable to Common Stock, (b) to encourage Key
Persons to increase their interest in the future growth and prosperity of the
Company and to stimulate and sustain constructive and imaginative thinking by
Key Persons, (c) to further the identity of interests of Key Persons with the
interests of the Company's shareholders, and (d) to induce the service or
continued service of Key Persons and to enable the Company to compete with other
organizations offering similar or other incentives in obtaining and retaining
the services of competent individuals.
2. DEFINITIONS: Unless otherwise required by the context, the following
terms when used in this Plan shall have the meanings set forth in this section
2.
Board of Directors: The Board of Directors of the Company.
cessation of service (or words of similar import): When a person ceases to
be, and is no longer, an employee of, or consultant to, the Company or a
Subsidiary; provided, however, in the case of an Incentive Stock Option,
"cessation of service" (or words of similar import) shall mean when a person
ceases to be an employee of the Company or a Subsidiary.
Common Stock: The common stock of the Company, par value $1.00 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 8.
Company: W. R. Grace & Co., a New York corporation.
Fair Market Value: The fair market value of a share of Common Stock
determined in accordance with any reasonable method approved by the Incentive
Committee. In the absence of any such approved method, Fair Market Value, as
applied to any date, shall be the mean between the high and low sales prices of
a share of Common Stock as reported on the Consolidated Transactions Tape for
securities listed on the New York Stock Exchange for such date or, if no such
sales were reported for such date, for the next preceding date for which sales
were so reported.
Grace-Connecticut: W. R. Grace & Co.-Conn., a Connecticut corporation which
is a subsidiary of the Company and which was formerly known as "W. R. Grace &
Co."
Incentive Committee: The committee designated by the Board of Directors to
administer stock incentive and stock option plans of the Company and its
subsidiaries.
<PAGE>
Incentive Compensation: Bonuses, extra and other compensation payable in
addition to a salary or other base amount, whether contingent or not, whether
discretionary or required to be paid pursuant to a plan, agreement, resolution
or arrangement, and whether payable currently or on a deferred basis, in cash,
Common Stock or other property, awarded by the Company or a Subsidiary prior or
subsequent to the date of the approval and adoption of this Plan.
Incentive Stock Option: An option, including an Option as the context may
require, intended to meet the requirements of section 422A of the Internal
Revenue Code and the regulations thereunder applicable to incentive stock
options adopted by the Secretary of the Treasury or his delegate, or any
provisions that may be adopted to amend or replace such section or regulations
or both.
Key Employee: An employee of the Company or a Subsidiary who is a Key
Person.
Key Person: An employee of, or a consultant to, the Company or a
Subsidiary, including an officer or director who is an employee or consultant,
who in the opinion of the Incentive Committee can contribute significantly to
the growth and successful operations of the Company or a Subsidiary. The grant
of a Stock Incentive to an employee or consultant by the Incentive Committee
shall be deemed a determination by the Incentive Committee that such person is a
Key Person.
Non-Statutory Stock Option: An option, including an Option as the context
may require, which is not an Incentive Stock Option or another form of statutory
stock option (within the meanings of sections 422, 423 and 424 of the Internal
Revenue Code and the regulations thereunder as adopted and amended from time to
time by the Secretary of the Treasury or his delegate).
Option: An option granted under this Plan to purchase shares of Common
Stock.
Plan: The 1986 Stock Incentive Plan of the Company herein set forth as the
same may from time to time be amended.
Performance Unit: A unit representing a share of Common Stock subject to a
Stock Award, the issuance, transfer or retention of which, in whole or in part,
is contingent upon or measured by the attainment of a specified performance
objective or objectives, including, without limitation, objectives determined
(on a consolidated or unconsolidated basis) by reference to or changes in (a)
the Fair Market Value, book value or earnings per share of Common Stock, or (b)
the sales and revenues, net income, return on capital employed, asset values or
net worth of the Company or one or more of its groups, divisions, Subsidiaries
or other units, or (c) a combination of two or more of the foregoing or other
factors.
-2-
<PAGE>
service: Service as an employee of, or a consultant to, the Company or a
Subsidiary. "To serve" has a correlative meaning.
Stock Award: An issuance or transfer of shares of Common Stock at the time
the Stock Incentive is granted or as soon thereafter as practicable, or an
undertaking (other than an Option) to issue or transfer such shares in the
future, including, without limitation, such an issuance, transfer or undertaking
with respect to Performance Units.
Stock Incentive: A stock incentive granted under this Plan in one of the
forms provided for in section 3.
Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) (a) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights) or
(b) regularly entitled to receive 50% or more of the dividends (or their
equivalents) paid on the common stock (or its equivalent) are owned, directly or
indirectly, by the Company; provided, however, that in the case of an Incentive
Stock Option, the term "Subsidiary" shall mean a Subsidiary (as defined by the
preceding clause) which is also a "subsidiary corporation" as defined in section
425(f) of the Internal Revenue Code and the regulations thereunder adopted by
the Secretary of the Treasury or his delegate, or any provisions that may be
adopted to amend or replace such section or regulations or both.
3. "GRANT" OF STOCK INCENTIVES:
(a) Subject to the provisions of this Plan, the Incentive Committee may at
any time, or from time to time, grant Stock Incentives under this Plan to, and
only to, Key Persons; provided, however, that Incentive Stock Options may be
granted to, and only to, Key Employees.
(b) Stock Incentives may be granted in the following forms:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
4. STOCK SUBJECT TO THIS PLAN:
(a) Subject to the provisions of paragraph (c) of this section 4 and of
section 8, (i) the maximum number of shares of Common Stock which may be issued
or transferred pursuant to Stock Incentives granted under this Plan shall not
exceed 5,000,000 shares of Common Stock, (ii) the maximum number of shares of
Common Stock which may be acquired upon
-3-
<PAGE>
exercise of Options granted at any time or from time to time under this Plan to
any one Key Person shall in no event exceed 5% of the maximum number of shares
which may be issued or transferred pursuant to Stock Incentives granted under
this Plan, and (iii) the maximum number of shares of Common Stock which may be
acquired upon exercise of Options granted at any time or from time to time under
this Plan to Key Persons serving as directors of the Company at the time they
recommend this Plan for approval and adoption by the shareholders of the Company
shall in no event exceed 25% of the maximum number of the shares which may be
issued or transferred pursuant to Stock Incentives granted under this Plan.
(b) Authorized but unissued shares of Common Stock and shares of Common
Stock held in the treasury, whether acquired by the Company specifically for use
under this Plan or otherwise, may be used, as the Incentive Committee may from
time to time determine, for purposes of this Plan, provided, however, that any
shares acquired or held by the Company for the purposes of this Plan shall,
unless and until transferred to a Key Person in accordance with the terms and
conditions of a Stock Incentive, be and at all times remain treasury shares of
the Company, irrespective of whether such shares are entered in a special
account for purposes of this Plan, and shall be available for any corporate
purpose.
(c) If any shares of Common Stock subject to a Stock Incentive shall not be
issued or transferred and shall cease to be issuable or transferable because of
the termination, in whole or in part, of such Stock Incentive or for any other
reason, or if any such shares shall, after issuance or transfer, be reacquired
by the Company or a Subsidiary because of an employee's failure to comply with
the terms and conditions of a Stock Incentive, the shares not so issued or
transferred, or the shares so reacquired by the Company or a Subsidiary, shall
no longer be charged against any of the limitations provided for in paragraph
(a) of this section 4 and may again be made subject to Stock Incentives.
