Document gbQXwRG2qXJ2rQ6MbMJq878mq

1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 jc' ,3. ,'T~Trr- T*,i FORM 10-K ANNUAL REPORT PURSUANT TO SECTION L3 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year coded December 31, 1995 Commission file nanber 1-3720 W. R . GRATF. * CO. H"?' *rAl' Incorporaied nnder the Lag of the State of New York I.R.S. Enployer Identification No. 13-3461988 ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010 407/362-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) QF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Cannon Stock. $1 par valne Cratnon Stock Pnrehase Right* } } 7-3/44 Notes Due 2002 (issued by W R. Grace ft Co.-Conn., a wholly owned subsidiary) and related Guarantees ) } } } New York Stock Exchange, Inc. Chicago Stock Exchange, Incorporated New York Stock Exchange, Inc., SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check nark whether the regiitrmt (1) hat filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 nonths and (2) has been subject to snch filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 4U5 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the Proxy Statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value ol W. R. Grace ft Co. voting stuck held by nonaffilittes was approximately S6.0 billion at February 1. 1996. At March 1, 1996, 98,038,423 shares of W. R. Grace ft Co. Common Stock, $1 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE 10 Although sales and revenues tend to be slightly higher in the fourth quarter, seasonality is generally not significant to Urace Packaging. As a iesnlt of product introductions, marketing programs and improvements in global economic conditions, worldwide demand ior Grace Packaging products grew ai a rapid pace in 1994 and 1995, placing pressure on existing capacity. To address this matter, Grace Packaging has added capacity in all regions (including a shrink films manufacturing plant in Knantan, Malaysia, that is expected to become operational in 1996). Catalysts and Other Silica-Based Products. This business ('Grace Davison') is composed of three principal product groups: refinery catalysts, polyolefin catalysts, and silioa and zeolite adsorbents. These products apply silica, alnmina and zeolite technology and are designed and manufactured to meet t.he varying specifications of such diverse enstomers as major oil refiners, plastics and chemical mannfactnrera and consumer products companies. Grace Davison's technological expertise provides a competitive edge, allowing Grace Davison to qnickly design products that meet customer specifications, as well as to develop new products that expand its existing technology. For example, Grace estimates that 954 of its 1995 fluid cracking catalyst sales were attributable to products introduced in the last five years. Refinery catalysts include (a) flnid cracking catalyats used by petroleum refiners to convert ernde oil into more valuable transportation fuels, snch as gasoline and jet and diesel fnel, as well as other petroleum-based products, and (b) hydroprocessing catalysts that remove certain impurities (such as nitrogen, snlfnr and heavy metals) from ornde oil prior to the nse of flnid cracking catalysts. Oil refining is a highly specialized discipline, demanding that products be tailored to meet local variations in crude oil and the refinery's changing operational needs. Grace Davison regularly works with most of the approximately 360 refineries in the world, helping to lind the most appropriate catalyst formulation* for the refiners' changing needs. Competition is based on technology, product performance, customer service and price. Urace believes it is one of the world leaders in refinery catalysts and the largest supplier of flnid cracking catalysts in North America and Europe Grace Davison polyolefin catalysts and catalyst support! are essential component* used in manufacturing nearly half of all high density and linear low density polyethylene resins, which are used in products such us plsstic film, high-performance pipe and household containers. The polyolefin catalyst buainets is technology-intensive and focused on providing products specifically formulated to meet end-nser applications. Manufacturers generally compete on a worldwide basis, and competition has intensified -S- u recently due to evolving technologies, particularly tbe ate of etalloceaes. Silica tod zeolite adsorbents ire used is i wide variety of industrial tod consumer applications. Silicas are used iu coatings as flatting agents (i.e., to reduce gloss), is plastics to improve handling, in toothpastes as thickeners and cleaners, in food to carry flavors tnd prevent caking. and in the purification of edible oils. Zeolite adsorbents are used between the two panes of insulated glass to adsorb moisture and in process applications to separate certain chemicals from mixture a. Competition is based on product performance, customer service and price. Grace Davison is planning to expand its silica business m tbe Asia Pacific region with a new plant in Kuantan. Malaysia, to open in 1996. Grace Davison's sales' and revermes were $6S7 million in 1995, $610 million in 1994 and $572 million m 1993; approximately 52% of Grace Davison's 1995 sales and revennes were generated in North America, 37% in Europe, 10% in Asia Pacific and 1% in Latin America. At year-end 1995, Grace Davison employed approximately 2,700 people worldwide in nine facilities (six in the United States and one each in Canada, Germany and Brazil). Most raw materials used iu the manufacture of Grace Davison products are available from multiple sources and, in some instances, are prodneed or supplied by Grace. Because of the diverge applications of products nsing Grace Davison technology and the geographic areas in which such products are used, seasonality does not have a significant effect on Grace Davison's businesses. Construction Products. Grace Construction Products ("Grace Construction") is a leading snpplier of specialty materials to the worldwide construction industry. Grace Construction's products strengthen concrete, control corrosion, prevent water damage and protect structural steel against collapse rine t.n fire. These include concrete sdmixt.nres, cement additives, waterproofing systems and fireproofing materials. In North America, Grace Construction also manufactures and distributes masonry block additives and products and verniculite products used in construction and other industrial applications. Grace Construction's products are sold to a broad customer base, including cement manufacturers, ready-mixed and prestressed concrete producers, specialty subcontractors and applicators, masonry block manufacturers, building materials distributors and uLlier industrial manufacturers. Grace Construction competes globally with several large construction materials suppliers and regionally and locally with nonerons smaller competitors. Competition is based largely on -9- J.2 price, product performance, proprietary technology and technical support and service. Grace Constructions cos toners are frequently local contractors and cement manufacturers; consequently, local suppliers are often able to compete ele cLively. Grace Construction'a 1995 sales and revenues totaled $397 million (66% in North America, 17% in each of Europe and Asia Pacific and less than 1% in Latin America), versus $387 aillion and $333 million in 1994 and 1993. respectively. At year end 1993, Grace Construction enployed approximately 1,900 people at 57 production facilities (27 in North America, 11 in Southeast Asia, 7 in Australia/New Zealand. 7 in Europe, 4 in Latin Anerica and 1 in Japan) and 70 aalcs offices worldwide. The raw materials nxed for mannfact.nring Grace Construction prodnct.s are primarily commodities obtained from multiple sources, including coaaodity chemical producers, petroleum conpanies and paper aanulacturers. In aost instances, there are at least two alternative suppliers for each of the principal raw materials used by Grace Construction. However, the worldwide supply of calciun lignin, a wood pulping by-product nsed as s raw material in the prodnetiou of concrete admixtnres, has been decreasing as paper mills convert to new Manufacturing processes. Grace Construction has secured short-tern supplies of calcinn lignin and is exploring new technologies to replace ii in the fntnre. The construction business is seasonal, infloenced by weather conditions, and cyclical, in response to economic conditions and construction deoand. Grace Construction seeks to increase profitability and minimize the impact of cyclical downturns in regional economies by introducing technically advanced, valnc-tddcd products, expanding geographically and developing bnaincss opportunities in renovation constrnction narkets. In addition, Grace Cnnst.rnct.ion has implemented a lower cost, structure by consolidating manufacturing operations in North America and through an extensive restructuring plan in Europe. Container and Specialty Polymer Products. Grace's container and specialty polymers business ("Grace Container") consists primarily of four product lines: container sealants, closure sealants, coatings for metal packaging, and specialty polymers. Container sealants are applied Lu food aud beverage cans, as well as other rigid containers (such as industrial product containers and aerosol cans), to ensure s hermetic seal between the lid and the can body. Closure sealants are nsed to seal pry-off and twist-off metal crowns, as well as roll-on pilfer proof and plastic closnres. for the glass/plastic container narkets (primarily in beverage and food applications). Coatings are used in the manufacture of cans and closnres to protect the metal against -10- !3 cocrosion. to protect the contents against the influences of netal, to ensure proper adhesion ol sealing conponnds to netal surfaces, and to provide base coats for inis and for decorative purposes. Pornnlated engineered polymers are used in printed circuit board aud component assembly in the electrouics, electrical, antonotive and defense indnstries, including surface mount and conductive adhesives, capacitor coatings, light-emitting diode encspsalants and confornal coatings. Grace Container is expanding its product offering through new technologies such as its oxygen-scavenging compound, which combines with closure sealants to extend shelf life by eliminating oxygen, and oxygen's effect on taste, from sealed beei and other beverage bottles. Grace Container sales and revenues were $357 nillion. $325 million and $306 million in 1995, 1994 and L993, respectively. Its products are marketed internationally, with 34* of 1995 sales and revennes in F.nrope, 28* in each of North America and Asia Pacific and 10* in Latin America. At year-end 1995, Grace Container employed approximately 1,600 people at 30 production facilities (9 in Asia Pacific and 7 in each of North America, Europe and Latin America) and 57 sales offices worldwide. Competition is based on providing high-quality enstomer service at all customer sites, as well as on price and product quality and reliability. Although the raw materials nsed in Grace Container's operations, including resins, rubber and latices, are generally available Iron multiple sources, the prices of these raw materials experienced rapid escalation throughout most of 1995, negatively impacting Grace Container's gross margins; improvements