Grace Reports Fourth Quarter 2012 Adjusted EPS of $1.11 and Provides 2013 Earnings Outlook

  Grace Reports Fourth Quarter 2012 Adjusted EPS of $1.11 and Provides 2013
  Earnings Outlook

  *Sales volumes and base pricing increased 8 percent
  *Sales in emerging regions increased 16 percent
  *Adjusted EBIT increased 23 percent
  *GAAP EPS loss of $1.48 due to non-cash adjustment to asbestos-related
    liability
  *2013 outlook for Adjusted EBIT in the range of $560 to $580 million

Business Wire

COLUMBIA, Md. -- February 6, 2013

W. R. Grace & Co. (NYSE: GRA) announced a fourth quarter net loss of $111.6
million, or $1.48 per diluted share. The loss was due to a $365.0 million
non-cash charge recorded in the quarter to adjust the company’s
asbestos-related liability as previously announced on January 24, 2013. Net
income for the prior-year quarter was $58.1 million, or $0.77 per diluted
share. Adjusted EPS for the 2012 fourth quarter was $1.11 per diluted share
compared with $0.89 per diluted share for the prior-year quarter.

Net income for the full year ended December 31, 2012, was $94.1 million, or
$1.23 per diluted share, compared with $269.4 million, or $3.57 per diluted
share for the prior year. Adjusted EPS for the full year was $4.17 per diluted
share compared with $3.94 per diluted share for the prior year.

“I am pleased with our strong finish to the year,” stated Fred Festa, Grace’s
Chairman and Chief Executive Officer. “All three operating segments
demonstrated solid organic growth and strong increases in operating earnings.
This performance, combined with our disciplined expense control, allowed us to
improve margins and stay on track with our longer-term earnings goals.”

Fourth Quarter Results

Fourth quarter sales of $797.8 million declined 3.4 percent compared with the
prior-year quarter as higher sales volumes (+5.7 percent) and improved base
pricing (+2.1 percent) were offset by lower rare earth surcharges (-9.2
percent) and unfavorable currency translation (-2.0 percent). Sales in
emerging regions represented 39.1 percent of sales and grew 16.1 percent
compared with the prior-year quarter. Acquisitions, net of divestitures,
contributed $3.0 million (+0.4 percent) to sales in the quarter.

Gross profit of $300.3 million increased 4.3 percent compared with the
prior-year quarter. Gross margin of 37.6 percent increased 270 basis points
compared with the prior-year quarter, exceeding the top-end of the company’s
target range of 35 to 37 percent.

Adjusted EBIT of $133.4 million increased 23.3 percent compared with $108.2
million in the prior-year quarter. The increase was due to higher segment
operating income in all three operating segments and lower corporate expenses.
Adjusted EBIT margin improved to 16.7 percent compared with 13.1 percent in
the prior-year quarter.

Adjusted EBIT Return On Invested Capital was 36.3 percent on a trailing
four-quarter basis, compared with 35.4 percent for the prior year. The
increase in Adjusted EBIT Return On Invested Capital primarily was due to
higher earnings and improved working capital.

Full Year Results

Sales for the full year ended December 31, 2012, decreased 1.8 percent to
$3.16 billion as improved base pricing (+4.1 percent) and higher sales volumes
(+2.9 percent) were offset by lower rare earth surcharges (-5.3 percent) and
unfavorable currency translation (-3.5 percent). Sales in emerging regions
represented 37.0 percent of sales and grew 15.2 percent compared with the
prior year.

Gross profit of $1.17 billion increased 0.4 percent compared with the prior
year. Gross margin of 37.0 percent increased 80 basis points compared with the
prior year.

Adjusted EBIT was $517.4 million, an increase of 8.1 percent compared with the
prior year. The improvement in Adjusted EBIT was due to improved pricing,
higher sales volumes and lower expenses.

Catalysts Technologies

Sales down 10.7 percent; segment operating income up 5.9 percent

Fourth quarter sales for the Catalysts Technologies operating segment, which
includes specialty catalysts and additives for refinery, plastics and other
chemical process applications, were $328.3 million, a decrease of 10.7 percent
compared with the prior-year quarter. The decrease was due to lower rare earth
surcharges (-20.6 percent) and unfavorable currency translation (-1.8
percent), which more than offset increased sales volumes (+8.0 percent) and
improved base pricing (+3.7 percent).

Sales volumes and base pricing of FCC catalysts increased approximately 12
percent compared with the prior-year quarter. Double-digit percentage
increases in polypropylene catalyst sales offset lower polyethylene catalyst
sales.

Segment gross margin was 41.0 percent compared with 38.0 percent in the
prior-year quarter. The increase in gross margin primarily was due to improved
base pricing and lower unit manufacturing costs resulting from increased
operating leverage and productivity initiatives.

Segment operating income was $102.6 million compared with $96.9 million in the
prior-year quarter. Segment operating margin was 31.3 percent, an increase of
490 basis points compared with the prior-year quarter.

Materials Technologies

Sales up 2.7 percent; segment operating income up 20.3 percent

Fourth quarter sales for the Materials Technologies operating segment, which
includes packaging technologies and engineered materials for consumer,
industrial, coatings and pharmaceutical applications, were $210.1 million
compared with $204.5 million in the prior-year quarter. The 2.7 percent
increase was due to higher sales volumes (+5.0 percent) and improved pricing
(+0.9 percent) which more than offset unfavorable currency translation (-3.2
percent).

