Document NGDZMvbJjvQdX411X5oJRKE9Q

GRACE Davison Catalysts & Silica Products GRACE Construction Products W. R. Grace & Co. Annual Report 1993 GRACE Dearborn Water Treatment & Process Chemicals Financial Summary Dollars in mi/lions, except per share amounts 1993 I992IU 1991"' Operating Results Sales and Revenues............................ .............. $4,408.4 $4,337.0 $4,386.6 Income from Continuing Operations................ 134.4i 57.7"' 201.7 (Loss)/lncome from Discontinued Operations. (108.4) (162.2) 16.9 Cumulative Effect of Accounting Changes....... -- (190.0) - Net Income/I loss).............................................. 26.0 (294.5) 218.6 Capital Expenditures........................................... 309.6 398.4 447.0 Depreciation and Amortization......................... 227.7 224.9 232.9 Research and Development Expenses............. 135.0 130.0 128.1 Financial Position Totol Assets..................................................... . $6,108.6 $5,598.6 Total Debt................................................... .......... 1,706.1 1,819.2 Common Shareholders' Equity.......................... . 1,510.2 1,537.5 $6,007.1 2,259.4 2,017.7 Data Per Common Share Earnings from Continuing Operations.............. $ Cumulative Effect of Accounting Changes....... Earnings/floss)..................................................... Dividends.............................................................. Book Value............................................................ 1.46 $ -- .28 1.40 16.16 .64 $ 2.31 (2.12) - (3.29) 2.50 1.40 1.40 17.10 22.77 Other Information Common Shares Outstanding - End of Year (thousands)................................ Common Shares Outstanding - 93,465 89,892 88,603 Average (thousands)...................................... 91,461 89,543 Dividends Paid on Common Slock.................... $ 127.9 $ 125.4 Number of Employees - Continuing Operations (thousands/................................. 34.0 32.8 87,236 $ 122.0 32.9 111Certain amounts hove been restated to conform to the 1993 presentation. 121Includes a provision o11100.0 alter taxes relating to asbestos-related insurance coverage. '"Includes a provision of $ 140.0 relating to o fumed si/ica plant in Belgium Contents Grace at a Glance Message to Shareholders Grace Specialty Chemicals Grace Packaging 1 2-5 6 6-9 Grace Davison Grace Construction Products Grace Dearborn Water Treatment & Process Chemicals 10-11 12-13 14 Grace Container Products Grace Health Care 15 16-19 Managing for Assurance 20 Management's Discussion and Analysis 21-24 Management's Responsibility for Financial Reporting 25 Report of Independent Accountants 25 Consolidated Financial Statements 26-29 Notes to Consolidated Financial Statements 30-44 Financial and Statistical Review 45-48 Officers and Directors 49 Shareholder Information 49 ^y ^y About the Compony G/utf i mission is fo rnOAi'mize fongrm value fo shareholders while balancing value fo other sfolteho/ders -- employees, customers, suppliers and communities. If s the world's lorgesf specialty chemicals compony and holds a leadership position in Specialired health cdre. through fhe hard worl and dedication of (he 34,000 employees who stoff Groce's continuing operofions worldwide, the Company perafed sales and revenues in !993 of $4A billion and operating tricorne of $38 i 7 million. mw. S lltfl IS y s- > grace at a glance GRACE Packaging Grace is the leading innovator in flexible packaging technology. Specializing in packaging systems for meat, poultry, cheese and other perishable food products as well as shrink packaging materials for consumer and industrial products, Cryovac films, bags and laminates have revolutionized marketing and merchandising techniques for the food industry and other matke's. GRACE Davison Grace Davison cracking catalysis 'crack' etude oil into fuel and related by-products. Davison polyolefin catalysts ore critical to polyethylene production, and its silica and zeolite adsoroents aie value-added ingredients in industrial and consumer applications. GRADE Construction Products Grace concrete and cement additives, fireproofing and waterproofing systems protect structures from the punishing effects of nature. They strengthen concrete, fight corrosion, stop water damage and protect structural steel from fire damage. GRACE Dearborn Groce Dearborn water treatment and process chemicals inhibit scale, corrosion and fouling in water systems, treat wastewater ond enhance operating efficiency and environmental performance. GRACE Container & Specialty Polymers Grace container sealant systems keep foods and beverages safe from bacteria and other contami nants. extend shelf-life and preserve flavor. Grace specially polymers ate essential to printed circuit board and electronic components assembly. GRACE Health Care Committed to the highest quality, cost-effective health care, Grace Health Care maintains leading positions in the specialized health care markets ol dialysis services, medicol products arid home health care. To Our Shareholders: 1993 wos another year of progress lor your Company. Despite recession-impacted results in Europe, operating income was up 13% or 30 cents per share. We accomplished this by aggressively growing our six core businesses, especially health care and catalysts, and by continuing to cut costs. Disappointing events during the year regarding asbestos insurance coverage and import alerts imposed by ihe FDA on disposable medical products ore being favorably resolved in 1994! During 1993 we also - divested over $500 million ol noncore businesses; reduced total debt by more than $ 100 million; invested over $320 million in strategic acquisitions to strengthen our core businesses. On the softer side of the Company, we're involving, energizing and motivating our thousands of global employees to help make Grace a better place to work and invest We've done this by 1) Removing barriers and other impediments to create a passion for continuous improvement. 2| Establishing incentive systems that recognize and reward employee contributions - at all levels. 3) Changing attitudes and behaviors - 'Good enough' never is. 'Stretch targets' are good; 'comfort targets' are not. A sense of urgency in everything we do. 4| Sharing and applying 'best practices' from within and outside the Company. 5) Understanding that yesterday's 'hard issues' {i.e., budget, margins, manufacturing! are limiting, while today's 'soft issues' (vision, values, incentives, 'fire in the belly') are limitless. All of this is in line with our Strategic Plan, announced in 1991, to maximize value for you, our shareholders, while better serving our customers. Further evidence of our progress can be found in the chart on the following pages. I urge you to study it and to let me know how we're doing and whether you think we're on the right track. Grace is a stronger company today thon it was one year I -, ago. And, it will be an even stronger company a year from now. V' Why? Because we have a mission, and a plan to achieve that mission. We're not there yet, but we have momentum and we're moving aggressively. We have the resources and we are developing and motivating the people to get the job done. Stay with us! J. P. Bolduc President and Chief Executive Officer March 19, 1994 THE REFOCUSING OF W. R. GRACE & CO. I. RESTRUCTURING Lines of Business Divestments Capital Spending Acquisitions/ Joint Ventures * Research & Development Quality Assurance II. GLOBALIZATION Product Lines Asia Pacific 28 businesses, more than 100 different product lines. Six core businesses. Be the worldwide leader in each of our businesses. Announced plan to divest noncore and nonslrategic businesses and use proceeds to reduce debt and build core businesses. Completed three-year divestment |DV| program with $1.5 billion In proceeds. An additional $700 million of DV proceeds expected in 1994. Focus on those businesses with greatest potential for growth and where Grace has a competitive advantage as a world leader. Of $513.7 million worldwide, only 43% directed to core businesses. Of $309.6 million world wide, 92% invested in core businesses. Ensure all incremental investment provides returns that exceed cost of capital. Opportunistic. Unfocused. No overall strategy. Focused on core businesses: Home Intensive Care (health care - U.S.) Riggers (health care - Germany) Grace Kaustik (packaging - Russia) Aquatec (water treolment - Latin America) Over $500 million invested in strategic acquisitions since 1990. Grow core businesses domestically and internationally through strategic acquisitions and alliances. 53% of $ 147.5 million aimed at core businesses. 78% of $ 135.0 million invested in core businesses. Ensure future leadership of the core businesses. Only 10 Grace plants world wide had International Standards Organization (ISO) certfication. More than 20 Groce plants certified in 1993 alone. Attain worlddass quality for competitive advantage at all Grace plants. Operated and managed through sectors, groups and divisions. No coordinated strategy in region. Appointed global product line manager for each core business and eliminated organization layers. Provide customer-driven, high-quality products and services at lowest possible cost on a global basis. Established Hong Kong management support center for all product lines. Initiated regional development plan. Doubled resources employed. Position Grace for competitive leadership in this most robust area of the world. * Latin America ' Packaging Health Care * Support Function Councils No coordinated strategy in region. Had only limited exposure in Asia. Essentially a domestic business. None. III. COST MANAGEMENT 'Overhead (ex Health Care Costs) 'Health Care Costs (U.S.) Growing. Company cost rising at more than 12% per year. Corporate Officers * Layers of Management from CEO to Product Line Managers * Headcount 47 5 52,200 Management Systems Disjointed. Not integrated. Duplicated and overlapping. YIAMND lf93 Reengineered administrative activities and integrated Aquatec acquisition. Initiated regional development plan. Expanding into China, India, Indonesia, South Korea and Pakistan. Expanding into Argentina, Czech Republic, Hungary, China, South Korea, U.K., Germany and Taiwan. Established global councils lor finance, R&D, logistics, management information systems, human resources, engineering and environment, health and safety. Position Grace for competitive leadership in this growing area. Aggressively enter every economically viable global market. leverage the best minds across the world, working in a boundaryless company, transferring 'best practices' in efforts to provide high-qualtiy services at the lowest possible cost. Reduced by more thon $50 million from 1990 level. Implemented new program in 1992 and reduced cost by $10 million in 1993 or 10%. 39 1 Make efficiency a way of life at Grace. Institutionalize costcontainment measures. Speed and improve decision making by delayering and streamlining. 34,000 (continuing operations) Implementing 75 major initiatives recommended by six internal task forces focused on identifying cost-saving and management improvement opportunities. Divest noncore and nonstrategic businesses. Eliminate duplication of functions and administrative overlap. Do more with less by consolidating, integrating, improving and eliminating systems in order to save $ 100 million per year. IV. FINANCIAL RESULTS Operating Earnings $ 174.6 million * Debt (Total) $2.3 billion DebMo-Capital Ratio Market Capitalization 54.4% $2,062 million * Return on Equity Return on Total Capital * Total Return to Shareholders 11.1% 71% Underperforming its peers and the market averages. V HUMAN RESOURCES Company Culture * Human Resources Development* * Communications Diverse. Each business had its own culture. Separate 'fiefdoms.' No coordination among units. No overall strategy or standardized criteria for employee performance, incentives, training and evaluation. No mechanism for employees to communicate directly with senior management. $234.4 million (up 34%) $1.7 billion (down 26%) 52.9% $3,804 million 15.3% 10.9% Three-year average annual total return of 24%. Grow by more than 10% annually. Manage debt level to allow Grace to achieve its growth objectives. Target is 45% to 50%. Maximize total value over the long term. Target is 20%. Target is 15%. Maximize total return to shareholders over the long term. Moving toward greater unity. Focused on 'Team Grace' concept. Appointed senior human resources executive to implement world-class human resources management programs. Strengthen common value system with global commit ment to excellence. Develop diverse, multicultural team of best people. Put them in the right jobs with the right reward systems to encourage 'stretch' achievements. Toll-free telephone line installed along with e-mail to encourage employee feedback, suggestions, commentary. Unlock ideas and creativity of employees at all levels. GGRWACCE SPECIALTY CHEMICALS Grace's specially chemical product lines share exciting technical competencies, a dedication to total quality and customer service, as well os high growth potential. In 1993 they generated sales ond revenues of $2.9 billion and operating income after toxes of $240 million. At the same time, these product lines concentrated on strengthening the global teams established in 1992 to service customers in all markets. Grace's global focus is promoting more efficient resource utilization and accelerated distribution of core technologies, products and services in established markets as well as emerging ones such as Latin America, Asia Pacific and Central Europe. GRACE Packaging Grace is the world's leading innovator in flexible packaging systems. Through its global Cryovoc product line, it has revolutionized marketing and distribution techniques for the food industry and consumer and industrial markets. Using sophisticated multilayer coextrusion technology, Groce Packaging has developed high-performance plastic materials that preserve flavor and aroma and enhance the shelf-life and appearance of packaged foods ond improve the merchandising of consumer packaged goods. Grace Packaging works in partnership with its customers, sharing in-depth knowledge of the marketplace, expertise in packaging sciences and dedication to total quality. This results in innovative packaging solutions that fulfill the marketing requirements of Grace's customers while satisfying the needs of the ultimate consumer. It's Got to Be Fresh When Mann Packing Company wanted to ensure that its produce retained peak freshness from the time it left the California fields until it reached American dinner tables, it turned to Grace Packaging for advice. Now Mann packages 14 different precul fresh vegetable products in Cryovac PD- . 960. The film's clority enhances the merchandising appeal of Mann's Broccoli Cole Slow, Broccoli Wokly, Cryovac llexible packaging is engineered lor higbperlormance applications m l+ie hod industry and other markets At Mann Packing m Salinas. California, precul vegetables are packaged in Ciyovac P0-960 bags lor prolonged freshness A growing array oI fresh-cut prepackaged vegetobie products is luring more and more shoppers to the supermarket produce aisle. Jean-louis Gr*ze, President, Grace Packaging Groce Pockoymg lechnology allowed i' lo develop him (hat could be carefully malched lo the natural respiration rate of cut broccoli, cauliflower ond carrots. The film's breathability helps provide up to two weeks of freshness, allowing Mann to sell its products to supermarkets and food service businesses across the nation. The film protects produce from damage caused by ice ond cold temperatures and also permits microwave cooking so that Mann can offer cook-in-bag convenience to consumers. Special advantages for Mann As o 'fofol systems 'business. Groce Packaging is responsive to the complete packaging/ marketing/merthandiiing needs ol customers. Fhis approach encemposses package design, selection ol materials and 1 GRACE Packaging (continued) for manual filling. This is a valuable option if machinery downtime develops or market shifts dictate quick changes in product sizes. Grace Packaging is forging business partnerships with entrepreneurial companies such as Mann to help stay on top of the tremendous growth in fresh-cut vegetables. It's an emerging marketing opportunity that could dominate the supermarket produce department in the next few years, accounting for as much as 25% ol total produce sales by the year 2000. Cryovoc advanced film formulations help keep these perishable products fresh, and the handy-sized, no-waste packages bring a new measure of convenience to time-pressed consumers. Operfing New Vistas for French Duck Duck has always been one of the true culinary delights of the French, 1' gracing the menus of leading restaurants but only rarely finding its way to the family dinner table. It was an important step, therefore, when labeyrie - a leading French supplier of specialty foods such as goose and duck liver pflt6, foie gras, smoked salmon and smoked duck lillets - decided to venture into super markets with high-quality duck products, making them available to all consumers in France. Equally important was the selection of the right packaging material, labeyrie demanded a superb packaging solution for superb duck products. The Cryovoc Darlresh vacuum-skin packag ing system for consumer-size packages proved ideal for this demanding application. It preserves product quality and taste, displays it attractively and offers convenience in opening the pack. Labeyrie relies on the Darfresh system to package fresh-cut duck breasts and fillets, dried or smoked whole or sliced breasts and diced products. At the packaging plant, the system has proven its flexibility and versatility as machines can be changed quickly and simply, depending upon the product being processed. In the market, the Darfresh package showcases Labeyrie products for maximum consumer appeal. Sophisticated extrusion techniques ore used in the production of Darfiesh consumer packaging. A variety at labeyrie duck deficocies are enticingly displayed in Oatfresh vacuum-skin packaging. m Working in partnership with Grace, labeyrie is adding variety and elegonce to the family dinner table. 