(d) For purpose of this section 4, Common Stock shall include shares of
common stock, par value $1.00 per share, of Grace-Connecticut issued or
transferred pursuant to Stock Incentives granted by Grace-Connecticut under this
Plan as in effect prior to its adoption by the Company, except that in
determining, for purposes of this section 4, the number of shares so issued or
transferred by Grace-Connecticut prior to the two-for-one split of the common
stock of Grace-Connecticut which occurred in December 1987, adjustment shall be
made to reflect such stock split.
5. STOCK AWARDS: Except as otherwise provided in section 12 and in
paragraph (f) of section 11, Stock Incentives in the form of Stock Awards shall
be subject to the following provisions:
(a) A Stock Award shall be granted only in payment of Incentive
Compensation that has
-4-
<PAGE>
been earned or as Incentive Compensation to be earned, including, without
limitation, Incentive Compensation awarded concurrently with or prior to the
grant of the Stock Award.
(b) For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Common Stock subject to such Stock Award shall be valued at
not less than 100% of the Fair Market Value of such shares on the date such
Stock Award is granted, regardless of whether or when such shares are issued or
transferred to the Key Person and whether or not such shares are subject to
restrictions which affect their value.
(c) Shares of Common Stock subject to a Stock Award may be issued or
transferred to the Key Person at the time the Stock Award is granted, or at any
time subsequent thereto, or in installments from time to time, as the Incentive
Committee shall determine. In the event that any such issuance or transfer
shall not be made to the Key Person at the time the Stock Award is granted, the
Incentive Committee may provide for payment to such Key Person, either in cash
or shares of Common Stock, from time to time or at the time or times such shares
shall be issued or transferred to such Key Person, of amounts not exceeding the
dividends which would have been payable to such Key Person in respect of such
shares (as adjusted under section 8) if such shares had been issued or
transferred to such Key Person at the time such Stock Award was granted. Any
amount payable in shares of Common Stock under the terms of a Stock Award may,
at the discretion of the Company, be paid in cash, on each date on which
delivery of shares would otherwise have been made, in an amount equal to the
Fair Market Value on such date of the shares which would otherwise have been
delivered.
(d) A Stock Award shall be subject to such terms and conditions,
including, without limitation, restrictions on the sale or other disposition of
the Stock Award or of the shares issued or transferred pursuant to such Stock
Award, as the Incentive Committee shall determine; provided, however, that upon
the issuance or transfer of shares pursuant to a Stock Award, the recipient
shall, with respect to such shares, be and become a shareholder of the Company
fully entitled to receive dividends, to vote and to exercise all other rights of
a shareholder except to the extent otherwise provided in the Stock Award. Each
Stock Award shall be evidenced by a written instrument in such form as the
Incentive Committee shall determine, provided the Stock Award is consistent with
this Plan and incorporates it by reference.
6. OPTIONS: Except as otherwise provided in section 12 and in paragraph
(f) of section 11, Stock Incentives in the form of Options shall be subject to
the following provisions:
(a) Subject to the provisions of section 8, the purchase price per share
shall be not less than 100% of the Fair Market Value of a share of Common Stock
on the date the Option is granted. The purchase price shall be paid in cash or,
if so provided in the Option or authorized by the Incentive Committee (and
subject to such terms and conditions as are
-5-
<PAGE>
specified in the Option or by the Incentive Committee), in shares of Common
Stock delivered to the Company or in a combination of cash and such shares.
Share of Common Stock thus delivered shall be valued at their Fair Market Value
on the date of exercise.
(b) Each Option may be exercisable in full at the time of grant, or may
become exercisable in one or more installments and at such time or times, as the
Incentive Committee shall determine. Unless otherwise provided in the Option,
an Option, to the extent it is or becomes exercisable, may be exercised at any
time in whole or in part until the expiration or termination of the Option.
(c) Each Option shall be exercisable during the life of the optionee only
by him, and after death only by his estate or by a person who acquired the right
to exercise the Option by will or the laws of descent and distribution. An
Option, to the extent that it shall not have been exercised or canceled, shall
terminate as follows after the optionee ceases to serve: (i) if the optionee
shall voluntarily resign without the consent of the Incentive Committee or be
terminated for cause, the Option shall terminate immediately upon cessation of
service; (ii) if the optionee shall cease to serve by reason of death,
incapacity or retirement under a retirement plan of the Company or a Subsidiary,
the Option shall terminate 15 months after cessation of service if the optionee
has served for less than 15 years, the Option shall terminate two years after
cessation of service if the optionee has served 15 or more years but less than
25 years, and the Option shall terminate three years after cessation of service
if the optionee has served 25 or more years; and (iii) except as provided in the
next sentence, in all other cases the Option shall terminate three months after
cessation of service unless the Incentive Committee shall approve a longer
period (which approval may be given before or after cessation of service), not
to exceed, however, the period which would have been applicable if the optionee
had died, become incapacitated or retired under a retirement plan of the Company
or a Subsidiary. If the optionee shall die or become incapacitated during the
three-month period (or such longer period as the Incentive Committee may
approve) referred to in the preceding clause (iii), the Option shall terminate
at such time as it would have terminated had the service of the optionee ceased
by reason of his death, incapacity or retirement under a retirement plan of the
Company or Subsidiary. A leave of absence for military or governmental service
or for other purposes shall not, if approved by the Incentive Committee (which
approval may be given before or after the leave of absence commences), be deemed
a termination of employment within the meaning of this paragraph (c); provided,
however, that an Option may not be exercised or canceled during any such leave
of absence. Notwithstanding the foregoing provisions of this paragraph (c) or
any other provision of this Plan, no Option shall be exercisable after
expiration of a period of ten years and one month from the date the Option is
granted. Where a Non-Statutory Stock Option is granted for a term of less than
ten years and one month, the Incentive Committee may, at any time prior to the
expiration of the Option, extend its term for a period ending not later than ten
year and one month from the date the Option was granted. Such an extension
shall not be deemed
-6-
<PAGE>
the grant of an Option under this Plan.
(d) Options shall be granted for such lawful consideration as may be
provided in the Option or as the Incentive Committee may determine.
(e) No Option nor any right thereunder may be assigned or transferred
except by will or the laws of descent and distribution. If so provided in the
Option or if so authorized by the Incentive Committee and subject to such terms
and conditions as are specified in the Option or by the Incentive Committee, the
Company shall, upon or without the request of the holder of the Option and at
any time or from time to time, cancel all or a portion of the Option then
subject to exercise and either (i) pay the holder an amount of money equal to
the excess, if any, of the Fair Market Value, at such time or times, of the
shares subject to the portion of the Option so canceled over the purchase price
of such shares, or (ii) issue or transfer shares of Common Stock to the holder
with a Fair Market Value, at such time or times, equal to such excess.
(f) An Option may, but need not, be an Incentive Stock Option. All shares
of Common Stock which may be made subject to Stock Incentives under this Plan
may be made subject to Incentive Stock Options; provided that the aggregate Fair
Market Value (determined as of the time the option is granted) of the shares
subject to each installment becoming exercisable for the first time in any
calendar year under Incentive Stock Options granted to any employee on or after
January 1, 1987 (under all plans, including this Plan, of his employer
corporation and its parent and subsidiary corporations) shall not exceed
$100,000.
(g) Each Option shall be evidenced by a written instrument, which shall
contain such terms and conditions, and shall be in such form, as the Incentive
Committee shall determine, provided the Option is consistent with this Plan and
incorporates it by reference. Notwithstanding the preceding sentence, an
Option, if so approved by the Incentive Committee, may include restrictions and
limitations in addition to those provided for in this Plan.
7. COMBINATIONS OF STOCK AWARDS AND OPTIONS: Stock Incentives authorized
by paragraph (b)(iii) of section 3 in the form of combinations of Stock Awards
and Options shall be subject to the following provisions:
(a) A Stock Incentive may be a combination of any form of Stock Award with
any form of Option; provided, however, that the terms and conditions of such
Stock Incentive pertaining to a Stock Award are consistent with section 5 and
the terms and conditions of such Stock Incentive pertaining to an Option are
consistent with section 6.