are expected in 1996 as raw materials prices started to ease daring the latter part of 1995. Although demand for container packaging and aealant products tends to increase slightly during the second and third quarters, the impact of such seasonality is not significant to Grace Container. Water Treatment. Grace's water treatment and process chemicals business ("Grace Dearborn") consists of water treatment, and paper industry services business lines, which market the following products: (a) water treatment chemicals and support equipment to prevent corrosion, scale and microbiological growth in industrial utility waters, heating, cooling and steam generation applications, and industrial wastewater applications for clarification, sludge de-watering, odor control and water recycling; (b) process chemicals and support equipment to optimize and protect processing systems for the production of pulp and paper, refined pelruleuu products aud peLrocltetiical*, sugar and alcohol; (c) chemicals for the piotection and cleaning of industiial cooking and sterilization equipment for canned foods; (d) paint detackification products to remove paint sludge from water wash paint spray systems; (e) chemicals and equipment for the treatment of process waters in the niuing and processing of metal ores; and (f) chemicals and -11- 14 ether products useful in servicing and naintiining vessels used in salt and fresh water. (irace Dearborn also provides consulting services related to its products and equipment. Grace Dearborn sales and revenues for 199S totaled $399 million (41% in Europe, 37% in North America, 19% in Latin America and 3% in Asia Pacific). Sales and revenues for 1994 and 1993 were $363 million and $330 nillion, respectively. At year-end 1995. Grace Dearborn employed approximately 2.500 people at 23 manufacturing facilities (6 in each of Latin Amerioa and Asia Pacific, 5 in Europe, 4 in North America and 2 in Sooth Africa) and 122 sales offices. Ihe raw materials nsed in Grace Dearborn's business lines are readily available from mnlt.iple sources, generally at. stable prices. The paper industry services business is affected by the cyclicality of the global paper market. The water treatment services business responds to (bnt is not adversely affected by) seasonal fluctuations, concentrating on boiler treatment in colder seasons and cooling system treatment in warmer seasons. The effects of seasonality are diminished by the geographic diversity of the markets served by Grace Dearborn. Grace Dearborn competes globally with several large companies and regionally and locally vith numerous smaller companies. Competition is based primarily on technical service and product performance. In March 1996, Grace announced that it had entered into a definitive agreement to sell ita Dearborn water treatment and process chemicals business to Betz Laboratories, Inc. for $632 million. The transaction is expected to close m the second qnarter of 1996. Thermal and Emission Control Systems. Grace's thermal and emission control systems business ("Grace TEC Systems") is a developments! business that, consists of four principal product groups: web processing products, industrial emission control prodacts. mobile emssion control products and specialty catalysts. These products are designed to customer specifications and are sold to a variety of industrial customers. Web processing products, consisting primarily of air flotation dryers and auxiliary equipment, are sold principally to the graphic arts, coating and converting markets. The industrial emission control products group manufactures volatile organic compound control equipment, including thermal, catalytic and regenerative oxidation systems. Demand for this equipment is driven principally by government regalations. The mobile emission control products group sells washcoat materials and specialty sabstrates. Washcoat materials are nsed by catalyst manufacturers to enhance the perfor- -12- Y .a 15 nance of catalytic converters sold to automotive original equipment manufacturers. Specialty catalysts are nsed to control volatile organic compounds, nitrogen oxides and carbon nonoxide from a variety of sources. Competition for Grace TEC: Systems' products is based primarily on system design, materials, technology, customer service, product performance and price. DISCONTINUED OPERATIONS In 1993 Grace classified its then remaining noncore businesses as discontinued operations, and in 1995 Grace classified its health care business as a discontinued operation. As discussed above (see "Strategic Restructuring and Other Growth Initiatives";, Grace has completed the sale and monetization of a snhsT.ant.ia 1 portion of its noncore businesses (although Grace remains subject to certain liabilities relating to those bnsinesses). Grace's health care and cocoa bnsinesses are the principal discontinued operations that have not yet been divested. Grace is actively pursuing the disposition of these two bnsinesses and its other remaining discontinued operations and expects to complete their disposition in 1996. Following is a description of Grace's health care and cocoa bnsinesses; see Notes 3, 5, 7, 12 and 13 to the Consolidated Financial Statements and 'Manageueul's Discussion and Analysis ui Results of Operations and Financial Condition" in the Financial Supplement, and "Strategic Restructuring and Other Growth Initiatives" above, for additional information. Health Care. Grace's health care business is coudneted primarily through NhC, which provides kidney dialysis services; manufactures and distributes products and equipment for dialysis treatment; performs clinical laboratory testing and other medical services; and provides home infusion, home respiratory therapy and home health services. NMC is the largest United States provider of kidney dialysis and related services to patients suffering from chronic kidney disease and has been actively expanding this business overseas. At December 31, 1995, NMC operated and/or managed 681 outpatient dialysis centers (574 in North America, 62 in Europe, 33 in Latin America and 12 in Asia Pacific); these centers, substantially all of which are leased, average approximately 5,600 square feet in size. NtC also provides iupalieuL scute dialysis services under contracts with hospitals in the United States (526 at December 31, 1995) and furnishes dialysis equipment and snppliea to patienta who elect home treatment. At December 31, 1995, NMC was treating ap- 13 16 proximttely 42,900 patients in the United States and 7,900 pttients in other countries. Revenues iron kidney dialysis services vrere $1.5 billion in 1995, 31.3 billion in 1994 and SI billion in 1993. Since 1991, Grace lias uade uuiaeruus acquisitions relating to its health care business. These acquisitions, totaling 3857 million plus 115.621 shares of the Conpany'i Comaon Stock over the 1991-1995 period, included a United States provider of alternate-site infnsion therapy and dialysis health care services, a United States provider of hone infnsion therapy services, regional United Statea providers of hone infusion therapy services and hone support nursing services, and numerous dialysis centers located primarily in the United States. NMC manufactures disposable bloodlines, dialysis concentrates, artificial kidney* (dialyzers) and dialysis machines for nse in its dialysis centers and for sale to unaffiliated dialysis providers and home patients; distributes dialysis supplies and equipment and other medical products and supplies manufactured by others; and provides laboratory services for dialysis and other patieats in the United States and Portugal. NMC also provides infnsion and respiratory therapies and hone health services to patients in their homes through network ol 105 United States locations (104 leased and 1 owned) in 34 states. Infnsion therapy consists of the intravenous delivery of an expanding range of medications and nutritional preparations, such as chemotherapy, total parenteral nutrition, antibiotic therapy and drngs for pain management. Respiratory therapy consists of the delivery of oxygen and aerosolized drags snd the ase of monitors, nebulizers and ventilators. In addition, NMC provides other home health services throngh 21 locations. NMC provides various ancillary medications and services to patients snffenng from end-stage renal disease ("F.SRD") at. it.s dialysis centers, i.he most significant of which is the administration of erythropoietin ('EPO"). EFO is used to treat anemia, a medical complication frequently experienced by k'SKD patients, and is administered to most of NMC's dialysis patients. Revenues from EPO accounted for approximately 13% of NMC's revenuet in 1995. EPO is prodneed by a single manufacturer, and any interruption of supply conld adversely affect NVC's business and results of operations. NMC's United States business is dependent on the continuation of Medicare and other third-party insurance coverage for dialyaia and home care services and prodnets. At snch time as Medicare becomes a patient's primary payor for dialysis (generally, three months following commencement of treatment or. in the cate of -14- 17 patients covered by employer-sponsored health insurance, 21 Months alter commencement of treatment) and/or home care products and services, Medicare currently reimburses suppliers ol such services and products lor approximately 804 of established fees or reasonable charges; the remaining 204 is paid by the patient and/or a uou-hfcdicire insurance carrier. NM2 estimates that, in 199S, Medicare. Medicaid and other governmental health care programs accounted for approximately 604 of NNC's revenues. The reimbursement rates under such programs, as well as the scope of their coverage, are subject to legislative change as a result of deficit redaction and other measures. Because in most cases the prices of dialysis services and products in the United States are directly or indirectly regulated by Medicare or other government payors, competition fer patients is based primarily on quality and accessibility of service and referrals from physicians and hospitals. In addition, some states limft. competition nnder laws that restrict the nnmber of dialysis facilities within a geographic area based on need, as determined by state agencies. Competition in the hone care business is also based on quality of service as well ss price, and, where state laws do not impose limits on competition, there are no significant barriers to entering this business. Farther, the rapid growth of managed care (a combination of financial incentives and management controls intended to direct patients to efficient providers in cutl-eileclive sellings) has resulted in greater emphasis on service costs for patients insured by third parties; therefore, cost efficiency is also a key element of competition in this market. Based upon its knowledge and understanding of the health care indnstry in general and of other providers of kidney dialysis and infusion therapy, as well as information obtained from publicly available soaioet, NMC believes that it is among the moat cost-efficient ol the companies in its field and that it is the leading United States supplier of dialysis services and t leading United States provider of infusion and respiratory therapies. Tn most, countries other than the United States where NMU provides dialysis services, prices and the opening of new facilities are directly