-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TrbRrnsehikHnNtxfgsSMkxxFIgBFLSHV87k/XSFHrr4+bCcVNr4VjUPwZ7Puid8 WHn2b1TKFh1Ao2Pm7RhrCg== 0000912057-94-001077.txt : 19940331 0000912057-94-001077.hdr.sgml : 19940331 ACCESSION NUMBER: 0000912057-94-001077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRACE W R & CO /NY/ CENTRAL INDEX KEY: 0000042872 STANDARD INDUSTRIAL CLASSIFICATION: 2800 IRS NUMBER: 133461988 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-03720 FILM NUMBER: 94518246 BUSINESS ADDRESS: STREET 1: ONE TOWN CENTER RD CITY: BOCA RATON STATE: FL ZIP: 33486-1010 BUSINESS PHONE: 4073622000 FORMER COMPANY: FORMER CONFORMED NAME: GRACE W R & CO /CT/ DATE OF NAME CHANGE: 19900423 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 1-3720 W. R. GRACE & CO. INCORPORATED UNDER THE LAWS OF THE I.R.S. EMPLOYER IDENTIFICATION NO. STATE OF NEW YORK 13-3461988 ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010 407/362-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, $1 par value ] New York Stock Exchange, Inc. Common Stock Purchase Rights ] Chicago Stock Exchange, Incorporated 7-3/4% Notes Due 2002 ] (issued by W. R. Grace & Co.-Conn., ] New York Stock Exchange, Inc. a wholly owned subsidiary) and ] related Guarantees ] SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the Proxy Statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __X__ The aggregate market value of W. R. Grace & Co. voting stock held by nonaffiliates was approximately $4.3 billion at February 1, 1994. At March 1, 1994, 93,856,994 shares of W. R. Grace & Co. Common Stock, $1 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT WHERE INCORPORATED Proxy Statement for Annual Meeting to be held May 10, 1994 (specified portions) Part III - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- PART I Item 1. Business........................................ 1 Introduction................................. 1 Strategic Restructuring...................... 1 Industry Segments............................ 3 Specialty Chemicals........................ 3 Health Care................................ 8 Other Operations............................. 11 Research Activities.......................... 11 Environmental, Health and Safety Matters..... 12 Materials and Energy......................... 13 Item 2. Properties...................................... 13 Item 3. Legal Proceedings............................... 14 Item 4. Submission of Matters to a Vote of Security Holders...................................... 20 Executive Officers........................................ 20 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 21 Item 6. Selected Financial Data......................... 22 Item 7. Management's Discussion and Analysis of Finan- cial Condition and Results of Operations..... 22 Item 8. Financial Statements and Supplementary Data..... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 22 PART III Item 10. Directors and Executive Officers of the Registrant................................... 22 Item 11. Executive Compensation.......................... 23 Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 23 Item 13. Certain Relationships and Related Transactions.. 23 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 23 Signatures................................................ 27 Financial Supplement...................................... F-1 PART I Item 1. Business. INTRODUCTION W. R. Grace & Co., through its subsidiaries, is primarily engaged in the specialty chemical business on a worldwide basis and in specialized health care activities. In its chemical operations, Grace develops, manufactures and markets specialty chemicals and materials and related systems. In health care, Grace is primarily engaged in supplying kidney dialysis and home infusion and respiratory therapy services and products. As used in this Report, the term "Company" refers to W. R. Grace & Co., a New York corporation, and the term "Grace" refers to the Company and/or one or more of its subsidiaries. Grace's principal executive offices are located at One Town Center Road, Boca Raton, Florida 33486-1010, and its telephone number is 407/362-2000. At year-end 1993, Grace had approximately 34,000 full-time employees worldwide in its continuing operations (approximately 7,000 in discontinued operations). Grace's Consolidated Financial Statements for the three years in the period ended December 31, 1993 ("Consolidated Financial Statements") and certain other financial information included in the Company's 1993 Annual Report to Shareholders are set forth in the Financial Supplement to this Report and incorporated by reference herein. STRATEGIC RESTRUCTURING In 1991, Grace announced a new corporate strategy with the principal objective of enhancing shareholder value. The major components of the strategy are (a) focusing on core businesses to accelerate growth; (b) upgrading financial performance, principally by selling or monetizing non-core businesses, lowering the ratio of debt to total capital and reducing overhead; and (c) integrating corporate and operating unit functions through global product line management. The core businesses referred to above are packaging, health care, catalysts and other silica-based products, construction products, water treatment and process chemicals, and container products. As part of its new corporate strategy, Grace has reorganized the management of these core businesses on the basis of global product lines. Grace has also organized task forces that are developing and implementing "best practices" relating to financial planning, information systems, human resources, logistics and other management functions; has implemented a process to better allocate capital among its businesses; and has retired or refinanced most of its higher-cost debt. DIVESTMENTS AND OTHER DISPOSITIONS. Pursuant to its new strategy, Grace has divested or monetized a number of non-core businesses and has announced plans to divest others. In 1991, Grace sold its specialty textiles business; its automotive chemicals and sound deadening components businesses; investments in two pharmaceutical businesses; its Trinidadian fertilizer operations; its animal feed businesses; its polyurethane foam sealant manufacturing business; and its Japanese microwave products business. In 1992, Grace sold its book, video and software distribution businesses and its organic chemicals business and related assets. In December 1992, Grace also completed a transaction to monetize a portion of its cocoa and chocolate business by selling a 21% limited partnership interest in Grace Cocoa Associates, L.P. ("Grace Cocoa"), which owns this business and other assets, resulting in Grace's receipt of approximately $300 million in cash. During the first half of 1993, Grace sold substantially all of its oil and gas and energy services businesses for net cash proceeds of $386 million, and it is in the process of liquidating the remaining miscellaneous assets and liabilities of those businesses. Grace also sold a number of other non-core businesses and corporate investments in 1993, including a 50% interest in a Japanese chemical business (for approximately $31.4 million), a food hygiene services business (for approximately $11.2 million) and minority investments in Grace-Sierra Horticultural Products Company and Canonie Environmental Services Corp. (for proceeds totaling $41.3 million). In January 1994, Grace received $42.8 million in exchange for the securities of The Restaurant Enterprises Group, Inc. held by Grace. In the fourth quarter of 1992, Grace classified Colowyo Coal Company, a coal mining subsidiary, as a discontinued operation. In the second quarter of 1993, after evaluating the expected contribution of its remaining non-core businesses to its future performance and growth, Grace reclassified as discontinued operations its cocoa and battery separators businesses; certain engineered materials businesses (principally printing products, electromagnetic radiation control and material technology businesses); and substantially all of its other non-core businesses. Grace is actively pursuing the sale of these businesses. STRATEGIC ACQUISITIONS. As part of its strategy to focus on core business growth, Grace has made, and expects to continue to make, strategic acquisitions directly related to its core businesses. In 1992, Grace acquired the North American food service packaging business of Du Pont Canada for approximately $20 million. In 1993, Grace acquired (a) the water treatment and related operations of Aquatec Quimica S.A. of Brazil, which has significant operations throughout South America, as well as operations in Portugal and the - 2 - United States; and (b) the Katalistics fluid cracking catalyst additive business previously owned by a joint venture between Union Carbide Corporation and Allied-Signal Inc. In the 1991-92 period, Grace acquired the Renacare unit of Lloyds Chemists plc, the leading United Kingdom producer of dialysis concentrate and a distributor of associated products, as well as additional dialysis centers located primarily in the United States, for approximately $54 million in the aggregate. In 1993, Grace acquired Home Intensive Care, Inc., a national provider of alternate site infusion therapy and dialysis health care services, for approximately $129 million in cash (inclusive of expenses); Virginia-based American Homecare Equipment, Inc., a provider of home infusion and respiratory therapy services, for approximately 116,000 shares of the Company's common stock and other consideration; and Riggers Medizintechnik GmbH, a German manufacturer and distributor of dialysis products. Additionally, during 1993, Grace acquired regional providers of home infusion therapy services and home support nursing services, as well as 26 additional dialysis centers located primarily in the United States, for a total of approximately $92 million. In March 1994, Grace announced that it had agreed to acquire Home Nutritional Services, Inc., a national provider of home infusion therapy services, for approximately $120 million in cash (inclusive of expenses and debt to be assumed); completion of the transaction is anticipated during the second quarter of 1994. Grace is considering additional acquisitions in the health care industry, with a view to continued development of its international health care business. See Notes 3, 6, 9 and 11 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Financial Supplement for additional information. INDUSTRY SEGMENTS Information concerning the sales and revenues, pretax operating profit and identifiable assets of Grace's continuing operations by industry segment and geographic area for 1993, 1992 and 1991 is contained in Note 17 to Grace's Consolidated Financial Statements in the Financial Supplement. SPECIALTY CHEMICALS Grace's specialty chemical operations consist of the development, manufacture and sale of products and systems in five core market groups (see "Strategic Restructuring" above). These products and systems typically serve highly specialized markets and represent an important component (but a relatively small portion of the cost) of the end products in which they are used. Accordingly, competition is generally based primarily on technological capability, customer service and product quality. Grace's specialty - 3- chemical products and systems are marketed primarily through direct sales organizations. The following is a description of the products and services provided by each of Grace's core specialty chemical businesses. PACKAGING. Grace's packaging business ("Grace Packaging") provides high-performance total packaging systems on a worldwide basis, competing principally by providing superior quality products and services for specialized customer needs. The principal products and services provided by Grace Packaging are (a) flexible packaging systems (including material, equipment and services) for a broad range of perishable foods such as fresh meat, prepared foods, baked goods, poultry, produce, cheese, and smoked and processed meat products; (b) shrink films for packaging a variety of consumer and industrial products; (c) foam trays for supermarkets and poultry and other food processors; and (d) rigid plastic containers for dairy and other food and non-food products. Grace Packaging competes through three product groups: flexible packaging (marketed extensively under the Cryovac-R- registered trademark), foam trays, and rigid plastic containers. Cryovac-R- flexible packaging products include shrink bags, shrink films, laminated films, medical films, and equipment. The Cryovac packaging products group developed and introduced flexible plastic vacuum shrink packaging in the late 1940s, contributing to expanded food distribution and marketing by providing better protection against decay-inducing bacteria and moisture loss. The market for Cryovac products has subsequently shifted from industrial food applications toward the retail food market, and Cryovac packaging technology has also been introduced in non-food applications such as flexible packaging for display items and electronic and medical products. The flexible packaging products group emphasizes five core competencies to differentiate itself from competitors: (1) proprietary film processing technology; (2) resin technology, permitting the production of materials suited to specific customer needs; (3) packaging and food science expertise, providing better understanding of the interaction between packaging materials and packaged products; (4) complete systems support capability, to provide a single source of supply for customer needs; and (5) strategically located production, warehousing and distribution networks. Foam trays are produced by the Formpac business group of Grace Packaging, primarily for sale to supermarkets and poultry and other food processors in the eastern United States. Formpac's proprietary technology has also been successfully utilized in certain packaging applications outside the United States, and Formpac is exploring opportunities to expand its business outside North America. - 4 - Grace Packaging's Omicron business group produces rigid plastic packaging applications, primarily for dairy products in Australia. These products utilize proprietary thermoforming technology, involving the controlled thinning and shaping of hot plastic sheets to increase strength and rigidity while minimizing weight. Grace Packaging's sales and revenues were $1.3 billion in 1993 and $1.2 billion in each of 1991 and 1992. Approximately 50% of Grace Packaging's 1993 sales and revenues were generated in North America, 30% in Europe, 10% in Asia Pacific, and the remainder in Latin America. At year-end 1993, Grace Packaging employed approximately 9,000 people in 23 production facilities (9 in North America, 6 in Europe, 5 in Latin America and 3 in Asia Pacific) and 77 sales offices, serving more than 18,000 customers. A majority of the raw materials used by Grace Packaging are resins that are generally available at stable prices. In most cases, multiple sources of raw materials exist, with at least one source being located in each regional market. The primary external influence affecting the packaging business is the general economy; seasonality is not significant to Grace Packaging's business. CATALYST AND OTHER SILICA-BASED PRODUCTS. This core business ("Grace Davison") is composed of three principal product groups: fluid cracking catalysts, polyolefin catalysts, and silica and zeolite adsorbents. These products involve silica, alumina and zeolite technology and the design and manufacture of products to meet customer specifications; they are sold to major oil refiners, plastics and chemical manufacturers, and consumer products companies. Fluid cracking catalysts are used by refiners to upgrade oil to more valuable transportation fuels such as gasoline and jet and diesel fuel. Oil refining is a highly specialized discipline, demanding that products be tailored to meet local variations in raw materials and operational needs. Competition is based on technology, product performance, customer service and price. Polyolefin catalysts and catalyst supports are essential components used in manufacturing nearly half of all high density and linear low density produced polyethylene resins, which are used in products such as packaging film and plastic pipe. The catalyst business is technology-intensive and focused on providing products specifically formulated to meet end-user applications. Manufacturers generally compete on a worldwide basis, and competition has intensified recently due to excess capacity in the catalyst industry, with resultant price sensitivity. Silica and zeolite adsorbents are used in plastics, dentifrices, paints, insulated glass and other products, and in the refining of edible oils. Silicas are used in coatings as flatting agents, in plastics to improve handling, in toothpastes as thickeners and - 5 - cleaners, in food to carry flavors and prevent caking, and in the purification of edible oils. Grace Davison's sales and revenues were $572 million in 1993, $519 million in 1992, and $470 million in 1991; approximately 59% of Grace Davison's 1993 sales and revenues were generated in North America, 34% in Europe, 6% in Asia Pacific and 1% in Latin America. At year-end 1993, Grace Davison employed approximately 2,600 persons worldwide in nine facilities (six in the United States and one each in Canada, Germany and Brazil). Most raw materials used in the manufacture of Grace Davison products are available from multiple sources and, in some instances, are produced or supplied by Grace. Because of the diverse applications of products utilizing Grace Davison technology and the geographic areas in which such products are used, seasonality does not have a significant effect on Grace Davison's businesses. CONSTRUCTION PRODUCTS. Grace Construction Products ("GCP") is a leading supplier of specialty materials and systems to the world-wide construction industry. GCP products and systems strengthen concrete, control corrosion, prevent water damage and protect structural steel against collapse due to fire. These products include concrete admixtures, cement processing additives, and fireproofing and waterproofing materials. In North America, GCP also manufactures and distributes reinforced fiberglass building components, masonry block additives and products, and vermiculite products used in construction and other industrial applications. GCP's products are sold to a broad customer base, including cement manufacturers, ready mixed and precast concrete producers, specialty subcontractors and applicators, masonry block manufacturers, building materials distributors and other industrial manufacturers. GCP is a principal supplier of the products it manufactures, competing with several large global suppliers and smaller regional competitors. Competition is based largely on pricing, product performance, proprietary technology and technical support and service. GCP's 1993 sales and revenues totaled $333 million (70% in North America, 17% in Europe, 13% in Asia Pacific and less than 1% in Latin America). Sales and revenues for 1992 and 1991 were $333 million and $345 million, respectively. At year-end 1993, GCP employed approximately 2,000 persons at approximately 59 production facilities (33 in North America, 9 in Southeast Asia, 7 in Australia, 5 in Europe, 4 in Latin America and 1 in Japan) and 73 sales offices worldwide. Supplies and raw materials used for manufacturing GCP products are primarily commodities obtained from multiple sources, including commodity chemical producers, petroleum companies, other construction industry suppliers and paper manufacturers. In most instanc- - 6 - ES, there are at least two alternative suppliers for the raw materials utilized by GCP. The construction business is seasonal, based on weather conditions, and cyclical, in response to economic conditions and construction demand. To increase profitability and minimize the impact of cyclical downturns in regional economies, GCP strives to introduce new and improved products, has implemented a lower cost structure in North America and Europe and is emphasizing expansion in European and Southeast Asian markets. WATER TREATMENT. Grace's water treatment and process chemicals business ("Grace Dearborn") consists of the water treatment and paper industry services business lines, which market the following products and services: (a) chemical treatments and systems to prevent corrosion, scale and microbiological growth in industrial process waters, heating and cooling applications, and industrial wastewater applications for clarification, sludge de-watering, odor control and water recycling; (b) paper industry process chemicals, support equipment and related specialist and consulting services; (c) hydrocarbon processing chemicals, related support equipment and services to protect and optimize processing system performance; (d) chemical treatments, support equipment and services for sugar processing, including processing sugar into alcohol as a gasoline substitute; (e) chemical treatments to protect industrial canned food cooking and sterilizing equipment; and (f) paint detackification products and services to remove paint sludge from water wash paint spray systems. Grace Dearborn sales and revenues for 1993 totaled $330 million (42% in North America, 40% in Europe, 16% in Latin America and 2% in Asia Pacific). Sales and revenues for 1992 and 1991 were $302 million and $292 million, respectively. At year-end 1993, Grace Dearborn employed approximately 2,800 persons at 21 plants (7 in Latin America, 6 in North America and 4 in each of Europe and Asia Pacific) and 107 sales offices. Raw materials used in the Grace Dearborn business lines are readily available from multiple sources, generally at stable prices. The paper industry services business is affected by the cyclicality of the global paper market. The water treatment services business responds to (but is not adversely affected by) seasonal fluctuations, concentrating on boiler treatment in winter and cooling system treatment in summer. The effects of seasonality are further diminished by the geographic diversity of the markets in which Grace Dearborn competes. CONTAINER PRODUCTS. Grace's container business ("Grace Container") consists of three product lines: container sealants, closures and coatings. The principal products marketed by these product lines include sealing compounds and related application equipment for food and beverage cans and other rigid containers; gasketing materials to the metal crown, aluminum roll-on and plastic closure segments of the glass/closure packaging markets; adhe- - 7 - sive lacquers and associated protective and decorative coatings for plastic and metal closures; protective and decorative coatings and lacquers for rigid food and beverage containers; and lubricants used primarily in two-piece can manufacturing. Grace Container sales and revenues (excluding those of Grace Specialty Polymers, discussed below) were $238 million, $253 million and $248 million in 1993, 1992 and 1991, respectively. Its products are marketed internationally, with 37% of sales and revenues in Europe, 27% in North America, 25% in Asia Pacific and 11% in Latin America. At year-end 1993, Grace Container employed approximately 1,830 persons at 25 plants and 39 sales offices worldwide. Competition is based on providing high-quality customer service, as well as on price and product quality and reliability. Raw materials are generally available from multiple sources at stable prices. Although demand for container packaging and sealant products tends to increase during the warmest months of the year, the impact of such seasonality on Grace Container is offset almost entirely by the geographic diversity of the markets in which it competes. Recently integrated with Grace Container is Grace Specialty Polymers, which develops formulated engineered polymers for printed circuit board and component assembly in the electronics, electrical, automotive and defense industries. These include surface mount and conductive adhesives, capacitor coatings, light emitting diode encapsulants and conformal coatings. The integration of these product lines reflects the reliance of both businesses on polymer technology as an integral feature of the products they manufacture. HEALTH CARE Grace's health care business ("Grace Health Care") is primarily engaged in supplying kidney dialysis and home infusion and respiratory therapy services, and in the manufacture and sale of products used to provide dialysis and other medical services. Grace Health Care provides kidney dialysis and related services for outpatients with chronic renal failure. At December 31, 1993, Grace Health Care operated 501 centers providing dialysis and related services (471 in the United States and Puerto Rico, 23 in Portugal, 4 in Spain, 2 in the Czech Republic and 1 in Argentina); these centers, substantially all of which are leased, average ap- proximately 5,600 square feet in size. Grace Health Care also provides inpatient acute dialysis services under contracts with hospitals in the United States (385 at December 31, 1993) and furnishes dialysis equipment and supplies to patients who elect home treatment. At December 31, 1993, Grace Health Care was treating approximately 37,000 patients in the U.S. and 3,000 patients in other - 8 - countries. Revenues from kidney dialysis services were $1,012 million in 1993, $860 million in 1992 and $720 million in 1991. Additionally, Grace Health Care manufactures disposable bloodlines, dialysis solutions and artificial kidneys (dialyzers), for use in its dialysis centers and for sale to unaffiliated dialysis facilities and home patients; distributes dialysis supplies and equipment and other medical products and supplies manufactured by others; and provides laboratory services (including hepatitis testing) to dialysis patients. More than two-thirds of the sales of dialysis and other medical products supplies and equipment reflect sales to patients not directly treated, or facilities not operated, by Grace Health Care. Grace Health Care also provides infusion and respiratory therapy services and other medical equipment and supplies to patients for home use through a network of 97 locations (96 leased and 1 owned). Infusion therapy includes intravenous delivery of an expanding range of medications and nutritional preparations, such as chemotherapy, total parenteral nutrition, antibiotic therapy and drugs for pain management. Respiratory therapy includes delivery of oxygen and aerosolized drugs and the use of ventilators. In addition, Grace Health Care provides home nursing support services through nine branch locations. Grace Health Care's business is dependent on the continuation of Medicare and other third-party insurance coverage for dialysis and home care services and products. At such time as Medicare becomes a patient's primary payor for dialysis (generally, 3 months following commencement of treatment or, in the case of patients covered by employer-sponsored health insurance, 21 months after commencement of treatment) and/or homecare products and services, Medicare currently reimburses suppliers of such services and products for approximately 80% of established fees or reasonable charges; the remaining 20% is paid by the patient and/or his non-Medicare insurance carrier. Because in most cases the prices of dialysis services and products in the U.S. are directly or indirectly regulated by Medicare, competition in the industry is based primarily on quality and accessibility of service. In addition, some states limit competition under laws that restrict the number of dialysis facilities within a geographic area based on need, as determined by state agencies. Competition in the home care business is also based on quality of service as well as price, and, where state laws do not impose limits on competition, there are no significant barriers to entering this business. Cost efficiency, therefore, is also a key element of competition in this market. Based upon Grace's knowledge and understanding of the health care industry in general and of other providers of kidney dialysis and infusion therapy, as well as information obtained from publicly available sources, Grace Health Care believes that it is among the most cost-efficient of - 9 - the companies in its field and that it is the leading United States supplier of dialysis services and products and a leading United States provider of infusion therapy. Except as noted in the following paragraph, Grace Health Care believes there are adequate sources of supply for the raw materials and products utilized in its health care services and medical products businesses. At year-end 1993, Grace Health Care employed a total of approximately 13,600 persons full-time at its facilities worldwide. Grace Health Care's businesses generally are not seasonal or cyclical in nature. It is unclear at this time whether and to what extent any of the currently proposed reforms in U.S. health care law will affect Grace Health Care's operations. National Medical Care, Inc. ("NMC") is Grace's principal health care subsidiary. In 1993, the United States Food and Drug Administration ("FDA") issued import alerts with respect to (a) hemodialysis bloodlines manufactured at NMC's plant located in Reynosa, Mexico and (b) hemodialyzers manufactured in NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the United States until the FDA approves the quality assurance systems of the facility at which such products are manufactured. In January 1994, NMC entered into a consent decree providing for the resumption of importation of bloodlines and hemodialyzers following certification by NMC that the relevant facility complies with FDA regulations and successful completion of an FDA inspection to verify such compliance. In accordance with the consent decree, NMC certified compliance to the FDA with respect to the Reynosa, Mexico facility in January 1994 and the FDA lifted the bloodline import alert in March 1994, following a thorough reinspection by the FDA and a commitment by NMC to finish certain studies by May 1994 and, in the interim, to perform additional product testing. Certification of compliance at the Dublin, Ireland facility is anticipated in the second quarter of 1994. The consent decree also requires NMC to certify and maintain compliance with applicable FDA device manufacturing laws and regulations at all of its United States manufacturing facilities. NMC has conducted a full review of such facilities and upgraded its quality assurance systems as necessary, and all certifications required with respect to such facilities have been filed. No fines or penalties were imposed on NMC as a result of any of the FDA's actions relating to the import alerts or in connection with the consent decree. Neither the import alerts nor previously reported recalls of certain NMC products have had, nor are they expected to have, a material effect on Grace's results of operations or financial position. HEALTH CARE INVESTMENT. Grace has a 47% common equity interest in a company that serves hospitals and other health care institutions by recruiting nurses and other trained health care personnel and placing them on temporary assignments throughout the United States. Grace also owns preferred stock of the company and op- - 10 - tions, exercisable commencing in 1994, to acquire the balance of such company's common equity. See "Strategic Restructuring" above for information concerning 1993 and early 1994 transactions involving Grace's health care business. OTHER OPERATIONS THERMAL AND EMISSION CONTROL SYSTEMS. In 1993, Grace combined its web processing equipment business and its air emission control catalysts and systems business to form a new product line in thermal and emission control systems, named "Grace TEC Systems". The principal products currently marketed by this product line are (a) air flotation dryers and auxiliary web processing equipment for the printing, coating and converting industries, and (b) air emission control catalysts and systems to control volatile organic compounds, carbon monoxide and nitrogen oxides emissions from power generation, industrial and automotive sources. DISCONTINUED OPERATIONS. In the fourth quarter of 1992, Grace classified Colowyo Coal Company ("Colowyo") as a discontinued operation. Colowyo, a partnership wholly owned by Grace, operates the largest surface coal mine in Colorado under federal and state leases covering proven and/or probable surface reserves of approximately 195 million tons of low-sulfur coal. In the second quarter of 1993, Grace classified as discontinued operations its remaining non-core businesses, including Grace Cocoa, an international producer and supplier of high-quality intermediate cocoa and chocolate products to the bakery, confectionery, dairy and beverage industries; Grace's battery separators business; and certain engineered materials businesses, principally printing products, electromagnetic radiation control and material technology businesses. Grace is actively pursuing the divestment of these discontinued operations and those referred to under "Strategic Restructuring" above. See Notes 3 and 6 to Grace's Consolidated Financial Statements in the Financial Supplement and "Strategic Restructuring" for additional information. RESEARCH ACTIVITIES Grace engages in active research and development programs directed toward the development of new products and processes and the improvement of, and development of new uses for, existing products and processes. Research is carried out by divisional laboratories in the United States, Europe and Japan and by the Corporate Research Division, which has facilities in Columbia, - 11 - Maryland; Lexington, Massachusetts and Atsugi, Japan. The Research Division's activities focus on Grace's core product lines and include specialty polymers; biomedical devices; catalysis; construction materials; photopolymers; specialty packaging; and process engineering, principally involving the development of technologies to manufacture chemical specialties and biomedical products. As part of Grace's commitment to focus resources on core businesses, corporate research programs for the core product lines are being increased, while funding in support of non-core businesses and discontinued operations is being eliminated. In addition, product line and corporate research programs are being integrated and concentrated on key projects. Research and development expenses relating to continuing operations amounted to $135 million in 1993, $130 million in 1992 and $128.1 million in 1991 (including expenses incurred in funding external research projects). The amount of research and development expenses relating to government- and customer-sponsored projects (as opposed to projects sponsored by Grace) is not material. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS In constructing and operating its facilities, Grace incurs capital and operating expenditures relating to the protection of the environment, as well as costs to remediate previously contaminated properties. Costs incurred to operate and maintain environmental facilities and dispose of hazardous and non-hazardous wastes with respect to continuing operations were $45 million in 1993, $56 million in 1992 and $38 million in 1991, and are estimated to be $50 million and $54 million in 1994 and 1995, respectively. Grace's capital expenditures for environmental control facilities relating to continuing operations were approximately $20 million, $18 million and $17 million in 1993, 1992 and 1991, respectively, and are estimated to be $19 million and $23 million during 1994 and 1995, respectively. Costs incurred to remediate previously contaminated sites were $44 million, $35 million and $18 million in 1993, 1992 and 1991, respectively, and are estimated to be $44 million and $35 million in 1994 and 1995, respectively. Such expenditures have not had, and are not expected to have, a material effect on Grace's other capital expenditures or on its earnings or competitive position. See Note 11 to Grace's Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement. Grace has established an Environmental, Health and Safety ("EHS") policy and related programs that include specialized safety training for employees, monitoring of the workplace environment, and training and guidance for employees with respect to EHS regulatory compliance. These programs are supported by a central EHS department organized in 1993. This department also audits oper- - 12 - ating facilities and manages Grace's environmental remediation activities. The Responsible Care program of the Chemical Manufacturers Association, in which Grace's United States chemical operations have participated, has been extended to Grace operations worldwide under the name "Commitment to Care". The goal of this program is to promote best management practices in the areas of product stewardship, employee health and safety, community awareness and emergency response, process safety, distribution practices and pollution prevention. Grace's EHS auditing program has also been expanded to include all facilities worldwide; this program involves the onsite inspection of facilities for compliance with applicable laws, as well as Grace's policies, standards and guidelines. See Item 3, "Legal Proceedings", in this Report, and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement, for information concerning environmental proceedings to which Grace is a party. MATERIALS AND ENERGY The availability and prices of the raw materials and fuels used by Grace are subject to worldwide market conditions and governmental policies. On the basis of existing arrangements, Grace does not anticipate any major disruptions of its business in 1994 as a result of shortages of raw materials or energy. Should shortages occur, their effect on Grace's operations would depend upon their nature, duration and severity and consequently cannot be determined at this time. However, arrangements have been made, and will continue to be made, for long-term commitments for many of Grace's raw materials and fuel requirements from primary sources of supply. ITEM 2. PROPERTIES. Grace operates chemical, manufacturing and other types of plants and facilities (including office and other service facilities) throughout the world. Grace considers its major operating properties to be in good operating condition and suitable for their current use. Although Grace believes that the productive capacity of most of its plants and other facilities is adequate for current operations and foreseeable growth, it conducts ongoing, long-range forecasting of its capital requirements to assure that additional capacity will be available when and as needed (see information regarding Grace's capital expenditures on page F-28 of the Financial Supplement). Accordingly, Grace does not anticipate that its operations or income will be materially affected by the absence of available capacity. - 13 - Additional information regarding Grace's properties is set forth in Item 1 above, in Schedules V and VI on pages F-35 and F-36 of the Financial Supplement and in Notes 1, 8 and 11 to Grace's Consolidated Financial Statements in the Financial Supplement. ITEM 3. LEGAL PROCEEDINGS. ASBESTOS LITIGATION. Grace is a defendant in lawsuits relating to previously sold asbestos-containing products and anticipates that it will be named as a defendant in additional asbestos-related lawsuits in the future. At year-end 1993, Grace was a defendant in approximately 38,100 asbestos-related lawsuits representing approximately 56,700 claims (as compared to approximately 30,900 lawsuits and 53,000 claims at year-end 1992). 92 of the lawsuits pending at year-end 1993 involved claims for property damage allegedly caused by the use of asbestos-containing materials in the construction of buildings. The plaintiffs in these lawsuits generally seek, among other things, to have the defendants absorb the cost of removing, containing or repairing the asbestos-containing materials in the affected buildings. The remaining asbestos-related lawsuits involve claims for personal injury. In most of Grace's asbestos-related lawsuits, it is one of many defendants. Through year-end 1993, 120 asbestos property damage cases had been dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grace in twelve cases; in six cases (four of which are on appeal), Grace was held liable for a total of $68.3 million; and 131 property damage suits and claims had been settled by Grace for a total of $300.0 million. Grace has recorded a receivable for the insurance pro- ceeds it expects to receive in connection with these adverse verdicts and settlements, as well as defense costs initially paid by Grace (see "Insurance Litigation" below and Note 2 to Grace's Consolidated Financial Statements in the Financial Supplement). Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1993 are the following class actions: (1) a Pennsylvania state court action (PRINCE GEORGE CENTER, INC. V. U.S. GYPSUM COMPANY, ET AL., Court of Common Pleas of Philadelphia County) covering all commercial buildings in the United States leased in whole or in part to the United States government on or after May 30, 1986; (2) an action, conditionally certified by the United States Court of Appeals for the Fourth Circuit in September 1993 and pending in the United States District Court for the District of South Carolina, covering all public and private colleges and universities in the United States whose buildings contain asbestos materials (CENTRAL WESLEYAN COLLEGE, ET AL. V. W. R. GRACE, ET AL.); (3) an action (IN RE: ASBESTOS SCHOOL LITIGATION), brought in 1983 in the United States District Court for the Eastern District of Pennsylvania, on behalf of all public and private elementary and secondary schools in the United States - 14 - that contain asbestos materials, which action has been scheduled for trial in late 1994 on a limited number of issues; and (4) a purported class action (ANDERSON MEMORIAL HOSPITAL, ET AL. V. W. R. GRACE & CO., ET AL.), filed in 1992 in the Court of Common Pleas for Hampton County, South Carolina, on behalf of all entities that own, in whole or in part, any building containing asbestos materials manufactured by Grace or one of the other named defendants, other than buildings subject to the class action lawsuits described above and any building owned by the federal or any state government. The remaining asbestos lawsuits pending at year-end 1993 involved claims for personal injury. Through year-end 1993, approximately 7,000 personal injury lawsuits involving 17,900 claims had been dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 11,300 such suits involving 13,400 claims had been settled for a total of $52.2 million (see "Insurance Litigation" below). In January 1993, in EDWARD M. CARLOUGH, ET AL. V. AMCHEM PRODUCTS, INC., ET AL., the United States District Court for the Eastern District of Pennsylvania conditionally certified a class of all future asbestos personal injury claimants, including individuals who have been occupationally exposed to asbestos-containing materials but who do not presently allege asbestos-related injury. Although Grace is not among the defendants named in the class action complaint, dissemination of the required class notice may generate additional litigation against Grace. In 1991, the Judicial Panel on Multi-District Litigation consolidated in the United States District Court for the Eastern District of Pennsylvania, for pre-trial purposes, all asbestos personal injury cases pending in the federal courts (including approximately 7,000 cases against Grace). To date, no action has been taken by the court handling the consolidated cases that would indicate whether the consolidation will affect Grace's cost of disposing of these cases or its defense costs. Grace's ultimate exposure in respect of its asbestos-related lawsuits and claims will depend on the extent to which its insurance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. While (a) Grace's insurance carriers have not acknowledged or have denied the applicability of their insurance coverage to Grace's asbestos property damage lawsuits and claims (except as discussed below under "Insurance Litigation"), (b) Grace is currently in litigation with certain carriers concerning the applicability and extent of its insurance coverage and (c) the resolution of certain issues, primarily relating to the availability of coverage for specific years, will require further judicial proceedings, Grace believes that its insurance will cover a substantial portion of any damages, settlement amounts and litigation costs related to its asbestos litigation and - 15 - claims. Consequently, Grace believes that the resolution of its asbestos litigation will not have a material adverse effect on its consolidated financial position or results of operations. See "Insurance Litigation" below and Note 2 to Grace's Consolidated Financial Statements in the Financial Supplement for additional information. ENVIRONMENTAL AND OTHER PROCEEDINGS. Grace (together with other companies) has been designated a "potentially responsible party" ("PRP") by the United States Environmental Protection Agency ("EPA") with respect to absorbing the costs of investigating and remediating pollution at various sites. Grace has not incurred any material liability with respect to sites as to which such proceedings have been concluded by agreement with the EPA. At year-end 1993, proceedings were pending with respect to approximately 35 sites as to which Grace has been designated a PRP. Although federal law provides that all PRPs may be held jointly and severally liable for the costs of investigation and remediation of a site, after consideration of the liabilities of other PRPs with respect to these sites and their respective levels of financial responsibility, Grace believes that the amount recorded in its Consolidated Financial Statements for environmental remediation is adequate to cover its exposure with respect to these sites (see Note 11 to the Consolidated Financial Statements in the Financial Supplement for further information). In addition, Grace is presently involved in litigation with its insurance carriers seeking to hold them responsible for certain amounts for which Grace may be held liable with respect to these sites. The outcome of such litigation, as well as the amount of any recovery that Grace may receive in connection therewith, is presently uncertain. Grace is also involved in other litigation, including certain environmental proceedings brought by federal, state and/or local government agencies and private parties. No such litigation is expected to result in significant monetary or other sanctions or in other material liabilities. However, as a voluntary participant in the EPA Toxic Substances Control Act Compliance Audit Program, Grace agreed to undertake a corporate-wide audit of compliance with Section 8 of such Act and to pay a stipulated civil penalty for each study or report that should have been, but was not, submitted to the EPA as required under such Section. Although final review of the audit is not complete, Grace believes it will be required to pay the EPA penalties aggregating from $250,000 to $400,000 for information discovered in the course of the audit. In addition, Grace has voluntarily reported to the EPA violations of certain notification and related requirements under such Act, and it is anticipated that penalties will be assessed against Grace in connection therewith; the amount of such penalties cannot be determined at this time. For additional information, see Note 2 to Grace's Consolidated Financial Statements in the Financial Supplement. - 16 - In addition, in April 1993, the United States Department of Justice filed suit against Grace in the United States District Court for the District of Montana, Great Falls Division, alleging certain violations of the Clean Air Act in connection with the demolition of a mill in Libby, Montana during late 1991 and early 1992. The complaint seeks damages of up to $25,000 per day for each of seven alleged violations and injunctive relief against future violations, and the Department of Justice previously informed Grace that it might seek penalties of up to $3.3 million in connection therewith. However, subject to certain conditions, Grace and the Department of Justice have agreed in principle to settle this matter upon the payment by Grace of penalties substantially lower than the amount initially contemplated by the Department of Justice. Further, Hatco Corporation ("Hatco"), which purchased the assets of a Grace chemical business in 1978, previously instituted a lawsuit against Grace in the United States District Court for the District of New Jersey seeking recovery of cleanup costs for waste allegedly generated at a New Jersey facility during the period of Grace's ownership. Grace has also filed a lawsuit against its insurance carriers seeking indemnity against any damages assessed against Grace in the underlying lawsuit, as well as defense costs. In decisions rendered during 1993, the Court ruled that Grace is responsible for a substantial portion of Hatco's costs. In an earlier decision, the Court had resolved, in a manner favorable to Grace, certain legal issues regarding Grace's right to insurance coverage; however, the ultimate liability of Grace's insurance carriers will be determined at trial. Remedial costs, and Grace's share of such costs, will be determined once ongoing site investigations are completed and a remediation plan is approved by the State of New Jersey, which is not expected to occur before the latter part of 1994. As a result of the above factors, neither the amount that Grace may be required to pay Hatco, nor the amount that Hatco may have to absorb, nor the amount of Grace's recoveries from its insurance carriers can be reliably estimated at this time. However, based on its investigation to date, Grace believes that the ultimate resolution of this matter will not have a material effect on its financial condition. INSURANCE LITIGATION. Grace is involved in litigation with certain insurance carriers with respect to asbestos-related claims and environmental liabilities. Its asbestos-related insurance actions consist of two cases styled MARYLAND CASUALTY CO. V. W. R. GRACE & CO., both pending in the United States District Court for the Southern District of New York; STATE OF MISSISSIPPI V. THE FLINTKOTE CO., ET AL., pending in the Circuit Court of Jackson County, Mississippi; DAYTON INDEPENDENT SCHOOL DISTRICT V. UNITED STATES MINERAL PRODUCTS COMPANY, ET AL., pending in the United States District Court for the Eastern District of Texas; INDEPENDENT SCHOOL DISTRICT NO. 197, ET AL. V. W. R. GRACE & CO. AND ACCIDENT & CASUALTY INSURANCE CO., ET AL., pending in the First - 17 - Judicial District in Minnesota; THE COUNTY OF HENNEPIN V. CENTRAL NATIONAL INSURANCE COMPANY, ET AL., pending in the Fourth Judicial District in Minnesota; ECOLAB, INC. V. CENTRAL NATIONAL INSURANCE CO., pending in the District Court for Ramsey County, Minnesota; AMERICAN EMPLOYERS' INSURANCE CO., AMERICAN REINSURANCE CO., AND COMMERCIAL UNION INSURANCE CO., AND UNIGARD SECURITY INSURANCE CO. V. W. R. GRACE & CO., CONTINENTAL CASUALTY CO., AND MARYLAND CASUALTY CO., which is pending in the New York state courts; and W. R. GRACE & CO.-CONN. V. ADMIRAL INSURANCE CO., ET AL., pending in the Superior Court of California for the County of Los Angeles. Grace's insurance actions relating to environmental liabilities consist of MARYLAND CASUALTY CO. V. W. R. GRACE & CO., pending in the United States District Court for the Southern District of New York; and HATCO CORP. V. W. R. GRACE & CO.-CONN., pending in the United States District Court for the District of New Jersey. The relief sought by Grace in these actions would provide insurance sufficient to cover Grace's estimated exposure with respect to the actions' subject matter, including damages for amounts previously expended by Grace to defend claims and satisfy judgments and settlements (see Note 2 to Grace's Consolidated Financial Statements in the Financial Supplement). The factual bases underlying these actions are the nature of the underlying asbestos-related and environmental claims, the language of the insurance policies sold by the carriers to Grace and the drafting history of those policies. In March 1991 (in one of the above asbestos-related cases involving Maryland Casualty Co.), the United States District Court for the Southern District of New York held that Grace's primary insurance carriers are obligated to defend and indemnify Grace for damages (other than certain punitive damages), settlement amounts and litigation costs with respect to asbestos-related property damage and personal injury claims; in so holding, the Court determined that coverage for property damage is triggered by the "discovery of damage" during the period covered by the relevant policy. On September 1, 1993, the United States Court of Appeals for the Second Circuit reversed the District Court's ruling as to a "discovery of damage" trigger for such claims and, instead, adopted a trigger based on the date of installation of asbestos-containing materials. In January 1994, the United States Court of Appeals for the Second Circuit granted Grace's petition for a rehearing concerning the September 1, 1993 decision. The Second Circuit has requested that the parties rebrief the issue of the trigger of coverage, which rebriefing is scheduled to be concluded in April 1994. It is not known whether oral argument concerning this issue will be scheduled in connection with the rehearing of this case. In December 1991, the Mississippi Court referred to above also held that Grace's primary and excess insurance carriers are obligated to defend and indemnify Grace, determining that, for purposes of insurance coverage, damage to buildings from asbestos-containing products occurs at the time such products are put in place and that the damage continues as long as the building contains the products - 18 - (referred to as a "continuous trigger"). In November 1992, the Minnesota court referred to above reached a similar decision in interpreting a Grace insurance policy. In 1993, Grace received $74.6 million under settlements with insurance carriers, in reimbursement for amounts previously expended by Grace in connection with asbestos-related litigation. These settlements also provide for future reimbursements of $114.0 million. In early 1994, Grace settled with two additional insurance carriers and received approximately $88.8 million under such settlements. Prior to 1993, Grace received payments totalling $97.7 million from insurance carriers ($30.9 million prior to 1991; $35.3 million in 1991 and $31.5 million in 1992), the majority of which represented the aggregate remaining obligations owed to Grace by those carriers for primary-level insurance coverage written for the period June 30, 1962 through June 30, 1987. As a result of the payments received in 1990 and 1991, insurance litigations were dismissed as to the primary-level product liability insurance coverage previously sold by the relevant insurers to Grace; however, litigations continue as to certain other primary- and excess-level carriers. Grace continues to be involved in litigation with certain of its insurance carriers, including an affiliated group of carriers, that had agreed to a settlement and had made a series of payments thereunder during 1993. The group of carriers subsequently notified Grace that it would not honor the agreement (which had not been executed) due to the September 1, 1993 decision of the United States Court of Appeals for the Second Circuit referred to above. Grace believes that the settlement agreement is binding and initiated action to enforce the settlement agreement. In January 1994, the United States District Court for the Eastern District of Texas held that the agreement is enforceable. The affiliated group of carriers is expected to appeal this ruling to the United States Court of Appeals for the Fifth Circuit. See Note 2 to Grace's Consolidated Financial Statements, appearing in the Financial Supplement for additional information. FUMED SILICA PLANT LITIGATION. In January 1993, Grace initiated legal action in the Belgian courts against the Flemish government to recover losses resulting from the closing of Grace's fumed silica plant in Puurs, Belgium. (See Note 8 to Grace's Consolidated Financial Statements in the Financial Supplement for additional information). Grace is seeking damages in excess of four billion Belgian francs (approximately $120 million at current exchange rates), plus interest and loss of profits. There are also pending two separate arbitrations, one involving the engineering company that was responsible for the design and construction of the fumed silica plant, and the other involving a claim by the company from which the plant had agreed to purchase hydrogen under a long-term - 19 - contract. The outcomes of these proceedings may affect the action filed against the Flemish government. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. This Item is inapplicable, as no matters were submitted to a vote of the Company's security holders during the fourth quarter of 1993. EXECUTIVE OFFICERS The Company's current executive officers are listed below. Executive officers are elected to serve until the following annual meeting of the Company's Board of Directors; the next such meeting is scheduled to be held on May 10, 1994. NAME AND AGE OFFICE FIRST ELECTED ------------ ------ ------------- J. P. Bolduc (54) President and 08/02/90 Chief Executive Officer 01/01/93 R. H. Beber (60) Executive Vice President 05/10/93 and General Counsel F. Peter Boer (53) Executive Vice President 01/05/89 Hugh L. Carey (74) Executive Vice President 12/03/87 Jean-Louis Greze (62) Executive Vice President 05/10/93 Constantine L. Hampers (61) Executive Vice President 06/06/91 Donald H. Kohnken (59) Executive Vice President 12/07/89 James P. Neeves (56) Executive Vice President 09/06/90 Brian J. Smith (49) Executive Vice President 07/06/89 and Chief Financial Officer All the above executive officers have been actively engaged in Grace's business for the past five years. Mr. Carey was a partner of Finley, Kumble, Wagner, Heine, Underberg, Manley, Meyerson & Casey (a law firm) from 1983 to 1987; that firm is currently involved in bankruptcy proceedings commenced subsequent to Mr. Carey's departure. Mr. Carey is cooperating with the trustee in bankruptcy to secure a plan of reorganization that would result in some limited liability for Mr. Carey. - 20 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Except as provided below, the information called for by this Item appears in the Financial Supplement under the heading "Financial Summary" opposite the caption "Other Statistics - Common shareholders of record" (page F-29); under the heading "Quarterly Summary" opposite the captions "Dividends declared per common share" and "Market price of common stock" (page F-25); and in Note 13 to Grace's Consolidated Financial Statements (page F-19). Each share of the Company's Common Stock has an attendant Common Stock Purchase Right ("Right"). The Rights are not and will not become exercisable unless and until certain events occur (as described below). Until such events occur, the Rights will automatically trade with the Common Stock and separate certificates for the Rights will not be distributed. The Rights will become exercisable on the tenth business day (or such later business day as may be fixed by the Company's Board of Directors) after a person or group (a) becomes an "interested shareholder", as defined in Section 912 of the New York Business Corporation Law (generally, a beneficial owner of 20% or more of the outstanding voting stock), or (b) commences a tender offer or exchange offer that would result in such person or group becoming an interested shareholder. The Rights will not have any voting power at any time. When the Rights become exercisable, each Right will initially entitle the holder to buy from the Company one share of Common Stock for $87.50, subject to adjustment in certain cases ("purchase price"). If, at any time after the Rights become exercisable, (a) the Company is involved in a merger or other business combination in which (i) the Company is not the surviving corporation or (ii) any of the Common Stock is changed or converted into or exchanged for stock or other securities of any other person or cash or other property, or (b) 50% of the Company's assets, cash flow or earning power is sold, each Right will entitle the holder to buy a number of shares of common stock of the acquiring company having a market value equal to twice the purchase price. Alternatively, each right not owned by a person who becomes an interested shareholder would become exercisable for Common Stock (or other consideration) having a market value equal to twice the purchase price. The Rights may be redeemed by the Company at $.025 per Right (payable in cash, Common Stock or any other form of consideration deemed appropriate by the Board) at any time through the tenth business day (or such later business day as may be fixed by the Board) after a public announcement that a person or group has become an interested shareholder; this right of redemption may be reinstated if all interested shareholders reduce their holdings to - 21 - 10% or less of the outstanding Common Stock. The Rights will expire in January 1997. The Rights may be amended either before or after they become exercisable. However, the basic economic terms of the Rights (such as the purchase and redemption prices and the expiration date) cannot be changed. ITEM 6. SELECTED FINANCIAL DATA. The information called for by this Item appears under the heading "Financial Summary" (page F-29 of the Financial Supplement) and in Notes 5, 6, 9 and 16 to Grace's Consolidated Financial Statements (pages F-12, F-13, F-17 and F-22 of the Financial Supplement). In addition, Exhibit 12 to this Report (page F-41 of the Financial Supplement) contains the ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends for Grace for the years 1989-1993. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information called for by this Item appears on pages F-30 to F-33 of the Financial Supplement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Index to Consolidated Financial Statements and Financial Statement Schedules and Exhibits on page F-1 of the Financial Supplement. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. This item is inapplicable, as no such changes or disagreements have occurred. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except for information regarding the Company's executive officers (see page 20), the information called for by this Item is incorporated in this Report by reference to the definitive Proxy Statement for the Company's 1994 Annual Meeting of Shareholders, except for information not deemed to be "soliciting material" or - 22 - "filed" with the Securities and Exchange Commission ("SEC"), information subject to Regulations 14A or 14C under the Securities Exchange Act of 1934 ("Exchange Act") or information subject to the liabilities of Section 18 of the Exchange Act. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by Items 11, 12 and 13 is incorporated in this Report by reference to the definitive Proxy Statement for the Company's 1994 Annual Meeting of Shareholders, except for information not deemed to be "soliciting material" or "filed" with the SEC, information subject to Regulations 14A or 14C under the Exchange Act or information subject to the liabilities of Section 18 of the Exchange Act. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. FINANCIAL STATEMENTS AND SCHEDULES. See the Index to Consolidated Financial Statements and Financial Statement Schedules and Exhibits on page F-1 of the Financial Supplement. REPORTS ON FORM 8-K. The Company filed no Reports on Form 8-K during the fourth quarter of 1993. EXHIBITS. The exhibits to this Report are listed below. Other than exhibits that are filed herewith, all exhibits listed below are incorporated herein by reference. Exhibits indicated by an asterisk (*) are the management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report. EXHIBIT WHERE LOCATED ------- ------------- Certificate of Incorporation of Exhibit 3 to Form 8-K W. R. Grace & Co., as amended (filed 6/9/88) By-laws of W. R. Grace & Co., as Exhibit 3.2 to Form 10-K amended (filed 3/26/93) - 23 - Indenture dated as of Septem- Exhibit 4.2 to Form 10-K ber 29, 1992 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and Bankers Trust Company Indenture dated as of January Exhibit 4.4 to Form 10-K 28, 1993 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and NationsBank of Georgia, N.A. Credit Agreement dated as of Exhibit 4.2 to Form 8-K September 1, 1992 among W. R. (filed 9/26/92) Grace & Co., W. R. Grace & Co.- Conn. and the Several Banks Parties thereto and Chemical Bank, as Agent Amended and Restated Rights Exhibit to Amendment on Agreement dated as of June 7, Form 8 to Application for 1990 between W. R. Grace & Co. Registration on Form 8-B and Manufacturers Hanover Trust (filed 6/19/90) Company W. R. Grace & Co. Executive Exhibit 19(f) to Form Salary Protection Plan, as 8-K (filed 6/9/88)* amended W. R. Grace & Co. 1981 Stock Exhibit 28(a) to Form Incentive Plan, as amended 10-Q (filed 8/13/91)* W. R. Grace & Co. 1986 Stock Exhibit 28(b) to Form Incentive Plan, as amended 10-Q (filed 8/13/91)* W. R. Grace & Co. 1989 Stock Exhibit 28(c) to Form Incentive Plan, as amended 10-Q (filed 8/13/91)* Forms of Stock Option Agreements Exhibit 10(h) to Form 10-K (filed 3/28/92)* Forms of Restricted Share Award Exhibit 10(i) to Form Agreements 10-K (filed 3/28/92)* Information Concerning W. R. Pages 10 and 11 of Proxy Grace & Co. Incentive Compen- Statement (filed 4/10/93)* sation Program and Deferred Compensation Program W. R. Grace & Co. Long-Term Exhibit 10(l) to Form Incentive Plan 10-K (filed 3/29/91)* W. R. Grace & Co. Retirement Exhibit 10(o) to Form Plan for Outside Directors, as 10-K (filed 3/28/92)* amended - 24 - Employment Agreement dated August Exhibit 10(r) to Form 7, 1989 between W. R. Grace & Co. 10-K (filed 3/29/91)* and Joseph R. Wright, Jr. Employment Agreement dated Exhibit 10(x) to Form as of April 1, 1991 between 10-K (filed 3/28/92)* W. R. Grace & Co.-Conn. and Constantine L. Hampers, as amended Housing Loan Agreement dated Exhibit 10(q) to Form as of August 1, 1987 between 10-K (filed 3/29/88); W. R. Grace & Co. and J. P. Exhibit 19(i) to Form Bolduc, related Amendment and 8-K (filed 6/9/88)* Assignment dated May 10, 1988 Employment Agreement dated Filed herewith* August 1, 1993 between J. P. Bolduc and W. R. Grace & Co. Stock Option Agreement dated Filed herewith* June 30, 1993 between David L. Yunich and W. R. Grace & Co. Stock Option Agreement dated Filed herewith* June 30, 1993 between David L. Yunich and W. R. Grace & Co. National Medical Care, Inc. and Exhibit 10 (aa) to Form Subsidiaries Executive Bonus 10-K (filed 3/28/92)* Plans Retirement Agreement between Exhibit 10.23 to Form 10-K W. R. Grace & Co. and J. Peter (filed 3/26/93)* Grace dated December 21, 1992 Executive Severance Agreement Exhibit 10.24 to Form 10-K dated as of September 1, 1992 (filed 3/26/93)* between W. R. Grace & Co. and J. P. Bolduc Executive Severance Agreement Exhibit 10.26 to Form 10-K dated September 1, 1992 (filed 3/26/93)* between W. R. Grace & Co. and Constantine L. Hampers Form of Executive Severance Exhibit 10.28 to Form 10-K Agreement between W. R. Grace (filed 3/26/93)* & Co. and others - 25 - Consulting Agreement Exhibit 10.29 to Form 10-K dated June 1, 1992 between (filed 3/26/93)* W. R. Grace & Co. and Kamsky Associates, Inc. Incentive Compensation Agreement Exhibit 10.30 to Form 10-K dated June 1, 1992 between (filed 3/26/93)* National Medical Care, Inc. and Kamsky Associates, Inc. Consulting Agreement dated as of Filed herewith* June 16, 1993 by and between National Medical Care, Inc., The Humphrey Group, Inc. and Gordon J. Humphrey Employment Termination Agreement Filed herewith* dated June 30, 1993 between J. R. Wright, Jr. and W. R. Grace & Co. W. R. Grace & Co. Supplemental Filed herewith* Executive Retirement Plan, as amended Weighted Average Number of Filed herewith Shares and Earnings Used in (in Financial Supplement Per Share Computations to 10-K) Computation of Ratio of Earnings Filed herewith to Fixed Charges and Combined (in Financial Supplement Fixed Charges and Preferred to 10-K) Stock Dividends Selected Portions of the 1993 Filed herewith Annual Report to Shareholders (in Financial Supplement of W. R. Grace & Co. to 10-K) List of Subsidiaries of Filed herewith W. R. Grace & Co. Consent of Independent Accoun- Filed herewith tants (in Financial Supplement to 10-K) Powers of Attorney Filed herewith - 26 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereun- to duly authorized. W. R. GRACE & CO. By /s/ B. J. Smith _______________________ B. J. Smith (Executive Vice President) Date: March 28, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 28, 1994. SIGNATURE TITLE --------- ----- J. P. Bolduc* President and Director (Principal Executive Officer) G. C. Dacey* R. C. Macauley* ] E. W. Duffy* R. Milliken* ] H. A. Eckmann* J. E. Phipps* ] C. H. Erhart, Jr.* J. A. Puelicher* ] J. P. Grace* E. W. Pyne* ] Directors R. H. Grierson* D. W. Robbins, Jr.* ] C. L. Hampers* G. S. Vance* ] T. A. Holmes* D. L. Yunich* ] G. J. Humphrey* G. P. Jenkins* /s/ B. J. Smith Executive Vice President - ----------------------- (Principal Financial Officer) (B. J. Smith) /s/ R. N. Sukenik Vice President and Controller - ----------------------- (Principal Accounting Officer) (R. N. Sukenik) ____________ * By signing his name hereto, Robert B. Lamm is signing this docu- ment on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. By /s/ Robert B. Lamm ------------------------ Robert B. Lamm (Attorney-in-Fact) - 27 - FINANCIAL SUPPLEMENT to Annual Report on Form 10-K for the Year Ended December 31, 1993 W. R. GRACE & CO. AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedules and Exhibits ---------------------------------------------- PAGE ---- Report of Independent Accountants on Financial Statement Schedules. . F-2 Consent of Independent Accountants. . . . . . . . . . . . . . . . . . F-2 Report of Independent Accountants . . . . . . . . . . . . . . . . . . F-3 Consolidated Statement of Operations for the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . F-4 Consolidated Statement of Cash Flows for the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . F-5 Consolidated Balance Sheet as at December 31, 1993 and 1992 . . . . . F-6 Consolidated Statement of Shareholders' Equity for the three years in the period ended December 31, 1993 . . . . . . . . F-7 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-8-F-24 Quarterly Summary - Unaudited . . . . . . . . . . . . . . . . . . . . F-25 Quarterly Statistics. . . . . . . . . . . . . . . . . . . . . . . . . F-26 Worldwide Operations. . . . . . . . . . . . . . . . . . . . . . . . . F-27 Capital Expenditures, Net Fixed Assets and Depreciation and Lease Amortization . . . . . . . . . . . . . . . . . . . . . F-28 Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . F-29 Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . . . . . . . . . F-30 Financial Statement Schedules Schedule II - Amounts receivable from officers and employees exceeding $100,000 . . . . F-34 Schedule V - Property, plant and equipment . . . . . . . F-35 Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment . . . . . . . . . . . . . . . F-36 Schedule VIII - Valuation and qualifying account and reserves . . . . . . . . . . . . . . . F-37 Schedule IX - Short-term borrowings . . . . . . . . . . . F-38 Schedule X - Supplementary income statement information F-39 Exhibit 11: Weighted Average Number of Shares and Earnings Used in Per Share Computations . . . . . . . . . . . . . . . . . . . F-40 Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends . . . . F-41 The financial data listed above appearing in this Financial Supplement are incorporated by reference herein. The Financial Statement Schedules should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Financial statements of 50%- or less-owned persons and other persons accounted for by the equity method have been omitted as provided in Rule 3-09 of Securities and Exchange Commission Regulation S-X. Financial Statement Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Shareholders and Board of Directors of W. R. Grace & Co. Our audits of the consolidated financial statements referred to in our report dated February 8, 1994 appearing on page 25 of the 1993 Annual Report to Shareholders of W. R. Grace & Co. (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed on page F-1 in the Index to Consolidated Financial Statements and Financial Statement Schedules and Exhibits of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE New York, New York February 8, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Pros- pectuses constituting parts of the Registration Statements on Form S-3 (Nos. 33-51041, 33-50983 and 33-25962) and Form S-8 (Nos. 33-7504, 33-15182 and 33-27960) of W. R. Grace & Co. of our report dated February 8, 1994 appearing on page 25 of the 1993 Annual Report to Shareholders, which report is included at page F-3 of this Report on Form 10-K. We also consent to the inclusion in this Report of our report on the Financial Statement Schedules, which appears above. PRICE WATERHOUSE New York, New York March 28, 1994 F-2 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation, as well as the integrity and objectivity, of the consolidated financial statements and other financial information included in this report. Such financial information has been prepared in conformity with generally accepted accounting principles and accordingly includes certain amounts that represent management's best estimates and judgments. For many years, management has maintained internal control systems to assist it in fulfilling its responsibility for financial reporting, including careful selection of personnel, segregation of duties, formal business, accounting and reporting policies and procedures and an extensive internal audit function. While no system can ensure elimination of all errors and irregularities, Grace's systems, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed and transactions are properly executed and reported. The concept of reasonable assurance is based on the recognition that there are limitations in all systems and that the cost of such systems should not exceed the benefits to be derived. The Audit Committee of the Board of Directors, which is comprised of directors who are neither officers nor employees of nor consultants to Grace, meets regularly with Grace's senior financial personnel, internal auditors and independent accountants to review audit plans and results as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal control systems. The Audit Committee reports its findings and also recommends the selection of independent accountants to the Board of Directors. Grace's management, internal auditors and independent accountants have direct and confidential access to the Audit Committee at all times. The independent accountants are engaged to conduct audits of and render a report on the consolidated financial statements in accordance with generally accepted auditing standards. These standards include a review of the systems of internal controls and tests of transactions to the extent considered necessary by the independent accountants for purposes of supporting their opinion as set forth in their report. B. J. Smith Executive Vice President and Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE February 8, 1994 1177 Avenue of the Americas New York, NY 10036 TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO. In our opinion, the consolidated financial statements appearing on pages F-4 through F-24 of this report present fairly, in all material respects, the financial position of W. R. Grace & Co. and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 5 and 16, the Company adopted new accounting standards for income taxes and postretirement benefits in 1992. F-3 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- W. R. GRACE & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------- DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------- Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,408.4 $4,337.0 $4,386.6 Other income (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . 42.5 69.9 55.7 -------- -------- -------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,450.9 4,406.9 4,442.3 -------- -------- -------- Cost of goods sold and operating expenses. . . . . . . . . . . . . . . . 2,596.8 2,601.5 2,649.2 Selling, general and administrative expenses . . . . . . . . . . . . . . 1,029.7 1,028.0 982.5 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 227.7 224.9 232.9 Interest expense (Note 9). . . . . . . . . . . . . . . . . . . . . . . . 81.5 90.0 115.4 Research and development expenses. . . . . . . . . . . . . . . . . . . . 135.0 130.0 128.1 Provision relating to asbestos-related insurance coverage (Note 2) . . . 159.0 -- -- Provision relating to a fumed silica plant (Note 8). . . . . . . . . . . -- 140.0 -- -------- -------- -------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,229.7 4,214.4 4,108.1 -------- -------- -------- Income from continuing operations before income taxes. . . . . . . . . . 221.2 192.5 334.2 Provision for income taxes (Note 5). . . . . . . . . . . . . . . . . . . 86.8 134.8 132.5 -------- -------- -------- Income from continuing operations. . . . . . . . . . . . . . . . . . . . 134.4 57.7 201.7 (Loss)/income from discontinued operations (Note 6). . . . . . . . . . . (108.4) (162.2) 16.9 -------- -------- -------- Income/(loss) before cumulative effect of accounting changes . . . . . . 26.0 (104.5) 218.6 Cumulative effect of accounting changes (Notes 5 and 16) . . . . . . . . -- (190.0) -- -------- -------- -------- Net income/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.0 $ (294.5) $ 218.6 -------- -------- -------- -------- -------- -------- Earnings/(loss) per share: Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . $ 1.46 $ .64 $ 2.31 Cumulative effect of accounting changes. . . . . . . . . . . . . . . . $ -- $ (2.12) $ -- Net earnings/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ .28 $ (3.29) $ 2.50 Fully diluted earnings per share: Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . $ 1.45 $ .62 $ 2.23 Cumulative effect of accounting changes. . . . . . . . . . . . . . . . $ -- $ --(1) $ -- Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .28 $ --(1) $ 2.40 - ---------------------------------------------------------------------------------------------------------- THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. (1) NOT PRESENTED AS THE EFFECT IS ANTI-DILUTIVE.
F-4 CONSOLIDATED STATEMENT OF CASH FLOWS - -------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Income from continuing operations before income taxes. . . . . . . . . . . . . . . . $ 221.2 $ 192.5 $ 334.2 Reconciliation to cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . 227.7 224.9 232.9 Provision relating to asbestos-related insurance coverage. . . . . . . . . . . . . 159.0 -- -- Provision relating to a fumed silica plant . . . . . . . . . . . . . . . . . . . . -- 140.0 -- Changes in assets and liabilities, excluding businesses acquired/divested and foreign exchange effect: (Increase)/decrease in notes and accounts receivable, net . . . . . . . . . . . . (103.2) 48.4 171.2 Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50.5) (2.3) (30.5) Proceeds from settlements of interest rate hedge agreements . . . . . . . . . . . 67.9 3.2 -- Net expenditures for asbestos-related insurance coverage. . . . . . . . . . . . . (103.1) (70.3) (54.9) Increase in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 50.1 29.5 11.9 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167.5) (207.0) (106.3) ------- ------- ------- Net pretax cash provided by operating activities of continuing operations. . . . . . 301.6 358.9 558.5 Net pretax cash provided by operating activities of discontinued operations. . . . . 44.2 178.3 161.3 ------- ------- ------- Net pretax cash provided by operating activities . . . . . . . . . . . . . . . . . . 345.8 537.2 719.8 Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102.7) (98.9) (117.5) ------- ------- ------- Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . 243.1 438.3 602.3 ------- ------- ------- INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (309.6) (398.4) (447.0) Businesses acquired in purchase transactions, net of cash acquired . . . . . . . . . (306.6) (61.2) (131.0) Increase in net investment in discontinued operations. . . . . . . . . . . . . . . . (43.1) (101.5) (55.9) Net proceeds from divestments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 464.8 221.2 366.4 Net proceeds from sale/leaseback transactions. . . . . . . . . . . . . . . . . . . . 27.2 -- -- Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4 2.2 (60.1) ------- ------- ------- Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . (151.9) (337.7) (327.6) ------- ------- ------- FINANCING ACTIVITIES (1) Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128.4) (125.9) (122.5) Repayments of borrowings having original maturities in excess of three months. . . . (512.6) (274.0) (695.6) Increase in borrowings having original maturities in excess of three months. . . . . 373.0 355.7 319.7 Net increase/(repayments) in borrowings having original maturities of less than three months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155.7 (508.0) 271.3 Sale of limited partnership interest . . . . . . . . . . . . . . . . . . . . . . . . -- 297.0 -- Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 13.8 45.7 ------- ------- ------- Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . (105.9) (241.4) (181.4) ------- ------- ------- Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . (0.5) (3.5) (2.2) ------- ------- ------- (Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . (15.2) (144.3) 91.1 ------- ------- ------- Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . 62.8 207.1 116.0 ------- ------- ------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . $ 47.6 $ 62.8 $ 207.1 ------- ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------------------------------------------- THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. (1) SEE NOTE 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR SUPPLEMENTAL INFORMATION RELATING TO NONCASH FINANCING ACTIVITIES.
