Document M47QybvaKj5ype8bgEeeBJ2mL

SECURITIES AND EXCHANGE COMPASSION 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 coded December 31, 1994 Commission file number 1-3720 W. R. GRATE & TO Incorporated nnder the Laws of the Slate of New York l.R.S. Employer Identification No. 13-3461988 ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010 407/ 362 -2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAKC OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, $1 par value Cannon Stock Purchase Rights ) New York Stock Exchange, lac. ) Chicago Stock Exchange, Incorporated 7 - 3/ 4W Note s Due 2002 } (issned by W. R. Grace & Co.-Conn., } a wholly owned snhsiriiary) and j related Guarantees } New York Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) CF THE ACT: None Indicate by check murk whether Lite 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 reqnirenents for the past 90 days. Yes X No Indicate by check nark if disclosure of delinqnent filers pursuant to Iten 405 of Regulation S-K is not contained herein, and will not be contained, to the beat of regiatrant's knowledge, in the Proxy Statement incorporated by reference in Part III of this Form 10-K or any anendment t.n this Form 10-K. The aggregate market value of W. R. Grace b Co. voting stock held by nonaffiliates was approximately $3.6 billion at Febxnary 1, 1995. At March 1, 1995, 94,250,680 shares of W. R. Grace & Co. Coonon Slock, $1 pur vulue, were ou Is lauding. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT WHERE INCORPORATED Proxy Statenent for Annual Meeting to be held May 10, 1995 (specified portions) Part. TTT TABLE OF CUNTEM'S PAGE PART I Itea 1. Itea 2. Itea 3. Itea 1. Business.............................................................................................................................1 Introduction....................................................................................................................... 1 Strategic Restructuring ....................................................................................... 1 Industry Segments .................................................................................................... 4 Specialty Chemicals ............................................................................................ 4 Health Care.................................................................................................................. 9 Other Operations............................................................................................................ 12 Research Activities ................................................................................................ 12 Environmental, Health and SafetyMatters...................................................... 13 Materials and Energy................................................................................................14 Properties............................................................................................................................ 15 Legal Proceedings...........................................................................................................15 Submission of Matters to a Vote of Security Holders.......................................................................................................................... 22 Executive Officers ........................................................................................................................ 22 PART II Itea 5. Itea 6. Itea 7. Item 8. Itea 9. Market for Registrant's Coamon Equity and Related Stockholder Matters .............................................................................. 23 Selected Financial Data.............................................................................................. 24 Management's Discussion and .Analysis of Finan cial Condition and Resnlts ofOperations...................................................... 24 Financial Ststeaents and Supplementary Data ............................................... 25 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................................................25 PART III Itea 10. Itea II. Itea 12. Itea 13. Directors aud Executive Officers oi Lbe Registrant......................................................................................................................... 25 Executive Compensation.................................................................................................. 25 Security Ownership of Certain Beneficial Owners and Management ............................................................................................ 25 Certain Relationships and Related Transactions.............................................. 25 PART IV Itea 14. Exhibits, Financial Statement Schedules, and Reports on Form S-IC................................................................................................... 26 Signatures . . . .................................................................................................................................31 Financial Supplement. .....................................................................................................................F-l PARI 1 ITEM 1. BUSINESS. INTRODUCTION W. R. Grace & Co., through its subsidiaries, is prinarily engaged in the specialty chemical business ou a worldwide basis and in specialized health care activities. In its chenical operations, Grace develops, manufactures and markets specialty chcmioals and materials and related systems. In health care, Grace is primarily engaged in supplying kidney dialysis services; in providing hnne infusion, home respiratory therapy and hone health services; and in t.he mannfactnre and sale of products and equipment used to provide dialysis and other medical services. As nsed in this Report, the term "Company" refers to W. R. Grace 4 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 CenLei Road, Boca Raluii, Florida 33480-1010, aud its telephone number is 407/362-2000. At year-end 1994, Grace had approximately 38,000 full-time employees worldwide in its continuing operations (approximately 2,400 in discontinued operations). Grace's Consolidated Financial Statements for the three years in the period ended December 31, 1994 ("Consolidated Financial Statements") and certain other financial information included in the Company's 1994 Annual Report to Shareholders arc set forth in the Financial Supplement to this Report and incorporated by reference herein. S IKAlHilC RhSlKUCIURlNG In 1991, Grace announced a new corporate strategy with the principal objective of enhancing shareholder valne. The major components of the strategy are (a) focusing on cole businesses to accelerate profitable growth; (b) upgrading financial performance, principally by selling or monetizing uoncuie businesses, managing debt levels consistent with profitable growth opportuni ties, and reducing overhead; and (c) integrating corporate and operating nnit functions through global product line management. The core buaineaaes referred to above are health care, packaging, catalyats and other silica-based products, construction prodnets, water treatment and process chemicals, and container prodnets. A3 part of its corporate strategy. Grace has reorganized the management of these core businesses on the basis of global product lines. Grace also has organized task forces that have developed and are implementing "best, practices" relating t.o financial systems and processes, information systems, human resources. logistics and other management tonetions; has implemented processes to better allocate capital among its businesses; and has retired or refinanced substantially all ui its higher-cost debt. SALE AND MONETIZATION OF NONOORB BUSINESSES. Pursuant to its strategy, Grace has substantially completed the sale or nonetization of its uoncore businesses. In 1991. Grace sold its specialty textiles business; its automotive chenicals and sonnd deadening components businesaes; investnents in two pharmacentical businesses; its Trinidadian fertilizer operations; its animal feed bnsinesses; 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. Tn 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, retailing in Grace's receipt of approximately $300 million in cash. During 1993, Grace told a number of noncore bosineases and corporate investments, including substautially all ul its oil aud gas and energy services bnsinesses, a 50% interest in a Japanese chemical business, a food hygiene services business and minority investments in Grace-Sierra Horticultural Products Conpany and Canonie Environmental Services Corp. In 1994, Grace continued its strategic restructuring by disposing of noncore bnsinesses for gross proceeds of approximately $646 million, including substantially all of its interest in Colowyo Coal Company; its printing products business and a related unit; its battery separators business; its interest in The Restaurant Enterprises Gronp, Inc.; its electromagnetic interference shielding materials and thermal interface prodncr.s bnsinesses; its American Breeders Service and Caribbean fertilizer bnsinesses; and its specialty paper and structural ceramics parts businesses. Grace is actively pursuing the disposition of its remaining noncore bnsinesses and expects to complete their disposition in 1995. STRATEGIC ACQUISITIONS AND OTHER INITIATIVES. As part o its strategy to foens on core business growth, Grace has made, and expects to continue to make, strategic acquisitions directly related to its core businesses, including acquisitions intended to expand its core businesses outside the United States. In 1992, Grace acquired the North American food service packaging business of Du Pont Canada. In 1993, Grace acquired (a) the water treatment and related operations of Aqnatec Qnimica S.A. of Brazil, which has significant operations throughout South America, as well as opera- 2 tions in Portugal and the United States; and (b) the Kataiistics fluid cracking catalyst additive business previously owned by a joint venture between Union Carbide Corporation and AlliedSigual Inc. In the 1992-93 period, Grace acqnired Hone Intensive Care, Inc., a United States provider of alternate site infusion therapy and dialysis health care services, for approximately $1.36 million in cash (inclusive of expenses and assumed debt); regional United States providers of home infusion therapy services and home support nursing services, as well as additional dialysis centers located primarily in the United States, for a total of approximately $12S million; Riggers Mcdizintcchnik GmbH, a German manufacturer and distributor of dialysis products, lor approximately S30 million (inclusive of expenses and assnmeri debt); t.he Rena care nnit. of T.lnyds Chenist.s pic, t.he leading United Kingdon producer of dialysis concentrate and a distributor of associated products, for approximately $1(J million in cash; and Virginia-based American Hbmecare 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. In 1993, Grace also formed a 51t-owned joint venture with a large chemical and indnatxial concern headquartered in Volgograd, Russia, to produce flexible packaging fur sale throughout the Commonwealth ul Independent States; the joint ventnre began production in the third quarter of 1994. In 1994, Grace made acquisitions totaling $331.7 million (inclnsive of cash acqnired and debt assumed), primarily in its health care, construction products and packaging product lines. These acqniaitions included Heme Nutritional Services, Inc., a United States provider of home infusion therapy services, for approximately $132 million (inclusive of expenses and assumed debt); 56 United States dialysis clinics and 34 dialysis clinics and 8 laboratories located in Europe, Latin America and the Asia Pacific area for a total of approximately $146 million; the Schnr Mnltiflex group of Fnrnpean flexible packaging businesses; construction chemicals businesses; and ADTDC AD, a worldwide market er of pollution control equipment headquartered in Uoteberg, Sweden. In addition, during 1994 Grace and a family-owned company based in Singapore agreed to form a joint ventnre in Malaysia; Grace would hold a 514 interest in the joint ventnre. which would produce rigid plastic packaging products for sale throughout Southeast Asis. In 1994, Grace also formed a 514-owned joint veutnre wiLh nu Indian company to supply water treatment products and services in India. See Notes 3, 6, 11 and 12 to the Consolidated Financial Statements and 'Management's Discnssion and .Analysis of Results of Operations and Financial Condition" in the Financial Supplement for additional information. 3 1MXJS1KY SEGMENTS Iuluiuslieu concerning the tales aud revenues, pretax operating profit and identifiable assets of Grace's continuing operatioas by industry segment and geographic area for 1994, 1993 and 1992 it contained in Note L7 to the Consolidated Financial Statements in the Financial Supplement. SPECIALTY CHEMICALS Grace's specialty chemical operations consist principally of the development, manufacture and sale of prodnets and systems in five core market gronps (see "Strategic Restrnct.nring" above). These prodnets and systems typically serve highly specialized markets and represent an important component (but a relatively small portion of the cost) ol the end products in which they are used. Accordingly, competition is based primarily on technological capability, customer service and product quality. Grace's specialty chemical products and systems are marketed primarily through direct sales organizations. The following is a description of the products aud services provided by each of Grace's core specialty chemical businesses. PACKAGING. Grace's packaging business ("Grace Packaging") provides highperromance total packaging systems on a worldwide basis, competing principally by providing superior quality products and services for specialized customer needs. The principal prodnets and services provided by Grace Packaging are (a) flexible plastic packaging systems (including material, equipment and services) for a broad range of perishable foods snch as meat, prepared foods, baked goods, poultry, produce, cheese, and smoked and processed neat prodnets; (b) shrink films for packaging a variety of consnmer and industrial prodnets; (c) foam trays for supermarkets and poultry and other food processors; and (d) rigid plastic containers tor dairy and other food and nonfood products. Grace Packaging competes through three product groups: flexible packaging (marketed extensively under the Cryovac{Registered Trademark} registered trademark), Formpac-TM- foam trays, and Omicron-TM- rigid plastic containers. Cryovac flexible packaging products include shrink bags, shrink films, laminated films, medical filma, and equipment. The Cryovac packaging products group developed and introduced flexible plastic vacuum shrink packaging m the late 1940s, contributing to expanded food distribution and marketing by providing superior protection against decay-inducing bacteria and moisture loss. The market for Cryovac products has since shifted from industrial food applications toward the retail food market, and Cryovac packaging 4 technology has also been introduced in nonfood applications such as flexible packaging lor consaner merchandising and electronic and nedical products. The flexible packaging products group differentiates itself from its competitors by offering a combination of the following core competencies: (1) proprietary film processing technology; (2) resin technology, permitting the production of naterials suited to specific cnstoner needs; (3) packaging and food science expertise, providing better understanding of the interaction between packaging materials and packaged products; (4) complete systems support capability, providing a single source of supply for customer needs: (3) a talented employee base that strives to anticipate, meet and exceed customer expectations; and (6) an effective sales and distribution network. Team trays are prodneed by the Formpac business group of Grace Packaging, primarily tor sale to supermarkets and poultry and other food processors m the eastern two-thirds of the United States. Formpac proprietary technology has also been successfully used in certain packaging applications ontside the United States. Since Packaging's Omicruu business group produces rigid plastic packaging applications, primarily for dairy prodnets in Anstralia. Omicron products nse proprietary thermoforming technology, involving the controlled thinning and shaping of hot plastic sheets to increase strength and rigidity while minimizing weight. As described above under "Strategic Restructuring - Strategic Acquisi tions and Other Initiatives," Grace plans to expand the Omicron business into Southeast Asia through a recently formed joint venture. Sraoc Packaging's sales and revenues were $1.4 billion in 1994, $1.3 billion in 1993 nd $1.2 billion in 1992. Approximately 52* of Grace Packaging's 1994 sales and revenues were generated in North America, 28* in Europe, 12* in Asia Pacific and the remainder in Latin America. At year-end L994, Grace Packaging employed approximately 9,400 people m 24 production facilities (9 in North America, 6 in Enrope, 5 in Latin America and 4 in Asia Pacific) and 80 sales offices, serving approximately L8,000 customers. Resins are the principal raw materials used by Grace Packaging. Although prices for eUiyleue-based resins were volatile in the second hall ui 1994 due to unscheduled snpplier plant closings and increased demand, there is currently tn adeqnate worldwide supply of resins at generally stable prices. Grace Packaging has typically increased the sales prices of its products in response to increases in the prices of resins and other raw materials. In most cases, multiple sources of resins and other raw materials exist, with at least one source located in each global region. 5 Although sales and revenues tend to be slightly higher in the lonrth quarter, seasonality is generally not significant to the business. As a re salt of product introductions, marketing programs and improvements in global economic conditions, worldwide demand for Grace Packaging products grew at a rapid pace in 1994, pltcing pressure on existing capacity. To address this matter, capacity additions in all regions (inclnding a shrink films manufacturing plant in Knantan, Malaysia) are currently underway. CATALYSTS 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 prodnets involve silica, alumina and zeolite technology and the design and mannfact.nre of prodnets to meet, customer specifications; they are sold to major oil refiners, plastics and chemical manufacturers, and consumer products compa nies. Flnid cracking catalysts are ased by petroleum refiners to upgrade oil to ore valuable transportation fuels sacb as gasoline and iet and diesel fuel. Oil refining is a highly specialized discipline, demanding that products be tailored Lu meet local variations in raw materials and uperaliuual needs. Competition is based cn technology, prodnet performance, customer service and price. Polyolefin catalysts and catalyst supports are essential components nsed in manufacturing nearly half of all high density and linear low density polyethylene resins, whioh are used in products inch as plastic film and pipe. The polyolefin catalyst business is technology-intensive and focused on providing prodnets specifically fornnlated to meet end-user applications. Manufacturers generally compete on a worldwide basis, and competition has intensified recently due to evolving technologies, particularly the nse of et.ii 1 locenes. Silica and zeolite adsorbents are nsed in plastics, toothpastes, paints, insulated glass and other prodnets, as well as in the refining of edible oils. Silicas are nsed in coatings as flatting agents, in plastics to improve handling, in toothpastes as thickeners and cleaners, in food to carry flavors and prevent caking, and in the purification of edible oils. Grace Davison's sales and revenues were $610 million in 1994, $572 million in 1993, and $519 million in 1992; approximately 554 of Grace Davison's 1994 sales and revenues were generated in North America, 35% in Europe, 8% in Asia Pacific and 2% in Latin America. At year-end 1994, Grace Davison employed ap proximately 2,700 persons worldwide in nine facilities (six in the United States and one each in Canada, Germany and Brazil). 6 WAIKK 'lKhA'iMfcNT. 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 related equipment and services to prevent corrosion, scale and microbiological growth in industrial utility waters, hearing and coding applications, and industrial wastewater applications for clarification, sludge de-watering, odor control and water recycling; (b) paper industry process chemicals, support equipment and related consulting services; (c) hydrocarbon processing chenicals, related support equipment and services to protect and optimize processing system performance; (d) chemical treatments, support equipment and services for sngar processing, including processing sugar into alcohol as a gasoline substitute; (e) chemical treatments to protect industrial canned food cooking and sterilizing eqnipnent.; and (f) paint det.ackificatinr products and services to remove paint sludge from water wash paint spray sys tems. Grace Dearborn sales and revenues for 1994 totaled S363 million (40% in Europe, 39% in North America, 18% in Latin America and 3% in Asia Pacific). Sales and revenues for 1993 and 1992 were $330 million and $302 million, respectively. AL year-cud 1994, Grace Dearborn employed approximately 2,700 persons at 20 plants (6 in Latin America. 5 in Europe, 4 in each of North Amer ica and Asia Pacific and 1 in South Africa) and 107 sales offices. The raw materials used in Grace Dearborn's 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 (bat is not adversely affected by) seasonal flnctnations, concentrating on boiler treatment in winter and cooling system treatment in summer. The eflects of seasonality are farther diminished by the geographic diversity of t.he markets served by Grace Dearborn. CONTAINER PRODUCTS. Grace's container business ("Grace Container") consists primarily of four product lines: container sealants, closure sealants, coatings for metal packaging, and specialty polymers. 