or indirectly regulated by governments, and competition is based primarily on the quality and availability of service and relationships with referring physicians. NIC believes there are adequate sources of supply for the raw materials and products used in its health care services and medical products businesses. AL year-end 1995, NMC employed approximately 18,900 people lull-time at its facilities worldwide. On February 4, 1996, Grice and Freseoins AG announced that they had entered into an agreement pursuant to which NhC would -13- 18 coabioc with Fresenius' worldwide dialysis business. See "Strategic Restructuring and Other Growth Initiatives" above lor additional information. See 'Legal Proceedings" below lor inloraatiou cuucerniug ceitaiu lawsuils and government investigations and proceedings relating to and Note 7 to Grace's Consolidated Financial Stateoents and "Managenant's Discussion and Analysis of Results of Operations and Financial Condition' in the Financial Supplement for additional information concerning NIC. Grace Cocoa. Grace's cocoa and chocolate bnsiness ('Grace Cocoa") produces high-quality intermediate cocoa and chocolate products for sale as ingredients to the bakery, confectionery, dairy and beverage industries. Cocoa liquor, cocoa batter and cocoa powder are sold internationally; coatings and intermediate chocolate products are sold to t.he European market.; and intermediate chocolate prodnets, primarily coatings and cookie drops, are sold to the North American market. Grace Cocoa competes primarily on the basis of snperior service, product quality and reliability. Sales of cocoa and chocolate prodnets were $798 million in 1995, $718 million in 1994 and $636 million in 1993. At year-end 1995, Grace Cocoa employed approximately 1,700 people at 9 production facilities (4 in each of Europe and North America and 1 in Asia Pacific) and 5 other offices worldwide. See "Strategic Restructuring and Other Growth Initiatives" above and Notes 7 and 13 to Grace's Consolidated Financial Statements for additional information concerning Grace Cocoa. RESEARCH ACTIVITIES Grace engages in research and development programs directed toward the development of new prodnets and processes and the improvement of, and development, of new naes for, existing prodnets and processes. Research is carried ont by product line laboratories in North America, Enrope, Asia and Latin America and by the Corporate Research Division in Colombia, Maryland. The Research Division's activities foens on Grace's core prodnet lines and include research in specialty polymers; water treatment; catalysis; construction materials; photopolymexs; specialty packaging; and process engineering, principally involving the development of technologies to manufacture chemical specialties. Research and development expenses relating to continuing operations amounted to $121 million m 1995, $107 million in 1994 and $112 million in 1993 (including expenses incurred in landing -16- 19 external research projects). The mount of research and development expenses relating to government- and cos toner-sponsored pxoiects (ts opposed to proiects sponsored by Grace) is run. material. See 'Management's Discnssion and Analysis of Resalts oi Operations and Financial Condition' in the Financial Supplement lor addiiional information. ENVIRONKCNTAL. HEALTH AM) SAFETY MATTERS In constructing and operating its facilities, Grace incnxs capital and operating expenditures relating to the protection oi the environment, as veil as coats to remediate properties. The following tabic acta forth Grace's expenditures in the past three years, and its estimated expenditures in 1996 and 1997, for (a) the operation and maintenance of environmental facilities and the disposal of hazardous and nonhazardons wastes with respect to continuing operations; (b) capital improvements to environmental control facilities relating to continuing operations; and (c) the remediation of sites: (a) Operation of Facilities and Waste Disposal 1993 1994 1995 1996 (eat.) 1997 (est.) $41 36 44 45 47 fb) (c) Capital Improvements Remediation (In millions) $19 $44 22 31 15 31 20 30 17 20 Snch expenditures hive not had, and are not expected to have, a material effect on Grace's oilier capital expenditures or uu its earuiugs or uuupelilive position. See Note 12 to the Consolidated Financial Statements and 'Management's Discussion and Analysis of Results of Operations and Financial Condition* in the Financial Supplement. With the goal of continuously improving it) environment, health and safety ("SHS") performance, Grace established its Commitment to Care(TM) initiative (based on the Responsible Care(R) program of the Chemical Manufacturers Association) in 1994 as the program nndcr which all Grace EHS activities arc to be implemented. -17- 20 To the extent applicable, Commitment to Care extends the basic elements of Responsible Care to all Grace locations worldwide, embracing specific objectives in the key areas of prodnct stewardship, employee health and safety, cumuuuily awareness and emergency response, distribution, process safely and pollution prevention. In 1995 (following completion of the first year of the implementation of the Commitment to Care program), Grace conducted a survey of facilities worldwide to determine the program's results The survey showed significant progress toward Grace's goal of implementing the program in all Grace facilities. See Item 3 of this Report for information concerning environmental proceedings t.o which Grace i* a party and "Minagenent.' * Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement lor additional information concerning environmental matters. ITEM 2. PROPERTIES. Grace operates mannfactnring and other types of plants and facilities (including ufliue and other service facilities) throughout, the world, suue of which are shared by two or more of Grace's product lines. Grace considers its major operating properties to be in good operating condition and snitable for their current nse. Although Grace believes that, alter taking planned expansion into account, the productive capacity of its plants and other facilities is generally adequate for onrrent operations and foreseeable growth, it conducts ongoing, long-range forecasting of its capital requirements to assure that additional capacity will be available when and as needed (see information regarding Grace's capital expenditures in "Management's Discussion and Analysis of Results of Operations and Financial Condition" and on page F-27 of the Financial Snpplenent.). Accordingly, Grace doe* not anticipate that it.* operations or income will be materially affected by the absence of available capacity. Additional information regarding Grace's properties is set forth in Item 1 above and in Notes 1. 9 and 12 to the Consolidated Financial Statements in the Financial Supplement. ITEM 3. LEGAL PROCEEDINGS. Asbestos Litigation. Grace is a defendant in lawsuits relating to previously sold asbestos-containing products and anticipates that it will be named as s defendant in additional asbestos related -18- 21 lawsuits in tbe future. Grace was a defendant in approximately 10,800 asbestos-related lawsuits at year-end 1995 (47 involving claims for property damage and tbe remainder involving approximately 92,4UU claims tor personal injury), as compared to approximately 38,700 lawsuits at year-end 1994 (65 involving claims loi properly damage and the remainder involving appruximaLely 67.900 claims for personal injury). In most of these lawsuits, Grace is one of many defendants. The plaintiffs in property damage lawsuits generally seek, among other things, to have the defendants absorb the coat of removing, containing or repairing the asbestos-containing materials in the affected buildings. Through year-end 1995. L29 asbestos property damage cases were dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grace in 10 cases (excluding cases settled following appeals of jndgments in favor of Grace and a case in which t.he plaintiff was granted a new trial on appeal); Grace was held liable for a total of $74. ^ aillion m 7 cases (2 of which aie on appeal); and 177 property damage suits and claims were settled for a total of $421.8 million. Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1995 were the following class actions: (l) a Pennsylvania stale court action (Prince George Center, Inc. v. U.S. Gypsum Company, et al.. Court of Coanion Pleas of Philadelphia Conntv), certified in 1992, covering all commercial buildings in the United Stares leased in whole or in part to the United States government on or after May 30, 1986; (2) an action, conditionally certified by the United States Court of Appeals for the Fourth Circuit in 1993 and pending in the United States District Court for the District of Sonth Carolina, covering all public and private colleges and universities in the United States whose buildings contain asbestos materials (Central Wesleyan College, ct al. v. W. R. Grace, ct al.); and (3) a purported class action (Anderson Memorial Hospital, et al. v. W. R. Grace Co., et al), filed in 1992 in t.he Conn. of Cotnaon Pleas for Hampton County, Sonth Carolina, on behalf of all entities that own, in whole or in part, any building containing asbestos materials manufactured by Grace or one of the other named defendants, other than buildings subject to tbe class action lawsuits described above and any building owned by the federal or any state government. In December 1995. Grace entered into an agreement to settle the claims under Prince George Center, Inc. v. U.S. Gypsum Company, et al. The terms of the settlement agreeueul (which is subject to judicial review and approval alter class members have an opportunity to be heard) are not expected to have a significant effect on Grace's consolidated reanlts of operations or financial position. In July -19- r-as 22 1994, the cltini of most flats members in Anderson Memorisl Hospital, et si. . v. W. R. Grace & Co., et al. were dismissed doe to t ruling that a South Carolina statute prohibits nonresidents froa pursuing ciaias in the Sonth Carolina state courts with respect to buildings located outside the state. The plaintiffs have requested that the court reconsider its decision. Iu August 1994, Grace entered into an agreenent to settle In re: Asbestos School Litigation, a nationwide data action brought in 19S3 in the United States District Coart for the Eastern District of Pennsylvania on behalf of all public and private elementary and secondary schools in the United States that contain friable asbestos materials (other than schools that "opted oat" of the class). The terms of the settlement agreement (which were approved by the District Court in September 1995) are not expected to have a significant effect on Grace's consolidated results of operations or financial position. The remaining asbestos lawsnit.s pending at year-end 1995 involved claims for personal injury. Through year-end 1995, approximately 10,100 personal injury lawsuits involving 24.5U0 claims were dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 23,700 snch suns involving 29,600 claims were disposed of for a total of $109 million (see "Insurance Litigation" below). However, as t resnlt of various trends (including the insolvency of other former asbestos producers and cross-claims by co-defendants in asbestos personal injury lawsuits), the costs incurred in disposing of such lawsuits in the