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r / L9% PROCESSED BY NOV 1 1996 disclosure incorporated / About the Company W. R. Grace & Co. is a global leader in packaging and specialty chemicals markets. With 21,000 employees in 50 countries, Grace generated sales of $3.7 billion in 1995. Core businesses include packaging, catalysts and silica-based products, construction materials and container sealants. Grace's strategy for delivering value to share holders, customers and employees is to profitably grow its core businesses on a global basis;\ capitalize on technical strengths and market leadership positions; build through research, capital investments and complementary strategic altiances; and continually improve operating performance. FINANCIAL SUMMARY Dcio'Z ,r o\.tipi fy*. ylr.i'e tin:\**N 1995 1994J _____ 1993 Operating Results Sales and revenues Income from continuing operations before special ilems (Loss)/ mcone from continuing ope'ations (loss)/income from discontinued CDerarions"1 Nei llossl/income Capitol expendilu'es Depreciation and amortization Reseotch ard development expenses $3,665.5 194.7 (196.6) (129.3) (325.9) 537.6 186.3 120.6 $3,218 2 1576 141.4) 124 7 83.3 444 6 165.0 106.8 $2,895.5 119.1 19 1 6.9 26.0 309.6 153 5 1115 Financial Position Total assets Total debi Common shareholders equity $6,297.6 1,933.8 1,224.4 S6.230.6 1,529.7 1.497 1 $6,108 6 1,706 1 1.510.2 Data Per Common Share Earnings fiom continuing operations before special items(loss)/earnings from continuing ooerations Net (ioss)/earnings Dividends Book value $ 2.03 (2.05) (3.40) 1.175 12.57 $ 1.68 (.45) .88 1 40 15 91 $ 1.30 .20 .28 1 40 16.16 Other Information Common shares outstanding - end of yeat /thousandsj 97,375 Common shares outstanding - average (thousands1 95,822 Dividends paid on common slock $ 112.1 Number ol employees - continuing operations Ithousardsl 21.2 94.083 93.936 $ 131.5 20.6 93,465 91,461 $ 127 9 20 4 Tnotvit* rvtv* (v*' fc coiKvrr w fto /wV.5 bee ict'fnoie i2> tzice 0`i pxi* '3 of -k-cne hrrr ccitin'>irg operations before `tern ic oo'::v.,,r,j .<p^<c:-crs u>e -o' ten:* "i d* <c/Mr rove n'io e>rtjded in determining ernw-qs pet ccruuot* sikh* >i. f.j,r-^"rtc rr";n"->n' i'nrr.nf twvr !nck-det ncv'T'c cl $22 0 $ i?* 3* i 11 ^ 1 ' iwd and /C'/J. respectively, from o'<?co,i<*riec/ hec'.ir c:re nptrjt>ors ! vO*! v* 'ost !i< r'v'c: >ji 5 !02 J - asset impairments of $& i 0 i*e p/ios^vt'' <s oe-i.ur cr 0'w*s i'trciif' <-? *< V ud -:jV5 oy.i^u'ed with Groces bng-vm *.<.oj'cns appi.cchle it NMC cr $-1 3 " cxu-v'tf/tv; e.-'-nch?.' Of J t *i rtrc/ o'/r totaling $6.6. Continued Growth in Earnings Per Share Iccni iuing ODe'OHon* beta special tomsl 93 94 95 1995 was a year of extraordinary change and accomplishment lor W. R. Grace cs we implemented a series or initiatives to maximize shareholder value. Specifcallv, we: Pursued the spirvoff ol our Nanonal Medical Care (NMCj unit, culminating in an agreement with Fresenius AG m February 1996. Pursued strategic alternatives lor our Grace Dearborn water treatment and process chemicals business. In March 1996. we reached an agreement with Betz laboratories, Inc. to sell Grace Dearborn for $632 million. Took aggressive steps that will leod to an enhanced capital structure. Implemented significant changes in corporate governance and the composition of the Board of Directors. Adopted an operating company management philosophy and sharpened our focus on performance improvements. Strong Operating Performance We achieved strong operating performance in 1995. We increased sales of our continuing operations in pockoging and specially chemicals nearly 14%, to $3.7 billion, ond oretox operating earnings more than 20%. Grace's operating earnings per share from continuing operations, before special charges, increased 21 % to $2.03. That gives us great confidence as Grace moves forward, solely focused cn these core businesses. Sales from NMC, which was classified as a discontinued operation in the second quarter in anticipation of a spinoff, increased 1 1% to $2.1 billion. Grace recorded a loss of $326 million for the year due to special after-tax charges of $645 million, primarily related to discontinued operations, restructuring activities, asset impairments, corporate governance and projected spending for asbestos litigation and environmental 'emediation. These charges reflect recent trends, as well as reassessments of future plans and forecasts. We expect the resulting reduction in shareholder equity to be more than restored this year, when we finalize the disposition of NMC and Dearborn. Once those steps are taker, Grace will be positioned for consistent, solid performance in the future. Moving Forward to Build & Deliver Value The Groce team is moving forward aggressively to build and Deliver value through sustained earnings growth and an increased focus on improving cash flow management. Value-enhancing measures initiated in 1995 include cost management efforts, organizational restructuring and a revised senior management compensation program requiring targeted levels of stock ownership. Consistent with Grace s goal of maximizing shareholder value, in February 1996, the Company announced an agreement with Fresenius AG to merge its worldwide dialysis products ousiness with NMC, the world's largest provider of dialysis services. The new company, to be named Fresenius Medical Care, will be the largest fully integrated renal care company in the world. We ore moving toward the finalization of this transaction, with completion expected oy the lhi-d quarter of 1996. We ore enthusiastic oboul the value this arrangement will bring to Grace and our shareholders. Grace will receive $2.3 billion in a tax-free cash distribution, and Grace shareholders will own 44.8% of the new company, which should be the bellwether company in the renal care industry Grace common shareholders also will receive a distribution of one share ol common stock of a restructured Grace--consisting of cur packaging and specialty chemicals businesses--for each share currently held. Proceeds from the NMC and Grace Dearborn transactions will be applied to significantly reduce our debt and to repurcnase up to 20% of Grace's common stock. In anticipation of the separation of NMC horn Grace, the Board of Directors lowered the Company's quarterly cash dividend and adopted o dividend policy of distributing approximately 20-30% of the prior year's net earnings, a level more in line with peer companies We believe these initiatives will give us a capital structure consistent with the growth strategies of our core businesses and will provide our shareholders even g'eoler longterm value through stock appreciation. High Expectations for Future Performance I have hign expectations for Grace's future performance as the premier packaging and specialty chemicals company, 'hat means we shal strive to be in the top quartile of our peers in important measures of performance--as well as remaining the supplier-ofchoice to our customers. Our strategy is clear: profitably grow our core businesses on a global basis; capitalize on our underlying technicol strengths and market leadership positions; build through research, capital investments and selected strategic acquisitions or alliarces thol complement existing businesses; and continually improve our operating performance. Successful implementation of this strategy will result in internal sales growth in the midteens, increasingly positive cash flows and operating margins increasing three points in 1996 and one point per year thereafter. Our businesses are leaders in their global markets and continue to grow steadily, expanding into new markets and geographic regions Today half of our sales are outside North America, with each of the other regions realizing above mid-teens sales growth in 1995 To meet growing demand for our products on a global basis, we invested more then $5C0 million lost year in capital expendi tures to expand or upgrade manufacturing operations. We are targeting our research and development investments to achieve a better balance of new product development, applicatiorvdriven technology and breokthrough research--all aimed at supporting our core businesses. We expect more focused investments to ormg products to market foster and to develop manufacturing process technologies that will further enhance productivity and quality. There is much opportunity to continue our growth trend, internally generated as well as through possible strategic acquisitions. As we grow, we will focus on ensuring that our growth is profitable. In 1995 we initiated programs to reduce annual costs by more than $ 100 million. We continue to focus on asset management-- reducing working capital, improving capital productivity and enhanc ng cash Bows. We are on the right track, and I am confident that we will be successful. Changing rhe Way We Manage the Company Wo iovc changed, and are continuing to change, the way we manage the Company During the year, the composition of the Board changed significanlly, and new coioorate governance polices and practices were adop'ed I want to thank those directors who are leiirtng, effective May 10, for their dedication and service to Grace: Dr, George C. Dacey, Edward W. Duffy, Peter S. lynch, Robert,C. Mccauley one Eugene J. Sullivan, and also Gordon J Humphrey, who rolired in late 1995 I also welcome two newly appointed diieclors--Dr. Morye Ann Fox and Dr. Thomas A. Vanderslioe We are now a well-focused, operating company--sharing resources, skills, people and management know-how Ocoting this new environment for success is one of my primary responsibilities, os it is for our newly formed Executive and Operating Committees Together we are making sure we have the right business stialegies, the tight systems and loo s, the tight people in the right |obs, the tight rewards and recognition, and the right oigan zational structure to successfully serve our customers, provide excellent results tor our shareholders and afford new and challenging opportunities for out employees. 1995 wos on extraordinary and successful year br Grace, due largely to the dedication of Grace employees around the world together, as promised, wo ere delivering value. Together, we are bu Iding upon the strengths of ojr businesses to ensure continued and consistently improving performance. Chairman, President and Chief Executive Officer Marcn II, 1996 number of key customers. Top: Bill Ritzel, manufacturing manager, with Costello (right) at Croce Davison's Curtis Bay, Maryland plant. Bottom: Costailo (center) with J. Gary Kaenzig, pretident of Grace Packaging (left), visiting Salisbury's, the U.K.'s largest food retailer. TM!ance Highlights Grew sales 19% to $1.7 billion. Pretax opemtin^ tamings res* 20%. Launched $330 million global capital expansion program, including $50 million to build a plant in Seneca, South Corolino to serve freshcut product market. Farmed joint venture in China, with market potential for sausage packaging estimated at $100 million by the year 2000. increased acceptance of cate-ready packaging systems by retoilers and consumers. Increased sales of Gryomc TBGTM (total bone guard) meat pockaging in North America by 35%. Accelerated timetable far completion of new pack aging plant in Kuantan, Malaysia--expected to open by mcd-1996. Intagrated German packaging firm acquired in 1994, soliddying position in European laminates market. Increased sales of Formpac'* foam trays for retail display of fresh meat, poultry and produce by 19%. Grace Packaging Grace is the world's leading innovator in flexible packaging technology and products. Working in dose partnership with customers, it facilitates the distribu tion, protection, preservation and presentation of food products in markets throughout the world. Cryovac bags, films and laminates have revolutionized marketing and merchandising tech niques for the bod industry and other markets. Grace's high-performance materials, such as Cryovac ond Dorfresh,M packaging, incorporate sophisficatec multilayer coextrusion technology. They preserve flavor and aroma and enhance the shelf life and appearance of packaged foods, such as Iresh and processed meats, poultry ond cheese. They also improve the marketablity of consumer packaged goods, such as housewares, hardware, toys, tapes and compact discs. Grace Davison Grace :s the world's leading supplier of fluid crocking catalysts used to crock' crude oil into motor fuels and other petroleum-based products. Its polyolefin catalysts are critical in the manufacture of polyethylene resins for plastic film. gas distribution pipe and household containers. Grace also is a leading giobal supplier of silica products and zeolite adsorbents. These value-added functional additives and processing aids ore used in the coatings, plastics, personal care, food, pharmaceutical, building and chemical industries Highlights Achieved record soles for the third straight year--increased solos 13% to $687 million. Proto* oporatmg earning* rose 18%. Constructed ond started up now fluid cracking catalyst facilities in Curtis Say, Marykind ond Lake Chariot, Louisiana. Achieved solos growth o>f 35% in the Asia Pacific region, which represents 10% of total Croc# Davison solos. Commenced construction of grassroots plant in Kuantan, Maloysio to manufacture silica products--scheduled for roid-1996 opening. Highlights Increased sales to $397 million. Reldtested innovative shnrfcogered wring admixture to minimize console crocking. Introduced Monokotm* 6HY (high-yield) fireproofing, offering significant cost advan tages to customers. Expanded market presence in Asia Pacific region, achieving sales growth of 24%. Named "supplier of the year" by J. t. Manta, a major fireproofing customer, for outstand ing product quality and customer support during the expansion of McCormick Place convention center in Chicago, Illinois. Grace Construction Products Grace cement additives, concrete admixtures waterproofing systems, fireproofing and masonry products are sold globally lo protect some of the world's most rmportoni structures from the punishing effecls of nalure. Meeting the most stringent budding codes and performance requirements, Grace's specially construct on materials and systems strengthen concrete, fight corrosion, prevent water damage and protect structural steel agcinst collapse in the event of fire. Grace Container Products Grace container sealants and coalings ensure the integrity of more 'han 450 billion cans ond boliles annually, making Gtoce ihe wotld leader in container sealing technology. Grace container sealant and coating systems protect foods and beverages from bacteria and other contaminants, extend shell life and preserve flavor They ate used in beer, beveiage, food, aetosol and composite containers. Grace specially polymers are used in printed circuit board manufacture and component assembly in the electronics, eleclricol, outomolve and defense industries Highlights Increased sales 10% to $357 million. Pretax oper ating earning* rote 17%. Formed joint venture in Russia to support globalising customers with local tourring for high-performance can ond closure sealants. Extended globol availability of advanced, environmentally friendly sealants for ultra-highspeed application in the manufacture of beer and beverage cans. Gained significant brewery and consumer acceptance of Darafresh* oxygenscavenging technology to preserve the flavor ond freshness of beer. In 1995, an estimated 2.5 billion bottles of beer were sealed with Darofrwh technologymore than double the number in 1994. Dedicated new Philippines container technical center, providing enhanced regional technical support to globol customers. "^aclaging GROWING AT NEARLY DOUBLE THE INDUSTRY AVERAGE A leading global producer of flexible plastic packaging systems, Grcce has helped shape, and in some cases, -revolutionize the packaging industry. Grcce Packaging continues its role as an innovator, with 60% of its current product offering introduced in just the last five years. Its Cryovoc " bags, films and laminates extend the freshness, flavor and shelf life of fresh and processed meals, poultry, cheese, fish and produce Cryovoc shrink packaging also adds value and merchandising appeal to consume- and industrial goods. Grace s leadership in the packaging industry is built on a strong combination of core competencies: Film processing and resin technology Food and packaging sciences expertise Relationships with supernrarke* chains and retail sellers throughout the world Total systems technical and sales service; equipment cesign and installation; label design; and an extensive distribution network. Providing unique competitive advantages, these core competencies helped Grace Packaging ochieve sales and revenues of $ 1.7 billion in 1995, a 19% increase over 1994, representing the 33rd consecutive year of improved sales performance. In the last five years, Grace's plastic packaging business nos grown at nearly double the industry average. Future growth opportunities have been dearly identified to capitalize on technical innovations, new packaging applications and geographic expansion. Addressing these opportunities, the Company is making significant investments to upgrade and expand production capabilities; develop the right worldwide infrastructure; build its employee base; ond provide advanced customer service and technical training to ciive market innovation in all the growing regions of the world New Opportunities for Meat Producers Grace's cdvanced packaging technology is improving both ihe qualify ond variety of meats available ol lie supermarket. Cryovoc abuse-resistant vacuum pockaging materials and producfivily-enhondng equipment facilitate fastef product handling for meat processors. With Cryovoc TBG "* bags offering retailers product protecion and operational efficiency for previously hord-to-handle bone-in pork, beef and veal, supernorkels can stock product withcut fear of spoilage and ccn moinlain the right omount of inventory lo meet demcnd. Retailers in North America are demondirg Cryovoc vacuum pack aging for their bone-m pork at record levels, with sales of oackag- Outstanding Salas Growth in All Regions {$ millions) I 993 -$1,256.1 I994-$MI7.5 1995-SI 692.1 ing far pork increasing 69% in 1995. lotin Asia Amarico Pacific Europa North Amtrico m Grace packaging systems have revolutionized the distribution of food products. The boxed beef concept, pioneered with Cryovae barrier bags, is still the workhorse system in leading-edge markets for large cuts of meat. Today it is gaining increased acceptance in emerging Latin American and Asia Pacific markets. An extension of this technology, TBC bags protect bone-in meats. Cryovae packaging systems now make it possible to deliver case-ready products to super markets. The benefits for consumers: enhanced quality and product availability. Frash-cut packaging reliavn buiy contuman of time and labor involvwl in food praparaHon by providing raadyCa-oat products, including saiodl, cobslaw, corral sticks, broccoli Herat* and dr-fry vopotoblos. I* abo provides a solution to incroosod labor costs and limited preparoHan spaco in the hotel, roPouront and imlitulloiKil food sarvico industries. rvV`'" Capitalizing on Case-Ready Advantages On the leading edge of the next revolution in food distribution. Grace Packaging offers a full range of sophisticated packaging options to facilitate case-ready distribution. Case-ready products are prepared in centralized processing pbnts and delivered fresh to retailers, prepackaged in convenient sizes for sale to consumers. They offer retailers a major cost-savings opportunity over the traditional system of cutting and packaging in supermarket bock rooms. Specialty cheeses have long been packaged lor consumer sole in traditional Cryovac bags and laminates. Today, consumer unit cheese packaging using Cryovac BDF film is gain ng in popularity, par'icularly in Europe. Many poultry producers ship their products in Cryovac case-ready packages that allow super markets to display a much greater variety and spend more time on creative merchandising, -fork producers have started to market case-ready products, and the number of market tests featuring beef continues to crow. Although in its infancy, the market far case-read/ meats represents a $1 billion global opportunity for Grace over the next five to ten years. Accelerated Demand for Fresh-Cut Produce Consumer demand for convenience and for healthier foods has produced a raoidly accelerating trend toward packaged, fresh-cut produce. Over the next five years, the North American fresh-cut produce market is expected to triple in size, with industry estimates suggesting that as much as 25% of produce will be sold freshcul and consumer-ready by the yeor 2000. Fresbcut vegetables are aerobic, meaning they must "breothe" oxygen to slay fresh; the amount of oxygen varies from vegetable to vegetable. Broccoli and cauliflower, for example, have higher respiration rates than carrots and potatoes. Cryovac packaging film can be varied to match each vegetable's natural breathing rate, significantly increasing distribution and shelf life. Longer shelf life results in less spoilage and waste for consumers, store owners and food industry managers. $350 Million Earmarked for Manufacturing Expansion In 1995, Groce launched o worldwide, $350 trillion aipita! expansion program to increase manufacturing capacity Mailing a rriaicr commitment to the produce industry Gio< e is builtiing u $50 million, I 24,000 sq. ft. plart in Seneca, South Caiolina Olhei expansions are slated fer plants in the U.S Tuiope, South America, Austialia, Canada and Malays c. The expansion program includes installation of advanced production equipment-- including exirusion lines converter end siale-of-lhe-ar1 pi inline) loesses--to provide increased operating flexibility and elficiencies in the manufactuie of bogs, films and laminates. New Ventures in Emerging Markets In November 1995, Grace formed a strategic packaging |oinl veniuie in Gaoming, China. It will manufacture shrink films lor packaging chub sausage, which is a'cooked, nonrefngemred. poik sausage staple popular throughoui Chino. With market potential for this product estimated at $ 100 million by the year 2000, the joint veniuie provides an excellent sphngboard fot the successful introduction of cdvanced packaging products and technologies into China. In ihe post two years, Grace Packaging has established joint ventuies in Malaysia and Russia. Each of these initiatives should help ensure that the latest Cryovuc packaging products and advanced manufacturing processes aie readily available as c usiomers grow theii businesses in emerging markets In Simpsonville, South Caroline, now computer- controlled production lines will result in greater precision, enhanced product quality and a 30% increase in production capability. A key manufacturing site for bags, films and laminates, Simpsonville also provides graphic arts services to customers throughout North America. 