(b) Such combination Stock Incentive shall be subject to such other terms
and conditions
-7-
<PAGE>
as the Incentive Committee may determine, including, without limitation, a
provision terminating in whole or in part a portion thereof upon the exercise in
whole or in part of another portion thereof. Such combination Stock Incentive
shall be evidenced by a written instrument in such form as the Incentive
Committee shall determine, provided it is consistent with this Plan and
incorporates it by reference.
8. ADJUSTMENT PROVISIONS:
(a) In the event that any reclassification, split-up or consolidation of
shares of Common Stock shall be effected, or the outstanding shares of Common
Stock are, in connection with a merger or consolidation of the Company or a sale
by the Company of all or a part of its assets, exchanged for a different number
or class of shares of stock or other securities or property of the Company or
for shares of the stock or other securities or property of any other corporation
or person, or a record date for determination of holders of Common Stock
entitled to receive a dividend payable in Common Stock shall occur, (i) the
number and class of shares or other securities or property that may be issued or
transferred pursuant to Stock Incentives thereafter granted, (ii) the number and
class of shares or other securities or property that have not been issued or
transferred under outstanding Stock Incentives, (iii) the purchase price to be
paid per share or other unit under outstanding Stock Incentives, and (iv) the
price to be paid per share or other unit by the Company or a Subsidiary for
shares or other securities or property issued or transferred pursuant to Stock
Incentives which are subject to a right of the Company or a Subsidiary to
reacquire such shares or other securities or property, shall in each case be
equitably adjusted as determined by the Incentive Committee.
(b) In the event that any spin-off or other distribution of assets of the
Company to its shareholders shall occur, (i) the number and class of shares or
other securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number and class of shares or other securities or
property that have not been issued under outstanding Stock Incentives, (iii) the
purchase price to be paid per share or other unit under outstanding Stock
Incentives, and (iv) the price to be paid per share or other unit by the Company
or a Subsidiary for shares or other securities or property issued pursuant to
Stock Incentives that are subject to a right of the Company or a Subsidiary to
reacquire such shares or other securities or property, may in each case be
equitably adjusted as may be determined by the Incentive Committee.
9. TERM: This Plan was deemed adopted and became effective on the date
it was approved and adopted by the shareholders of Grace-Connecticut. This Plan
was deemed adopted as to the Company on the date of the adoption and assumption
thereof by the Board of Directors with the approval of the shareholders of
Grace-Connecticut and became effective as to the Company on the effective date
of the merger of Grace Merger Corp., a subsidiary of the Company, with and into
Grace-Connecticut. No Stock Incentives shall be granted under
-8-
<PAGE>
this Plan after April 30, 1996.
10. ADMINISTRATION:
(a) This Plan shall be administered by the Incentive Committee. No
director shall be designated as or continue to be a member of the Incentive
Committee unless he shall at the time of designation and service be a
"disinterested person" within the meaning of Rule 16b-3 of the Securities and
Exchange Commission (or any successor provision at the time in effect). A
member of the Incentive Committee shall not be eligible to be granted a Stock
Incentive while serving on the Incentive Committee. Grants of Stock Incentives
may be made by the Incentive Committee either in or without consultation with
employees, but in either case the Incentive Committee shall have full authority
to act in the matter of selection of all Key Persons and in granting Stock
Incentives to them.
(b) The Incentive Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to participate in this Plan and for the proper
administration of this Plan, and may amend or revoke any rule or regulation so
established. The Incentive Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations,
subject to the provisions of section 3.1 of the By-laws of the Company, shall be
binding and conclusive upon the Company, its Subsidiaries, its shareholders, and
its directors, officers, consultants and employees, and upon their respective
legal representatives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
(c) Any action required or permitted to be taken by the Incentive
Committee under this Plan may be taken in accordance with Article III or the
By-laws of the Company even though, because of a vacancy or vacancies as a
result of resignations or otherwise, the total number of directors who are then
members of the Incentive Committee shall be less than the number initially
designated by the Board of Directors.
(d) Members of the Board of Directors and members of the Incentive
Committee acting under this Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability except for gross
negligence or willful misconduct in the performance of their duties.
11. GENERAL PROVISIONS:
(a) Nothing in this Plan nor in any instrument executed pursuant hereto
shall confer upon any person any right to continue in the service of the Company
or a Subsidiary, or shall affect the right of the Company or of a Subsidiary to
terminate the service of any person with or
-9-
<PAGE>
without cause.
(b) No shares of Common Stock shall be issued or transferred pursuant to a
Stock Incentive unless and until all legal requirements applicable to the
issuance or transfer of such shares have, in the opinion of counsel to the
Company, been complied with. In connection with any such issuance or transfer
the person acquiring the shares shall, if requested by the Company, give
assurances, satisfactory to counsel to the Company, in respect of such matters
as the Company or a Subsidiary may deem desirable to assure compliance with all
applicable legal requirements.
(c) No person (individually or as a member of a group), and no beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock allocated or reserved for the
purposes of this Plan or subject to any Stock Incentive except as to such shares
of Common Stock, if any, as shall have been issued or transferred to him.
(d) The Incentive Committee may grant a Stock Incentive to be effective at
a specified future date or upon the future happening of a specified event, not
more than sixty days from the date on which the Incentive Committee acts. For
the purposes of this Plan, any such Stock Incentive shall be deemed granted on
the date it is effective. An agreement or other commitment to grant a Stock
Incentive in the future to a person who is or will be a Key Person at the time
of grant shall not be deemed the grant of a Stock Incentive until the date on
which the Incentive Committee takes action to implement such agreement or
commitment.
(e) In the case of a grant of a Stock Incentive to a Key Person of a
Subsidiary, such grant may, if the Incentive Committee so approves, be
implemented by the Company entering into an agreement with the Subsidiary
containing such terms and provisions as the Incentive Committee may authorize,
including, without limitation, a provision for the issuance or transfer of the
shares covered by the Stock Incentive to the Subsidiary, for such consideration
as the Incentive Committee may approve, upon the condition or understanding that
the Subsidiary will transfer the shares to the Key Person in accordance with the
terms of the Stock Incentive.
(f) In the event the laws of a foreign country, in which the Company or a
Subsidiary has employees, prescribes certain requirements for stock incentives
to qualify for advantageous tax treatment under the laws of that country
(including, without limitation, laws establishing options analogous to Incentive
Stock Options), the Board of Directors, upon the recommendation of the Incentive
Committee, may restate, in whole or in part, this Plan and may include in such
restatement additional provisions for the purpose of qualifying the restated
plan and Stock Incentives granted thereunder under such laws of such foreign
country; provided, however, that (i) the terms and conditions of a Stock
Incentive granted
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<PAGE>
under such restated plan may not be more favorable to the recipient than would
be permitted if such Stock Incentive had been granted under this Plan as herein
set forth, (ii) all shares allocated to or utilized for the purposes of such
restated plan shall be subject to the limitations of section 4, and (iii) the
provisions of the restated plan may restrict but may not extend or amplify the
provisions of sections 9 and 13.
(g) The Company or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company or a Subsidiary
determines it is required to withhold in connection with any Stock Incentive.
(h) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to directors,
officers, employees or consultants generally, or to any class or group of such
persons, which the Company or any Subsidiary now has or may hereafter lawfully
put into effect, including, without limitation, any incentive compensation,
retirement, pension, group insurance, stock purchase, stock bonus or stock
option plan.