past may not be indicative of the coita of disposing of such lawsuits in the future. In 1991, the Judicial Panel on Multi Diatrict Litigation consolidated in the United States District Court for the Eastern District of Pennsylvania, for pre-trial purposes, all asbestos personal injury cases pending in the federal courts, including approximately 7,000 cases then pending against Grace; 3.600 new cases involving 7,200 claims against Grace have subsequently been added to the consolidated esses. To date, no action has beer taken by the cnnrt handling the consolidated cases that wonld indicate whether the consolidation will ailect Grace's cost of disposing of these cases or its defense costs. Grace's ultimate exposure with respect to its asbestos-related lawsuits and claims will depend on the extent to which its insurance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. As discussed below under "Insurance Litigutiou," a May L994 decision ui the U.S. Court of Appeals for the Second Circuit limited the amonnt of insurance -20- 23 coverage available with respect to properiy daaage lawsuits and claims. Because Grace's insurance covers both property damage and personal injury lawsuits and claims, the May 1994 decision has had the concomitant ellect ol reducing the insurance coverage available with respect to Grace's asbestos pertuual injury lawsuits and claims. However, iu Grace's opinion, it is probable that recoveries from its insurance carriers, along with other funds, will be available to satisfy the property daaage and personal injury lawsuits and claims pending at year-end 1995, as well as personal injnry lawsuits and claims expected to be filed through 1998. Consequently, Grace believes that the resolution of ita asbestos related litigation will not have a material adverse effect on its consolidated results of operations or financial position. See "Insurance Litigation" below and Note 2 to the Consolidated Financial Statements in the Finanoial Supplement for additional information. F.nvt rofiment.nl Proceedings. Grace (together with other ermpanies) has been designated a "potentially responsible party" ("PRT") by the United States bnvironnental Protection Agency ("HPA") with respect to absorbing the costs of investigating and remediating pollution at various sites. At year-end 1995, proceedings were pending with respect to approximately 30 sites as to which Grace has been designated a PRP. Federal law provides that all PRPs may be held jointly and severally liable for the costs of investigating and lemedialing a site. Grace is also conducting investigatory and remediation activities at sites nnder the jurisdiction of state and/or local anthorities. In addition, in 1989. Httco Corporation ("Hatco"), which purchased the assets of a Grace chemical business in 1978. instituted a lawsuit against Grace in the United States District Court for the Distriot of New Jersey (Hatco Corporation v. V. R. Grace & Co.-Conn.) seeking recovery of cleanup costs for waste allegedly generated at a New Jersey facility dnnng the period of Grace's ownership. Grace subsequently filed a lawsnit against its insurance carriers seeking indemnity against any damages assessed against Grace in the underlying lawsnit, as well as defense coats. Tn decisions rendered (hiring 1993, the District Coart ruled that Grace is responsible fer a substantial portion of Hatco's costs. In Jnly 1995. the United States Court of Appeals tor the Third Circuit reversed the decisions of the District Court and remanded the lawsnit to the District Court for farther proceedings. Specifically, the Coart of Appeals (a) reversed the District Court's ruling that Grace is responsible for a substantial portion of Hatco's costs and (b) ruled that in the remand proceeding the burden of proof would be on Hatco to establish that it had not released Grace from the asserted liabilities. In an earlier -21- 24 decision, the District Coart bad resolved, m a Banner favorable to Grace, certain legal mats regarding Grace's right to insarance coverage; however, the ultiuale liability cl Grace's insurance carriers will be determined at trial, should a trial be necessary after the renand proceedings described above. Remediation coats, and Grace's share, if any, of snch costs, will be determined once ongoing site investigations are completed and a remediation plan is approved by the State of New Jersey. As a resnlt of the above factori, the amount that Grace may be reqaired to pay to Hatco, if any (which Grace expects will be partially offset by recoveries from insarance carriers), cannot be reliably estimated at this time. In November 1995, Grace received a letter from tbe United States Department of F.nergy ("IDF.") inquiring as to Grace's willingness to cont.nhnt.e to the continued cleanup of a former Grace property located in Wayne, New Jersey. The letter asserted that Grace has a legal duty to pay tor the site's cleanup and that the total coat of cleanup may exceed $100 million. The operations conducted by Grace at the Wayne site (from 1955 to 1970) iaclnded work done on radioactive materials tinder contract with the United States government for the "Manhattan Project" and with the United States Atomic Energy Commission. Iu 1975, the Uuiled States Nuclear Regulatory Commission mspecLed the site, concluded that it was decontaminated in accordance with applicable regulations and released it for unrestricted nse. In 1984, pursuant to a request Iron the DOE, Grace transferred the Wayne property to the DOE and made a cash pavnent as a contribution towards the EOE's cleanup efforts at the site, which was acknowledged by the DOE as fulfilling any obligation Graoe had to contribute to DOE'S cleanup effort. As a resnlt of these trsnsactions, Grace believes it has no farther obligation to contribute to the DOE's cleanup activities. Tn March 1993, an action was filed in the United States District. Cnnrt for the Southern District of Texas against Grace Drilling Company, a subsidiary of the Company tbe business and assets of which have since been soid, and several other defendants, for alleged violations of tbe Clean Water Act and the Rivers and Harbors Act (U.S. v. Fin* Oil and Chemical Co., et al). The government alleges that seagrasses and seabeds around a drilling rig operated by Fina Oil and Chemical Co. were damaged in connection with the placing, servicing and remuval ol the rig. The guverumeuL is seeking injunctive relief requiring Lhe defendants to restore the damaged areas and to compensate for temporary loss of the seagrass habitat, is well as civil penalties of up to $25,000 per day of violation and attorneys' fees. Graoe ia also a party to other proceedings involving federal, state and/or local government agencies and private parties -2: 25 regarding Grace's compliance with environmental laws and regulations. These proceedings are not expected to result in significant sanctions or in any material liability. As a voluntary participant in the EPA Tone Substances Control Act Compliance Audit Program, Grace agreed to undertake a corporate-wide audit of compliance with Section S of inch Act and to pay a stipulated civil penalty for each study or report that EPA alleges should have been, bnt was not. submitted to the EPA as required under such Section. Althoagh final review of the audit is not cosiplete, Grace believes it will be reqnired to pay the EPA penalties aggregating from 3250,000 to $400,000 for information discovered in the course of the andit. In addition, Grace has voluntarily reported to the EPA violations of certain notification and related requirements under such Act, and penalties may be assessed against Grace m connection therewith; however, t.he amount, of snch penalties cannot, he determined at this time. Grace believes that the liabilities for environmental remediation costs thst have been recorded in the Consolidated Financial Statements are adequate. In addition, Grace is presently involved in litigation with its insurance carriers seeking to hold them responsible for certain amounts for which Grace may be held liable with reaped to such coats. The outcome ul such litigation, as well as the amounts of any recoveries that Grace may receive in connection therewith, is presently uncertain. For further information, see Note 12 to the Consolidated Financial Statements and 'Management's Diacnasion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement. Insnrance Litigation. Grace is involved in litigation with certain insurance carriers with respect to asbestos-related claims and environmental liabilities. Its ssbcstos-rclatcd insnrance actions consist of a oasc styled Maryland Casualty Co. v. V. R. Grace Co., pending in the United States District. Oonrt. for the Southern District, of New York; Dayton Independent. School District v. United States Mineral Prodncts Company, et al., pending in the United States District Court for the Eastern District of Texas; Independent School District No. 197, et al. v. W. R. Grace tc Co. and Accident Casualty Insnrance Co., et al., pending in the First Judicial District in Minnesota; The County of Hennepin v. Central National Insnrance Conpany, et al., pending in the Fonrth Judicial District in Minnesota; Ecolab, Inc. v. Central National Insurance Co., pending in Use District Court ior Ramsey County, Minnesota; and American Employers' Insnrance Co., American Re-Insnrance Co.. Commercial Union Insurance Co., and Unigird Security Insurance Co. v. W. R. Grace Co., Continental Casualty Co., and Maryland Casualty Co., which is pending in the New York state courts: Grace's insurance actions relating to environmental liabilities consist of 6 Maryland Casualty Co. v. W. R. Grace CD., pending in the United States District Court for the Sonthern District of New York; and Hatco Corp. v. V. R. Grace & Co.