SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2003
Commission File Number 1-13953
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
W. R. GRACE & CO.
7500 GRACE DRIVE
COLUMBIA, MARYLAND 21044
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
DECEMBER 31, 2003 AND 2002
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrative Committee of the
W. R. Grace & Co. Savings and Investment Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the W. R. Grace & Co. Savings and Investment Plan (the "Plan"), at December
31, 2003 and 2002, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
at End of Year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
supplemental schedule is the responsibility of the Plan's Management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
McLean, Virginia
June 25, 2004
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W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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DECEMBER 31,
2003 2002
ASSETS
Investments, at fair value
Guaranteed Investment Contracts $ 243,668,794 $ 237,402,476
Mutual Funds 205,217,070 151,041,578
Grace Common Stock 20,921,043 24,101,477
Participant Loans, at cost 5,870,377 5,217,747
Receivables
Contributions Receivable 331,672 166,381
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476,008,956 417,929,659
LIABILITIES
Accrued Administrative Expenses (8,870) (3,066)
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NET ASSETS AVAILABLE FOR BENEFITS $ 476,000,086 $ 417,926,593
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The accompanying notes are an integral part of these financial statements.
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W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
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FOR THE YEAR ENDED
DECEMBER 31,
2003 2002
ADDITIONS
Additions to net assets attributable to:
Contributions
Participants $ 19,380,061 $ 18,384,878
Employer 11,437,996 11,028,369
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30,818,057 29,413,247
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Investment income (loss):
Interest and dividends 14,418,848 15,557,079
Net appreciation (depreciation) in fair value of investments 46,856,191 (29,074,955)
------------- ------------
61,275,039 (13,517,876)
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TOTAL 92,093,096 15,895,371
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DEDUCTIONS
Deductions from net assets attributable to:
Participant withdrawals 33,782,608 29,863,564
Administrative expenses 236,995 229,290
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TOTAL 34,019,603 30,092,854
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NET INCREASE(DECREASE) 58,073,493 (14,197,483)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 417,926,593 432,124,076
------------- ------------
END OF YEAR $ 476,000,086 $ 417,926,593
============= =============
The accompanying notes are an integral part of these financial statements.
-3-
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
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1. DESCRIPTION OF THE PLAN
The following description of the W. R. Grace & Co. Savings and Investment
Plan (the "Plan") provides only general information. Participants should
refer to the text of the Plan, the Summary Plan Description, and the
Prospectus Supplement for the Plan for more complete information.
GENERAL
On April 2, 2001, W. R. Grace & Co. ("Grace") and 61 of its U.S.
subsidiaries and affiliates (collectively, the "Company") filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware. The
Bankruptcy Court approved on April 2, 2001 an order that authorized the
debtors and debtors in possession under the bankruptcy filing, to pay, in
their sole discretion, employee benefits, including employer contributions
under the Plan. Under the Court's authorization, Grace has continued to
meet its obligations under the Plan. Should the Plan terminate as a result
of Chapter 11 proceedings, Company contributions would cease and the net
assets of the Plan would be distributed in accordance with the provisions
of the documents governing the Plan.
The Plan is a defined contribution plan originally adopted effective
September 1, 1976, and has been amended from time to time. The Plan is
subject to certain provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Fidelity Management Trust Company
("Fidelity" or "Trustee") administers the Plan's recordkeeping and serves
as the Plan's trustee and custodian.
ELIGIBILITY AND VESTING
Any salaried and hourly employee of Grace or its U.S. subsidiaries who is
in an eligible employment classification and who has completed three
months of service is eligible for participation.
A participant's interest (employee contributions, Company contributions,
and earnings thereon) in the Plan is always fully vested.
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W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
CONTRIBUTIONS
Each year, participants may elect to contribute to the Plan 2% to 16% of
their compensation (which, for purposes of the Plan, consists of salary
and/or commissions, incentive compensation, and bonus awards (excluding
long-term incentive bonuses and retention bonuses)).