1 *i ..*\ * r T . . Aw>. a .. *. ~ \ ^ V * '-> 'ft. ..>' 4 ' ^ >'A iVM rS >-< ,,:- - ** `i 'V *" ^ > .* r v ^ f * - ."*> . ^ `X .<>-": . .A,, With technologies based an alumina and silica, Grace Davison formulates an array of petroleum refinery catalysts, polyolefin catalysts and silica products. Using sophisticated technologies, Grace Davison provides a constant flow of advanced catalysts, contributing to the global growth of stateohhe-art petroleum refining. A new silicas plant in Kuantan, Malaysia--to open in mid-1996--will supply growing Asia Pacific demand, particularly in the plastics and coatings markets. V" *: v ...\ ' , -r* :: iy ' .'.l-; >; V.. s -V ' / <^ J x' \ '' v .r * \ ' \ i *i ^ ' * ' * * . V^V _ ,i ** ' -T| Mr t ' /i - . 'j ' v .> ,u< . - .* r ^ ` ' -v son THIRD STRAIGHT YEAR OF RECORD SALES Comm tted to customer service, product innovation and low-cost, high-quolily manufac turing, Grace Davison is the ieading global supplier ot f uid cracking catalysis |FCCs) to produce gasoline and other fuels from crude oil. It is the leading supplier of silica-suppo'led polyo efin catalysts and cotalytic supports used in lire manufacture of polyethylene resins far plastic film, gas distribution pipe arid household containers. Grace Davison also is a world leoder in silica technology and moterids used to enhance a variety of products, including coalings, phormaceulicals, loods, plastics and personal cure products. Leadership through Customer Responsiveness Serving the increasingly complex petroleum relining industry. Grace Davison maintains its leadership position by listening to customers and responding with technologically enhanced products a id services that meet their rapidly evolving needs. In fact, 75% of Grace's hCC products today reflect technology that is less than lluee years old. Giace Davison introduced a high performance fluid crocking catalyst--RAMCA1IM--in 1995 to serve the growing residuum o I processing segment. The immediate success of two other newly introduced, leadingedge TCCs--Spectra M and Uihmo'M-- led to u significant mciease in European sales. To belter manage R&D expenditures and speed commercialization o( new catalysts Giace Davison has formed ollicnces with some of the word's leading oil and petrochemical companies. Also m 1995, Grace introduced new silica-supported polyolelin catalysts For modified polymer products. This is a major effort to satisfy- a growing demand for catalysts to synthesize unique plastic lesins. Global 5ales Growth ($ rr.il|*o>5] I993-J6/2 4 1994-IKJQ ' 1995 $68^3 New Silicas & Adsorbents Expand Growth Horizon Capitalizing on llie broad ening application of sili ca products Grace has increased sales and mar ket penetration tfnough lotm Asia the introduction of a America Pacific Europe North America senes of new products. "Smart" desiccants and odoi scavengers improve quality and extend the shelf life of packaged materials. New SYLOID v flatting agents are used in environmentally friendly, water based paints a id ink jet paper coatings: and new SYIQBIOC v anti-blockinc and slip aids improve handling and clarity ol elastic films. PHONOSORB MTX is a "hot melt' desiccant mix lor automated production of insulating glass Growth through Geographic Expansion Groce Davison continues its global expansion with significant gains recorded in Asia Pacific arid Europe m 1995. Asia Pacific will account for 50% of Grace's volume growth for cracking catalysts over the next five years. Overall FCC volume in the region potentially will double by the year 2000. Demand 'or silica products in the region prompted Grace tc construct a plant iri Kuanon, Malaysia, with a startup of mid-1996. To mee: growing worldwide demand for molecular sieve products. Grace enhanced operations in Worms, Germany and Curtis Bay, Maryland. It also expanded FCC operations in Curtis Bay BS STRENGTHENING & PROTECTING THE WORLD'S STRUCTURES Grace cement additives, concrete admixtures, waterproofing systems, fireproofing and masonry products strengthen and protect v,;Tthe world's most important structures. The market reader in North America and Southeast Asia and a growing force in other regions, Grace Construction Products offers customers value-building technology with superior technical support in both commercial and residential construction. Growth through Value-Added Product Developments Meeting increased demand for improved structural integrity with lower longterm maintenance costs, Grace leverages its technical expertise and market knowledge to develop valueadded product solutions for the construction industry. Significantly improved from earlier technology, CSA,M cement additives enhance cement ffowability and performance whle helping customers lower production costs. An environmentally friendly, liquid waterproofing membrane to complement Biluthene* sheet membrane is in field testing. A new Monokate 6HY (high-yieldl fireproofing mcterial provides customers with significant product application cost advantages. Growth through Geographic Expansion 1995 was a strong growth year for developing economies in the Asia Pacific region, leveraging an expandec manufacturing, sales and support base. Grace Construction Products capitalized on infrastructure and commercial development in the region, achieving a 24% increase in sales relative to 1994. Al const'uction product lines contributed lo the growth. Grace waterproofing products were specified in the construction of Hong Kong's new Chek lap Kok Airport Grace concrete admixtures were chosen for the Port of Singapore Aulhonty expansion and several construction projects in northern China. Grace fireproofing malericls are protecting (he new Lotte Tower and Koryo Securities Building in Seoul, Korea. The Company secured its (irst sale of BitutheneT P'e-Pwfe waterproofing at the Crossness Beckton sewage siudge incineration plant in Ine U.K., the largest such project ever built in Europe Working with the Central European Cement Association, the Company obtained significant sales of cement additives from new customers in Poland, the Czech Reoubhc and Hungary. Grace also recorded its lirst fireproofing sale m Latin Americo. where Monokote 6 was specified to protect structural steel in the new Downtown Tower in Buenos Aires, Argentina. Focused on Outstanding Quality & Sorvico Grace's focus on highquoliiy technical service and support, backed by innovative technology, applications know-how and market knowledge, offers customers a strong competitive advantage. Noting that Grace was the supplier most instrumental and effective in contributing to its success, customer J. L Manta named Grace its 'supplier ol the year" lor outstanding product quality and customer support. J. L. Manta ordered 250,000 bags of Monokote fireproofing for ihe one million sq. ft expansion of McCormick Place convention center in Chicago, Illinois. Profit Improvement through Increased Productivity Grace Construction Products continues to improve resource productivity, using the tools of total quality management and business process engineering. Nearly 70% of its workforce hos completed training in quality managemenl techniques. Other maior initiatives include a fower-ccst overhead struc ture, facility consolidations, product cost reductions, and the divestment cf underperforming noncore Core Product Lines Lead Sales Growth |$ miltonsl Oiv*jisd Produci bnss Core ProduO Imcs $397.2 $3*7.1 product lines 93 94 95 19 Republic Tower in Singapore is one of many construction projects around the world where Grace's technology is meeting critical performance standards. Addressing a long-standing problem for structural engineers, Grace's innovative shrinkage-reducing admixture--successfully field-tested in the 110* F heat of the Arizona desert--minimizes concrete cracking. Grace lee & Water Shield membrane roofing underlayment protects against water infiltration caused by ice dams and wind-driven rain. 1 ppgt :v mdm-' Innovative technology and superior technical service in support of customers make Grace the world leader in container sealing technology. Grace's newest container technical canter in Manila provides advanced technical support and field service assistance to local and globalizing customers as they grow their businesses in the Asia Pacific region. In 1995, an estimated 2.5 billion beer bottles were sealed using Oamfrmah oxygen-absorbing technology, which increases shelf life and enhances taste. ,T:&' .... -:i.m* w TAKING TECHNOLOGY AROUND THE WORLD Groce sealants are vital to the safety and sealing integrity of more than 450 billion cans and bottles each year. Grace is commiiled to customer satisfaction and quality in the delivery ol wa er-based and environmentally friendly solvent-based sealants and coatings for the rigid container market. Grace's position as the world fecider in con seating technology is founded on continual pioduct innovation and strong technical support, dose customer partnerships and a focus on adding measurable value lo eoch step in the development manufacture and sale of its products. Breakthrough Sealing Technology P'oducl taste tests by major Nor+i American and European brewcues ore proving the outstanding ability of unique Darafresm' oxygen-absorbing technology to maintain product quality--with minimal added preservatives--and inciease shelf ile, ihereby (educing pioduct lotation and distribution costs. Beet is porticuloily sensitive to oxygen--as little as one pan per billion of oxygen in the headspace of a beer bottle will start the degradation process. Tins can impede market acceptance as majot breweries expand into developing regions where optimal pioduct distribution contiols are sometimes lacking. Focused initially on beer and beverage producers, Grace is commercializing a lul range of Darahesh dosuie sealanl systems and evaluating growth opportunities fot this technology in other container packaging markets. Europe Loads in Sales ($ mdlions) Supporting a Global Customer Base To ensure successful transition ol its sealing and coating technolo gies fiom ihe lab lo the production line, Grace extended its global cus tomer support neiwak with a new container lotin Asia technical cenlei in the America Pacific Europe North America Philippines. With a comparable facility pbrned for Sdo Paulo. Brazil Grace can provide quick, professional response with the latest technology and quality support in every market region. Supporting globalizing customers with local sourcing fo' high-performance can and closure sealants, the Company's 5 I % owned pm venture. A/O Grace KRIZ, manufactures can sealing compounds lor hod canning and closure comoounds for beverage bottling in Russia and olhet C.l S. republics. In 1995, Grace KRIZ upgraded existing equipment and opened a new can and closu'e sealanl production facility. Best-in-Closs Sealants Giace offers its customers a wide range of advanced, environ mentally friendly can and closure sealants. Available globally, Grace's best-irvefass sealants facilitate ultra-high-speed application, provtdng excellent product protection on a lull range of metal, glass and plastic containers. Grace Specialty Polymers Related to Grace Container Products through shared polymer technology resources, Grace Specialty Polymers is a leading developer of formulated engineered polymers for printed circuit board and component assembly in the electronics, electrical, automotive and defense industries IS Enhancing Global Performance Grace's Commitment to CereTM program, signifying a responsibility to employees, customers and community neighbors, extended its reach beyond North America in 1995 to achieve worldwide implementation. Commitment to Care embraces specific Derformance ooiectives in six key areas: product stewardship, employee health and safety, community awareness and emergency response, process safety, distribution and pollution prevenSon Committed to Continuous Improvement ,C Grace is commuted to continuously improving environmental, health and safety (EHSf performonee in itj global otherdlfons The Company has pledged to operate according to the highest of performance as well as to incorporate sound ement concepts into the design and construction ities. , Grace adopted worldwide standards for product ip. process safety and employee health and safety, A new global program to collect, evaluate and benchmark waste and emissions dare should enable Grace fc monitor continuing reductions in waste and emissions on a worldwide bosis. Building Better Communities Grace's success depends upon the health and vitality of the communities in which it operates--this philosophy drives the Company's community outreach efforts. During 1995, Grace Foundation and direct corporate contributions to support education, human services, youth development, health care, economic devel opment and environmental organizations totaled $3.6 million. Education continues to be a major locus, capturing 57% of the Grace Foundation's 1996 budget. School partnerships also figure prominently in Grace's community outreach activities. Grace employees work with Baltimore, Maryland's Southern High School to encourage students to attend school, graduate and aim for higher education. The program emphasizes math and science, while exposing students to engineering and manu facturing. Grace offers to hire one Southern High graduole for every two openings at its Curtis Bay Works in Maryland Through "Creating Lasting links," Grace scientists helped e'ementary school teachers develop--and teach--a new science curriculum focusing on science skills and princioles, such as measurement, observation, cause and effect MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION REVIEW OF OPERATIONS Overview Sales and revenues increased I A% in 1995 over 1994, as compared to an increase cf 11 % in 1994 over 1993 lloss)/ income fiom continuing operations was $(196.61 million, $|41,4| million and $19.1 million in 1995, 1994 and 1993, respectively. These results reflected (o) 1995, 1994 and 1993 pielax piovisions of $275.0 million, $316 0 million and $ 159.0 Specialty Chemicals Sales & Revenues {$ miHlOflj) million |$ 178 7 mi lion, $200.0 million and $ 100.0 million after 1993-J2.69S 1994-S3 218 1993-J3.666 tax), respectively, relating to asbestosrelated liabilities ond insurance coverage |see "Financial Condition: Asbestos- Related Matters" below and Note 2 to the Consolidated Financial Statements for further latin Asia Amrico Pacific information|: |b| 1995 and 1994 pretax piovisions of $77.0 million and $40.0 million |$50.0 million and $26.0 million after-taxj, respectively, relating to environmental liabilities (see "Financial Condition: Environmental Matters' below for further information!; (c| a 1995 pretax charge of $220.0 million |$ 144.0 million afte-tax) relating to restructuring costs, asset impairments and other costs (see "Statement of Operations: Restructuring Costs, Asset Impairments and Other Costs" below lor further info motion); (d| a 1995 pretax charge of $30.0 million 1$ 18.6 million after-tax) relating to corporate governance matters: and |e| a 1994 gain of $27.0 million |pre- and aher-tox) on the sale of Grace's remaining interest in The Restaurant Enterprises Group. Inc. Excluding these provisions and charges from all years, income from continuing operations in 1995 increased 24Tb, to $194 7 million, as compared to 1994, and in 1994 increased 32%, to $157.6 million, over 1993. Income from continuing operations reflects corporate expenses of $37.8 million, $37 1 million and $37.4 mill on in 1995, 1994 and 1993, 'especlively, previously allocated to the discontinued health care operations. These expenses will not be assumed by' National .Medical Care, Inc. |NMC), Graces principal health care suDsidiory. following comple'ion of its proposed separation tiom Grace, and it is expected that these costs will be elimirraied. See below for adailional information regarding the proposed separation of NMC from Grace one Grace's cost managemeni efforts. For all periods presented, the Consolidated Statement of Opetations has been restated to reflect the classification of certain businesses as discontinued operations, as discussed in Note 7 to the Consolidated Financial Statements Specialty Chemicals Crieiol'nq - 1 oc s Compered to i 994 As noted above, sales and revenues increased 14% in 1995 as compared to 1994, reflecting favorable volume price/product mix and currency transition variances estimated at 7%, 4% and 3%, respectively. All product lines experienced improved volumes in 1995. Packaging volume increases reflected higher sales of bags and films in all regions, and higher sales of laminates in all regions other than Latin America. Volume increases in catalysis ar d other silica-based p'oducfs reflected higher sobs in all regions, especially refinery catalysts ir Asia odlic and Europe, and silica/adsorbent products in Europe and Asia Pacific. Container vo ume increases wete due to increased sales of specia ly polymers ond can sealing products in Asio Pacific, and coat Specialty Chemicals Sales by Industry ing products in latin Ameiica. volume increases m '/voter irealmenl reflect ed higher paper industry process chemicals sales in Europe and North America caused by mar ket share gains, as well as higher water treat ment chemicals sabs in Latm America. Construction Cwtorar products experienced Water Ttaatetete Contevdan CtedpM/ Sfitn Padi>jn| volume increases, primarily in Asia Pacific, due to increased construction activity, partially offset by volume decreases in both fire protection products in North America (due to a small maikel sbaie loss) and waterproofing products in Europe and North America. W. It. GRACES CO. m 1995 ANNUAL REPORT Operating income before taxes (which excludes for oil years the items discussed in the second paragraph of "Overview" above) increased by 15% in 1995 as compared to 1994. North American results in 1995 improved, reflecting strong growth in packaging due to the volume increases noted above-(especially in bags). However, this was partially offset by reduced profitability in refinery catalysts, as North American reriners continued to experience low margins. The narrow spread between light and heavy crude oil prices led customers to crack higher quality light crude rather than heavy crude oil Iwhich requires more catalysts). In addition, water treatment chemicals in North America experi enced lower