-Couu., pending in Uie United States District Court lor che District of New Jersey. The relief sought by Grace in these actions wonld provide inanrance to partially offset Grace's estimated exposure with respect to the actions' subject matter, including amounts previously expended by Grace to defend claims and satisfy judgments and settlements (see Note 2 to the Consolidated Financial Statements in the Financial Supplement). The factnal bases underlying these actions axe the natnre of the underlying asbestos-related and environmental claims, the Language of the insurance policies sold by the csrricrs to Grscc and the drafting history of those policies. In 1991 (in an asbestos-related case involving Maryland Casualty Co.), the United States District Court lor the Sonthern District of New York determined that coverage for property damage is triggered by the "discovery of damage" during the period covered by the relevant policy. In September 1993, the United States Conrt of Appeals for the Second Circnit reversed the District Court's ruling as to a "discovery of damage" trigger for snch claims and, instead, ruled that coverage fur these claims is triggered based uu the date ul installation of asbestos-containing materials. In January 1994, the United States Conrt of Appeals for tbe Second Circuit granted Grace's petition for a rehearing concerning the September 1993 decision, and m May 1994, tbe Conrt issned a new decision confirming its September 1993 decision. As a result. Graee recorded net noncash charges totaling $300 million after taxes in 1993 and 1994 to reflect tbe redaction in asbestos property damage insurance coverage. Snbsequently, the Second Circnit refused to rehear its decision, and the United States Supreme Court denied Grace's petition for a writ of certiorari with leaped to that decision. In 1991 and 1994, a Mississippi conrt held that certain of Grace's excess insurance carriers are obligated to defend and indemnify Gtace, determining that, for purposes of inanrance coverage, damage to buildings from asbestos-containing products occnrs at the time sneb products are put in place and that the damage continues as long as the bnilding contains the products (referred to as a "continuous trigger"); Grace subsequently settled with each oi the insurance carriers, and au appeal of Ibe Mississippi cuurt's decision was dismissed. In 1992, the Minnesota court referred to above reached a similar decision iu interpreting Grace's insurance policies. In Jannary 1994, tbe Minnesota conrt entered judgment against certain or Grace's carriers m tbe amount of $14.2 million, bat that judgment was reversed by the Minnesota Court of Appeals in January 199S. After the Minnesota Supreme Conrt -24- 27 denied review ot this decision, tbe parties agreed to settlements m 1995 and early 1996. Prior to 1993, Grace received paynents totaling $97.7 million iron insurance carriers, the asjority of which represented the aggregate renaming obligations owed to Grace by those carriers for primary-level insurance coverage written for the period June 30, 1962 through June 30, 1987. In 1993 and 1994, Grace settled with insurance carriers for a total of $300.2 ml lion (portions of which were paid or will be paid in subsequent years) in leimbmsement for anounts expended by Grace in connection with asbestos-related litigation. In 1995, Grace settled with a primary-level insnrer for $100 nillion, and with other insurers for a total of $200.3 million, including fnt.nre payments of approximately $70 million As a reanlt of these settlements, insnrance litigations were dismissed as to the primary-level product liability insnrance coverage previously sold by the relevant insurers to Grace; however, litigations continue as to certain excess-level carriers. In a 1995 settlement included in the amounts set forth above, Grace settled with an affiliated gronp of excess-level carriers that had agreed to a settlement in 1993, had made a series ul payments under that agreement and had subsequently notified Grace that it would no longer honor the agreement. Pursuant to the 1995 uettlement, the group of carriers paid Grace $44 million in 1995, and agreed to mate additional payments totaling S60.2 million in 1996 and 1997. Pursuant to a settlement with another group of carriers. Grace received S26.8 million in 1995 and $9.7 million in early 1996. Grace will also continue to receive payments nnder these agreements based on future cash outflows for asbestos-related litigation and claims; such paynents are estimated to represent approximately $237.3 million of the asbcstos-rclatcd teceivable of $321.2 million at December 31, 1995. See Note 2 to the Consolidated Financial Statements and "Management* s Discussion and Analysis ot Results ot Operations and Pinancial Condition" in the Financial Supplement for additional information. Fumed Silica Plant Litigation. In 1993, Grace initiated legal action in the Belgian courts against the Flemish government to recover losses resulting Xruu Lhe eluting of Grace's iurned silica plant in Puurs, Belgium. Grace is seeling damages in excess of fonr billion Belgian francs (approximately $135.5 million at the December 29, 1995 exchange rate), pins interest and lost profits. This claim was dismissed at the trial court level and is now being appealed by Grace. The trial court also determined that Grace should repay approximately 239 million Belgian fxancs (approximately $$.l nillion at the Decenber 29, 1995 exchange rate) pins -25- 28 interest to the Flenish government tor previously received investment grants; this decision is also being appealed by Grace. Also pending is an arbitration involving the engineering company that was responsible lor the design and ooustiuctiun ol the turned silica plant. The uutcuue of this proceeding may affect the action filed against the Flenish government. Shareholder Litigation. Commencing in March 1993, five lawsuits were brought against the Conpany and nembers of its Board of Directors (as well as J. P. Boldnc, who resigned as President and Chief Executive Officer end e director of the Company in March 1993) in New York State Supreme Court, New York County. These lawsuits were consolidated in the case entitled Weiser, et al. v. Grace, ct al. The consolidated amended complaint in this lawsuit, which purports to be a derivative action (i.e., an action brought on behalf of the Company), alleges, among other thing*, that, the individual defendants breached their fiduciary duties to the Company (a) by providing J. Peter Grace, Jr. (the Chairman and a director of the Company until his death in April 1993) with certain compensation arrangements npon hit voluntary retirement as the Company's Chief Executive Officer in 1992 and (b) by approving Hr. Boldnc'a severance arrangements, and that Messrs. Grace and Boldnc breached their fiduciary duties by accepting such benefits and payments. The lawanit seeks unspecified damages, the cancellation of all allegedly improper agreements, Lbe cancellation of the non-employee director retirement plnn. the return of all remuneration paid to the present and former directors who are defendants while they were in breach of their fiduciary dntiea to the Company, an award of attorneys' and experts' fees and costs and snch other relief as the Court may deem appropriate. In March 1996, two purported shareholder derivative class actions were filed m New York State Supreme Court, New York County, against the Company and Albert J. Costello, tbe Company's Chairman, President and Chief Executive Officer, alleging that, t.he defendants breached their fiduciary duties to the Company's shareholders by failing to investigate and consider fnlly a proposal by Hercules, Incorporated to acquire or merge with Grace ilzes, etc. v. W. K. Grace k Company, et al. and Polikoff, etc. v W. R. Grace A Company, et al.). The lawsuits seek injunctive relief ordering defendants to carry oat their fiduciary duties by considering and evaluating snch proposal, nnspecified monetary damages, costa and counsel fees and snch other relief as the Court deems proper. Securities and Exchange Commission Investigation. The Company has been notified that the Securities and Exchange Commission has issued a formal order of investigation with respect to the -26- 29 Company's prior disclosures regarding benefits and retirenent arrangements provided to J. Petei Grace, Jr., and certain natters relating to J. Peter Grace III, a tun ul J- Peter Grace, Jr- Tlie Company is coupe rating tally with the investigation. NMC - OIG Investigation. On October 17, 1995, NVC received five investigative subpoenas trod the Office of the Inspector General of the United States Department of Heelih and Honan Services ("OIG"). The anbpoenas call for the production of extensive documents relating to various aspects of NMD's business. A letter accompanying the subpoenas stated that they had been issued in conjunction with an investigation being conducted by the OIG, the United States 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) NMD's corporate management, personnel and employees, organizational structnre, financial information and internal communications; (b) NMD's dialysis services bnsiness, principally medical director contracts and compensation; (c) NMD's treatment of credit balances resnlting from overpayments received under the Medicare ESRD program and its payment of supplemental medical insurance premiums uu behalf ul indigent patieuLs; id) NMC's LiXeCheia laboratory bnsiness, including documents relating to testing procedures, marketing, customers competition and certain overpayments totaling approximately $4.9 million that were received by LifeCbem from the Medicare program with respect to laboratory aeivicea rendered between 1989 and 1993; and (e) NMD's Home care Division and. in particular, information concerning the intradialytic parenteral nntxition ("IDPN") bnsiness, including billing practices related to varions services, equipment and supplies and payments made to third parties as compensation for administering IDPN therapy. NMD is cooperating with the OTG investigation and hat made, and it expected 10 continne to make, extensive production of documents and information in response to the subpoenas. The results of the investigation and its impact, if 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 snch proceedings were to be institnted and the outcome were unfavorable, NMD conld be snbject to fines, penalties and damages or could become excluded lima government reimbursement programs. Any snch result conld have a material adverse effect on NMD's financial position ox the results of operations of NMD and Grace. Under the terms of the proposed transaction with Fresenins AG described above under "Strategic Restructuring and Other Growth :7- .a 30 Initiatives," any liability arising as a resalt of the OIG investigation wonId remain the responsibility of NM2. NMC - OBRA 93 Litigation. The Omnibns Budget Reconciliation Act of 1993 ("OBRA 93') affected the paymeul uf benefiLs under Medicate and employer health plans for certain eligible ESRD patients. In July 1994. the Health Care Financing Administration i'BZFA') issned an instrnction to Medicare claims processors to the effect that Medicare benefits for the patients affected by OBRA 93 wonld be snbject to a new 18-month "coordination of benefits" period. This instruction had a positive impact on NMJ's dialysis revennes because, dnring the 18-nonth coordination of benefits period, the patient's employer health plan was responsible for paynent, which was generally at a rate higher than that provided under Medicare. Tn April 1995, FTTFA issned a new inst.rnct.ion, reversing its original instrnction in a manner that would substantially diminish the positive effect of the initial instrnction on NMC's dialysis business. Under the new instrnction, no 18-month coordination of benefits period would arise, and Medicare would remain the primary payor. BCFA farther proposed that its new instruction be effective retroactive to August 1993, the effective date of OBRA 93. Consequently, NIC may be required to refnnd payments received from employer health plans fox services provided aftei .August 1993 under H2FA's original instrnction and to re-bill Medicare for the same services, which woold result in a cumulative redaction of net revennes to NNC totnling approximately $120 million as of December 31, 1993. Effective Jnly 1, 1993, NIC ceased to recognize the incremental revenue realized under the original instrnction, whioh has resulted in t material rednotion in NIC's operating earnings in comparison to prior periods in which NMC recognized snch incremental revenue. However. NMD continued to bill the employer health plans as primary payors through December 31, 1995, at which time NMC come need billing Mcdioarc for tbc patients affected by OBRA 93. In May 1995, NMC filed snit in the United States District Court for the District of Colnnbia seeking a declaratory judgment with respect to 10A'i instrnctions relating to OBRA 93 (National Medical Care, Inc , et al. v. Shalala). In