Participant contributions may be made from before-tax and/or after-tax
income, as provided under Sections 401(k) and 401(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), subject to an annual dollar
limit on before-tax contributions of $12,000 and $11,000 for 2003 and
2002, respectively. Federal income tax law limited the annual compensation
on which tax-qualified plan benefits may be based to $200,000 for 2003 and
2002.
The Company contributes 100% of the first 6% of base compensation that a
participant contributes to the Plan. Therefore, the maximum Company
contribution is 6% of a participant's compensation.
Company contributions are allocated to investment options in accordance
with the participant's investment election.
The Plan offers 27 mutual funds, Grace Common Stock, and a Fixed Income
Fund comprised principally of guaranteed investment contracts as
investment options for participants.
The Plan provides that a statement of each participant's account be sent
to the participant not less frequently than once in each Plan year.
Additionally, on any business day, participants may allocate their future
contributions among any of the investment options and may transfer the
amounts related to their prior contributions in any of the investment
options to other investment options. All investment options are
participant-directed.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contribution, the applicable allocation of the Company's contribution, and
an appropriate allocation of Plan earnings (losses), and charged with an
allocation for administrative expenses. Allocations are based on
participant earnings or account balances, as defined. The benefit to which
a participant is entitled is the benefit that can be provided from the
participant's account.
PARTICIPANT LOANS
Participants may borrow up to one-half of the value of their account
balance up to $50,000. Loans may be for a term of one to five years for a
general-purpose loan and up to twenty years for a loan to purchase a
principal residence. The interest rate on the loan is set on the
application date and equals the prime interest rate on the last business
day of the preceding calendar quarter plus 2 percent. The interest rate
and repayment amounts for the loans are fixed for the term of the loan;
loans are repaid in periodic installments, depending on the loan
provisions. Participants can repay the outstanding loan balance in full at
any time without penalty. Loans are considered to be in default and
treated as a distribution for tax purposes if no payment is received for
ninety days. If employment with the Company ends, any outstanding loan
balance will be considered a distribution if not repaid within ninety
days.
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W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Interest paid on loans is credited to the individual investment options
from which the loan was taken.
PAYMENT OF BENEFITS
Upon disability, retirement, or other termination of service, a
participant who is not eligible to elect or who does not elect to defer
the distribution may elect to receive his/her vested benefit in the form
of a single lump sum payment or annual or quarterly installment payments
if the vested balance exceeds $5,000. For amounts less than $5,000, a
single lump sum payment is made.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounts of the Plan are maintained on the accrual basis of
accounting, which is acceptable under U.S. Department of Labor Regulations
and is in accordance with accounting principles generally accepted in the
United States of America ("GAAP").
INVESTMENT VALUATION AND INCOME RECOGNITION
Investments in publicly traded securities and mutual funds are stated at
fair value. Investments in publicly traded securities are valued at the
last reported sales price on the last day of the year. Shares of mutual
funds are valued at the net asset value of shares held by the Plan at
year-end. Investments in guaranteed investment contracts held in the Fixed
Income Fund (see Note 4) are stated at contract value, which represents
contributions made under the contract plus interest at the contract rate,
less funds used for withdrawals. Participant loans are valued at cost,
which approximates fair value.
Purchases and sales of publicly traded securities are recorded on a
trade-date basis. Dividends are recorded on the ex-dividend date.
Income of each investment option is reinvested in that option. Investment
management of the Fixed Income Fund and investment oversight of the
Fidelity Mutual Funds is the responsibility of the Investment and Benefits
Committee appointed by the Grace Board of Directors, or as delegated by
that Committee.
Prior to April 14, 2003, the Plan recorded a realized gain or loss on
Grace Common Stock Fund units distributed to participants in an amount
equal to the difference between the market value at the distribution date
and the average cost of the units distributed. The cost of securities sold
was determined on the basis of average cost, and a gain or loss was
recorded equal to the difference between average cost and the sale price.
