GlobeNewswire Inc | May 6, 2021 06:00AM EDT

May 06, 2021

First Quarter 2021 Highlights

-- Net sales of $456.7 million were up 8.4%, or up 5.8% on constant currency; all segments returned to year over year growth in the quarter -- Weather-related impact on sales was approximately 3% or $13 million in the first quarter; in addition, expect weather-related costs of approximately $15 million, with $8.5 million or $0.09 per share recorded in the first quarter and approximately $6.5 million expected in the second quarter -- Diluted EPS of $1.03, up $0.40 from $0.63 a year ago, primarily due to pension curtailment-related gains recorded in 1Q21, and Adjusted EPS of $0.73, up $0.02 from $0.71 a year ago

(See Analysis of Operations and Notes for information on Non-GAAP financial measures; all results based on year-over-year comparison unless otherwise noted.)

COLUMBIA, Md., May 06, 2021 (GLOBE NEWSWIRE) -- W. R. Grace & Co. (NYSE: GRA) today announced financial results for the first quarter of 2021, summarized in the table below.

We are experiencing strong demand in all of our businesses, said Hudson La Force, Graces President and Chief Executive Officer. Our team delivered a strong start to the year, despite the significant weather impact from Winter Storm Uri. I want to thank our 4,000 employees around the world for achieving this strong performance with their relentless focus on health, safety, and delivering value to our customers.

First Quarter Consolidated Performance

Summary Financial Results - Total Grace (In $ millions, except per share amounts) 1Q21 1Q20 ChangeNet sales $ 456.7 $ 421.5 8.4%Net sales, constant currency^1 5.8%Net income 68.4 42.0 62.9%Net income margin 15.0% 10.0% 5.0 pts Adjusted EBIT^1 85.2 82.3 3.5%Adjusted EBIT margin^1 18.7% 19.5% (0.8) pts Diluted EPS $ 1.03 $ 0.63 63.5%Adjusted EPS^1 $ 0.73 $ 0.71 2.8%Dividends per share $ 0.33 $ 0.30 10.0% YTD 2021 YTD 2020 ChangeNet cash provided by operating activities 69.0 54.6 26.4%Adjusted Free Cash Flow^1 24.2 9.3 160.2% TTM 1Q21 TTM 1Q20 ChangeReturn on Equity 8.0% 37.4% (29.4) ptsAdjusted EBIT ROIC^1 13.7% 18.6% (4.9) pts^1 See Analysis of Operations and Notes for information on Non-GAAP financialmeasures.

-- First quarter sales of $456.7 million were up 8.4%, or up 5.8% on constant currency, despite the weather-related impact of approximately 3% or $13 million. Sales in all segments returned to year over year growth as we continue to recover from the pandemic, with Materials Technologies up 12.0%, Specialty Catalysts up 8.9%, and Refining Technologies up 5.5%. -- Net income of $68.4 million was up 62.9%, and Diluted EPS of $1.03 was up 63.5%, primarily due to pension curtailment-related gains recorded in the quarter as a result of the recently announced salaried pension plan freeze in the U.S. -- Adjusted EBIT of $85.2 million increased 3.5% and Adjusted EPS of $0.73 increased 2.8%, despite weather-related costs of $8.5 million, or $0.09 per share. The prior-year period also included $8.0million, or $0.09 per share, in business interruption insurance recoveries. Together, the weather-related costs and business interruption insurance recoveries reduced Adjusted EBIT growth by 22.6%. -- Net cash provided by operating activities of $69.0million increased $14.4million, and Adjusted Free Cash Flow of $24.2million increased $14.9million.

Delivering on Our Strategic Initiatives

The past few months have been strategically important for Grace, continued La Force. We concluded our strategic review with an agreement to be acquired by Standard Industries Holdings in an all-cash transaction valued at approximately $7.0 billion. This transaction is expected to close in the fourth quarter of 2021.

In addition, we announced an agreement to acquire a fine chemicals business to strengthen and expand our existing fast-growing pharma business. This acquisition is strategically and financially compelling and aligns perfectly with our strategy of building a higher-growth, high-margin portfolio. This transaction is expected to close in the second quarter of 2021. Our integration plan is on track and we have secured financing for the cash portion of the purchase price. Given our track record of successful integrations, I am very confident in our ability to quickly combine this business with our existing pharma business."