1 An Olympic Fear One mifliort meals served during the 1994 Winter Olympics included foods packaged in Cryovac C300 casintjk. these unique casings preserved the fresfvmade qualify ond flavor of soups and stews prepared by the "toolt and chill" method by G'lde/HedOpp, one of : Norway s largest meat producers. At mitt/firhe, the Olympic service hifchens simply reheated and served 120 tons of food In Cryovac casings. The quality duck products in consumer-size packs were quickly endorsed by retailers as well as consumers wher introduced last year - evidence that duck specialties no onger are reserved only for special-occasion banquets but are fast becoming an affordable culinary || addition to every French dinner table. GRACE Davison Consumers never see Grace Davison technology, but it makes possible efficient transportation fuels, reliable low-cost packaging materials, high-quality coalings, better food products and much more. Groce Davison is the world's leading supplier of petroleum fluid crocking catalysts, which are critical to the production of gasoline and other refined petroleum products, its polyolefin catalysts are essential to the manufacture of polyethylene, which is used in packaging film and in pipe. Grace Davison silica and zeolite adsorbents are value-added components used in a wide range of industrial and consumer applications. The Genesis of a Catalyst Value is designed into Grace Davison fluid cracking catalysts (FCCs) at every step of their evolution, horn initial contact with the refiner to actual use in the fluid catalytic cracking unit. The genesis of a new catalyst is rooted in the close relationship that Grace Davison nurtures with its customer. Initially, the Grace Davison sales/lechnicol teom develops operating objectives. Does the refiner need to maximize gasoline production? Reduce emissions? Maximize olefin output for reformulated gasoline? What ore the operating constraints? In Search of a Solution After studying the variables, the team selects two or three possibilities for the refiner. With the greatest manufacturing flexibility in the FCC business, Grace Davison can choose from a virtually unlimited number of catalyst formulations. Now the intense analytical work begins. The technical service engineer prepares yield estimates. If the performance assessment isn't good enough, R&D investigates and designs new catalysts in Groce Davison pilot plants. Meanwhile, manufacturing and quality assurance weigh in to ensure that the catalyst meets stringent product qualifications. The final package presented to the customer is honed by Grace Davison refining experts to deliver Grace Davison's Joke Chari*!, Louisiana plant is ihe world's largest production facility lor petroleum Fluid crocking calaiysli Refineries use Fluid cracking catalysis to upgrade oil to more valuable transportation fuels such os gasoline and jet and diesel fuel. m Groce Davison catalysis help refiners promote gasoline yield, octane enhancement and reduced James ft. Hyde, President, Grace Davison Top-notch Technical Service Groce Davison placvs a powerful ortcnol of RAO, analysts and technical service supperf tool* at fb# disposal of ift customers for mf) of its primary product lines -- fluid crocking cofolyifs, polyolefin cofolyifi ond silica/odsorbenfs. for polyolefin talafysl customers, 1993 marked tfie establishment of o new Groce technical center in Worms, Germany and on intrtas* in development and evaluation capabilities in the U.S. to prepare for evolving process technologies. A' Ongoing Relationship Ti e story coes not end lieie. Grace Davison paitneist p ire strengthened with liequent Idlowup. technical service troubleshooting, equilibrium t molyst analyses, quality assurance piogiams and optimum logistics. As the catalyst is usee; m the "cat cracker and refinery obiectives change, the Grace Davison team stands by, teody to use its analytical tools tc cieate the next-generation catalyst. GWCE Construction Products Grace markets high-quality, high valueodded construction products with a strong specification selling effort in the architectural and engineering markets. For many Grace construction products, the primary benefit accrues to the owner of the structure in the form of long-term structural integrity and low maintenance costs. Grace products also offer value to the specialty contractor through labor, material and energy savings. Keeping Water Out of Boston Harbor Tunnel When structural engineers for Boston's mammoth Third Harbor Tunnel/Central Artery project were faced with challenging waterproofing design issues, Groce Construction Products provided solutions. It outperformed the competition, solving a number of design concerns. Critical among them was a hydrocarbon-resistant waterproofing system to protect the structure from groundwater contamination around Logan Airport. Specially membranes in three different thicknesses, along with a hydrocarbon-resistant tap tape, were manufactured specifically for the project. Today, plans call for over 2.2 million square feet of Bituthene waterproofing to be installed on the underslab, walls and roof deck of the approach tunnel to the steel tube that will run beneath Boston Harbor. Monokofe Delivers Performance Under Fire Inplace performance is crililbl in a blazing inferno, where fireproofing undergoes its toughest test. Monokofe fireproofing aced that test when structural steel remained undamaged during a fire at the Children's National Medical Hospital in Washington, D.C. Monokofe creates a hard, durable surface that resists damage, bonds tenaciously and performs reliably onsite. It meets or exceeds all essential performance standards. In fact, project engineers were so impressed with Monokote's performance that it has been specified for the hospital's new addition now under construction. Strengthening the Asia Pacific Transportation Network Bitutbene waterproofing interns provide longterm protection lor concrete, masonry ond wood structures Monokole hreproofmg safeguards structural steel, concrete and other substrates ogomst collapse coused by lire Groce waterproofing, fireproofing, concrete admixtures and cement grinding aids protect Hong Kong 's ma/estK Bank of Chino Tower Robert J Beftocchi, President, Grace Consrrudion Products Standing Up to Mother Nature Grace constrjcfioi product concrete admiitures, cement processing additives, fireproofing ond structural waterproofing products and systems -- perfart some af industry's most w'ro/ Jobs: protecting structures from the elements of nature, strengthening concrete, fighting corrosion. preventing wafer damage ond oteefinq structural steef from the hazards of fir now under construction will consist of a three-miip, six-inn? hridge and 181 miles of tour lane highway, linking the port of I long Kong with mainland China. The first phase of this billicndollar project consists of precast bridge segments utilizing over 100,000 gallons of Grace specialty concrete admixtures for improved flowability and added strength. The bridge section spans the Pearl River delta and will improve transportation efficiency in the region by expediting export shipment of China s manufactured goods through Hong Kong. ----i} GRACE Dearborn Water Treatment 4 Process Chemicals For more than a century, Groce Dearborn has engineered water treatment and process chemical technologies that help customers manage their systems to meet environmental ond process improvement goals. Groce Dearborn products and consulting services prolong capital equipment life, promote process improvements and conserve water and energy in industrial applications. Treating Water Saves Money In the canned food industry, the integrity of process water is a critical factor in quality and cost control. Food producers like American Fine Foods rely on Dearborn Sferisa/e to treat process water used in the huge industrial pressure cookers required for sterilizing and cooking canned foods. Cans that are stained or rusty from process water never make it through quality control. They are rejected and must be reworked. Incorrectly treated process water can also lead to corrosion of expensive industrial cookers. Sterisale products prevent deposits on cans and eliminate corrosion in the cookers so that food producers can continuously run a high-quality, cost-effective production line with rigid product and safety controls. In the pulp and paper industry, Groce Dearborn technologies promote increased use of secondary fiber (recycled paper) and improved paper quality. They eliminate the need for solvent-based cleaners and increase overall productivity by controlling the "stickies" that latch onto the wires and felts of paper machines. Grace Dearborn's locus on R&D yields water treatment technologies that provide a valuable return on investment to customers. Grace Dearborn corrosion inhibitors extend equipment lilt, reduce downtime and enhance utilization at water and energy. m Grace Dearborn process chemicals help paper mills improve paper quality, eliminate solvent-bated cleaners ond boost productivity. Ion Prieslnell, President, Groce Dearborn GRACE Container Products Grace Container Products supports customers in the food, beer and beverage industries worldwide with complete closure sealant systems, technical service and state-of-the-art sealant technology alternatives, including PVC and non-PVC moterials. Natural Flavor To improve the taste of pockaged beer and selected oxygen-sensitive beverages, such as iced lea and fruit juices, Groce Container developed Dorafresh technology. Daralresh absorbs oxygen, reducing or eliminating the need for preservatives or anti oxidants that can spoil the taste of beverages and reduce shelf-life. Daralresh technology was first commercialized with Fosters brewmasters, who discovered that preservatives could be taken out of beer when patented Daralresh technology was incorporated in the package. This success is spreading to other well-known breweries, including Molsons in Canada, Courage in the U.K. and Anheuser-Busch licensees worldwide. Grace Container Products also offers coatings for sanitary cans, meat release cans, highperformance external systems, easy-open ends and metol closures. GRACE Specialty Polymers Related to Grace Container through a shared core competency in polymer technology, Grace Specialty Polymers develops formulated engineered polymers (or printed circuit board and component assembly in the electronics, electrical, automotive and military industries. Patented DarafresH technology is supplied in specially seolonl systems such as PVCJree Doroloinn for beverage closures. Grace Container systems offer a range of coolings to anchor gaskets firmly to caps white providing excellent corrosion protection. International cricketer ton Botham con attest to the smooth flavor of Posters Special Barer Pred temperetrr. President, Grace Container Products and Grace Specialty Polymers GRACE HEALTH CARE Grace, through its National Medical Care, Inc. (NMCj subsidiary, is the leading, fully integrated provider of dialysis products and services and operates a strategically placed home health care network. In 1993 health care operations had sales and revenues of $ 1.5 billion, a 19% rise over 1992, and operating income after taxes of $142 million, an increase of 35%. Dialysis Services Grace Health Core operates more than 470 outpatient dialysis clinics aaoss the U.SA and in Puerto Rico. It also operates 30 clinics internationally in Portugal, 5pain, the Czech At NMC clinics around the world, locot doctors, nurses and technicians provide direct pnmory care wtitle NMC oilers technical and operational support Angel Kiesgo gets comfortable as he prepares lor treatment at the new Unldod Nefiologtca el Pilar dialysis center in Spain Republic and Argentina. Grace is currently expanding this international service and hopes to be operating in almost a dozen countries by year-end 1994. These clinics provide dialysis services to about 40,000 patients on an ongoing 3 Following dialysis. Sellar tiesgo en/oys a midday stroll through nearby Plaza Mayor in Madrid. basis, making Grace the largest single provider worldwide. Grace Health Care employees are committed to providing quality health care. Within its expansive clinical network, patients benefit from a wealth of shared experience and information. They also enjoy personal access to their center's professional patient care team, which handles clinical decisions locally. Each clinic's medical director is a practicing local physician with extensive experience in nephroL ogy and the care of dialysis patients. The director is supported by a group of attending physicians. The director of nursing heads a team of nurses and patient core technicians who, in conjunction with social workers and dieticians, collaborate with physicians in the delivery of patient care. Every center also has a technical support staff to contribute to overall efficiency. The chief technician directs equipment and reuse technicians, who are responsible for maintaining all equipment at peak operating performance. The entire clinic staff reports to an administrator or clinic manager, who serves as the main link between the facility and Grace Health Care's administrative offices. Medical Products Constantine L. Hampers, M D.. Chairman and Chief Executive Officer, ' National /Medico/ Care, Inc. Through an integrated network of international plants, distribution centers and customer service sites, Grace Health Car*' . , W93/1992Sate%1n*jd|y li ; . V."-j $ V' 2,500 related medical supplies in 46 countries. Expanding its geographic reach, Grace Health Care strives to provide (aster routine and emergency order processing to deliver critical products to health care providers and patients, whether in a dialysis center or at home. The leading producer of hemodialysis concentrates in the U.S., Grace Health Care will open a liquid concentrate plant in Taiwan in early 1995. This local manufacturing pbnt and distribution center will ensure cost-efleclive dialysis and a steady, secure supply line for 193 fcf "J Treating the Whole Patient In addition to IHe-untoiniag diofysit troafmenfs, Grace Health Core offers diolytit pationfs an array of onciflory services and diognottk testing to sofeguord their health. These incfwde mtrodio/ctic parwntarai nutrition for pothntt with gastrointestinal malfunction; orythropoiofm for potirnH who need to boost production of red b/ood cells to counter anemia, ond podiotrk services for potients with poor circulation. GRACE HEALTH CARE (continued) Grace's Renacare, a leading manufacturer and distributor of dialysis products in the U.K., opened a new concentrate plant in Nottingham in 1993. From this centrally located facility, Grace provides products to 70% of the hemodialysis patients in the U.K. In addition to standard concentrates, the new plant produces an easy-to-use liquid bicarbonate, Renacarb. By eliminating a mixing step, Renacarb frees the dialysis nurse to focus more on patient care. Grace's Riggers Medizintechnik GmbH, a supplier of dialysis products in unified Germany, also manufactures a state-of-the-art, hemodynamically stable dialysis machine engineered with advanced ultrafillration monitoring capabilities. In its first year of production, the HDR 210 has operated successfully in more than 25 dialysis centers in Germany. It is currently in clinical trials at an NMC dialysis center in the Czech Republic and will undergo similar evaluations in Argentina later in 1994. With an extensive dialysis-specific test menu, Grace's LifeChem is the leading clinical laboratory servicing end-stage renal disease (ESRD) patients and their care providers in the U.S. LifeChem's PC-based laboratory data management system, LifeLine, simplifies test ordering based on a patient's specific clinical requirements. Through LileLine, the dialysis care provider can easily utilize both clinical and laboratory results to evaluate patient care. LileChem's innovative Statistical Test Analysis Reports program allows the dialysis care provider to compare local patient lest results against a nationwide 50,000plus ESRD patient database. Homecare Services While the issue of health care reform in the U.S. has created uncertainty in the industry, Grace Health Care has held to a course of growth and clinical excellence, strengthening its position os a leading provider of home infusion and respiratory services. Homecare operations grew substantially during 1993 through a series of acquisitions designed to broaden service capabilities and increase geographical presence. The development of a national network of home nursing care capabilities began on a regional basis in 1993, moving Grace closer to its gool of becoming the first national provider of integrated homecare services in the U.S. Nationwide, Grace Health Care now operates over 1 OO knmn infr I rof-'-itr-n. i ~ - - -.-- ... ~ . '' -. 4 ^ . * - < - NMC Homecoie service vans transport medications and homecare equipment to dienfs irr more tftan 40 states. Nationwide. NMC Homecare has 60 futtservice pharmacies to IMI pottent needs around the dock. M NMC clinical professionals provide extensive therapy services, doming and education to homecare clients. The managed care arena, with its emphasis on cost containment, represents a new frontier of opportunity for the home health industry. Health care reform provisions currently under discussion in the U S. are expected to promote an environment in which Grace Health Care is well equipped to compete. Its ability to provide appropriate care in a cost-effective and clinically sound manner is positioning Grace for further growth as a value-added provider in the world o( managed health core. Cost-Effective Health Care While ovorafl beoW* cor* tei( in Ml* U.5. hove iltyrociieiffc/, A# price fog offacbed to dialytii cor* fos ocfuoliy Aopp*A From 1974 to 1992, US. beolfb cor* ceifi jumped o whopping 389%, o nearly four fold increase. However, fit* overog* coif of drofysrt frtofmcnf dropped by 9*/*. NMC keeps o thorp eye on expenses and bos reduced fhe cost of providing freofmenf by feveroging overhead expenses and increasing efficiencies such os dialyter and MANAGING FOR ASSURANCE Protecting the environment and the health and safety of our employees, customers and communities is one of Grace's most critical concerns. Compliance with all applicable health, safety and environmental laws, wherever we operate, is Company policy. Beyond that, Grace is committed to providing a safe and healthful workplace ond to ensuring that safety and environmental issues are integral to the planning and operation of all Company activities. With a goal to "manage for assurance" in protecting human health and the environment, Grace is committed to continuously improving environmental, health and safety |EHS) performance. "Managing for assurance" recognizes that laws and regulations may provide only minimum standards. Therefore, Groce is putting in place the necessary resources, organization and systems to assure that tomorrow's potential problems are identified and appropriately managed today. A comprehensive internol evaluation of EHS functions and systems, conducted as part of the overall restructuring at Grace, is leading to performance enhancements through a new centralized EHS effort. Grace recognizes that the successful management of EHS involves continuous improvements of critical EHS "processes." These processes are: * Communication of EHS goals and performance, internally and externolly; * Transfer of EHS knowledge and experience among all Grace product lines; * EHS training, both skills and general awareness; * Development and implementation of EHS policies and procedures; and * Implementation of Commitment to Core. Commitment to Care, modeled on the Chemical Manufacturers Association's Responsible Care program, is Grace's comprehensive effort for global implementation and improvement of EHS programs over the next several yeats. These include product responsibility, pollution prevention, process safety, employee health and safety, distribution safety and community awareness. The EHS auditing function, which assesses plant performance against Company policy - both good manufacturing practices and requirements under law - is also being expanded globally so that best practices may be shared among Grace facilities at different stages of EHS development. Good EHS performance means good business. It protects our employees, our communities and the environment. It helps us control future costs ond liabilities. It makes us more competitive and better serves our stakeholders. Every one of our employees must be an Emissions Reductions Tli U S. Iwvfr--iwwrot Protection Agoncy'i MM Tide III Tone IiInn Inventory woi created to Irock omiutoa* redvetieni in U.S. induttiy. from 1967* 1992, Cron hmi recorded a 79% redaction In enroll emnwem -- with dramatic improvement! la boll) fagHU* and iloci air emitslant. Management'} Discussion and Analysis of Results of Operations and Financial Condition Review of Operations Specialty Chemicals (excludes dfvestod businesses) (millions) S" 193 (o) ExdudM a pravWon of $14&0 raiding a fumed iJko plod In lilglwm. Overview Sales and revenues increased 8% in 1993 over 1992, excluding businesses divested in 1992; including the divested businesses, 1993 sales and revenues increased by 2% os compared to 1992. Soles and revenues increased 9% in 1992 over 1991, excluding businesses sold in both years. In the third quarter ol 1993, Grace recorded a special noncash after-lax charge of $300 million ($475 million pretax) to reflect a September I, 1993 decision of the U.S. Court of Appeals for the Second Circuit, which had the effect of reducing Grace's insurance coverage for asbestos property damage lawsuits and claims. In the fourth quarter ol 1993, Grace reversed $200 million of the after-tax provision ($316 million pretax) following the Court's decision to grant Grace's petition for a re-hearing concerning the September 1, 1993 decision; the remaining after-tax provision of $100 million ($159 million pretoxl reflects anticipated additional legal expenses and other uncertainties related to Grace's asbestos lawsuits and claims. In the third quarter of 1992, Grace closed its Belgian fumed silica plant and recorded a one-time provision of $ 140 million, representing