F-5 CONSOLIDATED BALANCE SHEET - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
DOLLARS IN MILLIONS, EXCEPT PAR VALUE December 31, 1993 1992 - -------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 47.6 $ 62.8 Notes and accounts receivable, net (Note 7). . . . . . . . . . . . . . . 657.4 690.4 Inventories (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . 441.0 592.9 Net assets of discontinued operations, current (Note 6). . . . . . . . . 761.3 606.3 Deferred income taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . 31.8 96.8 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 42.2 ---------- ---------- TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 1,975.3 2,091.4 Properties and equipment, net (Note 8) . . . . . . . . . . . . . . . . . 1,454.1 1,707.9 Net assets of discontinued operations, noncurrent. . . . . . . . . . . . -- 108.5 Goodwill, less accumulated amortization of $53.2(1992--$50.1). . . . . . 481.6 298.6 Asbestos-related insurance receivable (Note 2) . . . . . . . . . . . . . 962.3 358.3 Other assets (Note 7). . . . . . . . . . . . . . . . . . . . . . . . . . 1,235.3 1,033.9 ---------- ---------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,108.6 $ 5,598.6 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . $ 532.6 $ 464.7 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414.6 423.6 Income taxes (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . 126.5 158.1 Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 621.9 593.2 Minority interests, current (Note 12). . . . . . . . . . . . . . . . . . 297.0 -- ---------- ---------- TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 1,992.6 1,639.6 Long-term debt (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . 1,173.5 1,354.5 Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . 613.8 666.1 Deferred income taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . 97.4 96.4 Liability for asbestos-related litigation (Note 2) . . . . . . . . . . . 713.7 -- Minority interests, noncurrent (Note 12) . . . . . . . . . . . . . . . . -- 297.0 ---------- ---------- TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,591.0 4,053.6 ---------- ---------- COMMITMENTS AND CONTINGENCIES (NOTES 2, 9 AND 11) SHAREHOLDERS' EQUITY (NOTE 13) Preferred stocks, $100 par value . . . . . . . . . . . . . . . . . . . . 7.4 7.5 Common stock, $1.00 par value; 300,000,000 shares authorized; outstanding at December 31: 1993 - 93,465,000; 1992 - 89,892,000 . . . 93.5 89.9 Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287.8 151.4 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196.2 1,298.6 Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . (67.3) (2.4) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . 1,517.6 1,545.0 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . $ 6,108.6 $ 5,598.6 ---------- ---------- ---------- ---------- - --------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. F-6 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1993 1992 1991 - ------------------------------------------------------------------------------- PREFERRED STOCKS Balance, beginning of year . . . . . . . . . $ 7.5 $ 7.5 $ 7.5 Other. . . . . . . . . . . . . . . . . . . . (.1) -- -- -------- -------- -------- BALANCE, END OF YEAR . . . . . . . . . . . . 7.4 7.5 7.5 -------- -------- -------- Common Stock Balance, beginning of year . . . . . . . . . 89.9 88.6 86.1 Conversion of notes and debentures . . . . . 2.8 -- -- Stock options and awards . . . . . . . . . . .7 1.3 2.5 Acquisition. . . . . . . . . . . . . . . . . .1 -- -- -------- -------- -------- BALANCE, END OF YEAR . . . . . . . . . . . . 93.5 89.9 88.6 -------- -------- -------- PAID IN CAPITAL Balance, beginning of year . . . . . . . . . 151.4 120.1 61.6 Conversion of notes and debentures . . . . . 109.7 -- -- Stock options and awards . . . . . . . . . . 22.9 31.1 58.4 Acquisition. . . . . . . . . . . . . . . . . 3.7 -- -- Other. . . . . . . . . . . . . . . . . . . . .1 .2 .1 -------- -------- -------- BALANCE, END OF YEAR . . . . . . . . . . . . 287.8 151.4 120.1 -------- -------- -------- RETAINED EARNINGS Balance, beginning of year . . . . . . . . . 1,298.6 1,719.0 1,622.9 Net income/(loss). . . . . . . . . . . . . . 26.0 (294.5) 218.6 Dividends paid . . . . . . . . . . . . . . . (128.4) (125.9) (122.5) -------- -------- -------- BALANCE, END OF YEAR . . . . . . . . . . . . 1,196.2 1,298.6 1,719.0 -------- -------- -------- CUMULATIVE TRANSLATION ADJUSTMENTS Balance, beginning of year . . . . . . . . . (2.4) 90.0 134.4 Translation adjustments . . . . . . . . . . (64.9) (92.4) (44.4) -------- -------- -------- BALANCE, END OF YEAR . . . . . . . . . . . . (67.3) (2.4) 90.0 -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . $1,517.6 $1,545.0 $2,025.2 -------- -------- -------- -------- -------- -------- - -------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES F-8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES - ------------------------------------------------------------------------------- PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of W. R. Grace & Co. and all majority-owned companies (collectively Grace). Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies (20% - 50% owned) are accounted for under the equity method. RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year's presentation and as required with respect to discontinued operations. CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with maturities of three months or less when purchased. The recorded amount approximates fair value because of the short maturities of these investments. INVENTORIES Inventories are stated at the lower of cost or market. Due to the diversified nature of Grace's operations, several methods of determining cost are used, including first-in/first-out, average and, for substantially all U.S. chemical inventories, last-in/first-out. Market value for raw and packaging materials is based on current cost and, for other inventory classifications, on net realizable value. PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of cost or net realizable value. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful lives of the assets. Interest is capitalized in connection with major project expenditures and amortized, generally on a straight-line basis, over the estimated useful lives of the assets. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related depreciation are removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to income. GOODWILL AND OTHER AMORTIZATION Goodwill arises from certain purchase transactions and is amortized using the straight-line method over appropriate periods not exceeding 40 years. Patient relationships (see Note 7) are amortized using the straight-line method over 17 years. INCOME TAXES Effective January 1, 1992, Grace adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The Statement requires the use of an asset and liability approach for the accounting and financial reporting of income taxes. FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial statements (except for those relating to countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, except that revenues, costs and expenses are translated at average exchange rates during each reporting period. The financial statements of subsidiaries located in countries with highly inflationary economies must be remeasured as if the functional currency were the U.S. dollar. The remeasurement creates translation adjustments that are reflected in net income. The allocation for income taxes included in the translation adjustments account in shareholders' equity was not significant. EARNINGS PER SHARE Primary earnings per share are computed on the basis of the weighted average number of common shares outstanding. Fully diluted earnings per share assume the conversion of convertible debentures (with an increase in net income for the after-tax interest savings) and the issuance of common stock equivalents related to stock options. FINANCIAL INSTRUMENTS Grace enters into interest rate swaps, options and caps, and foreign currency contracts to manage exposure to fluctuations in interest and foreign currency exchange rates. The differentials paid or received on interest rate agreements are accrued and recognized as adjustments to interest expense; gains and losses realized upon settlement of these agreements are deferred and amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remains outstanding, or immediately if the underlying hedged instrument is settled. Premiums paid on caps are amortized to interest expense over the term of the cap. Gains and losses on foreign currency contracts offset gains and losses resulting from the underlying transactions. Gains and losses on contracts that hedge specific foreign currency commitments are deferred and recognized in net income in the period in which the transaction is consummated. Gains and losses on contracts that hedge net investments in foreign subsidiaries are recognized in the cumulative translation adjustments account in shareholders' equity. F-8 - ------------------------------------------------------------------------------- 2. ASBESTOS AND RELATED INSURANCE LITIGATION - ------------------------------------------------------------------------------- Grace is a defendant in lawsuits relating to previously sold asbestos-containing products and anticipates that it will be named as a defendant in additional asbestos- related lawsuits in the future. At December 31, 1993, Grace was a defendant in approximately 38,100 asbestos- related lawsuits representing approximately 56,700 claims (versus approximately 30,900 lawsuits and 53,000 claims at December 31, 1992). Of the lawsuits pending at December 31, 1993, 92 (105 at December 31, 1992) involved claims for property damage allegedly caused by the use of asbestos-containing materials in the construction of buildings. The plaintiffs in these lawsuits generally seek, among other things, to have the defendants absorb the cost of removing, containing or repairing the asbestos- containing materials in the affected buildings. The remaining asbestos-related lawsuits involved claims for personal injury. In most of these lawsuits, Grace is one of many defendants. PROPERTY DAMAGE LITIGATION Through December 31, 1993, 120 asbestos property damage cases had been dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grace in twelve cases; in six cases (four of which are on appeal), Grace was held liable for a total of $68.3; and 131 property damage suits and claims had been settled by Grace for a total of $300.0. Grace has recorded a receivable for the insurance proceeds it expects to receive in connection with these adverse verdicts and settlements, as well as for defense costs initially paid by Grace. (See "Insurance Litigation" below.) On September 1, 1993, the U.S. Court of Appeals for the Second Circuit issued a decision regarding the availability of insurance coverage with respect to Grace's asbestos property damage litigation and claims. In January 1994, the Court granted Grace's petition for a re- hearing concerning such decision. Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1993 are the following purported class actions: (1) a Pennsylvania state court action, certified in 1992, covering all commercial buildings in the U.S. leased in whole or in part to the U. S. government on or after May 30, 1986; (2) an action, certified by the U.S. Court of Appeals for the Fourth Circuit in September 1993 and pending in a U.S. District Court in South Carolina, covering all public and private colleges and universities in the U. S. whose buildings contain asbestos materials; (3) an action, brought in 1983 in a U.S. District Court in Pennsylvania, on behalf of all public and private elementary and secondary schools in the U.S. that contain asbestos materials, which has been scheduled for trial in late 1994 on a limited number of issues; and (4) an action filed in a South Carolina state court in 1992 on behalf of all entities that own, in whole or in part, any building containing asbestos materials manufactured by Grace or one of the other named defendants, other than buildings subject to the class action lawsuits described above, as well as any building owned by the federal or any state government. PERSONAL INJURY LITIGATION Through December 31, 1993, approximately 7,000 asbestos personal injury lawsuits involving 17,900 claims had been dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 11,300 such suits involving 13,400 claims had been settled for a total of $52.2. In January 1993, the U.S. District Court for the Eastern District of Pennsylvania conditionally certified a class of all future asbestos personal injury claimants, including individuals who have been occupationally exposed to asbestos-containing materials but who do not presently allege asbestos-related injury. Although Grace is not among the defendants named in the class action complaint, dissemination of the required class notice may generate additional litigation against Grace. RANGE OF POTENTIAL EXPOSURE Although personal injury cases are generally similar to each other (differing only in the type of asbestos-related illness allegedly suffered by the plaintiff), each property damage case is unique in that building type, size and utilization and difficulty of abatement, if necessary, vary from structure to structure; thus, the amounts involved in prior dispositions of property damage cases are not necessarily indicative of the amounts that may be required to dispose of such cases in the future. In addition, in property damage cases, information regarding product identification on a building-by-building basis (I.E., whether or not Grace products were actually used in the construction of the building), the age, type, size and use of the building, the jurisdictional history of prior cases and the court in which the case is pending provide the only meaningful guidance as to potential future costs. However, much of this information is not yet available in a majority of the property damage cases currently pending against Grace. Accordingly, estimates of future costs to dispose of these cases are, in most instances, based on incomplete information, as well as assumptions that may not be accurate. Further, the filing of the class actions and uncertainty with respect to the class certification in the national elementary and secondary schools class action (see "Property Damage Litigation" above) make it more difficult to reliably predict the costs Grace will incur in disposing of asbestos-related litigation. F-9 Subject to the preceding qualifications (which Grace believes to be significant), Grace has attempted to determine its future costs to dispose of this litigation and has concluded that it is probable that the personal injury and property damage cases pending at December 31, 1993 can be disposed of for a total amount estimated at $813.7 (inclusive of legal fees and expenses), of which Grace has recorded $713.7 as a noncurrent liability and $100.0 as a current liability. This compares to the estimated liability (current and noncurrent) of $848.0 at September 30, 1993, reflecting payments made in the fourth quarter of 1993. In addition, Grace has recorded a receivable of $962.3 for the insurance proceeds it expects to receive in reimbursement for prior payments and estimated future payments to dispose of asbestos- related litigation. This compares to the receivable of $644.0 at September 30, 1993, which reflected a $300.0 after-tax provision recorded in the third quarter of 1993 related to the Second Circuit Court of Appeals decision, while the fourth quarter 1993 activity included the partial reversal of such provision, as well as insurance proceeds received during the quarter. (See "Insurance Litigation" below.) Grace has also settled coverage disputes with certain insurance carriers. These settlements provide for future payments of $114.0 and have been recorded as notes receivable. Further, Grace continues to seek to recover the balance of the payments it has made with respect to asbestos-related litigation from its excess insurers and from insurance companies that sold insurance policies to predecessor companies of Grace, as discussed below. INSURANCE LITIGATION Grace's ultimate exposure in respect of its asbestos- related lawsuits and claims will depend on the extent to which its insurance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. In March 1991, the U. S. District Court for the Southern District of New York held that Grace's primary insurance carriers are obligated to defend and indemnify Grace with respect to damages (other than certain punitive damages), settlement amounts and litigation costs in connection with both personal injury and property damage asbestos claims. The court held that coverage for asbestos property damage is triggered by the "discovery of damage" during the policy period. On September 1, 1993, the U.S. Court of Appeals for the Second Circuit issued a decision regarding the availability of insurance coverage with respect to Grace's asbestos litigation and claims. The Court of Appeals reversed the District Court's ruling as to a "discovery of damage" trigger for asbestos property damage claims and instead adopted a trigger based on the date of installation of asbestos-containing materials. As a result of this decision, Grace recorded an after-tax provision of $300.0 during the third quarter of 1993 to reflect the reduction in insurance coverage for its asbestos property damage lawsuits and claims. In January 1994, the U.S. Court of Appeals for the Second Circuit granted Grace's petition for a re-hearing concerning the September 1, 1993 decision. In view of the Court's action, during the fourth quarter of 1993, Grace reversed $200.0 of the after-tax provision recorded in the third quarter. In December 1991, the Circuit Court for Jackson County, Mississippi held that Grace's primary and excess insurance carriers are obligated to defend and indemnify Grace, holding that for the purposes of insurance coverage, damage to buildings from asbestos-containing products occurs at the time such products are put in place and that the damage continues as long as the building contains the products (a "continuous trigger"). A similar decision was rendered by a Minnesota state court in November 1992. In 1993, Grace received $74.6 under settlements with insurance carriers, in reimbursement for monies previously expended by Grace in connection with asbestos-related litigation ; as mentioned above, these settlements also provide for future reimbursements of $114.0. In early 1994, Grace settled with two additional insurance carriers and received approximately $88.8 under such settlements. Prior to 1993, Grace received payments totalling $97.7 from insurance carriers, the majority of which represented the aggregate remaining obligation owed to Grace by those carriers for primary level insurance coverage written by them for the period June 30, 1962 through June 30, 1987. Grace continues to be involved in litigation with certain of its insurance carriers, including an affiliated group of carriers that had agreed to a settlement and had made a series of payments under that agreement in 1993. The group of carriers subsequently notified Grace that it would no longer honor the agreement (which had not been executed) due to the September 1, 1993 U.S. Court of Appeals decision discussed above. Grace believes that the settlement agreement (which involves approximately $200.0 of the asbestos-related receivable of $962.3 at December 31, 1993) 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 is expected to appeal this ruling to the U.S. Court of Appeals for the Fifth Circuit. For the period October 20, 1962 through June 30, 1985--the most relevant period for asbestos-related litigation--Grace purchased, on an annual basis, as much as eight levels of excess insurance coverage. In general, excess policies provide that when claims paid exhaust coverage at one level, the insured may seek payment from the carriers at the next higher level. For that 23-year period, the first six levels of excess insurance available from insurance companies that Grace believes to be solvent (based primarily upon reports from a leading independent insurance rating service) provide coverage in excess of $1.4 billion. If, however, the amount available in the first six levels should prove to be insufficient, Grace has substantial additional coverage available in its two remaining levels of excess coverage. In Grace's opinion, it is probable that recoveries from its excess insurance coverage will be available to satisfy Grace's asbestos- related exposure after giving effect to the provision recorded in 1993. Consequently, Grace believes that the resolution of its asbestos-related litigation will not have a material effect on its consolidated financial position or results of operations. F-10 - ------------------------------------------------------------------------------- 3. ACQUISITIONS, DIVESTMENTS AND STRATEGIC RESTRUCTURING - ------------------------------------------------------------------------------- ACQUISITIONS Businesses acquired in 1993 consisted primarily of health care and water treatment businesses. Grace acquired Home Intensive Care, Inc. in the second quarter of 1993 for approximately $129.0 in cash (inclusive of related costs) and acquired other health care businesses during 1993 for an aggregate of approximately $115.0 in cash and $3.8 in common stock. Grace also acquired Latin America's largest water treatment business in the first quarter of 1993 for approximately $57.6 in cash. In July 1992, Grace completed the purchase of the common stock of Grace Energy Corporation (Grace Energy) not owned by Grace for $77.3 in cash. See Note 6 for a discussion of 1993 divestment activity with respect to Grace Energy's businesses. During 1992, Grace continued to expand its health care operations through the acquisition of several businesses and facilities for consideration totalling $44.2 in cash. In 1991, Grace purchased the 25% minority interest in Grace Cocoa for $74.6 in cash and purchased an initial 47% common equity interest in a health care service company. In addition, Grace Energy purchased its former partner's 50% interest in Colowyo Coal Company (Colowyo) for $34.2 in cash plus related debt repayments. All of the above transactions were accounted for as purchases, and the results of operations of the acquired businesses are included in the consolidated financial statements from the respective dates of acquisition. DIVESTMENTS In 1993, Grace completed the sale of substantially all of the oil and gas operations of Grace Energy, along with certain corporate investments; see Note 6 for further information. Other non-core businesses divested during 1993 included a 50% interest in a Japanese chemical business and a food industry hygiene services business for approximately $31.4 and $11.2, respectively. In December 1992, Grace sold its organic chemicals business and related net assets for approximately $100.0 in cash plus non-voting preferred stock of the buyer. In March 1992, Grace sold its book, video and software distribution business (Grace Distribution), which was classified as a discontinued operation in the fourth quarter of 1991; see Note 6 for further information. STRATEGIC RESTRUCTURING The 1991 net gain on strategic restructuring of $6.1 (see Note 4) includes gains of $108.8, inclusive of cumulative translation gains of $37.9, on the disposition of certain non-core businesses and investments. Offsetting these gains were expenses related to the relocation of Grace's corporate headquarters from New York to Florida, provisions for litigation and certain environmental and plant closure expenses and a reserve for the costs of restructuring activities. - ------------------------------------------------------------------------------- 4. OTHER INCOME - -------------------------------------------------------------------------------
1993 1992 1991 - ------------------------------------------------------------------------------- Interest . . . . . . . . . . . . . . . . . . $30.4 $12.5 $12.8 Net gain on strategic restructuring. . . . . -- -- 6.1 Equity in earnings of affiliated companies . 1.0 3.4 2.2 Other, net . . . . . . . . . . . . . . . . . 11.1 54.0 34.6 ----- ----- ----- $42.5 $69.9 $55.7 ----- ----- ----- ----- ----- ----- - -------------------------------------------------------------------------------
Other, net in 1993 represents principally the gain on the sale of a 50% interest in a Japanese chemical business (see Note 3), offset by provisions for environmental and plant closure expenses. Interest income in 1993 includes $21.9 relating to the settlement of prior years' Federal income tax returns. F-11 - ------------------------------------------------------------------------------- 5. INCOME TAXES - ------------------------------------------------------------------------------- Effective January 1, 1992, Grace adopted SFAS No. 109, "Accounting for Income Taxes," which applies an asset and liability approach requiring the recognition of deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recorded in the consolidated financial statements and tax returns. If it is more likely than not that all or a portion of a deferred tax asset will not be realized, a valuation allowance must be recognized. As permitted under SFAS No. 109, Grace elected not to restate prior periods' consolidated financial statements to give effect to SFAS No. 109. Excluding the deferred tax benefit recognized upon the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," the effect of the adoption of SFAS No. 109 on Grace's 1992 financial statements was not material. In the third quarter of 1993, Grace recorded the effects of the Omnibus Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993. Among other things, OBRA increased the highest U.S. Federal corporate tax rate to 35%, effective January 1, 1993. However, neither this increase in the U.S. Federal corporate tax rate (from 34%), nor the other provisions of OBRA, had a material effect on Grace's results of operations. The components of income/(loss) from continuing operations before income taxes are as follows:
- ------------------------------------------------------------------------------- 1993 1992 1991 - ------------------------------------------------------------------------------- Domestic . . . . . . . . . . . . . . . . . . $125.4 $206.4 $124.2 Foreign. . . . . . . . . . . . . . . . . . . 95.8 (13.9) 210.0 ------ ------ ------ $221.2 $192.5 $334.2 ------ ------ ------ ------ ------ ------ - -------------------------------------------------------------------------------
The provision/(benefit) for income taxes allocated to continuing operations consisted of: - -------------------------------------------------------------------------------
1993 1992 1991 - ------------------------------------------------------------------------------- Federal income taxes: Current. . . . . . . . . . . . . . . . . . $ 53.6 $ 75.6 $ 41.3 Deferred . . . . . . . . . . . . . . . . . (28.7) (20.2) (5.0) State and local income taxes - current. . . 19.1 16.5 15.3 Foreign income taxes: Current . . . . . . . . . . . . . . . . . 44.4 57.6 68.4 Deferred . . . . . . . . . . . . . . . . . (1.6) 5.3 12.5 -------- ------ ------ $ 86.8 $134.8 $132.5 -------- ------ ------ -------- ------ ------ - -------------------------------------------------------------------------------
At December 31, 1993 and 1992, the deferred tax assets and liabilities consisted of the following items:
- ------------------------------------------------------------------------------- 1993 1992 - ------------------------------------------------------------------------------- Research and development expenses . . . . . . . . . . . . . $112.2 $106.7 Provision relating to asbestos-related expenses. . . . . . . 7.8 -- Postretirement benefits other than pensions. . . . . . . . . 92.1 94.1 Net operating loss carryforwards . . . . . . . . . . . . . . 42.6 52.2 Reserves not yet deductible for tax purposes . . . . . . . . 113.6 26.8 Tax credit carryforwards . . . . . . . . . . . . . . . . . . 84.9 95.8 Pension and insurance reserves . . . . . . . . . . . . . . . 26.2 23.0 Capitalized inventory costs and inventory reserve. . . . . . 19.4 17.7 State deferred taxes . . . . . . . . . . . . . . . . . . . . 25.2 21.4 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.6 62.3 ------ ------ Total deferred tax assets . . . . . . . . . . . . . . . . . 570.6 500.0 ------ ------ Depreciation and amortization. . . . . . . . . . . . . . . . 141.5 141.6 Prepaid pension cost . . . . . . . . . . . . . . . . . . . . 87.7 71.4 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 6.4 ------ ------ Total deferred tax liabilities. . . . . . . . . . . . . . . 233.2 219.4 ------ ------ Deferred tax assets valuation allowance. . . . . . . . . . . 125.7 143.1 ------ ------ Net deferred tax assets . . . . . . . . . . . . . . . . . . $211.7 $137.5 ------ ------ ------ ------ - -------------------------------------------------------------------------------
F-12 In connection with the adoption of SFAS No. 109 effective January 1, 1992, Grace recognized a valuation allowance of $88.4, which was adjusted in 1992 and 1993. The valuation allowance relates to the uncertainty as to the realization of certain deferred tax assets, including U.S. tax credit carryforwards, state and local net operating loss carryforwards and net deferred tax assets, and net operating loss carryforwards in certain foreign jurisdictions. Based upon anticipated future results, Grace has concluded, after consideration of the valuation allowance, that it is more likely than not that the net deferred tax asset balance will be realized. The items giving rise to deferred tax assets and liabilities at December 31, 1991 included depreciation, research and development costs that have been capitalized for tax purposes, and other items the tax treatment of which does not conform to their treatment for financial statement purposes. At December 31, 1993, there are $59.9 of tax credit carryforwards with expiration periods through 1998 and $25.0 of tax credit carryforwards with no expiration period. Additionally, there are state and local and foreign net operating loss carryforwards with a tax effect of $47.1 and various expiration periods. The U.S. Federal corporate tax rate reconciles to the effective tax rate for continuing operations as follows:
- ------------------------------------------------------------------------------- 1993 1992 1991 - ------------------------------------------------------------------------------- U.S. Federal corporate tax rate. . . . . . . . . . . . 35.0% 34.0% 34.0% Increase/(decrease) in tax rate resulting from: U.S. and foreign taxes on foreign operations. . . . . 7.3 10.8 6.6 Utilization of general business credits . . . . . . . (2.9) -- (2.7) State and local income taxes, net of Federal income tax benefit. . . . . . . . . . . . . 5.6 5.6 3.0 Valuation allowance for deferred tax assets . . . . . -- 26.3 -- Impact of U.S. and foreign tax rate changes on deferred taxes . . . . . . . . . . . . . . . . . (3.3) -- -- Other, net. . . . . . . . . . . . . . . . . . . . . . (2.5) (6.7) (1.3) ---- ---- ---- Effective tax rate . . . . . . . . . . . . . . . . . . 39.2% 70.0% 39.6% ---- ---- ---- ---- ---- ---- - -------------------------------------------------------------------------------
U.S. and foreign taxes have not been provided on approximately $444.0 of undistributed earnings of certain foreign subsidiaries, as such earnings are being retained indefinitely by such subsidiaries for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes of approximately $26.3 and additional U.S. Federal income taxes to the extent they are not offset by foreign tax credits, but it is not practicable to estimate the total tax liability that would be incurred upon such a distribution. - ------------------------------------------------------------------------------- 6. DISCONTINUED OPERATIONS - ------------------------------------------------------------------------------- COCOA, BATTERY SEPARATORS AND ENGINEERED MATERIALS AND SYSTEMS In the second quarter of 1993, Grace classified as discontinued operations its cocoa and battery separators businesses; certain engineered materials businesses, principally its printing products, electromagnetic radiation control and material technology businesses (collectively EMS); and other non-core businesses pending their divestment. A provision of $105.0 (net of an applicable tax benefit of $22.3) was recorded in the second quarter of 1993, which includes the loss expected on the divestment of these businesses, their anticipated net operating results and a $15.7 provision for interest expense allocated to the discontinued operations through their expected dates of divestment. GRACE ENERGY During the first and second quarters of 1993, Grace sold substantially all the oil and gas operations of Grace Energy, which was classified as a discontinued operation in 1992, for net cash proceeds of $386.0, which was consistent with prior estimates. The loss from discontinued operations in 1992 included a provision of $155.0 (net of an applicable tax benefit of $81.8) relating to the losses expected on the divestment of Grace Energy's operations. Grace is pursuing the divestment of Colowyo, a partnership wholly owned by Grace Energy, and expects to conclude such a transaction in 1994. Grace is in the process of liquidating the remaining miscellaneous assets and liabilities of Grace Energy's oil and gas operations. GRACE DISTRIBUTION AND OTHER As mentioned above, in the second quarter of 1993, Grace classified as discontinued operations certain non-core businesses, which include its animal genetics and Caribbean fertilizer operations, the operating results and net assets of which are included under "Other" in the following tables. In 1992, Grace classified as discontinued operations certain corporate investments, including Grace's minority interests in Canonie Environmental Services Corp. and Grace-Sierra Horticultural Products Company. In December 1993, Grace completed the sale of these minority interests for total proceeds of $41.3. Grace is pursuing the sale of the remaining non-core businesses and corporate investments and expects to conclude such transactions in 1994. The loss from discontinued operations in 1992 included an after-tax provision of $12.1 relating to the loss associated with the sale of Grace's remaining Mexican- style restaurant operation. In March 1992, Grace completed the sale of Grace Distribution for $97.8 in cash and notes. F-13 Operating results of Grace's discontinued operations subsequent to their classification as such have been consistent with amounts originally estimated and are recorded against established reserves. Operating results prior to classification as discontinued operations and sales and revenues for the three years ended December 31, 1993, 1992 and 1991 were as follows:
- ----------------------------------------------------------------------------------------- 1993 1992 1991 - ----------------------------------------------------------------------------------------- COCOA Sales and revenues . . . . . . . . . . . . . . . . . . . $ 635.8 $ 683.5 $ 705.0 ------- ------- ------- (Loss)/income from operations before taxes (1) . . . . . $ (5.6) $ 1.8 $ 28.6 Income tax benefit/(provision) . . . . . . . . . . . . . 1.0 .4 (11.8) ------- ------- ------- (Loss)/income from discontinued operations . . . . . . . $ (4.6) $ 2.2 $ 16.8 ------- ------- ------- - ----------------------------------------------------------------------------------------- BATTERY SEPARATORS AND EMS Sales and revenues . . . . . . . . . . . . . . . . . . . $ 387.9 $ 413.6 $ 401.7 ------- ------- ------- Income from operations before taxes (1). . . . . . . . . $ 4.7 $ 29.1 $ 23.7 Income tax (provision) . . . . . . . . . . . . . . . . . (2.1) (10.1) (8.0) ------- ------- ------- Income from discontinued operations. . . . . . . . . . . $ 2.6 $ 19.0 $ 15.7 ------- ------- ------- - ----------------------------------------------------------------------------------------- GRACE ENERGY Sales and revenues . . . . . . . . . . . . . . . . . . . $ 234.8 $ 515.0 $ 479.2 ------- ------- ------- (Loss) from operations before taxes (1). . . . . . . . . -- $ (11.1) $ (25.6) Income tax benefit . . . . . . . . . . . . . . . . . . . -- 6.6 9.7 ------- ------- ------- (Loss) from discontinued operations. . . . . . . . . . . -- $ (4.5) $ (15.9) ------- ------- ------- - ----------------------------------------------------------------------------------------- GRACE DISTRIBUTION Sales and revenues . . . . . . . . . . . . . . . . . . . -- $ 178.0 $ 780.4 ------- ------- ------- (Loss) from operations before taxes (1). . . . . . . . . -- $ (2.8) (.1) Income tax benefit . . . . . . . . . . . . . . . . . . . -- .9 .1 ------- ------- ------- (Loss) from discontinued operations. . . . . . . . . . . -- $ (1.9) $ -- ------- ------- ------- - ----------------------------------------------------------------------------------------- OTHER Sales and revenues . . . . . . . . . . . . . . . . . . . $ 69.7 $ 96.5 $ 102.4 ------- ------- ------- (Loss) from operations before taxes (1). . . . . . . . . $ (1.7) $ (13.4) $ (2.7) Income tax benefit . . . . . . . . . . . . . . . . . . . .3 3.5 3.0 ------- ------- ------- (Loss)/income from discontinued operations . . . . . . . $ (1.4) $ (9.9) $ .3 ------- ------- ------- Total operating results of discontinued operations . . . $ (3.4) $ 4.9 $ 16.9 Net pretax (loss) on disposals of operations . . . . . . (127.3) (255.1) -- Income tax benefit on disposals of operations. . . . . . 22.3 88.0 -- ------- ------- ------- Total (loss)/income from discontinued operations . . . . . $(108.4) $(162.2) $ 16.9 ------- ------- ------- ------- ------- ------- - ------------------------------------------------------------------------------- (1) REFLECTS AN ALLOCATION OF INTEREST EXPENSE BASED ON (A) A RATIO OF THE NET ASSETS OF THE BUSINESSES CLASSIFIED AS DISCONTINUED OPERATIONS IN THE SECOND QUARTER OF 1993 AS COMPARED TO GRACE'S TOTAL CAPITAL AND (B) GRACE'S INCREMENTAL BORROWING RATE APPLIED TO BOTH THE EXPECTED PROCEEDS FROM THE DIVESTMENT OF GRACE ENERGY AND TO THE NET ASSETS OF GRACE DISTRIBUTION THROUGH THE DATES OF THEIR RESPECTIVE SALES, ASSUMING THAT AMOUNTS RECEIVED FROM THE DIVESTMENT OF THESE BUSINESSES ARE USED TO REDUCE DEBT. THE ABOVE OPERATING RESULTS FOR THE PERIODS PRIOR TO CLASSIFICATION AS DISCONTINUED OPERATIONS INCLUDE INTEREST EXPENSE ALLOCATIONS OF $2.5, $38.6 AND $67.6 FOR 1993, 1992 AND 1991, RESPECTIVELY.
For financial reporting purposes, the assets, liabilities, results of operations and cash flows of Grace Cocoa Associates, L.P. (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 in the Consolidated Balance Sheet. See Note 12 for a further discussion of LP. F-14 Net assets of Grace's discontinued operations (excluding intercompany assets) at December 31, 1993 were as follows:
Battery Separators Grace Cocoa and EMS Energy Other Total - ---------------------------------------------------------------------------------------- Current assets . . . . . . . . . . $ 218.6 $ 114.3 $ 14.8 $ 54.4 $ 402.1 Properties and equipment, net. . . 170.3 157.2 134.0 38.8 500.3 Investments in and advances to affiliated companies . . . . . . -- 4.8 4.1 40.2 49.1 Other noncurrent assets. . . . . . 41.8 25.4 11.4 47.0 125.6 -------- -------- -------- -------- -------- Total assets. . . . . . . . . . . $ 430.7 $ 301.7 $ 164.3 $ 180.4 $1,077.1 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Current liabilities. . . . . . . . $ 127.4 $ 38.9 $ 14.9 $ 23.1 204.3 Other noncurrent liabilities . . . 63.7 28.7 19.7 (.6) 111.5 -------- -------- -------- -------- -------- Total liabilities . . . . . . . . $ 191.1 $ 67.6 $ 34.6 $ 22.5 $ 315.8 -------- -------- -------- -------- -------- Net assets. . . . . . . . . . . . $ 239.6 $ 234.1 $ 129.7 $ 157.9 $ 761.3 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- - ----------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 7. OTHER BALANCE SHEET ITEMS
- ------------------------------------------------------------------------------- 1993 1992 - ------------------------------------------------------------------------------- NOTES AND ACCOUNTS RECEIVABLE Trade receivables, less allowances of $49.7 (1992 - $38.3) . $ 545.7 $ 598.3 Other receivables, less allowances of $.6 (1992 -- $1.0) . . 111.7 92.1 ------- ------- $ 657.4 $ 690.4 ------- ------- ------- ------- - ------------------------------------------------------------------------------- INVENTORIES Raw and packaging materials. . . . . . . . . . . . . . . . . $ 111.4 $ 179.3 In process . . . . . . . . . . . . . . . . . . . . . . . . . 59.9 76.2 Finished products. . . . . . . . . . . . . . . . . . . . . . 243.3 324.7 General merchandise. . . . . . . . . . . . . . . . . . . . . 67.0 59.8 Less: Adjustment of certain inventories to a last-in/first - -out (LIFO) basis. . . . . . . . . . . . . . . . . . . . . . (40.6) (47.1) ------- ------- $ 441.0 $ 592.9 ------- ------- ------- ------- - ------------------------------------------------------------------------------- OTHER ASSETS Deferred income taxes. . . . . . . . . . . . . . . . . . . . $ 277.3 $ 137.1 Prepaid pension costs. . . . . . . . . . . . . . . . . . . . 224.2 229.2 Patient relationships, less accumulated amortization of $96.5 (1992 -- $78.5). . . . . . . . . . . . . . . . . . . 196.4 184.8 Long-term receivables, less allowances of $13.4 (1992 -- $8.4) . . . . . . . . . . . . . . . . . . . . . . . 177.0 103.5 Deferred charges . . . . . . . . . . . . . . . . . . . . . . 110.4 108.1 Long-term investments. . . . . . . . . . . . . . . . . . . . 104.4 68.2 Investments in and advances to affiliated companies. . . . . 51.4 115.8 Patents and licenses . . . . . . . . . . . . . . . . . . . . 33.9 25.7 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.3 61.5 ------- ------- $1,235.3 $1,033.9 ------- ------- ------- ------- - -------------------------------------------------------------------------------
During 1993 and 1992, Grace entered into agreements to sell up to $270.0 and $345.0, respectively, of interests in designated pools of trade receivables. At December 31, 1993 and 1992, $263.8 and $307.9, respectively, had been received pursuant to such sales, which amounts are reflected as reductions to trade accounts receivable. Included in the trade receivables sold at December 31, 1992 are $50.0 of trade receivables the sale of which has been reflected as a reduction in net assets of discontinued operations. Under the terms of these agreements, new interests in trade receivables are sold as collections reduce previously sold trade receivables. There is no recourse to Grace, nor is Grace required to repurchase any of the trade receivables in the pools; if certain trade receivables in the pools prove to be uncollectible, other trade receivables are substituted (to the extent available). Costs related to these sales are expensed as incurred. There were no gains or losses on these transactions. Inventories valued at LIFO cost comprised 29.0% and 22.9% of inventories at December 31, 1993 and 1992, respectively. Liquidation of prior years' LIFO inventory layers in 1993, 1992 and 1991 did not materially affect cost of goods sold in any of these years. F-15 - ------------------------------------------------------------------------------- 8. PROPERTIES AND EQUIPMENT - -------------------------------------------------------------------------------
1993 1992 - ------------------------------------------------------------------------------- Land . . . . . . . . . . . . . . . . . . . . . . . . . $ 51.3 $ 59.2 Buildings . . . . . . . . . . . . . . . . . . . . . . 636.1 801.3 Machinery, equipment and other . . . . . . . . . . . . 1,842.5 2,199.1 Projects under construction. . . . . . . . . . . . . . 247.9 231.4 --------- --------- Properties and equipment, gross . . . . . . . . . . 2,777.8 3,291.0 Accumulated depreciation and amortization. . . . . . . (1,323.7) (1,583.1) --------- --------- Properties and equipment, net . . . . . . . . . . . $ 1,454.1 $ 1,707.9 --------- --------- --------- --------- - -------------------------------------------------------------------------------
Interest costs have been incurred in connection with the financing of certain assets prior to placing them in service. Interest costs capitalized in 1993, 1992 and 1991 were $7.4, $20.4 and $21.4, respectively. Depreciation and amortization expense relating to properties and equipment amounted to $189.2, $194.9 and $203.4 in 1993, 1992 and 1991, respectively. Grace's rental expense for operating leases amounted to $63.8, $80.0 and $67.7 in 1993, 1992 and 1991, respectively. See Note 11 for information regarding contingent rentals. At December 31, 1993, minimum future payments for operating leases were: - ------------------------------------------------------------------------------- 1994 . . . . . . . . . . . . . . . . . . . . $ 59.4 1995 . . . . . . . . . . . . . . . . . . . . 50.2 1996 . . . . . . . . . . . . . . . . . . . . 41.9 1997 . . . . . . . . . . . . . . . . . . . . 35.4 1998 . . . . . . . . . . . . . . . . . . . . 28.9 Later years. . . . . . . . . . . . . . . . . 75.5 -------- Total minimum lease payments . . . . . . . . $ 291.3 -------- -------- - -------------------------------------------------------------------------------
The above minimum lease payments include sublease income of $12.1 per year for 1994 through 1998 and a total of $53.6 in later years. In 1992, a critical raw material supplier to Grace's fumed silica plant in Belgium was effectively denied a previously promised permit for by-product disposal, resulting in the shutdown of the supplier's plant. As a result, the continued operation of Grace's plant would have required Grace to obtain other suppliers and/or take other actions requiring significant additional investment. Consequently, Grace closed its plant and in the third quarter of 1992 recorded a one-time provision of $140.0, reflecting the entire net book value of the facility and certain additional expenses. This provision could be offset in part by recoveries from litigation, the renegotiation of certain contracts relating to the plant and/or the sale of the plant. As of December 31, 1993, Grace substantially completed the shutdown of this facility and believes the amounts recorded are adequate to cover remaining contingencies. F-16 - ------------------------------------------------------------------------------- 9. DEBT
- ------------------------------------------------------------------------------- 1993 1992 - ------------------------------------------------------------------------------- SHORT - TERM DEBT Commercial paper (3.6% and 4.1% weighted average interest rate at year-end 1993 and 1992, respectively)(1) . . . . . $ 167.4 $ 25.0 Bank borrowings (4.3% weighted average interest rate at year-end 1992) (1) . . . . . . . . . . . . . . . . . . . . -- 170.6 Current maturities of long-term debt . . . . . . . . . . . 9.1 50.7 Other short-term borrowings(2) . . . . . . . . . . . . . . 356.1 218.4 -------- -------- $ 532.6 $ 464.7 -------- -------- -------- -------- Long - Term Debt Commercial paper (3.6% weighted average interest rate at year-end 1993) (1) . . . . . . . . . . . . . . . . . . . . $ 30.8 -- Bank borrowings (3.6% and 4.3% weighted average interest rate at year-end 1993 and 1992, respectively)(1) . . . . . 479.6 $ 510.0 7.4% Notes Due 2000(3) . . . . . . . . . . . . . . . . . . 300.0 -- 7.75% Notes Due 2002(4). . . . . . . . . . . . . . . . . . 150.0 150.0 6.5% Notes Due 1995(5) . . . . . . . . . . . . . . . . . . 150.0 150.0 Sundry indebtedness with various maturities through 2003 . 72.2 87.4 Liquid Yield Option Notes (LYONs)(6) . . . . . . . . . . . -- 351.2 6.25% Convertible Subordinate Debentures Due 2002(7) . . . -- 150.0 Industrial revenue bonds with various maturities through 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6.6 -------- -------- 1,182.6 1,405.2 Less amounts due within one year included in short-term debt 9.1 50.7 -------- -------- $1,173.5 $1,354.5 -------- -------- -------- -------- Full-year weighted average interest rate on total debt 5.5% 6.7% - ------------------------------------------------------------------------------- (1) UNDER ITS BANK REVOLVING CREDIT AGREEMENT, GRACE MAY BORROW UP TO $1,225.0 AT INTEREST RATES BASED UPON THE PREVAILING PRIME, FEDERAL FUNDS AND/OR EURODOLLAR RATE. OF THE $1,225.0, APPROXIMATELY $715.0 IS AVAILABLE UNDER A 364-DAY FACILITY EXPIRING SEPTEMBER 1, 1994, AND THE REMAINDER IS AVAILABLE UNDER A THREE-YEAR FACILITY EXPIRING SEPTEMBER 1, 1995. AT DECEMBER 31, 1993 AND 1992, BORROWINGS OF $63.9 AND $250.0, RESPECTIVELY, WERE OUTSTANDING UNDER THE REVOLVING CREDIT AGREEMENT AND ARE INCLUDED IN LONG-TERM BANK BORROWINGS ABOVE. AT DECEMBER 31, 1993, $613.9 WAS RESERVED TO SUPPORT COMMERCIAL PAPER AND OTHER BANK BORROWINGS OUTSTANDING, LEAVING NET UNUSED CREDIT FACILITIES OF $547.2. GRACE'S ABILITY TO BORROW THE MAXIMUM AMOUNTS AVAILABLE UNDER THESE FACILITIES IS SUBJECT TO COMPLIANCE WITH CERTAIN COVENANTS, WHICH INCLUDE MINIMUM NET WORTH REQUIREMENTS AND AN INTEREST COVERAGE RATIO. (2) REPRESENTS VARIOUS LINES OF CREDIT AND MISCELLANEOUS BORROWINGS, PRIMARILY OF NON-U.S. SUBSIDIARIES. (3) DURING THE FIRST QUARTER OF 1993, GRACE SOLD AT PAR $300.0 OF 7.4% NOTES DUE 2000. INTEREST IS PAYABLE SEMIANNUALLY AND THE NOTES MAY NOT BE REDEEMED PRIOR TO MATURITY. (4) DURING THE THIRD QUARTER OF 1992, GRACE SOLD AT PAR $150.0 OF 7.75% NOTES DUE 2002. INTEREST IS PAYABLE SEMIANNUALLY AND THE NOTES MAY NOT BE REDEEMED PRIOR TO MATURITY. (5) DURING THE FOURTH QUARTER OF 1992, GRACE SOLD $150.0 OF 6.5% NOTES DUE 1995 AT AN INITIAL PUBLIC OFFERING PRICE OF 99.758% OF PAR, TO YIELD 6.59%. INTEREST IS PAYABLE SEMIANNUALLY AND THE NOTES MAY NOT BE REDEEMED PRIOR TO MATURITY. (6) GRACE REDEEMED IN FULL ALL OF ITS OUTSTANDING LIQUID YIELD OPTION NOTES (LYONS) ($1,012.5 PRINCIPAL AMOUNT AT MATURITY; $371.1 CARRYING VALUE) ON JULY 30, 1993. IN CONNECTION WITH THE REDEMPTION, APPROXIMATELY 31% OF THE LYONS (APPROXIMATELY $309.6 PRINCIPAL AMOUNT, $113.5 CARRYING VALUE) WERE CONVERTED INTO 2.8 MILLION SHARES OF W. R. GRACE & CO. COMMON STOCK. THE REMAINDER OF THE LYONS WERE REDEEMED FOR $257.6 IN CASH. (7) GRACE REDEEMED IN FULL ALL OF ITS OUTSTANDING 6.25% CONVERTIBLE SUBORDINATE DEBENTURES DUE 2002 (6.25% DEBENTURES) ON SEPTEMBER 15, 1993. THE 6.25% DEBENTURES WERE CONVERTIBLE INTO COMMON STOCK OF W. R. GRACE & CO. AT a CONVERSION PRICE OF $42.125 PER SHARE. SUBSTANTIALLY ALL OF THE $150.0 PRINCIPAL AMOUNT OF THE 6.25% DEBENTURES OUTSTANDING IMMEDIATELY PRIOR TO THE REDEMPTION DATE WAS REDEEMED FOR CASH (EQUAL TO THE PRINCIPAL AMOUNT OUTSTANDING).