Grace's strategic framework for profitable growth includes four elements:

-- Invest to accelerate growth and extend our competitive advantages -- Invest in great people to strengthen our high-performance culture -- Execute the Grace Value Model to drive operating excellence -- Acquire to build our technology and manufacturing capabilities for our customers

First Quarter Segment Performance

Catalysts Technologies

Catalysts Technologies produces and sells catalysts and related products and technologies used in petrochemical, refining, and other chemical manufacturing applications.

Summary Financial Results - Catalysts Technologies(In $ millions) 1Q21 1Q20 ChangeNet sales $ 329.6 $ 308.0 7.0 %Net sales, constant currency^1 5.0%Gross margin 40.2% 40.7% (0.5) pts Operating income 75.8 82.0 (7.6) %Operating margin 23.0% 26.6% (3.6) pts^1 See Analysis of Operations and Notes for information on Non-GAAP financialmeasures.

-- First quarter sales of $329.6 million were up 7.0%, or up 5.0% on constant currency, despite the weather-related impact of approximately 4% or $13 million. Sales growth was driven primarily by higher sales volumes. Specialty Catalysts sales increased 8.9% primarily due to higher sales volumes and increased licensing revenue.Refining Technologies sales increased 5.5% mainly due to higher sales volumes and favorable currency. Global demand for transportation fuels and refinery operating rates continued to show steady improvement. -- Gross margin of 40.2% decreased 50 bps primarily due to unfavorable product mix, higher manufacturing costs including inflation on raw materials and energy costs, partially offset by increased production volumes and strong operating performance. -- Operating income of $75.8 million was down $6.2million, or 7.6%, driven by weather-related costs of $8.5 million, partially offset by higher gross profit and income from our ART joint venture. The prior-year period also included $8.0million in business interruption insurance recoveries. Together, the weather-related costs and business interruption insurance recoveries reduced operating income growth by 21.5%.

Materials Technologies

Materials Technologies produces and sells specialty materials, which are either silica based or complex organic molecules, that can be used in pharma & consumer, coatings, and chemical process applications.

Summary Financial Results - Materials Technologies(In $ millions) 1Q21 1Q20 ChangeNet sales $ 127.1 $ 113.5 12.0%Net sales, constant currency^1 7.8%Gross margin 36.8% 33.0% 3.8 pts Operating income 26.8 19.0 41.1%Operating margin 21.1% 16.7% 4.4 pts^1 See Analysis of Operations and Notes for information on Non-GAAP financialmeasures.

-- First quarter sales of $127.1 million were up 12.0%, or up 7.8% on constant currency. Sales growth was driven by higher sales volumes, mostly in pharma & consumer and coatings. -- Gross margin of 36.8% increased 380 bps primarily due to increased production volumes, strong operating performance, and favorable mix, partially offset by higher depreciation, inflation on raw materials and energy costs, and increased logistics costs. The higher depreciation is a result of recent growth investments and capacity additions that came online in the second half of last year. -- Operating income of $26.8 million was up $7.8million, or 41.1%, driven by higher gross profit. Operating margin of 21.1% was up 440 bps.

Other Developments

Gulf Coast Freeze Update

In mid-February, Winter Storm Uri caused widespread manufacturing disruptions across the Gulf Coast region as a result of freezing temperatures and loss of electricity, gas, water, and other utilities. Most polyolefin manufacturers and refineries in the region were forced to shut down or operate at reduced rates following the storm. Grace operates four manufacturing facilities in the region. All sites experienced interruptions, with extended downtime at three plants ranging from 8 to 24 days. All Grace sites have resumed operations; however, operating costs are expected to remain higher than normal while some maintenance and repair activity is ongoing. Most customers have restarted operations and returned to normal operating rates.

-- The weather-related impact on sales in the first quarter was approximately 3% or $13 million, which impacted Refining Technologies and Specialty Catalysts. -- In addition, the total estimated weather-related costs are expected to be approximately $15 million. Weather-related costs recorded in the first quarter were $8.5 million, or $0.09 per share, with approximately $6.5 million expected in the second quarter. The costs are included in cost of goods sold and other expense and impact both net income and Adjusted EBIT. They are primarily due to lower fixed cost absorption during the downtime, increased costs to supply customers from other Grace manufacturing facilities, and costs to repair plants impacted by the weather.