profitability due to ongoing market consolidations. European results in 1995 improved significantly versus 1994, primarily in packaging, reflecting volume increases caused by an economic recovery that revitalized key markets, partially offset by unfavorable results in construction waterproofing products due to higher material costs and a slowdown in the nonresidenfal construction market. European results also benefited from the absence of costs incurred in 1994 to streamline European pack aging, water treatment and container operations. In Asia Pacific, favorable results were ochieved versus 1994, primarily in refinery catalysts and silica/adsorbent and construction products |due to Income from Continuing Operations Ibelore special itemsl the volume increases noted above), partially offset by higher operaP ing costs incurred to increase market share in the region. Latin American 1995 results declined slightly versus 1994, primarily due to the effect of inflation indexation on wage and employee benefit 91 92 93 9* 95 costs in the Brazilian water treatment opera lions, partially offset by increased profitaoility in packaging due to improved volumes and in container products due to market share gains in coating products. The above results reflect the allocation of corporate overhead and coroorate research expenses; corporate interest and financing costs and nonalkxable expenses are not reflected in the results of specialty chemicals. Operating Kesdts - 1994 Compared to 1993 Sales and revenues increased by 11%, and operating income before taxes increased by 19%. in 1994 as compared to 1993. The increase in sales and revenues 'ellected favorable volume price/product mix and currency translation variances estimated at 9%, 1 % and 1 %. respectively. Volume increases were experi enced by all core product lines North American results in 1994 were positively affected by strong growth in construction and packaging, mainly due to the volume increases, partially offset by reduced profitability in refinery catalysts due to volume decreases as a result of customers' use of higher quality crude oil and an increase in customer maintenance shutdowns. European results in 1994 improved significantly versus 1993, primarily due to improvements in refinery and polyolefin catalysis and construction products (due to the volume increases!, partially offse- by costs associated with streamlining European operations, in Asia Pacific, favorable results were achieved versus 1993, primarily due to volume increases in refinery and polyolefin catalysts and container products. Latin American 1994 results improved versus 1993, prima'ily due to increased profitability in packaging Idue to increased volumes in bags, films and laminates). Latin American results also benefited from improved economic conditions in Brazil; however, this was partially offset by the devaluation ol the Mexican peso in late 1994. STATEMENT OF OPERATIONS Offier Income See Note 4 to the Consolidated Financial Statements for information relating to other income. Interest Expense and Related Financing Costs Excluding omounts allocated to discontinued operations las discussed in Note 7 to the Consolidated Financial Statements), interest expense and related financing costs ol $71.3 million in 1995 increased 44% versus 1994. Including amounts allocated to discontinued operations, interest expense and related financing costs increased 50% in 1995 over 1994, to $164.8 million, primarily due to higher average effective short-term interest rates and higher debt levels Grace's debt and interest rate management objectives are to reduce its cost of funding over ihe long term, considering economic conditions and their potential impact on Grace, and to improve liquidity by developing and maintaining access to a variety of long-term and shorHerm capital markets. To manage ts exposure to changes in interest rales, Grace enters into interest rale agreements; during 1995, most of these agreements effectively W. It.GRACE & CO. |Q 1995 ANNUAL REPORT converted lixed-rote debt into variable-role debt. These agree ments love teadily identifiable impacts on interest cost and are characterized by b'oad market liquidity. See Note 11 to the Consolidated Financial Statements for further information cn interest rate agreements. See "Financial Condition: Liquidity and Capital Resources" below and Note 10 to the Consolidated F nancial Statements ror information on borrowings. Research and Development Expenses Research and development spending increased 13% in 1995 versus 1994 Research and development spending continues to be directed toward Grace's core specialty chemicals businesses. As discussed below, during 1995 Grace undertook a worldwide resiiucluting program, including a study of companywide research and development expenses. Ce'tom actions haw al'eady been aken based on this study, including the shutdown of Grace's Japan research center and the phase-out of certain research programs related to noncore operations Restructuring Costs, Asset Impairment] and Other Costs Cus's As discussed in Nele 5 to the Consolidated Financial Statements, luring the third quarter of 1995. Grace began implementing a worldwide restructuring program aimed at streamlining processes and reducing gene'al and administrative expenses, factory administration costs anc noncore corporate research and devel opment expenses. The program is expected to be substantially completed by the end of 1996. In the third and fourth quarters ol 1995, Grace recorded pretax charges totalling $44.3 mi lion and $91 7 million ($27.2 million and $61.9 million altcr-lax], respectively, comprised of $77.4 million for employee termination hwnefiis, $13.4 million for plant closure and related casts, including lease termination costs: $15.5 million for prior business exiis end related costs; $20.8 million for asset writedowns, and $8.9 million for other costs. The $774 million br employee termination benefits primarily represents severance pay and other benefits associated with the elimination of approximately 1.000 positions worldwide; more than 50% of the total cost reductions will come from corporate staff functions worldwide Grace expects to implement additional cost reductions and efficiency improvements beyond those discussed above, as its businesses further evaluate and reengineer tlieir operations. These reductions and efficiencies are expected in areas such as purchasing, logistics, working capital management and manufacturing. Asset tri'Qunme"'; During 1995. Grace determined that, due to various events and changes in circumstances (including the worldwide restructuring program described above), certain long-lived assets and rebted accrdwill were impaired. As o result, in the fourth quarter of 1995, Grace recorded a $43.5 million pielax chorge ($29.0 million alter tax), the majority of which rebted to assets that will continue lo oe field and used in Grace's continuing operations, ihe cha'ge included no significant individual components. Grace determined the amount of the charge based on various vakiction lechn ques, including discounted casn flow, replacement cost and net realizable value for assets to be disposec of. Oine- Costs Also, in the fourth quarter of 1995, Grace recorded pretax . charges totalling $40.5 million ;$25.9 million afler-tax) relating lo the writedown of corporate assets ($270 million) and working capital assets |$ 13.5 million). These amounts are included in "Cost ol goods sold and operating experses" in the Consolidated Statement ol Derations. Income Taxes Graces effective tax totes were (37 1)%, (53 0j% and 34.6% in 1995, 1994 and 1993. respectively. Excluding the items discussed in the second paragraph of "Review of Operations; Overview' above, Graces effective tax rates were 32.8%, 34 6% and 36.7% in 1995, 1994 and 1993, respectively. The bwer effective tax rate m 1995, as compared b 1994 was brgely due to the reversal of the valuation allowance on foreign net operating losses and lower slate income (axes, partially offset by higher taxes on breign operations. The lower effective tax rate in 1994, as compared to 1993, was brgely due lo lower taxes on breign operators. Giace has recognized a valuation allowance rebting lo uncertainty os to the realization of certain deferred tax asseis, including U S, lax credit carryforwards, state and local net operating loss carryforwards and net deferred tax asses. As a result of the favorable resolution ol an audit, the valuation allowance on net operoling loss carryforwards in breign lurisdiclions was reversed in 1995. Based upon anticipated future results, Grace has concluded, after consideration of the valuation allowance, that it is more likely than not that lire remaining bobnee of the net deferred lax assets will be realized. See Note 6 to the Consolidated Financial Statements fofurther information on income taxes. W. It. GRACE & CO. IQ 1995 ANNUAL REPORT DISCONTINUED OPERATIONS Health Care In June 1995. the Company announced that its Board ol Directors had approved a plan to spin off NMC. As a result, Grace classified its health care business as a discontinued opera tion in the second quarter of 1995 and, accordingly, NMC's operations are included in "(loss)/income from discontinued operations" in the Consolidated Statement of Operations. Following NMC's receipt in October 1995 of five investigative subpoenas from the Office of the Inspector General of ihe U.S. Department of Health and Human Services (OK3), as discussed below, the completion of the spinoff of NMC, originally expected in the 1995 fourth quarter, was delayed. In February 1996, Grace and Fresenius AG [Fresenius) entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business |FWD) to create Fresenius Medical Care (FMC). As a result ol the combination, FMC would acquire NMC, which would remain responsible for all liabilities arising out of the investigations, discussed below. However, Grace would retain certain health care assets, primarily a bioseparation sciences business, a health care services company and other assets (including cash and marketable securities). The combination would follow o borrowing cf approximately $2 3 billion by NMC, a tax-free distribution of the proceeds by NMC to Grace, and a tax-free distribution by the Company, with respect to each share of its Common Stock, of one share ol a newly formed corporation holding all of Grace's businesses (principally its specialty chemicals businesses) other than NMC. As a result of the separation of Grace's specialty chemicals businesses from NMC and ihe subsequent combination of NMC and FWD. the holders of the Company's Common Slock would own 100% of the specialty chemicals company and 44.8% of FMC, and Fresenius and other shareholders would own 55.2% of FMC. The holders of the Company's Common Slock would also own preferred stock, the value cf which would be linked to the performance of FMC. Completion of the various transactions is sub|ect to customary conditions, including the approval of the shareholders ol the Company and Fresenius; U.S., German dnd European regulatory actions; and obtaining financing on satisfactory terms. Commitments for financing have been, received, and it is expected that the various transactions will be completed by the third quarter of 1996. Operating Rssute -- 1995 Compared fc 1994 Health care sales ard revenues for 1995 increased by 11 % over 1994, due to increases of 13%, 3% and 10%, respectively, in kidney dialysis services, home health care and medical products operations. The increase in kidney dialysis services reflects acquisitions in 1995 and 1994, and the increase in home health care reflects the fulhyear ownership of Home Nutritional Services, Inc., a national provider of home infusion therapy sen/ices acquired in April 1994. The number of centers providing dialysis and related services increased 15%, from 590 at December 31,1994 to 681 at December 31,1995 (574 in North America, 62 in Europe, 33 in Latin America and 12 in Asia Pocific). Operating income before taxes in 1995 increased 10%, to $315.6 million, as compared to 1994, excluding 1995 pretax charges totalling $117.5 million |$ 102.4 million aftertax!. These pretax charges are comprised of (a| asset impairments of $84.3 million ($83.6 million after-tax); (b) ihe phase-out of certain of Groce's health care research programs of $8.8 milion ($5.6 million after-tax); (c) changes in accounting estimates totalling $8.7 million ($ 1.8 million after-tax); (d) additional costs associated with Grace's longterm incentive programs applicable to NMC of $8.3 million ($4.8 million aftertax): and (e) other items totalling $7.4 million ($6.6 million aftertax). Health care results reflect the allocation of Grace's health care-related research expenses; however, corporate interest and financing costs allocated to ihe health care business are ,, , . Health Cara not reflected in operating Pratax Operating Income incomebefore taxes, (befewe ipecioi hptoI |$ mlHionil These allocations are not necessarily indicative of the costs that would be incurred by the health care business on a stand alone basis. 93 94 95 W. R. GRACE & CO E5 1,95 ANNUAL REPORT The 1995 asset impairments totalling $84.3 million pretax, referred to above, are comprised of: (a) NMC's investment in a German dialysis machine manufacturing operation - $39.8 million |pre- and after-loxl; (b) NMC's investment in a dialyzer development operation in Ireland - $ 16.6 million (pre- and ofteHaxi; |cl Grace's investment in a health care services company - $26.2 million (pie- and after-tax); and id) other items of $ 1 7 million pietax |$ 1.0 million after-lax). Vpoiat^g (results - !994 Compared to 1993 Sabs and revenues for 1994 increased by 24% over 1993. due to increases of 28% and 47%, respectively, in kidney dialysis services and home health care operations, partially offset by a decrease of 7% in medical products revenues. The decrease in medical products operations reflects a decline in bloodline sales resulting from warning letters and import alerts issued by the U S. Food and Drug Administration (FDA) in the second quarter of 1993 Operating income before income foxes lor. 1994 increased 23%. to $287.5 million, over 1993, reflecting the continued growth of all lieallh caie businesses, as well as improve ments in cost controls, operating efficiencies and capacity utilization Tliese favorable results were partially offset by the costs of improving and expanding qualify assurance systems for medical products manufacturing operations, as a result of the FDA warning letters and import alerts SiijnJican! Con? Marrers lr October 1995, NMC leceived five investigative subpoenas liom the OIG The subpoenas call for the production of extensive documents relating to various aspects of NMC's business. A btter accompanying the subpoenas staled that they had been issued m connection with an investigoton being conducted by the OIG, the U S. Attorney' for the District of Massachusetts and others concerning possible violations of Federal lows relating to health care payments and reimbursements. The results of the investigation arid its impccl if any, cannot be predicted at this time. In the event that any government agency believes that wrongdoing related to the investigation has occurred, civil and/or criminal proceedings could be instituted, and if any such proceedings were to be instituted and the outcome were unfavorable, NMC could be subject to fines, penalties and damages a could become excluded from government reimbuisement programs. Any sixth result cculd have a material adverse effect on NMC's financial position or the results of operations of NMC and Grace. NMCs business, firanciol posilion and results ol operations could also be materially adversely' allected by (a) an adverse outcome in the pending litigation concerning the implementation cf certain provisions of the Omnibus Budget Reconciliation Act of 1993 relating to the coordination of benefits between Medicare and employer health plans in the case of certoi t dialysis oalienls, |b| an adverse outcome in the pending challenge by NMC cf changes effected by Medicare in approving reimbursement claims relating to lire administration ol mhadialytic parenteral nutrition |IDFN) therapy or |c) the adoption of pending Medicare proposals to change IDPN ccveroge prospectively. See Note 7 io the Consol dated Financial Statements lor additional information relating to the above matters. Cocoa and Other Businesses In the second quarter of 1993, Grace classified as discominued operations its cocoa business; its battety separators business; certain engineered materials businesses, orincipally its printing products, material technology and electromagnetic radiation con trol businesses (collectively, EAAS); and other noncore businesses. At that time, a provision of $ 105.0 million (net ol an applicable tax benefit of $22 .3 million) wes lecoided to reflect tfie losses expected on the divestment ol these businesses. During the louitfi quaiter of 1995, Grace revised the divest ment plan for its cccoa business. As a result of this revised divest ment plan, recent trends and a reassessment of forecasts for all remaining discontinued operations, Grace recorded an additional provision of $ 151.3 million (net of an applicable lax benefit of $48 7 million) related to its remaining discontinued operations, principally the cocoa business. See Note 7 io the Consolidated Financial Statements for additional information relating to the above matters. W R.GRACE * CO. 1095 ANNUAL REPORT FINANCIAL CONDITION Liquidity and Capital Resources During 1995, the net pretax cash provided by Grace's continuing operating activities was $229.7 million, versus $2109 million in 1994. The increase was primarily due to net cash inflows of $97.0 million in 1995 from settlements with certain insurance carriers for asbestos-related litigation, net ol amounts paid for the defense and disposition of asbestas-related litigation (see discussion below), as compared to the net outflow of $60.0 million for asbestos-related litigation in 1994. However, the 1995 increase was offset by on increase in the use of operating working capital. After giving effect to the net pretax cash provided by operating activities of discontinued operations (including an increase in the use of operaSng working capital by NMC in 19951 and increased payments of income taxes (attributable to taxable income resulting bom settlements of asbestos-related litigation, as well as audit adjustments to prior years' Federal income tax returnsl, the net cash provided by operating activities was $ 107.0 million in 1995 versus $453.5 million in 1994. Investing activities used $801.6 million of cash in 1995, largely reflecting capital expenditures of $537.6 million (more than 75% of which relates to Graces packaging and catalyst and other silicabased businesses) and the acquisition of dialysis centers and medical products facilities for a total of $37.4 million in the first quarter of 1995. Abo, investing activities of discontinued operations br 1995 used $295.2 million, primarily reflecting the classification of the health care segment as a discontinued opera tion in the second quarter. Management anticipates that the level of capital expenditures in 1996 will approximate that of 1995. In 1995, Grace bunched a $350.0 million global capital expan sion program in its packaging product line, including $50.0 million to build a plant in Seneca, South Carolina to serve the freshcut Capital Expenditures Continuing Operations IS millions) produce market. In lno, ,, . . wo, Grace is also scheduled to open new silica and pack aging plants in Kuantan, Malaysia. I Net cash provided by financing activities in 1995 was $655.7 million, primarily reflect ng an increase in total debt from December 31,1994 and the exercise of employee stock options, offset by the payment of $ 112.6 million of dividends. Total debt was $1.933.8 million at December 31, 1995, an increase of $404.1 million from December 31.1994. Groce's total debt as a percentage of total capital (debt ratio) increased from 50.4% at December 31,1994 to 61.1% at December 31, 1995, primarily due to the reduction in shareholders' equity (due to the charges discussed in the second paragraph' of 'Review of Operations: Overview' and 'Statement of Operations: Discontinued Operations' above) and the increase in total deb. At December 31,1995, the ne> assets of the discontinued health care segment included $226.7 million of deb Groce expects to receive a substantial amount of cash in 1996 from the expected distribution by NMC |as discussed in "Statement of Operations. Discontinued Operations" above and Note 7 to the Consolidated Financial Statements!, the safe of the Grace Dearborn water treatment and process chemicals business (see discussion bebw), ond, to a lesser extent, funds generated by operations Grace expects to apply a substantial portion of the cash proceeds generated by these transactions to the reduction of borrowings. Any net excess is expected to be applied to the tepurchase of shares of the Company's Common Slock and selected strategic acquisitions that complement existing businesses. In the third quarter of 1995, Grace announced that its Boord of Directors hod authorized management to pursue options to maximize the value of its Grace Dearborn water treatment and process chemicals business. In March 1996. Grace announced that it had entered into a definitive agreement to sell Grace Dearborn to Betz Laboratories, Inc. br $632.0 million. The transaction is expected to be completed in the second quarter ol 1996 In October 1995. in anticipation of the then pending spin-off of NMC. the Company's Board of Directors declared a quarterly cash dividend of 12.5 cents per share on the Company's Common Stock, a reduction from the previous quarterly cash dividend of 35 cents per share. At that lime, the Beard also approved a policy of paying dividends a* a rale o" 20% - 30% ol the prior year's net earnings and authorized the repurchase of up to 10 mill on shares of the Company's Common Stock. In February 1996, after entering into the definitive agreement to combine NMC with FWD, the Board increased the number of shares that may be repurchased tc 20% of the Company's outstanding Common Stock (see "Statement of Operations: Discontinued Operations' above and Note 7 to the Consolidated Financial Statements!. W.H.GRACf & CO t3 1995 ANNUAL PfPOT Asbestos-Related Matters As reported in Noie 2 to the Consolidated Financial Statements. Grace is a defendant in lawsuits relating to previously sold asbestos-containing products ond is involved in related litigation with certain of its insurance carriers. In 1995, Grace received $97 0 million under settlements with certain insurance carriers, net of amounts pad for the defense and disposition of asbestos lelated propeity damage and personal injury litigation Duiing tire fourth quarter of 1995, Grace recorded a noncash pretax charge of $275.0 millior |$ 173.7 million ofter-tax), primarily to reflect the estimated costs ol defending agoinst and disposing of personal injury lawsuits and claims expected 'o be tied through 1998 The balance sheet at December 3 1. 