Accordingly, participants held units in the fund and not shares, the value
of which was $1.02 per unit at December 31, 2002, versus Grace common
stock which was valued at $1.96 per share at December 31, 2002. On April
14, 2003, the Grace Stock Fund converted from the unitized method of
trading to real time trading, which allowed participants to sell Grace
common stock by directly submitting orders to the stock market.
Accordingly, effective April 14, 2003, participants held shares rather
than units of Grace common stock, the value of which was $2.57 per share
at December 31, 2003.
The Plan presents in the Statement of Changes in Net Assets Available for
Benefits the net appreciation (depreciation) in the fair value of its
investments, which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
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W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
PAYMENT OF BENEFITS
The Plan recognizes benefits when paid.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
the Plan fiduciaries to make estimates and assumptions that affect the
reported amounts of assets and liabilities on the date of the financial
statements. Actual amounts may differ from the estimates used.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options. Investments are exposed
to various risks, such as interest, market, and credit risks. Due to the
level of risk associated with certain investments, it is at least
reasonably possible that changes in the values of investments will occur
in the near term and that such changes could materially affect the amounts
reported in the Statement of Net Assets Available for Benefits.
-7-
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. INVESTMENTS
The following presents investments that represent five percent or more of
the Plan's net assets available for benefits.
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DECEMBER 31,
-----------------------------------
2003 2002
===============================================================================================================
Guaranteed Investment Contracts (GICs)
State Street Bank & Trust Co., 5.93% and 6.03%,
respectively $ 78,810,840 $ 74,411,704
AEGON Institutional Markets, 4.72% and 5.30%,
respectively 83,634,410 58,587,036
Pacific Life Insurance Co., 6.09% - 21,361,975
CDC IXIS, 5.04% and 3.14%, respectively 62,523,169 22,027,970
Fidelity Management Trust Company
Fidelity Contrafund, 779,670 and 776,321 shares,
respectively 38,476,688 29,965,984
Fidelity Growth and Income Fund, 715,963 and
697,154 shares, respectively 25,509,757 21,130,752
Fidelity Balanced Fund, 1,622,205 and 1,629,172
shares, respectively 27,171,941 21,651,700
Fidelity Blue Chip Fund, 1,414,927 and 1,359,154
shares, respectively 56,073,565 43,411,402
Grace Common Stock, 8,140,484 shares and 23,703,537 20,921,043 24,101,477
units, respectively
===============================================================================================================
During 2003, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
in value by $46,856,191 as follows:
=======================================================================================================
FOR THE YEAR ENDED
DECEMBER 31, 2003
=======================================================================================================
Mutual Funds $ 40,242,325
Common Stock 6,613,866
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$ 46,856,191
=======================================================================================================
-8-
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. GUARANTEED INVESTMENT CONTRACTS
Investments in the participant-directed Fixed Income Fund consist
primarily of benefit-responsive guaranteed investment contracts ("GICs")
issued by various insurance companies. The Plan's GICs are stated at
contract value, which approximates fair value. Contract value includes
principal invested, plus earnings, less benefit payments and
administrative expenses. Listed below are the Plan's investments in GICs:
======================================================================================================================
VALUE AT DECEMBER 31, MATURITY
-----------------------------------------
ISSUER RATE 2003 2002 DATE
======================================================================================================================