Payment of substantially all of Grace's borrowings may be accelerated, and its principal borrowing agreements terminated, upon the occurrence of a default under certain other Grace borrowings. Scheduled maturities of debt outstanding at December 31, 1993 are: 1994--$9.1; 1995--$166.3; 1996--$13.9; 1997--$6.1, and 1998--$4.4. Interest expense for 1993, 1992 and 1991 amounted to $81.5, $90.0 and $115.4, respectively. Interest payments made in 1993, 1992 and 1991 amounted to $102.5, $166.8 and $263.9, respectively. By managing its interest rate exposure through interest rate derivative agreements, Grace reduced interest expense for the years ended December 31, 1993 and 1992 by $20.3 and $4.7, respectively. See Note 10 for a further discussion of interest rate hedge agreements. During the fourth quarter of 1993, Grace filed a registration statement with the Securities and Exchange Commission covering $750.0 of debt and/or equity securities that may be sold from time to time; the registration statement became effective in January 1994. F-17 - ------------------------------------------------------------------------------- 10. FINANCIAL INSTRUMENTS - ------------------------------------------------------------------------------- INTEREST RATE SWAPS Grace enters into interest rate hedge agreements to manage interest costs and risks associated with changing interest rates; most of these agreements effectively convert underlying fixed-rate debt into variable-rate debt based on LIBOR. At December 31, 1993 and 1992, the notional principal amount of these agreements totalled $1,250.0 and $1,035.0, respectively. At December 31, 1993, Grace would have been required to pay $25.8 to settle these agreements, representing the excess of carrying value over fair value, based on estimates received from financial institutions. The fair value at December 31, 1992 was not material. Due to previously settled agreements, Grace has unamortized gains of $56.3 and $4.9 as of December 31, 1993 and 1992, respectively, which are reflected as adjustments to interest expense over appropriate periods relevant to the respective financial instruments. FOREIGN CURRENCY CONTRACTS Grace enters into a variety of short-term currency swaps, foreign exchange contracts and options to manage its exposure to fluctuations in foreign currency exchange rates. These contracts generally involve the exchange of one currency for another at a future date. At December 31, 1993, Grace had a notional principal amount of approximately $34.9 in contracts to buy or sell foreign currency in the future. The carrying value at December 31, 1993 and 1992, which approximated fair value based on exchange rates at December 31, 1993 and 1992, was not significant. OTHER FINANCIAL INSTRUMENTS At December 31, 1993 and 1992, the carrying value of financial instruments such as cash, short-term investments, trade receivables and payables and short- term debt approximated their fair values, based on the short-term maturities of these instruments. Additionally, the carrying value of both long-term investments and receivables approximated fair values. Fair value is determined based on expected future cash flows, discounted at market interest rates, and other appropriate valuation methodologies. At December 31, 1993 and 1992, the fair value of long-term debt was $1,216.4 and $1,400.9, respectively. Both periods include approximately $510.0 of borrowings supported by the revolver agreement, for which the carrying value approximated fair value. The fair value of debt is determined by obtaining quotes from financial institutions. Exposure to market risk on interest rate and foreign currency contracts results from fluctuations in floating rate indices and currency rates, respectively, during the periods in which the contracts are outstanding. The counterparties to Grace's interest rate hedge agreements and currency exchange contracts consist of a diversified group of major financial institutions. Grace is exposed to credit risk to the extent of nonperformance by these counterparties; however, management believes the risk of incurring losses due to credit risk is remote. The notional amount of the instruments discussed above reflected the extent of involvement in the instruments, but did not represent its exposure to market risk. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided above are not necessarily indicative of the amounts that could be realized in a current market exchange. - ------------------------------------------------------------------------------- 11. COMMITMENTS AND CONTINGENT LIABILITIES - ------------------------------------------------------------------------------- Grace is the named tenant or guarantor with respect to certain lease obligations of previously divested businesses. The leases, some of which extend to 2015, have future minimum lease payments aggregating $68.4. Grace is also the named tenant or guarantor with respect to lease obligations having future minimum lease payments of $43.7, as to which Channel Home Centers, Inc., a previously divested business, has been released in bankruptcy; offsetting this is $39.7 of future minimum rental income from subtenants. Grace continues to attempt to sublease the remaining properties and believes its ultimate exposure is not material. Grace is the named tenant with respect to lease obligations with future minimum lease payments of $19.5 that have been assigned to Hermans, a previously divested business currently operating under Chapter 11 of the Federal Bankruptcy Code. Hermans has advised Grace that it intends to continue to occupy premises under leases with future minimum payments of $17.9 and is negotiating termination agreements as to the remainder. Grace believes its ultimate exposure under these leases is not material, as Hermans is performing on its current lease obligations and expects to emerge from bankruptcy as a viable company. Additionally, Grace is fully indemnified by other parties for any losses it may incur under these leases. In 1992 and 1993, Grace provided The Restaurant Enterprises Group, Inc. (REG) with various forms of financial support, including a letter of credit support facility to assist REG in meeting certain liquidity and other financial requirements. During 1993, REG was reorganized, and in January 1994 the letter of credit was canceled and Grace received $42.8 in exchange for all of the REG securities held by Grace. The reorganized REG (now named Family Restaurants, Inc.) has agreed to indemnify Grace with respect to leases entered into by REG's subsidiaries under which Grace remains contingently liable. At December 31, 1993, these leases have future minimum lease payments of $72.4. Grace believes any risk of loss from these contingent liabilities is remote. F-18 Grace is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or mitigate the effects on the environment of the disposal or release of certain wastes and other substances at various sites. Grace accrues for anticipated costs associated with investigatory and remediation efforts where an assessment has indicated that a loss is probable and can be reasonably estimated. At December 31, 1993, Grace's accrued liability for environmental remediation totalled approximately $160.0. The measurement of the liability is evaluated quarterly based on currently available information, including the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, and the extent of apportionment of costs among other potentially responsible parties. As some of these matters are decided (the outcome of which is subject to various uncertainties) and/or new sites are assessed and costs can be reasonably estimated, Grace will review and analyze the need for additional accruals. - ------------------------------------------------------------------------------- 12. Minority Interests - ------------------------------------------------------------------------------- In December 1992, LP, formerly a general partnership named Grace Cocoa that was wholly owned by two Grace entities, admitted two additional Grace entities as general partners and also admitted one new limited partner. As a result of the admission of these new partners, the total capital of LP increased to $1,430.5, which included a $300.0 cash contribution made by the new limited partner, $297.0 of which was funded by outside investors. LP's assets consist of Grace Cocoa's worldwide cocoa and chocolate business, long-term notes and demand loans due from various Grace entities, which are guaranteed by W. R. Grace & Co. and its principal operating subsidiary, and cash. The cash contribution from the new limited partner was initially lent by LP to the principal operating subsidiary of W. R. Grace & Co. and was used to retire certain domestic borrowings and for general corporate purposes. Four Grace entities serve as general partners of LP and own general partnership interests totalling 79.03% in LP; the new limited partner owns a 20.97% limited partner interest in LP. 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. - ------------------------------------------------------------------------------- 13. Shareholders' Equity - ------------------------------------------------------------------------------- The weighted average number of shares of common stock outstanding during 1993 was 91,461,000 (1992 -- 89,543,000; 1991 -- 87,236,000). W. R. Grace & Co. is authorized to issue 300,000,000 shares of common stock. Of the common stock unissued at December 31, 1993, approximately 8,767,000 shares may be issued or delivered upon the exercise of stock options or grant of share awards in connection with stock incentives such as stock options. In addition, at December 31, 1993, 102,232,000 shares were reserved in connection with Common Stock Purchase Rights (Rights). A Right is issued for each outstanding share of common stock; the Rights are not and will not become exercisable unless and until certain events occur, and at no time will the Rights have any voting power. Preferred stocks authorized, issued and outstanding are:
Par Value of Shares as of December 31,1993 Shares Outstanding ----------------------------- ------------------- Authorized In Out- and Issued Treasury standing 1993 1992 1991 ----------------------------- ------------------- 6% Cumulative(1) 40,000 3,536 36,464 $3.6 $3.6 $3.6 8% Cumulative Class A(2) 50,000 33,644 16,356 1.6 1.7 1.7 8% Noncumulative Class B(2) 40,000 18,415 21,585 2.2 2.2 2.2 ---- ---- ---- $7.4 $7.5 $7.5 ---- ---- ---- ---- ---- ---- - ------------------------------------------------------------------------------- (1) 160 votes per share. (2) 16 votes per share.
Dividends paid on the preferred stocks amounted to $.5 in each of 1993, 1992 and 1991. The Certificate of Incorporation also authorizes 5,000,000 shares of Class C Preferred Stock, $1 par value, none of which has been issued. F-19 - ------------------------------------------------------------------------------- 14. Stock Incentive Plans - -------------------------------------------------------------------------------
Changes in outstanding common stock options are summarized below: - ---------------------------------------------------------------------------------------------------------- 1993 1992 1991 -------------------- -------------------- --------------------- Average Average Average Number Exercise Number Exercise Number Exercise of Shares Price of Shares Price of Shares Price - ---------------------------------------------------------------------------------------------------------- Balance at beginning of year . . . 6,365,187 $35.09 6,112,248 $32.01 7,172,775 $24.91 Options granted. . . . . . . . . . 1,461,425 38.00 1,445,300 37.77 2,901,793 39.27 --------- --------- --------- 7,826,612 7,557,548 10,074,568 Options exercised. . . . . . . . . (683,255) 25.89 (1,132,863) 25.29 (2,052,421) 23.48 Options terminated or canceled . . (178,053) 40.13 (59,498) 27.97 (1,909,899) 25.54 --------- --------- --------- Balance at end of year . . . . . . 6,965,304 36.48 6,365,187 35.09 6,112,248 32.01 --------- --------- --------- --------- --------- ---------
- ------------------------------------------------------------------------------- At December 31, 1993, options covering 5,056,256 shares (1992 -- 4,025,840, 1991 -- 3,690,088) were exercisable and 1,804,122 shares (1992 -- 3,087,994, 1991 -- 4,637,368) were available for additional grants. In 1991, certain executive officers surrendered all or a portion of their outstanding stock options in exchange for shares of common stock equal in value to the excess of (1) the market value of the option shares at the date of surrender over (2) the purchase price of the option shares. The shares received upon surrender were subject to restrictions on transfer. The officers surrendering options generally were granted new options covering an equal number of shares with a purchase price equal to 110% of the fair market value of the common stock on the date of grant. Subject to certain exceptions, such options may not be exercised until 1996, at which time they become exercisable in five annual installments. - ------------------------------------------------------------------------------- 15. PENSION PLANS - ------------------------------------------------------------------------------- Grace maintains defined benefit pension plans covering employees of certain units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. pension plans in accordance with federal laws and regulations. Non-U.S. pension plans are funded under a variety of methods because of differing local laws and customs and therefore cannot be summarized. Approximately 55% of U.S. and non-U.S. plan assets at December 31, 1993 were common stocks, with the remainder primarily fixed income securities. Pension (benefit)/cost is comprised of the following components: - -------------------------------------------------------------------------------
1993 1992 1991 ----------------- ------------------- --------------- U.S. Non-U.S. U.S. Non-U .S. U.S. Non-U.S. - --------------------------------------------------------------------------------------------------------------------- Service cost on benefits earned during the year. . . .$ 17.6 $ 9.5 $ 11.1 $ 9.4 $ 13.6 $ 13.4 Interest cost on benefits earned in prior years. . . . 36.3 17.1 31.7 16.5 30.9 16.3 Actual return on plan assets . . . . . . . . . . . . . (108.2) (56.7) (20.9) (30.6) (83.6) (34.3) Deferred gain/(loss) on plan assets. . . . . . . . . . 58.1 36.0 (30.5) 9.5 33.2 12.9 Amortization of net gains and prior service costs. . . (5.3) (1.7) (8.4) (5.5) (7.7) (2.9) ------- ------- ------- ------ ------- ------- Net pension (benefit)/cost . . . . . . . . . . . . . . $ (1.5) $ 4.2 $ (17.0) $ (.7) $ (13.6) $ 5.4 -------- ------- ------- ------ ------- ------- -------- ------- ------- ------ ------- -------
- ------------------------------------------------------------------------------- F-20 The funded status of these plans was as follows: - -------------------------------------------------------------------------------
1993 1992 ------------------ ----------------- U.S. Non-U.S. U.S. Non-U.S. - ------------------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested . . . . . . . . . . . . . . . . . . . . . . .$ 614.2 $172.6 $ 522.3 $163.6 -------- ------ ------- ------ ------- ------ ------- ------ Accumulated benefit obligation . . . . . . . . . . . .$ 620.0 $182.2 $ 527.7 $176.1 -------- ------ ------- ------ -------- ------ ------- ------ Total projected benefit obligation . . . . . . . . . .$ 691.4 $263.4 $ 596.4 $240.4 Plan assets at fair value. . . . . . . . . . . . . . . 836.4 270.1 767.9 288.5 ------- ------ ------- ------ Plan assets in excess of projected benefit obligation. 145.0 6.7 171.5 48.1 Unamortized net gain at initial adoption . . . . . . . (96.1) (6.4) (108.6) (14.3) Unamortized prior service cost . . . . . . . . . . . . 34.8 4.2 19.4 4.2 Unrecognized net gain/(loss) . . . . . . . . . . . . . 47.6 .9 54.2 (21.0) ------- ------ ------- ------ Prepaid pension cost . . . . . . . . . . . . . . . . .$131.3 $ 5.4(1) $ 136.5 $ 17.0(1) ------- ------ ------- ------- ------- ------ ------- ------- - -------------------------------------------------------------------------------------------- (1) Includes $71.4 in 1993 and $80.7 in 1992 of prepaid pension costs.
The following significant assumptions were used in 1993, 1992 and 1991: - -------------------------------------------------------------------------------
1993 1992 1991 --------------- ---------------- --------------- U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. - -------------------------------------------------------------------------------------------------------------------- Discount rate at December 31,. . . . . . . . . . . . . 7.5% 4.5 - 8.0% 8.0% 6.0 - 12.0% 9.0% 6.0 - 13.0% Expected long-term rate of return. . . . . . . . . . . 9.0 6.0 - 10.5 9.0 6.0 - 11.0 9.0 6.0 - 11.0 Rate of compensation increase. . . . . . . . . . . . . 5.5 3.5 - 7.5 6.0 3.5 - 7.5 6.0 3.5 - 7.5 - -------------------------------------------------------------------------------------------------------------------
As a result of classifying certain operations as discontinued and divesting other operations, Grace recognized an increase in the net prepaid pension benefit of $6.2 and $10.9 in 1992 and 1991, respectively. In addition, Grace settled certain pension obligations of one of its non-U.S. plans, resulting in gains of $.6, $.7 and $11.8 in 1993, 1992 and 1991, respectively. Grace's Retirement Plan for Salaried Employees (Plan) contains provisions under which the Plan would automatically terminate in the event of a change in control of W. R. Grace & Co. and Plan benefits would be secured through the purchase of annuity contracts. Upon such termination, a portion of the Plan's excess assets would be placed in an irrevocable trust to fund various employee benefit plans and arrangements of Grace, and any balance would be returned to Grace. - ------------------------------------------------------------------------------- F-21 - ------------------------------------------------------------------------------- 16. Other Postretirement Benefit Plans - ------------------------------------------------------------------------------- Grace provides certain other postretirement health care and life insurance benefits for retired employees of specified U.S. units. These retiree medical and life insurance plans provide various levels of benefits to employees (depending on their date of hire) who retire from Grace after age 55 with at least 10 years of service. The plans are currently unfunded. Effective January 1, 1992, Grace adopted SFAS No. 106, which requires the accrual method of accounting for the future costs of postretirement health care and life insurance benefits over the employees' years of service. The "pay as you go" method of accounting, used prior to 1992, recognized these costs on a cash basis. The adoption of SFAS No. 106 on the immediate recognition basis, concurrent with the adoption of SFAS No. 109, resulted in a charge to 1992 earnings of $190.0, net of $98.0 of deferred income taxes. In addition, the application of SFAS No. 106 resulted in a decrease of $5.1 in 1992 after-tax earnings from continuing operations. Grace's cash flow, however, is unaffected by implementation of SFAS No. 106, as Grace continues to pay the costs of postretirement benefits as they are incurred. Included in noncurrent liabilities as of December 31, 1993 and 1992 are the following:
1993 1992 Accumulated postretirement benefit obligation: Retirees............................................... $168.9 $151.0 Fully eligible participants............................ 36.9 21.5 Active ineligible participants......................... 38.3 45.1 ------ ------ Accumulated postretirement benefit obligation............... 244.1 217.6 Unrecognized net loss.................................. (40.7) (17.6) Unrecognized prior service benefit..................... 52.9 75.2 ------ ------ Accrued postretirement benefit obligation................... $256.3 $275.2 ------ ------ ------ ------
Net periodic postretirement benefit cost for the years ended December 31, 1993 and 1992 is comprised of the following components:
1993 1992 Service cost................................................. $ 2.2 $ 3.8 Interest cost on accumulated postretirement benefit obligation........................................... 13.2 15.6 Amortization of net loss..................................... .2 -- Amortization of prior service benefit........................ (4.5) (1.9) ----- ------ Net periodic postretirement benefit cost..................... $11.1 $17.5 ----- ------ ----- ------
The cost of these benefits (cash basis) to Grace's continuing operations was approximately $5.6 for 1991. As a result of classifying certain operations as discontinued, Grace recognized reductions in the accrued postretirement benefit obligation of approximately $16.6 and $23.5 in 1993 and 1992, respectively, which are reflected in the reserve for discontinued operations. During 1992, Grace's retiree medical plans were amended to increase cost sharing by employees retiring after January 1, 1993. This amendment decreased the accumulated postretirement benefit obligation by $52.9 at December 31, 1993 and will be amortized over an average remaining future service life of approximately 13 years. Medical care cost trend rates were projected at 11.7% in 1993, declining to 5.0% through 2003 and remaining level thereafter. The effect of a one percentage point increase in each year's assumed medical care cost trend rate, holding all other assumptions constant, would be to increase the annual net periodic postretirement benefit cost by $1.6 and the accumulated postretirement benefit obligation by $16.5. The discount rates at December 31, 1993 and 1992 were 7.5% and 8.0%, respectively. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for non-accumulating postemployment benefits. Grace's primary postemployment obligation is for disabled workers' medical benefits. These are currently included in accrued postretirement costs under SFAS No. 106. The adoption of SFAS No. 112 is not expected to have a material effect on Grace's results of operations or financial position. F-22 - -------------------------------------------------------------------------------- 17. Industry and Geographic Segments - --------------------------------------------------------------------------------
Specialty Health Industry Segment Information(1) Chemicals Care Other(2) Total - --------------------------------------------------------------------------------------------------------- Sales and Revenues.............. 1993 $2,895 $1,513 $ -- $4,408 1992 3,062 1,275 -- 4,337 1991 3,078 1,060 249 4,387 Pretax Operating Profit......... 1993 392 247 (418)(4) 221 1992 259(3) 176 (242)(4) 193 1991 409 143 (218)(4) 334 Identifiable Assets............. 1993 2,115 1,442 1,791 5,348(5) 1992 2,012 1,095 927 4,034(5) 1991 2,260 1,016 750 4,026(5) Capital Expenditures............ 1993 209 80 21 310(5) 1992 224 52 34 310(5) 1991 216 46 52 314(5) Depreciation and Amortization................ 1993 138 78 12 228 1992 151 65 9 225 1991 154 61 18 233 - ---------------------------------------------------------------------------------------------------------
F-23
- --------------------------------------------------------------------------------------------------------------------------- Unallocated United Corporate Geographic Segment Information(1) States Canada Europe Other Items (2) Total - --------------------------------------------------------------------------------------------------------------------------- Sales and Revenues............. 1993 $2,855 $124 $ 932 $497 $ -- $4,408 1992 2,721 131 1,081 404 -- 4,337 1991 2,455 136 1,186 361 249 4,387 Pretax Operating Profit........ 1993 460 7 93 79 (418)(4) 221 1992 387 1 (32)(3) 79 (242)(4) 193 1991 313 10 152 77 (218)(4) 334 Identifiable Assets............ 1993 2,327 82 753 395 1,791 5,348(5) 1992 1,977 75 772 283 927 4,034(5) 1991 1,915 86 969 306 750 4,026(5) - --------------------------------------------------------------------------------------------------------------------------- (1) Certain amounts have been restated to conform to the 1993 presentation. (2) Includes divested specialty businesses and unallocated corporate items. (3) Includes a provision of $140 relating to a fumed silica plant in Belgium. (4) Unallocated corporate items include: 1993 1992 1991 ---- ---- ---- Interest expense......................... $ (82) $ (90) $ (115) General corporate overhead expenses...... (63) (64) (63) General corporate research expenses...... (64) (62) (56) Provision relating to asbestos-related insurance coverage..................... (159) -- -- Net gain on strategic restructuring...... -- -- 6 Other (expenses)/income, net............. (50) (26) 10 ----- ----- ----- Total $(418) $(242) $(218) ----- ----- ----- ----- ----- ----- (5) Excludes assets and capital expenditures of discontinued operations as follows: 1993 1992 1991 ---- ---- ---- Identifiable assets................... $5,348 $4,034 $4,026 Discontinued operations............... 761 1,565 1,981 ------ ------ ------ Total Assets........................ $6,109 $5,599 $6,007 ------ ------ ------ ------ ------ ------ Capital expenditures.................. $ 310 $ 310 $ 314 Discontinued operations............... -- 88 133 ------ ------ ------ Total Capital Expenditures.......... $ 310 $ 398 $ 447 ------ ------ ------ ------ ------ ------
F-24 - -------------------------------------------------------------------------------- QUARTERLY SUMMARY UNAUDITED--DOLLARS IN MILLIONS, EXCEPT PER SHARE - --------------------------------------------------------------------------------
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------ 1993(1) Sales and revenues................................ $986.2 $1,094.1 $1,136.1 $1,192.0 Cost of goods sold and operating expenses......... (593.8) (648.5) (664.3) (690.2) Income/(loss) from continuing operations.......... 31.7 53.9 (236.4)(4) 285.2(5) Loss from discontinued operations................. (3.4) (105.0) -- -- Net income/(loss)................................. 28.3 (51.1) (236.4) 285.2 Earnings/(loss) per share:(2) Continuing operations........................ $ .35 $.60 $(2.56) $3.05 Net earnings/(loss).......................... .31 (.57) (2.56) 3.05 Fully diluted earnings per share: Continuing operations........................ $.34 $.56 $--(6) $3.03 Net earnings................................. .30 --(6) --(6) 3.03 Dividends declared per common share............... $.35 $.35 $.35 $.35 Market price of common stock:(3) High......................................... $40 1/8 $40 5/8 $41 1/4 $40 5/8 Low.......................................... 36 3/4 38 1/2 34 5/8 34 3/4 Close........................................ 38 1/2 40 1/2 34 5/8 40 5/8 - ----------------------------------------------------------------------------------------------------------------- 1992(1) Sales and revenues................................ $940.3 $1,061.6 $ 1,114.2 $1,220.9 Cost of goods sold and operating expenses......... (566.1) (609.2) (649.2) (777.0) Income/(loss) from continuing operations.......... 17.0 51.1 (84.5)(7) 74.1 (Loss)/income from discontinued operations........ (14.1) (152.3) 2.4 1.8 Cumulative effect of accounting changes........... (190.0) -- -- -- Net (loss)/income................................. (187.1) (101.2) (82.1) 75.9 Earnings/(loss) per share:(2) Continuing operations........................ $ .19 $ .57 $ (.94) $ .82 Cumulative effect of accounting changes...... (2.12) -- -- -- Net (loss)/earnings.......................... (2.10) (1.13) (.92) .84 Fully diluted earnings per share: Continuing operations........................ $ .18 $ .54 $ --(6) $ .75 Net earnings................................. --(6) --(6) --(6) .77 Dividends declared per common share............... $ .35 $ .35 $ .35 $ .35 Market price of common stock:(3) High......................................... $ 45 $ 38 1/2 $ 38 1/2 $ 40 3/4 Low.......................................... 37 3/4 33 3/8 32 34 Close........................................ 40 3/4 34 37 5/8 40 1/4 - ---------------------------------------------------------------------------------------------------------------- (1) AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE YEAR-END 1993 PRESENTATION. (2) PER SHARE RESULTS FOR THE FOUR QUARTERS DIFFER FROM FULL-YEAR PER SHARE RESULTS AS A SEPARATE COMPUTATION OF EARNINGS PER SHARE IS MADE FOR EACH QUARTER PRESENTED. THE DIFFERENCE IN 1993 IS PRINCIPALLY DUE TO THE CONVERSION IN THE THIRD QUARTER OF OUTSTANDING LYONS INTO APPROXIMATELY 2.8 MILLION SHARES OF COMMON STOCK; SEE NOTE 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS. (3) PRINCIPAL MARKET: NEW YORK STOCK EXCHANGE. (4) INCLUDES A PROVISION OF $300.0 RELATING TO ASBESTOS-RELATED INSURANCE COVERAGE. (5) INCLUDES A $200.0 REVERSAL OF THE $300.0 PROVISION RELATING TO ASBESTOS-RELATED INSURANCE COVERAGE. (6) NOT PRESENTED AS THE EFFECT IS ANTI-DILUTIVE. (7) INCLUDES A PROVISION OF $140.0 RELATING TO A FUMED SILICA PLANT IN BELGIUM.
F-25
- -------------------------------------------------------------------------------- QUARTERLY STATISTICS UNAUDITED--DOLLARS IN MILLIONS - ---------------------------------------------------------------------------------------------------------------- QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1993(1) SALES AND REVENUES Specialty Chemicals............................. $648.1 $ 729.9 $ 734.7 $ 782.9 Health Care..................................... 338.1 364.2 401.4 409.1 ------ -------- -------- -------- Total........................................... $986.2 $1,094.1 $1,136.1 $1,192.0 ------ -------- -------- -------- ------ -------- -------- -------- OPERATING INCOME AFTER TAXES(2) Specialty Chemicals............................. $ 39.6 $ 58.8 $ 60.5 $ 80.6 Health Care..................................... 27.9 35.1 36.9 42.3 ------ -------- -------- -------- Total........................................... $ 67.5 $ 93.9 $ 97.4 $ 122.9 ------ -------- -------- -------- ------ -------- -------- -------- - ---------------------------------------------------------------------------------------------------------------- 1992(1) SALES AND REVENUES(3) Specialty Chemicals.............................. $599.7 $ 687.9 $ 723.2 $ 809.0 Health Care...................................... 289.0 309.0 332.3 344.9 ------ -------- -------- -------- Total............................................ $888.7 $ 996.9 $1,055.5 $1,153.9 ------ -------- -------- -------- ------ -------- -------- -------- OPERATING INCOME AFTER TAXES(2) Specialty Chemicals.............................. $ 33.9 $ 59.7 $ 62.0(4) $ 83.6 Health Care...................................... 20.6 25.6 27.8 31.7 ------ -------- -------- -------- Total............................................ $ 54.5 $ 85.3 $ 89.8 $ 115.3 ------ -------- -------- -------- ------ -------- -------- -------- (1) AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE YEAR-END 1993 PRESENTATION. (2) EXCLUDES DIVESTED BUSINESSES AND, IN 1993, A $100.0 PROVISION FOR ASBESTOS-RELATED INSURANCE COVERAGE. AMOUNTS ARE COMPUTED BEFORE THE ALLOCATION OF CORPORATE RESEARCH, CORPORATE OVERHEAD AND CORPORATE INTEREST. FOR THIS TABLE, TAXES ARE COMPUTED SUBSTANTIALLY ON A SEPARATE RETURN BASIS FOR EACH UNIT. (3) EXCLUDES SALES OF DIVESTED BUSINESSES; THEREFORE, THE TOTAL DOES NOT AGREE WITH SALES AND REVENUES IN THE CONSOLIDATED STATEMENT OF OPERATIONS. (4) EXCLUDES A PROVISION OF $140.0 RELATING TO A FUMED SILICA PLANT IN BELGIUM.
F-26
- -------------------------------------------------------------------------------- WORLDWIDE OPERATIONS DOLLARS IN MILLIONS - -------------------------------------------------------------------------------- SALES AND REVENUES(1) OPERATING INCOME AFTER TAXES(1)(2) - ------------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1993(3) 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------- UNITED STATES/CANADA Specialty Chemicals......................... $1,555 $1,455 $1,407 $141 $124 $120 Health Care................................. 1,424 1,211 1,029 128 92 78 ------ ------ ------ ---- ---- ---- Total....................................... 2,979 2,666 2,436 269 216 198 ------ ------ ------ ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------------ EUROPE Specialty Chemicals......................... 852 967 915 46 65(4) 87 Health Care................................. 80 58 31 14 14 5 ------ ------ ------ ---- ---- ---- Total....................................... 932 1,025 946 60 79 92 ------ ------ ------ ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------------ ASIA PACIFIC Specialty Chemicals......................... 307 278 265 40 36 37 Health Care ................................ 8 6 -- -- -- -- ------ ------ ------ ---- ---- ---- Total....................................... 315 284 265 40 36 37 ------ ------ ------ ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------------ LATIN AMERICA/OTHER Specialty Chemicals......................... 181 120 95 13 14 9 Health Care................................. 1 -- -- -- -- -- ------ ------ ------ ---- ---- ---- Total....................................... 182 120 95 13 14 9 ------ ------ ------ ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------------ Subtotal 4,408 4,095 3,742 382 345 336 Divested Businesses......................... -- 242 645 -- 16 10 ------ ------ ------ ---- ---- ---- Total Continuing Operations ................ $4,408 $4,337 $4,387 $382 $361 $346 ------ ------ ------ ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------------ (1) CERTAIN 1992 AND 1991 AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE 1993 PRESENTATION. (2) COMPUTED BEFORE THE ALLOCATION OF CORPORATE RESEARCH, CORPORATE OVERHEAD AND CORPORATE INTEREST. FOR THIS TABLE, TAXES ARE COMPUTED SUBSTANTIALLY ON A SEPARATE RETURN BASIS FOR EACH SUBSIDIARY AND DIVISION. IN THE CASE OF EACH U.S. SUBSIDIARY AND DIVISION, TAX BENEFITS FOR OPERATING LOSSES, IF ANY, ARE RECOGNIZED CURRENTLY. (3) EXCLUDES A $100 PROVISION FOR ASBESTOS-RELATED INSURANCE COVERAGE. (4) EXCLUDES A PROVISION OF $140 RELATING TO A FUMED SILICA PLANT IN BELGIUM.
F-27
- -------------------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION (1) DOLLARS IN MILLIONS - -------------------------------------------------------------------------------------------------------------------------------- Depreciation and Capital Expenditures Net Fixed Assets Lease Amortization - -------------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1993 1992 1991 1993 1992 1991 OPERATING GROUP Specialty Chemicals........... $209 $200 $179 $1,049 $ 975 $ 941 $135 $131 $126 Health Care................... 80 52 46 277 221 205 46 38 36 ---- ---- ---- ------ ------ ------ ----- ---- ---- Subtotal...................... 289 252 225 1,326 1,196 1,146 181 169 162 General Corporate............. 21 34 45 128 102 92 8 8 7 ---- ---- ---- ------ ------ ------ ----- ---- ---- Total Continuing Operations... 310 286 270 1,454 1,298 1,238 189 177 169 Divested Businesses........... -- 24 44 -- 4 213 -- 18 34 Discontinued Operations....... -- 88 133 -- 406 1,107 -- -- -- ---- ---- ---- ------ ------ ------ ----- ---- ---- Total......................... $310 $398 $447 $1,454 $1,708 $2,558 $189 $195 $203 ---- ---- ---- ------ ------ ------ ----- ---- ---- ---- ---- ---- ------ ------ ------ ----- ---- ---- - -------------------------------------------------------------------------------------------------------------------------------- GEOGRAPHIC LOCATION United States and Canada...... $195 $156 $153 $ 854 $ 757 $ 696 $117 $108 $107 Europe........................ 68 80 56 351 342 346 49 49 45 Other Areas................... 26 16 16 121 97 104 15 12 10 ---- ---- ---- ------ ------ ------ ----- ---- ---- Subtotal...................... 289 252 225 1,326 1,196 1,146 181 169 162 General Corporate............. 21 34 45 128 102 92 8 8 7 ---- ---- ---- ------ ------ ------ ----- ---- ---- Total Continuing Operations... 310 286 270 1,454 1,298 1,238 189 177 169 Divested Businesses........... -- 24 44 -- 4 213 -- 18 34 Discontinued Operations....... -- 88 133 -- 406 1,107 -- -- -- ---- ---- ---- ------ ------ ------ ----- ---- ---- Total......................... $310 $398 $447 $1,454 $1,708 $2,558 $189 $195 $203 ---- ---- ---- ------ ------ ------ ----- ---- ---- ---- ---- ---- ------ ------ ------ ----- ---- ---- (1) 1992 AND 1991 AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE 1993 PRESENTATION.
F-28
- ------------------------------------------------------------------------------------------------------------ FINANCIAL SUMMARY DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS - ------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------ STATEMENT OF OPERATIONS Sales and revenues............................... $4,408.4 $4,337.0 $4,386.6 $4,309.7 $3,820.3 Cost of goods sold and operating expenses........ 2,596.8 2,601.5 2,649.2 2,693.5 2,430.7 Depreciation and amortization.................... 227.7 224.9 232.9 227.2 199.4 Interest expense................................. 81.5 90.0 115.4 137.0 121.0 Research and development expenses................ 135.0 130.0 128.1 125.4 105.0 Income from continuing operations before income taxes......................... 221.2(1) 192.5(2) 334.2 272.1 207.8 Provision for income taxes....................... 86.8 134.8 132.5 97.5 61.3 Income from continuing operations................ 134.4 57.7 201.7 174.6 145.9 (Loss)/income from discontinued operations....... (108.4) (162.2) 16.9 28.2 107.3 Cumulative effect of accounting changes.......... -- (190.0) -- -- -- Net income/(loss)................................ 26.0 (294.5) 218.6 202.8 253.2 - ------------------------------------------------------------------------------------------------------------ FINANCIAL POSITION Current assets................................... $1,975.3 $2,091.4 $1,990.0 $2,380.1 $2,166.3 Current liabilities.............................. 1,992.6 1,639.6 1,622.1 1,680.1 1,589.1 Properties and equipment, net.................... 1,454.1 1,707.9 2,558.2 2,462.1 2,220.0 Total assets..................................... 6,108.6 5,598.6 6,007.1 6,226.5 5,619.1 Total debt....................................... 1,706.1 1,819.2 2,259.4 2,285.9 2,016.7 Shareholders' equity -- common stock............. 1,510.2 1,537.5 2,017.7 1,905.0 1,722.9 - ------------------------------------------------------------------------------------------------------------ DATA PER COMMON SHARE Earnings from continuing operations.............. $ 1.46 $ .64 $ 2.31 $ 2.03 $ 1.71 Cumulative effect of accounting changes.......... -- (2.12) -- -- -- Earnings/(loss).................................. .28 (3.29) 2.50 2.36 2.97 Dividends........................................ 1.40 1.40 1.40 1.40 1.40 Book value....................................... 16.16 17.10 22.77 22.14 20.16 Average common shares outstanding (thousands).... 91,461 89,543 87,236 85,879 85,193 - ------------------------------------------------------------------------------------------------------------ OTHER STATISTICS Dividends paid on common stock................... $ 127.9 $ 125.4 $ 122.0 $ 120.2 $ 119.2 Capital expenditures............................. 309.6 398.4 447.0 513.7 484.6 % Total debt to total capital.................... 52.9% 54.1% 52.7% 54.4% 53.8% Common shareholders of record.................... 19,358 20,869 21,949 23,327 26,457 Common stock price range.......................... 41 1/4-34 5/8 45-32 40 3/4-23 3/8 33 5/8-17 39 1/8-25 1/8 Number of employees -- continuing operations (thousands)...................... 34.0 32.8 32.9 34.2 33.2 (1) Includes a provision of $159.0 relating to asbestos-related insurance coverage. (2) Includes a provision of $140.0 relating to a fumed silica plant in Belgium.