12. ACQUISITIONS: If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another company, the Company in connection therewith,
upon the approval of the Incentive Committee, (a) may assume, in whole or in
part and with or without modifications or conditions, any stock incentives
granted by the acquired company to its directors, officers, employees or
consultants in their capacity as such, or (b) may grant new Stock Incentives in
substitution therefor. Such assumed or substitute stock incentives may contain
terms and conditions inconsistent with the provisions of this Plan, including
additional benefits for the recipient; provided that such terms and conditions
are permitted under the plan of the other company and such plan was approved by
the shareholders of such other company. For the purposes of any applicable plan
provision involving time or a date, a substitute stock incentive shall be deemed
granted as of the date of grant of the original stock incentive by the other
company.
13. AMENDMENTS AND TERMINATION:
(a) This Plan may be amended or terminated by the Board of Directors upon
the recommendation of the Incentive Committee; provided that, without the
approval of the shareholders of the Company, no amendment shall be made which
(i) increases the maximum number of shares of Common Stock that may be issued or
transferred pursuant to Stock Incentives, the maximum number of shares of Common
Stock that may be acquired upon exercise of Options granted to any one person or
the maximum number of shares of Common Stock that may be acquired upon exercise
of Options granted to persons serving as directors, in each case as provided in
paragraph (a) of section 4, (ii) except as may be required
-11-
<PAGE>
to conform this Plan to changes in the federal securities laws and the rules and
regulations of the Securities and Exchange Commission (or any successor agency),
withdraws the administration of this Plan from the Incentive Committee or amends
the provisions of paragraph (a) of section 10 with respect to eligibility and
disinterest of members of the Incentive Committee, (iii) permits any person who
is not a Key Person to be granted a Stock Incentive (except as otherwise
provided in section 12), (iv) amends the provisions of paragraph (b) of section
5 or paragraph (a) of section 6 to permit shares to be valued at, or to have a
purchase price of, respectively, less than 100% of Fair Market Value, (v) amends
section 9 to extend the date set forth therein, or (vi) amends this section 13.
(b) No amendment or termination of this Plan by the Board of Directors or
the shareholders of the Company shall adversely affect any Stock Incentive
theretofore granted without the consent of the holder thereof, and no amendment
by the Incentive Committee of any such Stock Incentive shall adversely affect
such Stock Incentive without the consent of the holder thereof.
-12-
<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 9 Mos. Ended
9/30/95 - 9/30/94 9/30/95 - 9/30/94
----------------------- ---------------------
<S> <C> <C>
Weighted average number of shares of Common
Stock outstanding. . . . . . . . . . . . . . . 96,708 93,995 95,330 93,893
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method). . . . . . . . . . . . . . . . . 2,392 660 2,392 756
------ ------- ------ ------
Weighted average number of shares of Common
Stock outstanding assuming full dilution . . . 99,100 94,655 97,722 94,649
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Income/(loss) used in the computation of earnings per share were as follows
(dollars in millions, except per share):
<TABLE>
<CAPTION>
3 Mos. Ended 9 Mos. Ended
9/30/95 - 9/30/94 9/30/95 - 9/30/94
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net income/(loss). . . . . . . . . . . . . . . $21.7 $76.0 $147.9 $(20.1)
Dividends paid on preferred stocks . . . . . . (.1) (.2) (.4) (.4)
----- ----- ------ ------
Income/(loss) used in per share computation of
earnings and in per share computation of
earnings assuming full dilution . . . . . . $21.6 $75.8 $147.5 $(20.5)
----- ----- ------ ------
----- ----- ------ ------
Earnings/(loss) per share. . . . . . . . . . . $ .22 $.81 $1.55 $ (.22)
Earnings/(loss) per share assuming full dilution $ .22 $.80 $1.51 $ (.22)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 80,900
<SECURITIES> 0
<RECEIVABLES> 582,100<F1>
<ALLOWANCES> 0
<INVENTORY> 515,200
<CURRENT-ASSETS> 1,763,600<F2>
<PP&E> 3,057,900
<DEPRECIATION> 1,432,000
<TOTAL-ASSETS> 6,234,100<F2>
<CURRENT-LIABILITIES> 1,947,400
<BONDS> 1,256,200
<COMMON> 97,100
0
7,400
<OTHER-SE> 1,584,100
<TOTAL-LIABILITY-AND-EQUITY> 6,234,100
<SALES> 2,732,100<F3>
<TOTAL-REVENUES> 2,745,400
<CGS> 1,617,600
<TOTAL-COSTS> 1,617,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,300
<INCOME-PRETAX> 121,300<F4>
<INCOME-TAX> 33,600
<INCOME-CONTINUING> 87,700<F4>
<DISCONTINUED> 60,200<F5><F6>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,900
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.51
<FN>
<F1>Amount shown is net of allowances.
<F2>Included within current assets and total assets are net assets of
discontinued operations of $351.8 million and $1,842.4 million, respectively.
<F3> Excludes sales reported by the discontinued health care segment of
$1,536.2 million for the first nine months of 1995.
<F4>Includes a pretax provision of (a) $30 million ($18.6 million after-tax)
relating to corporate governance activities and (b) restructuring costs of
$44.3 million ($27.1 million after-tax).
<F5>In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off NMC. As a result, Grace has classified its health
care segment as a discontinued operation.
<F6> Includes after-tax provisions of $24 million relating to the write-down
of impaired assets, $5.6 million for the phase-out of certain health care
research programs and $3.9 million for additional costs associated with
Grace's incentive programs.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 61,200
<SECURITIES> 0
<RECEIVABLES> 899,900<F2>
<ALLOWANCES> 0
<INVENTORY> 569,100
<CURRENT-ASSETS> 2,232,000
<PP&E> 3,397,400
<DEPRECIATION> 1,588,900
<TOTAL-ASSETS> 6,361,100
<CURRENT-LIABILITIES> 2,088,800
<BONDS> 1,311,300
<COMMON> 94,600
0
7,400
<OTHER-SE> 1,446,100
<TOTAL-LIABILITY-AND-EQUITY> 6,361,100
<SALES> 853,400<F3>
<TOTAL-REVENUES> 857,700
<CGS> 500,900
<TOTAL-COSTS> 500,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,800
<INCOME-PRETAX> 31,400<F4>
<INCOME-TAX> 8,500
<INCOME-CONTINUING> 22,900<F4>
<DISCONTINUED> 24,600<F5>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,500
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
<FN>
<F1>Restated to reflect the classification of Grace's health care segment as
a discontinued operation.
<F2>Amount shown is net of allowances.
<F3>Excludes sales reported by the discontinued health care segment of $491.8
million for the first quarter of 1995.
<F4>Includes a pretax provision of $20 million ($12.5 million after-tax)
relating to corporate governance activities.
<F5>In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off NMC. As a result, Grace has classified its
health care segment as a discontinued operation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 51,400
<SECURITIES> 0
<RECEIVABLES> 603,400<F2>
<ALLOWANCES> 0
<INVENTORY> 521,600
<CURRENT-ASSETS> 1,745,600<F3>
<PP&E> 2,972,700
<DEPRECIATION> 1,418,200
<TOTAL-ASSETS> 6,080,300<F3>
<CURRENT-LIABILITIES> 1,779,200
<BONDS> 1,280,900
<COMMON> 96,000
0
7,400
<OTHER-SE> 1,566,800
<TOTAL-LIABILITY-AND-EQUITY> 6,080,300
<SALES> 1,785,700<F4>
<TOTAL-REVENUES> 1,794,500
<CGS> 1,051,600
<TOTAL-COSTS> 1,051,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,500
<INCOME-PRETAX> 96,200<F5>
<INCOME-TAX> 28,300
<INCOME-CONTINUING> 67,900<F5>
<DISCONTINUED> 58,300<F6>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,200
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.30
<FN>
<F1>Restated to (a) classify corporate overhead and research expenses that
were previously allocated to the health care segment to continuing operations
and (b) reflect tax expenses as if the discontinued health care segment were
a stand-alone taxpayer.