1995 includes a receivable due from insurance carriers, a portion of which is subject to litigation, of $321.2 million. Grace has also recorded notes receivable of $ 130 0 mi lion |$l 18.4 millior after discounts! for amounts to be received n 1996 to 1999 pursuant to settlement agreements previously entered into with certain insurance carriers. Alihough lire amounts to be paid in 1996 in respect of asbestos-iedled lawsuits and claims cannot be precise!/ estimated, Grace expects that it will be required to exoend approximately $40 0 million Ipretax) in 1996 to defend against 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 iheiein, lire amounts reflected in the Consolidated Financial Statements with respect to the piobable cost of defending against and disposing ol asbestos-related lawsuits and claims and probable recoveries from insurance carriers represent estimates; neither the outcomes of such lawsuits and claims nor the outcomes of Graces continuing litigations with certain of its insurance carriers can be predicted with certainty. Environmental Matters Grace incurs costs to comply w.lh environmental laws and regula tions and to fulfill its commitment to industry initiatives ond Grace standards. Worldwide expenses of continuing operations rebled to the operation and maintenance of environmental facilities and the disposal ol hazardous and nonhazardous wastes totalled $43.5 million. $35.7 million and $40,7 million in 1995. 1994 and 1993, respectively. Such costs are estimated to be approxi mately $45.0 million and $47.0 million in 1996 and 1997. respectively In addition, worldwide capital expenditures for continuing operations relating lc environmental protection totalled $ 14 9 million in 1995, compared to $21.5 million and $ 19,3 million m 1994 and 1993, lespeclively. Capital expendiluies to comply with environmental initiatives m future years are estimated to be $20.0 million and $17.0 million in '996 and 1997, respectively. Grace has also incurred costs to remediate environ mentally impaired sites. These costs were $31.3 million. $30.8 millon and $44 4 million in 1995, 1994 and 1993, respectively These amounts hove been charged ogamsl previously established reserves. Fu ure cash outlays for remediation costs are expected to total $3C.G million in 1996 and $20.0 million in 1997 Expenditures have been funded from internal sources of cash and are not expected to have c significant effect on liquidity. Grace ucaues for SARA Emissions Continue to Decline (trillions ol pounds} Oihet Oilsite POTW land' Water Stock Air flfugtfete Air onticioaled costs associ ated with investigatory and remediation efforts relating to the environ ment in accordance with Statement of Financial Accounting Standards * ik te*o* y*oi ba eo wreil o bt -Hjift--d 37 88 89 90 91 92 93 94 No. 5. "Accounting foi Contingencies, " which requires estimating the probability and amount of futore costs. At December 31,1995, Graces liobiliy for environmental investigatory and remediation costs related to continuing and disconiinued operations totalled approximately $280.3 million, which amount does not lake into account any discounting -or luture expenditures or possible future insurance recoveries. The measurement of the liability is evaluated quarterly besed on currently available information. In 1995 and 1994, periodic provisions were recorded lor environmental and plant closure expenses, which include the costs of future environ mental investigatory and remediation activities. Additionally, m the fourth quarter of 1995 ond first quarter of 1994, Grace recorded pretax provisions of $77.0 million and $40 0 million ($500 million and $26.0 milian after-tax}, respectively, principally to provide for future costs related to remediation activities requited at former manufacturing sites. W.R. GRACE &CO 0J loos ANNUAL PEPorm CONSOLIDATED FINANCIAL STATEMENTS W. R. GRACE & CO. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS Dollars m millions, except per shore amounts 1995 Sales and revenues Other income (Note 4) Total $3,665.5 41.9 3,707A Cost ol goods sold and operating expenses Selling, general ond administrative expenses Depreciation and amortization Interest expense and related financing costs (Note 10) Research and development expenses Corporate expenses previously allocated to heclth care operations Restructuring costs and asset impairments (Note 5| Provision relating to asbestos-related liabilities and insurance coverage |Note 2| Total 2,243.7 905.6 186.3 71.3 120.6 37.8 179.5 275.0 4,019.8 (Loss|/income from continuing operations before income taxes (Benefit fromj/ptovision for income taxes (Note 6) (312.4) (115.8) (Lossl/income from continuing operations (Loss|/income from discontinued operations (Note 7) Net (lossl/income (196.6) (129.3) $ (325.9) (Lossl/eornings per share: Continuing operations Net (loss)/earnings Fully diluted [loss]/earnings per share: Continuing operations Net (loss)/earnings $ (2.05) $ (3.40) $ -J" $ The Notes to Comolrdated Fmarooi Statements, pages 25 to 49. ore mtegtal parts o* these statement* Not presented os the effect is ontrdikjtwe. 1994 $3,218.2 42.6 3,260.8 1,900.8 773.6 165.0 49.5 106.8 37.1 - 316.0 3,348.8 188.0) 146.6) 141.4) 124.7 $ 83.3 $ (.451 $ .88 $ $ 88 1993 $2,895.5 57.8 2,953.3 1,746.7 673.1 153.5 42.9 111.5 37.4 - 159.0 2,924.1 29.2 10.1 19.1 6.9 $ 26.0 $ .20 $ .28 $ .20 $ .28 W. R. GRACE & CO. Q ms ANNUAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS Oo-'b'S <r T>,,Uon% 1995 1994 Operating Activities 'Loss)/income from continuing operations before income taxes Reconciliation to cash provided by operating activities' Depreciation and amortization Provision elating to asbestos-related liabilities and insurance coverage Noncash charge relating to leshucturing costs ond asset impairments Chanqes in assets and liabilities, excluding effect o( businesses acqiired/divested and foreign exchange: Increase'in notes and accounts receivable, net Increase in irtvento'ies Net Ipaymenls for)/proceeds from settlements of interest rate agreements Proceeds from asbestos-related insurance settlements Payments made lor asbestos-related litigation settlements. judgments and defense costs [Cecreuse)/increase in accounts paycble Other Net pretax cash provided by operating achvries of continuing opera! ons Not pretax cash provided bv operating activities of discontinued operations Net pretax cash provided by operating activities Income taxes paid Net cash provided by operating activities $(312.4) 184.3 275.0 159.9 (44.7) (62.1) 257.3 (160.3) (48.3) (21.0) 229.7 114.2 343.9 (236.9) 107.0 $ 188.0) 165 0 316.0 - 1159.5) 143.4) (4.0) 138.6 (198.6) 10.3 74.5 210.9 328.6 539.5 186.0) 453.5 Investing Activities'' Capital expenditures Businesses acquired in purchase transactions, net of cash acquired and debt assumed Increase in net assets of discontinued operations Net proceeds from divestments Net proceeds from sale/leaseback transactions Proceeds from disposals of assets Other Net cash used for investing activities (537.6) 1444.6) 137.4) (295.2) 56.7 - 1276 9) 1329) 583 9 - 17.9 34.0 (6.0) 34 9 ___ (8014b) ____________ (101 61 _ Financing Activities"' Dividends paid Repayments of borrowings having original maturities in excess of three months Inciease m borrowings having original maturities in excess of three months Net increase in/lrepayments of) borrowings having original maturities of less than three month's Stock options exercised Increase/fdecrease) in net financing activities of discontinued operations Other Net cash provided by/(used for) financing activities Effect of exchange rate changes on cash and cash equivalents IDeaeasel/increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (112.6) (68.1) 148.5 414.9 164.1 120.8 (11.9) 655.7 1.2 (37.7) 78.3 $ 40.6 (132.0! 1141.21 535.1 1605.8) 20 9 .2 - 1322.81 1.6 30.7 476 $ 78.3 NoiV? ic i.o'i^oorxici'SFo'e'n^s, coqps 25 `o 4*? a*e "ife<?.*af pcw'5 .'-h3 'v'c .i J<* ire i_ .'nroiK^c/ecJ ri/H?ncc!? V'Hpi-wtfs /o, `iy^Wrpr.t:* .nf'.vfwiior >< rv os/' n-ysfir^ cc'1' `t'S ,'ee fv'/v<: J cn-J t';) fc ire (.. 0M50ncfcecJ firancrci' i/aiemniit /or fepp^rner-'c?/ i/i^noncn /e!c.`.no lo ncrcc'^r WwKriT'q yiMFra; 1993 $ 29.2 153 5 1590 (i 03.2) |50.5i 67.9 74.6 (177.7) 50 1 1173.9) 29.6 316.8 345.8 H027) 243 1 1309.6) (306.6) 143 U 464 8 27.2 15 4 inn 9i (128 4) 1512 6) 373.0 155.7 21.0 H5.5I ______ 9 _i105 91 1.5) _[l 5.2) ___62 8 $ 47.6 W.R.GBACE4CO gg 1995 ANNUAL REPORT CONSOLIDATED BALANCE SHEET Debars m motion, except pot vqhe December 31. 1995 Assets Currant Assets Cash aid cash equivalents Notes and accounts receivable, net (Note 8| Inventories (Note 8) Net assets of discontinued operations (Note 7) Deferred income taxes Other current assets Total Currant Assets $ 40.6 596.8 491.9 323.7 206.1 22.2 1,681.3 Prooerties and equipment, net (Note 9) Goodwill, less accumulated amortization of $20.6 (1994 - $71.81 Net assets of discontinued operations - health care |No!e 71 Asbestos-related insurance receivable (Note 2) Deferred income taxes Other assets (Note 8) Total Assets Liabilities and Shareholders' Equity Current Liabilities Short-term debt (Note 10) Accounts payable Income taxes Other current liabilities Minority interest (Note 13| Total Current Liabilities 1,736.1 111.8 1,435.3 321.2 386.6 625.3 $6,297.6 $ 638.3 339.2 103.3 836.4 297.0 2,214.2 long-term debt (Note 10) Other liabilities Deferred income taxes Noncurrent liability for asbestos-related litigation |Note 2) Total Liabilities Commitments and Contingencies (Notes 2, 7, 10 and 1 2) Shareholders' Equity (Note 14) Preferred stocks, $ 100 par value Common slock, $1 par value; 300,000.000 shares authorized; outstanding at December 31: 1995 - 97,375,000, 1994 - 94,083,000 Paid in capital Retained earnings Cumulative translation adjustments Treasury stock, 53,000 common shares, at cost Total Shareholders' Equity Total Liabilities and Shareholders' Equity lhe Notes to Consolidated financial Statements. pages 28 to 49 are integral ports of tfese statements 1,295.5 789.0 44.8 722.3 5,065.8 7.4 97.4 459.8 709.0 (39.4) (2.4) 1,231.8 $6,297.6 1994 $ 78.3 975.7 514.2 335.6 295 4 29.7 2,228.9 1,730.1 672.5 512.6 115.7 970.8 $6,230.6 $ 430 9 433.7 197.0 872.9 297.0 2,231.5 1,098 8 690 9 92.5 612.4 4,726.1 7.4 94.1 308.8 1,147.5 153.31 1,504.5 $6,230.6 W. R. GRACE & CO. |9 1995 ANNUAL DEPORT CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Ooih'S >n m^*ons 1995 Preferred Slocks Balance, beginning ol year Other Balance, end of year $ 7.4 - 7A Common Slock Balance, beginning of year Conversion of notes and debentures Stock options and awards Acquisition Balance, end of year 94.1 - 3.3 - 97.4 Paid in Capital Balance, beginning of year Conversion of notes and debentures Slock options and awards Acquisition Other Balance, end of year 308.8 - 151.1 - 1.1) 459.8 Retained Earnings Balance, beginning of year Net (lossl/income Dividends paid Balance, end of year Cumulative Translation Adjustments Balance, beginning of year Translation adjustments Balance, end of year 1,147.5 (325.9) (112.6) 709.0 (53.3) 13.9 139.4) Treasury Stock Balance, beginning of year Purchases of common stock Shares issuec under slock option plans Balance, end of year. Total Shareholders' Equity ' (12.1) 9.7 (2.4) $1,231.8 Th<? Notes to Consoiefated financial Statements, pages 28 lc 49, are integral parts cl these statements. 1994 $ 7.4 - 74 93.5 .6 - 94.1 287.8 - 20.5 .5 308.8 1,196.2 83.3 1132.0) 1,147.5 (67.3) 14.0 (53.3) - - $1,504.5 1993 $ 7.5 Ml 7.4 89.9 2.8 7 .1 93.5 151.4 109.7 22.9 3.7 .1 287.8 1,298.6 26.0 1128.4) 1,196.2 (2.4) (64.9) 167.3) $1,517.6 W.R. GRACES, CO. Q| 1995 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollars in mttl'ons, except pet share amount 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES W. R. Groce & Co., through its subsidiaries, is primarily engaged in the packaging and specialty chemicals businesses on a worldwide basis. W. R. Grace & Co. has classified its other businesses as discontinued operations, the most significant of which are its health care and cocoa businesses. As used in these notes to the consolidated financial statements, the term "Company" refers to W. R Grace & Co., a New York cocporaton. and the term "Grace" refers to the Company and/or one or more ol its subsidiaries. Principles of Consolidation -- The consolidated financial statements include the accounts of Grace ard majorityowned companies. Intercompany transactions and balances ate eliminated in consolidation. Investments in affiliated companies (20%-50% ownedl are accounted for under the equity method. Reclassifications -- Certain amounts in the prior years' consolidated financial statements and related notes have been reclassified to conform to the current year's presentation and as required with respect to discontinued operations. Us* of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities (including disclosed amounts of contingent assets and liabilities! at the date of the consolidated financial statements and the reported revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Cash Equivalents -- Cash equivalents consist of highly liquid instruments with maturities of three months or less when purchased. The recorded amounts approximate fair value because of the short maturities of these investments Inventories -- Inventories are slated at the lower of cost or market. The methods used to determine cost include firsHn/firstout and, for substantially all U.S. chemical inventories, lashin/firstout. Market va ues for row and packaging materials are based on current cost and, for other inventory classifica tions, on net tecfizoble value. Properties and Equipment -- Properties and equipment are staled at the lower of cost or net realizable value. Deprecation ol properties and equipment is generally computed using the straight-fine method over the estimated useful lives of the assets. Interest is capitalized in connection with ma|or project expenditures and amortized, generally on a straghtfine basis, over the estimated useful lives ol the assets, Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts urtil they are removed from service. In the case ol disposals, assets and related depreciation ate removed from the accounts and the net amount less any proceeds from disposal, is charged or credited to income Goodwil -- Goodwil arises from certain purchase transactions and is amortized using ihe straight-line method over appropriate periods not exceeding 40 years. Impairment -- Grace has adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the impairment of long-lived Assets and for longTived Assets to Be Disposed Of.' In accordance with this Statement, Grace reviews long-lived assets and related goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. W.R.GRACE&CO. El 1995 ANNUM. OEPOftT Income Taxes -- Grace uses an asset and liability approach lor the accounting and financial reporting of income taxes. Foreign Currency Translation -- Foreign currency transactions and financial statements (except for those relating to countries with' highly inflationary economies) are translated into U S dollars at current exchange rates, except that revenues, costs and expenses ore translated at average exchange rales during each reporting period. The financial statements of subsidiaries located in countries with highly inflationary economies must be remeasured as if the functional currency were the U.5. dollar. The remeasurement creates translation adjustments that are reflected in net income. Allocations for income taxes included in the translation adjustments account in shareholders' equity were net significant Financial Instruments -- Grace enters into interest rate agreements and foreign exchange forward and option contracts to manage exposure to fluctuations in interest and foreign currency exchange rates. The cash differentials paid or received on interest rote agreements are accrued and recognized as adjustments to interest expense. Gains and losses realized upon settlement of these agreements (recorded as other liabilities and other assets, respectively) ore deferred ond either amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remoins outstand ing, or recogrized immediately if itie underlying hedged instrument is settled. Cash flows related to ihe agreements are dassilied as operating activities in ihe Consolidated Statement of Cash Flows, consistent with the interest payments on the underlying debt. Gams and losses on foreign currency forward and option contracts offset gains and losses resulting from the underlying transactions. Gains and fosses on contracts that hedge specific foreign currency commitments are deferred and recorded in net income in the period in which the related transaction is consummated Gains and losses on contracts that hedge net investments in foreign subsidiaries are recorded in the cumulative translotion adjustments account in shareholders' equity. Earnings Per Share -- Primary earnings per share are computed on the basis of the weighted average number of common shares outstanding Fully diluted earnings per share assume the issuance of common stock equivalents related to employee stock options and, prior to 1994, the conversion of convertible debt |with an increase in net income for the after-tax interest savings!. 