F-29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION REVIEW OF OPERATIONS OVERVIEW Sales and revenues increased 8% in 1993 over 1992, excluding businesses divested in 1992; including the divested businesses, 1993 sales and revenues increased by 2% as compared to 1992. Sales and revenues increased 9% in 1992 over 1991, excluding businesses sold in both years. In the third quarter of 1993, Grace recorded a special noncash after-tax charge of $300 million ($475 million pretax) to reflect a September 1, 1993 decision of the U.S. Court of Appeals for the Second Circuit, which had the effect of reducing Grace's insurance coverage for asbestos property damage lawsuits and claims. In the fourth quarter of 1993, Grace reversed $200 million of the after-tax provision ($316 million pretax) following the Court's decision to grant Grace's petition for a re-hearing concerning the September 1, 1993 decision; the remaining after-tax provision of $100 million ($159 million pretax) reflects anticipated additional legal expenses and other uncertainties related to Grace's asbestos lawsuits and claims. In the third quarter of 1992, Grace closed its Belgian fumed silica plant and recorded a one-time provision of $140 million, representing the entire net book value of the facility and certain additional expenses. Excluding the 1993 asbestos and 1992 fumed silica charges, income from continuing operations for 1993 increased 19%, to $234.4 million, over 1992 (including businesses divested in 1992). Income from continuing operations decreased by 2% in 1992 as compared to 1991 (excluding the provision relating to the fumed silica plant, but including businesses divested in both years). For all periods presented, the statement of operations has been restated to reflect the classification of certain businesses as discontinued operations, as discussed in Note 6 to the Consolidated Financial Statements. SPECIALTY CHEMICALS Including the results of chemical businesses divested in 1992, sales and revenues decreased by 5% in 1993 as compared to 1992, and operating income after taxes (operating income) decreased by 6% for 1993 versus 1992 (excluding the 1992 provision related to the fumed silica plant). The following discussion excludes sales and revenues and operating income of divested businesses and the fumed silica provision referred to above. Sales and revenues increased 3% in 1993 as compared to 1992, reflecting favorable volume and price/product mix variances estimated at 6% and 2%, respectively, offset by an unfavorable currency exchange variance estimated at 5%. Volume increases occurred in 1993 in packaging (due to improved sales of films and laminates), water treatment (reflecting the acquisition of Latin America's largest water treatment business in the first quarter of 1993), fluid cracking catalysts and silica products (reflecting improvements in market share and pricing) and construction products (reflecting the introduction of new concrete admixtures and stronger sales in waterproofing systems). Operating income was flat in 1993 compared to 1992. North American results significantly improved in 1993, as strong growth occurred in packaging, fluid cracking catalysts and silica products and construction products, due mainly to the volume increases noted above. European results for most product lines were adversely affected by continuing recessionary conditions, leading to reduced profitability; however, results for European fluid cracking catalysts and silica products improved, primarily due to increased volumes achieved following the withdrawal of certain competitors from this market in 1992. In Asia Pacific, favorable results were achieved, primarily in packaging and fluid cracking catalysts and silica products. In Latin America, results were down, primarily due to the costs of integrating the operations of the new water treatment business, partially offset by favorable results in packaging. Sales increased by 5% in 1992 compared to 1991, excluding from both periods the sales of chemical businesses divested in both years; sales were essentially flat including those businesses. The increase was primarily due to favorable volume, price/product mix and foreign currency exchange variances estimated at 3%, 1% and 1%, respectively. Volume increases occurred in most product lines, particularly packaging and fluid cracking catalysts and silica products. Operating income for 1992 decreased 5% over 1991, excluding the divested chemical businesses; operating income increased 3% including those businesses. North American results for most product lines improved in 1992, as strong growth was exhibited in packaging and fluid cracking catalysts and silica products, mainly due to strong volume increases. European results were adversely affected by recessionary conditions, leading to reduced profitability. However, favorable results were achieved in both Asia Pacific and Latin America for most product lines. HEALTH CARE Sales and revenues for 1993 increased by 19% over 1992, due to increases of 18%, 36% and 11%, respectively, in kidney dialysis services, home health care and medical products operations (including laboratory services). 1993 results for dialysis services and home health care include the results of Home Intensive Care, Inc., acquired in June 1993, as well as a number of smaller acquisitions during the year. The number of centers providing dialysis and related services increased 20%, from 419 at year-end 1992 to 501 at year-end 1993 (471 in the U.S. and Puerto Rico, 23 in Portugal, 4 in Spain, 2 in the Czech Republic and 1 in Argentina). F-30 Operating income in 1993 increased by 35% over 1992. The 1993 results for all health care businesses benefited from improvements in cost controls, operating efficiencies and/or capacity utilization, partially offset by the costs of improving and expanding quality assurance systems for medical products manufacturing (see below for further discussion). In addition, results for 1992 included costs related to previously reported long-term incentive arrangements with certain health care executives. It is unclear at this time whether and to what extent any of the currently proposed reforms in U.S. health care will affect Grace's health care operations. However, based on its knowledge and understanding of the health care industry in general and of other providers of kidney dialysis and infusion therapy, as well as on publicly available information, Grace believes that its health care operations are among the most cost-efficient in the industry. Sales and revenues of health care operations increased by 20%, to $1.3 billion, in 1992 as compared to 1991, reflecting improvements of 19%, 16% and 26%, respectively, in kidney dialysis services, home health care and medical products operations. Operating income for 1992 increased by 27% over 1991, reflecting the continued growth of all health care businesses, as well as improvements in operating efficiencies and capacity utilization. In 1993, the U.S. Food and Drug Administration (FDA) issued import alerts with respect to (1) hemodialysis bloodlines manufactured at the plant of National Medical Care, Inc. (NMC), Grace's principal health care subsidiary, located in Reynosa, Mexico and (2) hemodialyzers manufactured in NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the U.S. until the FDA approves the quality assurance systems of the facility at which such products are manufactured. In January 1994, NMC entered into a consent decree providing for the resumption of importation of bloodlines and hemodialyzers following certification by NMC that the relevant facility complies with FDA regulations and successful completion of an FDA inspection to verify such compliance. In accordance with the consent decree, NMC certified compliance to the FDA with respect to the Reynosa, Mexico facility in January 1994, and the FDA lifted the bloodline import alert in March 1994 following a thorough reinspection by the FDA and a commitment by NMC to finish certain studies by May 1994 and, in the interim, to perform additional product testing. Certification of compliance at the Dublin, Ireland facility is anticipated in the second quarter of 1994. The consent decree also requires NMC to certify and maintain compliance with applicable FDA device manufacturing laws and regulations at all of its U.S. manufacturing facilities. NMC has conducted a full review of its facilities and upgraded, as necessary, all of its quality assurance systems. No fines or penalties were imposed on NMC as a result of any of the FDA's actions relating to the import alerts or in connection with the consent decree. Neither the import alerts nor previously reported recalls of certain NMC products are expected to have a material effect on Grace's results of operations or financial position. STATEMENT OF OPERATIONS OTHER INCOME See Note 4 to the Consolidated Financial Statements for information relating to other income. INTEREST EXPENSE Interest expense decreased by 9% in 1993 versus 1992, primarily due to lower debt levels and lower interest rates, the use of financial instruments (see Note 10 to the Consolidated Financial Statements) and the replacement of certain fixed-rate debt with lower-cost floating-rate borrowings, partially offset by a reduction in interest allocated to discontinued operations and interest capitalized. See "Financial Condition: Liquidity and Capital Resources" below for information on borrowings. RESEARCH AND DEVELOPMENT EXPENSES Research and development (R&D) spending increased by 4% in 1993 versus 1992. R&D spending is now primarily directed toward Grace's core specialty chemicals and health care businesses. INCOME TAXES The effective tax rate was 39.2% in 1993 versus 43.1% in 1992, before giving effect to the 1992 provision of $51.9 million for a valuation allowance for deferred tax assets. The lower effective tax rate in 1993 resulted primarily from reductions in certain foreign tax rates and higher utilization of research and development and foreign tax credits, partially offset by tax costs associated with repatriating to the U.S. earnings of foreign subsidiaries. The valuation allowance for 1993 and 1992 relates to the uncertainty as to the realization of certain deferred tax assets, including U.S. tax credit carryforwards, state and local net operating loss carryforwards and net deferred tax assets, and net operating loss carryforwards in certain foreign jurisdictions. Based upon anticipated future results, the Company has concluded, after consideration of the valuation allowance, that it is more likely than not that the net deferred tax asset balance will be realized. In the third quarter of 1993, Grace recorded the effects of the Omnibus Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993. Among other things, OBRA increased the highest U.S. Federal corporate tax rate to 35%, effective January 1, 1993. However, neither this increase in the U.S. Federal corporate tax rate (from 34%), nor the other provisions of OBRA, had a material effect on Grace's results of operations. F-31 The 1992 effective tax rate increased to 43.1% (before the above provision for the valuation allowance) as compared with 39.6% in 1991, largely due to the additional costs of repatriating to the U.S. a higher level of earnings of foreign subsidiaries and an increase in state income taxes. See Note 5 to the Consolidated Financial Statements for further information on income taxes. LOSS FROM DISCONTINUED OPERATIONS In 1993, Grace restated its financial statements to reflect the classification of certain businesses as discontinued operations. See Note 6 to the Consolidated Financial Statements for further information. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During 1993, the net pretax cash flow provided by Grace's continuing operating activities was $301.6 million versus $358.9 million in 1992, primarily due to the use of $44.1 million of net cash to repurchase accounts receivable in 1993, as compared to the receipt of $96.8 million of net proceeds from the sale of accounts receivable in 1992, and a net cash outflow of $103.1 million relating to asbestos in 1993 (see below for further discussion), compared with a net cash outflow of $70.3 million in 1992. Also, in 1993 cash flow provided by operating activities includes $67.9 million in proceeds from the settlement of interest rate hedge agreements. After giving effect to discontinued operations and payments of income taxes, the net cash provided by operating activities was $243.1 million in 1993. Investing activities used $151.9 million of cash in 1993, largely reflecting capital expenditures and business acquisitions and investments, primarily in the health care and water treatment businesses. During 1993, Grace acquired 100% of the outstanding stock of Home Intensive Care, Inc. for approximately $129 million (inclusive of related costs). These investing activities were offset by net proceeds of $464.8 million from divestments (mainly those of Grace Energy's oil and gas operations). Management anticipates that the level of capital expenditures in 1994 will increase to approximately $350 million as compared to the $309.6 million of capital spending in 1993. Capital spending is expected to be concentrated on Grace's core businesses. Net cash used for financing activities in 1993 was $105.9 million, primarily reflecting the payment of $128.4 million of dividends. Total debt was approximately $1.7 billion at year-end 1993, a decrease of $113.1 million from year-end 1992. Grace's total debt as a percentage of total capital (debt ratio) decreased from 54.1% at year-end 1992 to 52.9% at year-end 1993, primarily as a result of the reduction in total debt. In January 1993, Grace sold $300 million principal amount of 7.4% Notes Due 2000. The net proceeds from the sale of these Notes were used to repay commercial paper and bank borrowings. In the third quarter of 1993, Grace completed the redemption in full of its outstanding Liquid Yield Option Notes due 2006 (LYONs) and 6 1/4% Convertible Subordinate Debentures Due 2002. Of the $1,012.5 million principal amount at maturity of LYONs outstanding, approximately 31% ($309.6 million) was converted into 2.8 million shares of common stock; the remaining LYONs ($702.9 million) were redeemed for approximately $258 million in cash. Substantially all of the $150 million principal amount of the 6 1/4% Convertible Debentures due 2002 outstanding immediately prior to redemption was redeemed for cash (equal to the principal amount outstanding). Grace expects to satisfy its 1994 cash requirements from the following sources: (1) funds generated by operations, (2) proceeds from the sales of businesses and (3) financings. Such financings could include new borrowings, the availability and cost of which will depend upon general economic and market conditions. ASBESTOS-RELATED MATTERS As reported in Note 2 to the Consolidated Financial Statements, Grace is a defendant in lawsuits relating to previously sold asbestos-containing products. In 1993, Grace paid $103.1 million in connection with the defense and disposition of property damage and personal injury litigation related to asbestos, net of amounts received in 1993 from settlements with certain of Grace's insurance carriers. As more fully discussed above in "Review of Operations: Overview," Grace recorded a net noncash charge of $159 million (pretax) in 1993 to reflect anticipated additional legal expenses and other uncertainties related to Grace's asbestos lawsuits and claims. The balance sheet at year-end 1993 includes a receivable due from insurance carriers, subject to litigation, of $962.3 million. Grace has also recorded a receivable of approximately $114 million for amounts to be received pursuant to settlement agreements previously entered into with certain insurance carriers. While Grace cannot precisely estimate the amounts to be paid in 1994 in respect of asbestos-related lawsuits and claims, Grace expects that it will be required to expend approximately $50 million in 1994 to defend and dispose of such lawsuits and claims (after giving effect to payments to be received from certain insurance carriers, as discussed above and in Note 2 to the Consolidated Financial Statements). 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 continuing litigations with certain of its insurance carriers can be predicted with certainty. F-32 ENVIRONMENTAL MATTERS Grace incurs costs related to environmental protection due to laws and regulations, Grace's commitment to industry initiatives such as Responsible Care -R- (the Chemical Manufacturers Association program) and its own internal standards. Worldwide expenses of continuing operations related to the operation and maintenance of environmental facilities and disposal of hazardous and nonhazardous wastes totalled $45 million, $56 million and $38 million in 1993, 1992 and 1991, respectively.In addition, worldwide capital expenditures for continuing operations relating to environmental protection in 1993 totalled $20 million, compared with $18 million and $17 million in 1992 and 1991, respectively. Grace has also incurred costs to remediate previously contaminated sites. These costs were $44 million, $35 million and $18 million in 1993, 1992 and 1991, respectively. These amounts were charged against previously established reserves for estimated expenses for environmental spending, which were identified and charged to income in prior years. Grace accrues for anticipated costs associated with investigatory and remediation efforts in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," which governs probability and the ability to reasonably estimate future costs. During 1993, 1992 and 1991, there were periodic provisions recorded for environmental and plant closure expenses, which include the costs of future investigatory and remediation activities. At year-end 1993, Grace's accruals for environmental remediation totalled approximately $160 million. These reserves do not take into account any discounting for future expenditures or possible future insurance recoveries. The liabilities are reassessed whenever environmental circumstances become better defined and/or remediation efforts and their costs can be better estimated. Annual environmental-related cash outlays are expected to total $44 million in 1994 and $35 million in 1995. Expenditures have been funded from internal sources of cash and are not expected to have a significant effect on liquidity. F-33 SCHEDULE II W. R. GRACE & CO. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM OFFICERS AND EMPLOYEES EXCEEDING $100,000* (dollar amounts in thousands)
For the Year 1993 Balance at Deductions end of period** Balance at -------------------------- ------------------------ beginning Amounts Amounts Not of period Additions collected written off Current Current*** ----------- ----------- ----------- ------------- --------- ------------ Amount . . . . . . . . . $2,959 $132 $256 - $ 15 $2,820 Number of employees. . . 9 1 8 For the Year 1992 Balance at Deductions end of period** Balance at -------------------------- ------------------------ beginning Amounts Amounts Not of period Additions collected written off Current Current*** ----------- ----------- ----------- ------------- --------- ------------ Amount . . . . . . . . . $2,813 $808 $212 $450 $509 $2,450 Number of employees. . . 11 4 7 For the Year 1991 Balance at Deductions end of period** Balance at -------------------------- ------------------------ beginning Amounts Amounts Not of period Additions collected written off Current Current*** ----------- ----------- ----------- ------------- --------- ------------ Amount . . . . . . . . . $4,022 - $759 $450 $777 $2,036 Number of employees. . . 12 7 7 * The majority of the receivables represent relocation loans to employees. Additional information concerning certain of these loans is contained in the Proxy Statement for the Company's 1994 Annual Meeting. ** The balances may include both current and non-current portions due from an individual employee. Therefore, the total number of employees owing balances at the end of a period may reflect different portions of the same employee's indebtedness. *** Represents amounts due more than one year after the end of the period.
F-34 SCHEDULE V W. R. GRACE & CO. AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT (in millions) For the Year 1993
Other changes - add(deduct) -------------------------------------------------- Applicable Applicable Balance at Additions to to Currency Balance beginning at Retire- businesses discontinued Reclassifi- adjust- at end Classification of period cost ments acquired(a) operations(b) cations (c) ments of period -------------- ---------- ---------- -------- ----------- ------------- ------------ -------- --------- Land . . . . . . . . . . . . . . $ 59.2 $ .2 $ (.1) $ 3.2 $ (15.5) $ 5.2 $ (.9) $ 51.3 Buildings. . . . . . . . . . . . 801.3 27.2 (8.6) 3.4 (191.5) 12.9 (8.6) 636.1 Machinery, equipment and other . 2,199.1 107.8 (84.2) 13.9 (561.5) 203.7 (36.3) 1,842.5 Projects under construction. . . 231.4 174.4 (.5) 18.7 (36.2) (133.9) (6.0) 247.9 --------- ------- ------- ------ -------- ------- ------ -------- $ 3,291.0 $ 309.6 $ (93.4) $ 39.2 $ (804.7) $ 87.9 $(51.8) $2,777.8 --------- ------- ------- ------ -------- ------- ------ -------- --------- ------- ------- ------ -------- ------- ------ -------- For the Year 1992 Other changes - add(deduct) -------------------------------------------------- Applicable Applicable Balance at Additions to disposals to Currency Balance beginning at Retire- businesses discontinued Reclassifi- adjust- at end Classification of period cost ments (a) operations(b) cations (d) ments of period -------------- ---------- ---------- ------- ------------ ------------- ------------ -------- --------- Land . . . . . . . . . . . . . . $ 65.4 $ 1.0 $ (1.6) $ (1.1) $ (8.0) $ 5.4 $ (1.9) $ 59.2 Natural resource properties. . . 823.1 5.0 - - (822.0) (5.5) (.6) - Buildings. . . . . . . . . . . . 822.0 37.6 (9.9) (29.5) (53.0) 59.1 (25.0) 801.3 Machinery, equipment and other . 2,965.2 90.8 (92.2) (140.7) (642.0) 107.8 (89.8) 2,199.1 Projects under construction. . . 332.6 264.0 - (22.8) (2.8) (333.7) (5.9) 231.4 -------- ------ ------- ------- --------- ------- ------- -------- $5,008.3 $398.4 $(103.7) $(194.1) $(1,527.8) $(166.9) $(123.2) $3,291.0 -------- ------ ------- ------- --------- ------- ------- -------- -------- ------ ------- ------- --------- ------- ------- -------- For the Year 1991 Other changes - add(deduct) -------------------------------------------------- Applicable Applicable Balance at Additions to disposals to Currency Balance beginning at Retire- of busi- businesses Reclassifi- adjust- at end Classification of period cost ments nesses (a) acquired (a) cations (e) ments of period -------------- --------- --------- -------- ------------ ------------- ----------- -------- --------- Land . . . . . . . . . . . . . . $ 72.0 $ 1.9 $ (1.4) $ (6.4) - $ .2 $ (.9) $ 65.4 Natural resource properties. . . 652.5 23.9 (20.4) - $ 90.6 76.5 - 823.1 Buildings. . . . . . . . . . . . 858.0 30.7 (17.3) (62.6) .4 16.8 (4.0) 822.0 Machinery, equipment and other . 3,011.2 123.6 (91.1) (252.7) 3.1 182.4 (11.3) 2,965.2 Projects under construction. . . 312.5 266.9 (.1) (4.2) 1.4 (244.6) .7 332.6 -------- ------ ------- -------- ------ ------- ------- -------- $4,906.2 $447.0 $(130.3) $(325.9) $ 95.5 $ 31.3 $ (15.5) $5,008.3 -------- ------ ------- -------- ------ ------- ------- -------- -------- ------ ------- -------- ------ ------- ------- -------- - ----------------------------- (a) See Note 3 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (b) See Note 6 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (c) Includes the repurchase of certain assets included in a prior year sale-leaseback transaction. (d) Includes a provision relating to Grace's Belgian fumed silica plant; see Note 8 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (e) Primarily reflects the deconsolidation of previously consolidated subsidiaries that are now being accounted for as discontinued operations, and the consolidation of subsidiaries previously accounted for by the equity method.
Depreciation and Lease Amortization Rates - ----------------------------------------- In view of the variety of properties and depreciation and lease amortization rates, it is not practicable to set forth detailed rates. The average depreciation and lease amortization rates on a consolidated basis for 1993, 1992 and 1991 were as follows:
1993 1992 1991 ---- ---- ---- Buildings................................... 5.2% 4.8% 4.9% Machinery, equipment and other............. 9.0 9.0 7.5
F-35 SCHEDULE VI W. R. GRACE & CO. AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (in millions) For the Year 1993
Other changes - add(deduct) ------------------------------------- Applicable Balance at Additions to Currency Balance beginning charged to Retire- discontinued Reclassifi- adjust- at end Classification of period costs and ments operations(a) cations (b) ments of period expenses -------------- --------- -------- ----- ------------ ----------- ------- --------- Land . . . . . . . . . . . . . . . $ 1.3 $ .1 - $ (.6) $ (.1) - $ .7 Buildings. . . . . . . . . . . . . 306.6 32.2 $ (8.5) (73.1) 1.2 $ (4.3) 254.1 Machinery, equipment and other . . 1,275.2 156.9 (69.5) (321.2) 50.1 (22.6) 1,068.9 --------- ------- ------- ------- -------- ------- -------- $ 1,583.1 $ 189.2 $ (78.0) $(394.9) $ 51.2 $ (26.9) $1,323.7 --------- ------- ------- ------- -------- ------- -------- --------- ------- ------- ------- -------- ------- -------- For the Year 1992 Other changes - add (deduct) ----------------------------------------------- Appli- Additions cable to Applicable Balance at charged to disposals to Currency Balance beginning costs and Retire- of busi- discontinued Reclassifi- adjust- at end Classification of period expenses ments nesses(c) operations(a) cations(d) ments of period -------------- --------- ---------- -------- --------- ------------- ----------- -------- --------- Land . . . . . . . . . . . . . . . $ .9 $ .1 $ (.1) - - $ .4 - $ 1.3 Natural resource properties. . . . 475.6 - - - $ (475.6) .3 $ (.3) - Buildings. . . . . . . . . . . . . 312.8 37.9 (6.5) $ (9.8) (22.1) 3.8 (9.5) 306.6 Machinery, equipment and other . . 1,660.8 203.4 (58.4) (97.1) (334.4) (46.6) (52.5) 1,275.2 --------- ------- ------- ----- -------- ------- ------- -------- $ 2,450.1 $ 241.4 $ (65.0) $ (106.9) $ (832.1) $ (42.1) $ (62.3) $1,583.1 --------- ------- ------- ----- -------- ------- ------- -------- --------- ------- ------- ----- -------- ------- ------- -------- For the Year 1991 Other changes - add (deduct) ----------------------------------- Appli- Additions able to Balance at charged to disposals Currency Balance beginning costs and Retire- of busi- Reclassifi- adjust- at end Classification of period expenses ments nesses(c) cations(e) ments of period -------------- --------- --------- -------- ---------- ----------- -------- --------- Land . . . . . . . . . . . . . . . $ 1.1 $ .1 - $ (.3) - - $ .9 Natural resource properties. . . . 425.6 36.9 $ (20.2) - $ 33.3 - 475.6 Buildings. . . . . . . . . . . . . 326.3 40.9 (11.6) (34.7) (6.1) $ (2.0) 312.8 Machinery, equipment and other . . 1,691.1 222.3 (74.3) (155.2) (18.9) (4.2) 1,660.8 --------- ------- ------- ------- -------- ------- --------- $ 2,444.1 $ 300.2 $(106.1) $(190.2) $ 8.3 $ (6.2) $2,450.1 --------- ------- ------- ------- -------- ------- --------- --------- ------- ------- ------- -------- ------- --------- - -------------------------------------- (a) See Note 6 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (b) Includes the repurchase of certain assets included in a prior year sale-leaseback transaction. (c) See Note 3 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (d) Includes a provision relating to Grace's Belgian fumed silica plant; see Note 8 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (e) Primarily reflects the deconsolidation of previously consolidated subsidiaries that are now being accounted for as discontinued operations, and the consolidation of subsidiaries previously accounted for by the equity method.
F-36 SCHEDULE VIII W. R. GRACE & CO. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in millions) For the Year 1993
Additions (deductions) ------------------------------ Charged Balance (credited) to Balance beginning costs and Other at end Description of period expenses net*** of period ----------- ---------- ------------- ------ ---------- Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable . . . . . . . . . . $ 39.3 $ 67.4 $(56.4) $ 50.3 ------- ------ ------ ------- Securities of divested businesses. . . .. . . . . . . . . . . . . $ 152.9 $ 8.3 $ -- $ 161.2 ------- ------ ------ ------- Deferred tax assets valuation allowance. . . . . . . . . . . . . $ 143.1 $ -- $(17.4) $ 125.7 ------- ------ ------ ------- Reserves: Foreign employee benefit obligations*. . . . . . . . . . . . . . $ 83.4 $ 12.2 $(31.2) $ 64.4 ------- ------ ------ ------- Discontinued operations. . . .. . . . . . . . . . . . . . . . . . $ 144.7 $(12.6) $ -- $ 132.1 ------- ------ ------ -------
For the Year 1992
Additions (deductions) ------------------------------ Charged Balance (credited) to Balance beginning costs and Other at end Description of period expenses net*** of period ----------- ---------- ------------- ------ ---------- Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable . . . . . . . . . . $41.0 $48.0 $(49.7) $39.3 ------- ------ ------ ------- Securities of divested businesses . . . . . . . . .. . . . . . . $201.0 $(64.9) $16.8 $152.9 ------- ------ ------ ------- Deferred tax assets valuation allowance**. . . . . . . . . . . . $88.4 $51.9 $2.8 $143.1 ------- ------ ------ ------- Reserves: Foreign employee benefit obligations*. . . . . . . .. . . . . . . $82.3 $15.6 $(14.5) $83.4 ------- ------ ------ ------- Discontinued operations. . . . . . . . . . . . . . . . . . . . . $74.7 $70.0 $-- $144.7 ------- ------ ------ -------
For the Year 1991
Additions (deductions) ------------------------------ Charged Balance (credited) to Balance beginning costs and Other at end Description of period expenses net*** of period ----------- ---------- ------------- ------ ---------- Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable .. . . . . . . . . . $54.8 $42.7 $(56.5) $41.0 ------- ------ ------ ------- Securities of divested businesses. . .. . . . . . . . . . . . . . $180.7 $-- $20.3 $201.0 ------- ------ ------ ------- Reserves: Foreign employee benefit obligations* . . . . . . . . . . . . . $110.7 $11.5 $(39.9) $82.3 ------- ------ ------ ------- Discontinued operations. . . . . . . . . . . . . . . . . . . . . $93.8 $(19.1) $-- $74.7 ------- ------ ------ ------- - ----------------------------------------- * Represents legally mandated employee benefit obligations, primarily pension benefits, relating to Grace's operations in Europe. ** Effective January 1, 1992, Grace adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Prior years were not restated for this adoption. *** Consists of additions and deductions applicable to businesses acquired, disposals of businesses, bad debt write-offs, foreign currency translation, reclassifications (including the deconsolidation of amounts relating to discontinued operations) and miscellaneous other adjustments.
F-37 SCHEDULE IX W. R. GRACE & CO. AND SUBSIDIARIES SHORT-TERM BORROWINGS (dollar amounts in millions)
Weighted Maximum Average Weighted average amount amount average Balance at interest rate outstanding outstanding interest rate end of at end of during during during period period period(c) period(d) period(e) ---------- ------------- ----------- ------------ ------------ For the year 1993 Commercial paper and bank borrowings (a). . . . . . . $ 677.8 3.6% $ 779.3 $ 631.7 4.1% Other short-term borrowings (b) . . . . . . . . . . . 356.1 7.3 356.1 273.8 7.6 For the year 1992 Commercial paper and bank borrowings (a). . . . . . . $ 705.6 4.3% $ 1,194.6 $ 1,034.4 5.2% Other short-term borrowings (b) . . . . . . . . . . . 218.4 8.1 467.2 337.3 10.2 For the year 1991 Commercial paper and bank borrowings (a). . . . . . . $ 1,159.3 5.9% $ 1,244.4 $ 1,152.4 7.2% Other short-term borrowings (b) . . . . . . . . . . . 306.0 9.5 370.5 340.8 11.2 (a) Represents commercial paper and bank borrowings. Prior to September 1992, all amounts, although short-term in nature, were classified as long-term borrowings because of the availability of long-term financing under a prior revolving credit agreement and Grace's intent to refinance these borrowings on a long-term basis. In accordance with a 1992 revolving credit agreement, only a portion of these borrowings may be classified as long-term; see Note 9 to Grace's Consolidated Financial Statements in the Financial Supplement to this Report. (b) Represents various lines of credit and miscellaneous borrowings, primarily of non-U.S. subsidiaries. (c) Represents the maximum outstanding at any quarter-end during the year. (d) Average amount outstanding is computed by dividing by four the total of the principal balances outstanding at the end of each quarter. (e) Weighted average interest rate is computed by dividing the interest expense on short-term borrowings incurred during the year by average short-term borrowings outstanding.
F-38 SCHEDULE X W. R. GRACE & CO. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION (in millions)
Charged to costs and expenses ------------------------- Years ended December 31, Item 1993 1992 1991 ---- ------- ------- ------- Maintenance and repairs............. $ 135.8 $ 153.1 $ 151.1
F-39 Exhibit 11 W. R. GRACE & CO. AND SUBSIDIARIES WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS The weighted average number of shares of Common Stock outstanding were as follows:
(in thousands) ---------------------------------------- 1993 1992 1991 ---------- ---------- ---------- Weighted average number of shares of Common Stock Outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . 91,461 89,543 87,236 Conversion of convertible debt obligations . . . . . . . . . . . . . . . . 46 - * 8,456 Additional dilutive effect of outstanding options (as determined by the application of the treasury stock method). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680 - * 1,159 ---------- ---------- ---------- Weighted average number of shares of Common Stock outstanding assuming full dilution . . . . . . . . . . . . . . . 92,187 89,543 96,851 ---------- ---------- ---------- ---------- ---------- ---------- Income/(loss) used in the computation of earnings per share were as follows: (in millions, except per share) ---------------------------------------- 1993 1992 1991 ---------- ---------- ---------- Net Income/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.0 $ (294.5) $ 218.6 Dividends paid on preferred stocks . . . . . . . . . . . . . . . . . . . . (.5) (.5) (.5) ---------- ---------- ---------- Income/(loss) used in per share computation of earnings . . . . . . . . . 25.5 (295.0) 218.1 Interest, net of tax, on convertible debt obligations. . . . . . . . . . . - - 14.4 ---------- ---------- ---------- Income/(loss) used in per share computation of earnings assuming full dilution. . . . . . . . . . . . . . . . . . . . $ 25.5 $ (295.0) $ 232.5 ---------- ---------- ---------- ---------- ---------- ---------- Earnings/(loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . $ 0.28 $ (3.29) $ 2.50 Earnings per share assuming full dilution. . . . . . . . . . . . . . . . . $ 0.28 - * $ 2.40 * The effect of the convertible securities and outstanding options would be anti-dilutive. Therefore, they are not shown.
F-40 Exhibit 12 W. R. GRACE & CO. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions except ratios) (Unaudited)
Years Ended December 31, (b) ------------------------------------------------------------------- 1993 (c) 1992 (d) 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- Net income from continuing operations. . . . . . . . . $134.4 $ 57.7 $201.7 $174.6 $145.9 Add (deduct): Provision for income taxes. . . . . . . . . . . . . 86.8 134.8 132.5 97.5 61.3 Income taxes of 50%-owned companies . . . . . . . . .1 2.1 1.5 1.9 1.2 Minority interest in income of majority-owned subsidiaries. . . . . . . . . . . . - - - 1.2 .6 Equity in unremitted earnings of less than 50%-owned companies. . . . . . . . . . . (1.3) (1.8) (2.5) (2.1) (.3) Interest expense, including amortization of capitalized interest. . . . . . . . . . . . . . 119.8 152.9 198.4 235.7 224.8 Amortization of debt discount and expense . . . . . 4.3 1.5 2.1 1.9 1.9 Estimated amount of rental expense deemed to represent the interest factor. . . . . . 21.3 26.6 21.7 21.0 19.1 ------ ------ ------ ------ ------ Income as adjusted . . . . . . . . . . . . . . . . . . $365.4 $373.8 $555.4 $531.7 $454.5 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Combined fixed charges and preferred stock dividends: Interest expense, including capitalized interest . . . . . . . . . . . . . . . . . . . . . $119.9 $166.5 $213.3 $244.7 $229.3 Amortization of debt discount and expense . . . . . 4.3 1.5 2.1 1.9 1.9 Estimated amount of rental expense deemed to represent the interest factor. . . . . . 21.3 26.6 21.7 21.0 19.1 ------ ------ ------ ------ ------ Fixed charges. . . . . . . . . . . . . . . . . . . . . 145.5 194.6 237.1 267.6 250.3 Preferred stock dividend requirements (a). . . . . . . .9 .9 .9 .8 .7 ------ ------ ------ ------ ------ Combined fixed charges and preferred stock dividends . . . . . . . . . . . . . . . . . . $146.4 $195.5 $238.0 $268.4 $251.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges . . . . . . . . . . 2.51 1.92 2.34 1.99 1.82 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to combined fixed charges and preferred stock dividends . . . . . . . . . . . 2.50 1.91 2.33 1.98 1.81 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ (a) Preferred stock dividend requirements, increased to an amount representing the pretax earnings that would be required to cover such dividend requirements based on the effective tax rates for the periods presented. (b) Restated to conform to the 1993 presentation. (c) Includes a provision of $159.0 relating to asbestos-related insurance coverage. (d) Includes a provision of $140.0 relating to a fumed silica plant in Belgium.