<F2>Amount shown is net of allowances.
<F3>Included within current assets and total assets are net assets of
discontinued operations of $340.0 million and $1,740.5 million,
respectively.
<F4>Excludes sales reported by the discontinued health care segment of
$1,015.3 million for the first half of 1995.
<F5>Includes a pretax provision of $20 million ($12.5 million after-tax)
relating to corporate governance activities.
<F6>In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off NMC. As a result, Grace has classified its health
care segment as a discontinued operation.
</FN>
</TABLE>
<PAGE>
RESTATED CONSOLIDATED FINANCIAL STATEMENTS
OF W. R. GRACE & CO.
FOR THE QUARTERS ENDED MARCH 31, 1995 AND 1994
AS USED IN THE FOLLOWING FINANCIAL STATEMENTS, 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
<S>
Consolidated Statement of Operations (Unaudited) (1) March 31,
- ---------------------------------------------------------------------------------------------- ------------------
Dollars in millions, except per share 1995 1994
- ---------------------------------------------------------------------------------------------- ---- ----
<C> <C>
Sales and revenues............................................................................. $853.4 $675.4
Other income................................................................................... 4.3 31.1
------ ------
Total.......................................................................................... 857.7 706.5
------ ------
Cost of goods sold and operating expenses................................................... 500.9 437.8
Selling, general and administrative expenses................................................ 230.8 178.4
Depreciation and amortization............................................................... 38.2 37.2
Interest expense and related financing costs................................................ 15.8 10.6
Research and development expenses........................................................... 30.5 27.1
Corporate expenses previously allocated to the health care segment.......................... 10.1 9.1
----- ----
Total.................................................................................... 826.3 700.2
------ -----
Income from continuing operations before income taxes....................................... 31.4 6.3
Provision for/(benefit from) income taxes................................................... 8.5 (8.5)
---- -----
Income from continuing operations........................................................... 22.9 14.8
Income from discontinued operations......................................................... 24.6 23.4
---- ----
Net income.................................................................................. $ 47.5 $ 38.2
------- -------
------- -------
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Continuing operations....................................................................... $.24 $.16
Net Income.................................................................................. $.50 $.41
Fully diluted earnings per share:
Continuing operations....................................................................... $.24 $.15
Net Income.................................................................................. $.49 $.40
Dividends declared per common share......................................................... $.35 $.35
</TABLE>
(1) This Consolidated Statement of Operations has been restated to reflect
the classification of Grace's health care segment as a discontinued
operation.
- -------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements
are integral parts of these statements.
1
<PAGE>
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended
Consolidated Statement of Cash Flows (Unaudited) (1) March 31,
- ------------------------------------------------------------------------------------- -------------------
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------------- ----------- ---------
<S>
OPERATING ACTIVITIES <C> <C>
Income before income taxes.......................................................... $ 31.4 $ 6.3
Reconciliation to cash used for operating activities:
Depreciation and amortization.................................................. 38.2 37.2
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
Increase in notes and accounts receivable, net.............................. (0.1) (59.5)
Increase in inventories......................................................... (41.6) (19.6)
Proceeds from asbestos-related insurance settlements............................ 100.0 88.8
Payments made for asbestos-related litigation settlements
and defense costs........................................................... (30.9) (72.0)
Decrease in accounts payable.................................................... (70.4) (104.6)
Other........................................................................... (95.1) (9.4)
----- ------
Net pretax cash used for operating activities of continuing operations............... (68.5) (132.8)
Net pretax cash provided by operating activities of discontinued operations.......... 65.6 88.9
----- ------
Net pretax cash used for operating activities........................................ (2.9) (43.9)
Income taxes paid.................................................................... (59.6) (16.1)
----- ------
Net cash used for operating activities............................................... (62.5) (60.0)
----- ------
INVESTING ACTIVITIES
Capital expenditures................................................................. (110.4) (70.8)
Businesses acquired in purchase transactions, net of
cash acquired and assumed debt.................................................. (31.3) (23.9)
Net proceeds from divestments........................................................ 7.1 49.3
Other................................................................................ (2.6) 7.8
------ -----
Net cash used for investing activities............................................... (137.2) (37.6)
------ ------
FINANCING ACTIVITIES
Dividends paid....................................................................... (33.1) (32.9)
Repayments of borrowings having original maturities in excess of three months........ (10.5) (36.1)
Increase in borrowings having original maturities in excess of three months.......... 9.3 28.7
Net increase in borrowings having original maturities of less than three months...... 209.6 163.8
Other................................................................................ 4.1 14.1
----- ------
Net cash provided by financing activities............................................ 179.4 137.6
----- -----
Effect of exchange rate changes on cash and cash equivalents........................... 3.2 (7.2)
----- ------
(Decrease)/increase in cash and cash equivalents....................................... $ (17.1) $ 32.8
--------- --------
--------- --------
</TABLE>
(1) The "Operating Activities" section of this Consolidated Statement of Cash
Flows has been restated to reflect the classification of Grace's health care
segment as a discontinued operation.
The Notes to Consolidated Financial Statements
are integral parts of these statements.
2
<PAGE>
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
- ---------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
Dollars in millions, except par value 1995 1994
- ---------------------------------------------------- ------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 61.2 $ 78.3
Notes and accounts receivable, net. . . . . . . . . . . . . . . . . . . 899.9 975.7
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569.1 514.2
Net assets of discontinued operations - other . . . . . . . . . . . . . 325.3 335.6
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 291.0 295.4
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 85.5 29.7
---------- -----------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . 2,232.0 2,228.9
Properties and equipment, net of accumulated
depreciation and amortization of $1,588.9
and $1,498.2, respectively. . . . . . . . . . . . . . . . . . . . . . . 1,808.5 1,730.1
Goodwill, less accumulated amortization of $77.3
and $71.8, respectively . . . . . . . . . . . . . . . . . . . . . . . . 700.1 672.5
Asbestos-related insurance receivable. . . . . . . . . . . . . . . . . . . 512.6 512.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,107.9 1,086.5
---------- -----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,361.1 $6,230.6
---------- -----------
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 444.7 $ 430.9
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 348.0 433.7
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165.9 197.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 833.2 872.9
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.0 297.0
---------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . 2,088.8 2,231.5
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,311.3 1,098.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729.6 690.9
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 95.1 92.5
Noncurrent liability for asbestos-related litigation . . . . . . . . . . . 588.2 612.4
---------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 4,813.0 4,726.1
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value. . . . . . . . . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value. . . . . . . . . . . . . . . . . . . . . . . 94.6 94.1
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324.4 308.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,161.9 1,147.5
Cumulative translation adjustments. . . . . . . . . . . . . . . . . . . (28.1) (53.3)
Treasury stock, 274,848 common shares, at cost. . . . . . . . . . . . . (12.1) -
---------- -----------
Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . 1,548.1 1,504.5
---------- -----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,361.1 $6,230.6
---------- -----------
---------- -----------
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
3
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(a) The financial statements in this Report at March 31, 1995 and 1994 and for
the three-month interim periods then ended are unaudited and should be read
in conjunction with the consolidated financial statements in the Company's
1994 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 period's consolidated financial statements have been reclassified
to conform to the current basis of presentation. The results of operations
for the three-month interim period ended March 31, 1995 are not necessarily
indicative of the results of operations for the fiscal year ending December
31, 1995.