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 for the metal crown, aluminum roll-on and plastic closure segnents of the glass/plastic container packaging markets; adhesive lacquers and associated protective and decorative coatings for metal closures; protective and decorative coatings and lacquers for rigid food and beverage containers; lubri cants used primarily in two-piece can manufacturing; and formulated engineered polymers for printed cirouit board and component assembly in the electronios, electrical, automotive and defense industries, including sarface mount and conductive adhesives, capacitor coatings, light emitting diode encapsulants and conformal coatings. Grace Container sales and revenues were $125 million, $306 Billion and $322 illion in 199d, 1993 and 1992, respectively. Its products are aarketed iuLeruatioually, with 33% ui 1994 sales and revenues in Europe, 32% in North America, 26% in Asia Pacific and 9% in Latin Aaerica. At year-end 1994, Grace Container employed approximately 1,700 persons at 30 plants and 59 aales offices worldwide. Competition is based on providing high-quality customer service, as well as on price and product quality and reliability. The raw materials nsed in Grace Container's operations are generally available from multiple sources. A1 though demand for container packaging and sealant products tends to increase daring the warmest nonths of the year, the impact of snch seasonality on Grace Container is offset almost entirely by the geographic diversity of the markets it serves. HEALTH CAKE Grace's health care business ("Grace Health Care') is primarily engaged in supplying kidney dialysis services; in providing hone infnsion, home respiratory therapy and hone health services; and in the manufacture and sale of products and equipment used to provide dialysis and other medical services. Grace Health Care provides kidney dialysis snd related services for outpatients with chronic renal failnre. At December 31, 1994, Grace Health Care operated 590 centers providing dialysis and related services (526 in North America, 42 in Europe, 15 in Latin America, and "> in Asia Pacific): these centers, substantially all of which are leased, average approximately 5,600 square feet in size. Grace Health Care also provides inpatient acute dialysis services under contracts with hospitals in the United States (488 at December 31, 1994) and lnrnishes dialysis equipment and supplies to patients who elect hone treatment.. At. December 31, 1994, Grace Health Care was treating approximately 40,000 patients in the United States and 5,000 patients in other countries. Revenues lion kidney dialysis services were SI.3 billion m 1994, $1 billion in 1993 and $860 million in 1992. Grace Health Care also manufactures disposable bloodlines, dialysis solutions, artificial kidneys (dialyzers) and dialysis machines for nse in its dialysis centers and lur sale to uualliliated dialysis providers and home patients; distribntes dialysis supplies and equipment and other medical products and supplies manufactured by others; and provides laboratory services (including hepatitis testing) in the United States and Portugal. Approximately 60% of the sales of dialysis and other medical prodnets supplies and eqnipnent reflect sales to patients not directly treated, or facilities not operated, by Grace Health Care. Grace Health Care also provides infnsion and respiratory therapy services to patients in their homes through a network of 9 LOS United Statet locations (L(J7 leased and L owned) m 36 states. Into non therapy consists of the intravenous delivery of an expanding range of medications aiul uuLiitiuual preparations, such as chemotherapy, total parenteral nntrition, antibiotic therapy and dings for pain nanagenent. Respiratory therapy consists of the delivery of oxygen and aerosolized drags and the ase of monitors, nebulizers and ventilators. In addition, Grace Health Care provides hone health services through nine locations in California. Grace Health Care's United States business is dependent on the continuation of Medicare and other third-party insurance coverage for dialysis and hone care services and prodnets. At such tine as Medicare becomes s patient's primary payor lor dialysis (generally, 3 months following commencement of treatment or, in the case of patients covered hy employer-sponsored health insurance, 21 months after commencement of treatment) and/or homecare prodnets and services, Medicare currently reimburses suppliers of snch services and prodnets for approximately 80s of established fees or reasonable charges; the remaining 20* is paid by the patient and/or a non-Medicare insurance carrier. Because in most cases the prices of dialysis services and prodnets m the United Slates are directly or indirectly regulated by Medicare, competition iu 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. Further, the rapid growth of managed care (a combination of financial incentives and management controls intended to dircet patients to efficient providers in cost-effective settings) has placed greaier emphasis on service costs for patients insured hy third parties; therefore, cost efficiency is also a key element of competition in this market. Based upon Grace's knowledge and understanding of the health care industry m general and of other providers ot kidney dialysis and infusion therapy, as well as information obtained from pnblicly available sources, Grace Health Care believes that it is among the most cost-efficient of 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 ol iulusiun and respiratory therapies. In most ccnntries other than the United Stales where Grace Health Care provides dialysis services, prices and the opening of new facilities are directly or indirectly regulated by governments, and competition is based primarily on the quality and availability of service. 10 Except as noted m the following paragraph, Grace Health Care believes there are adequate sources of supply for the caw naterials and products used in iLs health care services and uedical products businesses. At year-end 1994, Grace Health Care employed approxinately 17,000 persons full-time at its facilities worldwide. Grace Health Care's businesses generally are not seasonal or cyclical in nature. National Medical Care, lac. ("NM2") is Grace's principal health care subsidiary. In 1993, the United States Food and Drng Administration ("FDA") issued import alerts with respect to (a) hemodialysis bloodlines manufactured at NMC'a plant located in Rcynosa, Mexico and (b) hemodialyzers Manufactured in NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the United States nnt.il the FDA approves the qnalir.y assurance systems of the facility at which snch products are manufactured. In Janaary 1994, NMC entered into a consent decree providing tor the resumption of importation ol bloodlines and hemodialyzers following certification by NMC that the relevant facility complies with FDA regulations and snccessfnl completion of an FDA inspection to verify snch compliance. The consent decree also requires NMC to certify and maintain compliance with applicable FDA manufacturing requirements d L all of its United Stales manufacturing facilities. NMC submitted all required certifications for its United States and non-United States facilities in accordance with the timetable specified in the consent decree, and the bloodline import alert was lifted in March 1994. The Dublin hemodialyzer manufacturing facility was inspected by the FDA in December 1994, and MC anticipates completion of all remaining corrective actions in the second quarter of 1995. No lines or penalties have been imposed on NMC as a result of any of the FDA's actions or in connection with the consent decree. Neither the import alerts nor previously reported rcoalls of certain NMC products have had, or arc expected to have, a material effect on Grace's results of operations or financial condition. HEAL'IH CAKE 1NYES1MENT. Grace has a 474 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 options to acquire an additional 514 common equity interest in the company; up Lions covering a 39% common equity interest are currently exer cisable and expire in 2001, and options covering the remaining 12% become exercisable in 1996 and expire in 2001. See "Strategic Restructuring" above for information concerning 1993 and 1994 transactions involving Graoa's health care business. 11 OiHfcK OPERATIONS IHERMAL AND EMISSION CONTROL SYSTEMS. Grace's Lherual and euu.ssi.ou control systems business (which is included in the Specialty Chenicals segment in the Consolidated Financial Statements) consists of fonr principal prodact groups: web processing products, industrial emission control products, mobile eaission control products, and specialty catalysts. These products are designed to customer specifications and sold to a variety of industrial customers. Web processing products, consisting primarily of air flotation dryers and auxiliary equipment, arc sold principally to the graphic arts, coating and converting markets. Competition is based upon system design, service and product performance. Ibe industrial emission control products group manufactures volatile organic compound control equipment, including thermal, catalytic, and regenerative oxidation systems. Demand for this equipment is driven principally by government regulations, and competition is based npon technology, product performance and price. The mobile emission control products group sells wasbeoat materials and specialty substrates. Washcoat materials are need by catalyst msnnfseturers to enhance the performance of catalytic converters sold to automotive original equipment manufacturers. Competition is based primarily on technology and product performance. In February 1995, Grace and Engelhard Corporation an nonneed the formation of a 50/50 joint venture to manufacture and market metalbased catalytic converters to the automotive industry. Specialty catalysts are used to control volatile organic compounds, nitrogen oxides and carbon monoxide from a variety of sources. illSCXJN'i'lNUliD OPERATIONS. In iy93, Grace classified its remaining noncore businesses ts discontinued operations. As described above under "Strategic. Restructuring - Sale and Monetization of Noncore Businesses," in 1993 and 1994 Grace completed the sale and monetization of a substantial portion of these businesses. Grace is actively pursuing the disposition of its remaining discontinued operations sad expects to compleLe their disposition in L995. See Notes 3, 6 and 12 to the Consolidated Financial Statements in the Financial Supplement and "Strategic Restructuring" above for additional information. RESEARCH ACTIVITIES Grace engages in active research and development programs directed toward the development of new products and processes and 12 the improvement of, and development ot new uses tor, existing products and processes. Research is carried out by product line laboratories in North America, Europe, Asia aud Latin America and by the Corporate Research Division, which has facilities in Colnabia, Maryland, Lexington, Massachusetts, and Atsugi, Japan. The Research Division's activities focus on Grace's core prodnct lines and inclnde research in specialty polymers; medical products; water treatment; catalysis: construction natenals; photopolymers; specialty packaging; and process engineering, principally involving the development of technologies to manufacture chemical specialties and biomedical products. Research and development expenses relating to continuing operations amounted to $132 million in 1994, $135 million in 1993 and $130 million in 1992 (including expenses inenrred in fnnding external research projects). The amount, of research and development expenses relating to government- and customersponsored projects (as opposed to projects sponsored by Grace) is not material. See "Management's Discussion and Analysis of Resnlts oi Operations and Financial Condition' in the Financial Supplement fox additional information. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS In constructing and operating its facilities, Grace incurs capital and operating expenditures relating to the protection of tbe environment, as well as costs to remediate properties. The following table sets forth Grace's expenditures in the past three years, and its estimated expenditnres in 1995 and 1996, for (a) the operation and maintenance of environmental facilities and the > disposal of hazardous and nonhaztrdons wastes with respect to continuing operations; (b) capital improvements to environmental control facilities relating to con tinning operations; and (c) the remediation of sites; (a) Operation of Facilities and Waste Disposal (b) Capital Improvements (in millions) (O Remedia lion 1993 1993 1994 1995 (cst.) 1996 (est.) $56 45 41 43 45 $18 20 22 26 23 $35 44 31 45 39 13 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 Uie Consolidated Financial StaLeueuLa and "Management.' s Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Snppleaent. Grace's corporate environment, health and safety ("EHS") policy was reviewed and revised in 1994 to reflect organizational and other changes. The revised policy affirms the Company's commitment to continnons improvement in environment, health and safety performance. The policy is supported through programs including specialized safety training for employees, monitoring of the workplace environment, and training and guidance for employee; with respect to FHS regulatory compliance. In 1994, Grace announced the creation of its Commitment to Care-SMprogran, modeled on the Responsible Care{Registered Trademark! program oi the Chemical Manufacturers Association. The Commitment to Care program extends the basic elements of the Responsible Care program to all Grace locations worldwide, to the extent applicable. The program embraces specific objectives in six key areas of environment, health and safety: product stewardship, euployee health and safety, community awareness and emergency response, process safety, distribution, and pollution prevention. The effort is coordinated worldwide to enconrage the sharing of best prsctices among Grace's bnsines; units. Certain EHS management resources were consolidated into a central EHS department in 1993. The EHS department provides environmental assistance, training, and medical/toxicology. industrial hygiene and safety services to support EHS programs in Grace facilities worldwide. The department also audits operating facilities and oversees the remediation of environmentally impaired sites for which Grace ha* responsibility; in 1994, the department andited Grace facilities in all world regions. See Item 3 of this Report for information concerning environmental proceedings to which Grace is a party and "Management's Discussion and Analysis of Results of Operations and Financial Condition' in the Financial Supplement for additional information concerning environmental matters. 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 1995 14 as a resalt ot shortages ol raw materials or energy. Should shortages occur, their effect on Grace's operations would depend upon their nature, duration and severity aud consequently cauuut be determined at this time. However, arrangements have been made, and will continue to be made, for long-term commitments for many of Grace1s raw materials and fuel requirements from primary sources of supply. See "Industry Segments' above for additional information. ITEM 2. PROPERTIES. Grace operates chemical, manufacturing and other types of plants and facilities (including office aud other service facilities) throughout the world. Grace considers i t.s major operating properties to he in good operating condition and suitable fer their current use. Although Grace believes thai the productive capacity of its plants and other facilities, taking into account planned expansion, is generally adequate for current operations snd foreseeable growth, it conducts ongoing, long-range forecasting of its capital requirements to assnre that additional capacity will be available when and as needed (see information regarding Grace's capital expenditures on page F-27 of the Financial Supplement). Accordingly, Grace dues uou anticipate that, its operations or income will be materially affected by the absence of available capacity. Additional information regarding Grice's properties is set forth in Item 1 above and in Notes 1, 8 and 11 to the Consolidated Financial Statements.m the Financial Supplement. ITEM 3. LEGAL PROCEEDINGS. ASBESTOS T.TTTGATTON. Grsce is a defendant, in lawsnit.s relar.ing to previously sold asbestos-containing products and anticipates that it will be named as a defendant m additional asbestos-related lawsnits in the tntnre. At year-end 1994, Grace waa a defendant in approximately 38.700 asbestos-related lawsuits representing approximately 68,000 claims (as compared to approximately 38,100 lawsuits and 56,700 claims at year-end 1993). In most of these lawsuits, Grace is one of many defendants. Of the lawsuits pending at year-end 1994, 65 (92 at year-eud 1993) involved claims for property damage allegedly caused by the nse of asbestos-containing materials in the construction of buildings. The plaintiffs m these lawsnits generally seek, among other things, to have the defendants absorb the cost of removing, containing or repairing the asbestoscontaining materials in the affected buildings. The remaining asbestos-related lawsuits involved claims for personsl injury. Through year-end 1994, 126 asbestos property damage cases had been dismissed with respect to Grace without payment of any damages or settlement amounts; judgments had been entered in favor of Grace 15 m ID cases (excluding one case that was settled following appeal ol a lodgment in favor of Grace and another case in which the plaintiff was granted a new trial on appeal, liuited to staLute ul Imitations issues), Grace had been held liable for a total of $74.6 million in 7 cases (3 of which are on appeal); and 159 property damage suits and claims had been settled by Grace for a total of $341.8 million. Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1994 were the following class actions; (1) a Pennsylvania state court action (PRINCE GEORGE CENTER, INC. V. U.S. GYPSUM COMPANY, ET AL.. Court of Common Picas of Philadelphia County), certified in 1992, 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 Conrt of Appeals for the Fourth Circuit in 1993 and pending in the United States District Conrt for the District ol South Carolina, covering all public, and private colleges and nniversities in the United States whose buildings contain asbestos materials (CENTRAL WESLEYAN COLLEGE, ET AL. V. V. R. GRACE, ET AL.); and (3) a purported class action (ANDERSON MEMORIAL HOSPITAL, ET AL. V. W. R. GRACE t CO. , ET AL.t, filed in 1992 in the Court ui Cumiou Pleas fur Hampton County, South Carolina, ou behalf of all entities that own, in whole or in part, any building containing asbestos materials manufactured by Grace or one of tbe 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. In Jnly 1994, the claims of most class members in ANDERSON MEMORIAL HOSPITAL, ET AL. , V. W. R. GRACE & CD., ET AL. were dismissed dne to a ruling that a South Carolina statute prohibits nonresidents from pursuing claims in tbe South Carolina state courts with respeot to baildings located outside the state. The plaintiffs have requested that the Conrt reconsider its decision. In Angnst 1994, Grace entered into an agreement, t.o settle TN RE: ASBESTOS SfEOOT. T.TTTGATTON, a nationwide class action brought in 1983 in the United States District Conrt for the Eastern District of Pennsylvania on behalf of all public and private elementary and secondary schools in tbe United States that contain friable asbestoa materials (other than schools that "opted ont" of the class). Die terms of the settlement agreement (which is subject to jndicial review and approval after class members have an opportunity to be heard) are not expected to have a significant effect on Grace's consolidated results of operations or financial position. The remaining asbestoa lawsuits pending at year-end 1994 involved claims for personal injury. Through year-end 1994, approximately 8,400 personal injury lawsuits involving 22,200 claims had been dismissed with respect to Grace without paynent of any damages or settlement amounts (primarily on the basis ' that Grace products were not involved), and approximately 17,000 such suits involving 20,000 claims had been disposed of for a total of $77.1 16 - million {see "Insurance Litigation" below). However, as a result ol various trends (including the insolvency of other former asbestos producers and crossclaims by cu-defendants in asbeslus personal injury lawsuits), the costs incurred in disposing cf such lawsuits in the past nay not be indicative of the costs of disposing of such lawsuits in the future. In 1991. the Judicial Panel on Mnlti-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 then pending against Grace; 3,200 new cases involving 6,500 claims against Grace have subsequently been added to the consolidated cases. To dste, no action has been taken by the coart handling the consolidated cases that, wonld indicate whether the consolidation will affect Grace's cost of disposing of these cases or its defense costs. Grace's nltinale exposure in respect of its asbestos-related lawsuits and claims will depend on the extent to which its insnrance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. While (a) Grace's insnrance carriers have not acknowledged or have denied the applicability cl Uieir insurance coverage Lu Grace's asbesLcs proper ty damage lawsuits and claims (except as discussed below under "Insnrance Litigation"), (b) Grace is currently in litigation with certain carriers concerning the applicability and extent of its insurance coverage and (c) the resolntion of certain issues, primarily relating to the availability of coverage for specific years, will require further judicial proceedings, Grace believes that its insur ance will cover a substantial portion of any damages, settlement amounts and litigation costs related to its asbestos litigation and claim;. 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 Vote 2 t.n t.he 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. At year-end L994, proceedings were pending with respect lu appruximately 40 sites as to which Grace has been designated a PRP. Federal law provides that all PRPs may be held jointly and severally liable for the costs of investigating and remediating a site. Grace is also conducting investigatory and remediation activities at sites under the jurisdiction of state and/or local authorities. 17 In iddition, Hatco Corporation ("Hatco"), which purchased the assets of a Grace chemical business in 1978, previously instituted a lav salt against Grace iu (.lie United States DislricL Court Xor the District uX New Jersey seeking recovery of cleanup costs for waste allegedly generated at a New Jersey facility daring the period of Grace's ownership. Grace has also filed a lawsuit against its insurance carriers seeking indennity against any damages assessed against Grace in the underlying lawsuit, as well as defense costs. In decisions rendered dnring 1993, the Conrt ruled that Grace is responsible for a substantial portion of Hatco's costs. These decisions are currently under review by the United States Conrt of Appeals for the Third Circuit. In an earlier decision, the District Court had resolved, in a manner favorable to Grace, certain legal issues regarding Grace's right to insnrance coverage; however, t.he ultimate liability of Grace's insnrance carriers will be determined at trial. Remediation 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 1995. As a result of the above factors, the amount that Grace may be required to pay to Hatco (which Grace expects will be partially offset by recoveries from insurance earners) cannot be reliably estimated at Lhis time. Grace is also a party to other proceedings involving federal, state and/or local government agencies and private parties regarding compliance with environmental laws and regulations by its continuing operations. These proceedings are not expected to reanlt in significant sanctions or in any material liability. 