F-41 Exhibit Index W. R. GRACE & CO. Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1993 ------------------------------------------- EXHIBIT INDEX EXHIBIT NO. EXHIBIT WHERE LOCATED - ------- ------- ------------- 3.01 Certificate of Incorporation of Exhibit 3 to Form 8-K W. R. Grace & Co., as amended (filed 6/9/88) 3.02 By-laws of W. R. Grace & Co., as Exhibit 3.2 to Form 10-K amended (filed 3/26/93) 4.01 Indenture dated as of September Exhibit 4.2 to Form 10-K 29, 1992 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and Bankers Trust Company 4.02 Indenture dated as of January Exhibit 4.4 to Form 10-K 28, 1993 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and NationsBank of Georgia, N.A. 4.03 Credit Agreement dated as of Exhibit 4.2 to Form 8-K September 1, 1992 among W. R. (filed 9/26/92) Grace & Co., W. R. Grace & Co.- Conn. and the Several Banks Parties thereto and Chemical Bank, as Agent 4.04 Amended and Restated Rights Exhibit to Amendment on Agreement dated as of June 7, Form 8 to Application for 1990 between W. R. Grace & Co. Registration on Form 8-B and Manufacturers Hanover Trust (filed 6/19/90) Company ____________________________ Other than exhibits that are filed herewith, all exhibits listed in this Exhibit Index are incorporated herein by reference. Exhibits indicated by an asterisk (*) are the management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K, certain instruments relating to long-term debt are not being filed; W. R. Grace & Co. agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. EXHIBIT NO. EXHIBIT WHERE LOCATED - ------- ------- ------------- 10.01 W. R. Grace & Co. Executive Exhibit 19(f) to Form Salary Protection Plan, as 8-K (filed 6/9/88)* amended 10.02 W. R. Grace & Co. 1981 Stock Exhibit 28(a) to Form Incentive Plan, as amended 10-Q (filed 8/13/91)* 10.03 W. R. Grace & Co. 1986 Stock Exhibit 28(b) to Form Incentive Plan, as amended 10-Q (filed 8/13/91)* 10.04 W. R. Grace & Co. 1989 Stock Exhibit 28(c) to Form Incentive Plan, as amended 10-Q (filed 8/13/91)* 10.05 Forms of Stock Option Agreements Exhibit 10(h) to Form 10-K (filed 3/28/92)* 10.06 Forms of Restricted Share Award Exhibit 10(i) to Form Agreements 10-K (filed 3/28/92)* 10.07 Information Concerning W. R. Grace Pages 10 and 11 of & Co. Incentive Compensation Proxy Statement Program and Deferred Compensation (filed 4/10/93)* Program 10.08 W. R. Grace & Co. Long-Term Exhibit 10(l) to Form Incentive Plan 10-K (filed 3/29/91)* 10.09 W. R. Grace & Co. Retirement Exhibit 10(o) to Form Plan for Outside Directors, as 10-K (filed 3/28/92)* amended 10.10 Employment Agreement dated August Exhibit 10(r) to Form 7, 1989 between W. R. Grace & Co. 10-K (filed 3/29/91)* and Joseph R. Wright, Jr. 10.11 Employment Agreement dated Exhibit 10(x) to Form as of April 1, 1991 between 10-K (filed 3/28/92)* W. R. Grace & Co.-Conn. and Constantine L. Hampers, as amended - 2 - EXHIBIT NO. EXHIBIT WHERE LOCATED - ------- ------- ------------- 10.12 Housing Loan Agreement dated Exhibit 10(q) to Form as of August 1, 1987 between 10-K (filed 3/29/88); W. R. Grace & Co. and J. P. Exhibit 19(i) to Form Bolduc, related Amendment and 8-K (filed 6/9/88)* Assignment dated May 10, 1988 10.13 Employment Agreement dated Filed herewith* August 1, 1993 between J. P. Bolduc and W. R. Grace & Co. 10.14 Stock Option Agreement dated Filed herewith* June 30, 1993 between David L. Yunich and W. R. Grace & Co. 10.15 Stock Option Agreement dated Filed herewith* June 30, 1993 between David L. Yunich and W. R. Grace & Co. 10.16 National Medical Care, Inc. and Exhibit 10 (aa) to Form Subsidiaries Executive Bonus 10-K (filed 3/28/92)* Plans 10.17 Retirement Agreement between Exhibit 10.23 to Form W. R. Grace & Co. and J. Peter 10-K (filed 3/26/93)* Grace dated December 21, 1992 10.18 Executive Severance Agreement Exhibit 10.24 to Form dated as of September 1, 1992 10-K (filed 3/26/93)* between W. R. Grace & Co. and J. P. Bolduc 10.19 Executive Severance Agreement Exhibit 10.26 to Form dated September 1, 1992 10-K (filed 3/26/93)* between W. R. Grace & Co. and Constantine L. Hampers 10.20 Form of Executive Severance Exhibit 10.28 to Form Agreement between W. R. Grace 10-K (filed 3/26/93)* & Co. and others - 3 - EXHIBIT NO. EXHIBIT WHERE LOCATED - ------- ------- ------------- 10.21 Consulting Agreement Exhibit 10.29 to Form dated June 1, 1992 between 10-K (filed 3/26/93)* W. R. Grace & Co. and Kamsky Associates, Inc. 10.22 Incentive Compensation Agreement Exhibit 10.30 to Form dated June 1, 1992 between 10-K (filed 3/26/93)* National Medical Care, Inc. and Kamsky Associates, Inc. 10.23 Consulting Agreement dated as of Filed herewith* June 16, 1993 by and between National Medical Care, Inc., The Humphrey Group, Inc. and Gordon J. Humphrey 10.24 Employment Termination Agreement Filed herewith* dated June 30, 1993 between J. R. Wright, Jr. and W. R. Grace & Co. 10.25 W. R. Grace & Co. Supplemental Filed herewith* Executive Retirement Plan, as amended 11 Weighted Average Number of Filed herewith Shares and Earnings Used in (in Financial Per Share Computations Supplement to 10-K) 12 Computation of Ratio of Earnings Filed herewith to Fixed Charges and Combined (in Financial Fixed Charges and Preferred Supplement to 10-K) Stock Dividends 13 Selected Portions of the 1993 Filed herewith Annual Report to Shareholders (in Financial of W. R. Grace & Co. Supplement to 10-K) 22 List of Subsidiaries of Filed herewith W. R. Grace & Co. - 4 - EXHIBIT NO. EXHIBIT WHERE LOCATED - ------- ------- ------------- 24 Consent of Independent Accoun- Filed herewith tants (in Financial Supplement to 10-K) 25 Powers of Attorney Filed herewith - 5 - EX-10.13 2 EXHIBIT 10.13 Exhibit 10.13 EMPLOYMENT AGREEMENT Exhibit 10.13 AGREEMENT made as of the 1st day of August, 1993 by and between J. P. BOLDUC, residing at 3000 South Ocean Boulevard, Boca Raton, Florida ("Employee"), and W. R. GRACE & CO., a New York corporation (the "Company"). WHEREAS, the Company has employed Employee and desires to continue to employ Employee as Chief Executive Officer, and Employee desires to work for the Company in such capacity on the terms and conditions hereinafter provided; WHEREAS, Employee is a key senior executive of the Company with major responsibilities for planning, directing, coordinating and controlling overall corporate operations; WHEREAS, in such capacity Employee will develop or have access to all of the business methods and confidential information relating to the Company, including, but not limited to, its financial performance and results, its manufacturing organization and methods, its research and development of products, its service techniques, its purchasing organization and methods, its sales organization and methods, its inventories, its market development and expansion plans, its personnel training and development programs, and its customer and supplier relationships; WHEREAS, a subsidiary of the Company and Employee heretofore entered in an Employment Agreement dated as of August 1, 1987, which Employment Agreement was subsequently -2- assigned to the Company and amended (such Employment Agreement, as so assigned and amended, being hereinafter referred to as the "1987 Employment Agreement"); WHEREAS, the Company and Employee now desire to further amend and to restate the 1987 Employment Agreement to take the form of this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows: I. EMPLOYMENT SECTION 1.1 POSITIONS AND DUTIES. (a) The Company shall employ Employee, and Employee shall work for the Company, as Chief Executive Officer, and he shall report directly to the Board of Directors of the Company. Employee shall have such duties and authority as are specified in the Company's By-laws and otherwise normally associated with his office. While employed hereunder, Employee shall devote his full time, effort, skill and attention to the affairs of the Company. During the term of his employment hereunder, Employee shall not render any services to any other person that might be in competition with the Company or any of its subsidiaries or affiliates or in conflict with his position as a senior executive of the Company or his duty of undivided loyalty to the Company. -3- (b) While employed hereunder, Employee will be nominated as a management nominee for election as a director of the Company and will continue to be nominated after his current term expires. SECTION 1.2 TERM. Unless sooner terminated in accordance with the provisions hereof, (a) the initial term of employment hereunder shall continue until July 31, 1998; (b) on July 31 of each year, commencing with 1998, the term of employment shall be extended for an additional period of one year unless, prior to such July 31, either party shall have given notice to the other that the term of employment shall not be so extended; and (c) if any such notice of non-extension shall be so given, the term of employment shall end without any further extensions except those occurring prior to the giving of such notice. II. COMPENSATION SECTION 2.1 BASE SALARY. While Employee is employed hereunder, the Company shall pay Employee a base salary of $800,000 per annum or such higher amount or amounts as the Board of Directors of the Company may from time to time approve. The base salary shall be due and payable at the same times and intervals at which salary payments are made to other senior executives. SECTION 2.2 INCENTIVE COMPENSATION. Employee will be entitled to participate in all incentive compensation and bonus -4- plans maintained by the Company for its senior executives generally, including, without limitation, the annual incentive compensation program, the Long-Term Performance Incentive Plan, any Restricted Stock Award Program or their successors. During the term of his employment hereunder, the Employee's annual incentive compensation will be at least 50% of his base salary for each year, payable, with respect to each year, as promptly as practicable in the following year. SECTION 2.3 EXECUTIVE SALARY PROTECTION PLAN. The Company agrees that the Employee will continue to be an "Eligible Executive" for purposes of its Executive Salary Protection Plan. The Company and the Employee have entered into an agreement pursuant to SECTION 4(b) of the Executive Salary Protection Plan, as now in effect, providing for the maximum benefits permitted by said SECTION 4(b) on the basis that the "Recognized Compensation" of the Employee will not be less than $20,833.34. Notwithstanding any provision of such agreement, the Company agrees that, while Employee is employed hereunder, the benefits provided under such agreement at the time of its execution will not be reduced. SECTION 2.4 STOCK OPTIONS. Subject to the provisions of Article III, Employee will be granted stock options covering at least 30,000 shares under the Company's 1986 Stock Incentive Plan, or any successor Plan, in the month of December in each year during the term of this Agreement, such options to vest -5- and become exercisable as to 33 1/3% on each anniversary date of the date of grant. SECTION 2.5 PENSIONS. (a) Employee will continue to participate in the Company's Retirement Plan for Salaried Employees ("Retirement Plan") and in the Company's Supplemental Executive Retirement Plan ("SERP") in accordance with and subject to their respective provisions. In addition, Employee shall be paid a supplementary pension ("Supplementary Pension") equal to such amounts as may be payable under the Retirement Plan and SERP as a result of Employee's service with the Company during the term of this Agreement and thereafter. The Supplementary Pension (payable by the Company from its general assets) shall be a "mirror image" of his Retirement Plan and SERP pensions, and all rights, obligations, elections and limitations of the Retirement Plan and SERP shall apply to his Supplementary Pension except as otherwise provided in paragraphs (b) and (c) below. Employee may not, however, exercise his rights under the Supplementary Pension independently of his rights under his Retirement Plan pension; rights in respect of the Supplementary Pension may be exercised by, and only by, the exercise of the corresponding rights under his Retirement Plan pension. (b) Notwithstanding any provisions of the Retirement Plan or SERP with respect to vesting, the Company hereby guarantees that the aggregate annual amount payable to Employee -6- pursuant to paragraph (a) above, upon retirement, plus any other amounts payable to Employee pursuant to any plan, provision or arrangement (including an amendment to any existing plan) hereafter adopted or installed by the Company for the purpose of replacing or supplementing, in whole or in part, the pension benefits to be provided by the Retirement Plan or SERP (excluding any such amount directly attributable to contributions by Employee), shall not be less than the greater of (i) 50% of the Employee's average annual Pensionable Compensation (as hereinafter defined) for the 60 consecutive calendar months in which the Employee's Pensionable Compensation is highest during the final 180 calendar months of continuous employment ending prior to, or coincident with, the date of the Employee's retirement, or (if earlier) other separation of service, from the Company (the "Employee's Retirement Date") or (ii) 50% of the Employee's Pensionable Compensation during the final 12 calendar month period ending prior to, or coincident with, the Employee's Retirement Date, computed on the basis of a straight life annuity commencing at age 62. "Pensionable Compensation" means the sum of annual base salary and annual incentive compensation payable to Employee from the Company that is regarded as includable "compensation" under the Retirement Plan or SERP (whether or not any portion of such salary or compensation is deferred under any Company plan or program). Notwithstanding the foregoing, for purposes of this SECTION 2.5(b), if more than five annual incentive compensation awards become payable -7- to Employee during the 60 consecutive calendar month period referred to in clause (i) of the first sentence of this SECTION 2.5(b), then only the largest five such awards shall be considered annual incentive compensation during such 60 consecutive calendar month period; and if more than one annual incentive compensation award becomes payable during the 12 calendar month period referred to in clause (ii) of the first sentence of this SECTION 2.5(b), then only the largest such award shall be considered annual incentive compensation during such 12 calendar month period. (c) In the event the aggregate amount payable under paragraph (a) is less than the amount guaranteed under paragraph (b), the Supplementary Pension otherwise payable pursuant to paragraph (a) shall be increased by such difference (after adjusting the increase actuarially to reflect the mode and starting date of payment selected by Employee under the Retirement Plan as in effect at that time of his retirement, if such mode and starting date is different than a straight life annuity commencing at age 62). SECTION 2.6 EMPLOYEE BENEFITS. Employee shall be entitled to participate in and receive rights and benefits under any "fringe" benefit plans which the Company provides for its executives generally, which at the present time include: W. R. Grace & Co. Salaried Employees Savings & Investment Plan -8- - The W. R. Grace & Co. Long Term Disability Income Plan - The W. R. Grace & Co. Voluntary Group Accident Insurance Plan - The W. R. Grace & Co. Business Travel Accident Insurance Plan - The W. R. Grace & Co. Group Life, AD&D, Medical and Disability Plan - The W. R. Grace & Co. Dental Assistance Plan Employee's participation in such plans will be in accordance with and subject to the terms and provisions thereof. SECTION 2.7 MISCELLANEOUS. (a) Company will pay or reimburse Employee for his reasonable business expenses in accordance with Company policies. (b) Employee will be entitled to paid vacation aggregating not less than four weeks during each twelve-month period. Employee will be entitled to payment for unused vacation time in accordance with Company policy. (c) The principal place of employment of Employee will be in Boca Raton, Florida, or such other location as may be mutually agreed upon by the Employee and the Company, subject to the travel requirements inherent in the duties and responsibilities of his position. The Employee will be provided with office and secretarial services commensurate with his position. -9- (d) Subject to SECTION 1.1(a) of this Agreement, compliance with applicable laws relating to interlocking directorships, the Company's policies on conflicts of interest and improper payments and accounting records contained in a statement entitled "Policies on Business Ethics" and to any other applicable Company policy, during the term of Employee's employment hereunder, Employee will be permitted to accept election, and to serve as, a director of other entities. Employee will be permitted to retain all fees and other benefits resulting from his service as a director of any such entity. (e) The Company shall promptly pay upon demand any reasonable legal fees incurred by Employee in connection with any enforcement of his rights under this Agreement. III. TERMINATION SECTION 3.1 TERMINATION OF EMPLOYMENT. The employment of Employee shall terminate prior to the expiration of the term specified in SECTION 1.2 upon the occurrence of any of the following prior to such time: (a) The death of Employee; (b) The termination of Employee's employment due to Employee's disability pursuant to SECTION 3.2; or -10- (c) The termination by the Company of Employee's employment for Cause pursuant to SECTION 3.3. The termination by the Company of Employee's employment hereunder for any reason other than those specified in paragraphs (a), (b) and (c) above shall hereinafter be referred to as a termination "Without Cause". SECTION 3.2 DISABILITY. If, by reason of physical or mental disability, Employee is unable to carry out the duties he has assumed pursuant to this Agreement for four (4) consecutive months, his services hereunder may be terminated by the Company upon two (2) months' written notice to be given to Employee at any time after the period of four (4) continuous months of disability and while such disability continues. If, prior to the expiration of the two (2) months after the giving of such notice, Employee shall recover from such disability and return to the active discharge of his duties, then such notice shall be of no further force and effect and Employee's employment shall continue as if the same had been uninterrupted. If Employee shall not so recover from his disability and return to his duties, then his services shall terminate at the expiration date of such two (2) months' notice. During the period of Employee's disability and until the expiration date of such two (2) months' notice, Employee shall continue to receive all compensation and other benefits provided herein as if he had not been disabled, at the time, in the amounts and in the -11- manner provided herein. In the event a dispute arises between Employee and the Company concerning Employee's physical or mental ability to continue or return to the performance of his duties as aforesaid, Employee shall submit to examination by a competent physician mutually agreeable to both parties, and such physician's opinion as to Employee's ability to so perform will be final and binding. Upon termination of Employee's employment hereunder due to Employee's disability, Employee shall receive annual compensation in an amount equal to the amount which would have been payable to Employee pursuant to SECTION 2.5 hereof based on his years of service at the date of such termination but unreduced for early commencement of such payments. If the termination of Employee's employment hereunder due to Employee's disability occurs prior to age 62, Employee may elect at any time after age 55 and prior to age 62 to receive in lieu of the payments pursuant to the preceding sentence of this SECTION 3.2 the amount payable under SECTION 2.5 hereof computed by giving credit for years of service for the period during which Employee received payments hereunder (but not beyond age 62) but reduced for early commencement as provided in the Retirement Plan and SERP. Any amounts paid to Employee under this SECTION 3.2 shall be reduced by amounts paid to him under SECTION 2.5 hereof. SECTION 3.3 FOR CAUSE. The Company may, at any time by written notice to the Employee, terminate his services here- -12- under for Cause. Such notice shall specify the event or events and the actions or failure to act constituting Cause. The term "Cause", as used herein, shall mean and be limited to the occurrence of one or more of the following events: (a) His conviction, by a court of competent jurisdiction, of a felony, which through lapse of time or otherwise is not subject to appeal; (b) His commission of an act of fraud upon, or an act evidencing material dishonesty toward, the Company; or (c) Any willful failure by him to observe or perform his material agreements herein contained. If the basis for discharge is pursuant to paragraph (c) above, Employee shall have thirty (30) days from his receipt of the notice of termination for Cause to cure the actions or failure to act specified in such notice and, in the event of any such cure within such period, such conduct shall not constitute Cause hereunder. SECTION 3.4 CONSEQUENCES OF TERMINATION. (a) If Employee's employment hereunder shall terminate pursuant to any of the provisions of this Article III, (i) his base salary and incentive compensation referred to in SECTIONSECTION 2.1 and 2.2 shall cease to accrue forthwith; and (ii) no -13- stock options shall thereafter be granted to Employee pursuant to SECTION 2.4. (b) If the Company shall terminate Employee's employment hereunder Without Cause, the Company shall pay Employee monthly severance payments at an annual rate equal to 150% of the Employee's base salary in effect at the time of such termination. Such monthly severance payments shall be made for a period equal to the balance of the term of employment provided for in SECTION 1.2 (without any further extensions of such term of employment except those occurring prior to such termination); provided, however, that the severance payments shall be reduced by one-half the amount of any Earned Income (as hereinafter defined) received by the Employee from other sources for any period such severance payments are payable, and, provided further, that such severance payments shall not thereby be reduced to less than a rate of $60,000 per annum. For the purposes of the foregoing, "Earned Income" shall mean income attributable to the rendition of personal services including salary, bonuses and incentive or other supplementary compensation, whether payable currently or deferred, and whether payable in cash or in property. Benefits attributable to executive or employee stock options, benefit plans or other arrangements of the type referred to in SECTION 2.3 through SECTION 2.7 shall not constitute Earned Income. Incidental honorariums or consulting fees received on an infrequent basis while working full-time for another employer shall not be included in Earned -14- Income. However, consulting fees, finders' fees and other income for personal services (other than directors' fees) received in lieu of employment by others, or received on a regular and continuing basis even if employed by another employer, shall be included in Earned Income. Directors' fees shall not be included in Earned Income. (c) In the event that Employee's employment hereunder shall terminate pursuant to any of the provisions of this Article III, the rights of Employee under any incentive compensation plan referred to in SECTION 2.2, under the executive or employee benefit plans or arrangements referred to in SECTIONSECTION 2.3, 2.5 and 2.6, and under any stock options to Employee granted pursuant to SECTION 2.4, or otherwise, shall be determined in accordance with the terms and provisions of such plans, arrangements and options applicable to an employee whose employment has terminated in the manner that occurred, except that a termination Without Cause shall be treated as a retirement under a retirement plan of the Company for the purposes of SECTION 6(c) of the Company's 1986 Stock Incentive Plan or any comparable provision of any successor plan or other stock option plan of the Company. -15- IV. OTHER COVENANTS OF EMPLOYEE SECTION 4.1 Employee shall have no right, title or interest in any reports, studies, memoranda, correspondence, manuals, records, plans, or other written, printed or otherwise recorded materials of any kind belonging to or in the possession of the Company or its subsidiaries, or in any copies, pictures, duplicates, facsimiles or other reproductions, recordings, abstracts or summaries thereof and Employee will promptly surrender to the Company any such materials (other than materials which have been published or otherwise have lawfully been made available to the public generally) in his possession upon the termination of his employment or any time prior thereto upon request of the Company. SECTION 4.2 Without the prior written consent of the Company, Employee shall not at any time (whether during or after his employment with the Company) use for his own benefit or purposes or for the benefit or purposes of any other person, firm, partnership, association, corporation or business organization, entity or enterprise, or disclose (except in the performance of his duties hereunder) in any manner to any person, firm, partnership, association, corporation or business organization, entity or enterprise, any trade secret, or other confidential or proprietary information, data, know-how or knowledge (including, but not limited to, that relating to manufacturing organization and methods, research and development of products, -16- service techniques, purchasing organization and methods, sales organization and methods, inventories, market development and expansion plans, personnel training and development programs, customer and supplier relationships, and franchising plans and franchisee relationships) belonging to, or relating to the affairs of, the Company or its subsidiaries. SECTION 4.3 Employee shall promptly disclose to the Company (and to no one else) all improvements, discoveries and inventions that may be of significance to the Company or its subsidiaries made or conceived alone or in conjunction with others (whether or not patentable, whether or not made or conceived at the request of or upon the suggestion of the Company during or out of his usual hours of work or in or about the premises of the Company or elsewhere) while in the employ of the Company, or made or conceived within six months after the termination of his employment by the Company, if resulting from, suggested by or relating to such employment. All such improvements, discoveries and inventions shall, to the extent that they are patentable, be the sole and exclusive property of the Company and are hereby assigned to the Company. At the request of the Company and at its cost and without liability to Employee, Employee shall assist the Company, or any person or persons from time to time designated by it, in obtaining the grant of patents in the United States and/or in such other country or countries as may be designated by the Company covering such improvements, discoveries and inventions and shall in connection therewith -17- execute such applications, statements or other documents, furnish such information and data and take all such other action (including, but not limited to, the giving of testimony) as the Company may from time to time request. SECTION 4.4 The obligations of Employee set forth in this Article IV are in addition to and not in limitation of any obligations which would otherwise exist as a matter of law. The provisions of this Article IV shall survive the termination of Employee's employment hereunder. V. CERTAIN REMEDIES SECTION 5.1 BREACH BY THE COMPANY. In the event that the Company shall fail, in any material respect, to observe and perform its obligations hereunder, the Employee may give written notice to the Company specifying the nature of such failure. If within thirty (30) days after its receipt of such notice the Company shall not have remedied such failure, the Employee shall have the right and option to treat such failure as termination of his employment by the Company Without Cause, to cease rendering services hereunder and thereafter to receive the severance benefits and have the other rights and obligations provided for in Article III hereof in the case of a termination by the Company Without Cause. The parties agree that a material breach by the Company for purposes of this SECTION 5.1 shall include, but not be limited to, a material reduction in Employee's authority or responsibilities from those he -18- was exercising on the date of execution of this Agreement. The remedy provided for in this SECTION 5.1 shall be in addition to and not in limitation of any other remedies which would otherwise exist as a matter of law. SECTION 5.2 BREACH BY THE EMPLOYEE. Employee acknowledges and agrees that the Company's remedy at law for any breach of any of Employee's obligations under SECTIONS 1.1(a), 4.1, 4.2 and 4.3 would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in any proceeding that may be brought to enforce any provision of any such sections, without the necessity of proof of actual damage. VI. GENERAL PROVISIONS SECTION 6.1 REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to the Company that he is free to enter into the agreement and that he has no prior or other obligations or commitments of any kind to anyone that would in any way hinder or interfere with his acceptance of, or the full, uninhibited and faithful performance of, his employment hereunder or the exercise of his best efforts as an employee of the Company. SECTION 6.2 UNDERSTANDINGS; AMENDMENTS. Except as otherwise provided herein, or as set forth in Annex A hereto, this Agreement sets forth the entire agreement and understanding of the parties concerning the subject matter hereof and supersedes all prior agreements, arrangements and understandings between -19- Employee and the Company concerning such subject matter. No representation, promise, inducement or statement of intention has been made by or on behalf of either party hereto that is not set forth in this Agreement or the documents referred to herein. This Agreement may not be amended or modified except by a written instrument specifically referring to this Agreement executed by the parties hereto. SECTION 6.3 NOTICES. (a) Any notice or other communication required or permitted to be given hereunder shall be in writing and may either be delivered personally to the addressee or be mailed, registered mail, postage prepaid, as follows: If to the Company: W. R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 with a copy to: Secretary W. R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 If to the Employee: J. P. Bolduc 3000 South Ocean Boulevard Boca Raton, Florida 33432 (b) Either party may change the address to which any such notices or communications are to be directed to it by -20- giving written notice to the other party in the manner provided in the preceding paragraph (a). SECTION 6.4 ASSIGNMENTS; BINDING EFFECT. (a) Employee acknowledges that the services to be rendered by him are unique and personal. Accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. This Agreement shall be binding upon, and to the extent herein permitted shall inure to the benefit of, Employee's heirs, legatees and legal representatives. (b) The Company may not assign this Agreement or its rights hereunder without the written consent of Employee. This Agreement shall be binding upon, and shall inure to the benefit of, the Company's successors and permitted assigns. -21- SECTION 6.5 WAIVERS. The failure of either party hereto at any time or from time to time to require performance of any of the other party's obligations under this Agreement shall in no manner affect the right to enforce any provision of this Agreement at a subsequent time, and the waiver of any rights arising out of any breach shall not be construed as a waiver of any rights arising out of any subsequent breach. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written hereinabove. W. R. GRACE & CO. /s/ J. P. Bolduc By: /s/ Eben W. Pyne J. P. Bolduc Eben W. Pyne, Chairman, Compensation, Employee Benefits and Stock Incentive Committee EX-10.14 3 EXHIBIT 10.14 Exhibit 10.14 STOCK OPTION AGREEMENT Exhibit 10.14 June 30, 1993 Mr. David L. Yunich 1114 Avenue of the Americas New York, NY 10036 Dear Mr. Yunich: As you know, W. R. Grace & Co.-Conn. ("Grace"), a Connecticut corporation, currently holds 600 shares of the common stock of Caswell-Massey Holdings Corporation ("Caswell-Massey"), a Delaware corporation. In consideration of your services in connection with Grace's investment in Caswell-Massey and your services to be rendered to Grace in undertaking to enhance the value of such investment, you are hereby granted an option to purchase 60 shares of the common stock of Caswell-Massey ("Common Stock") held by Grace upon the following terms and conditions: 1. This option ("Option") may be exercised at any time prior to its expiration or termination, in whole but not in part. The purchase price for the Common Stock subject to this Option shall be $450,000. 2. Notwithstanding any other provision hereof, this Option, if it does not earlier terminate in accordance with the provisions hereof, shall expire and cease to be exercisable as of the close of business on June 30, 1996. 3. This Option, if not theretofore exercised, shall terminate one year after any one of the following events (but in no event after June 30, 1996): (a) The date of your death; (b) The date on which you become incapacitated; (c) The date on which you cease to serve as a consultant to Grace. 4. This Option shall be exercised by serving written notice on the Treasurer of Grace. The purchase price shall be paid in cash. Grace may make such provisions as it may deem appropriate for the withholding of any taxes which Grace determines it is required to withhold in connection with this Option. 5. This Option and any right hereunder is non-assignable and non-trans- ferable except by will or the laws of intestate succession. This Option may be exercised during your lifetime only by you, except that in the event of your incapacity, this Option may be exercised by your personal representative. After your death, this Option may be exercised only by your estate or by a person who acquires the right to exercise this Option by will or the laws of intestate succession. 6. In the event that any recapitalization, or 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 Caswell-Massey or a transfer by Caswell-Massey of all or a part of its assets, exchanged for a -2- --- different number or class of shares of stock or other securities of Caswell-Massey or for shares of the stock or other securities of any other corporation, or a record date for determination of holders of Common Stock entitled to receive a dividend payable in Common Stock shall occur, (a) the number and class of shares or other securities that may be purchased pursuant to this Option and the purchase price to be paid per share or other unit shall be equitably adjusted, and (b) all references in this Option to Common Stock or to a specified number of shares of Common Stock shall be deemed amended accordingly. 7. (a) In the event Grace plans to sell or otherwise dispose of shares of Common Stock held by it and the effect of such sale or disposition would be to reduce the number of shares of Common Stock held by Grace to less than 60 shares, Grace shall give you notice of such sale or other disposition not less than 30 days nor more than 180 days prior to the time such sale or disposition is to be effected. (i) If such sale or other disposition is to be effected by means of a Public Offering (as defined below), your right to exercise this Option shall continue for 15 days after the date of such notice. (If you so desire, any such exercise may be made subject to the consummation of the Public Offering.) If you do not exercise this Option during such period of 15 days, this Option shall terminate and no longer be exercisable. (ii) If such sale or disposition is to be a Private Sale (as defined below), such sale shall be made subject to the provisions of this Option and Grace shall -3- --- obtain the agreement of the buyer to carry out and perform this Option in accordance with its terms and provisions. (b) In the event that Grace shall effect a Private Sale of 60 or more shares of Common Stock, Grace may, but shall not be obligated to (except as otherwise provided in subparagraph (a)(ii) above), obtain the agreement of the buyer to assume and carry out the terms and provisions of this Option to the same extent as Grace is obligated. In such event, Grace shall have no further obligation under this Option. (c) For the purposes of this paragraph 7: (i) a "Public Offering" shall mean a distribution of Common Stock effected through underwriters or brokers, any sale of Common Stock effected pursuant to Rule 144 or a similar rule under the Securities Act of 1933, as amended (the "Securities Act"), or any other sale of Common Stock lawfully effected on a national securities exchange or in a recognized over-the-counter market; and (ii) a "Private Sale" shall mean any sale or disposition of Common Stock other than a Public Offering. (d) In the event (i) a tender offer is made for Common Stock or (ii) Grace receives a notice of a meeting of the shareholders of Caswell-Massey at which action will be taken on a proposal: (A) to merge or consolidate Caswell-Massey with one or more other corporations and Caswell-Massey is not to be the surviving corporation, (B) to sell all or substantially all of Caswell-Massey's assets, or -4- --- (C) to dissolve or liquidate Caswell-Massey, Grace may, by written notice to you, declare that such event constitutes a Public Offering within the meaning of this paragraph 7. Such notice shall be deemed in compliance with subparagraph (a) above if it is given on or before the date halfway between the date the tender offer or notice of meeting is received by Grace and the date of expiration of the tender offer or the date of the shareholders' meeting, as the case may be. You shall be deemed to have complied with subparagraph (a)(i) above if you exercise this Option within the period specified in such subparagraph or prior to the date halfway between the date you receive the notice from Grace and the date the tender offer expires or the date of the shareholders' meeting (as the case may be), whichever is earlier. 8. (a) You hereby acknowledge that neither this Option nor the Common Stock subject hereto (the "Shares") has been registered under the Securities Act, and that Grace and Caswell-Massey are relying on the exemptions from the registration requirements of the Securities Act afforded by Sections 4(1) and 4(2) thereof. You acknowledge that neither Grace nor Caswell-Massey is under any obligation to register or qualify this Option or the shares under the Securities Act or any state securities or blue sky law, except that, if and to the extent permitted by any applicable agreements, Grace shall make available to you any registration rights it may have with respect to the Shares. (b) You represent and warrant that you have reviewed and are familiar with the business and affairs of Caswell-Massey, its principal obligations and liabilities, the results of its operations and its financial condition. You further represent and warrant -5- --- that you intend to take, and will hold and take, this Option and any Shares you acquire upon the exercise of this Option, for investment for your own account and not with a view to the resale or distribution thereof. You shall not, at any time or times, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of all or any portion of this Option or the Shares or any interest therein or solicit any offer to buy, purchase or otherwise acquire all or any portion of this Option or the Shares or any interest therein, otherwise than in conformity with (i) the Securities Act, (ii) any other applicable securities laws, and (iii) the terms of any available registration statement covering the Shares. (c) Any Shares issued pursuant to this Option shall bear a legend, in form and substance satisfactory to counsel for Grace, reflecting the provisions of this Option. 9. No Shares shall be transferred pursuant to this Option unless and until all legal requirements applicable to the transfer of such Shares have, in the opinion of counsel to Grace, been complied with. In connection with any such transfer, the person acquiring the Shares shall, if requested by Grace, give assurances satisfactory to Grace's counsel in respect of such matters as Grace may deem desirable to assure compliance with all applicable legal requirements. 10. You understand and acknowledge that your right to exercise this Option and Grace's obligation to transfer shares of Common Stock upon any purported exercise of this Option may be subject to restrictions and limitations imposed upon -6- --- Grace by the terms of certain agreements entered into by Grace in connection with Grace's initial investment in Caswell-Massey (including, but not limited to, the -7- --- restrictions imposed upon Grace under Article 2 of the Stockholders' Agreement dated April 26, 1991 among Grace, Caswell-Massey, Sally Aw Sian, Peter Hsu and Mere Holdings Ltd.) and by the terms of loan agreements and arrangements by which Grace and subsidiaries of Grace are bound, and that such exercise and transfer may, among other things, require consents of third parties. Grace shall endeavor to obtain any consents so required and to obtain waivers of any such restrictions and limitations, but you agree that if Grace is unsuccessful in such endeavors, Grace shall have no liability in the event that such restriction or limitation, or the lack of any such consent, (a) impairs Grace's ability to transfer shares of Common Stock upon any purported exercise of this Option, (b) reduces the value of the shares of Common Stock so transferred to you or (c) otherwise deprives you of the full benefit of this Option or full enjoyment of the rights of a holder of Common Stock. Please indicate your acceptance of this Option and your agreement with the terms and conditions hereof by signing and returning the enclosed copy of this Option. Very truly yours, W. R. GRACE & CO. By: /s/ J. P. BOLDUC ---------------------- J. P. Bolduc, President and Chief Executive Officer Accepted and Agreed to: /s/ DAVID L. YUNICH - ----------------------- David L. Yunich EX-10.15 4 EXHIBIT 10.15 Exhibit 10.15 STOCK OPTION AGREEMENT Exhibit 10.15 June 30, 1993 Mr. David L. Yunich W. R. Grace & Co. 1114 Avenue of the Americas New York, New York 10036 Dear Mr. Yunich: As you know, W. R. Grace & Co. ("Grace"), a New York corporation, currently holds (a) 480,000 shares of the common stock ("Common Stock") of Dean & DeLuca Brands, Inc. ("Dean & DeLuca"), a Delaware corporation, and (b) an option to purchase 100,000 shares of Common Stock at an exercise price of $3.00 per share. In consideration of your services in connection with Grace's investment in Dean & DeLuca and your services to be rendered to Grace in undertaking to enhance the value of such investment, you are hereby granted an option to purchase 58,000 shares of Common Stock held by Grace upon the following terms and conditions: 1. This option ("Option") may be exercised at any time prior to its expiration or termination, in whole but not in part. The purchase price for the Common Stock subject to this Option shall be $280,000. 2. Notwithstanding any other provision hereof, this Option, if it does not earlier terminate in accordance with the provisions hereof, shall expire and cease to be exercisable as of the close of business on June 30, 1996. 3. This Option, if not theretofore exercised, shall terminate one year after any one of the following events (but in no event after June 30, 1996): (a) The date of your death; (b) The date on which you become incapacitated; (c) The date on which you cease to serve as a consultant to Grace. 4. This Option shall be exercised by serving written notice on the Treasurer of Grace. The purchase price shall be paid in cash. Grace may make such provisions as it may deem appropriate for the withholding of any taxes which Grace determines it is required to withhold in connection with this Option. 5. This Option and any right hereunder is non-assignable and non-transferable except by will or the laws of intestate succession. This Option may be exercised during your lifetime only by you, except that in the event of your incapacity, this Option may be exercised by your personal representative. After your death, this Option may be exercised only by your estate or by a person who acquires the right to exercise this Option by will or the laws of intestate succession. 6. In the event that any recapitalization, or 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 Dean & DeLuca or a transfer by Dean & DeLuca of all or a part of its assets, exchanged for a different -2- --- number or class of shares of stock or other securities of Dean & DeLuca or for shares of the stock or other securities of any other corporation, or a record date for determination of holders of Common Stock entitled to receive a dividend payable in Common Stock shall occur, (a) the number and class of shares or other securities that may be purchased pursuant to this Option and the purchase price to be paid per share or other unit shall be equitably adjusted, and (b) all references in this Option to Common Stock or to a specified number of shares of Common Stock shall be deemed amended accordingly. 7. (a) In the event Grace plans to sell or otherwise dispose of shares of Common Stock held by it and the effect of such sale or disposition would be to reduce the number of shares of Common Stock held by Grace to less than 58,000 shares, Grace shall give you notice of such sale or other disposition not less than 30 days nor more than 180 days prior to the time such sale or disposition is to be effected. (i) If such sale or other disposition is to be effected by means of a Public Offering (as defined below), your right to exercise this Option shall continue for 15 days after the date of such notice. (If you so desire, any such exercise may be made subject to the consummation of the Public Offering.) If you do not exercise this Option during such period of 15 days, this Option shall terminate and no longer be exercisable. (ii) If such sale or disposition is to be a Private Sale (as defined below), such sale shall be made subject to the provisions of this Option and Grace shall -3- --- obtain the agreement of the buyer to carry out and perform this Option in accordance with its terms and provisions. (b) In the event that Grace shall effect a Private Sale of 58,000 or more shares of Common Stock, Grace may, but shall not be obligated to (except as other wise provided in subparagraph (a)(ii) above), obtain the agreement of the buyer to assume and carry out the terms and provisions of this Option to the same extent as Grace is obligated. In such event, Grace shall have no further obligation under this Option. (c) For the purposes of this paragraph 7: (i) a "Public Offering" shall mean a distribution of Common Stock effected through underwriters or brokers, any sale of Common Stock effected pursuant to Rule 144 or a similar rule under the Securities Act of 1933, as amended (the "Securities Act"), or any other sale of Common Stock lawfully effected on a national securities exchange or in a recognized over-the-counter market; and (ii) a "Private Sale" shall mean any sale or disposition of Common Stock other than a Public Offering. (d) In the event (i) a tender offer is made for Common Stock or (ii) Grace receives a notice of a meeting of the shareholders of Dean & DeLuca at which action will be taken on a proposal: (A) to merge or consolidate Dean & DeLuca with one or more other corporations and Dean & DeLuca is not to be the surviving corporation, (B) to sell all or substantially all of Dean & DeLuca's assets, or -4- --- (C) to dissolve or liquidate Dean & DeLuca, Grace may, by written notice to you, declare that such event constitutes a Public Offering within the meaning of this paragraph 7. Such notice shall be deemed in compliance with subparagraph (a) above if it is given on or before the date halfway between the date the tender offer or notice of meeting is received by Grace and the date of expiration of the tender offer or the date of the shareholders' meeting, as the case may be. You shall be deemed to have complied with subparagraph (a)(i) above if you exercise this Option within the period specified in such subparagraph or prior to the date halfway between the date you receive the notice from Grace and the date the tender offer expires or the date of the shareholders' meeting (as the case may be), whichever is earlier. 8. (a) You hereby acknowledge that neither this Option nor the Common Stock subject hereto (the "Shares") has been registered under the Securities Act, and that Grace and Dean & DeLuca are relying on the exemptions from the registration requirements of the Securities Act afforded by Sections 4(1) and 4(2) thereof. You acknowledge that neither Grace nor Dean & DeLuca is under any obligation to register or qualify this Option or the shares under the Securities Act or any state securities or blue sky law, except that, if and to the extent permitted by any applicable agreements, Grace shall make available to you any registration rights it may have with respect to the Shares. (b) You represent and warrant that you have reviewed and are familiar with the business and affairs of Dean & DeLuca, its principal obligations and liabilities, the results of its operations and its financial condition. You further represent and warrant -5- --- that you intend to take, and will hold and take, this Option and any Shares you acquire upon the exercise of this Option, for investment for your own account and not with a view to the resale or distribution thereof. You shall not, at any time or times, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of all or any portion of this Option or the Shares or any interest therein or solicit any offer to buy, purchase or otherwise acquire all or any portion of this Option or the Shares or any interest therein, otherwise than in conformity with (i) the Securities Act, (ii) any other applicable securities laws, and (iii) the terms of any available registration statement covering the Shares. (c) Any Shares issued pursuant to this Option shall bear a legend, in form and substance satisfactory to counsel for Grace, reflecting the provisions of this Option. 9. No Shares shall be transferred pursuant to this Option unless and until all legal requirements applicable to the transfer of such Shares have, in the opinion of counsel to Grace, been complied with. In connection with any such transfer, the person acquiring the Shares shall, if requested by Grace, give assurances satisfactory to Grace's counsel in respect of such matters as Grace may deem desirable to assure compliance with all applicable legal requirements. 10. You understand and acknowledge that your right to exercise this Option and Grace's obligation to transfer shares of Common Stock upon any purported exercise of this Option may be subject to restrictions and limitations imposed upon -6- --- Grace by the terms of certain agreements entered into by Grace in connection with Grace's initial investment in Dean & DeLuca (including, but not limited to, the -7- --- restrictions imposed upon Grace under Article 9 of the Stockholders' and Stock Purchase Agreement dated December 8, 1989 among Grace, Dean & DeLuca, Joel Dean and Giorgio DeLuca) and by the terms of loan agreements and arrangements by which Grace and subsidiaries of Grace are bound, and that such exercise and transfer may, among other things, require consents of third parties. Grace shall endeavor to obtain any consents so required and to obtain waivers of any such restrictions and limitations, but you agree that if Grace is unsuccessful in such endeavors, Grace shall have no liability in the event that such restriction or limitation, or the lack of any such consent, (a) impairs Grace's ability to transfer shares of Common Stock upon any purported exercise of this Option, (b) reduces the value of the shares of Common Stock so transferred to you or (c) otherwise deprives you of the full benefit of this Option or full enjoyment of the rights of a holder of Common Stock. Please indicate your acceptance of this Option and your agreement with the terms and conditions hereof by signing and returning the enclosed copy of this Option. Very truly yours, W. R. GRACE & CO. By: /s/ J. P. BOLDUC ----------------------- J. P. Bolduc, President and Chief Executive Officer Accepted and Agreed to: /s/ DAVID L. YUNICH - --------------------- David L. Yunich EX-10.23 5 EXHIBIT 10.23 Exhibit 10.23 CONSULTING AGREEMENT EXHIBIT 10.23 This Agreement is made as of the 16th day of June 1993 by and between National Medical Care, Inc., a Delaware corporation with offices located at 1601 Trapelo Road, Waltham, Massachusetts 02154 (the "Company"), The Humphrey Group, Inc., with offices located at 26 South Main Street, Concord, New Hampshire 03301 (the "Consultant"), and Gordon J. Humphrey ("Humphrey"). WHEREAS, the Company desires to establish two model hemodialysis treatment centers (the "Model Clinics") in The Republic of the Russian Federation ("Russia"); and WHEREAS, Consultant desires to provide consulting services to assist the Company in establishing the Model Clinics under the terms and conditions set forth below. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties to this Agreement agree as follows: 1. ENGAGEMENT. The Company engages Consultant to provide the services described in Section 2 below (which shall be provided by Humphrey) for a period of three (3) months following the execution of this Agreement, and Consultant agrees to provide such services for the compensation set forth in Section 3 below. If the parties agree that the services provided by Consultant during the three months following the execution of this Agreement have been satisfactory and if the Company continues to be interested in proceeding with the establishment of the Model Clinics, the parties will discuss the extension of Consultant's engagement in order to provide continuing consulting services relating to the establishment of Model Clinics. If the parties agree to extend the engagement of Consultant beyond the initial three (3) month period, it is contemplated that the parties will enter into an agreement with a term of two (2) years pursuant to which for a period of five (5) years after the establishment of each hemodialysis treatment center established by the Company in Russia during the term of such agreement or within six (6) months after its termination, Consultant shall be entitled to compensation in an amount equal to seven (7%) percent of the net pre-tax earnings of such hemodialysis treatment center(s). If Consultant is engaged to provide consulting services to assist with the development of the Model Clinics for an additional period of two (2) years beyond the three month term of this Agreement, and if the parties agree that the services provided by Consultant continue to be satisfactory and support the Company's goals in Russia, the parties will discuss the extension of the consulting arrangements for an additional term of three (3) years. -2- Consultant is being engaged as an independent contractor. Consultant is not a partner, employee, agent, or joint venturer with the Company or any of its affiliates. Nothing in this Agreement shall be construed to grant any party the authority to enter into a contract in the name of any other party or any of its affiliates, or to bind any other party or any of its affiliates in any manner. 2. THE SERVICES. Consultant shall make available to the Company the services of Humphrey for purposes of investigating conditions in Russia relating to the provision of dialysis services and the establishment by the company or one of its affiliates of the Model Clinics in Moscow or such other location or locations as the Company determines. The services to be provided by Consultant will include the activities and the development of information regarding the matters listed below, and/or such other activities as the Company and Consultant agree: a. development of relationships with appropriate parties in Russia relating to the establishment and operation of the Model Clinics, and the discussion and negotiation of arrangements relating to the Model Clinics with appropriate parties; b. potential management structures for the entity which will establish and operate the Model Clinics; and c. payment mechanisms for the services and products provided at the Model Clinics. 3. COMPENSATION. The Company shall pay to Consultant, as compensation for services rendered pursuant to this Agreement, Twenty Thousand ($20,000) Dollars per month for a period of three (3) months. The Company shall pay to Consultant the initial monthly payment of Twenty Thousand ($20,000) Dollars upon the execution of this Agreement. The payments of Twenty Thousand ($20,000) Dollars for services rendered during the second and third months shall be paid on the thirty-first (31st) and the sixty-first (61st) days after the execution of this Agreement. In addition to the compensation referred to in the preceding paragraph, the Company shall pay to Consultant reasonable business expenses incurred by Consultant and/or Humphrey in connection with the consulting services provided by Consultant pursuant to this Agreement and for which Consultant provides documentation to the company within thirty days after incurring such expenses. Consultant is responsible for the payment of all local, state and federal income, self-employment, payroll or other applicable taxes on the compensation paid to Consultant pursuant to this Agreement. -3- 4. RESTRICTIONS. Consultant and Humphrey shall use their best efforts in the performance of Consultant's duties hereunder; however, they shall be permitted to engage in any business and perform services for their own account provided that such business and services do not interfere with their duties hereunder, and are not in competition with, or for a person or company that is in competition with the Company or its affiliates. Consultant and Humphrey acknowledge that in the course of performing the Consultant's duties pursuant to this Agreement, they will become privy to various confidential information and trade secrets of the Company and/or its affiliates. Neither Consultant nor Humphrey shall use or disclose to any person, firm or corporation any confidential information or trade secret of the Company or any affiliate of the Company. Upon the termination of this Agreement, Consultant and Humphrey shall return to the Company and/or to its affiliates, as appropriate, all documents and all copies or reproductions of such documents which the Company or such affiliates have informed Consultant or Humphrey contain confidential information or trade secrets. For a period of two (2) years after the delivery of the final Report, neither Consultant nor Humphrey shall enter into any consulting agreement or provide consulting services to any entity that provides dialysis services or dialysis related medical products or proposes to provide dialysis services or dialysis related medical products in the United States or Russia. Consultant and Humphrey acknowledge that the restrictions contained in this Agreement are necessary for the protection of the Company and its affiliates, and that any breach thereof may cause the Company or its affiliates irreparable damage. The Company and its affiliates shall be entitled to injunctive relief to enjoin the breach or threatened breach of such restrictions. The foregoing shall not be treated as a waiver of any other remedies the Company or its affiliates may have in law or in equity. 5. SEVERABILITY. If any provision of this Agreement or its application to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement or its application to other persons or circumstances shall not be affected. Each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6. NOTICES. Any notice given pursuant to this Agreement shall be in writing and delivered by hand or mailed by certified or registered mail/return receipt requested to the parties at the following address: -4- TO THE COMPANY: National Medical Care, Inc. 1601 Trapelo Road Waltham, MA 02154 Attn: Christopher T. Ford TO CONSULTANT OR HUMPHREY: The Humphrey Group, Inc. 26 South Main Street Concord, NH 03301 2100 Attn: Gordon J. Humphrey 7. COMPLETE AGREEMENT. This Agreement contains the entire agreement of the parties as to its subject matter, and supersedes all previous and contemporaneous agreements and understandings, inducements or conditions, expressed or implied, oral or written, between the parties as to the subject matter of this Agreement . 8. WAIVERS. No waiver, modification or change of any of the provisions of this Agreement shall be valid unless in writing and signed by the parties against whom such claimed waiver, modification or change is to be enforced. 9. ASSIGNMENT. Consultant shall not have the right without the Company's prior written consent, to assign its rights or obligations under this Agreement to any other party. 10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties or their authorized representatives have signed this Agreement as of the date first written above. NATIONAL MEDICAL CARE, INC. By:/s/C.L.HAMPERS --------------------------- Its Chief Executive Officer THE HUMPHREY GROUP, INC. By:/s/ GORDON J. HUMPHREY --------------------------- Its President /s/ GORDON J. HUMPHREY --------------------------- Gordon J. Humphrey, individually EX-10.24 6 EXHIBIT 10.24 Exhibit 10.24 Exhibit 10.24 June 30, 1993 MEMORANDUM TO MR. J. R. WRIGHT. JR. This will confirm our mutual understanding that the Employment Agreement ("Agreement") dated August 7, 1989 between you and W. R. Grace & Co. ("Company") is hereby terminated, effective immediately. You understand and agree that such termination renders null, void and of no further force or effect each and every provision of the Agreement, except for Section 3.4 (dealing with severance payments) and Article IV (covering other employee covenants) thereof, which shall remain in full force and effect in accordance with their terms, and except for Section 2.7 (relating to your housing loan), as modified by item 3 below. Notwithstanding the termination of the Agreement, you hereby agree as follows: 1. You agree to remain in the Company's employ through not later than December 31, 1993; provided, however, that you may terminate your employment at any time prior to December 31, 1993 upon 30 days' prior written notice. 2. During the period of your employment under paragraph 1, (a) you shall remain an Executive Vice President of the Company; (b) you shall continue to receive your salary at your current annual rate, as well as all other benefits presently provided to -2- you other than those that were provided to you solely under the Agreement; and (c) you shall continue to devote your attention to the matters for which you are currently responsible (including the responsibilities listed on Schedule A hereto), as well as any other matters that I may reasonably assign to you; provided, however, that your responsibilities as to the Company's container business shall be assigned to another executive during July 1993. 3. Notwithstanding the termination of the Agreement, you understand and agree that the housing loan in the amount of $1,000,000, previously made to you by W. R. Grace & Co.-Conn., a subsidiary of the Company ("Grace Connecticut"), shall remain outstanding and shall be due and payable on August 7, 1999 or, if earlier, the date on which you sell or otherwise dispose of your residence located at Two Ocean Lane, Manalapan, Florida, which loan shall be secured by a mortgage on such residence. You agree to provide Grace Connecticut with such documentation as may be necessary to confirm the foregoing, including a new promissory note representing such loan and a mortgage or similar instrument providing for such security. 4. Following the termination of your employment under paragraph 1 above, you shall be entitled to, and only to, the compensation and benefits set forth below in accordance with and subject to the following terms: A. INCENTIVE COMPENSATION You shall be considered for annual incentive -3- compensation for 1993 based on the financial performance of the Company and your individual performance, receiving consideration for a prorated portion of such incentive compensation should you leave the Company prior to December 31, 1993; provided, however, that your incentive compensation award for 1993 shall not be less than $192,500 (which amount would be prorated if your employment terminates prior to December 31, 1993). B. EXECUTIVE SALARY PROTECTION PLAN AND SPLIT-DOLLAR LIFE INSURANCE PLAN Your participation in the Executive Salary Protection Plan shall cease 30 days following the date of termination of your employment with the Company in accordance with the terms of such Plan. In accordance with the terms of the Split-Dollar Life Insurance Plan, your participation in such Plan will cease upon your termination of employment, although you may purchase the policy from the Company by reimbursing the Company for the premiums paid by the Company in your behalf through the date of termination of your employment. Estimated premiums paid by the Company through December 31, 1993 are expected to total approximately $232,000 for two policy years. C. CONTINUATION OF MEDICAL BENEFIT PLAN COVERAGE Your participation in the medical plan as an active employee shall continue through the end of the month in which your employment terminates, and thereafter, you may continue -4- participation in such plan for up to 18 months by paying to the Company the then applicable employee contribution rate or rates. Such coverage shall continue for 18 months following termination of your employment or, if earlier, the date on which you become eligible to participate in another employer's medical plan. D. LONG-TERM INCENTIVE PLAN The installment payments you are scheduled to receive in March 1994 and March 1995 will be paid to you at the times such scheduled payments are made to other executives (who participated in the 1990-92 Performance Period) in accordance with the terms of the Plan. You will not be recommended for participation in the Long-Term Incentive Plan for any future performance periods. E. STOCK OPTIONS Your December 5, 1991 stock option grant covering 40,000 shares and your December 3, 1992 stock option grant covering 35,000 shares are fully vested. You will have 36 months from the date your employment terminates to exercise such options. The option covering 140,000 shares granted on August 1, 1991 as part of the "Stock Swap Arrangement" will terminate on the date your em- ployment terminates. You will not be recommended for a stock option grant in 1993. F. RESTRICTED STOCK -5- The two remaining installments of 1,925 shares each (granted under your February 6,1992 grant totaling 7,700 shares), scheduled to vest on April 15,1994 and April 15,1995, respectively, will vest upon your termination of employment. In addition, the 38,336 shares of restricted stock granted under the August 1, 1991 "Stock Swap Arrangement" will vest in five equal installments during the five-year period beginning January 31,1997 and ending with the last installment vesting on January 31, 2001. Following is a schedule showing the status, as of June 30,1993, of all restricted shares granted to you from your date of employment without regard to whether such shares are restricted or not restricted:
(1) (2) (3) SHARES SHARES SHARES DATE OF GRANT TOTAL RESTRICTED NOT RESTRICTED (1) 8/7/89 10,000 -0- 10,000 (2) 8/1/91 38,336 38,336 (1) -0- (3) 2/6/92 7,700 3,850 (2) 3,850 ------ ---------- ------ (4) Total 56,036 42,186 13,850 (1 ) Restrictions lapse in five annual installments January 31, 1997 through January 31, 2001. (2) Restrictions lapse on date of termination.