2. ASBESTOS AND RELATED INSURANCE LITIGATION Grace is a defendant in lawsuits relating to previously sold osbestos-contaming products and antici pates that it will be named as a defendant .n additional asbestos-related lawsuits in the future Giace was a defendant in approximately 40,800 asbestos-related lawsuits at December 31, 1995 (47 involving claims lor property damage and the remainder involving approximately 92,400 claims for personal injury), as compared to approximately 38,700 lawsuits at December 31, 1994 (65 involving claims for properly damage and the remainder involving approximately 67,900 claims for personal iniuryl. Property Damage Litigation The plaintiffs in properly damage lawsuits generally seek, among other things, to hove the defendants absorb the cost of removing, containing or repairing the asbestos-containing materials in the affected buildings. Through December 31,1995, 129 asbestos properly damage cases were dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grcce in 10 cases (excluding cases settled following appeals of judgments in lava of Grace and a case in which the plaintiff was granted a new trial on appeal); Grace was held liable for a W. R. GRACE & CO. 1995 ANNUAL REPORT total of $74.7 in 7 cases (2 of which are on appeal); and 177 property damage suits and claims were settled for a total of $421.8. Included in the asbestos property damage lawsuits pending against Grace and others at yearend 1995 was a class action, conditionally certified by the U.S. Court of Appeals for the Fourth Circuit in 1993 and pending in a U.S. District Court in South Carolina, covering all public and private colleges and un'versities in the U.S. whose buildings contain asbestos materials In July 1994, a South Carolina slate court judge dismissed the claims of most class members Irom another purported nationwide cbss action asbestos property damage lawsuit, b his ruling, the judge held that a South Carolina statute prohibits nonresidents from pursuing claims in the South Carolina state courts with respect to buildings located outside the state. The pbintiffs have requested that the court reconsider its decision. In December 1995, Grace entered into an agreement to settle a Pennsylvania stale court action, certified as a class action in 1992, covering all commercial buildings in the U.S. leased in whole or in part to the U S. government on or after May 30, 1986. The terms of the settlement agreement (which is subject to judicial review and approval after cbss members have an opportunity to be heard) are not expected to have a significant effect on Grace's consolidated results of operations or financial position. Personal Injury Litigation Through December 31, 1995, approximately 10,100 asbestos personal injury lawsuits involving 24,500 cbims were dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the bosis that Grace products were net involved), and approximately 23,700 such suits involving 29,600 cbims were aisposed of for a total of $ 109.0. Asbestos-Related liability Subject to the factors discussed below, Grace estimates that its probable liability with respect to the defense and disposition of asbestos property damage and personal injury lawsuits and cbims (sending at December 31,1995 and 1994 (and, in the case of the 1995 estimate, personal injury lawsuits and claims expected to be filed through 1998), is as follows: December 31, Current liability for asbestos-rebted litigation1'1 Noncurrent liability for asbestos-related litigation Total asbestos-related liability 1995 $100.0 722.3 $822.3 1994 $100.0 612.4 $712.4 'hcluded m 'Other cvre* GoW'Fw' ir fhe Ccrvchdafisd Bcbnce Shee` In the fourth quarter of 1995, Grace recorded a noncash pretax charge of $260.0 ($ 169.0 after lax) for asbeslos-retated liabilities, primarily to reflect the estimated costs to defend against and dispose of personal injury daims expected to be filed through 1998; Grace believes that it now has adequate experience to reasonably estimate the number of persona! injury cbims to be filed through 1998 and the costs of defending against and disposing of these daims. Cither components of the 1995 provi sion include increases in the estimated costs of defending against and disposing of certain property damage cases pending at yearend 1995 and oersonal injury lawsuits and cbims filed during 1995. While personal injury cases and cbims are genera.ly similar to each othe' (differing only in the type of asbestos-rebted illness allegedly suffered by tne pbintiff), Groce's estimated liability for such cases and cbims is influenced by numerous variables that are difficult to predict (including the insolven cy of other former asbestos producers, cross-cbims by codefendants, the rate at which new cases and claims are filed and the defense and disposition costs associated with these cases and daims). W. It GRACE 4 CO. Q 199J ANNUAL REPORT Consequently, ocluol costs may vary from any estimate. For these reasons, Grace believes that it is not possible b reasonably estimate the number of cases and cairns to be filed after 1998 or the costs of defending against and disposing of such cases ond claims. Each properly damage case is unique in that the age, type, size and use of the building, and the difficulty of asbestos abatement, if necessary, vary from structure to structure; thus, the amounts involved in prior dispositions of property damage cases are not necessarily indicative of the amounts that may be required to dispose of such cases in the futuie. In addition, in property damage cases, information regarding product identification on a building-bybuilding 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 mean ingful guidance as to potential fjture costs. However, much of this information is not yet available in some of the properly damage cases currently pending against Grace. Accordingly, it is not possible to estimate with precision the costs of defending against and disposing of these cases. Further, Grace believes that the number of properly damage coses to be f led in the future and the costs associated with these filings are not estimable. Asbestos-Related Insurance Receivable Grace's ultimate exposure with respect to its asbestos-reloled lawsuits and cla ms will depend on the extent to which its insurance will caver damages for which ir may be held liable, amounts paid in settlement and litigation costs. The following table shows Graces total estimated insurance recoveries in reimbursement for past and estimated future paymen's to defend against and dispose of asbestosrelated litigation and claims: December 31, Notes receivable from insurance carriers - current, net of discounts of $4,3 in 1995'" Notes receivable from insurance carrieis - noncurrent, net of discounts ol $7 3 in 19951'' Asoestos-relaled insurance receivable Total amounts due Irom insurance carriers "included m 'Not+s and occaunts receivable, net' m the Consolidated Qalonce Shee` Included m `Qthei assets * m the Consolidated Balance Shee'. At December 31, 1995, settlements with certain insurance carriers provided for the future receipt by Grace of $ 130.0, which Grace has recorded as notes receivable (both current and noncurrent) of $ I 18.4, after discounts. In 1995 Grace received a total of $257.3 pursuant to settlements with insurance carriers in reimbursement fot monies pteviously expended by Grace in connection with asbestos-related litigation: of this amount, $127.0 was received pursuant to settlements entered into in 1993 and 1994, which had previously been classified as notes receivable. During 1995, Grace settled with an affiliated group of carriers that had agreed to a settlement in 1993, had made a series of payments undet that agreement ond had subsequently notified Grace that it would no longer honor the agreement. Pursuant to the 1995 settlement, the group of carriers paid Grace $44.0 in 1995 and agreed to mcke additional payments totalling $60.2 in 1996 and 1997 Iwhich Grace has recorded as notes receivable, after discounts, of $54.5). Pursuant to a settlement with another group of carriers, Grace received $26.8 in 1995 and expects to receive an additional payment of $9.7 in 1996. Under both settlements, Grace will continue to receive payments based on future cosh outflows for asbestos-relatec litigation and claims; such payments are estimated to represent approximately $237.3 of the asbestos-related receivable of $321.2 at December 31, 1995. 1995 $ 62.0 56.4 321.2 $439.6 1994 $ 127.0 60.0 512.6 $699.6 W. It GRACE & CO. Q 1995 ANNUAL REPORT As a result of these settlements and a reassessment o( its insurance receivable, Grace recorded a noncash net pretax charge of $ 15.0|$9.7 aftertax) during the fourth quarter of 1995 to reflect a reduction in the receivable, primarily due to lower than anticipated settlements with insurance carriers and a discount on notes receivable in connection with prior settlements, partially offset by an increase in expected future reimbursements of costs to defend against and dispose of property damage cases pending at year-end 1995 and personal injury claims to be filed through 1998. Insurance Litigation Groce continues to seek to recover from its excess insurers the balance of the payments it has made with respect to asbestos-related litigation. As part of this effort, Grace continues to be involved in litigation with certain of its insurance carriers (having previously settled with certain primary and excess carriers, as discussed above). For the period October 1962 through June 1985 -- the most relevant period for asbestos-related litigation -- Grace purchased, on an annual basis, as much as eight levels of excess insurance coverage. |ln general, excess policies provde 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 the insurance companies that Grace believes to be solvent (based primarily upon reports from a leading independent insurance rating service) provide nominal coverage of approximately $1,200 0 (including the amounts reflected m the receivable discussed above). However, (a) a portion of the personal injury lawsuits and claims pending at year-end 1995 and expected to be filed against Groce through 1998 will likely relate to periods for which no excess coverage is available: and |b) even where such excess coverage is available, the number of personal injury lawsuits and claims pending at year-end 1995 and expected to be filed against Grace in lire future is not expected to be sufficient to result in significant payments under such coverage. Further, as a result of the May 1994 decision of the U.S. Court of Appeals for the Second Circuit, discussed below, a significant portion of the nominal excess coverage is not available in connection with property damage lawsuits, In addition, $ 142.0 of the $ 1,200.0 relates to excess coverage written by a group of insurance carriers that, while currently solvent, has experienced financial difficulties in recent years. This group of earners settled with Groce in 1995 las discussed above) The asbestos-related receivable of $321.2 at December 31, 1995 includes $54 7 to be paid by this group; management believes this amount is fully collectible. As previously reported, in September 1993 the U S. Court of Appeals for the Second Circuit ruled that, under New York law (which governs a significant portion of the policies that provide Grace's asbestos-related insurance coverage!, such coverage is triggered based on the dale of installation of asbestos-containing materials. As a result of his decision (which had the effect of reducing the amount of insurance coverage available to Grace with respect to asbestos property damage litigation and cbimsl, Grace recorded a noncash pretax charge of $475.0 ($300.0 after-tax| in the 1993 third qjarler. Grace reversed $3160 ($200.0 after-tax) of the pretax charge in the 1993 fourth quarter after the court withdrew its September 1993 decision end agreed to rehear the case, but reinstated the $316 0 pretax charge |$200.0 after-tax) in the second quarter of 1994, when the court issued a new decision confirming its September 1993 decision. Because Groces insurance covers both proper ty damage end personal injury lawsuits and claims, the May 1994 decision hes had the concomitant effect ol reducing the insurance coverage available with respect to Grace's asbestos personal injury lawsuits and claims. However, in Grace's opinion, it is probable that recoveries from its insurance carriers (including amounts reflected in the receivable discussed above), along with other funds, will be available to satisfy the personal injury and property damage lawsuits and claims pending at December 31,1995, as well as personal injury lawsuits and claims expected to be filed through 1998. Consequently, Groce believes that the resolution of its asbestos-related litigation will not hove a material adverse effect on its consolidated results of operations or financial position. W. R. GRACE S CO. Q 1995 ANNUAL REPORT 3. ACQUISITIONS AND DIVESTMENTS Acquisitions During 1995, Groce made acquisitions totalling $260.8 lindusive of cash acquired and debt assumed), all of which involved cash purchases of kidney dialysis centers and medical imaging facili ties by National Medical Care, Inc. |NMC), Grace's principal health care subsidiary. Acquisitions in the first quarter of 1995, prior to the classification of NMC as a discontinued operation (see Note 7|, totalled $41.1 (inclusive of cash acquired and debt assumed). Acquisitions by NMC subsequent to the first quarter of 1995 are presented as an invresting activity and are included in "Increase in net assets or discontinued operations' in ihe Consolidated Statement of Cash Flows. In 1994, Grace made acquisitions totalling $351.7 (inclusive of cash acquired and debt assumed), primarily in health care. Grace acquired Home Nutritional Services, Inc. for approximately $131.8 (indusive of cash and assumed debt totalling $30.4) and acquired kidney dialysis centers and other health care businesses during 1994 for an aggregate of approximately $145.3 in cosh. 1994 acquisitions also included construction chemicals businesses and a European flexible packaging business. In 1993, Grace acquired Home Intensive Care, Inc. for approximately $ 129.0 in cash and acquired other health care businesses fa an aggregate of $115.0 in cash and $3.8 in common stock. Additionally, during 1993 Grace acquired Latin America's largest water treatment business for approximately $57.6 in cash. Divestments During 1995, Grace realized gross proceeds of $58.8 (inclusive of debt assumed by the buyers) (torn divestments, including payments received in connection with divestments completed in prior years. The operations divested in 1995 consisted of three small units of Groce's construction products business, the composite materials business (previously classified as a discontinued operation!, Grace's transportation services business and various investments. In 1994, Grace realized grass proceeds of $646.2 (inclusive of debt assumed by the buyers) from divestments, including payments received in connection with divestments completed in prior years. Substantially all of the businesses divested during 1994 had previously been classified as discontinued operations. Divestment proceeds received in 1994 included $42.8 for Grace's remaining interest in The Restaurant Enterprises Group, Inc. (REG). In 1993, Grace completed the sale of substantially all of its oil and gas operations, as well as certain corporate investments, all of which hod previously been classified as discontinued operations. Other noncore businesses divested during 1993 included a 50% interest in a Japanese chemical operation and a food industry hygiene services business for approximately $31.4 and $11.2, respectively. See Note 7 for a discussion of divestment activity related to discontinued operations. 4. OTHER INCOME Interest income Equity in earnings of affiliated companies Gams on sales of investments Other, net 1995 Jf5l .2 3.1 22J 1994 TT3 2.1 27.3 11.9 $426 1993 $22.6 .6 22.9 11.7 $578 W. R. GRACE A CO. Q 1995 ANNUAL REPOST Interest income in 1995 and 1993 includes $9.8 and $20.0, respectively, relating to the settlement of prior years' Federal income tax returns. Gains on sales of investments include a 1994 gain of $27.0 on the sole of Graces remaining interest in REG and a 1993 gain of $21.7 on the sale of a 50% interest in a Japanese chemical operation (see Note 3). Other, net in 1995 includes a $5.4 gain on the sale of Graces transportation services business. 5. RESTRUCTURING COSTS AND ASSET IMPAIRMENTS Restructuring Costs During the third quarter of 1995, Grace began implementing a worldwide restructuring program aimed at streamlining processes and reducing general and administrative expenses, factory administra tion costs and noncore corporate research and development expenses. The Drogram is expected to be substantially completed by the end of 1996. In the third and fourth quarters of 1995, Grace recorded pretax charges totalling $44.3 and $91.7 ($27.2 and $61.9 aftertax!, respectively, comprised of $77.4 for employee termination benefits; $13.4 for plant closure and related costs, induding lease termination costs; $ 15.5 for prior business exits and related costs; $20.8 for asset writedowns; and $8.9 lor other costs. The $77.4 for employee termination benefits primarily represents severance pay and other benefits associated with the elimination of approximately 1,000 positions worldwide; more than 50% of the total cost reductions will come from corporate staff functions worldwide. Through December 31,1995, Grace recorded approximately $25.4 in costs against its 1995 restructuring reserve, of which $19.6 represented cash expenditures and $5.8 represented the non cash effects of asset writedowns and losses on asset sales. The $ 19.6 of cash expenditures were comprised of $ 13.0 in partial payments of employee termination benefits for aver 500 employees, $3.0 for consulting services to develop the restructuring program, and $3.6 of other costs. Asset Impairment* During 1995, Grace determined that, due ra various events and changes in circumstances (including the worldwide restructuring program described above), certain long-lived assets and related goodwill were impaired. As a result, in the fourth auarter of 1995, Groce recorded a $43.5 pretax charge ($29.0 aftertax), the majority of which related to assets that will continue to be held and used in Graces continuing operations; the charge included no significant individual components. Grace determined the amount of the charge based on various valuation techniques, including discounted cash flow, replacement cost and net realizable value for assets to be disposed of. 6. INCOME TAXES Grace applies SEAS No. 109, 'Accounting lor Income Taxes,' which uses an asset and liability approach requiring the recognition of deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recorded in the consolidated financial statements and lax returns. If it is more likely than not that aH or a portion of a deferred tax asset will not be realized, a valuation allowance must be recognized. W. R GRACE A CO. Q| 1995 ANNUAL HKttT The components of (loss|/income from continuing ooerations before income taxes and the related Ibenefit from)/provision for domestic and foreign taxes are as follow: Domestic Foreign W5 $(424.01 1114 $(31241 Federal income taxes: Current Deferred State and local income taxes - current Foreign income taxes: Current Deferred $ 34.3 (160.01 .7 61.0 $(115.8) The components of |bss)/income from consolidated operations before income taxes and the related (benefit from)/provision for domestic and foreign taxes are as follows: 1995 Domestic Foreign Federal income taxes: Current Deferred Stale and bcol income taxes - current Foreign income taxes: Current Deferred $(480.5) 72.7 $(407.8) $ 105.6 (226.3) 21.7 684 (514) $ 181.9) The components of consolidated (benefit from|/provision for taxes are as follows: Continuing operations Discontinued operations: Operations Loss on disposals of operations 1995 $1115.8) 824 (48.7) $ (81.9) 1994 $1181.71 93.7 ) (88.0) $ (80.9) (6.4) 1.9 44.0 15.2) $ 146.61 1994 $ 44.3 94.8 $ 139.1 $ 25.3 134.8) 21.8 49.1 15.61 $ 55.8 1994 $ (46.6) 102.4 - $ 55.8 1993 $ (70.5) 99.7 $ 29.2 $ 1.6) (30.5) 3.0 39.8 (1.61 $ 10.1 1993 $ (4.61 95.9 $ 91.3 $114.9 (147.4) 32.7 444 20.7 $ 65.3 1993 $ 10.1 77.5 (22.31 $ 65.3 W.R.GRACE ACO. Q 1993 ANNUAL REPORT At December 31,1995 and 1994, deferred tax assets and liabilities consisted ol the following items: Reserves not yet deductible for tax purposes Provision relating to net asbestos-related expenses Research and development expenses PostretiremenI benefits other than pensions State deferred taxes Pension and insurance reserves Capital zed inventory costs and inventory reserves Net operating 'oss carryforwards Tax credit carryforwards Other Total deferred tax assets Depreciation and amortization Prepaid pension cost Other Tola 'deferred tax liabilities Valuation allowance for deferred tax assets Net deferred tax assets 1995 $223.6 219x4 115.8 88.9 70.1 35.2 11.9 47.1 27.2 43.9 883.1 112.6 104.8 20.1 237.5 97.7 55473 1994 52544 36.2 107,3 93 3 37.5 14 8 15.3 54.4 49 0 54.4 716.6 167 4 72.3 21.3 261.0 137 0 $318.6 The valuation allowance shown above arisesi from uncertainly is to the realization of certain deferred lax assets, including U.S. lax credit carryforwards, state and local net operating loss carryforwards and net deferred tax assets. As a result of the favorable resolution of an audit, the valuation allowance on net operating loss carryforwards in foreign jurisdictions was reversed in 1995. Based upon anticipated future results. Grace has concluded, after consideration of