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 stndy or report that EPA alleges should have been, but was not, submitted to t.he FPA as required nnder such Section. Alr.hnngh final review of the audit is not complete, Grace believes it will be required to pay the EPA penalties aggregating from $25U,OOU to $400,UUU tor information discovered m the course of the audit. In addition, Grace has voluntarily reported to the SPA violations of certain notification and related requirements under such Act, and penalties may be assessed against Grace in connection therewith; the amount of such penalties cannot be determined at this time. In addition, in 1993, the United States Department of Justice filed snit 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 dnring late 1991 and early 1992. In May 1994, Graoe signed a consent decree in which it agreed to pay penalties of $510,000 and to implement certain procedures nnder the Clean Air Act at 28 facilities. The consent decree was approved by the United States District Conrt for the District of Montana, Great 18 Falls Division, m December 1994, and the penalties were paid in January 1995. Glace believes Ilia l Uie irnuuut recorded m the Consolidated Financial Statements tor environmental remediation costs is adequate. In addition. Grace is presently involved in litigation with its insurance carriers seeking to hold then responsible for certain amounts for which Grace nay be held liable with respect to snch costs. The outcome of snch litigation, as well as the amount of any recoveries that Grace may receive in connection therewith, is presently uncertain. For further information, see Note 11 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement. INSURANCE T.TTTGATTON. 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 a case styled MARYLAND CASUALTY CO. V. W. R. GRACE ft CO., pending in the United State* District Conrt for the Southern District of New York; STATE OF MISSISSIPPI V. THE FLINIKOTE CO., ET AL., pending in the Circuit Conrt of Jackson Connty, Mississippi; DAYTON INDEPENDENT SCHOOL DISTRICT V. UNITED STATES MINERAL PRODUCTS COMPANY, ET .AL. . pending in the United States Distiict Corn L Xur the Eastern District of Texas; INDEPENDENT SCHOOL DISTRICT NO. 197. ET AL. V. W. R. GRACE ft CO. AND ACCIDENT ft CASUALTY INSURANCE CO. , ET AL. , pending in the First Judicial District in Minnesota; THE COUNTY OF HENNEPIN V. CENTRAL NATIONAL INSURANCE COMPANY. ET AL., pending in the Fourth Judicial District in Minnesota; EOOLAB, INC. V. CENTRAL NATIONAL INSURANCE 00., pending in the District Conrt for Ramsey Connty, Minnesota; and AMERICAN EMPLOYERS' INSURANCE CO., AMERICAN RE-INSURANCE 00. '. AND C0W*RCIAL UNION INSURANCE CO., AND UNIGAED SECURITY INSURANCE CO. V. W. R. GRACE ft CO., CONTINENTAL CASUALTY CO., AND MARYLAND CASUALTY CO., which is pending in the New York state coarts; Grace's insurance actions relating to environmental liabilities consist of MARYTAND CASUALTY CO V. V. R. GRACE ft 00., pending in the United States District Conrt for the Southern District of New York; and HA1UO UJRP. V. W. R. GRACE ft CO.-COW., pending in the United States District Conrt for the District of New Jersey. The relief sought by Grace in these actions vonld provide insurance to partially offset Grace's estimated exposure with respect to the actions' subject matter, inclnding amounts previously expended by Grace to defend claims tnd satisfy judgment.* and settlement* (see Note 2 tu the Cuu*ulidated Financial SLatemeuL* in the Financial Supplement). The factual bases underlying these actions are the nature of the nndeilying asbestos-related and environmental claims, the language of the insnrance policies sold by the carriers to Grace and the drafting history of those policies. 19 In 1991 (in an asbestos-related case involving Maryland Casualty Co.), tlie United States District Court for the Southern District of New York determined that coverage for properLy damage is triggered by the "discovery of damage" during the period covered by the relevant policy. In September 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 snch claims and, instead, ruled that coverage for these claims is triggered based on the date of installation of asbestos containing materials. In January 1994, the United States Court of Appeals for the Second Circnit granted Grace's petition for a rehearing concerning the September 1993 decision, and on May 16, 1994, the Court issned a new decision confirming its September 1993 decision. As a result, Grace recorded a noncash charge of $200 million alter taxes in the second quarter of 1994 to reflect t.he reduction in ashest.ns property damage insurance coverage. Snbsequently, the Second Circuit refused to rehear its decision, and the United States Supreme Court denied Grace's petition tor a writ of certiorari with respect to the Second Circuit decision. In 1991 and 1994, the Mississippi Court referred to above held that certain of Grace's excess insurance carriers are obligated to defend and indemnify Grace, determining that, lor purposes of insurance coverage, damage to buildings from asbestos-containing products occurs at the time snch products are put in place and that the damage continues as long as the building contains the products (referred to as a "continuous trigger"); the 1994 ruling is being appealed. In 1992, the Minnesota conrt referred to above reached a similar decision in interpreting Grace's insurance policies. In Jannaxy 1994, the Minnesota conrt entered judgment against certain of Grace's carriers in the amount of $14.2 million, bnt that judgment was reversed by the Minnesota Conrt of Appeals in January 1995. Further review of that decision will be sought. Prior to 1993, Grace received payments totaling $97 7 million from insurance carriers ($66.2 million prior to 1992 and $31.5 million in 1992), the majority of which represented the aggregate remaining obligations owed to Grace by those carriers fox primary-level insurance coverage written for the period June 30, 1962 through June 30, 1987. In 1993, Grace received $74.6 million under settlements with insurance carriers, in reimbursement for amounts previonsly expended by Grace in connection with asbestos-related litigation; Ihese selUeiaeuU also provide lor iulure reimbursements of $114 million. In 1994, Grace settled with three additional insurance carriers and received $111.6 million under snch settlements, snd in early L995, Grace settled with a primarylevel insnrer for $100 million. As a result of these payments, insurance litigations were dismissed as to the primary-level product liability insurance coverage previonsly sold by the relevant in&nrers to Grace; however, litigations continue as to certain excess-level carriers. 20 Grace continue! to be involved in litigation with certain ot its insurance carriers, including an affiliated group of carriers, thai bad agreed to a settlement and bad made a series ul payueuLs Lbereunder 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 1993 decision of the United States Coart 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 appealed this ruling to the United States Court of Appeals for the Fifth Circnit and has sought to attack it in a collateral action in the United States District Court lor the Southern District of New York; however, Grace successfully stayed this attack. See Note 2 to the Consolidated Financial Statements and 'Management's Discnssion and Analysis of Results of Operations and Financial Condition* in the Financial Supplement for additional information. FUMED SILICA PLANT LITIGATION. In 1993, Grace initiated legal action in Lhe Belgian courLs against the Flemish government, to recover losses resulting from the closing of Grace's fnmed silica plant in Pnnrs, Belgium. (See Note $ to the Consolidated Financial Statements in the Financial Supplement for additional information.) Grace is seeking damages in excess of fonr billion Belgian francs (approximately $123 million at the December 3L. 1994 exchange rate), plna interest and lost profits. This claim was dismissed at the trial conrt level and is now being appealed by Grace. The trial coart also determined that Grace should repay approximately 239 million Belgian francs (approximately $7.4 million at the December 31, 1994 exchange rate) pins interest to the Flemish government for previously received investment grants; this decision is also being appealed hy Grace. Also pending is an arbitration involving the engineering company that was responsible for the design and construction of the tamed silica plant. The outcome of this proceeding may affect the action filed against the Flemish government. During 1994, a claim by the company from which Grace had agreed to purchase hydrogen for use in the plant under a long-term contract was settled. SHAREHOLDER LITIGATION. In March 1995, a lawsuit was brought against the Company and all of the members of its Board of Directors (as well as J. P. Bolduc, who resigned as President, Chief Executive Officer and a director of the Company in March 1995) in New York State Supreme Court, New York County tVEISER V. GRACE, ET AL.. Index No. 95-106285). The Lawsuit, which purports to be a derivative action (I.E., an action brought on behalf of the Company), alleges that the individual defendants breached their fiduciary duties to the Company (a) by providing J. Peter Grace (who is currently the Chairman and a director of the Company, but 21 who has agreed not to stand tor re-election to those positions) with certain compensation arrangements upon his retirement as the Company's Chiel Executive Oilicei iu 1992 and (b) by sppruviug Mr. Bolduc's severance arrangeueuts, and that Messrs. Grace and Bolduc breached their fiduciary duties by accepting snch benefits and payments. The lawsuit seeks unspecified danages, attorneys' fees and costs, and such other relief as the Coart deeas proper. Similar claims are ade, and similar relief is sought, in a second purported derivative action (JACOBSEN V. GRACE, ET AL., New York Supreme Court, New York County, Index No. 95-107355) brought in March 1995 against the Company, all of its directors, Mr. Boldnc and J. Peter Grace III, a son of Mr. Grace. In addition, the second lawsuit alleges that the defendants breached tbeir fiduciary duties to the Coapany in other respects and seeks equitable relief, inclading the cancellation of Mr. Grace's consulting agreement, with the Company and the repayment, of various amounts to the Company. OTHER. The Company has been notified that the Securities and Exchange Commission is conducting an iufomxal inquiry into the Company's prior disclsonres, including disclosures regarding benefits and arrangements provided to Mr. J. Peter Grace, Jr., and certain matters relating to J. PeLer Grace III, Uie sou of Mr. Grace. Jr. 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 Coapany's security holders during the fonrth qnarter of 1994. 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, 1995. Name ind Age Office First. Elected R. H. Beber (61) Executive Vice President 05/10/ 93 and General Counsel 09/01/91 Robert J. Bettacchi (52) Vice President 02/ 01/ 90 F. Peter Boer (54) Executive Vice President 01/ 05/ 89 Jean-Lonis Greze (63) Executive Vice President 05/10/93 Constantine L. Hampers (62) Executive Vice President 06/ 06/ 91 - 22 Thomas A. Holmes (71) James R. Hyde (5o) Donald H. Kohnken (60) Fred Lemperear (57) Ian Priestnell (51) Brian J. Smith (50) Acting President and Cliiel Executive Officer 03/02/95 Vice President 07/ 01/ 87 Executive Vice President 12/07/89 Senior Vice President 02/ 06/ 92 Vice President 02/ 06/ 92 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, other than Ur. Holmes, who retired as chairman, president and chief executive officer of Ingersoll-Rand Company in 198S. Mr. Holnes has been a director of the Canpany since 1989. PART II ITEM 5. MARKET FOR REGISTRANT'S COMdDN EQUITY AND RELATED STOCKHOLDER MATTERS. Except as provided below, the information called for by this Item appears in the Financial Supplement under the beading "Financial Summary' opposite the caption "Other Statistics - Common shareholders of record" (page F-2S); under t.he heading "Quarterly Sunma ry and Statistical Information" opposite the captions "Dividends declared per common share" and 'Market price of common stock" (page F-25); and in Note 13 to the Consolidated Financial Statements (page F-20). Each share of the Company's Common Stock has an attendant Common Stock Pnrchase Right ("Right"). The Rights are not and will not became exercisable uuless aud uutil eertaiu 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 tine. 23 When the Rights become exercisable, each Right will initially entitle the holder to boy Iron the Coup any one share ot Common Stock tor $<47.5U, subject to adjustment in certain cases ("purchase price"). If, at any tine after the RighLs becoue exercisable, (a) the Company is iuvulsed 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 ot 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 bay a number of shares cf common stock of the acqnirmg company having a market valae 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 valne eqnal 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 snch later business day as nay 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 rednee their holdings to 10% or less of the outstanding Cournuu Stock.. The Rights will expire in January 1997. The Rights may be amended either before or after they become exerciaable. 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-28 of t.he Financial Supplement.) and in Notea 5, 6. 0 and 16 to the Consolidated Financial Statements (pages F-12, F-13, T-17 and F-22 of the Financial Supplement). In addition, Exhibit 12 to this Report (page E-35 of the Financial Supplement) contains the ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends for Orace for the years 1990-1S94. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information called for by this Iten appears on pages F-29 to F-32 of the Financial Supplement. 24 l ihM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Index to Consolidated Financial Sla lemeuts md Financial SLaLeueuL Schedule and Exhibits cn page F-l of the Financial Snpplenent. ITEM 9. CHANGES IN .AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING .AND FINANCIAL DISCLOSURE. This item is inapplicable, as no snch changes oi disagreements have occnricd. TART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF TEE REGISTRANT. Except for information regarding the Company's execntive officers (see pages 22 and 23), the information called lor by this Item is incorporated in this Report by reference to the definitive Proxy Statement for the Company's 1995 Annual Meeting of Shareholders, except for information not deemed to be "soliciting material* or 'filed* with the Securities and Exchange Commission ("SEC*), information subject to Regnlstions 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 COMPENSATICN. 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 Company1s 1995 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 1$ of the Exchange Act. 25 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 Schedule and Exhibits on page F-l of the Financial Supplement. REPORTS ON FORM 8-K. The Company filed one Report on Form 8-K daring the foaxth quarter of 1994. The Report, which was filed on October 27, 1994, reported the Company's results of operations for the three-month and nine-month periods ended Septenher SO, 1994. 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 W. R. Grace ft Co., as amended Exhibit 3 to Form 8-K (filed 6/9/88) By-laws of V. R. Grace ft Co., as amended Filed herewith Indenture dated as of Septen her 29, 1992 among W. R. Grace ft Co.-Conn., W. R. Grace ft Co. and Bankers Trust Company Exhibit 4.2 to Form 10-K (filed 3/26/93) Indenture dated as of Janaary 28, 1993 anong W. R. Grace ft Co.-Conn., W. R. Grace ft Co. and NaliousBauk of Georgia, N.A. Exhibit 4.4 to Form 10-K (filed 3/26/93) 364-Day Credit Agreement, dated as of September 1, 1994, anong W. R. Grace ft Co.-Conn., W. R. Grace ft Co., the several banka parties thereto and Chemical Bank, as agent for such banks Exhibit 4.1 to Form 10-Q (filed 11/10/94) 26 - Credit Agreement, dated as ol September 1, L994, among W. R. Grace ft Co. -Cowl. , W. R. Grave t Co., the several banks parties thereto and Chemical Bank, as agent lor snch banks First Amendment, dated as of December 28, 1994, to the 364Day Credit Agreement, dated as of Scptcnbci 1, 1994 First. Amendment, dated as of December 28, 1994, to the Credit Agreement, dated as of September 1, 1994 Amended and Restated Rights Agreement dated ts of June 7, 1990 between W. R. Grave ft Co. and Manufacturers Hanover Trnst Company W. R. Grace ft Co. Executive Salary Protection Plan, ts amended W. R. Grace ft Co. 1981 Stock Incentive Plan, as amended W. R. Grace ft Co. 1986 Stock Incentive Plan, is amended W. R. Grice ft Co. 1989 Stock Incentive Plan, as amended W. R. Grave ft Co. 1994 SLovk Incentive Plan V. R. Grace ft Co. 1994 Stock Retainer Plan lor Nonenployee Directors Forns of Stock Option Agreements Forms of Restricted Share Award Agreements Exhibit 4.2 to Fora 10-y (filed 11/10/94) Filed herewith Filed herewith Exhibit to Amendment on Form 8 to Application for Registration on Form 8-B (filed 6/19/90) Exhibit 19(1) to Form 8 K (filed 6/9/88)* Exhibit 28(a) to Form 10-Q (filed 8/13/91)* Exhibit 28(b) to Fora 10-Q (liled 8/13/91)* Exhibit 28(c) to Fora 10-Q (liled 8/13/91)* Filed herewith* Filed herewith* Exhibit 10(h) to Form 10-K (liled 3/28/92)* Exhibit. 10(i) to Form 10-K (filed 3/28/92)* 27 Information Concerning w. K. Grace Co. Incentive Compen sation Program, Deferred Compensation Program and Long-Term Incentive Program V. R. Grace Co. Long-Term Incentive Plan W. R. Grace & Co. Retirement Plan for Outside Directors, as amended Employment Agreement dated as of April 1, 1991 between W. R. Grace & Co -Conn, and Constantine L. Hampers, as amended Housiug Loan Agreement dated as of Angust L, 198? between V. R. Grace Co. and J. P. Boldnc, related Amendment and Assignment dated May LO, 1988 Employment Agreement dated August 1. 1993 between J. P. Boldnc and V. R. Grace Co. Stock Option Agreement, dated Jane 30, 1993 between David L. Yunicb and W. K. Grace (Jo. Stock Option .Agreement dated June 30. 1993 between David L. Yonich and W. R. Grace Co. Retirement Agreement between W. R. Grace Co. and J. Peter Grace dated December 21, 1992 Executive Severance Agreement dated as of September 1, 1992 between W. R. Grace Co. and J. P. Boldnc Execnt.ive Severance Agreement dated September 1, 1992 between W. R. Grace Co. and Constantine L. Hampers Pages 8-13 and 2^-30 of Proxy Statement (Tiled 4/11/94)* Exhibit 10(1) to Form 10 K (Tiled 3/29/91)* Exhibit 10(o) to Form 10-K (filed 3/28/92)* Exhibit 10(x) to Form 10-K (filed 3/28/92)* Exhibit 10(q) to Form 10-K (filed 3/29/88); Exhibit 19(i) to Form S-K (filed <5/9/8*)* Exhibit 10.13 to Form 10-K (filed 3/28/94)* Exhibit. 10.14 to Form 10-K (filed 3/28/94)* Exhibit 10.15 to Form 10-K (filed 3/28/94)* Exhibit 10.23 to Form 10-K (filed 3/26/93)* Exhibit 10.24 to Form 10 K (filed 3/26/93)* Exhibit. 10.26 to Form 10-K (filed 3/26/93)* 2* Forn of Executive Sevexaace Agreement between W. R. Grace & Co. and others Consulting Agreement dated June 1, 1992 between W. R. Grace & Co. and Kansky Associates, Inc. Incentive Compensation Agreement dated June 1, 1992 between National Medical Caic, Inc. and Kansky Associates, Inc. . Consulting Agreement dated as of December 1993 between National Medical Care, Inc. and Virginia A. Kaasky Consnlting Agreement dated as of June 1G, 1993 by and between National Medical Care, Inc., The Humphrey Gronp, Inc. and Gordon J. Humphrey Employment Termination Agreement dated June 30, 1993 between J. R. Wright, Jr. and V. R. Grace Co. W. R. Grace 4 Co Supplemental Execntive Retirement Plan, as amended Agreement dated March 1, 1995 between W. R. Grace & Co. and Jean-Lonis Greae Agreements dated March 2 and March 7, 1995 between J. P. Boldnc and W. R. Grace Co. Letter Agreement dated April 1, 1991 between National Medical Care, Inc. and Constantine L. Hampers Weighted Average Nnnher of Shares and Earnings Used in Per Share Computations Exhibit 10.28 to Form 10-K (filed 3/26/93)* Exhibit 10.29 to Form 10-K (filed 3/26/93)* Exhibit 10.30 to Form 10-K (filed 3/26/93)* Filed herewith* Exhibit 10.23 to Form 10-K (filed 3/28/94)* Exhibit 10.24 to Form 10 K (filed 3/28/94)* Exhibit. 10.25 t.r> Form 10-K (filed 3/28/94)* Filed herewith* Filed herewith* Filed herewith* Filed herewith (in Financial Supplement to 10-K) 29 - Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends Selected Portions of the 1994 Annual Report to Shareholders of V. R. Grace Co. List of Subsidiaries of W. R. Grace Co. Consent of Independent Accoun tants Powers of Attorney Letter of Intent dated November 5, 1993 between W. R. Grace & Co. and J. Peter Grace III, as amended Agency Agreement dated June 13, 1994 between ESC Holding Co., Inc. and Grace Hotel Services Corporation Letter Agreement dated December 14, 1994 among HSC Holding Co., Tnc., Grace Hotel Services Corporation and W. R. Grace Co. Services Agreement dated November 10, L994 between HSC Holding Co., Inc. and Grace HoLel Services Corporation Filed herewith iin Financial Supplement to 10-K) Filed herewith iin Financial Snpplement to 10-K) Filed herewith Filed herewith in Financial Snpplement. to 10-K) Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith 30 SlGbAlURES Pursuant to the requirements oI Secuiuu L3 or 15(d) ul the Securities Exchange Act ol 1934. the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. W. R. GRACE 4 CO. By / s/ B. J. Smith Date: March 29, 1995 B. J. Smith (Executive Vice President.) 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 29, 1995. SIGNATURE TITLE T. A. Holme >* Director and Acting President (Acting Principal Executive Officer) G. C. Dacey* E. V. Duffy* C. H. Erhart, Jr .* J. V. Frick* I. P. Grace* G. P. Jenkins* R. C. Macauley* } J E. Phipps* > J. A. Puclichcr* } D. W. Robbins, Jr. *} F. J. Snllivan* } D. L. Yunich* } Directors /s/ B. J. Smith Executive Vice President (B. J. Smith) (Principal Financial Olficer) /s/ R. N. Snkenik Vice President and Controller (R. N. Snkenik) (Principal Accounting Olficer) * By signing his name hereto, Robert B. Lamm is signing this document on behalf of each of the persona indicated above pnrsnam. t.o powers of ai.tnrney dnly executed by such persons and filed with the Securities and Exchange Commission. By Is/ Robert B. Lana Robert. B. Lanai (Attorney-in-Fact) 31 FINANCIAL SUPPLEMENT to ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 W. R. GRACE t CO. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE AND EXHIBITS PAGE Report of Independent Accountants on Financial Statement Schedule F-2 Consent, of Independent. Acconnt.ant.s................................................................. F-2 Report of Independent Accountants......................................................................F-3 Consolidated Statement of Operations tor the three years in the period ended December 31, 1994 ..................................................................... F-4 Consolidated Statement of Cash Flows fox the three years in the period ended December 31, 1994 ......................................................................F-5 Consolidated Balance Sheet as at December 31, 1994 and 1993. . . . F-6 Consolidated Statement of Shareholders' Equity for the Lhree years in the period ended December 31, 1994............................................F-7 Notes to Consolidated Financial Statements ........................................... F-8-F-24 Quarterly Summary and Statistical Information - Unaudited................. F-25 Worldwide Operations ................................................................................................ F-26 Capital Expenditures, Net Fixed Assets and Depreciation and Lease Amortization................................................................................................F-27 Financial Summary........................................................................................................ F-28 Management's Discussion and Analysis of Results of Operations and Financial Condition....................................................................................... F-29 Financial Statement Schedule Schedule Vlll - Valuation and Qualifying Account and Reserves......................................................................F-33 Exhibit 11: Weighted Average Number of Shares and Earnings Used in Per Share Computations...................................................................................F-34 Exhibit 12: Compulation of Ratio of Earnings to Fixed Charges and Combined Filed Charges and Preferred Stock Dividends................. F-35 IHE FINANCIAL DATA LISTED ABOVE APPEARING IN THIS FINANCIAL SUPPLEMENT ARE INCORPORATED BY REFERENCE HEREIN. THE FINANCIAL STATEMENT SCHEDULE SHOULD BE READ IN CONJUNCTION WITH IHE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO. FINANCIAL STATEMENTS OF 30%- 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 TS SHOWN IN "THE CONSOLTOATFT) FINANCIAL STATEMENTS OR NOTES THERETO. F-l REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareholders and Board of Directors of W. R. Grace & Co. Our audits of the consolidated financial statements referred to in oar report dated February 1, 1995 appearing on page 29 of the 1994 Annual Report to Shareholders of W. R. Grace Sc Co. (which report and consolidated financial statements are inclnded in this Annnal Report on Form 10-K) also inclnded an audit of the Financial Statement Schedule listed on page F-l in the Index to Consolidated Financial Statements and Financial Statement Schedule and Exhibits of this Form LO-K. In oux opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. / s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP New York, New York February 1, 1995 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby cuuseul to the iucurporaLioii by reference in the Pruspectuses constituting parts of the Registration Statements on Form S-3 (Nos. 33-51041. 33-50983 and 33-25962) and Form S-S (Nos. 33-7504, 33-15182, 33-27960, 33-54201 and 33-54203) of W. R. Grace Sc Co. of our report dated February 1, 1995 appearing on page 29 of the 1994 Annual Report to Shareholders, which report is included at page F 3 of thia Report on Form 10 K. We also consent to the incorporation by reference of onr report on the Financial Statement Schedule, which appears above. / s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP New York, New York March 27. 1995 F-2 MANAGEMENT' S RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible lor Che preparaCiuu, as well as Che integrity aud objectivity, of the consolidated financial statenents and other financial information included in thia report. Snch iinancial 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 end reporting policies and procedures; and an internal andit. fnnetion. 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 assnrance that assets are safeguarded, policies and procedures are followed and transactions are properly executed and reported. The concept of reasonable assnrance 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 he 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 andit plans and results as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal control systems. The Andit 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 in the Andit Cnmnitt.ee 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 inditing 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 RETORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP 1177 Avenne of the Americas New York, NY 10036 February 1, 1995 TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE Sl CO. In onr opinion, the consolidated financial statenents 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended Decenber 31, 1994, in confornity with generally accepted accounting principles. These financial statements are t.he responsibility of Grace's management; onr responsibility is to express an opinion on these financial statements based on our audits. We conducted onr audits of these statements in accordance with generally accepted auditing standards which require thal we plan and perform the audit to obtain reasonable assurance about whether the financial statenents are free of material isstatenent. An andit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used uud significant estimates made by management, aud 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, Grace adopted new accounting standards for income taxes and poatretirenent benefits in 1992. ; S/ PRICE WATERHOUSE LLP CONSOLIDATED FINANCIAL STATEMENTS V R. Grice ft Co. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS DOLLARS IN MILLIONS. EXCEPT PER SHARE AMOUNTS Sales tad revenue* .................................................................................................................... Other income (Note 4)............................................................................................................... Total.................. ........................................................................................................... Coat, of goods sold and operating expense*................................ ... Selling, general and admini atrative expense*............................ Depreciation and amortization..................................... Tnt.ereat expense and related financing cost* (Note 9)................................ Research and development expense*................................................................................... Provision relating to asbestos-related insurance coverage (Note 2) . . Provision relating to a fumed silica plant (Note 81. . . .................. Total. ... ... Income iron continuing operations before income taxes..................................... Provision for income taxes (Note 5)....................... .......................................... Income from continuing operations.................................................................................... Loss from discontinued operations (Note 6) ............................................................ Income/(loss) before cumulative effect of accounting changes.................. Cumulative effect of accounting changes (Notes 5 snd 16) ............................ Net income/(loss)........................................................................................................................ Earnings/ (loss) per share: Continuing operations........................................................................................................... Cumulative effect of accounting changes................................................................. Net earnings/(loss)............................................................................................................... Fully diluted earnings per share: Continuing operations........................................................................................................... Net earnings ............................................................................................................................. 1994 1993 1992 S 5.093.3 50.5 5.143.8 S 4.408.4 63.2 4.471.6 $ 4.337.0 58.8 4.395.8 2,954.9 1.230.8 260.7 109.9 132. 4 316.0 ** <,004.7 2.615 7 1,021.7 234.6 *4.4 135.0 L59.0 4,250 4 2 .581 7 1.019 7 232 1 99 R 130 O 140 0 4.2U3.3 139 1 55.8 221 2 86.8 192.5 134.8 83.3 134.4 (108.4) 57.7 (162.2) 83.3 26.0 (104.5) (190.0) t 83.3 $ 26.0 S (294.51 $ .88 i t .88 s .88 $ .88 s 1.46 s s .28 I 1.45 s .28 s .64 t { 0 29) i .62 i ( THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES P-8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. (1) NOT PRESENTED AS TIE EFFECT IS ANTI-DILLTIVE. CONSOLIDATED STATEMENT OP CASH PLOWS DOLLARS IN MILLIONS 1994 OPERATING ACTIVITIES Incone iron continuing operations before income taxes. . . ..................................... Reconciliation to cash provided by operating activities: Depreciation and amortization............................................................ ................................ Provision relating to asbestos-related insurance coverage ..................................... Provision relating to a fumed silica plant . ................................ Changes in assets and liabilities, excluding effect of businesses acquired/divested and foreign exchange: (Increase)/decrease in notes and accounts receivable, net..................................... Increase in inventories.................................................................................................................... Net. (payments for)/proceeds from settlement* of -interest rate agreement* . Proceed* from asbestos-related insurance settlement* . Payment* made for asbestos-related litigation settlements, judgments and defense coats .......................................... Tncrea*e in account* paythle .................. Other ....................... ... ... Net pretax cash provided by operating activities oi continuing operations Net pretax cash provided by operating activities of discontinued operations Net pretax cash provided by operating activities ... Income taxes paid ........................................................ Net cash provided by operating activities................................................................................... $ 139.1 260.7 316.0 (159.5) (43.4) (4.0) 13*. 6 (19R.6) 10.3 73.8 533 U 65 539.5 (86 0) 453.5 INVESTING ACTIVITIES (1) Capital expenditures ...................................................................................................................................... Businesses acquired in purchase transactions, net of cash acquired and debt assumed Increase m net aseeta of discontinued operations..................................................................... Net proceeds from divestments........................................................................................................................ Net proceeds from sale/leasebsck transactions............................................................................... Proceeds from disposals of assets........................................................................................................... Other............................................................................................................................................................................ Net cash used for investing activities ............................................................................................. (444.6) (276.9) (32.9) 583.9 34,0 34.9 (101.6) FINANCING ACTIVITIES (2) Dividends paid ................................................................................................................................................ Repayments of borrowings having original maturities in excess of three months. Increase in borrowings having original maturities m excess of three months. . Net (repayments of)/increase in borrowings having original maturities of less thon three months ............................................................................................................... Sale of limited partner interest ...................................................................................................... Other....................................................................................................................................................................... Net cash used for financing activities ........................................................................................ Effect of exchange rate changes on cash and cash equivalents ..................................... Increase/ (decrease) in caah and cash equivalents .... ..................................... Cash and cash equivalents, beginning of year....................... ..................................... (132.0) (141.2) 535.1 (605.8) 21.1 (322.8) 1.6 30.7 47.6 1993 S 221.2 234.6 159.0 (103.2) (50.5) 67 9 74.6 (H7 7) .50 1 (174 4) 301 6 44 2 345 8 (102.7) 243.1 (309.6) (306.6) (43.1) 464.8 27.2 15.4 (151.9) (128.4) (512.6) 373.0 155.7 6.4 (105.9) (5) (15.2) 62.6 1992 $ 192 5 232 1 140 0 48 4 (2 3) 32 31 5 (101 8) 29 5 (214 2) 358 9 178 3 537 2 (9S 9) 438 3 (398 4) (SI.2) (101.5) 221 2 38.7 (36 5! (337 7) (125 9) (274 0) 355 7 (508 0) 297.0 13 8 (241 4) (3 5) (144 3) 207 1 Cash and cash equivalents, end of year $ 78.3 $ 47.6 $ 62 8 THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. PAGES F-8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. (1) SEE NOTE 3 TO THE OCNSOLIDATED FINANCIAL STATEMENTS FOR SUPPLaCNTAL INFORMATION RELATING TO NON-CASH INVESTING ACTIVITIES. (2) SEE NOTES 3 AND 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR SUPPLEMENTAL INFORMATION RELATING TO NON-CASH FINANCING ACTIVITIES. P-3 consolidated balance sheet DOLLARS IN MILLIONS, EXCEPT PAR VALUE December 31. 1994 1993 ASSETS CURRENT ASSETS Cash and cash equivalents.......................................................................... ....................... Notes and accounts receivable, net (Note 7). . . ....................... Inventories (Note 7) . . ............................ Net assets of discontinued operations (Note 6) . . . . Deferred income taxes.............................................. Other current assets . . ....................... TOTAL CURRENT ASSETS.......................................... Properties and equipment., net (Note R) Goodwill, leas accumulated amortization of :$71 Asbestos-related insurance receivable (Note 2) Other assets (Note 7). . R (1993 - SM 2). . TOTAL ASSETS . $ 73.3 975 7 514.2 335.6 295.4 29.7 2.228.9 1,730.1 672.5 512.6 1,086.5 S 6,230.6 S 47.6 657.4 441.0 761.3 134.1 36.2 2.077.6 1,454 l A81 6 962.3 1,133.0 $ 6.108 6 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt (Note 9) .......................................................................... Accounts payable ........................................................................................ Income taxes ........................................................................................................... Other current liabilities............................................................................... Minority interest (Note 12).......................................................................... TOTAL CURRENT LIABILITIES.......................................................................... Long-term debt (Note 9)................................................................................... Other noncurrent liabilities ................................................................. Deferred income taxes................................................................................... Noncurrent liability for asbestos-related litigation (Note 2) TOTAL LIABILITIES............................................................................................. $ 430.9 433.7 197.0 872.9 297.0 2,231.5 1,098.8 690.9 92.5 612.4 4,726.1 S 532.6 414.6 126.5 621.9 297.0 1,992.6 1,173.5 613.8 97.4 713.7 4,591.0 COMMITMENTS AND CONTINGENCIES (Notes 2, 9 and 11) SHAREHOLDERS' EQUITY (Note 13) Preferred stocks, $100 par value ............................................................................... Common stock, Si.00 por value; 300,000.000 shares authorized; outstanding at December 31: 1994 - 94,083.000; 1993 * 93,465,000 . Paid in capital......................................................................................................................... Retained earnings ................................................................................................................ Cumulative translation adjustments .......................................................................... TOTAL SHAREHOLDERS' EQUITY........................................................................................ TOTAL LIABILITIES APO SHAREHOLDERS' EQUITY................................................... 7.4 94.1 308.8 1,147.5 (53.3) 1,504.5 $ 6,230.6 7.4 93.5 287.8 1,196.2 (67.3) 1,517.6 $ 6,108.6 THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PACES F*8 TO F-24, ARE INTEGRAL PARTS OF THESE STATEMENTS. F- 6 CONSOLIDATED STATEMENT OF SHAREHOLDERS ` EQUITY DOLLARS IN MILLIONS PREFERRED STOCXS Balance, beginning of year ........................................................ Other........................................................................................ ... Balance, end of year ..................................................................... ....................... CCM40N STOQC Balance, beginning of year ................................................... Conversion of note* and debenture* Stock option* and award* Acqui tmn. ....................... .... Ralance. end of year ... ... PAID IN CAPITAL Balance, beginning ol year ....................... Conversion ot notes and debentures . Stock options and awards ....................... Acquisition. Other....................... ................................................... Balance, end of year ...................................................................... .. ... RETAINED EARNINGS Balance, beginning of year ................................................... Net incoae/(loss)............................................................................... Dividends paid .................................................................................... ... ... ....................... Balance, end of year ...................................................................... ....................... CUMULATIVE TRANSLATION ADJUSTMENTS Balance, beginning of year ........................................................ ....................... Translation adjuitnentt................................................................. ....................... Balance, end of year ...................................................................... ....................... TOTAL SHAREHOLDERS' EQUITY ................................................... ....................... 1994 1993 1992 S 7.4 7.4 $ 7.5 (.1) 74 $ 7.5 7.5 93.5 .ft 94.1 89.9 2.8 7 1 93.5 88.6 1.3 89 9 287. 8 20. 5 .5 308.8 151.4 109.7 22. y 3.7 .1 287.8 120.1 -- 31.1 .2 151.4 1,196.2 83.3 (132.0) 1,147.5 1,298.6 26.0 (128.4) 1,196.2 1,719.0 (294.5) (125.9) 1,298.6 (67.3) 14.0 (53.3) $1,504.5 (2.4) (64.9) (67.3) $1,517.6 90.0 (92.4) (24) $1,545.0 .V THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PACES F-8 TO F-24, ARE INTEGRAL PARTS OP THESE STATEMENTS. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS l. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of W. R. Grace & Co. and majority owned coapanies (collectively, Grace). Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies (20ft-50* owned) are accounted for under the equity method. RECIASSTFTCATTONS Certain amounts in the prior years' consolidated financial statements and related notes have been reclassified to conform to the enrrent year's presentation and as required with respect to discontinued operations. CASH EQUIVALENTS Cash equivalents consist of highly liqnid instruments with maturities of three months or lets when purchased. The recorded amounts approximate fair value because of the short maturities of these investments. INVENTORIES Inventories are stated at the lower of cost or market. methods of determining cost are nsed, inclnding first-in' first-out, for substantially all U.S. chemical inventories, last-in/fiist-out. value for raw and packaging materials is based on enrrent cost and, inventory classificationi, on net realizable value. Several average and, Market for other PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of cost or net realizable valnc. Depreciation of properties and equipment is generally computed nsing the straight-line netbod over the estimated useful lives of t.he assets. Interest is capitalized in connection with major project expenditnres and amortized, generally on a straight-line basis, over the estimated nsetnl lives of the assets. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts nntil they are removed from service. In the case of disposals, assets and related depreciation are renoved 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 nsing the straight-line method over appropriate periods not exceeding 40 years. Patient relationships (see Note 7) are amortized nsing 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, require* the n*e of an asset, and liahilit.y approach for t.he accounting and financial reporting of income taxes. FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial statements (except for those relating to conntries with highly inflationary economies) are translated into U.S. dollars at enrrent exchange rates, except that revennes, costs and expenses are translated at average exchange rates during each reporting period. The financial slnceueuls of subsidiaries locaLed in coantries with highly inflationary economies mast be remeasured as if the functional currency were the U.S. dollar. The remeasnreaent creates translation adjustments that are reflected in net incoae. Allocations for income taxes included in the translation adjustments account in shareholders' equity were not significant. F.ARNTNGS PFR 5HARF Primary earnings per share are computed on the basis of the weighted average number of common shares outstanding. Fully diluted earnings per share assnne the conversion of convertible debt (with an increase in net income for the after-tax interest savings) and the issuance of common stock equivalents related to stock options. FINANCIAL UNS'lKUMtNTS Or ace enters into interest rate agreements and foreign exchange forward and option contracts to manage exposure to fluctuations in interest and foreign currency exchange rites. The cash differentials paid or received on interest rate agreements are accrned ind recognized as adjustments to interest expense. Gains and losses realized opon settlement of these agreements (recorded as other noncnrrent liabilities or other assets, respectively) are deferred and either amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remains outstanding, or recognized immediately if the underlying hedged instrument is settled. Premiums paid on caps sre amortized to interest expense over the term of the cap. Cash flows related to the agreements are classified as operating activities in the Consolidated Statement of Cash Flows, consistent with the interest payments on the underlying debt. Gains and losses on foreign currency forward and option contracts offset gains and losses resulting from the underlying transactions. Gams and losses on contracts that hedge specific foreign currency commitments are deferred and recorded in net income in the period in which the transaction is consummated. Gains and losses on contracts that hedge net investments iu lureigu subsidiaries are recorded in the cumulative translation adjustments account in shareholders' equity. See Note 10 for additional information on financial inairoments. 2. ASBESTOS AND RELATED INSURANCE LITIGATION Grace is a defendant in lawsnits relating to previously sold asbestos-containing products and anticipates that it will be named at a defendant in additional asbestos-related lawsnits in the fntnre. At December 31, 1994, Grace was a defendant in approximately 38,700 asbestos-related lawsnits representing approximately 68,000 claims (versus approximately 38,LOO lawsnits and 56,700 claims at Decenber 31, 1993). In most of these lawsnits. Grace is one of many defendants. Of the lawsnits pending at December 31, L994, 65 <92 at December 31, 1993) involved claims for property damage allegedly caused by the asc of asbestos-containing materials in the construction of baildings. The plaintiffs in these lawsuits generally aeelc. among other things, to have the defendants absorb the cost of removing, containing or repairing the asbestos-containing materials m the affected buildings. The remaining asbestos-related lawsnits involved claims for personal injury. PROPERTY DAMAGE LITIGATION Through December 31, 1994, 126 asbestos property damage cases had been dismissed wiLh re sped lu Grace wiLhoul payment of au> damages or settlement, amounts, judgments had been entered in favor of Grace in 10 cases (excluding one case that was settled following appeal of a judgment in favor of Grace and another case in which the plaintiff was granted a new trial on appeal, limited to statute of limitations issues); Grace bad been held liable for a total of $74.6 in 7 cases (3 of which are on appeal); and 159 property damage anits and claims had been settled by Grace for a total of $341.8. Included in the asbestos property damage lavsnits pending against Graoc and others at year-end 1994 were the following class actions: (1) a Pennsylvania state conrt. action, certified in 1992, covering all commercial buildings in the U.S. leased in whole ox in part to the U.S. government on or after May 30, 1986 and (2) an action, conditionally certified by the U.S. Conrt of Appeals for the Fonrth Circuit in 1993 and pending in a U.S. District Court in South Carolina, covering all pnblic and private colleges and universities in the U.S. whose buildings contain asbestos materials. In July L994, a SuuLli Carolina sLale court judge dismissed the claims of most class members from a purported nationwide class action asbestos property damage lawsuit. In his ruling, the judge determined that a South Carolina statute prohibits non-residents fron pnrsning claims in the South Carolina state coarts with respect to buildings located outside the state. The plaintiffs have requested that the court reconsider its decision. In August 1994, Grace entered into an agreement to settle a nationwide class aotion pending in the U.S. District Court for the Eastern District of Pennsylvania on behalf of all pnblic and private elementary and secondary schools that contain friable asbestos materials (other than schools that, "opted oat' of the class). The terms of the settlement agreement (which is subject to judicial review and approval alter class menbers have an opportunity to be heard) are not expected to have t significant effect on Grace's consolidated results of operations or financial position. PERSONAL INJURY LITIGATION Thruugh December 31, 1994, approximately 8,400 asbestos personal injury lawsuits involving 22.200 claims had been dismissed with respect to Grace without payment of any damages or settlement anonnts (primarily on the btsis thai Grace products were not involved), and approximately 17,000 inch suits involving 20,000 claims had been disposed of for a total of $77.1. However, as a result of various trends (including the insolvency of other former asbestos producers and cross claims by co-defendants in asbestos personal injnry lawsnits), the costs inenrred in disposing of snch lawsnits in the past, nay not. he indicative of the costs of disposing of sach lawsnits in the fntnre. 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 propertv damage case is oniqae in that building age, type, size and utilization and difficulty of abatement, if necessary, vary from structure to structure; thus. Lire amounts involved in prior dispositions ol property damage cases are not necessarily indicative of the amonnts that nay be required to dispose of such cases in the future. In addition, in property damage cases, information regarding product identification on a bnilding-by-building basis (I.E., whether or not Grace products were actually nsed m the construction of the building), the age, type, size and use of the building, the jurisdictional history of prior cases and the coart in which the case is pending provide the only meaningful guidance as to potential future costs. However, mnch 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. Farther, uncertainty with respect to the class actions described in "Property Damage Litigation' above make it more difficult to reliably predict the costs Grace will mcnr in disposing oi ssbestos-related litigation. F-9 Subject tc the preceding qtulrIj.cati.ons (which Grace believes to be significant), Grace has attempted to estimate its future costs to dispose ol this litigation and has concluded that it. is probable that the personal injury and property damage case* pending at December 31. 1994 can be disputed oi lor a total of $712.4, inclusive of legal fees and expenses, of which Grace has recorded $612.4 at a ncncnrrent liability and $100.0 as a cnrrent liability. This compares to the estimated liability (cnrrent and noncmrent) of $813.7 at December 31, 1993, reflecting payments made and the recording in the fourth quarter of 1994 of an additional provision of $50.0 for fntnre costs. INSURANCE COVERAGE AND LITIGATION Grace's ultimate exposure in respect of its asbestos-related lawsnits and claims will depend on the extent to which its insmance will cover damages for which it aay be held liable, amounts paid in settlement, and litigation costs. Grace his recorded a receivable of $512.6 at December 31, 1994 for tbe insnrance proceeds it expects to leceive in reimbursement tor prior payments and estimated mtnre payments to dispose of asbettos-related litigation. This compares to a total receivable of $962.3 at December 31, 1993, reflecting net insnrance proceeds received, the recognition in tbe fonrth quarter of 1994 of $50.0 in additional insnrance proceeds expected to be received, the reclassification of $100.0 received in January 1995 in settlement of a coverage dispute, and the nun-cash charge of $316.0 described below. In September 1993, the U. S. Court of Appeals for the Second Circuit issned a decision that had the effect of reducing the anount of insurance coverage available to Graoe with respect to asbestos property damage litigation and claims. The Court of Appeals reversed an earlier District Coart ruling that coverage for asbestos property damage claims is triggered by the "discovery of damage" and instead ruled that, nndcr New York law (which governs a significant portion of the policies that provide asbestos-related insnrance coverage), snch coverage is triggered based on the date of installation of asbestos-containing materials. As a result of this decision, Grace recorded a non-cash charge of $475.U ($300.0 after-taxes) in the 1993 third quarter, but reversed $316.0 ($200.0 after-taxes) of the charge in tbe 1993 fourth quarter, after the conrt withdrew its September 1993 decision and agreed to rehear the case. On May 16, 1994, the court issued a new decision confirming its September 1993 decision. As a result, Grace reinstated a non-cash charge of $316.0 ($200.0 after-taxes) in the second quarter of 1994 tu reflect Uie reduction in asbestos property damage insurance coverage. Grace has settled coverage disputes with certain insurance carriers. At December 31, 1994, these settlements provided for the fntnre receipt by Grace of $187.0, including $100.0 received in January 1995. These amounts have been recorded as cnrrent and nonenrrent notes receivable. In 1994, Grace received a total of $138.6 pnrsnant to settlements with certain insurance carriers in reimbursement for monies previously expended by Grace in connection with asbestos-related litigation; ol this amount, $27.0 was received pursuant to settlements entered into in 1993. which had been separately classified a* notes receivable. A portion of the $138.6 has been paid to plaintiffs in previonslv settled asbestos-related lawsuits. Additionally, $100.0 was received in January L995 in settlement of a coverage dispute. Prior to 1994, Grace received paynents totalling $172.3 from insnrance carriers, the majority of which represented the1 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 seek to recover from its excess insurers the balance of the payments it has made with respect to asbestos-related litigation. As part of this effort, Grace continues to be involved in litigation with certain oi its insurance carriers, including an affiliated gronp of carriers that had agreed to a settlement and had made a series of payments nnder that agreement in 1993. The gronp of carriers snhxeqnent.ly notified Grace that, it would no longer honor the agreement (which had not been cxccntcd) due to the September 1993 U.S. Conrt of Appeals decision discussed above. Grace believes that the settlement agreement (which involves approximately 5240.0 of the asbestos-related receivable of $512.6 at December 31, 1.994) is binding and initiated action to enforce the settlement agreement. In January 1994, the U.S. District Court for the Eastern District ol Texas held the agreement to be enforceable. The affiliated gronp of carriers has appealed this ruling to the U.S. Conrt of Appeals lor the Fifth Circuit and sought to attack it in a collateral action iu the U.S. District Court for the Southern District of New York; however, Grace successfully stayed this collateral attack. For the period October 20, 1962 through Jone 30. 1985 - the most relevant period for asbestos related litigation Graoe purchased, on an annnal basis, as ach as eight levels ol excess insurance coverage. In general, excess policies provide that when claims paid exhanst coverage at one level, the insured may 3cck payment from the carriers at the next higher level. Foi that 23-year period, the first six levels.of excess insmance available from the insurance companies that. Grace believes to he solvent, (based primarily upon reports from a leading independent insurance rating service) provide coverage of approximately $1,400.0 (which includes the amounts reflected in the receivable discussed above). As mentioned previously, the May 1994 decision fron the U.S. Court of Appeals for the Second Circuit has limited the amount of insurance coverage available for property damage clsims. However, if the amount available in the first six levels should prove to be insufficient for personal injury lawsuits aud claims, Grace has substantial additional coverage available m its two remaining levels of excess coverage. In Grace's opinion, it is probable that recoveries from its insurance carriers (including amounts reflected in the receivable discussed above), along with other funds, will be available to satisfy the personal injury and property damage lawsuits and claims pending at December 31, 1994. Consequently, Grace believes that the resolution of its asbestos-related litigation will not have a material effect on its consolidated results of operations or financial position. r-10 3. ACQUISITIONS AND DlVES'iMHM'S ACQUISITIONS During 1994, Grace aade acqni.siti.ont totalling $351.7 (inclnsive of cash acquired and debt assumed), primarily in its health care, construction products and packaging product lines. Grace acquired Hone Nutritional Services. Inc. in the first quarter of 1994 for approximately $131.8 (inclusive of cash and assumed debt totalling $30.4) and acquired kidney dialysis centers and other health care bnsinesses during 1994 for an aggregate of approximately $145.3 in cash. In the first quarter of 1994, Grace acquired construction chemicals businesses, and in the fourth quarter of 1994, Grace acquired a European flexible packaging business. in 1993, Grace acquired Home Intensive Care, Inc. tor approximately $129.0 in cash and other health care businesses for an aggregate of $115.0 in cash and $3.8 in comnon stock. Additionally, during 1993 Grace acquired Latin America's largest water treatment business for approximately $57.6 in cash. In 1992, Grace completed Hie purchase of the common stock, ol Since Eueigv Corporation (Grace Energy) not owned by Grace for $77.3 m cash. See Note 6 for a discussion of divestment activity with respect to Grace Energy's businesses. During 1992, Grace continued to expand its health care operations through the acquisition of several bnsinesses and facilities for consideration totalling $44.2 in oash. DIVESTMENTS During 1994, Graoc realized grosa proceeds of $646.2 (inclnsive of debt assumed by the buyers) from divestments, including payments made nnder financing arrangements entered into in connection with divestments in prior years. Substantially all bnsinesses divested daring 1994 were previously classified as discontinued operations. Divestment proceeds received m 1994 include $42.8 tor Grace's remaining interest in The Restaurant Enterprises Gronp, Inc. (REG). In 1993, Grace completed the sale of substantially all of the oil and gas operations of Grace Energy and certain corporate investments, all of which were previously classified as discontinued operations. Other uuu-core businesses divested during 1993 included a 50% interest in a Japanese chemical operation and a food industry hygiene services business for approximately S31.4 and $11.2, respectively. In 1992, Grace sold its book, video and sefuware distribution business, which was previously classified as a discontinued operation, and its organic chemicals business and related assets. See Note 6 for a discussion of divestment activity related to discontinued operations. 4. OTHER INCOME 1994 L993 1992 Interest income............................................................. Equity in earnings of affiliated companies . Gains on ssles of investments............................... Other, net...................................................................... S 1.7 2.9 27.4 15.5 $ 21.7 1.0 22.9 17.6 $ 3.9 3.4 12.fi 38.9 $ 50.5 $ 63.2 $ 5S.8 Gains on sales of investments include a 1994 gain of $27.0 on the sale of Grace's remaining interest in REG and a 1993 gain of $21.7 on the sale of a SO* interest in a Japanese chemical operation (see Note 3). Interest income in 1993 includes $20.0 relating to the settlement of prior years' Federal income tax returns. F-ll 5. INCOME TAXES Effective January 1, 1S92, Grace adopted SFAS No. 109, "Accounting for Incone Taxes," which applies an asset and liability approach reqniiing 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 nore likely than not that all or a portion of a deferred tax asset will not be realized, a valuation allowance nnst be recognized. As permitted under SFAS No. 109, Grace elected not to restate prior periods' consolidated financial statements to give effect tc SFAS Mo. 109. Excluding the deferred tax benefit recognized upon the adoption of SFAS No. 106, 'Employers' Accounting for Post.ret.i reraent Benefits Other Than Pensions," t.he effect of the adoption of SFAS No. 109 on Grace1s 1992 financial statements was not natenal. In the third quarter of 1993, Grace recorded the effects of the Oonibns Bndget Reconciliation Act of 1993 (0BRA). which was enacted in Angnst 1993. Among other things, OBRA increased the maximum US. Federal corporate tax rate Lu 33% (Iron 34%), effective January l, 1993. However, neither this rale increase nor the other provisions of OBRA had a material effect on Grace's results of operations. The components of income/(loss) from continning operations before income taxes are as follows: 1994 1993 1992 Domestic.......................................................................... Foreign.............................................................................. $ 44.3 $ 125.4 $ 206.4 94.8 95.8 (13.9) S 139.1 $221.2 $192.5 The provision/(benefit) for income taxes allocated to continning operations consisted of: 1994 1993 1992 Federal income taxes: Current . . Deferred. . State and looal income taxe a Foreign income taxes: Onrrent. . . Deferred. . current . . 5 25.3 (34.8) 21.8 $53.6 (28.7) 19.1 ;$ 75.6 (20.2) 16.5 49.1 (5.6) 44.4 (1.6) 57.fi 5.3 5 55.8 $ 86.8 $134.8 At December 31, 1994 and 1993, deierred tax as rets and liabilities consisted of the following items: 1994 1993 Reserves not yet deductible for tax pnrposes .................. $254.4 Research and development expenses............................... 107.3 Postretireaent benefits other than pensions......... 93.3 Net operating loss carryforwards............................... 54.4 Tax credit carryforwards................................................ 49.0 State deferred taxes......................................................... 37.5 Provision relating to asbestos-related expenses. . . . 36.2 Capitalized inventory costs and inventory reserves . . IS.3 Pension and insurance reserves ................................................ 14.8 Other............................................................................................ 54.4 Total deferred tax assets.................................................... 7L6.6 $ 96.9 112.2 92.1 47.1 84.9 29.2 7.8 19.4 26.2 42.1 557.9 Depreciation and amortization.................................................... Prepaid pension cost.............................................................................. Other................................................................................................... 167.4 141.5 72.3 71.0 21.34.0 Total deferred tax. liabilities........................................... 261.0 216.5 Valuation allowance for deferred tux assets...................... Net deferred tax assets......................................................... 137.0 $318.6 129.7 $211.7 F-12 In connection with the ailoptiun oi SPAS No. 109. Grace recognised a valuation allowance of $88.4. which has been adjusted to relied subsequent everiLi. The valuation allowance relates to the uncertainty as to the realization of certain deferred ux assets. including U.S. tax credit carryforwards, date and local uei 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 note likely than not that the net deferred tax asset balance will be realized. At December 31, 1994. there were $43.0 of tax credit carryforwards with expiration periods through 1998 and $4.0 of tax credit carryforwards with no expiration period Additionally, there were state and local and foreign net operating loss carryforwards with a tax effect of $34.4 and various expiration periods. The U.S. Federal corporate tax rate reconcile* to the effective tax rate for continuing operations as follows: L $ bederal corporate tax rite. ... ... increase/ (decrease in tax rate resulting iron: U.S and foreign taxes on foreign operations Utilization of general buaineat credit! State and local income taxes, net of U.S Federal income tax benefit Valuation allowance for deferred tax isaeta........................................................ Impact of U.S and foreign tax rate changes on deferred taxes. . . . Basil difference on sale of investment ............................................................ Other, net .................................................................................................................................. Effective tax rate ........................................................................................................................ U.S. and foreign taxes have not been provided on approximately $301.3 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 or approximately $27.2 and additional U.S. Federal income taxes to the extent they are not offset by foreign tsx credits. It is not practicable to estimate the total tax liability that would be incurred upon such a distribution. 