Pensions Update

In the first quarter of 2021, Grace announced to employees that the U.S. salaried pension plan will be frozen effective January 1, 2025. Grace recorded a $25.6million gain on the plan curtailment, which is attributable to the elimination of future pay recognition in the pension benefit after 2024. In addition, Grace recorded a $13.7million mark-to-market gain on remeasurement of the pension liability as a result of an increase in discount rates since December 31, 2020, partially offset by actual asset performance less than expected through the remeasurement date. The total net gain recorded in the first quarter of 2021 was $39.3million or $0.40 per share, which is not included in Adjusted EBIT or Adjusted EPS.

About Grace

Built on talent, technology, and trust, Grace is a leading global specialty chemical company. The companys two industry-leading business segmentsCatalysts Technologies and Materials Technologiesprovide innovative products, technologies, and services that enhance the products and processes of our customers around the world. With approximately 4,000 employees, Grace operates and/or sells to customers in over 60 countries. More information about Grace is available at grace.com.

Forward-Looking Statements

Certain statements contained in this communication may contain forward-looking statements, that is, information related to future, not past, events. Such statements generally include the words believes, plans, intends, targets, will, expects, suggests, anticipates, outlook, continues, or similar expressions. Forward-looking statements include, without limitation, statements regarding: financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; impact of COVID-19 on Graces business; competitive positions; growth opportunities for existing products; benefits from new technology; benefits from cost reduction initiatives; succession planning; markets for securities; the anticipated timing of closing of the proposed transaction between Grace and affiliates of Standard Industries Holdings Inc. and the potential benefits of the proposed transaction. For these statements, Grace claims the protections of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Grace is subject to risks and uncertainties that could cause actual results or events to differ materially from its projections or that could cause forward-looking statements to prove incorrect. Factors that could cause actual results or events to differ materially from those contained in the forward-looking statements include, without limitation: risks related to foreign operations, especially in areas of active conflicts and in emerging regions; the costs and availability of raw materials, energy, and transportation; the effectiveness of Graces research and development and growth investments; acquisitions and divestitures of assets and businesses; developments affecting Graces outstanding indebtedness; developments affecting Graces pension obligations; legacy matters (including product, environmental, and other legacy liabilities) relating to past activities of Grace; its legal and environmental proceedings; environmental compliance costs (including existing and potential laws and regulations pertaining to climate change); the inability to establish or maintain certain business relationships; the inability to hire or retain key personnel; natural disasters such as storms and floods; fires and force majeure events; the economics of our customers industries, including the petroleum refining, petrochemicals, and plastics industries, and shifting consumer preferences; public health and safety concerns, including pandemics and quarantines; changes in tax laws and regulations; international trade disputes, tariffs, and sanctions; the potential effects of cyberattacks; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement between Grace and Standard Industries Holdings Inc.s affiliates; the failure to obtain Grace stockholder approval of the transaction or the failure to satisfy any of the other conditions to the completion of the transaction; risks relating to the financing required to complete the transaction; the effect of the announcement of the transaction on the ability of Grace to retain and hire key personnel and maintain relationships with its customers, vendors and others with whom it does business, or on its operating results and businesses generally; risks associated with the disruption of managements attention from ongoing business operations due to the transaction; the ability to meet expectations regarding the timing and completion of the transaction; significant transaction costs, fees, expenses and charges; the risk of litigation and/or regulatory actions related to the transaction; the effects of the transaction on the previously announced fine chemicals business acquisition, which is pending as of the date of this filing, and the integration thereof; other business effects, including the effects of industry, market, economic, political, regulatory or world health conditions (including new or ongoing effects of the COVID-19 pandemic), and other factors detailed in Graces Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2020 and Graces other filings with the SEC, which are available at http://www.sec.gov and on Graces website at www.grace.com. Our reported results should not be considered as an indication of our future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Grace undertakes no obligation to release publicly any revisions to its forward-looking statements, or to update them to reflect events or circumstances occurring after the dates those statements are made.