In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off National Medical Care, Inc. (NMC), Grace's
wholly owned health care subsidiary, by means of a dividend to holders of
the Company's common stock that would be declared upon the satisfaction of
various conditions. As a result, Grace classified its health care segment
as a discontinued operation. The Consolidated Statements of Operations and
Cash Flows for all periods presented have been restated to give effect to
such classification. See Note (c) below.
(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. Grace was a defendant in approximately 39,100 asbestos-related
lawsuits at March 31, 1995 (64 involving claims for property damage and the
remainder involving approximately 72,700 claims for personal injury), as
compared to approximately 38,700 lawsuits at December 31, 1994 (65
involving claims for property damage and the remainder involving
approximately 67,900 claims for personal injury). During the first quarter
of 1995, a final judgment was entered in favor of Grace in a property
damage case that had been on appeal; a new trial was ordered in another
property damage case that had been on appeal; and one new property damage
lawsuit was filed. During the first quarter of 1995, Grace also recorded
$5.1 as a result of the settlement of approximately 1,800 personal injury
claims, and approximately 500 personal injury claims against Grace were
dismissed.
Based upon and subject to the factors discussed in Note 2 to Grace's
consolidated financial statements for the year ended December 31, 1994,
Grace has attempted to estimate its future costs to dispose of the personal
injury and property damage lawsuits pending at March 31, 1995 and has
determined that it is probable that such lawsuits can be disposed of for a
total of $688.2, inclusive of legal fees and expenses, of which Grace has
recorded $588.2 as a noncurrent liability and $100 as a current liability.
This compares to the estimated liability (current and noncurrent) of $712.4
at December 31, 1994, the decrease being attributable to payments made by
Grace for asbestos-related litigation settlements and defense costs in the
first quarter of 1995. In addition, Grace has recorded a receivable of
$512.6 for the insurance proceeds it expects to receive in reimbursement
for prior payments and estimated future payments to dispose of pending
asbestos-related litigation. The amount of this receivable is unchanged
from December 31, 1994, reflecting that the payment made to Grace during
the first quarter of 1995
4
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
pursuant to a settlement with an insurance carrier was included in the
current portion of notes receivable in the balance sheet at December 31,
1994.
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 a September 1993
decision by the U.S. Court of Appeals for the Second Circuit that had the
effect of reducing the amount of insurance coverage available to Grace with
respect to asbestos property damage litigation and claims. Grace believes
that the settlement agreement (which involves approximately $240 of the
asbestos-related receivable of $512.6 at March 31, 1995) 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 appealed this ruling to
the U.S. Court of Appeals for the Fifth Circuit. On April 12, 1995, a
three-judge panel of the U.S. Court of Appeals for the Fifth Circuit
unanimously affirmed the January 1994 decision. Grace anticipates that the
affiliated group of carriers will seek a rehearing and, if a rehearing is
not granted, will seek to appeal the decision to the U.S. Supreme Court.
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. As previously reported, the May 1994 decision of the U.S. Court of
Appeals for the Second Circuit limited the amount of insurance coverage
available with respect to property damage lawsuits and claims. Because
Grace's insurance covers both property damage and personal injury lawsuits
and claims, the May 1994 decision has had the concomitant effect of
reducing the insurance coverage available with respect to Grace's personal
injury lawsuits and claims. However, in Grace's opinion, it is probable
that recoveries from its insurance carriers, along with other funds, will
be available to satisfy the personal injury and property damage lawsuits
and claims pending at March 31, 1995. Consequently, Grace believes that
the resolution of its pending asbestos-related litigation will not have a
material adverse effect on its consolidated results of operations or
financial position.
For additional information, see Note 2 to the consolidated financial
statements in the Company's 1994 Annual Report on Form 10-K.
5
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(c) As discussed in Note (a) above, Grace has classified its health care
segment as a discontinued operation.
Summary results of operations for the health care segment are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
------ ------
<S> <C> <C>
Sales and revenues $491.8 $401.4
------ ------
------ ------
Income from discontinued operations
before income taxes $ 44.0 $ 42.6
Provision for income taxes 19.4 19.2
------ -------
Income from discontinued operations $ 24.6 $ 23.4
------ -------
------ -------
</TABLE>
The net operating income of the health care segment reflects the
allocation of Grace's health care related research expenses and an
allocation of Grace's interest expense based on a ratio of the net assets
of the health care segment as compared to Grace's total debt and equity
capital. Interest expense allocated to the discontinued health care
segment was $20.1 and $10.5 for the first quarters of 1995 and 1994,
respectively. Taxes have been allocated to the health care segment as if
it were a stand-alone taxpayer; however, these allocations are not
necessarily indicative of the results of the health care segment in the
future on a stand-alone basis.
The net assets of Grace's discontinued operations (excluding intercompany
assets) at March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Cocoa Other Total
------- ------- ------
<S> <C> <C> <C>
Current assets $401.5 $ 16.4 $417.9
Properties and equipment, net 193.9 32.4 226.3
Investments in and advances to
affiliated companies - 39.8 39.8
Other assets 50.0 20.8 70.8
------ ------- -----
Total assets $645.4 $109.4 $754.8
------ ------- -----
Current liabilities $306.7 $ 13.8 $320.5
Other liabilities 97.4 11.6 109.0
------ ------- -----
Total liabilities $404.1 $ 25.4 $429.5
------ ------- -----
Net assets $241.3 $ 84.0 $325.3
------ ------- -----
------ ------- -----
</TABLE>
Minority interest consists of a limited partnership interest in Grace Cocoa
Associates, L.P. (LP). LP's assets consist of Grace Cocoa's worldwide
cocoa and chocolate business, long-term notes and demand loans issued by
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 as a component of
discontinued operations, and the outside investors' interest in LP is
6
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
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.
(d) Inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Raw and packaging materials $140.8 $129.8
In process 94.5 75.3
Finished products 377.4 352.2
------ ------
612.7 557.3
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (43.6) (43.1)
------ ------
Total Inventories $569.1 $514.2
------ ------
------ ------
</TABLE>
(e) Earnings per share are calculated on the basis of the following weighted
average number of common shares outstanding:
Three Months Ended March 31:
1995 - 94,137,000
1994 - 93,750,000
7
<PAGE>
RESTATED CONSOLIDATED FINANCIAL STATEMENTS
of W. R. Grace & Co.
For the Three- and Six-Month Interim Periods Ended June 30, 1995 and 1994
As used in the following financial statements, 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) (1) June 30, June 30,
- ------------------------------------------------------- ------------------------- ------------------------
Dollars in millions, except per share 1995 1994 1995 1994
- ------------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and revenues . . . . . . . . . . . . . . . . . . . . $932.3 $ 782.9 $1,785.7 $1,458.3
Other income . . . . . . . . . . . . . . . . . . . . . . . 4.5 3.1 8.8 34.2
------ --------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . 936.8 786.0 1,794.5 1,492.5
------ --------- -------- --------
Cost of goods sold and operating expenses . . . . . . . . 550.7 464.5 1,051.6 902.3
Selling, general and administrative expenses . . . . . . . 219.7 180.5 450.5 358.9
Depreciation and amortization . . . . . . . . . . . . . . 40.2 38.4 78.4 75.6
Interest expense and related financing costs . . . . . . . 18.7 11.3 34.5 21.9
Research and development expenses . . . . . . . . . . . . 31.1 27.0 61.6 54.1
Corporate expenses previously allocated to the
health care segment . . . . . . . . . . . . . . . . . 11.6 9.3 21.7 18.4
Provision relating to asbestos-related
insurance coverage . . . . . . . . . . . . . . . . . . - 316.0 - 316.0
------ --------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . 872.0 1,047.0 1,698.3 1,747.2
------ --------- -------- --------
Income/(loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . 64.8 (261.0) 96.2 (254.7)
Provision for/(benefit from) income taxes. . . . . . . . . 19.8 (96.9) 28.3 (105.4)
------ --------- -------- --------
Income/(loss) from continuing operations . . . . . . . . . 45.0 (164.1) 67.9 (149.3)
Income from discontinued operations. . . . . . . . . . . . 33.7 29.8 58.3 53.2
------ --------- -------- --------
Net income/(loss). . . . . . . . . . . . . . . . . . . . . $ 78.7 $ (134.3) $ 126.2 $ (96.1)
------ --------- -------- --------
------ --------- -------- --------
- ---------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per share:
Continuing operations . . . . . . . . . . . . . . . . . $ .47 $ (1.75) $ .71 $ (1.59)
Net income/(loss). . . . . . . . . . . . . . . . . . . . $ .83 $ (1.43) $ 1.33 $ (1.03)
Fully diluted earnings per share:
Continuing operations . . . . . . . . . . . . . . . . . . $ .46 $ - (2) $ .70 $ - (2)
Net income/(loss) . . . . . . . . . . . . . . . . . . . . $ .80 $ - (2) $ 1.30 $ - (2)
Dividends declared per common share . . . . . . . . . . . . $ .35 $ .35 $ .70 $ .70
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Consolidated Statement of Operations has been restated to (a) reflect
the classification of corporate overhead and certain corporate research expenses
that were previously allocated to the health care segment to continuing
operations and (b) reflect tax expense with respect to discontinued operations
as if the health care segment were a stand-alone taxpayer.