the valuer tion allowance, that it is more likely than not that the remaining balance of the net deferred lax assets will be realized. At December 31,1995, there were $25.3 of tax credit carryforwards with expiration dates primarily through 1996 and $ 1.9 of tax credit icarryforwards with no expiration. Additionally, there were state and local and foreign net operating bss carryforwards with o tax benefit of $47.1 ond various expiration dates. The U.S. Federal corporate tax rate reconciles to the effective tax rate for continuing operations as follows: U.S. Federal corporate tax rale lncrease/|decrease| in tax rate resulting from: Nontaxable income/nondeductible expenses Basis diffetence on sale of investment Slate and local income taxes, net of U S Federal income tax benefl U.S. and foreign taxes on foreign operations Uti'izalion of general business credits Impact of U.S. and foreign tax tote changes on deferred taxes Valuation allowance for deferred tax assets Other, net Effective tax rale 1995 [35.01% (.7) - .2 9.8 w 114.4) 3.5 137.1 >% 1994 135.0)% 11.4) (10.5) 1.5 3 |9.1| - 12 (53.01% 1993 35 0% 129.5) - 6.8 75 0 118.5) 125.2) (2.8) (6.2| 34.6% U.S. and foreign taxes have not been provided on approximately $256.1 of undistributed earnings of certain foreign subsidiaries, as such earrings are expected to be retained indefinitely by such subsidiaries for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes of approximately $ 14.9 and additional U.S. Federal income taxes to the extent they are not offset by foreign lax credits. It is not practicable to estimate the total tax liability that would be incurred upon such a distribution. W.R.GRACI & CO. Q 1995 ANNUAL REPORT 7. DISCONTINUED OPERATIONS Health Cars In June 1995, the Company announced that its Board of Directors had approved a plan to spin off NMC. As a result, Grace classified its health care business as a discontinued operation in the second quarter of 1995 and, accordingly, NAAC's operations are included m "(loss)/income from discontin ued operations" in the Consolidated Statement of Operations. following NMC's receipt in October 1995 of five investigative subpoenas from the Office of the Inspector General of the U.S. Department of Health and Human Services (OK3|, as discussed below, the completion of the spinoff of NMC, originally expected in the 1995 fourth quarter, was delayed. In February 1996, Grace and Fresenius AG |Fresenius| entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business (FWD| to create Fresenius Medical Care |FMC). As a result of the combination, FMC would acquire NMC, which would remain responsible for all liabilities arising out of the investigations, discussed below. However, Groce would retain certain health care assets, primarily a bioseparation sciences business, a health care services company and other assets (including cash and marketable securities!. The combination would follow a borrowing of approximately $2.3 billion ay NMC. a tax-free distribution of the proceeds by NMC to Groce, and a tax-free distribution by the Company, with respect to each share of its Common Stock, of one share of a newly farmed corporation holding all of Groce's businesses (principally its specially chemicals businesses; olher than NMC. As a result of the separation of Groce's specialty chemicals businesses from NMC and the subsequent combination of NMC and FWD, the holders of ihe Company's Common Stock would own 100% of ihe specialty chemicals company and 44.8% of FMC, and Fresenius and other shareholders would own 55.2% of FMC. The holders of the Company's Common Stock would also awn preferred stock, the value of which would be linked to trie performance of FMC. Completion of the various transactions is subject to customary conditions, including the approval ol the shareholders of the Company and Fresenius; U.S., German and European regulatory actions; and obtaining financing on satisfactory terms. Commitments for financing have been received, and it is expected Ihot Ihe various I'ansactions will be completed by the third quarter of 1996. O/G /nvestrgatrve Subpoenas In October 1995, NMC received five investigative subpoenas from the OiG. The subpoenas coll for the production of extensive documents relating to various aspects of NMCs business. A letter accom panying trie subpoenas staled that Ihey had been issued in conjunction with an investigation being conducted by the OIG, the U.S. Attorney for the District of Massachusetts and others, concerning possible violations of Federal laws relating to health care payments and reimbursements. The five subpoenas cover the following areas: (a) NAAC's corporate management, personnel and employees, organizational structure, financiaf Information and internal communications; |b) NMCs dialysis services business, principally medical director contracts and compensation; (c| NAAC's treat ment of credit balances resulting from overpayments received under ihe AAedicare end stage renal disease (ESRD) program and its payment of supplemental medical insurance premiums on behalf of indigent patients; (d| NMCs LifeChem laboratory business, including documents relating to testing procedures, marketing, customers, competition and certain overpayments totalling approximately $4.9 that were received by lifeChem from the Medicare program with respect to laboratory services rendered between 1989 and 1993; and |e| NAAC's Homecare Division and, in particular, information concerning the intradialytic parenteral nutrition |IDPN) business described below, including billing practices related to various services, equipment and supplies and payments made to third parties as compensation for administering IDPN therapy. WR.GRACE A CO. Q 1995 ANNUAL REPORT The results of the investigation and its impact, il any, cannot be predicted at this time. In the event that a U.S. government agency believes that any wrongdoing has occurred, civil and/or criminal proceedings could be instituted, and if any such proceedings were to be instituted and the outcome were unfavorable, NAAC could be subject to fines, penalties and damages or could become excluded from government reimbursement programs. Any such result could have a material adverse effect on NAAC's financial position or the results of operations of NMC and Grace. 08RA 93 The Omnibus Budget Reconciliation Act of 1993 IOBRA 93) affected the payment of benefits under Medicare and employer health plans for certain eligible ESRD patients. In July 1994, the Health Gate Financing Administration (HCFA) issued an instruction to Medicare claims processors to the effect that Medicare benefits for the patients affected by OBRA 93 would be subject to a new 18-month 'coordi nation of benefits' period. This instruction had a positive impact on NMC's dialysis revenues because, during the 18-month coordination of benefits period, the patient's employer health plan was responsi ble for payment, which was generally at a rate higher than that provided under Medicare. In April 1995, HCFA issued a new instruction, reversing its original instruction in a manner fiat would substantially diminish the positive effect of the initial instruction on NMC's dialysis business. Under the new instruction, no 18-month coordination of benefits period would arise, and Medicare would remain the primary payor. HCFA further proposed that its new instruction be effective retroactive to August 1993, the effective date of OBRA 93. Consequently, NMC may be required to refund payments received from employer health plans for services provided after August 1993 under HCFAs original instruction and to rebill Medicare for the same services, which would result in a cumulative reduction of net revenues to NMC totalling approximately $ 120.0 os of December 31,1995. Effective July 1, 1995, NAAC ceased to recognize the incremental revenue realized under the original instruction, which has resulted in a material reduction in NAAC's operating earnings in comparison to prior periods in which NAAC recognized such incremental revenue. However, NMC continued to bill the employer health plans as primary payors through December 31,1995, at which time NMC commenced billing AAedicare for the patients affected by OBRA 93. In AAay 1995, NAAC filed suit in the U.S. District Court for fie District of Columbia seeking a declaratory judgment with respect to HCFAs instructions relating to OBRA 93. In June 1995, the court granted NAAC's motion for a preliminary injunction to preclude HCFA from retrooctively enforcing its new instruction. The litigation is continuing with respect to NAAC's request to permanently enjoin HCFAs new instruction, both retrooctively and prospectively. While there can be no assurance that a permanent injunction will be issued, NAAC believes that il will ultimately prevail in its cbim that the retroactive reversal by HCFA of its original instruction relating to OBRA 93 was impermissible under applicable law. If HCFAs revised instruction is upheld, NAAC's business, financial position and results of operations would be materially adversely affected, particularly if the revised instruction is applied retroactively. IDPN Therapy NAAC administers IDPN therapy to chronic dialysis patients who suffer from severe gastrointestinal malfunctions. Since late 1993, AAedicore claims processors have applied medical coverage interpretations in a manner that has sharply reduced the number of IDPN claims approved for payment as compared to prior periods. NAAC believes that the reduction in IDPN claims currently being paid by AAedicare represents an unauthorized policy coverage change. Accordingly, NAAC and other IDPN providers are pursuing various administrative and legal remedies, including administrative appeals, to address this reduction. In November 1995, NAAC liled a complaint in fie U.S. District Court for WR.GRACEACO.QI 1?M ANNUM REPORT ihe Middle District of Pennsylvania seeking a declaratory judgment and injunctive relief to prevent the implementation of this policy coverage change. NMC management believes that its IDPN claims are consistent with published Medicare coverage guidelines and ultimately will be approved for payment. Such claims represent substantial accounts receivable of NMC, amounting to approximately $93.0 and $28.0 as ol December 31, 1995 and 1994, respectively, and currently increasing at the rate of approximately $5.0 per month. If NMC is unable to collect its IDPN receivable, or if IDPN coverage is reduced or eliminated, depending on the amount of the receivable that is not collected and/or the nature of the coverage change, NMC's business, financial position and results of operations could be materially adversely affected. In addition, a current draft of a new coverage policy would limit or preclude continued coverage of IDPN therapy and thereby have a material adverse effect on NMCs financial position and results of operations. Other Legal Proceedings NMC has received multiple subpoenas from a Federal grand jury in the District of New Jersey investi gating, among other things, NMC's efforts to persuade the U.S. Food and Drug Administration to lift a January 1991 import hold issued with respect to NMC's Dublin, Ireland facility, whether NMC sold defective products, the manner in which NMC handled customer complaints and the development of a new dialyzer product line. Grace has also received two subpoenas relating to this investigation. In February 1996, the U.S. Attorney (or the District of New Jersey notified NMC that it is a target of the New Jersey grand jury investigation, insofar as it relates la possible violations of Federal criminal bw in connection with efforts to affect theJanuary 1991 import hold referred to above; the material element of the import hold was lifted in 1992. In addition, in December 1994, a subsidiary of NMC received a subpoena from a Federal grand jury in the Eastern District of Virginia investigating the con tractual reblionships between subsidiaries of NMC that provide dialysis services and third parties that provide medicol directorship and related services to those subsidiaries. The outcome of these investiga tions and their impact, if any, on NMC's business, financial condition and results of operations cannot be predicted at this time. Cocoa, Battery Separator! and Engineered Material* and System* In the second quarter of 1993, Groce classified as discontinued operations its cocao business; its battery separators business; certain engineered materials businesses, principally its printing products, material technology and electromagnetic radiation control businesses (collectively, EMS); and other noncore businesses. At that time, a provision of $ 105.0 (net of an applicable tax benefit of $22.3) was recorded to reflect the losses expected on the divestment of these businesses. During the fourth quarter of 1995, Grace revised the divestment pbn for its cocoa business. The revised pbn focuses on the improvement of operating cash flow through the adoption of new strate gies and a new global organizational structure, while simultaneously positioning the business far sale. Grace expects to implement the revised plan and to conclude the sate of its cocoa business by the fourth quarter of 1996. As a result of this revised divestment plan, recent trends and a reassessment of forecasts for all remaining discontinued operations, Grace recorded an additional provision of $ 151.3 (net of an applicable tax benefit of $48.7} related to its remaining discontinued operations, principally the cocoa business. During 1994, Grace sold its battery separators business and other EMS businesses far gross proceeds of $316.2, approximating prior estimates. In February 1995, Grace sold its composite materials business far gross proceeds of $3.0, leaving its microwave business as the only unsold EMS business. WR. GRACE*CO Q 1993 ANNUA1 REPORT Groce Energy In ] 994, Grace sold substantially all of its interests in Cofowyo Coal Company ICdowyol, Groce's only remaining significant energy operation, for proceeds of $218.3, including $ 192.8 of proceeds from a nonrecourse financing secured by a portion of the revenues from certain longterm coal contracts. Grace retained a limited partnership interest in Coiowyo, entitling it to share in the revenues from these coal contracts. In 1993, Groce sold substantially all of its oil and gas operations for net cash proceeds of $386.0. The total proceeds received from these divestments approximated prior estimates. Other In 1994, Groce sold its animal genetics and Caribbean fertilizer operations for proceeds of $44 1. These and other businesses were classified as discontinued operations in 1993. In 1993, Grace completed the sale of its minority interests in Cancnie Environmental Services Corporation and GraceSierra Horticultural Products Company for total proceeds of $41.3. Losses from Groce's discontinued operations, other than its discontinued health care operations, subsequent to their classification as such were $45,2, $14.2 and $54,6 in 1995, 1994 and 1993, respectively; these amounts have been charged against established reserves, including adjustments to those reserves in 1995. The sales and revenues and results of the discontinued health care operations for 1995, 1994 and 1993, and the 1993 sales and revenues and resuts of the other discontinued operations, prior to their classification as such, ore as follows: Hoaifh Car* Sales and revenues Income from operations before raxes'1 Inccme fax provision Income horn discontinued operations Cocoa, Battery Separators and EMS Soles and revenues loss from operations before taxes'" Income fox provision Loss from d scontinued operations Other Sales and revenues loss from operations before taxes'1' Income tax benefit loss from discontinued operations 1995 $2,076.8 $ 104.6 82.6 $ 22.0 - - - - - - - - 1994 $1,875 1 $ 227.1 102 4 $ 124.7 - - - - 1993 $1 .512.9 $ 192 0 76 7 $ 115.3 $ 235 9 $ 19! HU $ (2.0) $ 144 $ (1 7) .3 $ (1 4) Total operating results of discontinued operations Net pretax loss on disposals of operations Income lax benefit or disposals of operations $ 22.0 (200.0) 48.7 $ 124.7 - $ 1119 (127 3) 22 3 Total |loss)/income from discontinued operations $ (129.3) $ 124.7 $ 69 defects on allocation at notes* expense based or the rone the net ossets of `he businesses ebsstkeo as discontinued operators o$ contooied to G'aces tool coptOi abo*e coe'an^g feiu!ts include mtere:t expense allocations ci $?3.5. $60 A ana $&3 9 b> / 995 / W4 and J99J tespec'ively For financial reporting purposes, the assets, liabilities, results of operations and cash flows of Grace Cocoa Associates, IP. (IP) |see Note 13) ore included in Graces consolidated financial statements as a component of discontinued operations, and the outside investors' interest in LP is reflected os a minority interest in the Consolidated Balance Sheet. W.R.QRACE & CO. Q| 1993 ANNUAL RETORT The net assets of Grace's remaining discontinued operations (excluding intercompany assets) ol December 31,1995 are as follows: Current assets Properties end equipment, net Investments in and advances to affiliated companies Other assets Total assets Current liabilities 'Other liabilities Total liabilities Net assets Car* $ 665 9 399.3 - 993.7 $2,058 9 $ 533.8 89.8 $ 623.6 $1,435 3 Cocoa $280.4 193.8 - 62 2 $536 4 $193 1 92.5 $2856 $250.8 Othrsr $21.1 21 9 35.2 18.0 $96.2 $12.7 106 $23.3 $72 9 Total $ 967.4 615.0 35.2 1.073 9 $2,691.5 $ 739.6 192 9 $ 932 5 $1,759.0 8. OTHER BALANCE SHEET ITEMS Notes and Accounts Rocaivoble Trade receivables, less allowances of $ 12 8 11994 - $95.11 Notes receivable from insurance carriers - current, net of discounts of $4.3 in 1995 Other receivables, less allowances of $. 1 (1994 -- $. 1) Inventories Raw and packaging materials In process Finished products General merchandise Less: Adjustment of certain inventories to a lost-in/first-oul (LIFO) basis Other Assets Prepaid pension cos's Patient relationships, less accumulated amortization of $1 17.2 in 1994 Deferred charges Long-term receivables, less allowances of $24 7 (1994 - $20 6| long-term investments Notes receivable from insuranco corriers - noncurrenl, riel of discounts of $7.3 in 1995 Polents ond licenses Investments in ond advances to affiliated conpanies Other 1995 $4883 62.0 463 $5963 $137.1 78.0 248.6 76.6 (48.4) $491.9 $245.8 - 106.9 83.5 69.4 56.4 34.0 173 11.9 $625.3 During 1995 and 1994, Grace entered into agreements to sell up to $ 120.0 and $320.0, respectively, of interests in designated pools of trade receivables lexckding $ 180.0 in 1995 pertaining to the discon tinued health care operations). At December 31, 1995 and 1994, $1160and $296.8, respectively, had been received pursuant to such sales (excluding $ 179.8 in 1995 pertaining to the discontinued health care ooerations); these amounts are reflected as reductions to trade accounts receivable. Under the terms of these agreements, new interests in trade receivables are sold as collections reduce previously sold trade receivables. While only interests in designated poos of trade receivables are sold, the entire designated pools are available as the sole recourse with respect to the interests sold. There is no further recourse to Grace, nor is Grace required to repurchase any of the trade receivables in the pools. The costs related to such sales are expensed as incurred and recorded as interest expense and related financing costs. There were no gains or losses on these transactions. Inventories valued at UFO costjcomprised 21.6% and 18.9% of total inventories at December 31, 1995 and 1994, respectively. The liquidation of prior years' UFO inventory iayers in 1995, 1994 and 1993 did not maleraHy affect cost of goods sold in any of these years. W.R.ORACE&CO. Q| 1995 ANNUM REPORT 1994 $742.0 127.0 106.7 $975.7 $1293 75.3 289.5 62.7 (43 II $5142 $226.6 214.9 124.9 92.3 79 3 60.0 39 9 560 76.9 $970 8 9. PROPERTIES AND EQUIPMENT Land Buildings Machinery, equipment and other Protects under construction Properties and equipment, gross Accumulated depreciation and amortization Properties and equipment, net 1995 $ 44.1 595.5 1,967.1 548.2 3,154.9 IMI8.8I 5 1,736.1 1994 $ 52 4 698.3 2,080.2 397.4 3,228.3 (1,498.2) $ 1,730.1 Interest costs ore incurred in connection with the financing of certain assets prior to placing them in service. Interest costs capitalized in 1995, 1994 and 1993 were $21.3, $9.4 and $7.4, respectively. Depredation and lease amortizction expense relating to properties and equipment amounted to $170.4, $158.0 ond $146.3 in 1995, 1994 and 1993, respectively. Graces rental expense for operating leases amounted to $25.7, $28.8 ond $34.3 in 1995, 1994 and 1993, respectively. See Note 12 lor information regarding contingent rentals. At December 31,1995, minimum future payments for operating leases are: 1996 1997 1998 1999 2000 Later years Total minimum lease payments $ 28.0 22.6 190 15.4 14.5 26.8 $126.3 The above minimum lease payments reflect sublease income of $ 11.6 per year for 1996 through 2000 and a total of $28.0 in later years. Short-Term Defat Bonk borrowings (6.2% weighted average interest rale at yeorend I995)1" Current maturities of longterm debt Other shortterm borrowings01 Long-Term Debt Commercial paper (6.2% and 6.0% weighted average interest rates at year-end 1995 and 1994, respectively),', Bank borrowings (6.2% and 5.8% weighted average interest rates at year-end 1995 ond 1994; respectivefy)'" 8 0% Notes Due 2004"7 4% Notes Due 2000"r' 7.75% Notes Due 2002" 6.5% Notes Due 1995" Term loan Agreement (6.3% weighted average interest rate at year-end 1995P Medium-lerm Notes, Series A |6.9% weighted average interest rale at yeorend 1995 and 1994)* Sundry indebtedness with various maturities through 2002 Less current maturities of longterm debt Full-year weighted overage interest rate on total debt'"' 1995 $ 295.3 22.2 320.8 $ 638.3 $ 45.7 304.3 300.0 287.0 131.0 30.0 128.5 91.2 1,317.7 22.2 $1,295.5 7.8% 1994 $166.6 264.3 $ 430.9 $ 5.5 103.5 300.0 300.0 150.0 150.0 128.5 127.9 1 ,265.4 166.6 $1 ,098.8 5.8% "'Under bank revolving credit agreements m effect at yeanend 1995, Grace may borrow up *> $950.0 at interest tales based upon the prevailing prime. Federal funds and/or Eurodollar roles. Of that amowl._$d00.0 is available under shortterm facilities, with $350.0 expiring on August 29, 1996 and $250.0 enpntng on September 30, 1996; ond $350.0 is available under a long-term facility eiesmng on September 1, 1999 These agreements also support me issuance of commerce! paper and bat* borrowings, $645 3 a! vffikh was outstanding or December 31, 1995 included m Short-Term ond long-term Debrabovel- At Oecember 31. 