the entire net book value of the facility and certain additional expenses. Excluding the 1993 asbestos and 1992 fumed silica charges, income from continuing operations for 1993 increased 19%, to $234.4 million, over 1992 (including businesses divested in 1992). Income from continuing operations decreased by 2% in 1992 as compared to 1991 (excluding the provision relating to the fumed silica plant, but including businesses divested in both years). For all periods presented, the statement of operations has been restated to reflect the classification of certain businesses as discontinued operations, as discussed in Note 6 to the Consolidated Financial Statements. Specially Chemicals Including the results of chemical businesses divested in 1992, sales and revenues decreased by 5% in 1993 as compared to 1992, and operating income after taxes (operating income) decreased by 6% for 1993 versus 1992 (excluding the 1992 provision related to the fumed silica plant). The following discussion excludes sales and revenues and operating income of divested businesses and the fumed silica provision referred to above. Sales and revenues increased 3% in 1993 as compared to 1992, reflecting favorable volume and price/ product mix variances estimated at 6% and 2%, respectively, offset by an unfavorable currency exchange variance estimated at 5%. Volume increases occurred in 1993 in packaging (due to improved sales of films and laminotes), water treatment (reflecting the acquisition of Latin America's largest water treatment business in the first quarter of 1993), fluid cracking catalysts and silica products (reflecting improvements in market share and pricing) and construction products (reflecting the introduction of new concrete admixtures and stronger sales in waterproofing systems). Operating income was flat in 1993 compared to 1992. North American results significantly improved in 1993, as strong growth occurred in packaging, fluid cracking catalysts and silica products and construction products, due mainly to the volume increases noted above. European results for most product lines were adversely affected by continuing recessionary conditions, leading to reduced profitability; however, results for European fluid cracking catalysts and silica products improved, primarily due to increased volumes achieved following the withdrawal of certain competitors horn this market in 1992. In Asia Pacific, favorable results were achieved, primarily in packaging and fluid cracking catalysts and silica products. In Latin America, results were down, primarily due to the costs of integrating the operations of the new woter treatment business, partially offset by favorable results in packaging. Sales increased by 5% in 1992 compared to 1991, excluding from both periods the sales of chemical businesses divested in both years; sales were essentially flat including those businesses. The increase was primarily due to favorable volume, price/product mix and foreign currency exchange variances estimated at 3%, 1% and 1%, respectively. Volume increases occurred in most product lines, particularly packaging and fluid cracking catalysts and silica products. Operating income for 1992 decreased 5% over 1991, excluding the divested chemical businesses; operating income increased 3% including those businesses. North American results for most product lines improved in 1992, as strong growth was exhibited in packaging and fluid cracking catalysts and silica products, mainly due to strong volume increases. European results were adversely affected by recessionary conditions, leading to reduced profitability. However, favorable results were achieved-in both Asia Pacific and Latin America for most product lines. Health Care (millions) 0 <* i 1*2 1*3 Statement of Operations Health Care Sales and revenues lor 1993 increased by 19% over 1992, due to increases of 18%, 36% and 11%, respectively, in kidney dialysis services, home health care and medical products operations (including laboratory services). 1993 results for dialysis services and home health core include the results of Home Intensive Care, Inc., acquired in June 1993, as well as a number of smaller acquisitions during the year. The number of centers providing dialysis and related services increased 20%, from 419 at year-end 1992 to 501 at year-end 1993 (471 in the U.S. and Puerto Rico, 23 in Portugal, 4 in Spain, 2 in the Czech Republic and 1 in Argentina). Operating income in 1993 increased by 35% over 1992. The 1993 results for all health core businesses benefited from improvements in cost controls, operating efficiencies and/or capacity utilization, partially offset by the costs of improving and expanding quality assurance systems for medical products manufacturing (see below for further discussion). In addition, results for 1992 included costs related to previously reported long-term incentive arrangements with certain health care executives. It is unclear at this time whether and to what extent any of the currently proposed reforms in U.S. health care will affect Grace's health care operations. However, based on its knowledge and understanding of the health core industry in general and of other providers of kidney dialysis and infusion therapy, as well as on publicly available information, Grace believes that its health care operations are among the most costefficient in the industry. Sales and revenues of health care operations increased by 20%, to $1.3 billion, in 1992 os compared to 1991, reflecting improvements of 19%, 16% and 26%, respectively, in kidney dialysis services, home health cate and medical products operations. Operating income for 1992 increased by 27% over 1991, reflecting the continued growth of alt health care businesses, as well as improvements in operating efficiencies and capacity utilization. In 1993, the U.S. Food and Drug Administration (FDA) issued import alerts with respect to (11 hemodialysis bloodlines manufactured at the plant ol National Medical Care, Inc. (NMC), Grace's principal health cate subsidiary, located in Reynoso, Mexico and (2) hemodialyzers manufactured in NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the U.S. until the FDA approves the quality assurance systems of the facility at which such products are manufactured. In January 1994, NMC entered into a consenl decree providing for ihe resumption of importation of bloodlines and hemodialyzers following certification by NMC that the relevant facility complies with FDA regulations and successful completion of an FDA inspection to verify such compliance. In accordance with Ihe consent decree, NMC certified compliance to the FDA with respect to the Reynosa, Mexico facility in Jonuory 1994, and the FDA lifted the bloodine import alert in March 1994, following a thorough reinspection by the FDA and a commitment by NMC to finish certain studies by May 1994 and, in the interim, to perform additional product testing. Certification of compliance at the Dublin, Ireland facility is anticipated in the second quarter of 1994. The consent decree also requires NMC to certify and maintain compliance with applicable FDA device manufacturing laws and regulations at all of its U.S. manufacturing facilities NMC has conducted a full review of its facilities and upgraded, os necessary, all of its quality assurance systems No fines or penalties were imposed on NMC as a result of any of the FDA's actions relating to the import alerts or in connection with the consent decree. Neither Ihe import alerts nor previously reported recalls of certain NMC products are expected to have a material effect on Grace's results of operations or financial position. Other income See Note 4 to the Consolidated Financial Statements for information relating to other income. Interest Expense Interest expense decreased by 9% in 1993 versus 1992, primarily due to lower debt levels and lower interest rates, the use of financial instruments (see Note 10 to the Consolidated Financial Statements) and the replacement of certain fixed-rate debt with lower-cost floating-rale borrowings, partially offset by a reduction in interest allocated to discontinued operations and interest capitalized. See 'Financial Condition: liquidity and Capital Resources' below for information on borrowings. Research and Development Expenses Research and development (R&D) spending increased by 4% in 1993 versus 1992. R&D spending is now primarily directed toward Grace's core specialty chemicals and health care businesses. Income Taxes The effective tax rate was 39.2% in 1993 versus 43.1% in 1992, before giving effect to the 1992 provision of $.51.9 million for a valuation allowance for deferred lax assets. The lower effective tax rate in 1993 resulted primarily from reductions in certain foreign lax rotes and higher utilization of research and development and foreign tax credits, partially offset by tax costs associated with repatriating to the U.S. earnings of foreign subsidiaries. The valuation allowance lor 1993 and 1992 relates to the uncertainty as to the realization of certain deferred tax assets, including U.S. tax credit carryforwards, state and local net operating loss carryforwards and net deferred fax assets, and net operating loss carryforwards in certain foreign jurisdictions. Based upon anticipated future results, the Company has concluded, after consideration of the valuation allowance, that it is more likely than not that the net deferred tax asset balance will be realized. In the third quarter of 1993, Grace recorded the effects of the Omnibus Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993. Among other things, OBRA increased the highest U.S. Federal corporate tax rate to 35%, effective January 1, 1993. However, neither this increase in the U.S. Federal corporate tax rate (from 34%), nor the other provisions of OBRA, had a material effect on Grace's results of operations. The 1992 effective lax rate increased to 43.1 % (before the above provision for the valuation allowance) as compared with 39.6% in 1991, largely due to the additional costs of repatriating to the U.S. a higher level of earnings of foreign subsidiaries and an increase in state income taxes. See Note 5 to the Consolidated Financial Statements for further information on income taxes. Lot* from Discontinued Operations In 1993, Grace restated its financial statements to reflect the classification of certain businesses as discontinued operations. See Note 6 to. the Consolidated Financial Statements for further information. Financial Condition Worldwide Sales & Revenues (excludes divested businesses) ($ millions! 5000 89 90 91 92 I U.S. & Canado I Europe B Asia Pacific B Latin America/Other 93 Liquidity and Capital Resources During 1993, the net pretax cash flow provided by Grace's continuing operating activities was $301.6 million versus $358.9 million in 1992, primarily due to the use of $44.1 million of net cash to repurchase accounts receivable in 1993, as compared to the receipt of $96.8 million of net proceeds from the sale of accounts receivable in 1992, and a net cash outflow of $ 103.1 million relating to asbestos in 1993 (see below for further discussion), compared with a net cash outflow of $70.3 million in 1992. Also, in 1993 cash flow provided by operating activities includes $679 million in proceeds from the settlement of interest rate hedge agreements. After giving effect to discontinued operations and payments of income taxes, the net cash provided by operating activities was $243.1 million in 1993. Investing activities used $151.9 million of cash in 1993, largely reflecting capital expenditures and business acquisitions and investments, primarily in the health care and water treatment businesses. During 1993, Grace acquired 100% of the outstanding stock of Home Intensive Care, Inc. for approximately $ 129 million (inclusive of related costs). These investing activities were offset by net proceeds of $464.8 million from divestments (mainly those of Grace Energy's oil and gas operations). Management anticipates that the level of capitol expenditures in 1994 will increase to approximately $350 million os compared to the $309.6 million of capital spending in 1993. Capital spending is expected to be concentrated on Grace's core businesses. Net cash used for financing activities in 1993 was $105.9 million, primarily reflecting the payment of $128.4 million of dividends. Total debt was approximately $1.7 billion at year-end 1993, a decrease of $113.1 million from year-end 1992. Grace's total debt as a percentage of total capital (debt ratio) decreased from 54.1 % at year-end 1992 to 52.9% at year-end 1993, primarily as a result of the reduction in total debt. In January 1993, Grace sold $300 million principal amount of 7.4% Notes Due 2000. The net proceeds from the sale of these Notes were used to repay commercial paper and bank borrowings. In the third quarter of 1993, Grace completed the redemption in full of its outstanding liquid Yield Option Notes due 2006 (lYONs) and 6'/i% Convertible Subordinate Debentures Due 2002. Of the $1,012.5 million principal amount at maturity of lYONs outstanding, approximately 31% ($309.6 million) was converted into 2.8 million shares of common stock; the remaining lYONs ($702.9 million) were redeemed for approximately $258 million in cash. Substantially all of the $ 150 million principal amount of the 6%% Convertible Debentures due 2002 outstanding immediately prior to redemption was redeemed for cash (equal to the principal amount outstanding). Grace expects to satisfy its 1994 cash requirements from the following sources; (11 funds generated by operations, (2) proceeds from the sales of businesses and (3) financings. Such financings could include new borrowings, the ovailability and cost of which will depend upon general economic and market conditions. Asbestos-Related Matters As reported in Note 2 to the Consolidated Financial Statements, Grace is a defendant in lawsuits relating to previously sold asbestos-containing products. In 1993, Grace paid $ 103.1 million in connection with the Worldwide After-Tax Operating Income (excludes divested businesses) (J millions) 400 M 90 91 92 as. & Canada Europe AstaPadRc I Larin Airterica/Oriser W defense and disposition of property damage and personal injury litigation related to asbestos, net of amounts received in 1993 from settlements with certain of Grace's insurance carriers. As more fully discussed above in 'Review of Operations: Overview," Grace recorded a net noncosh charge of $ 159 million (pretax) in 1993 to reflect anticipated additional legal expenses and other uncertainties related to Grace's asbestos lawsuits and claims. The balance sheet at year-end 1993 includes a receivable due from insurance carriers, subject to litigation, of $962.3 million. Grace has also recorded a receivable of approximately $ 114 million for amounts to be received pursuant to settlement agreements previously entered into with certain insurance carriers. While Grace cannot precisely estimate the amounts to be paid in 1994 in respect of asbestos-related lawsuits and claims, Grace expects thot it will be required to expend approximately $50 million in 1994 to defend and dispose of such lawsuits and claims (after giving effect to payments to be received from certain insurance carriers, as discussed above and in Note 2 to the Consolidated Financial Statements). As indicated therein, the amounts reflected in the Consolidated Financial Statements with respect to the probable cost of disposing of pending asbestos lawsuits and claims and probable recoveries from insurance carriers represent estimates; neither the outcomes of such lawsuits and claims nor the outcomes of Groce's continuing litigations w*h certain of its insurance carriers can be predicted with certainly. Environmental Matters Grace incurs costs related to environmental protection due to laws and regulations, Grace's commitment to industry initiatives such as Responsible Care (the Chemical Manufacturers Association program) ond its awn internal standards. Worldwide expenses of continuing operations rotated to the operation and maintenance of environmental facilities and disposal of hazardous and nonhazordous wastes totalled $45 million, $56 million and $38 million in 1993, 1992 and 1991, respectively. In addition, worldwide capital expenditures for continuing operations relating to environmental protection in 1993 totalled $20 million, compared with $ 18 million and $17 million in 1992 and 1991, respectively. Grace has also incurred costs to remediate previously contaminated sites. These costs were $44 million, $35 million ond $18 million in 1993, 1992 ond 1991, respectively. These amounts were charged against previously established reserves for estimated expenses for environmental spending, which were identified and charged to income in prior years. Grace accrues for anticipated costs associated with investigatory and remediation efforts in accordance with Statement of Financial Accounting Standards No. 5, 'Accounting for Contingencies,' which governs probability ond the ability to reasonably estimate future costs. During 1993, 1992 and 1991, there were periodic provisions recorded for environmental and plant closure expenses, which include the costs of future investigatory and remediation activities. At year-end 1993, Grace's accruals for environmental remediation totalled approximately $160 million. These reserves do not take into account any discounting for future expenditures or possible future insurance recoveries. The liabilities are reassessed whenever environmental circumstances become belter defined and/or remediation efforts and their costs can be better estimated. Annual environmental-related cash outlays are expected to total $44 million in 1994 and $35 million in 1995. Expenditures have been funded from internal sources of cash and are not expected to have a significant effect on liquidity. Management's Responsibility for Financial Reporting Management is responsible for the preparation, as well as the integrity and objectivity, of the consolidated financial statements and other financial information included in this report. Such financial information has been prepared in conformity with generally accepted accounting principles and accordingly includes certain amounts that represent management's best estimates and judgments. For many years, management has maintained internal control systems to assist it in fulfilling its responsibility for financial reporting, including careful selection of personnel, segregation of duties, formal business, accounting and reporting policies and procedures and an extensive internal oudit function. While no system can ensure elimination of all errors and irregularities, Grace's systems, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed and transactions are properly executed and reported. The concept of reasonable assurance is based on the recognition that there are limitations in al systems and that the cost of such systems should not exceed the benefits to be derived. The Audit Committee of the Board of Directors, which is comprised of directors who are neither officers nor employees of nor consultants to Grace, meets regularly with Grace's senior financial personnel, internal auditors and independent accountants to review audit plans and results as well as the actions taken by management in discharging its responsibilities for accounting, linancial reporting and internal control systems. The Audit Committee reports its findings and also recommends the selection of independent accountants to the Board of Directors. Grace's management, internal auditors and independent accountants have direct and confidential access to the Audit Committee a* all times. The independent accountants are engaged to conduct audits of and render a report on the consolidated financial statements in accordance with generally accepted auditing standards. These standards include a review of the systems of internal controls and tests of transactions to the extent considered necessary by the independent accountants lor purposes of supporting their opinion as set forth in their report. Report of Independent Accountants B. J. Smith Executive Vice President and Chief Financial Officer Price Waterhouse V 1177 Avenue of the Americas New York, NY 10036 To the Shareholders and Board of Directors of W. R. Grace & Co. February 8, 1994 in our opinion, the consolidated financial statements appearing on pages 26 through 44 of this report present fairly, in all material respects, the financial position of W. R. Grace & Co. and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan ond perform the audit to obtain reasonable assurance about whether the financial statements are free of materiol misstatement. An audit includes examining, on a lesl basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 5 and 16, the Company adopted new accounting standards for income taxes ond postretirement benefits in 1992. C^^-4-0 Cjl) Consolidated Financial Statements W. R. Grace & Co. and Subsidiaries Consolidated Statement of Operations Dollars in millions, except per share amounts 1993 Soles and revenues............................................................ -................. $4,408.4 Other income (Note 4).......................................................................... 42.5 Total.................................................................................................... 4,450.9 1992 $4,3370 699 4,406.9 1991 $4,386.6 557 4,442.3 Cost of goods sold and operating expenses..................................... Selling, general and administrative expenses.................................... Depreciation and amortization............................................................. Interest expense (Note 9)...................................................................... Research and development expenses................................................ Provision relating to asbestos-related insurance coverage (Note 2} Provision relating to a fumed silica plont (Note 8|............................ Total.............................................................................................. ..... 2,596.8 1,029.7 227.7 81.5 135.0 159.0 -- 4,229.7 2,601.5 1,028.0 224.9 90.0 130.0 - 140.0 4,214.4 2,649.2 982.5 232.9 115.4 128.1 - - 4,108.1 Income from continuing operations before income taxes................. Provision for income taxes (Note 5)..................................................... 221.2 86.8 192.5 134.8 334.2 132.5 Income from continuing operations....................................................... |Loss|/income from discontinued operations (Note 6)..................... 134.4 (108.4) 57.7 (162.2) 201.7 169 Income/jloss) before cumulative effect of accounting changes...... Cumulative effect of accounting changes (Notes 5 and 16).......... 26.0 -- (104.5) (190.0) Net income/(loss|.................................................................................. $ Earnings/(loss) per share: Continuing operations....................................................................... Cumulative effect of accounting changes..................................... Net earnings/lloss)........................................................................... Fully diluted earnings per share: Continuing operations....................................................................... Cumulative effect of accounting changes..................................... Net earnings.................................................................................:.... $ $ $ $ $ $ 26.0 1.46 .28 1.45 .28 $ 1294.5) $ .64 $ (2.12) $ (3.29) $ .62 $ -in $ Jii The Notes to Consolidated financial Statements, pages 30 to 44, are integral parts ol these statements lnNol presented as the effect is antidilutive. 218.6 - $ 218.6 $ 2.31 $ $ 2.50 $ 2.23 $ $ 2.40 Consolidated Statement of Cah Flowi Dollars in millions 1993 1992 1991 Operating Activities Income from continuing operations before income taxes................. Reconciliation to cash provided by operating activities: Depredation and amortization....................................................... Provision relating to asbestos-related insurance coverage......... Provision relating to a fumed silica plant........................................ Changes in assets and liabilities, excluding businesses acquired/divested and foreign exchange effect: (Increase(/decrease in notes and accounts receivable, net. Increase in inventories................................................................. Proceeds from settlements of interest rate hedge agreements Net expenditures for asbestos-related insurance coverage... Increase in accounts payable.................................................... Other............................................................................................. Net pretax cash provided by operating activities of 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.......................................... $221.2 2277 159.0 -- (103.2) (50.5| 67.9 (103.1) 50.1 (167.5) 301.6 44.2 345.8 (102.7) 243.1 $192.5 224.9 - 140.0 484 12.3) 3.2 |70.3| 29.5 (207.0) 358.9 178.3 537.2 |98.9| 438.3 $334.2 232.9 - - 171.2 (30.5) (54.9) 11,9 (106.3) 558.5 161.3 719.8 (1175) 602.3 Investing Activities Capital expenditures............................................................................... Businesses acquired in purchase transactions, net of cash acquired Increase in net investment in discontinued operations....................... Net proceeds from divestments............................................................ Net proceeds from sale/leoseback transactions.............................. Other ............... ....................................................................................... Net cash used for investing activities................................................... (309.6) (306.6) (43.1) 464.8 27.2 15.4 (151.9) (398.4) (61.2) (101.5) 221.2 2.2 (3377) (4470) (131.0) (55.9) 366.4 (60.1) (3276) Financing Activities'1' Dividends paid........................................................................................ Repayments of borrowings having original maturities in excess of three months............................................... Increase in borrowings having original maturities in excess of three months............................................... Net increase/(repayments| in borrowings having original maturities of less than three months................................................ Sale of limited partnership interest........................................................ Other ....................................................................................................... (1284 (512.6) 373.0 155.7 -- 6.4 |125.9| (274.0) 355.7 (508.0) 2970 13.8 (122.5) (695.6) 319.7 271.3 - 45.7 Net cash used for financing activities................................................. (105.9) (241.4) (181.4) Effect of exchange rate changes on cash and cash equivalents..... (0.5) 13.5) (2.2) (Decrease|/increose in cash and cash equivalents......................... Cash and cash equivalents, beginning of year................................. (15.2) 62.8 (144.3) 2071 91.1 116.0 Cash and cash equivalents, end of year............................................. $ 47.6 $ 62.8 $2071 The Notes to Consolidated Financial Statements, pages 30 to id, ore integral parts oI these statements. 1,1See Note 9 to the Consolidated Financial Statements lor supplemental information relating to noncash financing octivihes. Consolidated Below Sheet Dollars in millions, except par valueDecember 31.IW31992 Assets Current Assets Cash and cosh equivalents........................................................................................... Notes and accounts receivable, net (Note 7]........................................................... Inventories (Note 7)....................................................................................................... Net assets of discontinued operations, current (Note 6)......................................... Deferred income taxes (Note 5).................................................................................. Other current assets........................................ ............................................................... Total Current Assets................................................................................ Properties and equipment, net (Note 8)...................................................................... Net assets of discontinued operations, noncurrent................................................... Goodwill, less accumulated amortization of $53.2 (1992-$50.1)...................... Asbestos-related insurance receivable (Note 2)....................................................... Other assets (Note 7)................................................................................................... Total Assets................................................................................................ $ 47.6 $ 62.8 657.4 690.4 441.0 592.9 761.3 606.3 31.8 96.8 36242.2 1,975.3 2,091.4 1,454.1 1,707.9 -- 108.5 481.6 298.6 9623 358.3 1,235.31,033.9 $6,108.6 $5,598.6 Liabilities and Shareholders' Equity Current Liabilities Shortterm debt (Note 9)................................................................................................ Accounts payable............................................................................................. Income taxes (Note 5).................................................................................................. Other current liabilities................................................................................................... Minority interests, current (Note 12)......................................................... Total Current Liabilities............................................................................. $ 532.6 414.6 1263 621.9 297.0 1,992.6 $ 464.7 423.6 158.1 593.2 - 1,639.6 Longterm debt (Note 9)................................................................................................ Other noncurrent liabilities.................................................... Deferred income taxes (Note 5)............ Liability for asbestos-related litigation (Note 2)......................................................... Minority interests, noncurrenf (Note 12)...................................................................... Total Liabilities......................................................................................... 1,1733 613.8 97.4 713.7 -- 4,591.0 1,354.5 666.1 96.4 2970 4,053.6 Commitments and Contingencies (Notes 2, 9 and 11) Shareholders' Equity (Note 13) Preferred stocks, $ 100 par volue....................................... Common stock, $ 1.00 par value; 300,000,000 shares authorized; outstanding at December 31: 1993-93,465,000; 1992-89,892,000......... Paid in capital.................................................................................................................. Retained earnings........................................................................................................... Cumulative translation adjustments............................................................................... Total Shareholders' Equity..................................................................... Total Liabilities and Shareholders' Equity........................................... 7.4 7.5 93.5 287.8 1,1962 (673) 89.9 151.4 1,298.6 (2.4) 1317,61,545.0 $6,108.6 $5,598.6 The Notes to Consolidated Financial Statements, pages 30 to 44, are integral parts of these statements. Complicated Statement of Shareholders' Equity Dollars in millions 1993 1992 Preferred Stocks Balance, beginning of year.................................................... .............. $ 7.5 $ 7.5 Other ........................................................................................ ............ 1.1) - Balance, end ol year.............................................................. .............. 7.4 75 Common Stock Balance, beginning of year.................................................... .............. Conversion of notes and debentures.................................... .............. Slock options and awards...................................................... .............. Acquisition............................................................................................... Balance, end of year.............................................................. .............. 89.9 2.8 7 .1 93.5 88.6 - 1.3 - 89.9 Paid in Capital Balance, beginning of year................................................... .............. Conversion ol notes and debentures.................................... .............. Stock options and awards...................................................... .............. Acquisition................................................................................ .............. Other ........................................................................................ .............. Balance, end of year.............................................................. .............. Retained Earnings Balance, beginning of year.................................................... .............. Net income/(loss)................................................................... .............. Dividends paid......................................................................... .............. Balance, end of year.............................................................. .............. 151.4 109.7 22.9 37 .1 287.8 1,2984 264 (128.4) 1,196.2 120.1 - 31.1 .2 151.4 1,719.0 (294.5) (125.9) 1,298.6 Cumulative Translation Adjustments Balance, beginning of year.................................................... .............. Translation adjustments........................................................... .............. (24) (64.9) 90.0 (92.4) Balance, end of year.............................................................. .............. (67.3) 12.4) Total Shareholders' Equity.............................................. .............. $1,517.6 $1,545.0 The Notes to Consolidated Financial Statements, pages 30 to 44, ate integral parts of these statements. 1991 $ 75 - 75 86.1 - 2.5 - 88.6 61.6 - 58.4 .1 120.1 1,622.9 218.6 (122.5) 1,719.0 134.4 (44.4) 90.0 $2,025.2 Summary of Significant Accounting and Financial Reporting Policies Notes to Consolidated Financial Statements Dollars in millions, except per share amounts Principles of Consolidation The consolidated financial statements include the accounts of W. R. Grace & Co. and all majority-owned companies (collectively Grace). Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies |20%~50% owned) are accounted for under the equity method. Reclassifications Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year's presentation and as required with respect to discontinued operations. Cash Equivalents Cash equivalents consist of highly liquid instruments with maturities of three months or less when purchased. The recorded amount approximates fair value because of the short maturities of these investments. Inventories Inventories are stated at the lower of cost or market. Due to the diversified nature of Grace's operations, several methods of determining cost are used, including first-in/first-out, average and, for substantially all U.S. chemical inventories, lasWn/firstout. Market value for raw and packaging materials is based on current cost and, for other inventory classifications, on net realizable value. Properties and Equipment Properties and equipment are stated at the lower of cost or net realizable value. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful lives of the assets. Interest is capitalized in connection with major project expenditures and amortized, generally on a straight-line basis, over the estimated useful lives of the assets. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts untf they are removed from service. In the case of disposals, assets and rebled depreciation ate removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to income. Goodwill and Other Amortization Goodwill arises from certain purchase transactions and is amortized using the straight-line method over appropriate periods not exceeding 40 years. Patient relationships |see Note 7) are amortized using the straight-line method over 17 years. Income Taxes Effective January 1, 1992, Grace adopted Statement of Financial Accounting Standards |SFAS) No. 109, 'Accounting for Income Taxes.' The Statement requires the use of an asset and liability approach for the accounting and financial reporting of income taxes. Foreign Currency Translation Foreign currency transactions and financial statements (except for ihose relating to countries with highly inflationary economies) are translated into U.S. dolbrs at current exchange rales, except that revenues, costs and expenses are translated at average exchange rotes during each reporting period. The financial statements of subsidiaries bcoted in countries with highly inflationary economies must be remeasured as if the functional currency were the U.S. dolbr. The remeasurement creates translation adjustments that are reflected in net income. The allocation for income taxes included in the translation adjustments account in shareholders' equity was not significant. Earnings Per Share Primory earnings per share are computed on the basis of the weighted average number of common shares outstanding. Fully diluted earnings per share assume the conversion of convertible debentures (with an increase in net income for the after-tax interest savings) and the issuance of common stock equivalents rebted to stock options. Financial Instruments Groce enters into interest rate swaps, options and caps, and breign currency contracts to manage exposure to fluctuations in interest and foreign currency exchange rates. The differentials paid or received on interest rate agreements are accrued and recognized as adjustments to interest expense; gains and losses realized upon settlement of these agreements are deferred and amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remains outstanding, or immediately if the underlying hedged instrument is settled. Premiums paid on caps are amortized to interest expense over the term of the cap. Gains and losses on foreign currency contracts offset gains and losses resulting from the underlying transactions. Gains ond losses on contracts that hedge specific foreign currency commitments ore deferred and recognized in net income in the period in which the transaction is consummated. Gains and losses on contracts that hedge net investments in foreign subsidiaries are recognized in the cumulative translation adjustmenfs account in shareholders' equity. 2. Asbestos and Related insurance Litigation Grace is a defendant in lawsuits relating to previously sold asbestoscontoining products and anticipates that it wdl be named as a defendant in additional asbestovrelated lawsuits in the future At December 31, 1993, Grace was a defendant in approximately 38,100 asbestosreloted lawsuits representing approximately 56,700 daims (versus approximately 30,900 lawsuits and 53,000 claims at December 31, 1992). Of tfie lawsuits pending at December 31, 1993,92 (105 at December 31, 1992) involved claims for property damage allegedly caused by the use of asbestoscontaining materials in the construction of buildings. The plainSffs in these lawsuits 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 asbestosrelated lawsuits involved claims for personal injury. In most of these lawsuits, Grace is one of many defendants. Property Damage litigation Through December 31, 1993, 120 asbestos property damage cases had been dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grace in twelve coses; in six cases (four of which are on appeal), Grace was held liable for a total of $68.3; and 131 property damage suits and claims had been settled by Grace for o total of $300.0. Grace has recorded a receivable for the insurance proceeds it expects to receive in connection with these adverse verdicts and settlements, as well as for defense costs initially paid by Grace. (See "Insurance litigation' below.) On September 1, 1993, the U.S. Court of Appeals for the Second Circuit issued a decision regarding the availability of insurance coverage with respect to Grace's asbestos property damage litigation and claims. In January 1994, the Court granted Grace's petition for a re-hearing concerning such decision. Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1993 ore the following purported class actions: (1) a Pennsylvania slate court action, certified in 1992, covering all commercial buildings in the U.S. leased in whole or in part to the U.S. government on or offer May 30, 1986; (2) an action, certified by the U.S. Court of Appeals for the Fourth Circuit in September 1993 and pending in a U.S. District Court in South Carolina, covering all public and private colleges and universities in the U.S. whose buildings contain asbestos materials; (3) an action, brought in 1983 in a U.S. District Court in Pennsylvania, on behalf of all public and private elementary and secondary schools in the U.S. that contain asbestos materials, which has been scheduled for trial in late 1994 on a limited number of issues; and (4) an action filed in a South Carolina state court in 1992 on behalf of all entities that own, in whole or in part, any building containing asbestos materials manufactured by Grace or one of the other named defendants, other than buildings subject to the class action lawsuits described above, as well as any building owned by the federal or any state government. Personal Injury Litigation Through December 31, 1993, approximately 7,000 asbestos personal injury lawsuits involving 17,900 claims had been dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 11,300 such suits involving 13,400 claims had been settled for a total of $52.2. In January 1993, the U.S. District Court for the Eastern District of Pennsylvania conditionally certified a class of all future asbestos personal injury claimants, including individuals who have been occupationally exposed to asbestoscontaining materials but who do not presently allege asbestos-related injury. Although Grace is not among the defendants named in the class action complaint, dissemination of the required class notice may generate additional litigation against Grace. Range of Potential Exposure Although personal injury cases are generally similar to each other (differing only in the type of asbestos-related illness allegedly suffered by the plaintiff), each property damage case is unique in that building type, size and utilization and difficulty of abatement, if necessary, vary from structure to structure; thus, the amounts involved in prior dispositions of properly damage cases are not necessarily indicative of the amounts that may be required to dispose of such cases in the future. In addition, in property damage cases, information regarding product identification on a building-by-building basis (i.e., whether or not Grace products were actually used in the construction of the building), the age, type, size and use of the building, the jurisdictional history of prior cases and the court in which the case is pending provide the only meaningful guidance as to potential future costs. However, much of this information is not yet available in a majority of the property damage cases currently (sending against Grace. Accordingly, estimates of future costs to dispose ol these cases are, in most instances, based on incomplete information, as well as assumptions that may not be accurate. Further, the filing of the class actions and uncertainty with respect to the class certification in the national elementary and secondary schools class action (see 'Property Damage litigation' abovel make it more difficult to reliably predict the costs Grace will incur in disposing of asbestos-related litigation. Subject to the preceding qualifications |which Grace believes to be significant), Grace has attempted to determine its future costs to dispose of this litigation and hos concluded that it is probable that the personal injury and property damage cases pending at December 31, 1993 can be disposed of for a total amount estimoted at $813.7 (inclusive of legal fees and expenses), of which Grace has recorded $713.7 as a noncurrent liability and $ 100.0 as a current liability. This compares to the estimated liability (current and noncurrent) of $848.0 at September 30, 1993, reflecting payments made in the fourth quarter of 1993. In addition, Grace has recorded a receivable of $962.3 for the insurance proceeds it expects to receive in reimbursement for prior payments and estimated future payments to dispose of asbestos-related litigation. This compares to the receivable of $644.0 at September 30, 1993, which reflected a $300.0 after-tax provision recorded in the third quarter of 1993 related to the Second Circuit Court of Appeals decision, while the fourth quarter 1993 activity included the partial reversal of such provision, as well as insurance proceeds received during the quarter. (See 'Insurance litigation' below.) Grace has also settled coverage disputes with certain insurance carriers. These settlements provide for future payments of $ 114.0 and have been recorded as notes receivable. Further, Grace continues to seek to recover the balance of the payments it has made with respect to asbestos-related litigation from its excess insurers and from insurance companies that sold insurance policies to predecessor companies of Groce, as discussed below. Insurance Litigation Groce's ultimate exposure in respect of its asbestos-related lawsuits and claims will depend on the extent to which its insurance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. In March 1991, the U.S. District Court for the Southern District of New York held that Groce's primary insurance carriers are obligated to defend and indemnify Grace with respect to damages (other than certoin punitive damages), settlement amounts and litigation costs in connection with both personal injury and properly domage asbestos claims. The court held that coverage for asbestos property damage is triggered by the "discovery of damage' during the policy period. On September 1, 1993, the U.S. Court of Appeals for the Second Circuit issued a decision regarding the availability of insurance coverage with respect to Grace's asbestos litigation and claims. The Court of Appeals reversed the District Court's ruling as to a 'discovery of damage' trigger for asbestos property damage claims and instead adopted a trigger based on the date of installation of asbestos-containing materials. As a result of this decision, Grace recorded on after-tax provision of $300.0 during the third quarter of 1993 to reflect the reduction in insurance coverage for its asbestos property damage lawsuits and claims. In January 1994, the U.S. Court of Appeals for the Second Circuit granted Grace's petition for a re-hearing concerning the September 1, 1993 decision. In view of the Court's oction, during the fourth quarter of 1993, Grace reversed $200.0 of the after-tox provision recorded in the third quarter. In December 1991, the Circuit Court for Jackson County, Mississippi held that Groce's primary and excess insurance carriers are obligated to defend and indemnify Grace, holding that for the purposes of insurance coverage, damage to buildings from asbestos-containing products occurs at the time such products are put in place and that the damage continues as long as the building contains the products (a 'continuous trigger'). A similar decision was rendered by a Minnesota slate court in November 1992. In 1993, Groce received $74.6 under settlements with insurance carriers, in reimbursement for monies previously expended by Groce in connection with asbestos-related litigation; as mentioned above, these settlements also provide for future reimbursements of $ 114.0. In early 1994, Grace settled with two additional insurance carriers and received approximately $88.8 under such settlements. Prior to 1993, Grace received payments totalling $97.7 from insurance carriers, the majority ol which represented the aggregate remaining obligation owed to Grace by those carriers for primary level insurance coverage written by them for the period June 30, 1962 through June 30, 1987 Grace continues to be involved in litigation with certain of its insurance carriers, including an affiliated group of carriers that had agreed to a settlement and hod made a series of payments under that agreement in 1993. The group ol carriers subsequently notified Grace that it would no longer honor the agreement (which had not been executed) due to the September 1, 1993 U.S. Court of Appeals decision discussed above. Grace believes that the settlement agreement (which involves approximately $200.0 of the asbestos-related receivable of $962.3 at December 31, 1993) is binding and initiated action to enforce the settlement agreement. In January 1994, the U.S. District Court for the Eastern District of Texas held the agreement to be enforceable. The affiliated group of carriers is expected to appeal this ruling to the U.S. Court of Appeals for the Fifth Circuit. 3. Acquisitions, Divestments and Strategic Restructuring 4. Other Income For the period October 20, 1962 through June 30, 1985 - the most relevant period for osbeslosrelated litigation - Grace purchased, on an annual basis, as much as eight levels of excess insurance coverage, in general, excess policies provide that when claims paid exhaust coverage at one level, the insured may seek payment from the carriers at the next higher level. For that 23-year period, the first six levels of excess insurance available from insurance companies that Grace believes to be solvent (based primarily upon reports from a leading independent insurance rating servicel provide coverage in excess of $ I 4 billion. If, however, the amount available in the first six levels should prove to be insufficient, Grace has substantial additional coverage available in its two remaining levels of excess coverage. In Grace's opinion, it is probable that recoveries from its excess insurance coverage will be available to satisfy Groce's asbestos-related exposure after giving effect to the provision recorded in 1993. Consequently, Grace believes that the resolution of its asbestos-related litigation will not have a material effect on its consolidated financial position or results of operations. Acquisitions Businesses acquired in 1993 consisted primarily of health care and water treatment businesses. Grace acquired Home Intensive Care, Inc. in the second quarter of 1993 for approximately $ 129.0 in cash (inclusive of related costs) and ocquired other health care businesses during 1993 for an aggregate of approximately $ 115.0 in cash and $3.8 in common stock. Grace also acquired Latin America's largest water treatment business in the first quarter of 1993 for approximately $576 in cash. In July 1992, Grace completed the purchase of the common stock of Groce Energy Corporation (Groce Energy) not owned by Grace for $773 in cash. See Note 6 for a discussion of 1993 divestment activity with respect to Grace Energy's businesses. During 1992, Groce continued to expand its heahh care operations through the acquisition of several businesses and facilities for consideration totalling $44.2 in cash. In 1991, Grace purchased the 25% minority interest in Groce Cocoa for $74.6 in cash and purchased an initial 47% common equity interest in a health care service company. In addition, Grace Energy purchased its former partner's 50% interest in Colowyo Coal Company (Colowyo) for $34.2 in cash plus reloted debt repayments. All of the above transactions were accounted for as purchases, and the results of operations of the acquired businesses are included in the consolidated financial statements from the respective dales of acquisition. Divestments In 1993, Grace completed the sale of substantially all of the oil and gas operations of Grace Energy, along with certain corporate investments; see Note 6 for further information. Other norveore businesses divested during 1993 included a 50% interest in o Japanese chemical business and a food industry hygiene services business for approximately $31.4 and $11.2, respectively. In December 1992, Grace sold its orgonic chemicals business and related nel assets for approximately $100.0 in cash plus non-voting preferred stock of the buyer. In March 1992, Grace sold its book, video and software distribution business (Groce Distribution), which was classified as a discontinued operation in the fourth quarter of 1991; see Note 6 for further information. Strategic Restructuring The 1991 net goin on strategic restructuring of $6.1 (see Note 4) includes gains of $ 108.8, inclusive of cumulative translation gains of $379, on the disposition of certain norveore businesses and investments. Offsetting these gains were expenses related to the relocation of Grace's corporate headquarters from New York to Florida, provisions for litigation and certain environmental and plant closure expenses and a reserve for the costs of restructuring activities. Interest................................................................................................ ................. Net goin on strategic restructuring................... ........................... ..................... Equity in earnings of affiliated companies.................................. ................ Other, nel........................................................................................... ................. 1993 $304 - 1.0 11.1 $424 1992 $12.5 - 3.4 54.0 $69.9 1991 $12.8 6.1 2.2 34.6 $55.7 Other, net in 1993 represents principally the gain on the sale of a 50% interest in a Japanese chemical business (see Note 3), offset by provisions for environmental and plant closure expenses. Interest income in 1993 Includes $21.9 relating to the settlement of prior years' Federal income tax returns. S. Income Taxes Effective January ), 1992, Grace adopted SFAS No. 109, 'Accounting for Income Taxes," which applies an asset and liabiHly approach requiring the recognition of deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recorded in the consolidated financial statements and tax returns. If it is more likely than not that all or a portion of a deferred tox asset will not be realized, a valuation allowance must be recognized. As permitted under SFAS No. 109, Grace elected not to restote prior periods' consolidated financial statements to give effect to SFAS No. 109. Excluding the deferred tax benefit recognized upon the adoption of SFAS No. 106, 'Employers' Accounting for Postretiremenl Benefits Other Than Pensions,' the effect of the adoption of SFAS No. 109 on Grace's 1992 financial statements was not material. In the third quarter of 1993, Grace recorded the effects of the Omnibus Budget Reconciliation Act of 1993 (OBRA), which was enacted in August 1993. Among other things, OBRA increased the highest U.S. Federal corporate tax rate to 35%, effective January 1, 1993. However, neither this increase in the U.S. Federal corporate tax rate (from 34%), nor the other provisions of OBRA, had a material effect on Grace's results of operations. The components of income/(loss) from continuing operations before income taxes are as follows: 1993 1992 1991 Domestic.................................................................................................................. Foreign............................................................... ........................................ ........... $125.4 95.8 $221.2 $206.4 (13.9) $192.5 $124.2 2100 $3342 The provision/jbenefit) for income taxes allocated to continuing operations consisted ol: 1993 1992 Federal income taxes: Current............................................................................... ............................... Deferred................................................................................................... ......... Stale and locol income taxes - current...................... ...................................... Foreign income taxes: Current................................... ............................................................................ Deferred..................................................................... ....................... ................ $ 53.6 (28.7) 19.1 44.4 (1.6) $ 86.8 $ 75.6 (20.2) 16.5 57.6 5.3 $134.8 1991 $ 41.3 (50) 15.3 68.4 12.5 $132.5 At December 31, 1993 and 1992, the deferred tax assets and liabilities consisted of the following items: 19931992 1992 Research and development expenses.............................................................................. Provision relating to asbestosrelated expenses....................................................................... Postretirement benefits other thon pensions............................................................................... Net operating loss carryforwards.............................................................................................. Reserves not yet deductible for tax purposes........................................................................... Tax credit carryforwards.......................................................... Pension and insurance reserves................................................................................ Capitalized inventory costs and inventory reserve............................... Slate deferred taxes.......................... Other.......... .................................................................................................................................... Total deferred tax assets.... ....... -........................................................................................... Depreciation and amortization......_............................... Prepaid pension cost.................................................................................................................... Other................... Total deferred lax liabilities.............................................................. Deferred lax assets valuation allowance............................................ Net deferred tax ossets......................................................... $112.2 7.8 92.1 42.6 113.6 84.9 26.2 19.4 25.2 46.66Z3 570.6 141.5 87.7 4.0 233.2 125.7 $211.7 $106.7 94.1 52.2 26.8 95.8 23.0 17.7 214 500.0 141.6 71.4 6.4 219.4 143.1 $1375 In connection with the adoption of SFAS No. 109 effective January I, 1992, Grace recognized a valuation allowance of $88.4, which was adjusted in 1992 and 1993. The valuation allowance relates to the uncertainty as to the realization of certain deferred lax assets, including U.S. tox credit carryforwards, state and local net operating loss carryforwards and net deferred tax assets, ond net operating loss carryforwards in certain foreign 6. Discontinued Operations jurisdictions. Based upon anticipated future results, Grace has concluded, after consideration of the valuation allowance, that it is more likely than not that the net deferred tax asset balance will be realized. The items giving rise to deferred tax assets and liabilities at December 31, 1991 included depreciation, research and development costs that have been capitalized for tax purposes, and other Hems the tax treatment of which does not conform to their treatment for financial statement purposes. At December 31, 1993, there are $59.9 of lax credit carryforwards with expiration periods through 1998 and $25.0 of tax credit carryforwards with no expiration period. Additionally, there are slate and local and foreign net operating loss carryforwards with a tax effect of $47.1 and various expiration periods. The U.S. Federal corporate tax rale reconciles to the effective tox rate for continuing operations as follows: 1993 1992 1991 U S. Federal corporate lax role.......................................................................... Increase/ldecrease) in tax rale resulting from: U.S. and foreign taxes on foreign operations................ ............................ Utilization of general business credits......................................................... State and local income taxes, net of Federal income lax benefit.......... Valuation allowance for deferred tax assets............................ -................ Impact of U.S. and foreign lax rate changes on deferred taxes............ Other, net.............................. ............................