G. DEFERRED COMPENSATION Your deferred compensation balances, estimated at -6- $95,187 (relating to your base salary deferral) and $20,110 (relating to your Savings and Investment Plan Replacement Payment deferral) as of May 30,1993, will be paid in separate lump sums at the end of the month following the month of your termination. H. SAVINGS AND INVESTMENT PLAN Following your termination of employment, you may elect to take a lump sum distribution under the Savings and Investment Plan, defer your distribution out to age 70 1/2 or elect to begin receiving installment payments over a period of up to 10 years, any such election being in accordance with the Plan. Your balance as of June 28, 1993 totals $95,471. I. PENSIONS In lieu of Section 2.5 of the Agreement, which Section is null and void and of no further force or effect, you shall continue to participate in the Company's Retirement Plan for Salaried Employees and in the Supplemental Retirement Plan in accordance with and subject to their respective provisions. As such, you shall continue to accrue credited service for each month you remain employed during the period July 1, 1993 through December 31, 1993, and all compensation (as defined in such Plans) paid to you during such period shall be recognized in your Final Average Compensation for the purpose of determining your retirement benefit under such plans. Under such plans your estimated accrued annual benefit -7- as of June 30, 1993 is $21,610. Assuming continuous service through December 31, 1993 and continuation of your base salary through such date, your estimated accrued benefit would be $24,661. Such accrued benefits would be reduced for early commencement prior to age 62; i.e., by 17% if your benefit were to begin October 1, 1993 (the first date on which you could begin receiving such benefit; i.e., the first of the month following the month in which you reach age 55) or by 16% if you elect to start your benefit on January 1, 1994 J. TERMINATION/SEVERANCE BENEFITS In accordance with and subject to Section 3.4 of the Agreement, Grace will pay you monthly severance payments at the rate of $48,125 ($577,500 per annum) during the period beginning on the first of the month following the month in which your employment terminates (during the period July 1, 1993 through December 31, 1993), and ending July 31,1997. You understand that these amounts are subject to reduction by other "Earned Income" as set forth in such Section 3.4. Section 3.4 provides, in general, that the amount of such monthly severance payments shall be reduced by one-half of the amount of any Earned Income that you receive from other sources for any period that such severance payments are payable to you. In no event, however, shall such severance payments be reduced to less than a rate of $60,000 in per year. For this purpose "Earned Income" shall mean income attributable to the rendering of personal -8- services, including salary, bonuses and incentive or other supplemental compensation, whether payable currently or deferred, or whether payable in cash or in property. Benefits attributable to executive or employee stock options, benefit plans or other arrangements of the types referred to in Sections 2.3 through 2.8 of the Agreement shall not constitute Earned Income. Incidental honorariums or consulting fees received on an infrequent basis while working full-time for another employer shall not be included in Earned Income. However, consulting fees, finders' fees and other income for personal services (other than directors' fees) received in lieu of employment by others, or received on a regular and continuing basis even if employed by another employer, shall be included in Earned Income. Directors' fees shall not be included in Earned Income K. UNUSED VACATION PAYMENT You shall be entitled to paid vacation aggregating not less than four weeks during 1993. You shall be entitled to payment for any unused vacation time in accordance with Company policy at the time your employment terminates. L. LEGAL FEES The Company shall promptly pay upon demand any reasonable legal fees incurred by you in connection with any enforcement of your rights under this Memorandum of Understanding. -9- Please confirm your agreement with the foregoing by signing a copy of this memorandum where indicated below and returning it to me. /s/J. P. Bolduc Accepted and agreed to this 30th day of June, 1993: /s/ JOSEPH R. WRIGHT - --------------------------- Joseph R. Wright, Jr. EX-10.25 7 EXHIBIT 10.25 Exhibit 10.25 Exhibit 10.25 W. R. GRACE & CO. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AS ADOPTED BY W. R. GRACE & CO., A CONNECTICUT CORPORATION, EFFECTIVE OCTOBER 4, l984 AND AMENDED EFFECTIVE MAY 25, l988 ------------------------------------------------- AS ADOPTED AND CONTINUED BY W. R. GRACE & CO., A NEW YORK CORPORATION, EFFECTIVE MAY 25, l988 AND AMENDED EFFECTIVE JANUARY l, l993 W. R. GRACE & CO. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN INTRODUCTION Effective October 4, l984, W. R. Grace & Co., a Connecticut corporation ("Grace Connecticut"), adopted a supplemental executive retirement plan which constitutes in part an "excess benefit plan" under section 3(36) of the Employee Retirement Income Security Act of l974, as amended ("ERISA"), and which constitutes in part an unfunded deferred compensation arrangement for a select group of highly compensated or management employees under section 20l(2) of ERISA, for the Eligible Persons described in the Plan. The W. R. Grace & Co. Supplemental Executive Retirement Plan (the "Plan") was amended effective May l, l988 for all Eligible Persons who terminate service on or after such date. As a result of a corporate reorganization whereby Grace Connecticut became a subsidiary of W. R. Grace & Co., a New York corporation ("Grace New York") (and was renamed "W. R. Grace & Co.-Conn."), Grace Connecticut amended the Plan (as set forth herein), effective May 25, l988, and Grace New York adopted and assumed the sponsorship of the Plan, as amended, as of such date, for the benefit of all Eligible Persons and other persons who, on the immediately preceding date, were participants in the Plan (as maintained by Grace Connecticut) and all other employees of Grace New York or its subsidiaries who on or after May 25, l988 become Eligible Persons or otherwise covered under the Plan. Grace New York last amended the Plan, effective as of January l, l989, with respect to all Eligible Persons who terminate service on or after such date. Grace New York now desires to amend the Plan, effective as of January 1, 1993, with respect to all Eligible Persons who terminate service on or after such date, to provide for vesting of benefits that is consistent with vesting under the Salaried Retirement Plan. * * * SECTION 1 DEFINITIONS When used herein, the words and phrases defined hereinafter shall have the following meanings unless a different meaning is clearly required by the context of the Plan. 1.01 Affiliate: Any corporation or trade or business (other than the Company) that is treated under the first sentence of section 4l4(b) or under section 4l4(c) of the Code as constituting the same "employer" as the Company, during the period of controlled status thereunder. 1.02 Board of Directors: The Board of Directors of the Company. 1.03 Code: The Internal Revenue Code of l986, as amended. 1.04 Committee: The Salary, Incentive Compensation and Employee Benefits Committee of the Board of Directors. 1.05 Company: W. R. Grace & Co., a New York corporation. Prior to May 25, l988, the term "Company" meant W. R. Grace & Co., a Connecticut corporation. -2- 1.06 Effective Date: October 4, l984. 1.07 Eligible Person: A person who is described in Section 2 as eligible to receive benefits under the Plan. 1.08 Employee: An Employee of the Company or an Affiliate under the Plan. 1.09 Employing Unit: Any employing unit described in Section l.l4 of the Grace Salaried Plan. 1.10 Grace Salaried Plan: W. R. Grace & Co. Retirement Plan for Salaried Employees (including the "old plans" and "predecessor plans" defined therein and the plans merged therein). Any reference to a section of the Grace Salaried Plan shall include the corresponding section of any future text thereof. 1.11 Plan: W. R. Grace & Co. Supplemental Executive Retirement Plan. -3- 1.12 Masculine pronouns used herein shall refer to men or women or both and nouns and pronouns when stated in the singular shall include the plural and when stated in the plural shall include the singular, wherever appropriate. 1.13 Any reference in the Plan to a "Section" shall refer to a Section of the Plan unless otherwise specified. -4- SECTION 2 ELIGIBILITY AND VESTING 2.01 Any Employee who (i) is accruing credited service (as defined in section 4.0l of the Grace Salaried Plan) under the Grace Salaried Plan on or after the Effective Date of the Plan, (ii) has an annual base salary of at least $75,000 at any time during the period that he is accruing such credited service under the Grace Salaried Plan, and (iii) satisfies the provisions of Section 2.04 shall be eligible to receive benefits under this Plan in accordance with Section 3 of the Plan. 2.02 If so designated by the Board of Directors, (A) an Employee who (i) accrued credited service (as defined in Section 2.0l above) under the Grace Salaried Plan prior to (but not on or after) the Effective Date of the Plan (and whose benefits under the Grace Salaried Plan have not commenced prior to such designation), (ii) has an annual base salary of at least $75,000 on or after the Effective Date of the Plan while still employed by the Company or an Affiliate, and (iii) satisfies the provisions of Section 2.04, or (B) an Employee who (i) is accruing credited service (as defined in Section 2.0l above) under the Grace Salaried Plan on or after the Effective Date of the Plan, (ii) has an annual base salary of at least $75,000 at any time after (but not during) the period that he is accruing credited service (as defined in Section 2.0l above) under the Grace Salaried Plan, and (iii) satisfies the provisions of Sec tion 2.04 shall be eligible to receive benefits under the Plan in accordance with Section 3 of the Plan. -5- 2.03 If so designated by the Board of Directors, an Employee who (i) is not accruing and never has accrued credited service (as defined in Section 2.0l above) under the Grace Salaried Plan, (ii) is an Employee of the Company or an Affiliate on or after the Effective Date of the Plan, (iii) has an annual base salary of at least $75,000 at any time while employed by the Company or an Affiliate, and (iv) satisfies the provisions of Section 2.04 shall be eligible to receive benefits under the Plan in accordance with Section 3 of the Plan. 2.04 An Eligible Person must terminate service with the Company and its Affiliates on or after the earliest of (i) the date he attains age 55, (ii) the date he completes at least ten (l0) years of vesting service, effective January 1, 1988 (or, effective January l, l989, the date he completes at least five (5) years of vesting service) (as defined in Section l.38 of the Grace Salaried Plan) or (iii) the date as of which he otherwise becomes vested under the Grace Salaried Plan, in order to be eligible to receive benefits, if any, under the Plan. The benefits, if any, provided under the Plan to an Eligible Person shall vest upon the earliest of (i) his attainment of age 55, (ii) his completion of at least ten (l0) years of vesting service (effective January l, l989, five (5) years of vesting service) (as defined in Section l.38 of the Grace Salaried Plan) or (iii) the date as of which he otherwise becomes vested under the Grace Salaried Plan. In the event that an Eligible Person terminates service with the Company and its Affiliates prior to the date his benefits become vested in accordance with this Section 2.04, he shall be entitled to no benefits under the Plan. Notwithstanding the foregoing, in the event that an -6- Eligible Person terminates service with the Company and its Affiliates by reason of death prior to the date his benefits become vested in accordance with this Section 2.04, benefits under the Plan will be payable in respect of him to the extent provided in Section 3.05 or Section 3.09. -7- SECTION 3 BENEFITS 3.01 The monthly benefit payable to an Eligible Person under the Plan shall be equal to the excess, if any, of (a) The amount of the monthly benefit which would be payable to such Eligible Person under the Grace Salaried Plan if the provisions set forth in the Grace Salaried Plan to comply with the benefit limitations of section 4l5 of the Code, the compensation limitations of section 40l(a)(l7) of the Code and any other Code provisions that become effective after December 3l, l988 which similarly limit the amount of retirement benefit that may be accrued under the Grace Salaried Plan were inapplicable, and determined in accordance with the following additional principles: (i) credited service (as defined in section 4.0l of the Grace Salaried Plan) shall include any period of employment, or period of disability which satisfies the provisions of section 6 of the Grace Salaried Plan, not otherwise credited under the Grace Salaried Plan, prior to the date he attains age 70 in the case of an Eligible Person who terminates service with the Company and its affiliates prior to January l, l988 and any period of employment after the date he attains age 70, in the case of an Eligible Person who terminates service with the Company and its Affiliates after -8- December 3l, l987, with a division of the Company or an Affiliate, which does not participate in the Grace Salaried Plan (other than (A) any period during which the Eligible Person was satisfying the eligibility requirements of the Grace Salaried Plan, (B) any period that an Eligible Person declined to contribute to the Grace Salaried Plan (while eligible to do so), (C) any period that an Eligible Person waived participation in the Grace Salaried Plan, or (D) any period that service was interrupted in the case of authorized leave of absence for a reason other than for disability). Subject to the foregoing, an Eligible Person will be credited with a month of credited service for any calendar month during any part of which he was employed or disabled as described above; provided, however, that in the event that an Eligible Person terminates service with the Company and all Affiliates during or after such period of employment and is subsequently re-employed by the Company or an Affiliate, any period of such employment or disability prior to such re-employment shall be restored as credited service hereunder, but if an Eligible Person so terminates service (whether or not prior to January l, l976) and is not vested to any extent in an employer-derived accrued benefit under the Grace Salaried Plan at the time of such termination and his number of one-year breaks in service (as defined in section l.22 of the Grace Salaried Plan) -9- following such termination equal or exceed his years of vesting service (as defined in section l.38 of the Grace Salaried Plan) rendered prior to re-employment, such period shall not be restored as credited service hereunder, and provided further that any credited service hereunder in respect of a period of employment during which the Grace Salaried Plan was contributory shall be reduced by 30% thereof; (ii) compensation (as defined in section l.07 of the Grace Salaried Plan) shall include any amount of (A) incentive compensation (not otherwise included thereunder) which an Eligible Person elected to defer (and hence did not receive on a current basis) at any time after the effective date of the Grace Salaried Plan, (B) "regular" or base salary (not otherwise included thereunder) which an Eligible Person elected to defer (and hence did not receive on a current basis) with respect to periods after December 3l, l987 and (C) annual compensation in excess of $200,000 that would otherwise be recognized under the Grace Salaried Plan but for the limitations of Section 40l(a)(l7) of the Code with respect to periods after December 3l, l988; provided, however, that in the event that an Eligible Person terminates service with the Company and all Affiliates and is subsequently re-employed by the Company or an Affiliate, any such incentive compensation and "regular" or base -10- salary which an Eligible Person elected, prior to such re-employment, to defer and any such annual compensation in excess of $200,000 shall be credited hereunder only to the extent that the month in which such incentive compensation and "regular" or base salary would otherwise have been paid and the month in which such excess compensation was paid would be restored as credited service under the re-employment rules set forth in Section 3.0l(a)(i); (iii) in the case of an Eligible Person described in Section 2.03, the provisions of Section 3.0l(a) shall be applied as if a monthly benefit were payable to the Eligible Person under the Grace Salaried Plan (even though he was never employed by the Company or an Employing Unit) and as if such Eligible Person were required to satisfy the eligibility provisions of the Grace Salaried Plan. over (b) (i) in the case of an Eligible Person described in Section 2.0l or 2.02, the amount of the monthly benefit actually payable to such Eligible Person under the Grace Salaried Plan (including any increase provided for in section 5.03(6) of the Grace Salaried Plan), and -11- (ii) in the case of an Eligible Person described in Section 2.0l, 2.02, or 2.03, the amount deemed payable for purposes of the Plan under any other defined benefit plan (as defined in section 3(35) of ERISA) or defined contribution plan (as defined in section 3(34) of ERISA) maintained by the Company or an Affiliate (except the W. R. Grace & Co. Salaried Employees Savings and Investment Plan and the Dearborn Chemical Company Salaried Employees Savings and Investment Plan), or any deferred compensation agreement or arrangement entered into by such Eligible Person and the Company or an Affiliate, or maintained by the Company or an Affiliate (other than (A) the deferral of incentive compensation referred to in Section 3.0l(a)(ii), (B) the Incentive Compensation Plan for Key Employees of El Torito-La Fiesta Restaurants, Inc., (C) the Natural Resources Group Long Term Incentive Plan, (D) the W. R. Grace & Co. Performance Incentive Plan, (E) the Teal Incentive Compensation Plan, (F) any other plan, program, arrangement or contract which by its terms provides that compensation thereunder should not be an offset under the Plan, and (G) any other agreement or arrangement which the Board of Directors or the Committee determines should not be an offset under the Plan in whole or in part). 3.02 In the case of an Eligible Person described in Section 2.0l or 2.02, the calculation of the monthly benefit -12- described in Section 3.0l(a) above shall be based upon the same form of benefit, benefit commencement date, and other factors and assumptions actually used to calculate the monthly benefit described in Section 3.0l(b)(i) above. If the benefit payable under any other defined benefit plan is aggregated with the benefit payable under the Grace Salaried Plan for purposes of applying the limitations of section 4l5 of the Code, then the benefit payable under any such defined benefit plan shall be aggregated with the benefit payable under the Grace Salaried Plan in the calculation of Section 3.0l(a) and Section 3.0l(b)(i) above. 3.03 In the case of an Eligible Person described in Section 2.0l, 2.02, or 2.03, the amount deemed payable for purposes of the Plan under any defined benefit plan described in Section 3.0l(b)(ii) shall be the amount that would be payable thereunder in respect of years of credited service taken into account under Section 3.0l(a) in the form of benefit applicable to the Eligible Person under Section 3.0l(a) commencing at the age that the benefit under Section 3.0l(a) commences. The amount deemed payable under any defined contribution plan described in Section 3.0l(b)(ii) shall be the amount that would be payable thereunder at the date that the benefit under Section 3.0l(a) commences, multiplied by a fraction whose numerator is the number of years that the Eligible Person participated in such defined contribution plan and that are credited under Section 3.0l(a) concurrently, and whose denominator is the number of years that the Eligible Person participated in such defined contribution plan, converted to the form of benefit applicable to the Eligible Person under Section 3.0l(a) commencing at the -13- age that the benefit under Section 3.0l(a) commences using the UP-84 mortality table and an interest rate equal to the rate, as of the first day of the calendar quarter in which the benefit under Section 3.0l(a) commences, used by the Pension Benefit Guaranty Corporation to value immediate annuities under trusteed pension plans which terminate as of such date. The amount deemed payable under any deferred compensation agreement or arrangement described in Section 3.0l(b)(ii) shall be the amount that would be payable thereunder at the date that the benefit under Section 3.0l(a) commences, converted to the form of benefit applicable to the Eligible Person under Section 3.0l(a) commencing at the age that the benefit under Section 3.0l(a) commences using the actuarial assumptions set forth in section 5.06(a) and (b) of the Grace Salaried Plan if the amount payable under such agreement or arrangement is in the form of periodic payments or using the actuarial assumptions applicable in the case of a defined contribution plan if the amount payable under such agreement or arrangement is in the form of a lump sum. 3.04 In the case of an Eligible Person described in Section 2.0l or 2.02, the monthly benefit under the Plan shall be payable coincident with the payment of a monthly benefit under the Grace Salaried Plan, provided that no monthly benefit under the Plan shall be payable in respect of any period prior to the Effective Date of the Plan. 3.05 In the case of an Eligible Person described in Section 2.0l or 2.02, such Eligible Person's joint annuitant, beneficiary, or surviving spouse referred to in section 7.02 of the Grace Salaried Plan shall become entitled to benefits as provided under Section 3 if such joint -14- annuitant, beneficiary, or surviving spouse shall become entitled to benefits (in such capacity) under the Grace Salaried Plan. Notwithstanding any provision of the Plan, in the event that an Eligible Person's joint annuitant, beneficiary, or surviving spouse referred to above shall become entitled to benefits (in such capacity) under the Grace Salaried Plan, and the provisions of the Grace Salaried Plan do not preclude such joint annuitant, beneficiary, or surviving spouse from receiving all or part of the benefit provided thereunder for such person, then the Grace Salaried Plan shall pay such benefit to the extent permitted under the Grace Salaried Plan (and no amount duplicating such benefit shall be payable under the Plan). 3.06 In the case of an Eligible Person described in Section 2.0l or 2.02, in the event that such an Eligible Person (or his joint annuitant, beneficiary, or surviving spouse referred to in section 7.02 of the Grace Salaried Plan) ceases to receive benefits under the Grace Salaried Plan for any reason, he (or she) shall cease to be eligible to receive benefits under the Plan. 3.07 In the case of an Eligible Person described in Section 2.03, the monthly benefit under the Plan shall be based upon the form of benefit, benefit commencement date, and other factors and assumptions which would have been applicable to him under the Grace Salaried Plan if he were a participant in the Grace Salaried Plan (as defined in section l.24 of the Grace Salaried Plan). 3.08 In the case of an Eligible Person described in Section 2.03, the monthly benefit under the Plan shall be payable -15- coincident with the payment of a monthly benefit which would have been made under the Grace Salaried Plan if he were a participant in the Grace Salaried Plan (as defined in section l.24 of the Grace Salaried Plan). 3.09 In the case of an Eligible Person described in Section 2.03, such Eligible Person's joint annuitant, beneficiary, or surviving spouse referred to in section 7.02 of the Grace Salaried Plan shall become entitled to benefits as provided under Section 3 if such joint annuitant, beneficiary, or surviving spouse would have become entitled to benefits (in such capacity) under the Grace Salaried Plan if such Eligible Person had been a participant in the Grace Salaried Plan (as defined in section l.24 of the Grace Salaried Plan). 3.10 In the case of an Eligible Person described in Section 2.03, in the event that such an Eligible Person (or his joint annuitant, beneficiary, or surviving spouse referred to in section 7.02 of the Grace Salaried Plan) would cease to receive benefits under the Grace Salaried Plan if he were a participant in the Grace Salaried Plan (as defined in section l.24 of the Grace Salaried Plan), he (or she) shall cease to be eligible to receive benefits under the Plan. 3.11 The monthly benefits described in Sections 3.01(a) and 3.01(b)(i) are payable in the form of a straight life annuity commencing as of or after the first day of the month after an Eligible Person attains age 65 (except to the extent that a different form of benefit, or benefit commencement date, or both, is applicable, or would be -16- applicable, to the Eligible Person under the Grace Salaried Plan). 3.12 The benefits payable under the Plan shall be paid by the Company or a subsidiary of the Company, as the case may be, out of its general assets and shall not be funded in any manner. 3.13 In the event that an Eligible Person who has terminated service with the Company and its Affiliates elects to defer the commencement of his benefits under the Grace Salaried Plan, he may apply to the Committee for a deferral of his benefits under the Plan in order to prevent constructive receipt of such benefits, provided that the Committee shall in its sole discretion decide whether to grant such application. The grant or denial of any such application shall not alter or limit the provisions of Sections 3.04 and 3.08 of the Plan. 3.l4 Notwithstanding any other provision of the Plan, in the event that the service of a "participant" in the Grace Salaried Plan (or an employee described in section 2.0l(2) of the Grace Salaried Plan who has not yet completed a "year of service" under the Grace Salaried Plan) is terminated at Company request on account of layoff during the period from October 3l, l986 to January 3l, l987 (or up to April 30, l987 in case of business necessity), and, as of the date of his Termination of Service, such participant (or such employee) (i) has attained age 50, (ii) earns a base salary of $75,000 or more, and (iii) is employed on the corporate staff at the main office of W. R. Grace & Co., each such participant or employee shall receive the following monthly benefits, commencing as of -17- the date that his benefits under the Grace Salaried Plan commence (or would commence, if no such benefit is payable, or if section 5.l4 of the Grace Salaried Plan applied to him), (A) a benefit determined with respect to the participant (or employee) under section 5.02(l)(a) of the Grace Salaried Plan based on five years of "credited service" under the Grace Salaried Plan (or the period until his attainment of age 70, if less) payable in the form applicable to such participant or employee in accordance with the terms of the Grace Salaried Plan (without reduction for early commencement); (B) in the case of such a participant in the Grace Salaried Plan who has attained age 50 (but not age 55) and has less than l0 years of "vesting service" under the Grace Salaried Plan, a benefit equal to the benefit accrued by such participant under section 5.02 of the Grace Salaried Plan which was forfeited by him upon termination of service payable in the form which would have been applicable to such participant in accordance with the terms of the Grace Salaried Plan (without reduction for early commencement); and (C) a benefit equal to the amount, if any, by which the benefit payable to such participant under the Grace Salaried Plan (without reduction for early commencement) exceeds the benefit actually payable to such participant under the Grace Salaried Plan. -18- SECTION 4 ADMINISTRATION 4.01 The Plan shall be administered by the Salary, Incentive Compensation and Employee Benefits Committee (or its designee) in accordance with its terms and purposes. The Committee (or its designee) shall determine the amount and manner of payment of the benefits under the Plan. 4.02 The decisions made and the actions taken by the Committee (and its designee) in the administration of the Plan shall be final and conclusive on all persons, and the Committee, its members, and its designees shall not be subject to liability with respect to the Plan. 4.03 The Committee shall have the sole responsibility for the administration of the Plan and shall have the exclusive right to interpret the provisions of the Plan and to determine any question arising thereunder or in connection with the administration of the Plan, including the remedying of any omissions, inconsistency, or ambiguity, and its decision or action in respect thereof shall be conclusive and binding on all persons. -19- SECTION 5 AMENDMENT AND TERMINATION 5.01 The Board of Directors may amend or terminate the Plan with respect to future periods at any time for whatever reason it may deem appropriate. In the event of termination of the Plan, no person shall be entitled to accrue additional benefits under the Plan with respect to any period after the effective date of termination determined by the Board of Directors; provided, however, that any benefits under the Plan accrued prior to the effective date of the termination determined by the Board of Directors shall not be reduced on account of such termination. Notwithstanding the foregoing, the provisions of Section 2.04 shall continue to be applicable to an Eligible Person, unless the Board of Directors elects to waive such provisions in order to vest all Eligible Persons in any such benefits provided under the Plan even if such an Eligible Person terminates service with the Company and its Affiliates prior to the date he attains age 55 or, effective January l, l988, prior to the date he completes at least ten (l0) years of vesting service (effective January l, l989, prior to the date he completes at least five (5) years of vesting service) (as defined in Section l.38 of the Grace Salaried Plan). -20- SECTION 6 MISCELLANEOUS 6.01 Nothing contained in the Plan shall be construed as a contract of employment between the Company and an Eligible Person, or as a right of any Eligible Person to continue in the employ of the Company or as a limitation of the right of the Company to discharge any Eligible Person, with or without cause. 6.02 The benefits payable under the Plan may not be assigned or alienated. 6.03 The Plan shall be governed, to the extent provided thereunder, by the Employee Retirement Income Security Act of l974 and to the extent not preempted, by the laws of the State of New York. EX-22 8 EXHIBIT 22 January 18, 1994 Exhibit 22 W. R. GRACE & CO. ___________________ SUBSIDIARY LIST _______________ Attached is a list of subsidiaries of W. R. Grace & Co. Each of the companies is organized under the laws of the jurisdiction under which it is listed and in the case of each United States company, under the laws of the state following its name. The percentage given for each company represents the percentage of voting securities of such company owned. W. R. Grace & Co.-Conn. is a wholly owned subsidiary of W. R. Grace & Co. Unless otherwise indicated, W. R. Grace & Co.-Conn. is the owner of the stock of each subsidiary listed. The indicated percentage of the voting securities of each company marked "(A)" is owned either (a) jointly by W. R. Grace & Co.-Conn. and one or more of its domestic or foreign wholly owned subsidiaries, or (b) solely by one or more of such wholly owned subsidiaries and/or wholly-owned subsidiaries thereof. The indicated percentage of the voting securities of each company marked "(B)" is owned directly by one or more wholly-owned subsidiaries of W. R. Grace & Co. and/or wholly-owned subsidiaries thereof, they are NOT owned through W. R. Grace & Co.-Conn. Also attached is a list of partnerships in which W. R. Grace & Co. Conn., or one of its subsidiaries, is a partner and a list of investments (at least 20% but not more than 50%) held by W.R. Grace & Co. or W.R. Grace & Co.