Jane 1995, the court granted NIC's motion for a preliminary injunction to preclude HCFA from retroactively enforcing its new instruction. The litigation it continuing with respect to NIC's request to permanently eujuiuBCFA's new instruction, both retroaclively and prospectively. While there can be no assurance that a permanent injunction will be issned. NbC believes that it will ultimately prevail in its claim that the retroactive reversal by H2FA of its original instruction -28- 31 relating to GBRA 93 wai impermissible ander applicable law. If HCFA's revised instruction is upheld, NMC's bnsiness, financial position and resnlts of operations would be materially adversely affected, particularly it the revised instruction is applied retroactively. NNC - IDPN Proceedings. NNC administers 1DPN therapy to chronic dialysis patienta who anffer frota severe gastrointestinal malfunctions. Since late 1993, Medicare claims processors have applied nedical coverage interpretations in a manner that has sharply reduced the number of IDPN claims approved for payment as compared to prior periods. NNC believes that the reduction in IDPN clams cnrrently being paid by Medicare represents an unauthorized policy coverage change. Accordingly, NNC and other IDPN providers arc pursuing various administrative and legal remedies, including administrative appeals, to address this reduction. In November 1995, NM^ filed a complaint in the United States District. Court, for t.he Middle District of Pennsylvania (NNC Homecare, Inc. v. Shalala) seeking a declaratory judgment and injunctive relief to prevent the implementation of this policy coverage change. NNC management believes thst its IDPN claims sre consistent with published Medicare coverage guidelines and ultimately will be approve^ for payment. Such claims represent substantial accounts receivable of NNC, amounting to $93 million a> uI December 31, 1995, uud currently increasing at llie rale of approximately $5 million per month. If NNC is nnable 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 natnre of the coverage change, NNC's bnsiness, financial position and resnlts of operations could be materially adversely affected. As previously reported, in May 1995 the Medicare claims processors circulated a draft coverage policy which, if implemented in the form proposed, wonld have limited or precluded continued coverage of parenteral and enteral nntiition ("PEN') therapies, including IDPN therapy. In March 1996, NMC received a copy of a revised final version of the new coverage policy, which is expected to become effective for services billed on and after July 1, 1996. INhile the new policy permits continued coverage of IDPN aud other PEN therapies, and while the potential impact of the new policy is subject to farther analysis, NNC believes that the new policy would make it substantially more difficult Lu qualify pa Lieu Is for future coverage by, amuug other things, requiring certain patients to undergo onerons and/or invasive tests in order to qnalify for coverage. NNC. together with other interested parties, plans to seek to effect certain changes in the new policy, and NNC is considering changes to its patient qualification procedures in -29- 32 order to comply with the policy. However, if NMD is nnable to achieve changes in the new policy, if physicians and patients tail to accept the new qualification procednres and/or if patients fail to qualify under such procedures, the policy could siguificanlly reduce the number of pa Lieu Is eligible for Medicare coverage of IDPN and other PEN therapies, which vonld have a material adverse effect on NMD'i financial position and results of operations. NMD Import Alerts. In 1993, the United States Food and Ding Administration ("FDA") issued import alerts with respect to (a) hemodialysis bloodlines mannfactnred at NMD's facility in Reynosa. Mexico and (b) hcmodielyzcrs mannfactnred in NMD's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the United States until the FDA approves the quality assurance systems of the facility at which snch prodnets are mannfactnred. In January 1994, NMD entered into a consent decree providing that the importation of bloodlines and henodialyzers could resume upon certification by NMD that the relevant facility complies with FDA regulations and successful completion of an FDA inspection tc verity snch compliance. The consent decree also required NMD to certify, and be inspected for, compliance with applicable FDA manaftduring requirements it all of its United Ststes manufacturing facilities. NMD submitted sll required certifications for its United States and non-United States facilities in accordance with the timetable specified in the consent decree, and the bloodline import alert was lifted in March 1994. The Dublin hemodialyzer import alert was lifted in December 199S. No fines or penalties have been imposed on NMD as a result of the FDA's actions or in connection with the consent decree. NMD - Grand Jury Investigations. NAD has received multiple snbpoenas from a federal grand jury in the District of New Jersey investigating, among other things, (a) NMD'a efforts to persuade the United States Food and Drug Administration to lift a January 1991 import hold issaed with respect to NMD s Dublin, Ireland facility, (b) whether NMD told defective products, (c) the manner in which NMC handled customer complaints and (d) the development of a new dialyzer product line. Grace has also received two snbpoenas relating to this investigation. NMC and Grace have made extensive document production in response to these subpoenas aud have Xully coupe is Led with the giaud jury in response to these snbpoenas. In February 1996, the United States Attorney for the District of New Jersey notified NMD the! it is a target of the New Jersey grand jury investigation, insofar as it relates to possible violations of federal criminal law in connection with efforts to affect the Jannary 1991 import hold referred to above; the meterial element of the import hold was lifted in 1992. -`30- 33 In addition, in Dcccubei 1994, a subsidiary of NVC received a subpoena Iron a federal grand iury in the tastern District of Virginia investigating tbe contractual relationships between subsidiaries of NMC that provide dialysis services and third parties Lhat provide medical directorship and related services to those subsidiaries. NMC has nade document production in response to this subpoena. The outcome of these investigations and their impact, if any. on NNC's buaineas, financial condition and results of operations cannot be predicted at this time. Shareholder Actions relating to NIC. In 1995, nine purported class action lawsuits were brought against tbe Company and certain of its officers and directors in virion* federal cnnrta. These lawsuits ire heing consolidated in the case entitled Murphy, et al. v. Vi. R. Grace & Co., et al. , which is pending in the United States District Court tor the Sonthern District of New York. The first amended class action complaint in this lawsuit, which purports to be a class action on behalf of all persons and entities who purchased the Company's publicly traded securities daring the period from March 13, 1995 through October 17, 1995, generally alleges that the defendants concealed information, and issued misleading public statement* and reports, concerning NM2's financial position and business prospects, a proposed spin-off of NM? and the mattera that are the subject of the investigations described above in "NMC. - OIG Investigation' and "hhC - Grand Jnry Investigations,' in violation of federal seenrities laws. The lawsuit seeks unspecified damages, attorneys' and experts' fees and oosts and such other relief as the Court deems proper. In October 1995, a purported derivative lawsnit was filed in the United States District Court for the Southern District of Florida, Northern Division, against tbe Company, certain of its directors and its former President and Chief F.xeent.ive Officer, alleging that inch individual* hreached their fiduciary duties by failing to properly sapervise the activities of NVC in the conduct of its business (Dennett v. Bolduc, et al.). in December 1993, the plaintiff in this action filed a new action, based on similar allegations, in the United States District Court for the Southern District of New York (Bennett v. Bolduc, et al.). The Florida action has been dismissed in favor of the action filed in the Sonthern District of New York. A second action making similar allegations was filed in Ocluber 1995 in New York Stale Supreme CourL, New York County (Bauer v. Bolduc, et al.). Tbe Compauy has been advised tbat this action will be dismissed or stayed in favor of the Bennett action, which has been consolidated, for discovery purposes only, with the Morphy action described above. Tbe com- -31- 34 plaint in the Bennett action seeks unspecified damages, attorneys' and experts' fees and costs and snch other relief as the Conn deems proper. In February 1996, a pnrported class action was filed in New York State Supreme Court, New York CouuLy, against the Company, certain of its directors and a forner director, alleging that the defendants breached their fidociary dntiea in connection with the Conpiny1a agreement to combine NMC with Fresenins AG's worldwide dialysis business, as described in Item 1 above under `Strategic Restructuring and Other Growth Initiatives' (Rosnan v. W. R. Grace & Co., et el.). The lawsuit seeks injunctive relief ordering defendants to carry ont their fiduciary duties and preventing or rescinding the transaction or any related transactions with Fresenins AS, unspecified monetary damages, an award of attorneys' and experts' fees and coats and snch other relief as the Coart may deem .mst and proper. See Note 7 to the Consolidated Financial Statements for additional information concerning litigation involving NMC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. this Item is inapplicable, as no matters were submitted to a vote of the Company's security holders during the lourUi quarter ul 1995. EXECUTIVE OFFICERS The Company's current executive officers are listed below. Executive officers are elected to serve until the following annual meeting of the Company's Board of Directors; the next such meeting is scheduled to be held on May 10. 