W. R. Grace&Co. and SubsidiariesConsolidated Statements of Operations (unaudited)

Three Months Ended March31,(In millions, except per share amounts) 2021 2020Net sales $ 456.7 $ 421.5 Cost of goods sold 286.7 261.9 Gross profit 170.0 159.6 Selling, general and administrative expenses 74.6 71.1 Research and development expenses 17.4 17.0 Costs related to legacy matters 4.6 2.7 Equity in earnings of unconsolidated affiliate (3.2 ) (1.2 )Restructuring and repositioning expenses 12.8 2.7 Interest expense and related financing costs 19.0 18.3 Other (income) expense, net (42.1 ) (8.8 )Total costs and expenses 83.1 101.8 Income (loss) before income taxes 86.9 57.8 (Provision for) benefit from income taxes (18.3 ) (15.7 )Net income (loss) 68.6 42.1 Less: Net (income) loss attributable to noncontrolling (0.2 ) (0.1 )interestsNet income (loss) attributable to W. R. Grace&Co. $ 68.4 $ 42.0 shareholdersEarnings Per Share Attributable to W. R. Grace&Co. ShareholdersBasic earnings per share: Net income (loss) $ 1.03 $ 0.63 Weighted average number of basic shares 66.2 66.5 Diluted earnings per share: Net income (loss) $ 1.03 $ 0.63 Weighted average number of diluted shares 66.3 66.5 Dividends per common share $ 0.33 $ 0.30

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesConsolidated Statements of Cash Flows (unaudited)

Three Months Ended March31,(In millions) 2021 2020OPERATING ACTIVITIES Net income (loss) $ 68.6 $ 42.1 Reconciliation to net cash provided by (used for) operating activities:Depreciation and amortization 28.1 25.5 Equity in earnings of unconsolidated affiliate (3.2 ) (1.2 )Costs related to legacy matters 4.6 2.7 Cash paid for legacy matters (3.5 ) (7.6 )Provision for (benefit from) income taxes 18.3 15.7 Cash paid for income taxes (11.7 ) (14.4 )Income tax refunds received 0.1 0.8 Defined benefit pension (income) expense (11.7 ) 3.1 Gain on curtailment of U.S. salaried pension plan (25.6 ) ? Cash paid under defined benefit pension arrangements (4.2 ) (4.4 )Changes in assets and liabilities, excluding effect of currency translation and acquisitions:Trade accounts receivable (14.9 ) 47.3 Inventories (21.6 ) (31.7 )Accounts payable 36.3 (3.8 )All other items, net 9.4 (19.5 )Net cash provided by (used for) operating activities 69.0 54.6 INVESTING ACTIVITIES Cash paid for capital expenditures (55.0 ) (57.1 )Other investing activities, net 2.6 (16.6 )Net cash provided by (used for) investing activities (52.4 ) (73.7 )FINANCING ACTIVITIES Borrowings under credit arrangements 2.7 4.2 Repayments under credit arrangements (4.7 ) (6.1 )Cash paid for repurchases of common stock ? (40.4 )Dividends paid to shareholders (22.0 ) (20.5 )Other financing activities, net (2.2 ) (4.2 )Net cash provided by (used for) financing activities (26.2 ) (67.0 )Effect of currency exchange rate changes on cash, cash (4.1 ) (3.1 )equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and (13.7 ) (89.2 )restricted cashCash, cash equivalents, and restricted cash, beginning of 306.2 282.9 periodCash, cash equivalents, and restricted cash, end of period $ 292.5 $ 193.7

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesConsolidated Balance Sheets (unaudited)

March 31, December(In millions, except par value and shares) 2021 31, 2020ASSETS Current Assets Cash and cash equivalents $ 290.8 $ 304.5 Restricted cash and cash equivalents 1.7 1.7 Trade accounts receivable, less allowance of $2.2 267.1 264.1 (2020?$2.2)Inventories 273.6 253.8 Other current assets 53.2 51.2 Total Current Assets 886.4 875.3 Properties and equipment, net of accumulateddepreciation and amortization of $1,554.6 1,193.1 1,208.8 (2020?$1,550.1)Goodwill 560.3 562.7 Technology and other intangible assets, net 315.3 320.8 Deferred income taxes 557.6 567.1 Investment in unconsolidated affiliate 177.4 175.5 Other assets 68.3 55.3 Total Assets $ 3,758.4 $ 3,765.5 LIABILITIES AND EQUITY Current Liabilities Debt payable within one year $ 14.4 $ 15.3 Accounts payable 262.0 262.1 Other current liabilities 282.7 281.9 Total Current Liabilities 559.1 559.3 Debt payable after one year 1,974.8 1,975.1 Unfunded defined benefit pension plans 501.6 520.7 Underfunded defined benefit pension plans 91.2 128.3 Other liabilities 323.4 347.6 Total Liabilities 3,450.1 3,531.0 Equity Common stock issued, par value $0.01; 300,000,000shares authorized; outstanding: 66,248,119 0.7 0.7 (2020?66,190,410)Paid-in capital 467.7 473.2 Retained earnings 695.4 648.8 Treasury stock, at cost: shares: 11,208,514 (915.1 ) (920.6 )(2020?11,266,223)Accumulated other comprehensive income (loss) 56.3 29.3 Total W. R. Grace&Co. Shareholders? Equity 305.0 231.4 Noncontrolling interests 3.3 3.1 Total Equity 308.3 234.5 Total Liabilities and Equity $ 3,758.4 $ 3,765.5