(2) Not presented as the effect is anti-dilutive.
The Notes to Consolidated Financial Statements
are an integral part of this statement.
1
<PAGE>
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Six Months Ended
Consolidated Statement of Cash Flows (Unaudited) (1) June 30,
- -------------------------------------------------------------------------- ----------------------------
Dollars in millions 1995 1994
- -------------------------------------------------------------------------- -------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Income/(loss) from continuing operations before income taxes . . . . . . . . . . . . . $ 96.2 $(254.7)
Reconciliation to cash (used for)/provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 78.4 75.6
Provision relating to asbestos-related insurance coverage . . . . . . . . . . . . . - 316.0
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
Increase in notes and accounts receivable, net. . . . . . . . . . . . . . . . . . (60.0) (109.2)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82.3) (19.1)
Proceeds from asbestos-related insurance settlements. . . . . . . . . . . . . . . 156.4 121.6
Payments made for asbestos-related litigation settlements,
judgments and defense costs. . . . . . . . . . . . . . . . . . . . . . . . . . (60.2) (111.9)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . (51.4) (126.5)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37.2) 27.4
------- -------
Net pretax cash provided by/(used for) operating activities
of continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 (80.8)
Net pretax cash provided by operating activities of discontinued operations. . . . . . 27.8 156.8
------- -------
Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . . . 67.7 76.0
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (91.0) (47.1)
------- -------
Net cash (used for)/provided by operating activities . . . . . . . . . . . . . . . . . . (23.3) 28.9
------- -------
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (232.6) (171.3)
Businesses acquired in purchase transactions, net of
cash acquired and assumed debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (31.1) (170.6)
Increase in net investments in discontinued operations . . . . . . . . . . . . . . . . (46.3) (14.2)
Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 118.8
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 14.1
------- -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . (300.4) (223.2)
------- -------
FINANCING ACTIVITIES
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66.3) (65.9)
Repayments of borrowings having original maturities in excess of three months. . . . . (51.2) (70.2)
Increase in borrowings having original maturities in excess of three months. . . . . . 85.3 101.7
Net increase in borrowings having original maturities of less than three months. . . . 251.0 256.3
Stock options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.3 15.6
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9.8) (0.1)
------- -------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . 293.3 237.4
------- -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . 3.5 -
------- -------
(Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ (26.9) $ 43.1
------- -------
------- -------
</TABLE>
(1) This Consolidated Statement of Cash Flows has been restated to (a) reflect
the classification of corporate overhead and certain corporate research expenses
that were previously allocated to the health care segment to continuing
operations and (b) reflect tax expense with respect to discontinued operations
as if the health care segment were a stand-alone taxpayer.
The Notes to Consolidated Financial Statements
are integral parts of these statements.
2
<PAGE>
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
- --------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in millions, except par value 1995 1994
- ------------------------------------------------------- ---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 51.4 $ 78.3
Notes and accounts receivable, net . . . . . . . . . . . 603.4 975.7
Inventories . . . . . . . . . . . . . . . . . . . . . . . 521.6 514.2
Net assets of discontinued operations - other . . . . . . 340.0 335.6
Deferred income taxes . . . . . . . . . . . . . . . . . . 200.8 295.4
Other current assets. . . . . . . . . . . . . . . . . . . 28.4 29.7
-------- ---------
Total Current Assets . . . . . . . . . . . . . . . . . 1,745.6 2,228.9
Properties and equipment, net of accumulated
depreciation and amortization of $1,418.2
and $1,498.2, respectively . . . . . . . . . . . . . . . . 1,554.5 1,730.1
Goodwill, less accumulated amortization of $20.2
and $71.8, respectively . . . . . . . . . . . . . . . . . 118.4 672.5
Net assets of discontinued operations - health care . . . . 1,400.5 -
Asbestos-related insurance receivable. . . . . . . . . . . . 472.1 512.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 789.2 1,086.5
-------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . $6,080.3 $6,230.6
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . $ 446.8 $ 430.9
Accounts payable. . . . . . . . . . . . . . . . . . . . . 285.5 433.7
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 174.9 197.0
Other current liabilities . . . . . . . . . . . . . . . . 575.0 872.9
Minority interest . . . . . . . . . . . . . . . . . . . . 297.0 297.0
-------- ---------
Total Current Liabilities. . . . . . . . . . . . . . . 1,779.2 2,231.5
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1,280.9 1,098.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 676.9 690.9
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 103.7 92.5
Noncurrent liability for asbestos-related litigation . . . . 569.4 612.4
-------- ---------
Total Liabilities . . . . . . . . . . . . . . . . . 4,410.1 4,726.1
-------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value. . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value. . . . . . . . . . . . . . . . 96.0 94.1
Paid in capital . . . . . . . . . . . . . . . . . . . . . 382.4 308.8
Retained earnings . . . . . . . . . . . . . . . . . . . . 1,207.4 1,147.5
Cumulative translation adjustments. . . . . . . . . . . . (20.2) (53.3)
Treasury stock, 62,453 common shares, at cost . . . . . . (2.8) -
-------- ---------
Total Shareholders' Equity . . . . . . . . . . . . . . 1,670.2 1,504.5
-------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $6,080.3 $6,230.6
-------- ---------
-------- ---------
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
3
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(a) The financial statements in this Report at June 30, 1995 and 1994 and for
the three- and six-month interim periods then ended are unaudited and
should be read in conjunction with the consolidated financial statements in
the Company's 1994 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 basis of presentation. The results
of operations for the three- and six-month interim periods ended June 30,
1995 are not necessarily indicative of the results of operations for the
fiscal year ending December 31, 1995.
In June 1995, the Company announced that its Board of Directors had
approved a plan to spin off National Medical Care, Inc. (NMC), Grace's
wholly owned health care subsidiary, by means of a dividend to holders of
the Company's common stock that would be declared upon the satisfaction of
various conditions. As a result of the Board's approval of the plan to
spin off NMC, Grace has classified its health care segment as a
discontinued operation. The consolidated statement of operations reflects
discontinued operations separately from continuing operations for all
periods presented. The statement of cash flows reflects certain pretax
operating activities of discontinued operations separately from continuing
operations for all periods presented, and the investing and financing
activities of discontinued operations are reflected separately from
continuing operations beginning with the period in which each business was
classified as a discontinued operation. The consolidated balance sheet
reflects the net assets of discontinued operations separately from
continuing operations beginning with the period in which each business was
classified as a discontinued operation. See Note (c) below for additional
information.