GUARANTEED INVESTMENT CONTRACTS (GICS)
--------------------------------------
Metropolitan Life Insurance Co. 6.94% $ - $ 8,875,261 Mar-03
Transamerica Occidental Life Insurance Co. 6.13% - 5,266,072 Mar-03
New York Life Investment Management LLC 6.63% - 11,195,742 Jun-03
Pacific Life Insurance Co. 6.09% - 21,361,975 Dec-03
MassMutual Financial Group 6.98% - 6,009,323 Dec-03
SEI Trust Co. 3.74% 10,625,759 12,487,874 various
Principal Life Insurance Co. 6.10% - 13,001,700 Sep-03
-----------------------------------------
Total Traditional GICs 10,625,759 78,197,947
SYNTHETIC GICS
--------------
CDC IXIS 5.04%
Wrapper Contract (872,181) (92,115) various
Underlying Assets:
Interest in the UAM Trust Co. Dwight
Target 2 Fund Master Trust 63,395,350 22,120,085
AEGON Institutional Markets 4.72%
Wrapper Contract (2,356,212) (3,258,487) various
Underlying Assets:
Interest in the UAM Trust Co. Dwight
Target 2 Fund Master Trust 69,836,689 10,129,036
Interest in the UAM Trust Co. Dwight
Target 5 Fund Master Trust 16,153,933 51,716,487
State Street Bank & Trust Co. 5.93%
Wrapper Contract (5,251,090) (6,528,729) various
Underlying Assets:
Interest in the UAM Trust Co. Dwight
Target 2 Fund Master Trust 40,153,652 -
Interest in the UAM Trust Co. Dwight
Target 5 Fund Master Trust 43,908,278 80,940,433
-----------------------------------------
Contract Value 224,968,419 155,026,710
-----------------------------------------
Total Contracts 235,594,178 233,224,657
Commercial Paper 8,074,616 4,177,819 various
-----------------------------------------
TOTAL FIXED INCOME FUND $ 243,668,794 $ 237,402,476
======================================================================================================================
-9-
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
Fidelity Management Trust Company. Fidelity is the trustee as defined by
the Plan, and, therefore, these transactions qualify as party-in-interest
transactions. Fees paid by the Plan for the investment management services
amounted to $236,995 and $229,290 for the years ended December 31, 2003
and 2002, respectively.
W. R. Grace & Co., as plan sponsor, is also a related party. The Grace
Common Stock Fund includes shares of Grace common stock. At December 31,
2003 and 2002, the Plan held 8,140,484 shares and 23,703,537 units of
Grace stock, respectively. The fair value of the Grace Common Stock Fund
was $20,921,043 and $24,101,477 at December 31, 2003 and 2002,
respectively. Purchases of $19,596,606 (9,289,777 shares) and $15,229,192
(13,838,034 units) and sales of $3,640,434 (1,149,295 shares) and
$13,265,186 (11,303,050 units) of Grace common stock were made during 2003
and 2002, respectively.
6. FEDERAL INCOME TAXES
On August 8, 2003, the Internal Revenue Service ("IRS") issued a letter
stating that the Plan, as then in effect, was in compliance with the
applicable requirements of the Code. The Plan has been amended since
the issuance of this determination letter; however, Grace believes that
the Plan remains in compliance with those requirements.
7. PLAN TERMINATION
Grace anticipates that the Plan will continue indefinitely, but reserves
the right to amend or discontinue the Plan at any time. A participating
business unit may terminate its participation in the Plan with the
approval of Grace's Board of Directors. In the event the Plan terminates,
participants would receive the value of their account balances at the time
of distribution.
8. MANAGEMENT OF GRACE COMMON STOCK
On December 15, 2003, Grace retained State Street Bank and Trust Company
("State Street") to act as the investment manager and independent
fiduciary of the Grace Common Stock within the Grace Savings & Investment
Plan. The United States Bankruptcy Court for the District of Delaware
approved the retention of State Street. In February 2004, State Street
commenced selling Grace common stock on the open market. Under this
selling program, just over 930,000 shares of Grace common stock were sold
on the open market. State Street further negotiated and executed the sale
of all of the remaining shares (6,272,117) of Grace common stock on April
16, 2004 at a price of $3.50 per share.
9. SUBSEQUENT EVENTS
On July 1, 2004, the maximum contribution percentage for Participants will
increase from 16% to 25%.