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesAnalysis of Operations (unaudited)

Three Months Ended March31,(In millions, except per share amounts) 2021 2020 % ChangeNet sales: Catalysts Technologies $ 329.6 $ 308.0 7.0 %Materials Technologies 127.1 113.5 12.0 %Total Grace net sales $ 456.7 $ 421.5 8.4 %Net sales by region: North America $ 126.4 $ 120.2 5.2 %Europe Middle East Africa 183.4 181.6 1.0 %Asia Pacific 123.2 100.3 22.8 %Latin America 23.7 19.4 22.2 %Total net sales by region $ 456.7 $ 421.5 8.4 %Performance measures: Adjusted EBIT(A)(B): Catalysts Technologies segment operating $ 75.8 $ 82.0 (7.6 )%incomeMaterials Technologies segment operating 26.8 19.0 41.1 %incomeCorporate costs (15.4 ) (15.6 ) 1.3 %Certain pension costs(C) (2.0 ) (3.1 ) 35.5 %Adjusted EBIT 85.2 82.3 3.5 %Gain on curtailment of U.S. salaried pension 25.6 ? planPension MTM adjustment and other related 13.7 ? costs, netRestructuring and repositioning expenses (12.8 ) (2.7 ) Costs related to legacy matters (4.6 ) (2.7 ) Third-party acquisition-related costs (1.3 ) (1.5 ) Taxes and interest included in equity in (0.2 ) ? earnings of unconsolidated affiliateInterest expense, net (18.9 ) (17.7 ) (6.8 )%(Provision for) benefit from income taxes (18.3 ) (15.7 ) (16.6 )%Net income (loss) attributable to W. R. Grace $ 68.4 $ 42.0 62.9 %& Co. shareholdersDiluted EPS $ 1.03 $ 0.63 63.5 %Adjusted EPS(A) $ 0.73 $ 0.71 2.8 %

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesAnalysis of Operations (unaudited) (continued)

Three Months Ended March31,(In millions) 2021 2020 % ChangeAdjusted profitability performance measures (A)(B)(C):Gross Margin: Catalysts Technologies 40.2 % 40.7 % (50) bpsMaterials Technologies 36.8 % 33.0 % 380 bpsAdjusted Gross Margin 39.3 % 38.7 % 60 bpsWeather-related impacts in cost of goods (1.2 )% ? % (120) bpssoldPension costs in cost of goods sold (0.9 )% (0.8 )% (10) bpsTotal Grace 37.2 % 37.9 % (70) bpsAdjusted EBIT: Catalysts Technologies $ 75.8 $ 82.0 (7.6 )%Materials Technologies 26.8 19.0 41.1 %Corporate, pension, and other (17.4 ) (18.7 ) 7.0 %Total Grace $ 85.2 $ 82.3 3.5 %Adjusted Depreciation And Amortization: Catalysts Technologies depreciation and $ 22.2 $ 20.7 7.2 %amortizationDepreciation and amortization included inequity in earnings of unconsolidated 1.1 0.4 175.0 %affiliateCatalysts Technologies 23.3 21.1 10.4 %Materials Technologies 5.1 3.6 41.7 %Corporate 0.8 1.2 (33.3 )%Adjusted Depreciation And Amortization 29.2 25.9 12.7 %Depreciation and amortization included inequity in earnings of unconsolidated (1.1 ) (0.4 ) (175.0 )%affiliateDepreciation and amortization $ 28.1 $ 25.5 10.2 %Adjusted EBITDA: Catalysts Technologies $ 99.1 $ 103.1 (3.9 )%Materials Technologies 31.9 22.6 41.2 %Corporate, pension, and other (16.6 ) (17.5 ) 5.1 %Total Grace $ 114.4 $ 108.2 5.7 %Adjusted EBIT margin: Catalysts Technologies 23.0 % 26.6 % (360) bpsMaterials Technologies 21.1 % 16.7 % 440 bpsTotal Grace 18.7 % 19.5 % (80) bpsNet income margin 15.0 % 10.0 % 500 bpsAdjusted EBITDA margin: Catalysts Technologies 30.1 % 33.5 % (340) bpsMaterials Technologies 25.1 % 19.9 % 520 bpsTotal Grace 25.0 % 25.7 % (70) bps