1995, the aggregate amount of net unused and unreserved borrowings under the shortterm and longterm facilities mas $304 7. Groce's ability to borrow under the current facilities is subject to compliance with various covenants, including maintenance at rahos ot total debt to total capuoUzahcn and interest coverage W. R. GRACE & CO. Q 1993 ANNUM REPORT Represents borrowings under various lines of credit and other miscellaneous borrowings, primarily of ooo-U S subsidies During the tfrrd quarter of 1994, Grac* soid $300.0 of 8.0% Notes Du* 2004 at on mitral public offering price of 99 794% of par. to yield 8.03% Interest is payable -semiannually, and the Notes may not be redeemed prior to maturity ,} During it* first quarter of 1993, Groce sold at par S300.C of 7 4% Notes Due 2000. Interest is payable semannuolfy, and the Notes may not be redeemed pnor to maturity. however, Groce has repurchased Notes ham lime to time in response to unsolicited offers received through bonis and brokers. "During the thud quart* of 1992, Grace sold at par $150 Oof 775% Notes ft* 2002. Interest is payable semannuoify, and the Notes may not be redeemed pnor to mohjniy. however Groce has repurchased Notes from hme to time in response to unsclictted offers received through bonks and brokers * During the fourth qvaner of 1992. Groce sold $1500 of 6.5% Notes Due 1995 or on mitral pubhc offering price ok 99 758% d par, to yield 6 59% The Notes vmre paid at maturity tn the fourth quarter of 1995 During `he second qucner of 1995, Grace entered <nto a threeyear term loan agreement with a matunty dote of April 24, 1998 The agreement provides for interest or o Eurodollar Hooting rote, wth interest payable semamuolly. 1 During the second quarter of 1994, Groce entered mto on agreement providing for the issuance and sale from time to rime of #s Medium-lerm Notes, Senes A iMTNsI, with on aggregate issue pnce of up to $300.0 The MTNs may bear interest oi either fixed or floating rotes and hove matunty dates more bon nine months from <he*i respectrve dates of issuance interest on each frxeo rate MIN is payable semiannually, and interest on each Hooting rate MTN is payable as established at the *me of issuance M Computation includes <nteres/ expense allocated to discontinued operations Payment ot a majority of Graces borrowings may be accelerated, ond its principal borrowing agreements terminated, upon ibe occurrence of a default under certain Grace borrowings. Scheduled maturities of longterm debt outstanding at December 31,1995 are: 1996 - $22.2; 1997- $113.2; 1998-$46.4; 1999-$351.2; 2000 - $350.3; and thereafter - $434.4. Interest expense, excluding related financing costs and amounts allocated to discontinued operations, for 1995, 1994 and 1993 amounted to $53.3, $30.9 and $33.7, respectively. Including amounts allocated to discontinued operations, interest payments made in 1995, 1994 ond 1993, excluding related financing costs, amounted to $183.1, $101.8 and $109.0, respectively. A registration statement that became effective in 1994 covers $750.0 of debt and/or equity securities that moy be sold from lime to time. At December 31,1995, $321 5 (including up to $ 171.5 of MTNs) remain available under be registration statement. 11. FINANCIAL INSTRUMENTS Long-Term Debt/lnteresl Rate Agreements To manage exposure to changes in interest rates, Grace enters into interest rale agreements, most of which have the effect of converting fixed-rate debt into variable-rate debt based on the London Interbank Offered Rate. At December 31,1995 and 1994, the notional amounts of Groces interest rale swaps consist of ihe following: $ 1,219.5 and $1,013.5, respectively, which convert fixeckate debt into voriablerote debt; and $626.0 and $1,200.0, respectively, which convert variable-rate debt into fixeckate debt. Nctional amounts do not quantify risk or represent assets or liabilities of Grace, but are used in ihe calculation of cash settlements under the agreements. Graces debt and interest rale management objective is to reduce its cost of funding over the long term, considering economic conditions and iheir potential impact on Grace. The strategy emphasizes improving liquidity by developing ond maintaining access to a variety of long-term ond shortterm capital markets. Grace enters into standard interest rate swaps that have readily identifiable impacts on interest cost and are characterized by broad market liquidity. Grace is not a party to leveraged interest rale agreements. During 1995 and 1994, Grace realized (negative)/positive cash flows of $( 16.5) and $ 10.0, respectively, from interest rale agreements. Realized gains and losses on interest rate agreements are amortized to interest expense ever a period relevant to ihe agreement (I - 10 years): at December 31,1995 and 1994, unamortized net gains were $31.7 and $43.0, respectively. At December 31,1995 and 1994, Grace would have been required to pay $32.5 ond $118.1, respectively, to retire these agreements. The maturities and notional amounts of the swaps closely math underlying debt instruments. This will result in the changes in the fair value of swaps being substantially offset by changes in the fair value of the debt. W. R. GRACE & CO. Q 1995 ANNUAL REPORT Fair Value of Financial Instruments At December 31, 1995 and 1994, the recorded value of financial instruments such as cash, short term investments, trace receivables and payables and short-term debt approximated their fair values, based on the shortterm maturities and floating rate characteristics of these instruments. Additionally, fie recorded value of both long-term investments and receivables approximated fair values. At December 31, 1995 and 1994, the fait value of longterm debt was $1.361.1 and $1,212.1. respectively. Fair value is determined based on expected future cash flows (discounted at market interest rates|, quotes from financ al institutions and other appropriate valuation methodologies. Grace does not hod or issue financial instruments for trading purposes. Foreign Currency Contracts Grace conducts business in a wide variety of currencies and consequently enters into foreign exchange forward and option contracts to manage its exposure to fluctuations in foreign currency exchange rales. These contracts generally involve the exchange of one currency for another at a future dole. At December 31,1995 and 1994, Grace had notional principal amounts of approximately $45.5 and $10.0, respectively, in contracts to buy or sell foreign currency in the future. The recorded values at December 31, 1995 and 1994. which approximated fair value based on exchange rates at December 31,1995 and 1994. were not significant. Credit Risk Grace is exposed to credit risk to the extent of potential nonperformance by counterparties on financial instalments The counterparties to Grace's interest rate swap agreements and currency exchange conliacts comprise a diversified group of major financial institutions, all of which are rated investment grade. Credit risk is further reduced by bilateral netting agreements between Grace and its counterpar ties. As of December 31, 1995, Graces credit exposure was insignificant and limited to the lair value staled above; Grace believes the risk of incurring losses due to credit risk is remote. Market Risk Exposure to market risk on financial instalments results from fluctuations in interest and currency rales during the periods in which the contracts are outstanding. The mark-tomarket valuations of interest rale, foreign currency agreements ond ol associated underying exposures are closely monitored at all times. Grace uses portfolio sensitivities and stress tests to monitor risk. Ctverall financial strategies and the effects of using derivatives are reviewed perodically. 12. COMMITMENTS AND CONTINGENT LIABILITIES Groce is the named tenant or guarantor with respect to certain leases entered into by previously divested businesses. The leases, some ol which extend through the year 2015, have future minimum lease payments aggregating $121.6 (induding leases assigned to the previously divested Hermans business having future minimum lease payments of $14.6), offset by $119.8 of future minimum rental income from tenants and subtenants. In addition, Groce is the named tenant or guarantor with respect to leases entered into by a previously divested home center business that had been rejected in bankruptcy. These leases have future minimum lease payments of $47.0. fully offset by $48.5 of future minimum rental income from tenants ond subtenants Grace is also contingently liable with respect to leases entered into by REGs subsidiaries. After undergoing a reorganization in 1993, REG (now named Family Restaurants, Inc.) has agreed to indemnify Grace with respect to these leases. Al December 31, 1995, these leases have future W.R.ORACT&CO. EJ ANNUAL REPORT minimum lease Dayments of $64.2, fuBy offset by future minimum rental income from tenants and subtenants. Grace believes that the risk of significant bss from the above lease obligations is remote, except that Grace may incur bsses rebting to the Hermans and REG eases as the result of recent devebpments. The likelihood and amounts of these losses cannot be reasonably estimated. In addition, Grace is liable for other expenses (primarily property taxes) rebting to the above leases; these expenses are paid by the tenants and subtenants. Grace is subject to loss contingencies resulting from environmental laws and regulations that, among other things, impose obligations b remove or mitigate the effects on the environment of the disposal or release of substances at various sites. Grace accrues for anticipated costs associated with investigatory and remediation efforts where an assessment has indicated that a loss is probable and can be reasonably estimated At December 31. 1995, Grace's lability lor environmental investigatory and remediation costs rebled to continuing and discontinued operations totalled approximately $280.3, as compared to $216.0 at December 31, 1994. The principal reason for this increase is a change in the estimated costs of remediation at former manufacturing sites. In 1995 and 1994, periodic provisions were recorded for environmental and plant closure expenses, which include the costs of future environmental investigatory and remediation activities. Additionally, in the fourth quarter of 1995 and first quarter of 1994, Grace recorded pretax provisions of $77.0 and $40 0 ($50.0 and $26.0 aftertax), respectively, principally to provide for future costs related to remediation activities required at former manufactur ng sites. These provisions are included in the Consolidated Statement of Operations os part of cost of goods sob and operating expenses. In 1995, 1994 and 1993, Grace incured costs of $31.3, $30.8 and $44.4, respectively, 'o remediate its environmentally impaired sites. These amounts have been charged against the previously established reserves. Future cash outlays for remediation costs are expected to total $30.0 in 1996 and $20.0 in 1997. Grace considers its current reserves to be adequate to cover its environmental liabilities. Additionally, Graces classification between current and noncurrenl liabilities with respect to its environmental reserves is considered appropriate in relation to expected future cash outlays. Grace's environmental liabilities are reassessed whenever circumstances become belter defined and/or remediation efforts and their costs can be better estimated. The measurement of the liability is evaluated quarterly based on currently avaibbte information, including the progress of remedtol investi gation at each site, the currem status of discussions with regubtory authorities regarding the method and extent of remediation at each site, and the apportionment of costs among potentially responsible parties. As some of these issues are decided (the outcome of which is subject to various uncertainties) and/or new sites are assessed and costs can be reasonably estimated, Grace will continue to review and analyze the need for adjustments to the recorded accruals. See Note 7 for a discussion of commitments and contingent liabilities pertaining -o NMC. 13. MINORITY INTEREST Minority interest consists of a limited partnership interest in IP. The total capital of IP ol December 31. 1995 was approximately $1,488.0 IPs assets consist of Grace Cocoas worbwide cocca and chocolate business, long-term notes ond demand bans due from various Grace entities and guaranteed by the Company and its principal operating subsidiary, and cash. Grace had $347.0 of borrowings from IP at December 31, 1995. Four Grace entities serve as general partners of LP and own general partnership interests totalling 79.03% in IP; the sob limited partner of LP, which initially acquired its inter est in LP in exchange for a S300K3 cash capital contribution ($297.0 of which was funded by outside investors], owns a 20.97% limited partnership interest in LP. LP is a separate and distinct legal entity from each of the Grace entities and has separate assets, liabilities, business functions and operations. For W. R.GRACE & CO. Q 1993 ANNUAL REPORT financial reporting purposes, the assets, liabilities, results of operations and cash flaws of IP aie includ ed 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. 6% Cumulative'11 8% Cumulative Class A|JI 8% Noncumulative Class Bm / 60 fcnes per short. * 16 votes pet shore. 14. SHAREHOLDERS' EQUITY The weighted average number of shares of common stock outstanding during 1995 was 95,822,00011994 - 93,936,000; 1993 - 91,461,00Q. The Company is authorized to issue 300,000,000 shares of common stock. Of the common stock unissued at December 31, 1995, approximately 7,655,000 shares were reserved foi issuance pursuant to stock options and other stock incentives. In addition, at December 31,1995, approximately 105,084,000 shares were reserved for issuance under Common Stock Purchase Rights (Rights). A Right is issued for each outstanding share of common stock; the Rights are not and will not become exercisable unless and until certain events occur, and at no time will the Rights have any voting power. Preferred stocks authorized, issued and outstanding are: Par Value of Shares as of December 31,1995 Shares Outstanding Authorized In Out- and Issued Treasury standing_______________________ 1995________ 1994________1993 40,000 50,000 40,000 3,540 33,644 18.423 36,460 16,356 21,577 $3.6 1.6 2.2 $7.4 $3.6 1.6 2.2 $7.4 $3.6 1.6 2.2 $7.4 Dividends paid on the preferred stocks amounted to $.5 in each of 1995, 1994 and 1993. The Certificate of Incorporation also authorizes 5,000,000 shares of Class C Preferred Stock, $ 1 par value, none of which has been issued. Balance at beginning of year Options granted Options exercised Options terminated or canceled Balance at end of year 15. STOCK INCENTIVE PLANS Stock options are granted under the Company's stock incentive plans. Each option has an exercise price equal to the fair market value of the Company's Common Stock on ihe date of grant. Options become exercisable at the time or times determined by the Compensation Committee and may have terms of up to ten years and one month. Changes in outstanding common stock options are summarized below: 1995 Average Number Exercise of Shore* Price 7,612,886 $38.06 1,704,150 46.66 9417,038 (3451,123) 38.30 (71,719) 42.27 5,694,196 4045 1994 Average Number Exercise of Shores Price 6,965,304 $36.48 1,358.900 42.27 B.324,204 1606,444) 29.21 1104,8721 . 37.33 7,612,888 38.08 1993 Average Number Exercise of Shores Price 6,365,187 $35.09 1,461,425 38.00 7,826,612 1683,2551 25.89 1178,0531 40 13 6,965,304 3648 At December 31, 1995, options covering 4,172,391 shares (1994 - 5,633,761; 19935.056,2561 were exercisable and 1,913,163 shares 11994 - 3,547,094; 1993- 1,804,122) were available for additional grants. Currently outstanding options expire on various dates between February 1996 and July 2005. WR. GRACE & CO. IB 1RR5 ANNUAL REPORT Groce will adopt the disclosure requirements of SfAS No. 123, 'Accounting for Stock-Based Compensation' in 1996. However, Grace anticipates that it will continue to follow the measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SfAS No. 123. 16. PENSION PUNS 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. NonU.S. pension plans are funded under a variety of methods because of differing local laws and customs and therefore cannot be summarized. Approximately 60% of U.S. and notvU.S. plan assets at December 31, 1995 were common stocks, with the remainder primarily fixed income securities. Pension oost/(benefit| is comprised of the following components: Service cost on benefits earned during the year Interest cost on benefits earned in prior years Actual |retum|/loss on plan assets Deferred loss/fgoin) on plan assets Amortization of net gains and prior service costs Net pension cost/1benefit) 1995 US. NomU4 $ 144 $10.5 504 214 I13Z3) 152.0) 71.1 26.2 (4| (4) $ 3.2 $ 5.3 1994 U.S. NooU.S. $ 19.8 $ 13.4 46.9 19.3 169 10.6 184.6) 137.4) (7.11 (l.6| $ 18.1) $ 4.3 1993 U.S. NonU.S. $ 12.7 $ 9.5 33.8 17.1 (101.7) (56.7) 55.1 36.0 (4.9) (1.7) $ (5.0| $ 4.2 The funded status of these plan!s was as follows: Actuarial present value of benefit obligation: Vested Accumulated benefit obligation Total projected benefit obligation Plan assets at (air value Plan assets in excess of/|less than) piojecied benefit obligation Unamorlized net Igainj/loss - at initial adoption Unamortized prior service cost: Unrecognized net loss/(gain|: Prepaid/(accrued| pension cost Assets Exceed Accumulated Benefits 1995 1994 $679.6 $6804 $710.0 7954 $536.2 $540.8 $596.3 751.6 854 155.3 173.7) 41J 974 $1514 189.5) 13.0 62.3 $141.1 U.S. Accumulated Benefits Exceed Assets 1995 1994 $5X0 $5X0 $55.7 - $39.0 $39.0 $40.4 - (55.7) (40 4) 4.9 16.3 84 $(25.9) 5.6 18.3 l.l $115.4) Assets Exceed Accumulated Benefits Non-US. Accumulated Benefits Exceed Assets 1995 1994 1995 1994 $1334 $133.9 $1894 30X5 $114.2 $115 3 $158.5 255.8 113.1 97.3 16.3) 3.6 (16.01 $ 944 (8.4) 4.0 (7.4) $ 85.5 $674 $75.1 $9X4 74 $57.2 $64.4 $81.8 12.5 (85.1) 169.3) 4.5 - (3.2) $(83.8) 46 - (5.6) $|70.3| The following significant assumptions were used in 1995, 1994 and 1993: Discount rote ol December 31, Expected longterm role of return Rate of compensation increase US. 7.25% 9.0 44 1995 Non-U4. 5.1 -11.6% 6.0 -104 4.0- 74 U.S. 8.5% 9.0 5.5 1994 NonU.S. 5.0- 12.0% 6.0- 10.5 4.0- 7.5 U.S. 7.5% 9.0 5.5 1993 NonU.S. 4.5- 9.25 60-10.5 3.5- 7.5 Groce'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 Ihe Company, and Plan benefits would be secured through the purchase of annuity contracts. Upon such termination, a portion of the Plan's excess assets would be placed in an irrevocable trust to fund various employee benefit plans and arrangements of Grace, and any balance would be returned to Groce. W. R. GRACE A CO. Q 1995 ANNUAL REPORT During 1995, Grace approved a costofTiving increase, effective January 1, 1996, for retirees under ihe Plan and Grace s Retirement Pbn for Hourly Employees of Conadian subsidiaries. 