6. DISCONTINUED OPERATIONS COCOA, BATTERY SEPARATORS AM) ENGINEERED MATERIALS AtO SYSTEMS Grace's battery separators business; certain engineered materials businesses, principally its printing products, material technology, and electromagnetic radiation control businesses (collectively, QdS). and its cocoa business and other non*core businesses were classified ss discontinued operations in the 1994 1993 1992 35.0* 38 (15) 6.3 (6.8) 3.3 40.1* 35 0% 7.3 (2 9) 46 (3.3) (1 5) 39 2* 34 0* 10 8 56 26.3 (6.7) 70.0* second quarter of 1993. At that tine, a provision of $105.0 (net of an applicable lax benefit of $22.3) was recorded to reflect the losses expected on the divestment of these businesses. During 1994. Grace sold its battery separators business and substantially all of tor gross proceeds of $316.2 In February 19S5, Grace sold its composite materials business, leaving its microwave business as the remaining EMS business to divest. TuLtl proceeds received from the divestment of these businesses approximated prior estimates GRACE ENERGY Grace Energy was classified as a discontinued operation in 1992. The loss from discontinned operations in 1992 included a provision of S155.0 (net of an applicable tax benefit of $81.8) to reflect the losses expected on the divestment of Grace Energy's operations. In L994, Grace sold substantially all of its interest in Colowyo Coal Company (Colowyo), Grace Energy's only remaining significant operation, for proceeds of $218.3, including $192.8 of proceeds from a nnn-reconrse financing seenred by a portion of the revennes from certain long term ccal contracts. Grace retained a limited partnership interest in Colowyo, entitling it to share in the revenues from these coal contracts. In L993, Grace sold substantially all of the oil and gas operations of Grace Energy for net cash proceeds of $386.0. Total proceeds received from the divestment of these businesses appioximated prior estimates. GRACE DISTRIBUTION AND OTHER In 1994, Grace sold its animal genetics and Caribbean fertilizer operations for proceeds of $44.1. These and other businesses were classified as discontinned operations in 1993. In 1993, Grace completed the sale of its minority interests in Canonie Environmental Services Corporation and Sxace-Sieira Horticultural Prodncts Company for total proceeds of $41.3. F-13 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 lestanrant operation. In March 1992, Grace completed the sale of Grace Distribution ior $97.8 in cash and notes. Operating losses of Grace's discontinued operations subsequent to their classification as snch were $14.2, $34.6, and $7.2 in 1994, 1993. and 1992, respectively; these amounts are consistent with amounts originally estimated tnd have been charged against established reserves. Operating results and sales and revenues prior to classification as discontinued operations were ns follows: 1993 1992 COCOA Sales and revenues ...................................................................... . . $ 142.1 $ 683.5 (Loss)/ income from operations before taxes (1) . . . . . $ (5.6) $ 1.8 Income tax benefit...................................................................... 1.0 .4 (Loss)/ income fron discontinued operations.................. . . $ (4.6) $ 2.2 BATTERY SEPARATORS AND EMS Sales and revenue a...................................................................... . $ 93.8 $ 413.6 Tncone from operations before taxes (1 i.......................... . . $ 4.7 $ 29.1 Income tax provision ................................................................. (2.1) (10.1) Income from discontinued operations................................... . . $ 2.6 $ 19.0 GRACE ENERGY Sales and revenues ...................................................................... . . $ Loss from operations before taxes (L).............................. . $ Income tax benefit ...................................................................... Loss from discontinued operations....................................... . . $ -- $ 266.3 _ _ $ (11.1) -- 6.6 -- $ (4.3) GRACE DISTRIBUTION AND OTHER Sales and revenuea ...................................................................... . . $ 14.4 $ 96.5 Loss from operations before taxes (1).............................. . . $ (1.7) $ (16.2) Income tax benefit ...................................................................... .3 4.4 Loss from discontinued operations....................................... . . $ (1.4) $ (11.8) Total operating results of discontinued operations . . . . Net pretax loss on disposals of operations ...................... . . Income tax benefit on disposals of operations.................. $ (3.4) (127.3) 22.3 $ 4.9 (255.1) 88.0 Total loas from discontinued operations $(108.4) $(162.2) (1) REFLECTS AN ALLOCATION OF INTEREST EXPENSE BASED CN (a) A RATIO OF THE NET ASSETS OF THE BUSINESSES CLASSIFIED AS DISCONTINUED OPERATIONS IN THE SECOND QUARTER OF 1993 AS CONfARED TO GRACE'S TOTAL CAPITAL AND fb) GRACE'S INCREMENTAL BORROWING RATE APPLIED TO BOTH THE EXPECTED PROCEEDS FROM THE DIVESTMENT OF GRACE ENERGY AM) TO THE NET ASSETS CF GRACE DISTRIBUTION THROUGH TEE DATES OF THEIR RESPECTIVE SALES. ASSUMING THAT AMOUNTS RECEIVED FROM THE DIVESTMENT OF THESE BUSINESSES WERE USED TO REDUCE DEBT. THE ABOVE OPERATING RESULTS FCR THE PERIODS PRIOR TO CLASSIFICATION AS DISCONTINUED OPERATIONS INCLUDE INTEREST EXPENSE ALLOCATIONS OF $2.5 AND $38.6 FOR 1993 AND 1992, RESPECTIVELY. For financial reporting purposes, the assets, liabilities, results of operations and casb flows of Grace Cocoa Associates, L.P. (LP) are included m 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 lor a further discussion of LP. Grace is pursuing the divestment ui its cocoa business. iu revaluing BIS business and other inveetmeius. and expects uo cuuelude each transactions in 1995. Net assets oX Grace'* revaluing discontinued operation* (excluding intercompany assets) at December 31, 1994 are a* Xollows. Current assets ................................................................................................. Properties and equipment, net................................................................. Investments in and advances to affiliated companies. . . . Other assets ........................................................................................................... Total assets ........................................................................................ Current liabilities. . . Other noncurrent liabilities . . Total liahih tie* . Net assets ...... .... COCOA $ 276.3 185.4 42.6 504.3 t 185.6 78.9 $ 264.5 $ 239.8 OTHER $ 21.5 38.2 38.7 16.7 j 115.1 % 15, 8 35 % i9.3 s 95.8 TOTAL $ 297,8 223.6 38.7 59.3 $ 619.4 $ 201 4 82.4 $ 283.8 S 335 6 7 OTHEK BALANCE SHEET HEMS NOTES AND ACODLKTS RECEIVABLE Trade receivable!, lesa allowance# of $95.1 (1993 S49.7) Settlements due from inaurance carriert current................... Other receivables, leea allowancee of $.1 (1993 $.6) . . 1994 s 742.0 127.0 106.7 s 975.7 1993 $ 545.7 27.0 84.7 $ 657.4 INVENTORIES Raw and packaging materials.................................................................................................................... In process ......................................................................................................................................................... Finished products........................................................................................................................................... General merchandise....................................................................................................................................... Lees: Adjustment of certain inventories to a lost-in/first-out (LIFO) basis. . $ 129.8 75.3 289.5 62.7 (43.1) $ 514.2 $ 111.4 59.9 243.3 67.0 (40.6) $ 441.0 OTHER ASSETS Prepaid peniioa coats....................................................................................................................................... Patient relationships, less accumulated amortization of $117.2 (1993 $96.5). . Long-term receivables, less allowances of $20.6 (1993 - $13 4) ..................................... Deferred charges ................................................................................................................................................ Deferred income taxes....................................................................................................................................... 218.2 214.9 152.3 133.3 115.7 $ 224.2 196.4 177.0 110.4 175.0 Lang-tern investments. .... Investments m and advances to affiliated companies. Paierus and licenses . ................................................................. Other. . ............................................................ 79.3 56.0 39.9 76.9 $ 1,086.5 104.4 51 4 33.9 CO.3 $1,133.0 During 1994 and 1993, Grace entered into agreements to sell up to $320.0 and $270.0. respectively, of interests in designated pools of trade receivables. At December 31, 1994 and 1993. S296.8 and $263.8, respectively, had been received pursuant to such sales; these amounts are reflected as reductions to trade accounts receivable. 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) The costs related to such sales are expensed as incurred and recorded as interest expense and related financing costs. There were no gains nr losses on these transactions. Inventories valued at LIFO cost comprised 25 2% and 29 0% of inventories at December 31, 1994 and 1993, respectively. lhe liquidation of prior years' L1K) inventory layers in 1994, L993, and 1992 did not materially affect cost of goods sold in any of these years. P-15 i. PROPERTIES AND EQUIPMENT 1994 1993 Land.................................................... Buildings........................................... Machinery, eqnipment and other Projects under construction. . , .. .. .. . .. $ 52.4 698.3 2,080.2 397.4 Properties and equipment, gross ...................... . . 3,228.3 Accumulated depreciation and amortization. . . .. . . (1,498.2) Properties and equipment. net........................... . . $ 1,730.1 $ 51.3 636.1 1,842.5 247.9 2,777.g (1,323.7) $ 1,454.1 Interest costs hive been incurred in connection vitb tbe financing of certain assets prior to placing then in service. Interest costs capitalized in 1994. 1993, and 1992 were $9.4, $7.4, and $20.4, respectively. Depreciation and lease amortization expense relating to properties and equipment amounted to $215.1, $196.1, and $202.1 in 1994. 1993, and 1992, respectively. Grace's rental expense for operating leases amounted to $65.8, $63.8, and $80.0 in 1994, 1993, and 1992, respectively. See Note 11 for information regarding contingent rentals. At December 31, 1994, minimum future payments for operating leases were: 1995 ............................................................................... 1996 ............................................................................... 1997 ............................................................................... 1998 ............................................................................... 1999 ............................................................................... Later years.................................................................. Total minimum lease payments.......................... $ 65.3 55.0 46.2 36.0 28.5 66.9 $ 297.9 The above minimum lease payments reflect sublease incone of $11.3 per year for 1995 through 1999 and a total of $38.6 in laier years. Tn 1992, s critical raw material supplier t.o Grace's filmed silica plant, in Belgium was effectively denied a previously promised permit, resulting in the shutdown of the supplier s plant. As a result, the continued operation of Grace's plant wonld 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-tine provision of $1411.0, reflecting the entire net boot value of the facility and certain additional expenses. Grace is continuing to seek recovery, through litigation, fur certain losses incurred as a result of the shutdown ol the plaut and is actively pnrsning the sale of the plant's land and bnildmgs. F-16 9. DEBT SHORT-TERM DEBT Commercial paper (3.64 weighted average interest rate at ycar-cnd 1993) (L).................................................................................. Current aatnrities of long-tern debt .................................................... Other short.-t.ern borrowings (2)................................................................. LONG-TERM DEBT Coonercial paper (6.04 and 3.64 weighted average interest rates it yeai-eud 1994 nud 1993, respectively) (1) ................. Bank borrowings (5.84 and 3.64 weighted average interest rates at year-end 1994 and 1993, respectively) (1) ................. 8.04 Notes Dne 2004 (3)................................................................................... 7.44 Notes Due 2000 (4)................................................................................... 7.754 Notes Due 2002 (5) .............................................................................. 6.54 Notes Dne 1995 (6)................................................................................... Median-Tern Notes, Series A (6.94 weighted average interest rate at ycar-cnd 1994) (7).................................................... Sundry indebtedness with various maturities through 2006 . . . Less current maturities of long-tern debt........................................... Full-year weighted average interest rate on total debt . . . . 1994 1993 $ 166.6 264.3 $ 430.9 $ L67.4 9.1 356 1 $ 532.6 103.5 300.0 300.0 150.0 150.0 128.5 127.9 1,265.4 166.6 $1,098.8 $ 30.8 479.6 300.0 150.0 130.0 .. 72.2 1,182.6 9.1 $1,L73.5 5.84 5.54 (1) UNDER BANK REVOLVING CREDIT AGREEMENTS IN EFFECT AT YEAR END 1994, GRACE MAY BORROW UP TO $700.0 AT INTEREST RATES BASED UPON THE PREVAILING PRIME, FEDERAL FUNDS AND/OR EURODOLLAR RATES. OF THAT AMOUNT, $350.0 IS AVAILABLE UNDER A 364-DAY CREDIT AGREEMENT EXPIRING AUGUST 31. 1995, AND $350.0 IS AVAILABLE UNDER A LONG-TERM FACILITY EXPIRING SEPTEMBER 1, 1999. AT DECEMBER 31 . 1994, NO BORROWINGS WERE OUTSTANDING UNDER THF.SF. CREDIT AGREEMENTS. THESE AGREEMENTS ALSO SUTrORT TOE ISSUANCE OF COMMERCIAL TATER AND BANK BORROWINGS, $109.0 OF WHICH WAS OUTSTANDING AT DECEMBER 31, 1994 (INCLUDED IN LONG-TERM DEBT ABOVE). AT DECEhBER 31. 1994, THE AGGREGATE AMOUNT OF NET UNUSED AND UNRESERVED BORROWINGS LINDER IHE LONG-TERM AND 364-DAY FACILITIES WAS $591.0. THESE AGREEMENTS REPLACED A CREDIT AGREEMENT UNDER WHICH $714.6 OF 364-DAY FACILITIES AND $510.4 OF LONG-TERM FACILITIES HAD BEEN AVAILABLE. GRACE' S ABILITY TO BORROW UNDER THE CURRENT FACILITIES IS SUBJECT TO COMPLIANCE WITH VARIOUS COVENANTS, INCLUDING MAINTENANCE OF TOTAL DEBT TO TOTAL CAPITALIZATION AND INTEREST COVERAGE RATIOS. (2) REPRESENTS BORROWINGS UNDER VARIOUS LINES OF CREDIT AND OTHER MISCELLANEOUS BORROWINGS, PRIMARILY OF NON-U.S. SUBSIDIARIES. (3) DURING THE THIRD QUARTER OF 1994, GRACE SOLD $300.0 OF 8.04 NOTES DUE 2004 AT AN INITIAL PUBLIC OFFERING PRICE OF 99.7944 OF PAR, TO YIELD 8.034. INTEREST IS PAYABLE SEMIANNUALLY, AND THE NOTES MAY NOT BE REDEEMED PRIOR TO MATURITY (4) 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. (5) DURING THE THIRD QUARTER OF 1992, GRACE SOLD AT PAR $150.0 OF 7.73% NOTES DUE 2002. INTEREST IS PAYABLE SEMIAWUALLY, AND THE NOTES MAY NOT BE REDEEMED PRIOR TO MATURITY. (6) 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 (7) DURING THE SECOND QUARTER OF 1994, GRACE ENTERED INTO AN AGREEMENT PROVIDING FOR THE ISSUANCE AND RALE FROM TIME TO TIME OF ITS MEDIUM-TERM NOTES, SERIES A (MINS), WITH AN AGGREGATE ISSUE PRICE OF UP TO $300.0. THE MINS MAY BEAR INTEREST AT EITHER FIXED OR FLOATING RATES AND HAVE MATURITY DATES MORE THAN NINE MONTHS FROM THEIR RESPECTIVE DATES OF ISSUANCE. INTEREST ON EACH FIXED RATE MIN IS PAYABLE SEMIANNUALLY, AND INTEREST ON EACH FLOATING RATE MIN IS PAYABLE AS ESTABLISHED AT THE TIME OF ISSUANCE. Payneot of substantially all of Grace's borrowings nay be accelerated, and its principal borrowing agreements terminated, upon the occurrence of a default under certain other Grace borrowings. Scheduled metnritici of debt outstanding at December 31, 1994 arc: 1995 - $166.6; 1996 - $88.1; 1997 - $LU.6; 1998 - $5.1; and 1999 - $13.4. Interest expense, excluding related financing costs, fer 1994, 1993, and 1992 amounted to $86.9, $81.5, and $90.0. respectively. Interest payments made in 1994, 1993, and 1992 amounted to $106.1, $102.5, and S166.3, respectively. A registration statement that became effective in January 1994 covers $750.0 of debt and/or eqnity securities that may be sold from time to time. At December 31, 1994, $321.5 (including up iu $171.5 ui MTNs) remains available nnder the registration statement. F-17 10. FINANCIAL INSTRUMENTS LONG-TERM DEBT/INTEREST RATE AGREEMENTS To manage its exposure to changes in interest rates, Grace enters into interest rate agreements, most of which effectively convert fixed-rate debt into variable-rate debt based on the London Interbank Offered Rate. At December 31, 1994 and 1993, the notional amounts of oatstanding interest rate swaps related to long-term debt were $1,010.0 and $970.0, respectively. Notional amounts do not quantify risk or represent assets or liabilities of Grace, bnt are used in the calcnlation of cash settlements under the agreements. Management docs not currently intend to settle any of the agreements prior to maturity. Grace's debt and interest rate management objective is to reduce its cost of landing over tbe long term, considering economic conditions and their potential impact on Grace. The strategy emphasizes improving liquidity by developing end maintaining access to a variety of long-term and short-term capital markets. Grace enters into standard interest rate swaps that have readily identifiable impacts on interest cost and are characterized by broad market liquidity. During 1994 and 1993, Grace realized positive cash flows of $10.0 and $87.0, respectively, from interest rate agreements. Realized gains and losses on interest rate agreements are amortized to interest expense over a period relevant to the agreement (1 10 years); at December 31, 1994 and 1993, unamortized net gains were $43.0 and $36.0, respectively. At December 31, 1994 and 1993. Grace wonld have been required to pay S121.0 and $23.0, respectively, to retire these agreements. The maturities and notional amounts of the swaps closely match underlying debt instrnments. This will result in the changes in the fair valne of swaps being substantially offset, by changes in t.he fair value of the debt. At December 31, 1994 and 1993, tbe fair value of long-term debt was $1,070.0 and $1,210.0, respectively. The lair valne of long-term debt is determined by obtaining quotes from financial institutions. FOREIGN CURRENCY CONTRACTS Grace euLers into a vaiiety of lureign exchange forward and option toulmcls 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 Decenber 31, 1994 and 1993, Grace had notional principal amounts of approximately $10.0 aud $34.9, respectively, in contracts to bny or sell foreign currency in the future. The recorded values at December 31, L994 and 1993, which approximated fair valne based on exchange rates at December 31, 1994 and 1993, were not significant. OTHER FINANCIAL INSTRUMENTS At December 31, 1994 and 1993, the recorded valne of financial instrnments such as cash, short-term investments, trade receivables and payables and short-term debt approximated their fair values, based on the short-ierm maturities of these instruments. Additionally, the recorded 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 meLhodologics. MARKET AND CREDIT RISKS Exposure to market risk on interest rate and foreign cnrrency contracts resnlts from fluctuations in interest and currency rates, respectively, during the periods in which the contracts are outstanding. The counterparties to Grace's interest, rate swap agreements and cnrrency exchange contracts consist, of a diversified group of major financial institutions, each of which is rated investment grade. Grace is exposed to credit risk to the extent of potential nonperformance by counterpaxti.es on financial instruments. Any potential credit exposure doe* not exceed the fair value as stated above; Grace believes the risk of meaning losses due to credit risk is remote. F-18 11. C0MW11MEN JS AND OJNTlNGliN'l' LlAiJlLlTLES Grace is the named tenant or guarantor with respect to certain lease obligations of previonsly divested businesses. The leases, some of which extend to 2014, have fntnre minimam lease payments aggregating $67.3. Grace is also the naned tenant or guarantor with respect to lease obligations having fntnre mininnm lease payments of $35.8, as to which s previonsly divested home center business had been released in bankruptcy; offsetting this is $35.1 of fntnre mininnm rental income Iron subtenants. Grace continues to attempt to sublease the remaining properties and believes its nliimatc exposure is not material. Grace is the named tenant, with respect, t.n lease obligations, with fnt.nre minimnn lease payments of $15.2, that have been assigned to Hermans, a previously divested business. Grace believes its nltinate exposure undei these leases is not material and that it is folly indemnified by other parties for any losses it may incur under these leases. Grace is contingently liable with respect to leases entered into by REG's subsidiaries. Alter undergoing a reotganixaliuu iu 1993, REG (now named Family Restamants, Inc.) has agreed to indemnify Grace with respect to these leases. At December 3L, 1994, these leases have future minimum lease payments of $68.3. Grace believes any risk of loss fron these contingent liabilities is remote. Grace is subject to loss contingencies resulting from environmental laws and regulations, which, among other things, impose obligations to remove or mitigate the effects on the environment of the disposal or release of 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 he reasonably estimated At December 31, 1994, Grace's liability for environmental investigatory and remediation costs related to continuing and discontinued operations totalled approximately $216.0, as compared to $160.0 st December 31, 1993. The principal reason for this increase is dne to a change in the estimated costs of remediation at a former manufacturing site dne to additional required remediation activities. Additionally, a change in the estimated liability for remediation costs related to a pieviuusly divested business, as a result ol a cuuru ruling that Grace is responsible for a substantial portion of the costs, contributed to an increase in the liability; Grace has separately recorded a receivable for the amount expected to be received from its insnrance carriers with respect to this liability. In 1994, periodic provisions were recorded for environmental and plant closure expenses, which include the costs ol fntnre environmental investigatory and remediation activitica. Additionally, in the first quarter of 1994, Grace recorded a provision ol approximately $40.0, principally to provide for fntnre environmental costs. These provisions are included in the Consolidated Statement of Operations as part of cost of goods sold and operating expenses. Grace's current balance sheet reserves are considered adequate to cover the aforementioned liabilities. Grace's environmental liabilities are reassessed whenever environmental circumstances become better defined and/or remediation efforts and their costs can be better estimated. The measurement, of the liability is evaluated quarterly based on currently available information, including the progress of remedial inveatigation at each site, the current atatns of disenssiens with regulatory authorities regarding the method and extent of remediation at each site, and the apportionment of costs anong potentially responsible parties. As some of the previously mentioned issues 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 cnnt.inne t.n review and analyze i.he need for additional eccrnals. 12 MINORITY INTEREST Minority interest consists of a limited partner interest in LP. The total capital of LP at December 31, 1994 was $1,473.2. LP's assets consist of Grace Cocoa's worldwide cocoa and chocolate business, long-tern notes and deaand loans doe from varions Grace entities and guaranteed by W. R. Grace & Co. and its principal operating subsidiary, and cash. Grace bad $36S.l of borrowings fion LP at December 31. 