-Conn. and/or one or more of its subsidiaries. SUBSIDIARIES ------------ United States ------------- (A) A-1 Bit & Tool Co., Inc. (Delaware 100%) ABS International, Inc. (Delaware 100%) AG CHEM International, Inc. (Delaware 100%) Agracetus, Inc. (Delaware 100%) (A) Alewife Boston Ltd. (Massachusetts 100%) (A) Alewife Land Corporation (Massachusetts 100%) (A) Amasi Medical Group, Inc. (California 100%) (B) Ambulatory Care Associates, Inc. (Delaware 100%) (B) American Home Therapies, Inc. (Maryland 100%) American Homecare Equipment, Inc. (Virginia 100%)+ (A) Amicon, Inc. (Delaware 100%) Antilles Chemical Company (Delaware 100%) (A) Babcock Artificial Kidney Center, Inc. (Massachusetts 100%) Berisford Cocoa Sales, Inc. (New Jersey 100%)*** (A) Bio-Medical Applications Home Dialysis Services, Inc. (Delaware 100%) (A) Bio-Medical Applications Management Company, Inc. (Delaware 100%) (A) Bio-Medical Applications of Aguadilla, Inc. (Delaware 100%) - ------------------ *** Inactive. + Owned directly by W. R. Grace & Co. - 2 - (A) Bio-Medical Applications of Alabama, Inc. (Delaware 100%) (A) Bio-Medical Applications of Alameda County, Inc. (Delaware 100%) (A) Bio-Medical Applications of Anacostia, Inc. (Delaware 100%) (A) Bio-Medical Applications of Arecibo, Inc. (Delaware 100%) (A) Bio-Medical Applications of Arizona, Inc. (Delaware 100%) (A) Bio-Medical Applications of Arkansas, Inc. (Delaware 100%) (A) Bio-Medical Applications of Bakersfield, Inc. (Delaware 100%) (A) Bio-Medical Applications of Bayamon, Inc. (Delaware 100%) (A) Bio-Medical Applications of Blue Springs, Inc. (Delaware 100%) (A) Bio-Medical Applications of Boston, Inc. (Delaware 100%) (A) Bio-Medical Applications of Brockton, Inc. (Delaware 100%) (A) Bio-Medical Applications of Caguas, Inc. (Delaware 100%) (A) Bio-Medical Applications of California, Inc. (Delaware 100%) (A) Bio-Medical Applications of Camarillo, Inc. (Delaware 100%) (A) Bio-Medical Applications of Cape Cod, Inc. (Delaware 100%) (A) Bio-Medical Applications of Capitol Hill, Inc. (Delaware 100%) (A) Bio-Medical Applications of Carolina, Inc. (Delaware 100%) (A) Bio-Medical Applications of Carson, Inc. (Delaware 100%) (A) Bio-Medical Applications of Central Baltimore, Inc. (Delaware 100%) (A) Bio-Medical Applications of Chicopee, Inc. (Delaware 100%) (A) Bio-Medical Applications of Chula Vista, Inc. - 3 - (Delaware 100%)*** (A) Bio-Medical Applications of Clinton, Inc. (Delaware 100%) (A) Bio-Medical Applications of Colorado, Inc. (Delaware 100%) (A) Bio-Medical Applications of Columbia Heights, Inc. (Delaware 100%) (A) Bio-Medical Applications of Delaware, Inc. (Delaware 100%) (A) Bio-Medical Applications of Dover, Inc. (Delaware 100%) (A) Bio-Medical Applications of Dublin, Inc. (Delaware 100%) (A) Bio-Medical Applications of East Orange, Inc. (Delaware 100%) (A) Bio-Medical Applications of Essex, Inc. (Delaware 100%) (A) Bio-Medical Applications of Eureka, Inc. (Delaware 100%) (A) Bio-Medical Applications of Fajardo, Inc. (Delaware 100%) (A) Bio-Medical Applications of Fayetteville, Inc. (Delaware 100%) (A) Bio-Medical Applications of Florida, Inc. (Delaware 100%) (A) Bio-Medical Applications of Framingham, Inc. (Delaware 100%) (A) Bio-Medical Applications of Fremont, Inc. (Delaware 100%) (A) Bio-Medical Applications of Fresno, Inc. (Delaware 100%) (A) Bio-Medical Applications of Georgia, Inc. (Delaware 100%) (A) Bio-Medical Applications of Glendora, Inc. (Delaware 100%) (A) Bio-Medical Applications of Guayama, Inc. (Delaware 100%) (A) Bio-Medical Applications of Hayward, Inc. (Delaware 100%) (A) Bio-Medical Applications of Hillside, Inc. (Delaware 100%) - ------------------ *** Inactive. - 4 - (A) Bio-Medical Applications of Hoboken, Inc. (Delaware 100%) (A) Bio-Medical Applications of Humacao, Inc. (Delaware 100%) (A) Bio-Medical Applications of Illinois, Inc. (Delaware 100%) (A) Bio-Medical Applications of Indiana, Inc. (Delaware 100%) (A) Bio-Medical Applications of Irvington, Inc. (Delaware 100%) (A) Bio-Medical Applications of Jersey City, Inc. (Delaware 100%) (A) Bio-Medical Applications of Kentucky, Inc. (Delaware 100%) (A) Bio-Medical Applications of La Mesa, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of Las Americas, Inc. (Delaware 100%) (A) Bio-Medical Applications of Long Beach, Inc. (Delaware 100%) (A) Bio-Medical Applications of Los Angeles, Inc. (Delaware 100%) (A) Bio-Medical Applications of Los Gatos, Inc. (Delaware 100%) (A) Bio-Medical Applications of Louisiana, Inc. (Delaware 100%) (A) Bio-Medical Applications of Maine, Inc. (Delaware 100%) (A) Bio-Medical Applications of Manchester, Inc. (Delaware 100%) (A) Bio-Medical Applications of Maryland, Inc. (Delaware 100%) (A) Bio-Medical Applications of Massachusetts, Inc. (Delaware 100%) (A) Bio-Medical Applications of Mayaguez, Inc. (Delaware 100%) (A) Bio-Medical Applications of Medford, Inc. (Delaware 100%) (A) Bio-Medical Applications of Michigan, Inc. (Delaware 100%) (A) Bio-Medical Applications of Mission Hills, Inc. (Delaware 100%) - ------------------ *** Inactive. - 5 - (A) Bio-Medical Applications of Mississippi, Inc. (Delaware 100%) (A) Bio-Medical Applications of Missouri, Inc. (Delaware 100%) (A) Bio-Medical Applications of MLK, Inc. (Delaware 100%) (A) Bio-Medical Applications of National City, Inc. (Delaware 100%)*** (A) Bio-Medical Applications New Hampshire, Inc. (Delaware 100%) (A) Bio-Medical Applications of New Jersey, Inc. (Delaware 100%) (A) Bio-Medical Applications of New Mexico, Inc. (Delaware 100%) (A) Bio-Medical Applications of New York, Inc. (Delaware 100%) (A) Bio-Medical Applications of Newington, Inc. (Delaware 100%) (A) Bio-Medical Applications of North Carolina, Inc. (Delaware 100%) (A) Bio-Medical Applications of North City, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of Northeast D.C., Inc. (Delaware 100%) (A) Bio-Medical Applications of Oakland, Inc. (Delaware 100%) (A) Bio-Medical Applications of Ohio, Inc. (Delaware 100%) (A) Bio-Medical Applications of Oklahoma, Inc. (Delaware 100%) (A) Bio-Medical Applications of Pennsylvania, Inc. (Delaware 100%) (A) Bio-Medical Applications of Pine Brook, Inc. (Delaware 100%) (A) Bio-Medical Applications of Ponce, Inc. (Delaware 100%) (A) Bio-Medical Applications of Port Orange, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of Puerto Rico, Inc. (Delaware 100%) - ------------------ *** Inactive. - 6 - (A) Bio-Medical Applications of Quincy, Inc. (Delaware 100%) (A) Bio-Medical Applications of Rhode Island, Inc. (Delaware 100%) (A) Bio-Medical Applications of Rio Piedras, Inc. (Delaware 100%) (A) Bio-Medical Applications of San Diego, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of San German, Inc. (Delaware 100%) (A) Bio-Medical Applications of San Juan, Inc. (Delaware 100%) (A) Bio-Medical Applications of Sarasota, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of South Carolina, Inc. (Delaware 100%) (A) Bio-Medical Applications of South Queens, Inc. (Delaware 100%) (A) Bio-Medical Applications of Southeast San Diego, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of Southeast Washington, Inc. (Delaware 100%) (A) Bio-Medical Applications of Southeastern Massachusetts, Inc. (Delaware 100%) (A) Bio-Medical Applications of Springfield, Inc. (Delaware 100%) (A) Bio-Medical Applications of Tarpon Springs, Inc. (Delaware 100%)*** (A) Bio-Medical Applications of Tennessee, Inc. (Delaware 100%) (A) Bio-Medical Applications of Texas, Inc. (Delaware 100%) (A) Bio-Medical Applications of The District of Columbia, Inc. (Delaware 100%) (A) Bio-Medical Applications of Torrance, Inc. (Delaware 100%) (A) Bio-Medical Applications of Trenton, Inc. (Delaware 100%) (A) Bio-Medical Applications of Ukiah, Inc. - ------------------ *** Inactive. - 7 - (Delaware 100%) (A) Bio-Medical Applications of Union City, Inc. (Delaware 100%) (A) Bio-Medical Applications of Virginia, Inc. (Delaware 100%) (A) Bio-Medical Applications of West Virginia, Inc. (Delaware 100%) (A) Bio-Medical Applications of Westwood, Inc. (Delaware 100%) (A) Bio-Medical Applications of Whittier, Inc. (Delaware 100%) (A) Bio-Medical Applications of Wisconsin, Inc. (Delaware 100%) (A) Bio-Medical Applications of Woonsocket, Inc. (Delaware 100%) (A) Blue Ridge Medical Supply, Inc. (Tennessee 100%) Caribe Nitrogen Corporation (Puerto Rico 100%) Chomerics, Inc. (Delaware 100%) (A) Coalgrace, Inc. (Delaware 100%) (A) Coalgrace II, Inc. (Delaware 100%) (A) Conejo Valley Dialysis, Inc. (California 100%)*** Construction Products Dubai, Inc. (Delaware 100%) (A) Creative Food 'N Fun Company (Delaware 100%) Darex Puerto Rico, Inc. (Delaware 100%) Daylin-Summit, Inc. (New York 100%) 32092 Delaware, Ltd. (Delaware 100%) De Zaan, Incorporated (New York 100%)** - ------------------ *** Inactive. ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. - 8 - Del Taco Restaurants, Inc. (Delaware 100%) Devcoa Incorporated (Florida 100%) Dewey and Almy Company (Massachusetts 100%) (A) Dialysis Assistance, Inc. (New Jersey 100%) (A) Dialysis Services, Inc. (Texas 100%) Ecarg, Inc. (New Jersey 100%) E L Liquidating Corp. (Ohio 100%) Emerson & Cuming, Inc. (Delaware 100%) (A) Erika International Sales Corporation (Delaware 100%)*** (A) Erika of Texas, Inc. (Delaware 100%) (A) Five Alewife Boston Ltd. (Massachusetts 100%) G/B Cocoa Holding Inc. (Delaware 100%)** GC Holding Inc. (Delaware 100%) (A) GEC Management Corporation (Delaware 100%) (A) GPC Divestment Corp. II (Delaware 100%) (A) GPC Thomasville Corp. (Delaware 100%) (A) GRC Property, Inc. (Delaware 100%) (A) Gloucester New Communities Company, Inc. (New Jersey 100%) (A) Grace A-B Inc. (Delaware 100%) - ------------------ *** Inactive. ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. - 9 - (A) Grace A-B II Inc. (Delaware 100%) Grace Asia Pacific, Inc. (Delaware 100%) Grace Chemicals, Inc. (Delaware 100%) Grace Chemical Company of Cuba (Illinois 100%)*** Grace Cocoa, Inc. (Delaware 100%)** Grace Cocoa Limited Partners I, Inc. (Delaware 100%) Grace Cocoa Limited Partners II, Inc. (Delaware 100%) Grace Cocoa Management, Inc. (Delaware 100%) Grace Cocoa Ventures, Inc. (Delaware 100%) Grace Collections, Inc. (Delaware 100%) Grace Communications, Inc. (Delaware 100%) Grace Culinary Systems, Inc. (Maryland 100%) Grace Culinary Systems (China) Ltd. (Delaware 100%) (A) Grace Drilling Company (Delaware 100%) (A) Grace-Drilling International-Venezuela, Inc. (Delaware 100%) Grace Energy Corporation (Delaware 100%) (A) Grace Energy-Saudi Arabia, Inc. (Delaware 100%) Grace Environmental, Inc. (Delaware 100%)+ Grace Europe, Inc. (Delaware 100%) - ------------------ *** Assets and business expropriated by Cuban Governments. ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. + Owned directly by W. R. Grace & Co. - 10 - (A) Grace H-G Inc. (Delaware 100%) (A) Grace H-G II Inc. (Delaware 100%) Grace Hotel Services Corporation (Delaware 100%)+ Grace (Middle East) Inc. (Delaware 100%) Grace Logistics Services, Inc. (Delaware 100%) Grace Management Services, Inc. (Delaware 100%) (A) Grace Offshore Company (Louisiana 100%) Grace PAR Corporation (Delaware 100%) (A) Grace Petroleum Libya Incorporated (Delaware 100%) Grace Tarpon Investors, Inc. (Delaware 100%) Grace Technology Marketing Services, Inc. (Delaware 100%) Grace Ventures Corp. (Delaware 100%) Grace Washington, Inc. (Delaware 100%)+ (A) W. R. Grace Capital Corporation (New York 100%) W. R. Grace Credit Corp. (Delaware 100%) W. R. Grace Land Corporation (New York 100%) (A) W. R. Grace Properties, Inc. (New York 100%) W. R. Grace Sales Corp. (Virgin Islands 100%) W. R. Grace & Co.-Conn. (Connecticut 100%)+ (A) Gracoal, Inc. (Delaware 100%) - ------------------ + Owned directly by W. R. Grace & Co. - 11 - (A) Gracoal II, Inc. (Delaware 100%) (A) Greater Southeast Community Center for Renal Disease, Inc. (District of Columbia 100%) (A) Gulf Region Mobile Dialysis, Inc. (Delaware 100%) (B) Gynesis Healthcare, Inc. (Delaware 100%) (B) Gynesis Healthcare of Connecticut, Inc. (Connecticut 100%) (B) Gynesis Healthcare for Women of Florida, Inc. (Florida 100%) (B) Gynesis Healthcare of Maryland, Inc. (Maryland 100%) (B) Gynesis Healthcare of New Jersey, Inc. (New Jersey 100%) (B) Gynesis Healthcare of New York, Inc. (New York 100%) (B) Gynesis Healthcare of Oklahoma, Inc. (Oklahoma 100%) (B) Gynesis Healthcare of Pennsylvania, Inc. (Pennsylvania 100%) (B) Gynesis Healthcare of South Carolina, Inc. (South Carolina 100%) (B) Gynesis Resources, Inc. (Delaware 100%) Hanover Square Corporation (Delaware 100%) (A) Homco International, Inc. (Delaware 100%) (B) Home Dialysis Care, Inc. (Texas 100%) Home Intensive Care, Inc. (Delaware 100%)+ (B) Home Intensive Care of Arizona, Inc. (Arizona 100%) (B) Home Intensive Care of California, Inc. (California 100%) (B) Home Intensive Care of Colorado, Inc. (Colorado 100%) - ------------------ + Owned directly by W. R. Grace & Co. - 12 - (B) Home Intensive Care of Connecticut, Inc. (Connecticut 100%) (B) Home Intensive Care of Florida, Inc. (Florida 100%) (B) Home Intensive Care of Georgia, Inc. (Georgia 100%) (B) Home Intensive Care of Illinois, Inc. (Illinois 100%) (B) Home Intensive Care of Jacksonville, Inc. (Florida 100%) (B) Home Intensive Care of Kansas, Inc. (Kansas 100%) (B) Home Intensive Care of Las Vegas, Inc. (Nevada 100%) (B) Home Intensive Care of Louisiana, Inc. (Louisiana 100%) (B) Home Intensive Care of Maryland, Inc. (Maryland 100%) (B) Home Intensive Care of Massachusetts, Inc. (Massachusetts 100%) (B) Home Intensive Care of Michigan, Inc. (Michigan 100%) (B) Home Intensive Care of Missouri, Inc. (Missouri 100%) (B) Home Intensive Care of Nevada, Inc. (Nevada 100%) (B) Home Intensive Care of New Jersey, Inc. (New Jersey 100%) (B) Home Intensive Care of New York, Inc. (New York 100%) (B) Home Intensive Care of Northern Ohio, Inc. (Ohio 100%) (B) Home Intensive Care of North Miami, Inc. (Florida 100%) (B) Home Intensive Care of Ohio, Inc. (Ohio 100%) (B) Home Intensive Care of Pennsylvania, Inc. (Pennsylvania 100%) (B) Home Intensive Care Pharmacy Services Limited (Michigan 100%)* - ------------------ * 25% Owned by Michigan resident pharmacist. - 13 - (B) Home Intensive Care of Rhode Island, Inc. (Rhode Island 100%) (B) Home Intensive Care of Tampa, Inc. (Florida 100%) (B) Home Intensive Care of Virginia, Inc. (Virginia 100%) (B) Home Pharmacy Care of Michigan, Inc. (Michigan 100%) (a) Homestead Artificial Kidney Center, Inc. (Florida 100%)*** (B) Infusions Innovations of Jacksonville, Inc. (Florida 100%) (B) Infusions Innovations of Tampa, Inc. (Florida 100%) (A) International Medical Care, Inc. (Delaware 100%) (B) KDNY, Inc. (Delaware 100%) (A) Kidney Disease and Hypertension Center, Ltd. (Arizona 100%) (A) La Posta Recycling Center Inc. (Delaware 57%) L B Realty, Inc. (Delaware 100%) (A) Life Assist Medical Products Corp. (Puerto Rico 100%) (A) Lifechem, Inc. (Delaware 100%) (B) Lifeline Medical Supplies, Inc. (Florida 100%) (B) Lifeline Medical Systems, Inc. (California 100%) (A) The Medical Accountability Group, Inc. (Texas 100%) (A) Medical Supply Company, Inc. (Virginia 100%) (B) Medi-Sure Testing, Inc. (Delaware 100%) (A) Med-X-Press, Inc. (Delaware 100%) - ------------------ *** Inactive. - 14 - (A) Metro Dialysis Center - Kirkwood, Inc. (Missouri 100%) (A) Metro Dialysis Center - Normandy, Inc. (Missouri 100%) (A) Metro Dialysis Center - North, Inc. (Missouri 100%) (A) Minico/Asahi Chemical of America, Inc. (New York 100%) Monolith Enterprises, Incorporated (District of Columbia 100%) Monroe Street, Inc. (Delaware 100%) (A) Mountainview Insurance Company (Colorado 100%) (A) National Medical Care, Inc. (Delaware 100%) (A) National Medical Care Home Care Division, Inc. (Delaware 100%) (A) National Medical Care Home Care Service Agency, Inc. (New York 100%) (A) National Medical Care Medical Products Division, Inc. (Delaware 100%) (A) National Medical Care of Taiwan, Inc. (Delaware 100%) (A) Nephrology Applications of Mobile, Inc. (Alabama 100%) (A) NMC Diabetic Foot Care, Inc. (Delaware 100%) (A) NMC Diabetic Foot Care Centers Orthotics, Inc. (Delaware 100%) (a) NMC Diagnostics Services, Inc. (Delaware 100%) (A) NMC Dialysis Services, Inc. (Delaware 100%) (A) NMC Dialysis Services (Romania), Inc. (Delaware 100%) (A) NMC Holding, Inc. (Delaware 100%) (A) NMC Homecare of Michigan, Inc. (Delaware 100%)* - ------------------ * 25% Owned by Michigan resident pharmacist. - 15 - (A) NMC International, Inc. (Delaware 100%) (A) NMC Services, Inc. (Delaware 100%) (A) NMC Services (Romania), Inc. (Delaware 100%) (A) NMC Ventures, Inc. (Delaware 100%) Ochoa Fertilizer Co., Inc. (Puerto Rico 100%) Offshore Fisheries, Inc. (Massachusetts 100%) Oil Stop, Inc. (Louisiana 55%)+ (B) PD Solutions, Inc. (Delaware 100%) (B) PD Solutions of Arizona, Inc. (Arizona 100%) (B) PD Solutions of California, Inc. (California 100%) (B) PD Solutions of Florida, Inc. (Florida 100%) (B) PD Solutions Georgia, Inc. (Georgia 100%) (B) PD Solutions of Illinois, Inc. (Illinois 100%) (B) PD Solutions Kansas, Inc. (Kansas 100%) (B) PD Solutions of Louisiana, Inc. (Louisiana 100%) (B) PD Solutions Maryland, Inc. (Maryland 100%) (B) PD Solutions Michigan, Inc. (Michigan 100%) (B) PD Solutions Missouri, Inc. (Missouri 100%) (B) PD Solutions of Nevada, Inc. (Nevada 100%) (B) PD Solutions New Jersey, Inc. (New Jersey 100%) - ------------------ + Owned by Grace Environmental, Inc. 100% owned subsidiary of W. R. Grace & Co. - 16 - (B) PD Solutions of New York, Inc. (New York 100%) (B) PD Solutions of Ohio, Inc. (Ohio 100%) (B) PD Solutions Pennsylvania, Inc. (Pennsylvania 100%) (B) PD Solutions of Texas, Inc. (Texas 100%) (B) PD Solutions Virginia, Inc. (Virginia 100%) (A) Personal Health Care Services, Inc. (Delaware 100%) (B) Phoenix Consulting Services, Inc. (Florida 100%) (B) Preferred Homecare of Florida, Inc. (Florida 100%) (B) Preferred Homecare of New Jersey, Inc. (New Jersey 100%) (B) Preferred Pharmacy Services, Inc. (Florida 100%) (A) Prochrom, Inc. (Indiana 100%) (B) Quality Care Dialysis Centers, Inc. (Florida 100%) (B) Quality Care Dialysis Center of Baltimore, Inc. (Maryland 100%) (B) Quality Care Dialysis Center of Boston, Inc. (Massachusetts 100%) (B) Quality Care Dialysis Center of Creve Coeur, Inc. (Missouri 100%) (B) Quality Care Dialysis Center of Dallas, Inc. (Texas 100%) (B) Quality Care Dialysis Center of Greensburg, Inc. (Louisiana 100%) (B) Quality Care Dialysis Center of Hammond, Inc. (Delaware 100%) (B) Quality Care Dialysis Center of Houston, Inc. (Texas 100%) (B) Quality Care Dialysis Center of Las Vegas, Inc. (Nevada 100%) (B) Quality Care Dialysis Center of Margate, Inc. (Florida 100%) (B) Quality Care Dialysis Center of Mt. Vernon, Inc. (Virginia 100%) - 17 - (B) Quality Care Dialysis Center of New Orleans, Inc. (Louisiana 100%) (B) Quality Care Dialysis Center of North County, Inc. (Missouri 100%) (B) Quality Care Dialysis Center of Parapsco, inc. (Maryland 100%) (B) Quality Care Dialysis Center of San Antonio, Inc. (Texas 100%) (B) Quality Care Dialysis Center of Southern Maryland, Inc. (Maryland 100%) (B) Quality Care Dialysis Center of St. Augustine, Inc. (Florida 100%) (B) Quality Care Dialysis Center of St. Clair Shores, Inc. (Michigan 100%) (B) Quality Care Dialysis Center of St. Louis, Inc. (Missouri 100%) (B) Quality Care Dialysis Center of Stoneham, Inc. (Massachusetts 100%) (B) Quality Care Dialysis Center of University City (Missouri 100%) (B) Quality Care Dialysis Center of Vega Baja, Inc. (Puerto Rico 100%) (B) Quality Care Dialysis Center of Vista, Inc. (California 100%) (B) Quality Care Dialysis Center of Weymouth, Inc. (Massachusetts 100%) (A) Renal Care Centers Corporation (Pennsylvania 100%) (A) Renal Scientific Service, Inc. (Delaware 100%) (A) Renal Scientific Service of Texas, Inc. (Delaware 100%)*** (A) Renal Supply (Tenn) Corporation (New Jersey 100%) The Restaurant Enterprises Group, Inc. (Delaware 51.8%)++ (B) Retaw, Inc. (Florida 100%) - ------------------ *** Inactive. ++ Owned by Western Family Restaurants, Inc. 100% owned subsidiary of W.R. Grace & Co. - 18 - (A) Rockwood Dialysis Center, Inc. (Virginia 100%) (A) Santa Barbara Community Dialysis Center, Inc. (California 100%) (A) Security Health Services, Inc. (Nevada 100%) (A) St. Louis Regional Dialysis Center, Inc. (Missouri 100%) Seven Hanover Square Corp. (New York 100%) (A) 7911 Braygreen, Inc. (Delaware 100%) (A) Sourgasco II Corp. (Delaware 100%) Southern Oil, Resin & Fiberglass, Inc. (Florida 100%) (B) Sover Corporation (Delaware 100%) (A) Tappahanock Dialysis Center, Inc. (Virginia 100%) (A) Ten Columbia Corporate Center, Inc. (Maryland 100%) (A) 1211 Wisconsin, Inc. (Delaware 100%) (B) University Kidney Center, Inc. (Texas 100%) (B) University Kidney Center North, Inc. (Texas 100%) Ven-Tech One, Inc. (Delaware 100%) (A) Warrenton Dialysis Facility, Inc. (Virginia 100%) Water Street Corporation (Delaware 100%) (A) West End Dialysis Center, Inc. (Virginia 100%) Western Family Restaurants, Inc. (Delaware 100%)+ (A) Woolwich Water Co., Inc. - ------------------ + Owned directly by W. R. Grace & Co. - 19 - (New Jersey 100%) W. R. C. Technical Ventures, Inc. (Delaware 100%) (B) Zenex Capital Corp. (Florida 100%) - 20 - Argentina (A) AQT Quimica Argentina, S.A. (100%) (A) Grace Argentina, S.A. (100%) (A) Grace y Compania (Argentina), Sociedad Anonima C.F.e.I. (l00%) (A) NMC de Argentina, S.A. (100%) Australia (A) W. R. Grace Australia Limited (100%) W. R. Grace Catalysts Pty. Limited (100%) (A) Omicron Proprietary Limited (100%) Belgium (A) Alexim N.V. (100%) (A) Grace Dearborn N.V. (100%) (A) Finac N.V. (100%) (A) Grace N.V. (100%) (A) Grace Silica N.V. (100%)**** Bermuda (A) Dartmouth Insurance Company, Ltd. (100%) (A) Erika, Ltd. (100%) (A) NMC Holdings, Ltd. (100%) (A) Trans-Meridian Assurance Ltd. (100%) Brazil (A) Agra Participacoes S.A. (100%) (A) Grace Aquatec Quimica Ltda. (100%) (A) Grace Produtos Quimicos e Plasticos Ltda. (100%) (A) PEADCO-Engenharia, Comercio Industria Ltda. (100%) - ------------------ **** In Liquidation. - 21 - Canada Ambrosia Chocolate Ltd. (100%)** American Breeders Service of Canada Ltd. (100%) Amicon Canada Limited (100%) (A) Erika Laboratories, Ltd. (100%) Grace Dearborn Inc. (100%) W. R. Grace & Co. of Canada Ltd. (100%) W. R. Grace Sales Co. of Canada Ltd. (100%)**** (A) Homco International, Ltd. (100%) 277292 Ontario Limited (100%) Chile (A) Aquatec de Chile, S.A. (100%) (A) Grace Quimica Compania Limitada (100%) Colombia (A) Grace Colombia, S.A. (100%) Commonwealth of Independent States (C.I.S.) (A) A/O Grace (100%) (A) A/O Grace Kaustik (51%)* - ------------------ ** 50% owned by partnership, Grace Cocoa Associates, L.P. 50% owned by W. R. Grace & Co. of Canada Ltd. **** In Liquidation * Joint Stock Company, 46% owned by Grace Italiana S.p.A., 5% owned by W. R. Grace Ltd., 49% owned by A/O Kaustik (C.I.S. Company) - 22 - Cuba Envases Industriales y Comerciales, S.A. (100%)*** Papelera Camagueyana, S.A. (100%)*** Czech Republic Grace Spol. s.r.o. (100%) (A) American Breeders Service Spol. s.r.o. (100%) (A) National Medical Care, s.r.o. (100%) Denmark W. R. Grace A/S (100%) Finland (A) W. R. Grace Oy (100%) (A) Prochrom Oy (100%)**** France (A) Grace Battery Separators S.A. (100%) (A) Chomerics S.A. (100%) (A) Emerson & Cuming France, S.A.R.L. (100%) (A) Godel S.A. (100%) Grace Cocoa France S.A. (100%)** Grace S.A. (100%) (A) Grace Service Chemicals S.A. (100%) (A) Prochrom S.A. (100%) (A) Prochrom Recherche et Developpement (100%) (A) Rollin S.A. (100%) Soboca S.A. (100%)** (A) Societe Civile Immobiliere Les Rosiers (100%)**** (A) Techlam S.A. (50%) - ------------------ *** Assets and business expropriated by Cuban Government. ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. **** In Liquidation. - 23 - Germany Amicon G.m.b.H. (100%) (A) A-1 Bit & Tool Co. G.m.b.H. (100%) (A) Chomerics G.m.b.H. (100%) De Zaan B.V.m.b.H. (100%)** (A) EAP Akustik GmbH (100%)**** (A) Emerson & Cuming G.m.b.H. (100%) (A) Grace G.m.b.H. (100%) (A) Grace Service Chemicals G.m.b.H. (100%) Kascho Kakao-Und Schokoladenwerke, G.m.b.H. (100%)** (A) National Medical Care (Deutschland) G.m.b.H. (100%) (A) NMC Dialysebehandlung G.m.b.H. i.g. (100%) (A) National Medical Care (Deutschland) G.m.b.H. (100%) (A) Riggers Dialysatoren G.m.b.H. (100%) (A) Riggers Dialysatoren Produktion Thalheim G.m.b.H. (100%) (A) Riggers Medizintechnik G.m.b.H. (100%) (A) Riggers Medizintechnik Thalheim G.m.b.H. (100%) Verwaltungsgesellschaft Kasho Import-Export G.m.b.H. (100%)** Greece (A) Grace Hellas E.P.E. (100%) Guatemala Grace Central America, S.A. (100%) Hong Kong (A) Amicon Polymers (H.K.) Limited (100%) W. R. Grace Southeast Asia Holdings Limited (100%) W. R. Grace Far East Investment Company Limited(100%) - ------------------ ** Owned by a partnersihp, Grace Cocoa Associates, L.P. or subsidiary thereof. **** In Liquidation. - 24 - (A) W.R. Grace Merchanding (Hong Kong) Limited (100%) Hungary Grace Kereskedlmi Korlatolt Felelossegu Tarasag (Grace kft.) (100%) (English Name: Grace Commercial Trading Limited Liability Company) (A) NMC Dialyzis Szolgaltato, kft. Ireland Amicon Ireland Limited (100%) (A) W. R. Grace (Ireland) Ltd. (100%) Italy (A) Emerson & Cuming Italiana S.r.L. (100%) Grace Finanziaria S.r.L. (100%) (A) Grace Italiana S.p.A. (100%) Japan Grace Japan Kabushiki Kaisha (100%) Korea Grace Korea Inc. (100%) Malaysia W. R. Grace (Malaysia) Sendiran Berhad (100%) (A) W. R. Grace Specialty Chemicals (Malaysia) Sdn. Bhd. (100%) Mexico (A) Erika de Reynosa (100%) (A) Invertol S.A. de C.V. (100%) - 25 - (A) Especialidades Quimicas Grace de Mexico, S.A. de. C.V. (100%) Netherlands Amicon B.V. (100%) Berisford Cacao Nederland B.V. (100%)** Cacao De Zaan B.V. (100%)** (A) Denac B.V. (100%) Grace B.V. (100%) Grace Cocoa B.V. (100%)** (A) Grace Dearborn B.V. (100%) J. G. van Bruinesse B.V. (100%)** (A) Storm van Bentem & Kluyver B.V. (100%) Twincon B.V. (100%)** Netherlands Antilles W. R. Grace N.V. (100%) New Zealand (A) Dewey and Almy (1964) Limited (100%)**** (A) W. R. Grace (N.Z.) Limited (100%) Norway (A) A-1 Bit & Tool Company Norway A/S (100%) (A) W. R. Grace A/S (100%) People's Republic of China Grace China Ltd. (100%) Philippines (A) W. R. Grace (Philippines) Inc. (100%) - ------------------ ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. **** In Liquidation. - 26 - Poland W. R. Grace Sp. z.O.O. (Grace Poland) (100%) (Proper Name: Grace Spolka z organiczona odpowiedzialnoscia) Portugal (A) AQT - Quimica Lda. (100%) (A) CNH - Centro Nacional de Hemodialise, Lda. (A) Hemodial, Lda (100%) (A) Grace Portuguesa (Produtos Quimicos e Plasticos) Lda. (100%) (A) NMC-Centro Medico Nacional, Lda. (100%) (A) Ribadial, Lda (100%) Singapore (A) A-1 Bit & Tool Company Pte. Ltd. (100%) De Zaan Far East Pte. Ltd. (100%)** Grace Cocoa Singapore Pte. Ltd. (100%)** (A) W. R. Grace (Singapore) Private Limited (100%) W. R. Grace Trading (Singapore) Pte. Ltd. (100%) Spain (A) Dialcentro, S.A. (100%) Grace, S.A. (100%) (A) Kidney, S.L. (100%) (A) National Medical Care of Spain, S.A. (100%) (A) Teroson Espanola, S.L. (100%)*** - ------------------ ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. *** Dormant, Assets Sold. - 27 - Sweden Grace AB (100%) (A) Grace Dearborn AB (100%) Rexolin Chemicals AB (100%)*** Switzerland (A) Grace A.G. (100%) Grace Cocoa Chocolate Mgt. S.A.** Syncrete S.A. (100%)*** Taiwan (A) Grace Taiwan Inc. (100%) Thailand (A) W. R. Grace (Thailand) Ltd. (100%)*** Turkey Grace Ic Ve Dis Ticaret Limited Sirketi (100%) (Grace TLS) United Kingdom (A) AA Consultancy and Cleaning Co., Ltd. Amicon Limited (100%) (A) Amicon Merger, Ltd.**** (A) Chomerics Europe Ltd. (100%) (A) Dearborn (U.K.) Limited (100%) - ------------------ *** Dormant, Assets Sold. ** Owned by a partnership, Grace Cocoa Associates, L.P. or subsidiary thereof. **** In Liquidation. - 28 - (A) Dearborn Europe Limited (100%) (A) Detarex Limited (100%)*** (A) EAP Acoustic Ltd. (100%) (A) Emerson & Cuming (Trading) Limited (100%) (A) Emerson & Cuming (U.K.) Ltd. (100%) Grace Agricultural Products Limited (100%)**** (A) Grace Dearborn Ltd. (100%) (A) Renacare Limited (100%) (A) Renalyte Services Limited (100%) (A) Servicised Limited (100%) (A) Silica Gel Limited (100%) (A) U.K. Renal Services Limited (100%) (A) W. R. Grace Ltd. (100%) Uruguay (A) Aquatec de Uruguay, S.A. (100%) Grace Uruguay S.A. (100%) Venezuela (A) Aquatec de Venezuela, C.A. (100%) Grace Venezuela, S.A. (100%) Inversiones GSC, S.A. (100%) - ------------------ *** Dormant, Assets Sold. **** In Liquidation. - 29 - Partnerships - Axial Basin Ranch Company (a Delaware partnership 50% owned by Grace A-B Inc., 50% Grace A-B II Inc.) - Boodin Partnership (50% owned by National Medical Care Home Care Divi- sion, Inc.) - Carbon Dioxide Slurry Systems L.P. (a Delaware partnership 50% owned by W. R. Grace & Co.-Conn.) - Colowyo Coal Company (a Delaware partnership 50% owned by Gracoal, Inc., 50% Gracoal II, Inc.) - Colowyo Coal Company L.P. (a Delaware limited partnership, owned: 50% by Gracoal, Inc. and 50% by Gracoal II, Inc.) - Grace Cocoa Associates, L.P. (a Delaware limited partnership, owned: 24.04% by W. R. Grace & Co.-Conn., 6.02% GC Holding Inc., 48.93% Grace Cocoa Ventures, L.P., .04% Grace Cocoa Management, Inc., 20.9% Tarpon Investors, L.P.) - Grace Cocoa Ventures, L.P. (a Delaware limited partnership, .001% owned by Grace Cocoa Limited Partners I, Inc., 99.999% owned by Grace Co- coa Ventures, Inc.) - Grace Offshore Turnkey (a Texas partnership 50% owned by Grace Off- shore Company) - Grace Ventures Partnership I (a California partnership 99% owned by W. R. Grace & Co.-Conn.) - Grace Ventures Partnership II (a California partnership 16% owned by W. R. Grace & Co.-Conn.) - Hayden-Gulch West Coal Company (a Delaware partnership 50% owned by Grace H-G Inc., 50% owned by Grace H-G II, Inc.) - Healthtech Medical (a California partnership 50% owned by NMC Ventures, Inc.) - H-G Coal Company (a Delaware partnership 50% owned by Coalgrace, Inc., 50% owned by Coalgrace II, Inc.) - Immunecare of Hollywood (a Florida partnership 50% owned by NMC Ven- tures, Inc.) - ImmuneCare of Key West (a Massachusetts partnership 50% owned by NMC Ventures, Inc.) - Infusion Systems (a Nevada partnership 50% owned by NMC Ventures, Inc.) - Kascho Import-Export G.m.b.H. & Co. K.G. (a German partnership 80% owned by G/B Cocoa Holding Inc., 20% owned by Verwaltungsgesellschaft Kascho Import-Export GmbH) - 30 - - New Bedford Infusioncare (a Massachusetts partnership 50% owned by NMC Ventures, Inc.) - Nippon Dearborn Kabushiki Kaisha (a Japanese partnership 50% owned by Grace Japan Kabushiki Kaisha) - North Suburban Dialysis (a Massachusetts partnership 50% owned by Bio- Medical Applications of Essex, Inc.) - OB One & IV Too (an Indiana partnership 50% owned by NMC Ventures, Inc.) - Palm Springs I.V. Care II (50% owned by National Medical Care Home Care Division, Inc.) - Paramont Coal Company (a Virginia partnership 50% owned by Grace PAR Corporation) - Pharmacy Direct (a Massachusetts partnership 50% owned by NMC Dialysis Services, Inc.) - Primecare Home Health Services (50% owned by National Medical Care Home Care Division, Inc.) - P. T. Grace Specialty Chemicals Indonesia (an Indonesia joint ven- ture/partnership 80% owned by Grace Chemcials Inc.) - Pursue Gas Processing and Petrochemical Company (a Texas partnership 25% owned by Sourgasco II Corp.) - Quality Homecare Services of Watertown, NY (50% owned by NMC Dialysis Services, Inc.) - Riggers Dialysatoren Produktion Thalheim G.m.b.H. & Co. K.G. (a German partnership 50% owned by Riggers Medizintechnik G.m.b.H., 50% owned by Riggers Dialysatoren Produktion Thalheim G.m.b.H.) - Sleep Diagnostic Associates (a Arizona partnership 50% owned by NMC Ventures, Inc.) - Sisters of Charity Home Health Care (50% owned by National Medical Care Home Care Division, Inc.) - VNA/NMC Homecare Partnership (50% owned by National Medical Care Home Care Division, Inc.) - 31 - Investments(1) Arral & Partners (British Virgin Islands 20.8%) Asian Food Investment Limited (British Virgin Islands 40%) Caswell-Massey Holdings Corporation (Delaware 40%) CCHP, Inc. (Delaware 48%) Dean & DeLuca Brands, Inc. (Delaware 45.3%)(2) Denka Grace K.K. (Japan 45%) Elmira ABC, Ltd. (Canada 50%)(2) FlowDril Corporation (Delaware 21.5%) General Cocoa Ltd. (British Virgin Islands 20%)(3) GKA Company Limited (Hong Kong 25%) GN Holdings, Inc. (Delaware 47%) Incacao Fabrica Nacional de Elaboradoes de Cacao S.A. (Equador 20%)(4) Intercao, S.A. (British Virgin Islands 20%)(4) PJ Margo Private Limited (India 30%) Neue Transvac Maschinen A.G. (Switzerland 45%) Nippon Belt Kogyo Kabushiki Kaisha (Japan 50%) Productos Derivados de la Sal (Colombia 30.1%)(4) Productora de Papeles S.A. (PROPAL) (Colombia 38.265%)(2) Tarpon Investors, L.P. (Delaware 20%)(5) Unicao B.V. (Netherlands 20%)(6) Unicao S.A. (Ivory Coast 20%)(7) - ------------------ 1 Holdings of at least 20% but not more than 50% 2 Owned by ABS of Canada, Ltd. 3 Owned by Grace Cocoa, Ltd. 4 Owned by Productora de Papeles S.A. 5 Owned by Gracd Tarpon Investors, Inc. 6. Owned by Twincon B.V. - 32 - EX-25 9 EXHIBIT 25 Exhibit 25 POWER OF ATTORNEY The undersigned director of W. R. GRACE & CO. ("Company") hereby appoints BRIAN J. SMITH, RICHARD N. SUKENIK and ROBERT B. LAMM as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ G. C. Dacey /s/ R. C. Macauley /s/ E. W. Duffy /s/ R. Milliken /s/ H. A. Eckmann /s/ J. E. Phipps /s/ C. H. Erhart, Jr. /s/ J. A. Puelicher /s/J. P. Grace /s/ E. W. Pyne /s/ R. H. Grierson /s/ D. W. Robbins, Jr. /s/ C. L. Hampers /s/G. S. Vance /s/T. A. Holmes /s/D. L. Yunich /s/G. J. Humphrey /s/G. P. Jenkins Dated: March 28, 1994 POWER OF ATTORNEY The undersigned, President and Chief Executive Officer (Principal Executive Officer) and a director of W. R. GRACE & CO. ("Company"), hereby appoints BRIAN J. SMITH, RICHARD N. SUKENIK and ROBERT B. LAMM as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ J. P. Bolduc Dated: March 28, 1994 POWER OF ATTORNEY The undersigned, Executive Vice President and Chief Financial Officer (Principal Financial Officer) of W. R. GRACE & CO. ("Company"), hereby appoints RICHARD N. SUKENIK and ROBERT B. LAMM as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ B. J. Smith Dated: March 28, 1994 POWER OF ATTORNEY The undersigned, Vice President and Controller (Principal Accounting Officer) of W. R. GRACE & CO. ("Company"), hereby appoints BRIAN J. SMITH and ROBERT B. LAMM as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ Richard N. Sukenik Dated: March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----