-......... -................................. Effective tax role...................................................................................................... 35.0% 7.3 (2.9) 54 -- (3.3) (2.5) 39.2% 34.0% 10.8 - 5.6 26.3 - (6.7) 70.0% 34.0% 6.6 (2.7| 3.0 - (13) 39.6% U.S. and foreign taxes have not been provided on approximately $444.0 of undistributed earnings of certain foreign subsidiaries, as such earnings are being retained indefinitely by such subsidiaries for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes of approximately $26.3 and additional U.S. Federal income taxes to the extent they are not offset by foreign tax credits, but it is not practicable to estimate the total lax liability that would be incurred upon such a distribution. Cocoa, Battery Separators and Engineered Materials and Systems In the second quarter of 1993, Grace classified as discontinued operations its cocoa and battery separators businesses; certain engineered materials businesses, principally its printing products, electromagnetic radiation control and material technology businesses (collectively EMS); and other norveore businesses pending their divestment. A provision of $ 105.0 (net of an applicable lax benefit of $22.3) was recorded in the second quarter of 1993, which includes the loss expected on the divestment of these businesses, their anticipated net operating results and a $ 15.7 provision for interest expense allocated to the discontinued operations through their expected dates of divestment. Grace Energy During the first and second quarters of 1993, Grace sold substantially all the oil and gas operations of Grace Energy, which was classified as a discontinued operation in 1992, lor net cash proceeds of $386.0, which was consistent with prior estimates. The loss from discontinued operations in 1992 included a provision ol $155.0 (net of an applicable tax benefit of $81.8) relating to the losses expected on the divestment of Grace Energy's operations. Grace is pursuing the divestment of Colowyo, a partnership wholly owned by Grace Energy, and expects to conclude such a transaction in 1994. Grace is in the process of liquidating the remaining miscellaneous assets and liabilities of Grace Energy's oil and gas operations. Grace Distribution and Other As mentioned above, in the second quarter of 1993, Grace classified as discontinued operations certain norveore businesses, which include its animal genetics and Caribbean fertilizer operations, the operating results and net assets of which are included under 'Other' in the following tables. In 1992, Grace classified as discontinued operations certain corporate investments, including Grace s minority interests in Canonie Environmental Services Corp. and Grace-Sierra Horticultural Products Company. In December 1993, Grace completed the sale of these minority interests lor total proceeds o( $41.3. Grace is pursuing the sale of the remaining norveore businesses and corporate investments and expects to conclude such transactions in 1994. The loss from discontinued operations in 1992 included an after-tax provision of $ 12.1 relating to the loss associated with the sale of Grace's remaining Mexican-slyle restaurant operation. In March 1992, Grace completed the sale of Grace Distribution for $97.8 in cash and notes. Operating results of Grace's discontinued operations subsequent to their classificalion as such have been consistent with amounts originally estimated and are recorded ogainst established reserves. Operating results prior to classification as discontinued operations and sales and revenues for the three years ended December 31, 1993, 1992 and 1991 were as follows: 1993 1992 1991 Cocoa Sales and revenues..................................................................... .................. Ilossl/income from operations before taxes'"....................... .................. Income lax benefil/fprovision).................................................. .................. |Loss)/income from discontinued operations.......................... .................. Battery Separators and EMS Sales and revenues........................................................................................ Income from operations before taxes'".................................... .................. Income tax (provision).................................................................................... Income from discontinued operations...................................... .................. Grace Energy Soles and revenues ...................................................................... .................. (Loss) from operations before taxes'"....................................... .................. Income tax benefit........................................................................ (Loss) from discontinued operations.......................................... .................. Grace Distribution Sales ond revenues...................................................................... (loss) from operations before taxes'"..................... ................ Income tax benefit........................................................................ (Loss) from discontinued operations............... .......................... .................. Other Sales and revenues...................................................................... ................. (loss) from operations before taxes'"....................................... .................. Income tax benefit........................................................................ .................. |loss)/income from discontinued operations.................. ....... ................ . Total operating results of discontinued operations......................................... Net pretax (loss) on disposals of operations................................ .................. Income tax benefit on disposals of operations............................. .................. Total !loss)/income from discontinued operations.......................................... $ 635.8 $ (5.6) 1.0 5 (4.6) $ 387.9 $ 4.7 (2.1) $ 2.6 $ 234.8 - -- : -- $ 69.7 $ (1.7) 0.3 $ (1.4) 5 (3.4) (127.3) 22.3 $(108.4) $683.5 $ 1.8 4 $ 2.2 $ 413.6 $ 29.1 |10.1) $ 19.0 $515.0 $ (11.1) 6.6 $ (4.5) $ 178.0 J (2.8) .9 $ H.9) $ 96.5 $ (13.4) 3.5 $ (9.9) $ 4.9 (255.1) 88.0 $(162.2) $705.0 $ 28.6 (118) $ 16.8 $4017 $ 23.7 (8.0) $ 15.7 $479.2 $ (25.6) 9.7 $ H5.9) $7804 $ (.1) .1 $- $ 102.4 i (2.7) 3.0 $ .3 $ 16.9 $ 16.9 `"Reflects on allocation ol interest expense based on (a) o ratio of the net assets of the businesses classified os discontinued operations in the second quarter of 1993 as compared to Groce's total capitol and fbf Grace's incremental borrowing rote applied to both the expected proceeds from the divestment ol Grace Energy and to the net assets of Groce Distribution through the dates ol their respective sales, ossuming that amounts received from the divestment ol these businesses are used to reduce debt The obove operating results for the periods prior to classification os discontinued operations include interest expense allocations ol $2 5. 138 6 and $676 for 1993, 1992 and 1991, respectively For financial reporting purposes, the assets, liabilities, results of operations and cash flows of Grace Cocoa Associates, l.P. (IP| are included in Grace's consolidated financial statements as a component of discontinued operations, and the outside investors' interest In IP is reflected as a minority interest in the Consolidated Balance Sheet. See Note 12 for a further discussion of IP. Net assets of Grace s discontinued operations (excluding intercompany assets! at December 31, 1993 were as follows: Battery Separators Groce Currentassets................................................... Properties and equipment, net...................... Investments in and odvonces to affiliated companies................................. Other noncurrenl assets................................. $218.6 170.3 41.8 Total assets................................................ $430.7 Current liabilities............................................. $1274 Other noncurrent liabilities............................. 63.7 Total liabilities............................................. $191.1 $ 114.3 1572 4.8 254 $301.7 $ 38.9 28 7 $67.6 $ 14.8 134.0 $54.4 38.8 4.1 11.4 40.2 470 $164 3$180.4 $ 14.9 19.7 $ 23.1 ( ,6| $34.6 $22.5 $ 402.1 500.3 49.1 125.6 $1,0771 $ 204.3 111.5 $ 315.8 7. Otiiar Balance Sheet Hem* 8. Properties and Equipment 1993 1992 Notes and Accounts Receivable Trade receivobles, less allowances of $49.7 11992 - $38.3|........................................... Other receivables, less allowances of $ .6 11992 - $ 1.0)................................................... ........... $ 545.7 111.7 $ 657.4 $ 598.3 92.1 $ 690.4 Inventories Raw and packaging materials.................................................................................................... .......... In process................................................................................................................................................. Finished products.......................................................................................................................... ........... General merchandise.................................................................................................................. .......... Less: Adjustment of certain Inventories to a lost-in/flrst-out (LIFO) basis............................. S 111.4 59.9 243.3 67.0 140.6) $ 441.0 Other Assets Deferred income taxes........................................................................................................................... Prepaid pension costs.................................................................................................................. .......... Patient relationships, less accumulated amortization of $96.5 11992 - $78.5|............. .......... long-term receivables, less allowances of $ 13.4 (1992 - $8 4)....................................... Deferred charges...................... ............................................................................................... ........... long-term investments.................................................... -............................................................. .......... Investments In ond odvances to affiliated companies........................................................... .......... Patents and licenses................................................................................................................................. .......... $ 277.3 224.2 196.4 177.0 110.4 104.4 51.4 33.9 60.3 $1,235.3 $ 179.3 76.2 324.7 59.8 |471| $ 5929 $ 137.1 229.2 184 8 1035 108.1 68.2 115.8 25.7 61.5 $1,033.9 During 1993 and 1992, Grace entered into agreements to sell up to $270.0 and $345.0, respectively, of interests in designated pools of trade receivables. At December 31, 1993 and 1992, $263.8 and $307.9, respectively, had been received pursuant to such sales, which amounts are reflected as reductions to trade accounts receivable. Included in the trade receivables sold at December 31, 1992 are $50.0 of trade receivables, the sale of which has been reflected as a reduction in net assets of discontinued operations. Under the terms of these agreements, new interests in trade receivables are sold as collections reduce previously sold trade receivables. There is no recourse to Grace, nor is Grace required to repurchase any of the trade receivables in the pools; if certain trade receivables in the pools prove to be uncollectible, other trade receivables are substituted (to the extent available). Costs related to these sales are expensed as incurred. There were no gains or losses on these transactions. Inventories valued at LIFO cost comprised 29.0% and 22.9% of inventories at December 31, 1993 and 1992, respectively. Liquidation of prior years' UFO inventory layers in 1993, 1992 and 1991 did not materially affect cost of goods sold in any of these years. land................................................................... Buildings .......................................... ................ . Machinery, equipment and other...................... Projects under construction................................ Properties and equipment, gross........................ Accumulated depreciation and amortization.... Properties and equipment, net........................... 1993 .......................... .......................... .... ..................... .......................... $ 51.3 636.1 1,842.5 2479 .......................... 2,7778 .......................... (1,323.7) .......................... $1,454.1 1992 $ 59.2 801.3 2,199.1 2314 3,291.0 (1,583.1) $1,707.9 Interest costs have been incurred in connection with the financing of certain assets prior to placing them in service. Interest costs capitalized in 1993, 1992 and 1991 were $74, $20.4 and $21.4, respectively. Depreciation and amortization expense relating to properties and equipment amounted to $189.2, $194.9 and $203.4 in 1993, 1992 and 1991, respectively. Grace's rental expense for operating leases amounted to $63.8, $80.0 and $677 in 1993, 1992 and 1991, respectively. See Note 11 for information regarding contingent rentals. At December 31, 1993, minimum future payments for operating leases were: 1994 ........................................................................ ................................................................................................................ 1995 .................................................................................................................................................................. 1996 ....................................................................................................................................................................................... 1997 .......................................................................................................................................................................................... 1998 ........................................................................................................................................................................................... Later years........................................... Total minimum lease payments................................................................................................................................................ $ 59.4 50.2 41.9 35.4 28.9 75.5 $291.3 The aba* minimum lease payments indude sublease income of $12.1 per year for 1994 through 1998 and a total of $53.6 in later years In 1992, a critical raw material supplier to Grace's fumed silica plant in Belgium was effectively denied a previously promised permit for by-product disposal, resulting in the shutdown of the supplier's plant. As a result, the continued operation of Grace's pbnt would have requited Grace to obtain other suppliers and/or take other acions requiring significant additional investment. Consequently, Groce dosed its plant and in the third quarter of 1992 recorded a one-time provision of $ 140.0, reflecting the entire net book value of the facility and certain additional expenses. This provision could be offset in part by recoveries from litigation, the renegotiation of certain contracts relating to the plant and/or the sale of the plont. As ol December 31, 1993, Groce substantially completed the shutdown of this facility and believes the amounts recorded are adequate to cover remaining contingencies. 1993 1992 Short-Term Debt Commercial paper (3.6% and 4.1% weighted average interest rate at year-end 1993 and 1992, respectively!/'1................................................................ ...... Bonk borrowings (4.3% weighted average interest rale or year-end 1992)/'1................. Current maturities o( long-ierm debt.................................................................... ........... Other short-term borrowings121......................................................................................... Long-Term Debt Commercial paper (3.6% weighted average interest rate al year-end 1993|"'.................... Bank borrowings (3.6% and 4.3% weighted average interest rale ol year-end 1993 and 1992, respectively!/".................................................................. 7.4% Notes Due 2000<".................................................................................................. 7.75% Notes Due 2002'"................................................................................................ 6.5% Notes Due 1995**................................................................................................. Sundry Indebtedness with various maturities through 2003............................................. liquid Yield Option Notes |lYONs|w.............................................................................. 6.25% Convertible Subordinate Debentures Due 2002/"............................................... Industrial revenue bonds with various maturities through 2007........................................ less amounts due within one year included in short-term debt......................................... $ 147.4 9.1 354.1 $ 532.4 S 30.8 479.4 300.0 150.0 150.0 72.2 1,182.4 9.1 $1,173.5 $ 25.0 1706 507 2184 $ 464.7 $ 510.0 150.0 150.0 87.4 351.2 150.0 6.6 1,405.2 50.7 $1,354.5 Fulkyeor weighted average interest rate on total debt..................................................... 5.5% 67% *"Under its bank revolving credit agreement, Grace may borrow up to $ 1,225.0 at interest rates based upon the prevailing prime, federal funds and/or Eurodollar rate. Ol the $1,225.0, approximately S7l50is available under a 364-day facility expiring September I, 1994, and the remainder is available under a three-year facility expiring September I, 1995. Al December 31, 1993 and 1992, borrowings of $63 9 and $250 0, respectively, were ou/stonding under the revolving credit agreement and are included in long-term bonk borrowings above At December 31. 1993, $6/3.9 was reserved to support commercial paper and other bank borrowings outstanding, leaving net unused credit facilities of $547.2. Grace's ability to borrow the maximum amounts available under these facilities is subject to compliance with certain covenants, which include minimum net worth requirements and an interest coverage ratio. 