-10-
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
--------------------------------------------------------------------------------
IDENTITY OF ISSUER, BORROWER, LESSOR, OR SIMILAR DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, RATE OF CURRENT
PARTY INTEREST, COLLATERAL, PAR, OR MATURITY VALUE COST ** VALUE
------------------------------------------------------------------------------------------------------------------------------------
Fidelity Management Trust Company *
Mutual Funds:
PIMCO Total Return ADM, 161,607 shares $ 1,730,810
Franklin Small/Mid-Cap Growth A, 89,097 shares 2,692,497
Templeton Foreign A, 79,523 shares 846,122
Invesco Core Equity, 41,397 shares 472,335
AM Cent International Growth, 133,430 shares 1,059,430
JPM US Small Company Institutional, 69,190 shares 960,356
Fidelity Contrafund, 779,670 shares 38,476,688
Fidelity Equity Inc, 52,494 shares 2,611,591
Fidelity Investment Growth BD, 194,955 shares 1,471,914
Fidelity Growth and Income, 715,963 shares 25,509,757
Fidelity OTC Portfolio, 667,776 shares 21,682,682
Fidelity Europe, 39,876 shares 1,061,498
Fidelity Balanced, 1,622,205 shares 27,171,941
Fidelity Blue Chip, 1,414,927 shares 56,073,565
Fidelity Low PR Stock, 315,791 shares 11,046,362
Fidelity Diverse International, 105,974 shares 2,556,096
Fidelity Freedom Income, 58,958 shares 653,848
Fidelity Freedom 2000, 9,277 shares 109,278
Fidelity Freedom 2010, 80,535 shares 1,048,571
Fidelity Freedom 2020, 86,151 shares 1,121,690
Fidelity Freedom 2030, 39,477 shares 511,223
Spartan Total Market Index, 20,929 shares 625,976
Spartan Extended Market Index, 24,738 shares 675,854
Spartan International Index, 15,727 shares 428,721
Spartan US Equity Index, 56,593 shares 2,230,347
Fidelity US Bond Index, 199,233 shares 2,229,418
Fidelity Freedom 2040, 20,966 shares 158,500
Common Stock:
Grace Common Stock* Grace Common Stock, 8,140,484 shares 20,921,043
-11-
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
--------------------------------------------------------------------------------
IDENTITY OF ISSUER, BORROWER, LESSOR, OR SIMILAR DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, RATE OF CURRENT
PARTY INTEREST, COLLATERAL, PAR, OR MATURITY VALUE COST ** VALUE
------------------------------------------------------------------------------------------------------------------------------------
Guaranteed Investment Contracts:
State Street Bank & Trust Co. Interest rate of 5.93%, various maturity dates 78,810,840
AEGON Institutional Markets Interest rate of 4.72%, open maturity dates 83,634,410
CDC IXIS Interest rate of 5.04%, open maturity dates 62,523,169
SEI Trust Co. Interest rate of 3.74%, open maturity dates 10,625,759
STIF Interest rate of 1.00% 8,074,616
Loans:
Participant Loans * Interest Rates Vary from 6.0% to 11.5%, maturity
dates ranging from Jan-2004 to Nov-2023 5,870,377
--------------
$ 475,677,284
==============
* - Denotes a party-in-interest
** - Cost is not required as all amounts are participant directed
-12-
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Investment and Benefits Committee has duly caused this annual report to be
signed on its behalf by the undersigned thereunto duly authorized.
W. R. GRACE & CO.
SAVINGS AND INVESTMENT PLAN
By: /s/ W. Brian McGowan
-----------------------------
W. Brian McGowan
Senior Vice President
Corporate Administration
By: /s/ Robert M. Tarola
-----------------------------
Robert M. Tarola
Senior Vice President
Chief Financial Officer
Date: June 25, 2004
II-1
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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23 Consent of Independent Registered Public Accounting Firm
II-2