1996. Name and Age R. H. Beber (62) Robert J. Bettacchi (53) Albert J. Costello (60) Larry Ellberger (48) Office Fust Elected Execntive Vice President 05/10' 93 and General Counsel 09/01/91 Vice President 02/ 01/ 90 Chairman President and Chief Executive Officer 05/10/ 95 05/01/95 Senior Vice President 07/06/95 -32- 35 Constantine L. Hampers (63) Executive Vice President 06/06/91 Peter D. Hocchin i48) Senior Vice President end 08/03/95 Chief Fintncixl Officer Janet R. Hyde (57) Senior Vice President 07/06/ 95 J. Gxry Kaenzig, Jr. (5L) Senior Vice President 10/05/95 Donald H. Kohnkcn (61) Executive Vice President 12/07/89 Fred Teaperenr (58) Senior Vice President 02/ 06/ 92 ltn Pnestneil (51) Vice President 02/ 06/ 92 Ail the above executive officers have been actively engaged in Grace's business fur llie past five years, other Lb an Mr. Costello. who served as chairman of the board and chief executive officer of Anerican Cyananid Oonpany from April 1993 to December 1994 and a a president of American Cyansaid Company iron 1991 through March 1993; Mr. Ellberger, who was a corporate vice president and director of corporate developnent and planning fron October 1991 until 1995, and prior to that vice president, industrial and performance products division, of American Cyanamid Company; and Mr. Bonchin, who was chief executive officer of Gulfstream Land ft Development prior to joining Grace in October 1991. PART TT ITEM 5. MARKET EUR REU1S1KAM" S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Except as provided below, the information called for by this Item appears in the Financial Snpplement under the heading "Financial Summary" opposite the caption "Other Statistics - Cuumou shareholders ul record* (page F-28); under the heading 'Quarterly Summary and Statistical Information - Unaudited* opposite the captions 'Dividends declared per common share" and "Market price of common stock' (psge F-26); and is Note 14 to the Consolidated Financial Statements (page F-22). Each share of the Company's Conmon Stock has an attendant Common Stock Purchase Right ("Right'). The Rights are not and will not become exercisable unless and nntil oertain events occnr (ns described below). Until such events occnr, the Rights will automatically trade with the Common Stock and separate certificaT.es for -33- Doctment Vrtiere Incorporated Proxy Statenent for Annual Meeting to be held May 10, 1996 (specified portions) Part III table of contents Page PART I Iten 1. Business ................................................................................................................................. Introduction ..................................................................................................................... Strategic Restructuring and Other Growth Initiatives ................................................................................................................... Description of Business ............................................................................................ Di scnnt.inned Operations .......................................................................................... Research Activities ...................................................................................................... Environments!, Health and Safety Matters ...................................................... Item 2. Properties ........................................................................................................................... Iten 3. Legal Proceedings ............................................................................................................. Iteta 4. Submission of Matters to a Vote of Security Holders ................................................................................................................................. Executive OXIiceis ................................................................................................................................. PART II Iten S. Iten 6. Iten 7. Iten 8. Tt.en 9. Market for Registrant'sComxon Equityand Related Stockholder Matters ...................................................................................................... Selected Financial Data ..................................................................................... Manageaent's Discussion and Analysis of Financial Condition and Results of Operations ..................................................................................... Financial Statements and SupplementaryData ..................................................... Changes in and Di sagreenents with Accountants on Accnnnt.ing and Financial Disclosure ..................................................................................... PART III Iten 10. Iten 11. Iten 12. Iten 13. Directors and Executive Officers ofthe Registrant .......................................................................................................................... Executive CoiapeusaLiou ...................................................................................... Security Ownership of Certain Beneficial Owners and Manageaent ...................................................................................... Certain Relationships and Related Transaction! ...................................................................................................................... PART IV Itca 14. Exhibits, Financial Statement Schedules, and Reports on Form S-K ...................................................................................... Signatures ................................................................................................................................................... Finsncial Supplement .......................................................................................................................... L 1 I 5 II 16 17 18 IB 32 32 33 35 35 35 35 35 36 36 36 36 43 F-l ITEM 1. BUSINESS. INTRCEXJCTICN W. R. Grace & Co., through its subsidiaries, is primarily engaged in the packaging and specialty chemicals bnsinesses on a worldwide basis. It has classified its other bnsinesses as discontinued operations, the nost significant of which are its health care and cocoa bnsinesses. As used in this Report, the term "Company" refers to ft. R. Grace & Co., a New York corporation, and the term "Grace" refers to the Company and/or one or more of its snbsidiaries. Grace's principal executive offices are located at One Town Center Rosd, Boca Raton, Florida 33486-1010, snd its telephone nnnher is 407/362-2000. At year-end 1995, Grace had approximately 21,200 foil-time employees worldwide in its continuing operations (approximately 21,100 in discontinued operations). Grace's Consolidated Financial Statements for the three years in the period ended December 31, 1995 ("Consolidated Financial Statements"), and certain other financial information iucluded in the Company's 1995 Annual Report to Shareholders, are set forth m the Financial Supplement to this Report and incorporated by reference herein. Information concerning the sales and revennes. pretax operating income and identifiable assets of Grace's ccntinmng operations by geographic area for 1995, 1994 and 1993 is contained in Note 18 to the Consolidated Financial Statements in the Financial Supplement. STRATEGIC RESTRUCTURING AND OTHER GROWTH INITIATIVES Recent Strategic Initiatives. In mid-1995, Grace announced and began implementing plans to enhance shareholder valne by strengthening its balance sheet and reducing costs. These objectives are being achieved throngh (a) the pending dispositions of Grace's health care business and water treatment and process chemicals business (disenssed below); (b) the anticipated nse of the proceeds from these transactions to substantially rednee indebtedness, to repurchase up to 204 of the Company's Counsou Stuck, aud to invest in Grace's core bnsinesses; (c) a worldwide restructuring program to streamline processes and thereby rednee expenses by $100 million tnnnally (with farther actions being taken J3 4 to improve margins); and id) the implementation of rigorous controls on working capital and capital spending. These plans are designed to make Orace a high-performance, high-value company focnted on the strengths of its packaging and specialty chemical* businesses. Grace's core businesses are now packaging, catalysts and other silica-based pxodncts, construction products, aud container and specialty polymer products. Each of these businesses is a market leader, offers high vain added products, employs leading technology and has global reach. In these businesses, Grace provides highly differentiated and superior prodncts and services through investments in research and development, facilities that enable Gxacc to take advantage of expanding global market opportunities, and technology platforms capable of providing multiple prodncts to satisfy customers' specific needs. Moreover, Grace has fnensed research and development spending on core businesses, fostered an exchange of technology among its product lines, and increased the level of process development directed at streamlining operation!. In lane 199S, the Company annonneed that its Board of Directors had approved a plan to spin off National Medical Care, Inc., Grace's principal health care subsidiary ("NMD"); aa a resulL, Grace classified its health care business as a discontinued operation in the second quarter of 1995. Following NMC's receipt in October 1995 of five investigative subpoenas from the Office of the Inspector General of the United Ststes Department of Health and Honan Services (see "Legal Proceedings" belov), the completion of the spin-off of NMC, originally expected m the 1995 fourth qnarter, was delayed. In February 1996, Grace and Fresenins AS ("Fresenins") entered into a definitive agreement to combine NMD with Fresenins' worldwide dialysis business ("FWD") to create Fresenins Medical Care ("Fit"). As a result of the combination, FMD world acqnire NMD, which wonld remain responsible for all liabilities arising oat of the investigations of NMD, discussed below. However, Grace wonld retain certain health care assets, primarily a bioseparation sciences business and a health enre services company (classified as discontinued operations), as well as other assets (including cash and marketable securities). the combination would follow a borrowing ol approximately $2.3 billion by NMD. a tax-free distribution of the proceeds by NMD to Grace, and a tax-free distribution by the Company, with respect to each share of its Common Stock, of one share of a newly formed corporation holding all of Grace's bnsinesses (principally its specialty chemicals businesses) other than NMD. As a result of the separation of Graee's specialty chemioals bnsinesses from NMD and 5 the subsequent combination of NW2 and FW, the holders of the Conpany's Common btock would own luu* ol the specialty chemicals company and 44.S* ol b'MC, and Fresemas and other shareholders would own 55.2t of F\C. The holders of the Company's Common Stuck, would also own preferred stock, the value of which would be linked to the performance of FMC. Completion of the various transactions is subject to cnstonary conditions, including the approval of the shareholders of the Conpany and Tresenius; United 5tates, German and European regulatory actions; and obtaining financing on satisfactory terms. Commitments for financing have been received (which commitments are snbject to various conditions and have not been entered into), and it is expected that the various transactions will be completed by the third quarter of 1996. In March 1996, Grace announced that it had entered into a definitive agreement, to sell its Dearborn water treatment, and process chemicals hnsiness to Betz Laboratories, Inc. for $632 million. The transaction is expected to dose in the second quarter ol 1996. 