01Represents various lines of credit and miscellaneous borrowings, primarily of non-U.S. subsidiaries. ,JIDuring the first quarter of 1993, Grace sold al par $300 0 of 7.4% Notes Due 2000. Interest is payable semiannually and the Notes moy not be redeemed prior to maturity ,JIDuring the third quarter of 1992, Grace sold ol par $ 150.0 ol 7.75% Notes Due 2002. Interest is payable semiannually and the Notes may not be redeemed prior to maturity '^During the fourth quarter of 1992, Grace sold $ 1500 of 6 596 Notes Due 1995 ol on initial public offering price of 99.75896 ol par, to yield 6.5936. Interest is payable semiannually and the Notes may noI be redeemed prior to maturity. wGroce redeemed in lull all ol its outstanding Liquid Yield Option Notes ILYONs) I$ 1,0125 prmcipal amount of maturity, $371.1 carrying value) on July 30, 1993 In connection with the redemption, approximately 3196 ol the LYONs (approximately $309 6 principal amount, $113.5 carrying valuef were converted into 2.8 million shares ol W. P. Groce 4 Co. common stock The remainder ol the LYONs were redeemed for $257.6 in cash '"Grace redeemed in lull all ol its outstanding 6 2596 Convertible Subordinate Debentures Due 2002 (6.2596 Debentures) on Seotember 15. (993 The 6 2596 Debentu'es were convertible into common siocL ol W P Gra^ K Co n> o nnnvr<,o r-.,'- 10. Financial Instruments Payment of substantially all of Grace's borrowings may be accelerated, and its principal borrowing agreements terminated, upon the occurrence of a default under certain other Grace borrowings. Scheduled maturities of debt outstanding at December 31, 1993 are: 1994--$9.1; 1995-$166.3; 1996-$ 13.9; 1997-$6.1, and !998-$4.4. Interest expense for 1993, 1992 and 1991 amounted to $81.5, $90.0 and $115.4, respectively. Interest payments made in 1993, 1992 and 1991 amounted to $102.5, $166.8 and $263.9, respectively. By managing its interest rale exposure through interest rate derivative agreements, Grace reduced interest expense for the years ended December 31, 1993 and 1992 by $20.3 and $4.7 respectively. See Note 10 for a further discussion of interest rate hedge agreements. During the fourth quarter of 1993, Grace filed a registration statement with the Securities and Exchange Commission covering $750.0 of debt and/or equity securities that may be sold from lime to time; the registration statement became effective in January 1994. Interest Rate Swaps Grace enters into interest rate hedge agreements to manage interest costs and risks associated with changing interest rales; most of these agreements effectively convert underlying fixed-rate debt into variable-rate debt based on LIBOR. At December 31, 1993 and 1992, the notional principal omount of these agreements totalled $ 1,250.0 and $ 1,035.0, respectively. At December 31, 1993, Grace would have been required to poy $25.8 to settle these agreements, representing the excess of carrying value over fair value, based on estimates received from financial institutions. The fair value at December 31, 1992 was not material. Due to previously settled agreements, Grace has unamortized gains of $56.3 and $4.9 as of December 31, 1993 and 1992, respectively, which are reflected as adjustments to interest expense over appropriate periods relevant to the respective financial instruments. Foreign Currency Contracts Groce enters into a variety of short-term currency swaps, foreign exchange contracts and options to manage its exposure to fluctuations in foreign currency exchange rates. These contracts generally involve the exchange of one currency for another at a future date. At December 31, 1993, Grace had a notional principal amount of approximately $34.9 in contracts to buy or sell foreign currency in the future. The carrying value at December 31, 1993 and 1992, which approximated fair value based on exchange rales at December 31, 1993 and 1992, was not significant. Other Financial Instruments At December 31, 1993 and 1992, the carrying value of financial instruments such as cash, short-term investments, trade receivables and payables and short-term debt approximated their fair values, based on the short-term maturities of these instruments. Additionally, the carrying value of both long-term investments and receivables approximated fair values. Fair value is determined based on expected future cash flows, discounted at market interest rates, and other appropriate valuation methodologies. At December 31, 1993 and 1992, the fair value of long-term debt was $ 1,216.4 and $ 1,400.9, respectively. Both periods include approximately $510.0 of borrowings supported by the revolver agreement, for which the carrying value approximated fair value. The fair value of debt is determined by obtaining quotes from financial institutions. Exposure to market risk on interest rate and foreign currency contracts results from fluctuations in floating rate indices and currency rates, respectively, during the periods in which the contracts are outstanding. The counterparties to Grace's interest rale hedge agreements and currency exchange contracts consist of a diversified group ol major financial institutions. Grace is exposed to credit risk to the extent of nonperformance by these counterparties; however, management believes the risk of incurring losses due to credit risk is remote. The notional amount of the instalments discussed above reflected the extent of involvement in the instruments, but did not represent its exposure to market risk. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided above are not necessarily indicative of the amounts that could be realized in a current market exchange. 11. Commitment* and Contingent Liabilities 12. Minority Interests Grace is the named tenant of guarantor with respect to certain lease obligations of previously divested businesses. The leases, some of which extend to 2015, have future minimum lease payments aggregating $60.4. Grace is also the named tenant or guarantor wih respect to lease obligations having future minimum lease payments of $43.7 as to which Channel Home Centers, Inc., a previously divested business, has been released in bankruptcy; offsetting this is $39.7 of future minimum rental income from subtenants. Grace continues to attempt to sublease the remaining properties and beteves its ultimate exposure is not moterial. Grace is the named tenant with respect to lease obligations with future minimum lease payments of $ 19.5 that have been assigned to Hermans, a previously divested business currently operating under Chopter 11 of the Federal Bankruptcy Code. Hermans has advised Grace that it intends to continue to occupy premises under leases with future minimum payments of $ 17.9 and is negotiating termination agreements as to the remainder. Grace believes its ultimate exposure under these leases is not material, as Hermons is performing on its current lease obligations and expects to emerge from bankruptcy as a viable company. Additionally, Grace is fully indemnified by other parties for any losses it may incur under these leases. In 1992 and 1993, Grace provided The Restaurant Enterprises Group, Inc. (REG! with various forms of Financial support, including a letter of credit support facility to assist REG in meeting certoin liquidity and other financial requirements. During 1993, REG was reorganized, ond in January 1994 the letter of credit was canceled and Grace received $42.8 in exchange for all of the REG securities held by Grace. The reorganized REG (now named Family Restaurants, Inc.) has agreed to indemnify Grace with respect to leases entered into by REG's subsidiaries under which Grace remains contingently liable. At December 31, 1993, these leases hove future minimum lease payments of $72.4. Grace believes any risk of loss from these contingent liabilities is remote. Grace is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or mitigate the effects on the environment of the disposal or release of certoin wastes and other substances at various sites. Grace accrues for anticipated costs associated with investigatory and remediation efforts where an assessment has indicated that a loss is probable ond can be reasonably estimated. At December 31, 1993, Grace's accrued liability for environmental remediation totalled approximately $160.0. The measurement of the liability is evaluated quarterly based on currently available information, including the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, and the extent of apportionment of costs among other potentially responsible parties. As some of these matters are decided (the outcome of which is subject to various uncertainties) and/or new sites are assessed and costs can be reasonably estimated, Grace will review and analyze the need for additional accruals. In December 1992, IP, formerly a general partnership named Grace Cocoa that was wholly owned by two Groce entities, admitted two additional Grace entities as general partners and also admitted one new limited partner. As a result of the admission of these new partners, Ihe total capital of LP increased to $ 1,430.5, which included a $300.0 cash contribution made by the new limited partner, $2970 of which was funded by outside investors. IP's assets consist of Grace Cocoa's worldwide cocoa and chocolate business, long-term notes and demand loans due from various Grace entities, which are guaranteed by W. R. Grace & Co. and its principal operating subsidiary, and cash. The cash contribution from the new limited partner was initially lent by IP to the principal operating subsidiary of W. R. Grace & Co. and was used to retire certain domestic borrowings and for general corporate purposes. Four Groce entities serve as general partners of IP and own general partnership interests totalling 79.03% in IP; the new limited partner owns a 20.97% limited partner interest in LP. IP is a separate and distinct legal entity from each of the Grace entities and has separate assets, liabilities, business functions and operations. For financial reporting purposes, Ihe assets, liabilities, results of operations and cash flows of IP are included in Grace's consolidated financial statements as a component of discontinued operations and the outside investors' interest in IP is reflected as a minority interest. 13. Shareholders' Equity 14. Stock Incentive Plans The weighted overage number of shares of common stock outstanding during 1993 was 91,461,000 (1992-89,543,000; 1991-87:236,000). W. R. Grace & Co. is authorized to issue 300,000,000 shares of common stock. Of the common stock unissued at December 31, 1993, approximately 8,767(000 shares may be issued or delivered upon the exercise of stock options or gront of share awards in connection with stock incentives such as stock options. In addition, at December 31, 1993, 102,232,000 shares were reserved in connection with Common Stock Purchase Rights (Rights). A Right is issued for each outstanding share of common stock; the Rights are not and will nol become exercisable unless and until certain events occur, and at no Kme will the Rights have any voting power. Preferred stocks authorized, issued and outstanding ore: Share* as of December 31,1993 Par Value of Shares Outstanding Authorized and Issued In Treasury Outstanding 1993 1992 1991 6% Cumulative"' .......................... 8% Cumulative Class A'7'............ 8% Noncumulative Class BIJ' 40,000 50,000 40,000 3,536 33,644 18,415 36,464 16.356 21,585 $3.6 1.6 JL22.2 $3.6 1.7 $3.6 1.7 2.2 $7.4 $75 $75 160 votes per share m 16 voles per share. Dividends paid on the preferred stocks amounted to $.5 in each of 1993, 1992 and 1991. The Certificate of Incotporalion also authorizes 5,000,000 shares of Class C Preferred Slock, $ 1 par value, none of which has been issued. Changes in outstanding common stock options ore summarized below: 1993 Average Number Exercise of Shores Price 1992 Number ol Shares Average Exercise Price Balance at beginning of year____ 6,365,187 Options granted.............................. 1,461,425 Options exercised.......................... Options terminated or canceled... 7,826,612 (683,255) (178,053) Balance at end of year................. 6,965,304 $35.09 38.00 25.89 40.13 36.48 6,112,248 1,445,300 7,557548 (1,132,863) (59,498) 6,365,187 $32.01 37.77 25.29 27.97 35.09 1991 Number of Shares Average Exercise Price 7,172,775 2,901,793 10,074,568 (2,052,4211 {1,909,899| 6,112,248 $24.91 39.27 23.48 25.54 32.01 Al December 31, 1993, options covering 5,056,256 shares (1992-4,025,840, 1991-3,690,088) were exercisable and 1,804,122 shares (1992-3,087994, 1991-4,637368) were available for additional grants. In 1991, certain executive officers surrendered all or o portion of their outstanding stock options in exchange for shares of common stock equal in value to the excess of (1) the market value of the option shares at the date of surrender over (2) the purchase price of the option shares. The shares received upon surrender were subject to restrictions on transfer. The officers surrendering options generally were granted new options covering an equal number of shares with a purchase price equal to 110% ol the fair market value of the common stock on the date of grant. Subject to certain exceptions, such options may not be exercised until 1996, at which time they become exercisable in five annual installments. 15. Pension Plans Grace maintains defined benefit pension plans covering employees of certain units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. pension plans in accordance with federal laws and regulations. Non-U.S. pension plans are funded under a variety of methods because of differing local laws and customs and therefore cannot be summarized. Approximately 55% of U.S. and non-U.S. plan assets at December 31, 1993 were common stocb, with the remainder primarily fixed income securities. Pension |benefil)/cosl is comprised of the following components: 1993 1992 1991 U.S. Non-U.S. U.S Non-U.S. U.S. Non-US Service cost on benefits earned during the year........... Interest cost on benefits earned in prior years............... Actual return on plan assets.......................... -................... Deferred gain/|loss| on plan assets................................. Amortization of net gains and prior service costs.......... S 17.6 36.3 (108.2) 58.1 (5.3) $ 9.5 17.1 (56.7) 36.0 (1.7) $ 11 1 31.7 1209) 130.51 (8.4| $ 9.4 16.5 (30.6) 9.5 15.5) :$ 13.6 30.9 183.6) 33.2 17.71 $13.4 16.3 134.31 12.9 12.91 Net pension (benefit)/cos)................................................ $ "(1.5) $ 4.2 $1170) $ (.7) 11113.6) $ 5.4 The funded status of these plans was as follows: 1993 U.S. Non4J.S. Actuarial present value of benefit obligation: Vested.......................................................................................... Accumulated benefit obligation.............................................. Total projected benefit obligation........................................... Plan assets ol fair value............................................................. $614.2 $620.0 $691.4 836.4 Plan assets in excess of projected benefit obligation......... Unamortized net gain ol initial adoption............................... Unamorlized prior service cost............................................... Unrecognized net goin/|loss|................................................. Prepaid pension cost................................................................. . 145.0 (W.1) 34.8 47.6 $131.3 $172.6 $182.2 $263.4 270.1 6.7 (6.4) 4.2 .9 $ 5.4(" 1,1Includes $714 in 1993 and SB0.7 in 1992 of prepaid pension costs. 1992 U.S. Non-U.S. $522.3 $5277 $596.4 767.9 171.5 (108.61 19.4 54.2 $ 136.5 $163.6 $ 176.1 $240.4 288.5 48.1 (14.3| 4.2 (21.01 $ 17.0'" The following significant assumptions were used in 1993, 1992 and 1991: 1993 1992 U.S. Non-U.S. U.S. Non-U.S. Discount rate at December 31................... Expected long-term rale of return.............. Rote of compensation increase................. 7.5% 4J- 8.0% 9.0 6.0-105 5.5 3J- 7.5 8.0% 9.0 6.0 6.0-12.0% 6.0-11.0 3.5 - 75 1991 U.S. Non-U.S. 9.0% 9.0 6.0 6 0-13 0% 6.0-11.0 3.5 - 7.5 As a result of classifying certain operations as discontinued and divesting other operations, Grace recognized an increase in the net prepaid pension benefit of $6.2 ond $ 10.9 in 1992 and 1991, respectively. In addition, Grace settled certain pension obligations ol one of its norvU.S. plans, resulting in gains of $.6, $.7 and $11.8 in 1993, 1992 and 1991, respectively. Grace's Retirement Plan for Salaried Employees (Plan) contains provisions under which the Plan would automatically terminate in the event of a change in control of W. R. Grace & Co. and Plan benefits would be secured through the purchase of annuity contracts. Upon such termination, a portion of the Plan's excess assets would be placed in an irrevocable trust lo fund various employee benefit plans and arrangements of Grace, and any balance would be returned to Groce. 16. Other Postreiiremeirt Benefit Plans Grace provides certain other poslretiremenl health care and life insurance benefits for retired employees of specified U.S. units. These retiree medical and life insurance plans provide various levels of benefits to employees (depending on their date of hire) who retire from Grace after age 55 with at least 10 years of service. The plans are currently unfunded. Effective January 1, 1992, Grace adopted SFAS No. 106, which requires the accrual method of accounting for the future costs of postretirement health care and life insurance benefits over the employees' years of service. The 'pay as you go' method of accounting, used prior to 1992, recognized these costs on a cash bosis. The adoption of SFAS No. 106 on the immediate recognition basis, concurrent with the adoption of SFAS No. 109, resulted in a charge to 1992 earnings of $ 190.0, net of $98.0 of deferred income taxes In addition, the application of SFAS No. 106 resulted in a decrease of $5.1 in 1992 after-tax earnings from continuing operations. Grace's cash flow, however, is unaffected by implementation of SFAS No. 106, as Grace continues to pay the costs of postretiremenl benefits as they are incurred. Included in noncurrent liabilities as of December 31, 1993 and 1992 are the following: 1993 1992 Accumulated postretiremen) benefit obligation: Retirees....................................................................................................................... Fully eligible participants................................ ....................................................... .................. Active ineligible participants................................................................................... ................... Accumulated postretiremen) benefit obligation........................................................ .................. Unrecognized net loss............................................................................................ ................... Unrecognized prior service benefit...................................................................... ........ .......... Accrued postretirement benefit obligation................................................................. ....................... $168,9 36.9 38.3 244.1 (40.7) 52.9 $256.3 $151.0 21.5 45 1 2176 (17.61 75.2 $275.2 Net periodic postretiremen! benefit cost for the years ended December 31, 1993 and 1992 is comprised oi the following components: 1993 1992 Service cost...................................................................................................................... ....................... Interest cost on accumulated poslretiremenl benefit obligation............................. ....................... Amortization of net loss................................................................................. ................ ........................ Amortization of prior service benefit........................................................................... .................. Net periodic postretiremenl benefit cost.................................................................... ....................... $ 2.2 13.2 2 (4.5| $11.1 $ 3.8 15.6 11.91 $17.5 The cost of these benefits (cash basis) to Grace's continuing operations was approximately $5.6 for 1991. As a result of classifying certain operations as discontinued, Grace recognized reductions in the accrued postretiremen* benefit obligation of approximately $ 16.6 and $23.5 in 1993 and 1992, respectively, which are reflected in the reserve for discontinued operations. During 1992, Grace's retiree medical plans were amended to increase cost sharing by employees retiring after January 1, 1993. This amendment decreased the accumulated postretiremen) benefit obligation by $52.9 at December 31, 1993 and will be amortized over an average remaining future service life of approximately 13 years. Medical care cost trend rates were projected at 11.7% in 1993, declining to 5.0% through 2003 and remaining level thereafter. The effect of a one percentage point increase in each year's assumed medical care cost trend rate, holding all other assumptions constant, would be to increase the annual net periodic postretiremen! benefit cost by $1.6 and the accumulated postretirement benefit obligation by $16.5. The discount rates at December 31, 1993 and 1992 were 7.5% and 8.0%, respectively. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, 'Employers' Accounting for Postemployment Benefits," which requires accrual accounting for non-accumulating postemployment benefits. Grace's primary postemployment obligation is for disabled workers' medical benefits. These are currently included in accrued postretiremen! costs under SFAS No. 106. The adoption of SFAS No. 112 is not expected to have a material effect on Grace's results of operations or financial position. Industry and Geographic Segments Industry Segment Information"' Soles and Revenues............................................ ........... Pietox Operating Profit....................................... ........... Identifiable Assets................................................ ........... Capital Expenditures....:.......................... ............ ........... Depreciation ond Amortization.................................... 