17. OTHER POSTRETIREMENT BENEFIT PLANS Grace provides certain otfier postretiremeni health care and life insurance benefits for retired employ ees of specified U S. units. These retiree medical and iife insurance plans provide various levels of benefits to employees (depending on their dale of hire) who retire from Grace after age 55 with at feast 10 years of service. The plans are amenity unfunded. Grace applies 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. Grace pays the costs of postretiremeni benefits as they are incurred. Included in other liabilities as of December 31, 1995 and 1994 are the following: Accumulated postretiremen! benefit obligation Retirees Fully eligible participants Active ineligible participants Accumulated postretirement benefit ob igation Unrecognized net loss Unrecognized prior service benefit Accrued oostrelirement benefit obligation 1995 $209.0 15.2 34.4 258.6 (54.9) 44.3 $248.0 1994 $192.6 12.1 26.3 231.0 128.51 48.6 $251.1 Net periodic postretiremeni benefit cost for the years ended December 31, 1995. 1994 and 1993 is comprised of the following components' Service cost Interest cost on occumubled poslretirement benefit obligation Amortization of net loss Amortization of prior service benefit Net periodic postretiremen! benefit cost 1995 $ 1.6 18.3 .2 (4.3) $15.8 1994 $ 2.1 16.2 1.2 (4.3| $15 2 1993 $ 2.2 13.2 .2 |4.5| $11.1 During 1992, Graces retiree medical plans were amended to increase cost sharing by employees retiring after January I, 1993. This amendment decreased the accumulated postretirement benefit obligation by $44.3 at December 31, 1995 and will be amortized over on average remaining future service life of approximately 11 years. Medical care cost trend rates were projected at 10.7% in 1995, declining to 6.0% through 2003 and remaining level thereafter. A one percentage point increase in each years assumed medical care cost trend rate, holding all other assumptions constant, would increase Ihe annual net periodic postretiremen! benefit cost by $2.5 and the accumulated postretiremeni benefit obligation b/ $20.2. The discount rates at December 31, 1995, 1994 and 1993 were 7,25%. 8.5% and 7.5%, respectively. Effective January 1, 1994, Grace adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for nonaccumubting postemploymenl. benefits. Graces primary postemployment obligation is for disabled workers' medical benefits. These are currently included in accrued postretiremeni costs under SFAS No. 106. The adoption of SFAS No. 112 did not have a material effect on Grace's results of operations or financial position. W.R.SRACESCO.JJJ 199S ANNUAL RETORT 1B. GEOGRAPHIC AREA INFORMATION The table below presents information rebled to Grace's specialty' chemicals segment (its only industry segmenfl by geographic area for the years 1995 1993. Soles and revenues 1995 1994 1993 United States $1,693 1.558 1,432 Canada $128 121 123 Europe $1,147 955 852 Asia ro-cOtTfrC. $445 366 307 Pretax operating |lossl/incomer' 1995 1994 1993 11201 23 39 62 1133] 9 69 56 23 7 38 44 Identifiable assets"'' 1995 1994 1993 2,031 1.796 2.042 101 998 83 905 81 720 411 308 243 Pretax operating income ond total identifiable assets for the specialty chemicals segment ore recon ciled below to income from continuing operations before income taxes and consolidated total assets, respectively, as presented in the Consolidated Statement of Operations and the Consolidated Babnce Sheet. Grace allocates to its specialty chemicals segment general corporate overhead expenses, general corporate research expenses and certain other income and expense items that can be identified with specialty chemicals operations. Latin America $253 218 182 10 20 13 246 208 154 `fatal $3,666 3 218 2,896 14 21 125 3,787 3.300 3 240 Pretax operating income - specialty chemicals segment* Interest expense and rebted financing costs Corporate restructuring costs ond asset impairmenls/olher activities Provisions relating to environmental liabilities at lormer manufacturing sites Provision for corporate governance Gain on sale of remaining interest in REG Corpo'ale expenses previously allocated to health core operations' Other ncome/lexpenses), net (lossl/income from continuing operations before income taxes 1995 $ 14 (71) (122) 177) (30) - (38) 12 $ (312) GO CO >* 1994 $ 21 (501 - 140) - 27 137) 19) 1993 T 125 (431 - (37) |16| $ 29 Identifiable assets - specialty chemicals segment-'' General corporate assets''' Discontinued operations' net assets Total assets $3,787 752 1,759 $6,298 $3,300 860 2,07' $6.23 1 $3,240 811 2,058 $6,109 " Incudes (o! ,(995 !99*l and 1993 pretax pronsons o* $275. $3)6and $159 resp*cuvetr. reiot'og to asbes'os-roiated iiao>imes and insurance coverage (see Note 2 fa> father 'nbrmat.on/. and !b) a 199,5 pretax charge of 598 rehhng *o resthxztuvg costs, osse? imoairments and ether cosh (tee Note 5 hr father irfom*Giion). hKtudei asbestos-rehted receivables ond settlements due horn insurance cowers, net cf discounts. o> $321 ond $118 iespecfve>y <n 1905, $513 end $ 187, uespeoivety, m 199d- ard $QC>2 and $114, respectively, m 1993. `` lies* cos's will not be assumed by NMC foibw'ng the completion of its proposed separation from Groce, ond it is expected mat these costs wt be eh/nincted * General corpryate assets consist prnopdV cf deferred fax assets, prepaid penson costs, and corporate receivables and investments 19. SUBSEQUENT EVENTS As more fully discussed in Note 7, in February 1996, G'ctce and Fresenius entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business. The transaction is expected to be completed by the third quarter of 1996. In March 1996, Grace announced that it hod entered into a definitive agreement to sell its Grace Dearborn water treatment and process chemicals business to Betz Laboratories, Inc. for $632.0. The transaction is expected to be completed in the second quarter of 1996. W.It.GRACE SCO. |Q 1995 ANNUAL REPORT MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Management is responsible for the preparation, as well os 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 generaly 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 report ing, including careful selection of personnel; segregation of duties; formal business, accounting and reporting policies and procedures; and an internal audit function. While no system can ensure elimination of all errors and irregularities, Graces 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 ate properly executed and reported. The concept of reasonable assurance is based on the recognition that there are limitations in all systems and that the cost of such systems should not exceed the benefits to be derived. The Audit Committee ol 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 independenl certified public accountants to review audit plans and results os well as he actions taken by management in discharging its responsibilities lor accounting, financial reporting and internal control systems. The Audit Committee reports its findings, and recommends the selection of independent certified public accountants, to the Board of Directors. Grace's management, internal auditors and independent certified public accountants hove direct and confi dential access to the Audit Committee at all times. The independent certified public accountants are engaged to conduct the audits of and render a report on the consolidated financial statements in accordance with generally accepted audit ing standards. These standards require a review of the systems of internal controls and tests of transactions to the extent considered necessary by the independent certified public accountants for purposes of supporting tKeir opinion os set forth in their report. Price mderhome llp One East Broword Boulevard Ft. Lauderdale, FI 33301 January 31,1996 To the Shareholders and Board of Directors of W. R. Grace & Co. In our opinion, the consolidated financial statements appearing on pages 24 thiough 49 of this report present fairly, in oil mate rial respects, the financial position of W. R. Grace & Co. and subsidianes (Grace) at December 31, 1995 and 1994, and the results of their operations and their cosh flows for each of the three years in the period ended December 31,1995, in conformity with generally accepted accounting principles. These financial statements ore the responsibility of Grace'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 occepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting ihe amounts and disclosures in the financial statements, assessing ihe accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe lhat our audits provide o reasonable basis for the opinion expressed above. Albert J. Costello Chairman, President and Chief Executive Officer Peter D. Houchin Senior Vice President and Chief Financial Officer W. (.GRACE SCO. Ej I99S ANNUAL REPORT QUARTERLY SUMMARY AND STATISTICAL INFORMATION Unaudited -- doibrs m millions, except per share QuarterEnded IQ 2Q 3Q 4Q 1995 Total sales ond revenues Cost of goods sold and operating expenses Net incame/lloss) Earmngs/lbss] oer share:1'1 Net earnings/lloss) $8534 500.9 47.5J' $ .50 5 932.3 550.7 78.7 $ .83 $944.4 566.0 21.7"' $ 21 $933.4 626.1 (473.8r $ (4.87) Fully diluted earnings per shore: Net earnings/lloss) Dividends declared per common share $ 49 $ .35 5 30 5 .35 $ .22 $ .35 $ -* $ .125 Markei price of common stock:" High Low Close $ 54H 3814 53)4 $ 65)4 5114 6114 $ 7114 61'4> 6614 $ 6614 5414 5914 1994" Total soles and revenues Cost of goods sold and operating expenses Nel income/(bss| Earnings/(loss| per shore:'" Net eornings/(lossl $6754 437.8 38.2* $ .41 $ 782.9 464.5 (134.31" $ |1.43| $815.5 475.0 76.0 ) 81 $ 944.4 523.5 103.4 $ 1 10 Fully diluted earnings pet share: Nel eamings/lbss) $ 40 $ -* $ 80 $ 1.09 Dividends declared per common share $ .35 $ .35 $ .35 $ 35 Market price of common stock:" High Low Close $ 46)4 40)4 41 /. $ 43 39 39X $ 42)4 3814 41 X $ 4114 36 38)4 Pet share results hr the four quarters differ from fvHyeat per share results, as a separate computation of earnings pet shore is mode far eocf quarter presented ,4> Principal market. New York Stock Exchange. 'v Includes a $12.5 charge for mourn relating to corporate governance. * Includes a S27 I charge for restructuring cos's; o $6.1 charge lor matters relating to corporate governance; and a $33 5 charge to the discontinued health, core operations, primarily relating to asset impairments " Includes a $178 7 provision relcting to mbestonebted liabilities ond insurance coverage, a i.50 C prevision for Specially Chemicals Pretax Operating Income (before special items| environmental liabilities, a $1 )6 9 charge for reslmctonng cos.'s, asset impairments and other items; o $ 151.3 provision for other discontinued operations, and a $68 9 charge to the discontinued heath core operations, primarily relating to asset impairments and other items ** Not presented as the effect is antrdHutive Certain amounts have been redossihea to conform to the 7995 presentation * includes a $27.0 goin on /he sale of Graces remaining interest in Jhe Restaurant Enterprises Group. Inc. IRFG), offset by o $26 0 provision, ptimarly lor environmental 1'iobilities ** Includes a $200.0 reinstatement of a provision relating to asbestos-related insurance coverage IQ 2Q 3Q 4Q W.R. GRACE & CO. Q| 1995 ANNUAL REPORT CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION Ctoto*s Depreciolion and Operating Croup Capital Expenditures'1'______________ Net Fixed Assets_______________ Lease Amortization-' 1995 1994 1993 1995 1994 1993 1995 1994 1993 Specially chemicals General corporate Total continuing operations Discontinued operations $459 49 508 30 $329 30 359 86 $209 21 230 80 $1481 155 1,734 - $1 262 144 1 406 324 $1,049 123 1,177 277 $155 15 170 - $144 14 156 - $135 11 146 - Total $538 $445 $310 $1,734 $1,730 $1,454 $170 $158 $146 Geographic Location United States and Canada Europe Otner areas Subtotal General corporate $244 100 113 459 49 $202 75 52 329 30 $126 57 26 209 21 $ 849 441 271 1481 155 $ 714 332 166 1.262 144 $ 608 321 120 1,049 128 $ 75 59 21 155 15 $ 77 51 16 144 14 $ 74 46 15 135 11 Total continuing operations Discontinued operations 508 350 230 30 86 80 1,734 - 1.406 324 1,177 277 170 158 146 -- - Total $538 $445 $310 $1734 $1,730 $1,454 $170 $158 $146 " Excludes capital expenditures ct discontinued operations subsequent to `heir ciassitcc' on os such. '' Certain 1994 and IWJ cxnoun`s been reckjsyfed to confers to in* 1995 prm&rvotior. WIL GRACE* CO. Q 1995 ANNUAL RETORT FINANCIAL SUMMARY tWfcjrs ir millions excecr per shore omounts Statement of Operations Sales and revenues Cost of goods sold ond operating expenses Depreciation and amortization Interest expense and related financing costs Research and development expenses llossl/incotne (torn continuing operations before income taxes (Benefit from}/provision for inconie taxes Income horn continuing operations before special items''' (loss)/income from continuing operations |loss)/income from discontinued operations'1 Cumulative effect of accounting changes Net flossl./income ms $ 3,645.5 2,243.7 186.3 71.3 120.4 (312.4) (115.81 194.7 (196.6) (129.3) (325.9) 1994 $3,218 2 1,900.8 165.0 49,5 106.8 188.01 146.61 157.6 141 4| 124 7 83.3 1993 $2,895.5 1,746.7 153.5 42.9 I 11.5 29.2 10 1 119.1 19 1 69 26 0 Financial Position Current assets Current liabilities Properties and equipment, net lotal assets Total debt Shareholders' equity - common stock $ 1,681.3 2,214.2 1,736.1 6,297.6 1,933.8 1,224.4 $2,228 9 2,231.5 1,730 1 6.230.6 1,529 7 1,497.1 $2,077.6 1,992.6 1,454.1 6.108.6 1,706.1 1.510 2 Data Per Common Share Earnings Irom continuing operations before special items'' [loss)/earnings from continuing operations Cumulative effect of accounting changes Net llossl/eornings Dividends Book value Average common shares outstanding /thousands1 $ 2.03 (2.05) 13.40) 1.175 12.57 95,822 $ 1.68 :.45i 88 1 40 15 91 93,936 $ 1.30 .20 .28 1.40 16.16 91,461 Other Statistics Dividends paid on common stock Capital expenditures % Total deb to total capital Common shareholders of record Common stock price range Number of employees - continuing opetalions fthousends) $ 112.1 537.6 61.1% 19,496 71X-38X 21.2 $ 131.5 444.6 50.4% 18,501 464 - 36 206 $ 127.9 3096 52.9% 19,358 41K- 34X 20 4 -e'iam pnor yec amounts hove been reclassified to conform to the 7995 presentation Wome horn continuing operations before speco* items reconciles to {foul/Income from ccnnnung operators os /b/few Income ham cot^numg operations before special items Specioi Jems (after tax}. Pro*is an ter corpora's governance Gam an sab of remaining interest in IfEG PeHructunng costs and asset impairments/other activities Provisions hr environmental liabilities at former manufacturing sites Provision relating to a fumed jihco pfant Postre'irement benefits prior to plan amendments S'roregc restructuring gam Prov>sons relating to osbestos-rehted liabilities and 'rstsance coverage ilos*}. 'income horn con^mimg operations 1995 S 194.7 rr. - 044.01 130.01 - 070.7) $090.6) \0Q4 $ IS7. i _ 27 0 - {26 01 - (200 O' J 141.4,1 1993 J 119 1 . - - - 000.0! $ 19 1 1992 $3,061.8 1.871 8 164 5 49 4 105 2 81 3 79 9 146.5 1.4 1105.9] (190 0) (294.51 $2,091.4 1.639.6 1.707.9 5,5986 1,819.2 1,5375 $ 1.63 .01 12 12) 13.29) 1.40 17.10 89,543 $ 125 4 398.4 54 1% 20.869 45-32 20.0 1992 $ 146.5 _ - 1140 01 IS 11 $ 14 1991 $3,326.2 2,027.9 178.3 73.7 102.0 256.5 99 1 153.9 157 4 61.2 218.6 $1,990 0 1.622.1 2,558.2 6.007,1 2.259.4 2,017.7 $ 1.76 1.80 2.50 1.40 22.77 87.236 $ 122.0 447.0 52.73 21,949 40% - 23k 21.5 ; 99i $153.9 - - - 3.5 - $1574 sptxol terns included in the foregoing lohie have o!$o been excluded m determining earnings per common share hem cpntrrx/ng operations before speooi Jems " includes mcome of $22 0, $ 124.7 and $ IIS 3 n I 90.5 I &r4 ana 1093. respective^, hem >he discontinued health cote operators. / 995 health core results re^bet special charges totalling if 02 4 'elating to asset impairments of $83 9, the phase-ov' of certain of Groces health core research programs of $5 9, additional costs associated vnth Gtoces long-term incentive programs applicable to N-VIC ct $4 8, changes m accounting estimates of $1.8 and other items totalling $6 6 WR.SRACEftCO.Q I99S ANNUAL REPORT Corporal* Officers Choirmon, President & CEO Albert J. Costello Executive Vic* Presidents Robert H. B*b*r General Counsel Constantin* L Hampers National Medical Care Donald H. Kohnk*n Chlel ol Stoll Senior Vic* Presidents Larry EHberger Strategic Planning and Development Pamela J. Hamilton Humon Resources Peter D. Houchin Chiel Flnanciol Officer lames R. Hyde Groce Davison J. Cary Kaeniig, Jr. Groce Packaging Fred Lemper*er Grace Container Products W. Brian McGowan Corporate AdmMstialton Vic* Presidents Robert J. Bettocdri Grace Construction Products Alan D. Ben Grace TEC Systems Stephen E. Karinshak Intormalton Systems Mark Kroger Toxes Mary Lou Kromer Communications Robert B. Lamm Corporate Secretary Peter B. Martin Investor Relations Peul McMahon Treasurer William L Monroe Humon Resources AldenC Pierce Environment, Heath and Safety Ian Priestnefl Groce Deorbom Bernd A. Schuft* Corporate Development Martin B. Sherwm Commercial Development David B. Stogol Deputy General Counsel WiRiam B. Sturgis Grace Pockoglng/North America Francois P. van Remoorterr Research Directors Albert J. Costello Chairman, President and Chief Executive Officer, W. R. Groce & Co. Georg* C Dacey* Retired President. Sandia Notional laboratories (government research and development) Edward W. Duffy* Retired Choirmon and Chief Executive Officer, Marine Midland Banks, Inc. (bankingl Herald A. Eckmann Retired Chairman and Chief Executive Officer. The Atlantic Companies (insurance) Mary* Anna Fax Vice President ol Research and Waggoner Regents Chair In Chemistry, University ol Texos (education) James W. Frick President, James W. Frick Associates (educoSono) consulting) Constantine L Hampers Executive Vice President, W. R. Grace & Co. Thomas A. Holmes Retired Chairman, President and Chief Executive Officer, IngersollRond Company (manufacturing) Virginia A. Kamsky Founder, President and CoChief Executive Officer, Kamsky Associates Inc. (advisory services specializing in The People's Repubtc of China) Peter 5. Lynch* Vice Chatman, Fldetty Management & Research Company (investments) Robert C Macauley * Founder and Chairman, Virginia Fibre Corporation Ipockoging) John E. Phipps Private Investor Eugene J. Sullivan* Retired Chief Executive Officer, Borden, Inc. |foods, consumer and Industrial goodsl Thomas A. Vandersirce Former Chairman and Chief Executive Officer, M/A-COM (electronics manufacturing! * teiVxp May 10. 1996. Board Committees Audit Messrs. Eckmann,' Mocouley, Sulivon; Drs. Docey, Frick Compensation, Employee -- -- -J 1- I-------xt Nnrnn anQ mock fncomm Messrs. Duffy,' Eckmann, Holmes, Lynch Phipps Corporate ResponsibIRty Ms. Kamsky; Mr. lynch; Drs. Dacey, Frick' Nominating Messrs. Oirffy. Holmes, Mocouley. Phipps' 'Oo Shareholder Information Publications To obtain additional information about Grace, request copies ol Grace's Commitment to Core0* progress report on environmental, health and solely performance, the Company's annual report on form 10-K. quarterly reports on Form 10-Q or current reports on Form 8-K. Write to Report FuRlRmenl, W R. Grace & Co, One Town Center Rood, Boca Raton. FI 33486-10)0 or cod 14071362-1380. mural nwvnnp n woiinoiQin Friday, May 10, 1996, 10:30 a.m. Boca Raton Marrtott-Boca Center 5150 Town Center Circle Boco Raton, Florida Shareholder Assistance Inlcxmotion regordtag shareholder accounts, dividend payments, stock transfer and related matters should be deeded to Grace's toaster agent; Chemical Mellon Shareholder Services P. O. Box 3068 New York, NY 101160068 (800) 648-8392 Trodomorics Names italicized In the text of bis report are trademarks, servicemarks or operating units of W. R. Grace & Co. or its subsidiaries. The Gtace 1995 Annual Report was printed on recycled and recyclable paper. All rights reserved. W.R.GRACE A CO. Q 1995 ANNUAL REPORT W. R. GRACE & CO. One Town Center Rood Boca Raton, FI, U.&A. 33486-1010 (407)362-2000 Accounting: Date Printed: Time Printed: Subject Name: Exchange: Ticker Symbol: Subject #: Document Type: Document Date: Amendment: Document #: Printed: Pages Printed: Laser D Document Print Summary Disabled 11/17/97 11:11 A.M. VT R GRACE & CO DE N GRA W017250000 ARS 12/31/95 N/A 96403203 Document 57 DISCLOSURE INCORPORATED (DALLAS INFO CENTER)