(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. Grace was a defendant in approximately 41,300 asbestos-related
lawsuits at June 30, 1995 (65 involving claims for property damage and the
remainder involving approximately 77,400 claims for personal injury), as
compared to approximately 38,700 lawsuits at December 31, 1994 (65
involving claims for property damage and the remainder involving
approximately 67,900 claims for personal injury). During the first half of
1995, one property damage lawsuit was settled for a total of $0.3; three
new property damage lawsuits were filed; and two property damage lawsuits
were dismissed. In addition, a new trial was ordered in a property damage
case that had been on appeal. During the first half of 1995, approximately
900 personal injury claims against Grace were dismissed without payment and
$12.5 was recorded to reflect settlements and judgments in approximately
4,600 personal injury claims.
Based upon and subject to the factors discussed in Note 2 to Grace's
consolidated financial statements for the year ended December 31, 1994,
Grace has attempted to estimate its future costs to dispose of the personal
injury and property damage lawsuits pending at June 30, 1995 and has
determined that it is probable that such lawsuits can be disposed of for a
total of $669.4, inclusive of legal fees and expenses, of which Grace has
recorded $569.4 as a noncurrent liability and $100.0 as a current
liability. This compares
4
<PAGE>
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
to the estimated liability (current and noncurrent) of $712.4 at December
31, 1994, the decrease being attributable to payments made by Grace for
asbestos-related litigation, judgments, settlements and defense costs in
the first half of 1995. In addition, Grace has recorded a receivable of
$472.1 for the insurance proceeds it expects to receive in reimbursement
for prior payments and estimated future payments to dispose of pending
asbestos-related litigation. The amount of this receivable has declined
from December 31, 1994 due to the net insurance proceeds received during
the first half of 1995.
In the first half of 1995, Grace received a total of $156.4 pursuant to
settlements with certain insurance carriers in reimbursement for amounts
previously paid and to be paid by Grace in connection with asbestos-related
litigation; of this amount, $110.0 was received pursuant to settlements
entered into in 1993 and 1994, which had been classified as notes
receivable in the financial statements.
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 a September 1993
decision by the U.S. Court of Appeals for the Second Circuit that had the
effect of reducing the amount of insurance coverage available to Grace with
respect to asbestos property damage litigation and claims. Grace initiated
action to enforce the settlement agreement (which involves approximately
$226.0 of the asbestos-related receivable of $472.1 at June 30, 1995) in
connection with the settlement of a property damage case pending in the
U.S. District Court for the Eastern District of Texas. The District Court
held the agreement to be enforceable, and this ruling has been affirmed by
the U.S. Court of Appeals for the Fifth Circuit (which has also denied a
request by the group of carriers for a rehearing). Grace anticipates that
the group of carriers will seek a review of this ruling by the U.S. Supreme
Court. Based on this ruling, the group of carriers paid Grace $13.9 in the
second quarter of 1995, representing the carriers' portion of the
settlement in the underlying property damage case. Grace has demanded that
the group of carriers pay the amounts due under the settlement agreement
with respect to property damage cases in other jurisdictions and will
initiate legal action if payment is not received in a reasonable time.
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. As previously reported, the May 1994 decision of the U.S. Court of
Appeals for the Second Circuit limited the amount of insurance coverage
available with respect to property damage lawsuits and claims. Because
Grace's insurance covers both property damage and personal injury lawsuits
and claims, the May 1994 decision has had the concomitant effect of
reducing the insurance coverage available with respect to Grace's personal
injury lawsuits and claims. However, in Grace's opinion, it is probable
that recoveries from its insurance carriers, along with other funds, will
be available to satisfy the property damage and personal injury lawsuits
and claims pending at June 30, 1995. Consequently, Grace believes that the
resolution of its pending asbestos-
5
<PAGE>
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
related litigation will not have a material adverse effect on its
consolidated results of operations or financial position.
For additional information, see Note 2 to the consolidated financial
statements in the Company's 1994 Annual Report on Form 10-K.
(c) As discussed in Note (a) above, Grace has classified its health care
segment as a discontinued operation.
Summary results of operations for the health care segment are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
------ ------ -------- ------
<S> <C> <C> <C> <C>
Sales and revenues $523.5 $454.0 $1,015.3 $855.4
------ ------ -------- ------
------ ------ -------- ------
Income from discontinued operations
before income taxes $ 60.1 $ 54.4 $ 104.1 $ 97.0
Provision for income taxes 26.4 24.6 45.8 43.8
------ ------ -------- ------
Income from discontinued operations $ 33.7 $ 29.8 $ 58.3 $ 53.2
------ ------ -------- ------
------ ------ -------- ------
</TABLE>
The net operating income of the health care segment reflects the
allocation of Grace's health care related research expenses and an
allocation of Grace's interest expense based on a ratio of the net assets
of the health care segment as compared to Grace's total debt and equity
capital. Interest expense allocated to the discontinued health care
segment was $21.6 and $13.3 for the second quarters of 1995 and 1994,
respectively, and $41.7 and $23.8 for the six months ended June 30, 1995
and 1994, respectively. Taxes have been allocated to the health care
segment as if it were a stand-alone taxpayer; however, these allocations
are not necessarily indicative of the results of the health care segment in
the future on a stand-alone basis.
Minority interest consists of a limited partnership interest in Grace Cocoa
Associates, L.P. (LP). LP's assets consist of Grace Cocoa's worldwide
cocoa and chocolate business, long-term notes and demand loans issued by
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 as a component of
discontinued operations, 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.
6
<PAGE>
W. R. Grace & Co. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
The net assets, excluding intercompany assets, of Grace's cocoa business
and other discontinued operations (classified as current assets) and
Grace's health care segment (classified as noncurrent assets) included in
the consolidated balance sheet at June 30, 1995, are as follows:
<TABLE>
<CAPTION>
Sub- Health
Cocoa Other Total Care Total
----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Current assets $376.2 $ 17.5 $393.7 $ 583.2 $ 976.9
Properties and equipment, net 190.8 32.4 223.2 358.1 581.3
Investments in and advances to
affiliated companies - 43.0 43.0 - 43.0
Other assets 52.2 20.3 72.5 931.3 1,003.8
-------- ------- ------- -------- -------
Total assets $619.2 $ 113.2 $732.4 1,872.6 $2,605.0
-------- ------- ------- -------- -------
Current liabilities $276.2 $ 10.8 $287.0 $ 307.7 $ 594.7
Other liabilities 95.6 9.8 105.4 164.4 269.8
-------- ------- ------- -------- -------
Total liabilities $371.8 $ 20.6 $392.4 $ 472.1 $ 864.5
-------- ------- ------- -------- -------
Net assets $247.4 $ 92.6 $340.0 $1,400.5 $1,740.5
-------- ------- ------- -------- -------
-------- ------- ------- -------- -------
</TABLE>
(d) Inventories consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994 (i)
----------- ------------
<S> <C> <C>
Raw and packaging materials $149.6 $129.8
In process 93.1 75.3
Finished products 323.2 352.2
----- ------
565.9 557.3
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (44.3) (43.1)
------ ------
Total Inventories $521.6 $514.2
------ ------
------ ------
</TABLE>
(i) Inventories at December 31, 1994 include $92.4 relating to the
health care segment.
(e) Earnings per share are calculated on the basis of the following weighted
average number of common shares outstanding:
Three Months Ended June 30:
1995 - 95,116,000
1994 - 93,933,000
Six Months Ended June 30:
1995 - 94,629,000
1994 - 93,842,000
7