1994. Fonr Grace entities serve as general partners of LP and own general partner interesta totalling 79.03% in LP; tbe sole limited partner of LP, which initially acquired its interest in LP in exchange for a $300.0 cash capital contribntion ($297.0 of which was fnnded by ontside invcstora), 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 fnnct.ions and operations. For financial reporting purposes, the assets, liabilities, resoles of operations and cash flows of IT are tnclnded in Grace's consolidated financial statements as a component of discontinued operations snd the ontside investors' interest in LP is reflected as a minority interest. F-19 13. SHAREHOLDERS' EQUITY The weighted average mirier of shares oi cuunuu stock outslauding during 1994 was 93,936.000 (1993 - 91,461.000; 1992 89.543,000). W. R. Grace & Co. is authorized to issue 300,000,000 shares of comon stock. Of the common stock unissued at December 31, 1994, approximately 11.214.000 shares are reserved for issuance pursuant to stock options and other stock incentives. In addition, at Decenber 31. 1994. approximately 105.297,000 shares were reserved for issuance under Common Stock Purchase Rights (Rights). A Right is issued for each outstanding share of common stock; the Rights are not and will not becone 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: Shares as of Decesiher 31, 1994 Authorized and Issued In Treasury Outstanding 6% Cumulative (1) 8% Cumulative Class A (2) 8% Noncuaulative Class B (2) 40.000 50,000 40,000 3,536 33,644 18,415 36 464 16.356 21.585 (1) 160 VOTES PER SHARE. (2) 16 VOTES PER SHARE. Dividends paid on the preferred stoeke amounted to S.5 in each of 1994, 1993, and 1992. The Certificate of Incorporation also authorizes 5,000.000 shares of Class C Preferred Stock. SI par value, none of which has been issued. 14. ST0CX INCENTIVE PUNS Changes in outstanding common stock options arc summarized below: Par value of Share* Outstanding 1994 1993 1992 S3.6 16 2.2 S7.4 S3 6 1.6 2.2 $7.4 S3 6 1.7 2.2 S7.5 1994 AVERAGE 1993 Average 1992 Average Balance at beginning ul year . . Options granted....................... Options exercised..................................... Options terminated or canceled . Balance at end of year ....................... number OF SHARES EXERCISE PRICE Number of Shares Exercise Puce Number of Shares Exercise Price C.905.304 1,358.900 8,324,204 (606,444) (104.8721 7,612.888 $36.48 42.27 29.21 37.33 38.08 G,365,187 1.461.425 7.826,612 (683,255) (178.053) 6,965.304 $35 09 38 00 25 89 40 13 36 48 6,112.248 1,445.300 7.557,548 (1.132.863) (59.498) 6,365.187 $32.01 37. 77 25.29 27.97 35.09 At December 31. 1994. options covering 5.633,761 shares (1993 - 5,056.256; 1992 4.025.840) were exercisable and 3.547.094 shares (1993 - 1.804,122; 1992 3,087.994) were available for additional grants. P-20 15. PENSION PLANS Grace iiaiuiaine defined benefit penaiou 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.5. pension plans are funded under a variety of methods because of differing local laws and customs and therefore cannot be summarized. .Approximately 60% of U.S. and non-U.S. plan assets at December 31. 1994 were common stocks, with the remainder primarily fixed income securities. Pension (benefit)/cost is comprised of the following components Service cost on benefits earned during the year. Interest cost on benefits earned in prior years. Actual loss/(return) on plan assets............................ Deferred (lost)/gain on plan assets. Amortization of net gains and prior service costs Net pension (benefit)/cost .......................................... 1994 U.S NON-U.S 1993 U S. Non-U $ 1992 U.S. Non-U.S. $ 25.6 49.8 17.9 (89.5) (7.7) X 13.4 19.3 10 6 (37 4) (1.6) $ L7.6 36.3 (108.2) 58.1 (5.3) S 95 L7. 1 (56.7) 36.0 U.7) X 11 1 31 7 (20 9) (30 5) (8 4) i 94 16 5 (30 6) SI 5 (5 5) $ (3.9) 5 4.3 S (1.5) S 4.2 $ (17 0) S (.7) The funded status of these plans wss ss follows: Actuansl present value of benefit obligation: Vested ............................................................................... Accumulated benefit obligation Total projected benefit obligation .......................................... Plan assets at fair value................................................................. Plan assets in excess of projected benefit obligation. Unamortized net gam at initial adoption............................ 1994 U.S. NDN-U.S. 1993 U.S. Non-U.S $ 575.2 $ 579.8 S 636.7 751.6 114.9 (83.9) S 171.4 $ 179.7 $ 240.3 268.3 28.0 (3.8) $ 614.2 $ 620.0 J 691.4 836.4 145.0 (96.1) $ 172.6 $ 182.2 $ 263 4 270. 1 6.7 (6 4; Inanortized prior service coit Unrecognized net loss/(gain) . Prepaid pension coal ... 31.3 63.4 $ 125.7 4.0 (13.0) $ 15.2 (1) 34.8 47.6 $ 131.3 42 9 5 4 (1) (1) INCUDES $70 3 IN 1994 AT $66.0 IN 1993 OF DEFERRED PENSION COSTS. The following significant assumptions were used in 1994, 1993. and 1992: 1994 CJ.S NON-U..V 1993 TJ..V Non-U.S. 1992 U.S. Non-U S Discount rate at December 3L................................... Expected long-tern rate ot return. . . Kate ot compensation increase 8.5* y.o 5.5 5.0 12-0% 6.0 - 10 5 4.0 - 7. 5 7.5* 90 5.5 4 5 - 9.2* 6 0 - 10.5 3 5 - 7.5 8.0* 9.0 60 ti 0 - 12 0* 6 0 - 11 0 3.5- 7 5 Grace's Retirement Plan for Salaried Employees (Plan) contains provisions under which the Plsn would automatically terminate in the event of a change in control of V. R. Grace & Co. and Plan benefits would be secured through the purchase of annuity contracts. Lpon such termination, a portion of the Plan't 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. P-21 16. OTHER POSTRETIREMENT BENEFIT PLANS Grace provides certaiu other poatrelircmeut health care aud life insurance benefits for retired employees of specified U.S. Units. These retiree nedical and life insurance plans proride 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 aethod of accounting for the future costs of postretireaent health care and life insurance benefits over the eaployees' years of service. The 'pay as you go* aethod of accounting, used prior to 1992. recognized these costs on a cash basis. The adoption of SPAS No. 106 on the innediate recognition basis, concurrent with the adoption of SPAS No. 109, resulted in a charge to 1992 earnings of S190.0, net of $98.0 of deferred income taxes. In addition, the application of SPAS No. 106 resulted in a decrease of $5.1 in 1992 after-tax earnings frost continuing operations. Grace's cash flow, however, is unaffected by implementation of SPAS No 106. as Grace continues to pay the costs of post.ref.1 rement benefits as they are incurred. Included in noncurrent liabilities as of December 31, 1994 and 1993 are the following: Accumulated postretirement benefit obligation: Retirees.......................................................................... Fully eligible participants ............................ Active ineligible participants....................... Accumulated postretirement benefit obligation. Unrecognized net lost .......................................... Unrecognized prior service benefit. . . . Accrued postretirement benefit obligation. . . 1994 1993 $192.6 12.1 26.3 231.0 (28.5) 48.6 5251.1 $168.9 36.9 38.3 244.1 (40.7) 52.9 5256.3 Net periodic postretirement benefit cost for the years ended December 31, 1994, 1993, and 1992 is comprised of the following components: Service cost ................................................................................................................ Interest cost on accumulated postretirement benefit obligation 1994 $ 2.1 16.2 1993 $ 2.2 13.2 1992 $38 15 6 Amortization of net loss . .................. Amortization of prior service benefit. bet periodic postretirement benefit cos i (4.3) $ 15.2 (4.5) $ 11.1 (1 9 $ 17 5 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 ei^loyees retiring after January 1. 1993. This amendment decreased the accumulated postretirement benefit obligation by $48.6 at Decesiber 31. 1994 and will be amortized over an average remaining future service life of approximstely 12 years. Medical care cost trend rates were projected at 10.9% in 1994. declining to 6.0% through 2002 and remaining level thereafter A one percentage point increase in each year's assumed medical care cost trend rate, holding all other assumptions constant, would increase the annual net periodic postretirement benefit cost hy $3.0 and the accumulated postretirement benefit obligation by $18.7. The discount rates at December 3I. 1994. 1993, and 1992 were 8 6%. 7.5%, and 8.0%, respectively. Elxective January 1, 1994. Grace adopted SPAS No. 112, 'Employers' Accounting lor Pot(employment Benefits,' which requires accrual accounting lor non-accumulating postemployment benefits. Grace's primary postemployment obligation is tor disabled workers' medical benefits. These are currently included in accrued postretirement costs under SPAS No. 106 The adoption of SPAS No. 112 did not have a material effect on Grace's results of operations or financial position. L7. lNlXISiKY btfjMHNi'S AND lNbCKMAl'lON ABOUT FOREIGN OPERATIONS EMXJSIRY SEGMENT INFORMATION Grace is a global producer of specialty chemicals and holds a leadership position in specialized health care services and products. The tables belovr present information related to Grace's tvo industry segments for the years 1994 -1992. Intersegment sales, eliminated in consolidation, are nominal and are not disclosed separately. Specialty Chemicals Health Care Total Sales ami Revenues ............................... Pretax Operating Income (1). . . . Identifiable Assets.............................. Capital Expenditores .......................... Depreciation and Amortization. . . 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992 $3,218 2.895 3,062 338 284 299 2,364 1,996 1 ,893 329 209 224 148 138 151 $1,875 1,513 1,275 249 194 126 1,735 1,297 906 86 80 52 94 78 65 $5,093 4.408 4,337 587 478 425 4,099 3,293 2,799 415 289 276 242 216 216 F-23 INFORMATION ABOUT FOREIGN OPERATIONS The table below provide* information peruiiuug to Grace's operations by geographic area. Asia Pacific arid Latin America are iucluiied m OLlier Sales and Revenues ................................ Pretax Operating Income (1) ... Tdent.i fiahle Aaaeta................................ 1994 1993 1992 1994 1993 1992 1994 1993 1992 United Stiles $3,309 2.853 2.721 423 365 291 2,468 2.063 1 .669 Canada $122 124 131 9 7 82 82 75 Europe $1,058 932 1.081 74 47 75 1 .026 7.53 772 Other $604 497 404 81 59 .59 52.3 39.5 283 Total $5,093 4.408 4.337 587 478 425 4. 099 3,293 2.799 Pretax operating income and total identiliable assets tor both segment and geographic reiulta are reconciled below to incone iron continuing operations before incone taxes and consolidated total aaaeta. respectively, a presented in the Conaolidated Statement of Operations and Consolidated Balance Sheet. Capital expenditures and depreciation and amortization expense are reconciled below to the respective amounts presented in the Consolidated Statement of Cash Flows. Grace allocates to its industry segments general corporate overhead expenses, general corporate research expenses and certain other income and expense items that can be identified with segment operations Pretax operating income............................................................................... Interest expense and related financing coats ....................... Provision relating to asbestos-related insurance coverage. Provision relating to a fumed silica plant ................................ Other (expenses)/income, net................................................................. Income from continuing operations before income taxes. . . Identifiable assets......................................... Asbestos-related insurance receivable General corporate assets (2) . . . . Discontinued operations' net assets. Total assets ....................................................... 1994 587 (110) (316) (22) 139 $4,099 513 1.283 336 $6,231 1993 $ 478 (84) (159) (14) $ 221 $3,293 962 1,093 761 $6,109 1992 $ 425 (100) (140) 8 $ 193 $2,799 1,235 1.565 $5,599 Capital expenditure* ..................................... General corporate expenditure* . . Dittcoiumued operation*' expenditure*. Tutal capital expenditure* ... Depreciation and anortization. . ................................................................. General corporate depreciation and anortization ............................ ................... Total depreciation and anortization.......................................................................... ....................... $ 415 30 $ 242 19 S 261 J 289 21 S 310 S 216 19 s 233 S 276 34 ft* J 398 S 216 16 $ 232 (1) 1993 AND 1992 AMCWTS HAYE BEEN RESTATED TO INCLUDE THE ALLOCATION TO INDUSTRY SEOtENTS OF GENERAL CORPORATE OVERHEAD EXPENSES, GENERAL CORPORATE RESEARCH EXPENSES AM) CERTAIN OTHER INCOME AM) EXPENSE ITEMS TO CONFORM TO THE 1994 PRESENTATION. (2) GENERA!. CORPORATE ASSETS PRTNCTTPAU.Y TMl IDE DEFERRED TAX ASSETS, DEFERRED PENSION ASSETS AND CORPORATE RRCRTVABTES AND INVESTMENTS QUARTERLY SUMMARY Al*> STATISTICAL INFORMATION UNAUDITED*DOLLARS IN MILLIONS, EXCEPT PER SHARE QUARTER ENDED IQ 2Q 3Q 4Q 1994 Specialty Chemical*........................................................ Health Care.......................................................................... Total sale* and revenue*................................ Cost of goods sold and operating expenses. . Net income/(loss)............................................................ Earnings/(loss) per share: (1) Net earnings/ (loss) .. Fully diluted earning* per share: Net earnings .......................................... Dividends declared per connon share. . . Market price ot conon stock: (2) High............................ Low ... Close . .... 1993 (5) Specialty Chenicals............................................................ Health Care............................................................................... Total sales and revenues..................................... Cost of goods sold and operating expenses. . . Income/{loss) from continuing operations . . . Loss from discontinued operations............................ Net income/(loss) ............................................................ Earnings/(loss) per share: (1) Continuing operations ..................................... Net earnings/(loss) ............................................... Fully diluted earnings per share: Continuing operations ..................................... Net earnings................................................................. Dividends declared per common share....................... Market price of common stock: (2) High.................................................................................... Low.................................................................................... Close ............................................................................... $ 675.4 401.4 $ 1..076.8 680.6 38.2 $ 4) s .40 s .35 s 46 1/2 4U 3/8 41 1/4 J 648.1 338.1 $ 986.2 592.4 31.7 (3.4) 28.3 $ .35 .31 s .34 .30 $ .35 s 40 1/ B 36 3/4 38 1/2 $ 782.9 454.0 S 1,236.9 721.5 (134.3) (3) $ (1 43) $ - (4) $ .35 x 43 39 39 7/8 J 729.9 364.2 s 1,094.1 644.1 53.9 (105.0) (51.1) s .60 (.57) $ .56 .. (4) $ .35 s 40 5/8 38 1/2 40 1/2 s 815.5 491.2 $ 1.306.7 755.4 76.0 $ 81 s 80 % 35 % 42 3/8 38 1/4 41 1/2 s 734.7 401.4 $ 1,136.1 660.1 (236.4) (6) (236.4) s (2.56) (2.56) % -- (4) - (4) s 35 $ 41 1/4 34 5/8 34 5/8 s 944 4 528 5 S 1.472 9 797 4 103 4 $ 1 10 * 1 09 % . 35 V 41 1/8 36 38 5/8 J 782 9 409. 1 s 1,192 0 719. 1 285.2 (7) 285.2 $ 3.05 3.05 s 3.03 3.03 s .35 $ 40 5/8 34 3/4 40 5/8 (1) PER SHARE RESULTS FOR THE F(XR QUARTERS DIPFER 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 TIE CONVERSION IN TIB THIRD QUARTER OP OUTSTA'CINC DEBT INTO APPROXIMATELY 2.8 MILLIOs SHARES OP CCfrMON STOCK. (2) PRINCIPAL MARKET: MW YORK STOCK EXCHAN3G. (3) INCUDES A $200.0 REINSTATEMENT OF THE PROVISION RELATING TO ASBESTOSRELATED INSURANCE COVERAGE. (4) NOT PRESENTED AS THE EFFECT IS ANTI -DILUTIVE. (5) CERTAIN AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO 1HE 1994 PRESENTATION. (6) INCUDES A $300.0 PROVISION RELATING TO ASBESTOS-RELATED INSURANCE COVERAGE. (7) INCUDES A $200.0 REVERSAL OF THE $300.0 PROVISION RELATING ID ASBESTOS- RELATED INSURANCE COVERAGE. F-25 WORLDWIDE OPERATIONS DOLLARS IN MILLIONS UNITED STATES/CANADA Specialty Chemical*............................ Health Care............................................... Total............................................................ FIJROPE Specialty Chemical*. Health Care. lotal................................ ASIA PACIFIC Specialty Chemical* ............................ Health Care................................................... Total................................................................. LATIN AMERICA Specialty Chemical*................................ Health Care................................................... Total................................................................. SUBTOTAL ........................................................ Divested Buainesae*................................ TOTAL CONTINUING OPERATIONS.... 1994 Sales and Revenues 1993 1992 $1,679 1,752 3.431 $1,555 1.424 2.979 $1,455 1.211 2.666 956 102 1,058 852 967 80 58 932 1.025 366 307 278 12 8 6 378 315 284 217 9 226 5,093 $5,093 181 l 182 4,408 $4,408 120 -- 120 4,095 242 $4,337 (1) .AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE 1994 PRESENTATION ON A PRETAX BASIS AMD INCLUDE TOE ALLOCATION TO IMX1STRY SEGMENTS OF GENERAL CORPORATE OVERHEAD EXPENSES, GENERAL CORPORATE RESEARCH EXPENSES AM) CERTAIN OTHER INCOME AND EXPENSE ITEMS. (2) EXCLUDES A $316 PROVISION FOR ASBESTOS-RELATED INSURANCE COVERAGE. (3) EXCLUDES A $159 PROVISION FOR ASBESTOS-RELATED INSURANCE COVERAGE (4) EXCLUDES A $140 PROVISION RELATING TO A FUMED SILICA PLANT IN BELGIUM, Pretax Operating Income (1) 1994 (2) 1993 (31 1992 $192 240 432 $189 183 372 $148 109 257 69 38 67 (4) 5 9 17 74 47 84 56 44 41 22 58 46 41 21 5 23 587 $587 13 13 478 $478 18 18 400 25 $425 CAPITAL EXPENDITURES, fCT FIXED ASSETS AT DEPRECIATION AND LEASE AMORTIZATION DOLLARS IN MILLIONS Capital Expenditures 1994 1993 1992 Net Fixed Assets 1994 1993 1992 Depreciation and Lease Amortization (l) 1994 1993 1992 OPERATING GROUP Specialty Chemicals................... Health Care................................ Subtotal .......................................... General Corporate . . Total Continuing Operation* Oivested Ruatneaaea. Di Rcontinuerl Operationa. Total................................................... S329 86 415 30 445 * $445 J209 80 289 21 310 - $310 $200 52 252 34 286 24 88 $398 SI,262 324 1.586 144 1,730 $1,730 11.049 277 1.326 128 1 .454 $1,454 S 975 221 1,196 102 1.298 4 406 $1,708 $144 56 200 15 215 $215 $135 46 181 15 196 SL96 $131 38 169 15 184 18 $202 GEOGRAPHIC LOCATION United States and Canada . Europe .............................................. Other Area*..................................... Subtotal ..................................... General Corporate................... Total Continuing Operationa Divested Businesses. . . . Discontinued Operationa. . Total................................................... $272 86 57 415 30 445 $445 $194 68 27 289 21 310 .- - $310 $156 80 16 252 34 286 24 88 $398 ; 994 421 171 1,586 144 1.730 $1,730 $ 854 351 121 1,326 128 1.454 $1,454 $ 757 342 97 1.196 102 1,298 4 406 $1,708 $129 55 16 200 15 215 $215 $117 49 15 181 15 196 $196 $108 49 12 169 15 184 18 $202 (1) CERTAIN 1993 Af 1992 AMOUNTS HAVB BEEN RECLASSIFIED TO CONFORM TO THE 1994 PRESENTATION. P-27 FINANCIAL SUMMARY (1) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1994 1993 1992 1991 1990 STATEMENT OF OPERATIONS Sales tad revenues .... ................................................................. Cost of goods sold tnd operating expenses..................................... Depreciation and amortization................................................................. Interest expense and related financing costs ............................ Research and development expenses....................................................... Income from continuing operations before income taxes .......................................................................... Provision for income taxes ................................................................. Income from continuing operations before special items (2) Tncome from continuing operations. .... (To**)/ income from discontinued operation* . . Cumulative effect of accounting changes. Net. income/ (loaa) ............................................... $5,093.3 2.954.9 260.7 109.9 132.4 $4,408.4 2.615.7 234.6 84.4 135.0 $4,337.0 2.581.7 232.1 99.8 130.0 $4,386.6 2.629.0 241.5 126.6 128. 1 139.L (3) 55.8 283.3 83.3 83.3 221.2 (4) 86.8 234 4 134.4 (108.4) -26.0 192.5 (5) 134.8 202.8 57.7 (162.2) (190.0) (294.6) 334.2 132.5 198.2 201 7 16 9 2J8.fi $4,309.7 2,684 4 227 2 138 6 125 4 272 1 97 5 174 6 174 6 28 2 202 8 FINANCIAL POSITION Current assets . ... ... Current liabilities. . . ............................ Properties and equipment, net..................................... lotal assets .... Total debt . . Shareholders' equity - comon stock........................................................ $2,228.9 2.231.5 1.730.1 6.230.6 1.529.7 1.497. 1 $2,077,6 1.992.6 1.454.1 6.108.6 1.706.1 1.510.2 $2,091.4 1.639.6 1,707.9 5.598.6 1,819.2 1,537.5 $1,990.0 1,622.1 2,558.2 6.0D7.1 2,259 4 2,017.7 $2,380 1 1.680 1 2.462 1 6.226 5 2.285 9 1,905 0 DATA PER OGMCIN SHARE Earnings from continuing operations before special items (2) Earnings from continuing operations................................................... Cumulative effect of accounting changes.............................................. Earnings/(loss)...................................................................................................... Dividends............................................................................................................... Book value ........................................................................................................... Average common shares outstanding (THOUSANDS)................................ $ 3.01 .88 .68 1.40 15.91 93.936 $ 2.56 1.46 .28 1.40 16.16 91.461 $ 2.26 .64 (2.12) (3.29) 1.40 17.10 89,543 $ 2.27 2.31 -2.50 1.40 22.77 87,236 S 2.03 2.03 2.36 1.40 22.14 85,879 OTHER STATISTICS Dividends paid on common stock ..................................... Capital expenditures ............................................................ % Total debt to total capital.......................................... Common shareholders of record.......................................... Common stock price range ................................................... Number of employees continuing operations (THOUSANDS)................................................... .... .... ................... ................... .................. $ 131.5 50.4% 18,501 46 1/2-36 37.9 $ 127.9 309.6 52.9% 19,358 41 1/4-34 5/8 $ 125.4 398.4 54.1% 20,869 45-32 34.0 32.8 S 122.0 $ 120.2 447.0 513 7 52.7% 54 4< 21,949 23,327 40 3/4-23 3/8 33 5/8- 32.9 34.2 (1) CERTAIN PRIOR YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1994 PRESENTATION. (2) EXCLUDES PROVISIONS OF S200.0 AM) $100.0 IN 1994 AM) 1993, RESPECTIVELY, RELATING TO ASBESTOS-RELATED INSURANCE COVERAGE. AM) IN 1992 A $140.0 PROVISION RELATING TO A FUMED SILICA PUNT IN BELGIUM AM) AN INCREMENTAL CHARGE OF $5.1 FOR POSTRETIRMNT BENBFITS PRIOR TO PLAN AMEMWENTS, AM) A STRATEGIC RESTRUCTURING GAIN OP $3.5 IN 1991 (3) INCLUDES A $316.0 PROVISION RELATINO TO ASBESTOS-RELATED INSURANCE COVERAGE. (4) INCLUDES A $159.0 PROVISION RELATING TO ASBESTOS-RELATED INSURANCE COVERAGE. (5) INCUDES A $140.0 PROVISION RELATING 10 A PUMED SILICA PLAN! IN BELGIUM. F-28 MANAGEMENT S DISCUSSION AM) ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION REVIEW OF OPERATIONS OVERVIEW Sales and revenues increased 16% in 1994 over 1993, as compared to an increase of 2% in 1993 over 1992. Excluding businesses divested in 1992. 1993 sales and revenaes increased 8% as conpared to L992. Incone fron continuing operations in 1994 increased 21%. to $283.3 million, as compared to 1993, excluding non-casb charges of $200 million and $100 million after taxes ($316 million and $159 million pretax) recorded in 1994 and 1993, respectively, to reflect, a rednct.ior in insurance coverage for ashest.os prnpert.y damage lawsuits and claims. In 1992, Grace closed its fumed silica plant in .Belgium and recorded a one-time provision of $140 million, representing the entire net book value of the facility and certain additional expenses. Excluding the asbestos and famed silica charges, income from continuing operations for 1993 increased 19%, to $234.4 million, over 1992 tincluding businesses divested in 1992). For all periods presented, the Consolidated 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 Sales and revenues increased 11% in 1994 as conpared to 1993, reflecting favorable volume, prioc/product mix and currency translation variances estimated at 9%, 1% and 1%, respectively. Volume increases were experienced by all core prndnet. lines. Packaging volnne increases were dne t.o higher sales vnlnnes of bags, films and laminates in all regions. The volume increases m construction products were dne to the acquisition of construction chemicals businesses in the first quarter of 1994, improved construction markets in North America and Europe, and improved sales of waterproofing materials in North America. Water treatment volume increases were dne to market share gains in Latin America and North America in the water treatment chemicals business and improving conditions in the paper industry process chemicals business iu Europe. The volume increases in container were due to increased sales of can sealing products in Asia Pacific. Catalyst and other silica-based products volume increases were dne to strong sales of dentifrice silica in North Anerica and market share gains in Enrope, improved polyolefin catalyst sales as a result of improved market conditions in Europe and Asia Pacific, and improved volumes in fluid cracking catalysts in Enrope and Asia Pacific, partially offset by a decrease in flnid cracking catalyst volnne in North Anerica as a result of customers cracking better qnality crude (requiring fewer catalysts) and an increase in customer maintenance shutdowns in 1994. Operating income before taxes increased by 19% in 1994 conpared to 1993. North American resnits in 1994 were positively affected by strong growth in construction and packaging, mainly dne to the volnme increase: noted above, partially offset by reduced profitability in flnid cracking catalysts due to the volume decreases noted above. European resnits improved significantly versus L993, primarily doe- to improvements in fluid cracking and polyolefin catalysts and consLrucLiou products (due to the volume increase: noted above), partially offset by costs associated with streamlining European packaging, water treatment and container operationa. In Asia Pacific, favorable remits were achieved versus 1993, primarily in fluid cracking and polyolefin catalysts and container (dne to the volume increases noted above). Latin American 1994 resnits improved verms 1993, primarily dne to increased profitability in packaging (due to increased volunes in bags, films and laminates). Latin American resnits also benefited from improved economic conditions in Brazil; however, this was partially offset by the devaluation of the Mexican peso in late 1994. Excluding sties and revenues and operating income before tares of businesses divested in 1992 and the limed silica provision referred to above, sales and revenues increased by 3$, and operating income before taxes increased by 4%, in 1993 as compared to 1992. lbe increase m sales and revenues reflected favorable volume and price/product mix variances estimated at 64 and 2*, respectively, offset by an unfavorable currency translation variance estimated at 54. Volume increases occurred in 1993 in packaging, water treatment, fluid cracking catalysts and silica products, and construction products. North American results significantly improved in 1993. as strong growth occurred in packaging, fluid cracking catalysts and silica products, and constrnction prodncts, due mainly to atrong volume increases. European results for most prodnct lines were adversely affected by recessionary conditions, leading to reduced profitability; however, results for European flnid cracking catalysts and silica prodncts improved, primarily due to increased volumes achieved following the withdrawal of certain competitors from this market in 1992. Tn Asia Pacific, favorahle results were achieved, primarily in packaging and fluid cracking catalysts and silica products. In Latin America, results were down, primarily dne to the costs at integrating the operations of a new water treatment business, partially offset by favorable results in packaging. HEALTH CARE Sales and revenues for 1994 increased by 244 over 1993, dne to increases of 284 aud 474, respectively, iu kidney dialysis services and home health cure operations, partially offset by a decrease of 74 in medical prodncts revenues. The decrease in medical products operations reflects a decline in bloodline sales resulting from import alerts issued in the 1993 second quarter (see discussion below). 1994 results for kidney dialysis services reflect acquisitions during 1994, and home health care operation! include the results of Home Nutritional Services, Inc. (HNS), a national provider of home infusion therapy services acquired in April 1994. The number of centers providing dialysis and related services inorcascd 184, from SOI at year-end 1993 to S90 at year-end 1994 (526 in North America, 42 in Europe, 15 in Latin America and 1 in Asia Pacific). F-29 Operating incone before taxes increased by 28* in 1994 over 1993. All health care bnsinesses benefited Iron acquisitions nade m 1993 and 1994, continned expansion inside and outside the U.S., and continued inprovenents in cost ccuLruls, operating eliicieucics aud/oi capacity utilization. These favorable results were partially offset by the costs of inpioving and expanding quality assurance systems for medical products manufacturing operations (see discussion below). Sales and revenues for 1993 increased by 19* over 1992, dne to increases of 18*, 36* and 11*. respectively, in kidney dialysis services, hone health care and medical products operations. Operating income before taxes in 1993 increased by 55* over 1992, reflecting the continued growth of all health care bnsinesses, as well as improvements in cost controls, operating efficiencies and capacity nt.i 1 iv.at.ion. Tn addition, resnlt.s for 1992 inclnded costs related t.o previously reported long-term incentive agreements with certain health care executives. In 1993, the U.S. Food and Drag 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 snbsidiary, located in Reyuosa, Mexico and (2) beiaodialyzers manufactured iu NVC's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the U.S. until the FDA approves the qnality assurance systems of the facility at which such products are mannfactnred. In January 1994. NhC entered into a consent decree providing for the resumption of importation of bloodlines and hemodiolyzers following certification by FM2 that the relevant facility complies with FDA regnlations and successful completion of an FDA inspection to verify snch compliance. The consent decree also requires NM2 to certify and maintain compliance with applicable FDA manufacturing requirements at all of its U.S. mannfactnring facilities. NM2 submitted all required certifications for its II.S. and non-U.S facilities in accordance with the timetable specified in the consent decree, and the bloodline import alert was lifted in March 1994. The Dublin hemodiaiyzer manufacturing facility was inspected by the FDA in December 1994, and NM2 anticipates completion of all remaining corrective actions in the second quarter of 1995. No fines or penalties have been imposed on NM2 as a result of any of the FDA's actions or in connection with the consent decree. Neither the import alerts nor previously reported recalls of certain NMC products have had, or are eipecLed to have, a material elfecL uu 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 AND RELATED FINANCING COSTS Interest, expense and related financing costs increased by 30* in 1994 versus 1993, primarily dne to higher average short-term interest rates, coopled with an increase in related financing costs. Grace's debt and interest rate management objective is to reduce its cost of landing over the long term, considering economic conditions and their potential impact on Grace. The strategy emphasizes improving liquidity by developing aud maintaining access Lo a variety of long-term aud short-term capital markets. To manage its exposure to changes in interest rates, Grace enters into interest rate agreements, most of which effectively convert fixedrate debt into variable-rate debt; these agreements have readily identifiable impacts on interest cost and are characterized by broad market liquidity. See Note 10 to the Consolidated Financial Statements for farther information on interest rate agreements. See "Financial Condition: Liquidity and Capital Resources" below and Note 9 to the Consolidated Financial Statements for information on borrowings. RESEARCH AND DEVELOPMENT EXPENSES Research and development spending decreased by 2% in 1994 versos 1993. In 1994 and 1993. approximately S2% and 711%, respectively, of research and development spending was directed toward Grace's core specialty chemicals and health care businesses. DMCOUC TAXES The effective tax rate was 40.1% in 1994 versos 39.2% in 1993. The higher effective tax rate in 1994 was due to certain foreign exchange losses that provided no tax benefit and to increased state and local income taxes, partially offset by lower taxes on foreign operations. Grace recognized a valuation allowance for deferred taxes in 1992 which has been adjusted to reflect subsequent events. The valuation allowance relates to 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. Eased upon snticipated futnre 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. In the third quarter of 1993, Grace recorded the effects of the Omnibus Budget Reconciliatiuu Act ui 1993 (OBRA), which was euacLed in August 1993. Among other things, OBRA increased the maximum U.S. Federal corporate tax rate to 35% (from 34%), effective January 1, 1993. However, neither this rate increase nor the other provisions of OBRA had a naterial effect on Grace's results of operations. The 1993 effective tax rate decreased to 39.2% as compared with 43.1% in 1992. before giving effect to the 1992 provision of $31.9 million for a valuation allowance for deferred taxes. The decrease was largely due to reductions in certain foreign tax rates and higher utilization of research and development, and foreign tax credits, partially offset hy t.ax costs associated with repatriating to the U.S. earnings of foreign subsidiaries. See Note 5 to the Consolidated Financial Statements for farther information on income taxes. F-30 LOSS FROM DISCONTINUE) OPERATIONS In 1993, Grace restated its financial statenents to reflect tne ciassitication of certain businesses as discontinued operations. See Note 6 to the Consolidated Financial SLaleiaeuLs lor further iuluruatiun. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Daring 1994, the net pretax cash provided by Grace's continuing operating activities was $533 Billion, versus $301.6 Billion in 1993, with the increase prinarily due to iaproved operating results and the receipt of $33 Billion in net proceeds from the sale of accounts receivable in L994 (as conparcd to the use of $44.1 Billion of net cash to repnrehase accounts receivable in 1993). Net pretax cash provided by operating activities in 1994 and 1993 also inclnded net cash outflows of $60 aillion and $103.1 million, respectively, reflecting amounts paid for the defense and disposition of asbestos-related property damage and personal injnry litigation, net of settlements with certain insurance carriers (see discussion below). After giving effect to discontinued operations and payments of income taxes, the net cash provided by operating activities was $453.5 million in 1994 versus $243.1 million in 1993. Investing activities used $101.6 million of cash in 1994, largely reflecting capital expenditnres and business acquisitions and investments, prinarily the acquisitions of HNS (for approximately $102 million, exclusive of cash acquired and assumed debt of approximately S30 million), kidney dialysis centers, a European flexible packaging business and construction chemicals bnsinesses. These investing activities were offset by net proceeds of $583.9 million from divestments of non-core businesses. Management anticipates that the level of capital expenditures in 1995 will increase to approximately $500 million as compared to $444.6 aillion of capital spending in 1994. Net cash used for financing activities in 1994 was S322.S million, primarily reflecting a decrease in total debt from December 3L, 1993 and the payment of $132 million of dividends. Total debt was approximately $1.5 billion at December 3L, 1994, a decrease of $176.4 aillion from December 31, L993. Grace's total debt as a percentage of total capital (debt ratio) decreased from 52.94 at December 31, 1993 to 50.44 at December 31, 1994. primarily as the result, of the reduction in total debL. Effective September 1, 1994, Grace replaced its $1,225 million bank revolving credit agreement with new credit agreements under which it may borrow up to $700 aillion at interest rates based upon the prevailing prime, federal funds and/or Eurodollar rates. Of that amount, S350 million is available under a 364-Dav Credit Agreement expiring Angnst 31, 1995, and $350 million is available nnder a long-term facility expiring September I, 1999. See Note 9 to the Consolidated Financial Statements for further information on borrowings. Grace expects to satisfy it.s 1995 cash reqni renent.s primarily from fnnris generated by operations and, to a lesser extent, from proceeds from divestments. Any net excess or deficit will be applied to or satisfied by financings. Although Grace expects that any net new borrowings would be short-term debt, the maturities and other terms of any financings will depend on market conditions prevailing at the time. Grace has access to a variety of capital resources, including the commercial paper and bank funding markets, in addition to its credit agreements. Consequently, management believes that new borrowings will be available to meet Grace's needs. ASBESTOS-RELATE) MATTERS As reported in Note 2 to the Consolidated Financial Statements, Grace is a defendant in lawsuits relating to previously sold asbestos containing products and is involved in related litigation with certain of its insurance carriers. Tn 1994, Grace paid $60 million in connection with the defense and disposition of ssbcstos-rclatcd property damage and personal injury litigation, net of amounts received under settlements with certain insurance carriers. Daring the second quarter of 1994, Grace recorded a non-cash charge of $200 million after taxes to reflect a conrt decision that had the effect of reducing Grace'i insurance coverage for asbestos property damage lawsuits and claims. The balance sheet at December 31, 1994 includes a receivable dne Iron insurance carriers, subject to litigation, of $512.6 million. Grace has also recorded uuLes receivable of approximately $187 iiilliuu lor amounts to be received in 1995 to 1999 pursuant to settlement agreements previously entered into with certain insurance carriera. In January 1995, Grace received $100 million under one of these settlement agreements. Although Grace cannot precisely estimate the amounts to be paid in 1995 in respect of asbestos-related lawsuits and claims, Grace expects that it will be required to expend approximately $30 million (pretax) in 1995 to defend and dispose of inch 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 annnnls reflected in the Consolidated Financial Statements with respect to the probable cost of disposing of pending ssbestos lawsuits and claims and probable recoveiies 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-31 ENVIRONMENTAL MATTERS Grace incurs costs related to environmental protection as reqnired by lavs and regulations, Grace's commitment to industry initiatives sncb as Responsible Care{REGISTRATED TRADEMARK} (the Chemical Mauuiacturers Association program) and internal Grace standards. Worldwide expenses of continuing operations related to the operation and maintenance of environmental facilities and the disposal of hazardous and nonhazardons wastes totalled $41 million, S45 million and $36 million in 1994, 1993 and 1992, respectively. Such costs are estimated to be approximately $42 million and $45 million in 1995 and 1996, respectively. In addition, worldwide capital expenditures for continning operations relating to environmental protection totalled $22 million in 1994, compared to $20 million and $18 million in 1993 and 1992, respectively. Capital expenditures to conply with environmental initiatives in future years are estimated to be $26 million and $23 million in 1995 and 1996. respectively. Grace has also incurred costs to remediate environmentally impaired sites. These costs were $31 nillion, $44 million and $35 million in 1994, 1993 and 1992, respectively. These amounts have been charged against previously established reserves. Future cash outlays for remediation costs are expected to total $45 million in 1995 and $39 million in 1996. Expenditures have been funded fron internal sources of cash and are not expected to have a significant effect on liquidity. Grace accrnes for anticipated costs associated with investigatory and remediation efforts relating to the environment in accordance with Statement of Financial Accounting Standards No. 5, 'Accounting for Contingencies,' which governs probability and the ability to reasonably estimate luture costs. At December 31, 1994, Grace's liability for environmental investigatory and remediation costs related to continning and discontinued operations totalled approximately $216 nillion, which amount does not take into account any discounting for fntnrc expenditures or possible future insurance recoveries. The measurement of the liability is evaluated quarterly bused on currently available information. Tn 1994, periodic provisions were recorded for environmental and plant closure expenses, which include the costs of future environmental investigatory and remediation activities. Additionally, in the first quarter of 1994, Grace recorded a provision of approximately $40 million, principally to provide for future environmental costs. F-32 W. R GRACE t CD. AM) SUBSIDIARIES VALUATION and qualifying accounts and reserves (in uilliuun) SCHEDULE VIII Description For the Year 1994 Balance beginning of period Additions (deductions) Charged (credited) to costs snd expenses Other net** Balance at end of period Valuation and qualifying accounts deducted from assets: Allowance* for notes and accounts receivable Securities of divested businesses . .... .. Deterred tax assets valuation allowance..................... .. Reserves: Foreign estplovee benefit obligations*............................ .. Discontinued operations ............................................................ .... % 50.3 $ 161.2 $ 129.7 S 64.4 S 132.1 $ 102.2 $ s S (37.3) S (156 3) V 7.3 $ 11.6 $ 107.2 s 6.5 s -- S 95 2 $ 49 X 137 0 $ 82.5 $ 239 3 Description For the Year 1993 Balance beginning of period Additions (deductions) Charged (credited) to costs andl expenses Other net** Balance at end of period Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable. .... Securities of divested businesses ..................................... .. Deterred tax assets valuation allowance ....................... .... Reserves: Foreign emplovee benefit obligations* ............................ .... $ 39.3 $ 152.9 $ 143.1 $ 83.4 $ 67.4 $ 8.3 $ s (56.4) $ -$ (134) $ 50 3 $ 161.2 $ 129.7 $ 12.2 t (31.2) $ 64.4 Discontinued operations $ 144.7 $ (12.6) S $ 132 1 Description For the Year 1992 Balance beginning of period Additions (deductions'! Charged (credited) to costs and expenses Other net** Balance at end cf perio Valuation and qualifying accounts deducted from aasets: Allowances for notes and accounts receivable ... Securities of divested businesses ................................................... Deterred tax assets valuation allowance Reserves: Foreign enployee benefit obligations* Discontinued operations .......................................................................... $ 41.0 S 201.0 $ 88 4 s 82.3 $ 74.7 S 48.0 s (64 9) s si. y $ < 7) s 16.8 $ 2.8 $ 15.6 s 70.0 s <14.3) s S 39 3 $ 152 9 $ 143 1 $ 83 4 5 144.7 " Represents legally Mandated enployee benefit obligations, primarily pension benefits, relating to Grace's operations in Europe. ** Consists of additions and deductions applicable to businesses acquired, disposals of businesses, bad debt write-offs, foreign currency translation, reclassifications (including the deconsolidation cf anounts relating to discontinued operations) and Miscellaneous other adjustments. F- 33 LaserD II PRINT SUMMARY Accounting: Disabled Date Printed: Time Printed: 11/14/97 11: 08 AM Company Name: Exchange: Ticker Symbol: Company Number: W R GRACE & CO N GRA W016000000 Document Type: Document Date: Amendment: Document Number: 10-K 12/31/94 95525533 Pages Printed: 92 Laser(t^ Company Name: Exchange: Ticker Symbol: Company #: Docnment Type: Document Date: Amendment: Docnment #: Laser D SEC EDGAR Filing W R GRACE fc 00 N GRA WOL6000000 10-K 12/31/94 N/A 95S25S33