1993 1992 1991 1993 1992 1991 1993 1992 1991 1993 1992 1991 1993 1992 1991 Specialty Chemicals $2,895 3,062 3,078 392 259"' 409 2,115 2,012 2,260 209 224 216 138 151 154 Health Care $1,513 1,275 1,060 247 176 143 1,442 1,095 1,016 80 52 46 78 65 61 Other"' $- - 249 (4181'" (242)w I2I8F" 1,791 927 750 21 34 52 12 9 18 Total $4,408 4.337 4,387 221 193 334 5,348'5' 4,034'* 4,026'* 310'* 31 O'* 314'* 228 225 233 Geographic Segment InformationHI United Stales Canada Sales and Revenues............................ 1993 1992 1991 52,855 2,721 2,455 $124 131 136 Pretax Operating Profit....................... 1993 1992 1991 460 387 313 7 1 10 Identifiable Assets................................ 1993 1992 1991 2,327 1,977 1,915 82 75 86 '"Certain omounts hove been restated ta conform to the 1993 presentation. includes divested specialty businesses and unallocated corporate items. 1,1Includes a provision of 1140 relating to o fumed silica plant in Belgium wUnallocated corporate Hems include: 1993 Interest expense.................................................................... General corporate overhead expenses............................. General corporate research expenses............................... Provision reloting to asbestos-related insurance coverage Net gam on strategic resfruclunng................................. Other (expensesl/income, net............................................. $ (82) (63) (64) (139) -- (50) Total............................... ............................................... $(418) Europe $ 932 1,081 1,186 93 (32)'* 152 753 772 969 Unallocated Corporate Other hemd** $497 404 361 $- - 249 79 79 77 395 283 306 (418)<41 |242|'" I2ier 1,791 927 750 1992 $ (90) 164) (621 1991 $ 1115) (631 (561 -6 (26) 10 $1242) $(219) Total $4,408 4,337 4,387 221 193 334 5,348'* 4,034'* 4,026** "'Excludes assets and capital expenditures al discontinued operations os follows: 1993 1992 Identifiable assets................................................................ $5,348 Discontinued operations...................................................... 761 $4,034 1,565 Total Assets....................................................................... $4, >09 $5,399 Capital expenditures............................................................ $ 3T0 $ 310 Discontinued operations....................................................... --89133 Total Capital Expenditures.............................................. $ 310 $ 399 1991 $4,026 1,981 $6,007 $ 314 $ 447 Financial and Statistical Review Quarterly Summary Unaudited-dollors in millions, except per share Quarter Ended March 31 June 30 September 30 December 31 1993"' Sales and revenues................................................... Cost of goods sold and operating expenses........ .... Income/lbss) from continuing operations............. Loss from discontinued operations.......................... Net income/|loss|..................................................... $986.2 1593.8} 31.7 (3.4) 28.3 $1,094.1 (648.5) 53.9 (105.0) (51.1) $1,136.1 1664.3) (236.4)"' -- (236.4) $1,192.0 (690.2) 285.231 -- 285.2 Eornings/(loss| per share:TM Continuing operations......................................... $ .35 Net earnings/| loss)............................................. ..................31 $ .60 (.57) $ (2.56) (2-56) $ 3.05 3.05 Fully diluted earnings per share: Continuing operations.............................................. $ .34 $ .56 $ Net earnings......................................................... ..................30 _(6I $ 3.03 _(*( 3.03 Dividends declared per common share................. .... $ .35 $ .35 $ .35 $ .35 Market price ol common stock:'3' High........................................................................ ... Low......................................................................... Close...................................................................... $ 40'/. $ 36% 38% 40% 38% 40% $ 41% 34% 34% $ 40% 34% 40% 1992'" Sales ond revenues.................................................... ... Cost of goods sold and operating expenses......... .... Income/lloss) from continuing operations .-............ |loss|/income from discontinued operations......... Cumulative effect of accounting changes.............. .... Net (loss)/income...................................................... ... $940.3 (566.1} 170 (14.1) 1190.0} (1871} $1,061.6 (609.21 51.1 (152.3} (101.2) $ 1,114.2 (649.2| |84.5|CT 2.4 - (82.1) $1,220.9 (77701 74.1 1.8 - 75.9 Earnings/(loss) per share:'2' Continuing operations.......................................... ... $ .19 $ .57 $ 1.94} $ .82 Cumulative effect of accounting changes......... .... (2.12} - - - Net (loss)/earnings................ ............................. ... (2.10) (1.13) (-92) .84 Fully diluted earnings per share: Continuing operations........................................... ... Net earnings.......................................................... $ .18 $ _w .54 $ JOf _( $ _<W .75 .77 Dividends declared per common share...................... $ .35 $ .35 $ .35 $ .35 Market price of common stock:'31 High........................................................................ ... Low.......................................................................... Close ...................................................................... $ 45 $ 37% 40% 38% 33% 34 $ 38% 32 37% $ 40% 34 40% '"Amounts have been restated to conform to the yearend (993 presentation. alPer share results for the lour quarters differ from full-year per share results as a separate computation of earnings per shore is made lor each qvorler presented The difference in (993 is principally due to the conversion in the third quarter of outstanding LYONs into approximately 2.8 million shares of common stock; see Note 9 to the Consolidated Financial Statements. 131Principal market: New York Stock Exchange. "'Includes a provision of $3000 relating to osbestos-refaled insurance coverage. "'Includes a $200.0 reversal of the $300 0 provision relating to asbesloyreloled insurance coverage. wNol presented os the effect is anti-dilutive ^Includes a provision of $ 140.0 relating to o fumed silica plant in Belgium Quarterly Statistics Unovdiled-dollars in millions Quarter Ended Match 31 1993'" Sales and Revenues Specialty Chemicals..................................................... Health Care................................................................... $648.1 338.1 Total ............................................................................. $986.2 June 30 September 30 December 31 $ 729.9 364.2 $1,094.1 $ 734.7 $ 782.9 401.4409.1 $1,136.1 $1,192.0 Operating Income After Taxes'31 Specialty Chemicals..................................................... Health Care............. ..................................................... Total ............................................................................. $ 39.6 $ 58.8 27.935J36*42J $ 67.5 $ 93.9 $ 60.5 $ 97.4 $ 80.6 $ 122.9 1992'" Sales and Revenues*131 Specialty Chemicals..................................................... Health Care................................................................... Total ............................................................................. $599.7 2890 $888.7 $ 687.9 $ 723.2 $ 809.0 309.0332.3344 9 $ 996.9 $1,055,5 $1,153.9 Operating Income After Taxes121 Specialty Chemicals..................................................... Health Care............... ................................................... $ 33.9 $ 59.7 $ 62.0'4' 20.621627831_7 $ 83.6 Total ............................................................................. $ 54.5 $ 85.3 $ 89.8 $ 115.3 '"Amounts (rave been restated to conform to the year-end 1993 presentation. 131Excludes divested businesses and, m 1993. a i 100.0 provision lor asbestos-related insurance coverage Amounts ore computed before the allocation oI corporate research, corporate overhead and corporate interest For this table, taxes ore computed substantially on a separate return basis for each unit 131Excludes sales of divested businesses; therefore, the total does not agree with sales and revenues in the Consolidated Statement of Operations. wExcludes a provision of $ 140.0 relating to a turned silica plant in Belgium. '--1 Worldwide Operations Dollars in millions Capital Expenditures, Net Fixed Assets and Depreciation and Lease Amortization1'1 Dollars m millions Sales and Revenues"' 1993 1992 1991 Operating Income After Toxes""31 1993W 1992 1991 United States/Canada Specially Chemicals........................... $1,555 Health Care........................................ 1,424 $1,455 $1,407 1,211 1,029128 Total .................................................. 2,979 2,666 2,436269 Europe Specialty Chemicals.......................... Health Care........................................ 852 967 80583114 915 Total .................................................. 932 1,025 94660 Asia Pacific Specially Chemicals......................... Health Care........................................ 307 8 278 6 265 Total .................................................. 315 284 265 Latin America/Other Specialty Chemicals......................... 181 120 95 Health Care........................................ 1 -- Total .................................................. 182 120 95 Subtotal ...................................... 4,408 Divested Businesses........................... -- 4,095 242 3,742 645 $141 46 40 -- 40 13 -- 13 382 -- $124 92 216 $120 78 198 65M 14 79 87 5 92 36 37 -- 36 37 14 - 14 345 16 9 - 9 336 10 Total Continuing Operations... $4,408 $4,337 $4,387 $382 $361 $346 "'Certain 1992 and 1991 amounts have been restated to conform to the J993 presentation. "'Computed before the allocation of corporate research, corporate overhead and corporate interest. For this table, taxes are computed substantially on a separate return basis lor each subsidiary and division. In the cose of each U S. subsidiary and division, tax benefits lor operating losses, if any, are recognized currently. `''Excludes o $100 provision for asbestos-related insurance coverage "'Excludes a provision of $140 relating to o fumed silica plant in Belgium. Capital Expenditures 1993 1992 1991 Net Fixed Assets 1993 1992 1991 Depreciation and lease Amortization 1993 1992 1991 Operating Group Specialty Chemicals........... $209 Health Care........... ............ 80 Subtotal................................. 289 General Corporate............. 21 Total Continuing Operations Divested Businesses............. Discontinued Operations.... 310 -- -- Total .................................... $310 $200 $179 $1,049 52 46 277 252 225 1,326 34 45 128 286 24 88 270 1,454 44 -- 133________ -- $398 $447 $1,454 $ 975 $ 941 $135 221 205 46 $131 $126 38 36 1,196 102 1,146 92 181 8 169 162 87 1,298 4 406 1,238 213 1,107 189 177 169 -- 18 34 --______ -- $1,708 $2,558 $189 $195 $203 Geographic Location United States and Canada. $195 Europe................................... 68 Other Areas......................... 26 $156 80 16 $153 56 16 $ 854 351 121 $ 757 342 97 $ 696 346 104 $117 49 15 $108 49 12 $107 45 10 Subtotal................................. 289 General Corporate............. 21 252 34 225 1,326 45 128 1,196 1,146 181 169 162 102 92 8 8 7 Total Continuing Operations Divested Businesses............. Discontinued Operations.... 310 -- -- 286 24 88 270 44 133 1,454 -- -- 1,298 1,238 189 177 169 4 213 -- 18 34 406 1,107 -- - - Total .................................... $310 $398 $447 $1,454 $1,708 $2,558 $189 $195 $203 "'1992 and 1991 amounts have been restated to conform to the 1993 presentation Financial Summary Dollars in millions, except per share omounts 1993 1992 1991 1990 1989 Statement of Operations Sales and revenues............................................. Cost of goods sold and operating expenses... Depreciation and amortization......................... Interest expense................................................... Research and development expenses............. Income from continuing operations before income taxes...................................... Provision for income taxes................................... Income from continuing operations................... |Loss)/income from discontinued operations.... Cumulative effect of accounting changes........ Net income/|loss|............................................... $4,408.4 2,596.8 227.7 81.5 135.0 221.2"' 86.8 134.4 (108.4) -- 26.0 $4,3370 2,601.5 224.9 90.0 130.0 $4,386.6 2,649.2 232.9 115.4 128.1 192.5'* 134.8 577 (162.2) (190.0) (294.5) 334.2 132.5 201.7 16.9 - 218.6 $4,309.7 2,693.5 2272 1370 125.4 $3,820.3 2,430.7 199.4 121.0 105.0 272.1 975 174.6 28.2 - 202.8 2078 61.3 145.9 1073 253.2 Financial Position Current assets....................................................... $1,975.3 Current liabilities................................................... 1,992.6 Properties and equipment, net........................... 1,454.1 Total assets............................................................ 6,108.6 Total debt............................................................... 1,706.1 Shareholders' equity - common stock............. . 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 6,0071 2,259.4 2,0177 $2,380.1 1,680.1 2,462.1 6,226.5 2,285.9 1,905.0 $2,166.3 1,589.1 2,220.0 5,619.1 2,016.7 1,722.9 Data Per Common Share Earnings from continuing operations.................. $ 1.46 Cumulative effect of accounting changes....... -- Eomings/(loss|..................................................... .28 Dividends.............................................................. 1.40 Book value............................................................ 16.16 Average common shares outstanding (thousands)................................. 91,461 $ .64 $ 2.31 $ 2.03 $ 1.71 (2.12) - -- 13.29) 2.50 2.36 2.97 1.40 1.40 1.40 1.40 1710 22.77 22.14 20.16 89,543 87236 85,879 85,193 Other Statistics Dividends paid on common stock...................... Capitol expenditures............................................ % Total debt to total capital................................ Common shareholders of record....................... Common stock price range................................ Number of employees - continuing operations (thousands)................................... $ 127.9 309.6 52.9% 19,358 4174-34% 34.0 $ 125.4 $ 122.0 $ 120.2 $ 119.2 398.4 4470 513.7 484.6 54.1% 52.7% 544% 53.8% 20,869 21,949 23,327 26,457 45-32 403/i-23% 33%-17 39%-25% 32.8 32.9 34.2 33.2 Includes a provision of $ 159.0 relating to asbestos-related insurance coverage. *Includes a provision of $ 140.0 relating to a fumed silica plant in Belgium. Corporate Officers___________________ Chairman J. Peter Groce President and Chief Executive Officer J. P. Poldue Executive Vice Presidents Robert H. Beber, General Counsel F. Peter Boer, Chief Technical Officer Hugh L Carey, Government Relations Jean-louis Grtze, Grace Packaging Constantine L Hampers, Grace Health Care Donald H. Kohnken, Chief of Staff James P. Neeves, Strategic Planning Brian J. Smith, Chief Financial Officer Senior Vice Presidents J. Murfree Butler, Tosk Force Impfemenlation Pamela J. Hamilton, Human Resources Christian F. Horn, Grace Ventures Peter D. Hevchin, Treasurer Fred Lempereur, Grace Container and Specially Polymers Pedro F. Mata, Grace Cocoa W. Brian McGowan, Corporate Administration Vice Presidents WilBora L Below, Information Systems Robert J. Bettacchi, Grace Construction Products Frederick E. Bona, Corporate Communications Antonio R. Ferrd, Grace Latin America Alan D. Fiers, Grace TEC Systems James R. Hyde, Grace Davison Richard G. Kmard, Engineering Robert B. Lamm, Corporate Secretary Noel A. lee, Grace Asia Pacific Shejiro Matrino, Specialty Chemicals/Japan Peter B. Martin, Investor Relations William L Monroe, Human Resources Susan A. OlfSa, Pension Investments km Priestnefl, Grace Dearborn Bemd A. Schulte, Corporate Development Marlin B. Sherwin, Commercial Development David B. Siegel, Deputy General Counsel William B. Sturgis, Grace Packaging/ North America Richard N. Sukenik, Controller Jacques Theumann, Grace Europe Francois P. van Roreoortoro, Research Hwood S. Wood, Grace Printing Products Directors Principal Board Committees J. P. Bolduc, President and Chief Executive Officer, W. R. Grace 4 Co. George C Doeey, Retired President, Sandia National laboratories (government research and development! Edward W. Duffy, Retired Chairman and Chief Executive Officer, Marine Midland Banks, Inc. (bonking) Harold A. Eckmann, Retired Chairman and Chief Executive Officer, The Atlantic Companies (insurance) Charles H. Erhart, Jr., Retired President, W. R. Grace 4 Co. Jamas W. Frick, President. James W. Frick Associates (educational consulting) J. Peter Grace, Chairman ond Consultant, W. R. Grace 4 Co.; retired Chief Executive Officer, W. R. Grace 4 Co. Ronald H. Grierson, Retired Vice Chairman, The General Electric Co., p.t.c. (UK.) (manufacturing) Constantino L Hampers, Executive Vice President, W. R. Grace 4 Co. Thomas A. Holmes, Retired Chairman, President and Chief Executive Officer, Ingersdl-Rand Company (manufacturing) Gordon J. Humphrey, Former U.S. Senator and Founder, The Humphrey Group, Inc. (international trade) George P. Jenkins, Consultant to W. R. Grace 4 Co. and Retired Chairman and Chief Financial Officer, Metropolitan life Insurance Company (life insurance) Virginia A. Kamsky, Founder, President and Chief Executive Officer, Kamsky Associates Inc. (Far East consulting and investment banking) Peter S. lynch. Vice Chairman, Fidelity Management 4 Research Company (investments) Robert C Macauley, Founder and Chairman, Virginia Fibre Corporation (packaging) Roger Millikan, Chief Executive Officer, Milllken 4 Company (textiles) John E. Phipps, Private Investor John A. Puelkher, Retired Chairman of ihe Board, Marshall 4 llsley Corporation (banking) Ebon W. Pyne, Retired Senior Vice President, Citibank, N.A. (banking) D. Walter Robbins, Jr., Consultant to W. R. Grace 4 Co.; retired Chairman of the Executive Committee Eugene J. Sullivan, Chairman Emeritus, Borden, Inc. |foods, consumer and industrial goods) Grace Sloane Vance, Educational, cultural ond philanthropic activities William Wood Prince, Vice Chairman, F. H. Prince 4 Co., Inc. (investments! David L Yunich, Consultant to W, R. Grace 4 Co.; Retired Vice Chairman, R. H. Macy 4 Co., Inc. (department sloresl Audit: Messrs. Duffy, Eckmann! Holmes, Phipps; Dr. Frick Compensation, Employee Benefits and Stock Incentive: Messrs. Eckmann, Lynch, Macauley. Milliken, Puelicher, Pyne* Corporate Responsibility: Messrs. Holmes, Yunkh; Mrs. Vance*; Dr. Frick Nominating: Messrs. Duffy, Macauley. Milllken! Wood Prince; Mrs. Vance; Dr. Docey Chair Shareholder Information Annual & Quarterly SEC Reports Copies of Grace's Annual Report on Form 10-K and Quarterly Reports on Form 10Q may be obtained by writing to the attention of: Annual/ Quarterly Report Fulfillment, W. R. Groce 4 Co., One Town Center Rood, Boca Roton, FL 33486 1010 or colling (407)362-1380. Annual Meeting of Shareholders Tuesday, May 10, 1994, 10:30 a.m. Boca Raton Marriott-Cracker Center 5150 Town Center Circle Boca Raton, Florida Shareholder Assistance Information regarding shareholder accounts, dividend payments, stock transfer and related matters should be directed to our transfer agent as follows; Chemical Bank P. O. Box 3068 New York, NY 101163068 (800)648-8392 Trademarks Names italicized in the text of this report are operating units, trademarks or servicemorks of W. R. Grace 4 Co. or its subsidiaries. AH Rights Reserved Printed in U.SA The Groce 1993 Annual Report financial text was printed on Neenah Classic Crest Bright While, 75 lb. stock, a recycled ond recyclable paper. The Grace 1993 Annual Report was produced via a web offset printing process, utilizing hot air flotation dryers produced by Grace TEC Systems. Design: Bloch Graulich Whelon Inc /New York W. R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 |407( 362-2000 8 7<P Accounting: Date Printed: Time Printed: Subject Name: Exchange: Ticker Symbol: Country: Subject #: Document Type: Document Date: Amendment: Document #: Printed: Pages Printed: Laser D Document Print summary Disabled 11/17/97 11:23 A.M. W R GRACE & CO N GRA UNITED STATES WO16000000 ARS 12/31/93 N/A 01075307 Document 52 DISCLOSURE INCORPORATED (DALLAS INFO CENTER)