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesAnalysis of Operations (unaudited) (continued)

Three Months Ended March31,(In millions) 2021 2020Cash flow measure(A): Net cash provided by (used for) operating $ 69.0 $ 54.6 activitiesCash paid for capital expenditures (55.0 ) (57.1 )Free Cash Flow 14.0 (2.5 )Cash paid for repositioning 4.3 1.9 Cash paid for legacy matters 3.5 7.6 Cash paid for third-party acquisition-related costs 1.5 1.3 Other Items 0.8 ? Cash paid for restructuring 0.1 1.0 Adjusted Free Cash Flow $ 24.2 $ 9.3

Four Quarters Ended March 31,(In millions) 2021 2020Calculation of Adjusted EBIT Return on Invested Capital (trailing four quarters)(A):Net income (loss) attributable to W. R. Grace& $ 24.6 $ 143.6 Co. shareholdersAdjusted EBIT 315.1 451.1 Reconciliation to Adjusted Invested Capital: Total equity $ 308.3 $ 383.9 Total debt 1,989.2 1,978.3 Underfunded and unfunded defined benefit pension 592.8 514.8 plansLiabilities related to legacy matters 220.3 203.1 Cash, cash equivalents, and restricted cash (292.5 ) (193.7 )Net income tax assets (543.2 ) (498.6 )Other items 27.3 32.0 Adjusted Invested Capital $ 2,302.2 $ 2,419.8 GAAP Return on Equity 8.0 % 37.4 %Adjusted EBIT ROIC 13.7 % 18.6 %

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesAnalysis of Operations (unaudited)

Three Months Ended March31, 2021 2020(In millions, Tax Per Tax Perexcept per share Pre-Tax Effect After-Tax Share Pre-Tax Effect After-Tax Shareamounts)Diluted EPS $ 1.03 $ 0.63 Gain on curtailmentof U.S. salaried $ (25.6 ) $ (8.1 ) $ (17.5 ) (0.26 ) $ ? $ ? $ ? ? pension planPension MTMadjustment and (13.7 ) (4.2 ) (9.5 ) (0.14 ) ? ? ? ? other relatedcosts, netRestructuring andrepositioning 12.8 4.0 8.8 0.13 2.7 0.6 2.1 0.03 expensesCosts related to 4.6 1.4 3.2 0.05 2.7 0.6 2.1 0.03 legacy mattersThird-partyacquisition-related 1.3 0.4 0.9 0.01 1.5 0.3 1.2 0.02 costsDiscrete tax items 5.9 (5.9 ) (0.09 ) 0.1 (0.1 ) ? Adjusted EPS $ 0.73 $ 0.71

The Notes to the Financial Information are included as part of the Earnings Release.

W. R. Grace&Co. and SubsidiariesNotes to the Financial Information

(A)In the above, Grace presents financial information in accordance with U.S. generally accepted accounting principles (U.S. GAAP), as well as the non-GAAP financial information described below. Grace believes that this non-GAAP financial information provides useful supplemental information about the performance of its businesses, improves period-to-period comparability and provides clarity on the information management uses to evaluate the performance of its businesses. In the above charts, Grace has provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully. Grace defines these non-GAAP financial measures as follows:

-- Adjusted EBIT means net income attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacy matters; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales and exits of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; gains and losses on modification or extinguishment of debt; the effects of these items on equity in earnings of unconsolidated affiliate; and certain other items that are not representative of underlying trends. -- Adjusted EBITDA means Adjusted EBIT adjusted for depreciation and amortization and depreciation and amortization included in equity in earnings of unconsolidated affiliate (collectively, Adjusted Depreciation and Amortization). -- Adjusted EBIT Return on Invested Capital means Adjusted EBIT (on a trailing four quarters basis) divided by equity adjusted for debt; underfunded and unfunded defined benefit pension plans; liabilities related to legacy matters; cash, cash equivalents, and restricted cash; net income tax assets; and certain other assets and liabilities. -- Adjusted Gross Margin means gross margin adjusted for pension-related costs included in cost of goods sold, the amortization of acquired inventory fair value adjustment, and write-offs of inventory related to exits of businesses and product lines and significant manufacturing process changes, and certain other items that are not representative of underlying trends. -- Adjusted EPS means diluted EPS adjusted for costs related to legacy matters; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales and exits of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; gains and losses on modification or extinguishment of debt; certain other items that are not representative of underlying trends; and certain discrete tax items and income tax expense related to historical tax attributes. -- Adjusted Free Cash Flow means net cash provided by or used for operating activities minus capital expenditures plus cash flows related to legacy matters; cash paid for restructuring and repositioning; capital expenditures related to repositioning; cash paid for third-party acquisition-related costs; cash flows related to debt modification; and accelerated payments under defined benefit pension arrangements. -- The change in net sales on a constant currency basis, which we sometimes refer to as "Net Sales, constant currency," means the period-over-period change in net sales calculated using the foreign currency exchange rates that were in effect during the previous comparable period. -- Organic sales growth means the period-over-period change in net sales excluding the sales growth attributable to acquisitions.

Legacy matters include legacy (i) product, (ii) environmental, and (iii) other liabilities, relating to past activities of Grace.

Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS, Adjusted Free Cash Flow, Net Sales, constant currency, and Organic sales growth do not purport to represent income or liquidity measures as defined under U.S. GAAP, and should not be considered as alternatives to such measures as an indicator of Grace's performance or liquidity.

Grace uses Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. Grace uses Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measures the ongoing earnings results of its strategic and operating decisions by excluding the earnings effects of legacy matters; restructuring and repositioning activities; certain acquisition-related items; and certain other items that are not representative of underlying trends.

Grace uses Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use these measures in determining certain incentive compensation. Grace uses Adjusted EBIT Return On Invested Capital in making operating and investment decisions and in balancing the growth and profitability of operations. Grace uses Net Sales, constant currency as a performance measure to compare current period financial performance to historical financial performance by excluding the impact of foreign currency exchange rate fluctuations that are not representative of underlying business trends and are largely outside of its control. Grace uses Organic sales growth to measure its businesses' sales performance, excluding the impacts of acquisitions.

Grace uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses, and to provide a return of capital to shareholders. Grace also uses Adjusted Free Cash Flow as a performance measure in determining certain incentive compensation.

Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS, Adjusted Free Cash Flow, Net Sales, constant currency, and Organic sales growth do not purport to represent income measures as defined under U.S. GAAP, and should not be used as alternatives to such measures as an indicator of Graces performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of Graces financial results, and to ensure that investors and others understand the information Grace uses to evaluate the performance of its businesses. They distinguish the operating results of Grace's current business base from the costs of Grace's legacy matters; restructuring and repositioning activities; and certain other items. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directly comparable measures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated in accordance with U.S. GAAP.

Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to legacy matters, and may exclude income and expenses from restructuring and repositioning activities, which historically have been material components of Graces net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. Graces business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of our costs. Grace compensates for the limitations of these measurements by using these indicators together with net income as measured under U.S. GAAP to present a complete analysis of our results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income and net income attributable to Grace shareholders, measured under U.S. GAAP, for a complete understanding of Graces results of operations.

(B) Grace's segment operating income includes only Grace's share of income from consolidated and unconsolidated joint ventures.

(C) Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits. Catalysts Technologies and Materials Technologies segment operating income and corporate costs do not include any amounts for pension expense. Other pension related costs including annual mark-to-market adjustments and actuarial gains and losses are excluded from Adjusted EBIT. These amounts are not used by management to evaluate the performance of Grace's businesses and significantly affect the peer-to-peer and period-to-period comparability of our financial results. Mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of Grace's businesses.

(D) Restructuring and repositioning expenses attributable to W. R. Grace & Co. shareholders is net of restructuring expenses attributable to noncontrolling interests.

NM - Not Meaningful

Media Relations Investor RelationsCaitlin Leopold Jason Hershiser+1 410.531.8870 +1 410.531.8835caitlin.leopold@grace.com jason.hershiser@grace.com