1991 Strategy; Sale and Monetization of Noncore Businesses; Other Actions. The strategic initiatives described above reflect the inrther development of a corporate strategy announced in 1991. The major components of the strstegy were tu (a) fucus on cure businesses Lu s cue lei ate profitable growth; (b) npgiade financial performance, principally by selling or monetizing noncore bnsineiset, managing debt levels consistent with profitable growth opportunities, and reducing overhead; and (c) integrate corporate and operating nnit functions through global product line management. Pursuant to this strategy, during the 1991-1993 period Grace disposed of nost of its noncore businesses and investments, including its oil and gas, coal and energy services businesses; its printing products business; its specialty textiles business; its book, video and software distribution businesses; its remaining agricnlt.nral businesses; and various chemical hnsinesses, including its organic chemicals and automotive materials businesses. Gross proceeds from these and other divestments totaled $2.15 billion in the 1991-1995 period. In 1992, Grace also monetized t portion of its cocoa and chocolate business by selling a 21* limited partnership interest in Grace Cocoa Associates, L.P., which owns this business tnd other assets, resulting in Grace's receipt of approximately $300 million in cash. Graca is actively pursuing the disposition ul its cocoa business, during the fuurth quarter of 1995, Grace levised the divestment plan for this business, focusing on the improvement of operating cash flow through the sdoption of new strategies and a new global organizational structure, while simultaneously positioning the business for sale. As a result of -3- 6 these actions, Oiace expects to complete the disposition of this bnsiness daring 1996. As put of its 1991 corporate strategy, Grace also reorganized the management of its core businesses on the basis of global product lines. As a result of this reorganization, Grace is able to serve its multinational customers in all global regions, as well as tailor its product offerings to neet local preferences. Strategic Acquisitions and Other Growth Initiatives. To focus on core bnsiness growth, Grace has made strategic acquisitions directly related to its core bnsincsica, totaling $190.4 million in the 1991-1995 period, including acqnisitions intended to expand those businesses ontside she United States. In 1992, Grace acqnired t.he North American food service packaging bnsiness of Dn , Tont Canada. In 1993, Grace acquired the Katalistics fluid cracking catalyst additive bnsiness previously owned by a joint ventnre between Union Carbide Corporation and AlliedSignal Inc. In 1993, Grace also formed a 51Vowned joint ventnre with a large chemical and industrial concern headquartered in Volgograd. Russia, to produce flexible packaging for sale throughout the Commonwealth of Independent States: the joint venture began production in the third quarter of 1994. In 1994, Grace acqnired the Schur Mnltiflex gronp of European flexible packaging businesses; construction chemicals businesses; and a small pollution control equipment producer. In addition, daring 1994 Grace formed a SlVowned joint ventnre with an Indian company to anpply water treatment products and services in India. In 1995, Grace formed a SlVowned joint ventnre in Malaysia to produce rigid plastic packaging products for sale throughout Southeast Asia; a <S8V owned joint, ventnre with a Chinese packaging ennpany to aannfactnre shrink films for sausage casings and to market Grace's packaging products and systems in China; a 51Vowned ioint ventnre with a Knssian company to prodnee container and closure sealants for sale throughout the Commonwealth of Independent States; and a 504-owned joint ventare with Engelhard Corporation to aannfactnre and market metal-based catalytic converters to the automotive industry. In early 1996, Grace agreed to form a joint venture to produce and market toaliugs, closures and can-sealing compounds in India. Although Grace intends to emphasise internal growth, it nay also effect acqnisitions, joint ventures and strategic alliances that afford synergies or other benefits necessary to fulfill strategic objectives of a core bnsiness (sach as a key technology or opportnnities for geographic expansion) or that provide a -4- 7 combination of a close fit with a coxe business with the potential for exceptional retains. See Notes 3, 3, 7, 12, 13 and 19 to che Consolidated Financial Stateueuts and "Management's Discussion and Analysis of Results of Operations and Financial Condition' in the Financial Supplement foi additional information. DESCRIPTION OF BUSINESS Grace's continning operations consist principally of the development, nannfactnre and sale oi packaging and specialty chemical products and systems. These products and systcas serve highly specialized markets and represent an important or critical component (bat a relatively small portion cf the cost) of the end product.* in which they are nsed. Accordingly, competition tends r.o he based primarily on technological capability, customer service, pxodnet quality and, to a lesser extent, price. Grace's products and systems are marketed primarily through direct sales organizations. Through direct regolar contact with its customers, Grace gains an in-depth knowledge of their businesses and anticipates and caters to their ueeds. Grace is ulteu involved in the design ul customers' production processes and thereafter seryes as a supplier for such processes. The following is a description of the products and services provided by each of Grace's businesses. Packaging. Grace's packaging business ("Grace Packaging") provides high-performance total packaging systems on a worldwide basis, competing principally by providing superior quality products and services for specialized customer needs. The principal products and services provided by Grace Packaging are (a) flexihle plastic packaging systems (inclnriing material, equipment and services) for a broad range of perishable foods such as iresh, smoked and processed meat products, cheese, poultry, prepared foods (including soaps and sauces for restaurants and institutions), baked goods and produce; (b) shrink films used in packaging a variety of nonfood consumer and indnstrial products; (c) foam trays for supermarkets and poultry and other food processors; and (d) rigid plaatic containers for dsiry and other food and nonfood products. Grace Packaging competes through Lhree product groups: flexible packaging (marketed extensively under the Cryovac(R) registered trademark), Formpac(TM) foam traya and Omicron(IM) rigid plastic containers. 5 i The Cryovac packaging products group developed and introduced flexible plastic vacuum shrink packaging to the food processing industry m the late 1910s, contributing to expanded food distribution and narketing by providing superior protection against decay - inducing bacteiia aud moisture loss. The narket for Cryovac products has since expanded into the retail food market, and Cryovac packaging technology ha: also been introduced in nonfood application: for consumer merchandising of housewares, toys and compact discs, as well as for electronic and medical products. Cryovac flexible packaging products include shrink bags, shrink films, laminated films and films for medical bags and equipment. Shrink bags are mdlti-laycrcd plastic bags that mold themselves to the exact shape of the product, forming a clear 'second skin.' Using sophisticated coextrnsioo technology, Cryovac shrink bags maximize barrier properties, optics, ahnse resistance, shrinkability and seal strength. Cryovac shrink films are mnlti-layered shrinkable plastic films nsed to package a variety of food and nonfood consumer goods to protect against damage, preserve freshness and enhance marketability. Cryovac laminates are multi-layered, nonshrinkable and normally high-barrier flexible materials used for packaging perishable foods, shelf-stable products (nonrefrigerated foods, snch as syrnps, toppings and luma Lo paste) aud various uouiuud products. Grace's flexible packaging products differentiate themselves from competitive products by offering a combination of the following core competencies: (a) proprietary film processing technology; (b) resin technology, permitting the piodnotion of materials suited to specific customer needs; (o) packaging and food science expertise, providing better understanding of the interaction between packaging materials and packaged prodnets; (d) complete systems support capability, providing a single source for customer needs; (c) a talented employee base that strives to anticipate, meet and exceed enstoaer expectations; and (1) an effective sales and rii st.rihnt.ion network. today, Grace Packaging is recognized as a worldwide leader in flexible packaging technology. Grace's technological leadership hag sparred Grace Packaging's growth in several markets: in the rapidly expanding packaged fresh-ent produce market, Grace produces films that permit oxygen to pass through at various rates, thereby matching the varying respiration rates of different vegetables and permitting lunger shelf life, in Uie fresh meat market, Grace's case-ready program rednees supermarkets' in-store production costs by allowing meat procetaora to centrally package meat prodnets suitable for display; in the bone-m park market, Grace's TBG(IM) packaging products have revolntionized the distribution of large subprimal cats of pork by adding a film patch to certain sections -6- 9 cf a high-abase barxiex bag to prevent bone ponctnres; and in the processed neats and ponitry markets. Ciyovac cool:-in bags and laninates withstand high cooking temperatures, reducing the potential lor contanination and retaining product shape, clarity and weight. Fornpac manufactures and sells polystyrene loan prepackaging trays nsed by supermarkets and grocery stores to protect and display Iresh neat, ponitry and produce, as well as loan food service itens inch as hinged-lid containers nsed in institutional environments, by oarry ont restaurants and by supermarkets lor sale to retail cnstoners. Fornpac nannlactnres loan trays in a two-stage process consisting of the extrusion and thernoforning of polystyrene loan sheets. Although the najority ol Fornpac's cnstoners arc located in the eastern two-thirds of the United States, Fornpac"s proprietary technology has also been sncceasfnlly nsed in certain packaging applications nntside of the United States. Competition is based on service, price and product quality. Grace Packaging's Ctticron business group produces rigid plastic packaging applications (primarily tnbs lor dairy products such as margarine and yogurt) in Australia. Onicron products nse proprietary thernoiorning technology, involving the controlled thinning and shaping of hot plastic sheets to increase strength and rigidity while minimising weight. Grace is expanding the Olaicrou business into Southeast Asia through a 51%-owned joint ventnre formed in 1995 to produce rigid plastic packaging products in Malaysia. Grace Packaging's sales and revenues were SI.7 billion in L995. $1.4 billion in 1994 and $1.3 billion in 1993. Approximately 51% of Grace Packaging's 1995 sales and revenues were generated in North Anerica, 30% in Europe, 11% in Asia Pacific and the renainder in Latin America. At year-end 1995, Grace Packaging employed approximately 9,900 people in 28 production facilities (9 in North America, 8 in Enrope, 6 in Asia Pacific and 5 in Latin America) and 79 sales office*, serving approximately 24,000 cnstoners. Resins are the principal raw materials nsed by (irace Packaging. Although prices for ethylene-bated retina can be volatile, there it currently an adequate worldwide supply of resins at generally stable prices. Further, Grice Packaging has typically been able to increase the sales prices of its products in response to incresses m tbe prices of resins and other raw materials. In uosl cases, multiple sources ol resins aud other raw materials exist, with at least one source located in most global regions.