Sales in emerging regions, which represented 43.1 percent of sales, grew 6.8
percent largely due to strong sales in developing Asian countries, including
China.

Segment gross margin was 34.3 percent compared with 31.9 percent in the
prior-year quarter. The increase in gross margin was due to increased
operating leverage and lower manufacturing costs.

Segment operating income was $39.7 million, an increase of 20.3 percent
compared with the prior-year quarter. Segment operating margin was 18.9
percent, an increase of 280 basis points compared with the prior-year quarter.

Construction Products

Sales up 2.3 percent; segment operating income up 53.3 percent

Fourth quarter sales for the Construction Products operating segment, which
includes specialty construction chemicals and specialty building materials
used in commercial, infrastructure and residential construction, were $259.4
million, an increase of 2.3 percent compared with the prior-year quarter.
Higher sales volumes (+2.8 percent) and improved pricing (+0.8 percent) were
offset partially by unfavorable currency translation (-1.3 percent). The
acquisition of Rheoset Industria during the third quarter contributed $7.9
million to sales, which more than offset a $4.9 million decrease in sales due
to the 2011 divesture of the vermiculite business.

Sales of Construction Products in emerging regions, which represented 37.0
percent of sales, increased 20.3 percent compared with the prior-year quarter
due to strong sales in Latin America, the Middle East and emerging Asia. Sales
in North America, which represented 38.6 percent of sales, decreased 4.1
percent due to lower sales of specialty building materials, primarily
residential reroofing products. Sales of specialty construction chemicals in
North America increased approximately 9 percent. Sales in Western Europe,
which represented 13.6 percent of sales, decreased 17.6 percent compared with
the prior-year quarter due to unfavorable currency translation and the
continuing weak construction environment.

Segment gross margin of 36.1 percent increased 340 basis points compared with
the prior-year quarter primarily due to improved raw material cost recovery,
operating leverage and a favorable sales mix comparison between the acquired
and divested businesses.

Segment operating income of $32.5 million increased 53.3 percent compared with
the prior-year quarter primarily due to improved gross margin. Segment
operating margin improved to 12.5 percent, an increase of 410 basis points
compared with the prior-year quarter.

Other Expenses

Total corporate expenses of $23.4 million decreased 13.3 percent compared with
the prior-year quarter, due to cost reduction initiatives in 2012 and legal
and licensing costs in the prior-year quarter.

Defined benefit pension expense for the fourth quarter was $18.0 million
compared with $15.9 million for the prior-year quarter. The 13.2 percent
increase primarily was due to year-over-year changes in actuarial assumptions
including lower discount rates and a lower expected long-term rate of return
on plan assets.

Interest expense was $12.4 million for the fourth quarter compared with $10.8
million for the prior-year quarter. The annualized weighted average interest
rate on pre-petition obligations for the fourth quarter was 3.6 percent.

Income Taxes

Grace recorded a tax benefit of $139.3 million in the fourth quarter,
reflecting a $135.3 million tax benefit from the $365.0 million
asbestos-related charge and a $44.0 million tax benefit resulting from the
release of valuation allowances on state deferred tax assets.

Cash Flow

Net cash provided by operating activities for the year ended December 31,
2012, was $453.6 million compared with $219.4 million in the prior year. The
improved cash flow was due to reduced working capital requirements and lower
pension contributions.

Adjusted Free Cash Flow was $421.2 million for the year ended December 31,
2012, compared with $278.4 million in the prior year.

2013 Outlook

As of February 6, 2013, Grace expects 2013 Adjusted EBIT to be in the range of
$560 million to $580 million, an increase of 8 to 12 percent compared with
2012 Adjusted EBIT of $517.4 million. The company expects 2013 Adjusted EBITDA
to be in the range of $685 million to $705 million.

The following assumptions are components of Grace’s 2013 outlook:

  *Consolidated sales in the range of $3.2–$3.3 billion with organic growth
    of 6–8 percent offset by headwinds of approximately $120 million due to
    lower rare earth- related pricing and unfavorable currency;
  *Gross margin in the range of 36–38 percent;
  *Adjusted EBIT margin improvement of approximately 100 basis points;
  *Capital expenditures in the range of $180–200 million;
  *Adjusted Free Cash Flow greater than $400 million;
  *A book effective tax rate of 34.0 percent and a cash tax rate of 14.0
    percent; and
  *Diluted shares outstanding at year end of approximately 78 million.

Although Grace adjusted the recorded value of its asbestos-related liability
in the 2012 fourth quarter, the ultimate cost of settling this liability will
be based on the value of the consideration transferred to the asbestos trusts
at emergence and may vary from the current estimate. Therefore, Grace is
unable to make a final estimate of the income effects of the consummation of
the Joint Plan of Reorganization (the “Joint Plan”). When the Joint Plan is
consummated, Grace expects to reduce its liabilities subject to compromise,
including asbestos-related contingencies, recognize the value of the deferred
payments and the warrant and recognize expense for the costs of consummating
the Joint Plan and the income tax effects of these items.

Chapter 11 Proceedings

On April 2, 2001, Grace and 61 of its United States subsidiaries and
affiliates, including its primary U.S. operating subsidiary, W. R. Grace &
Co.–Conn., filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware in order to resolve Grace’s asbestos-related
liabilities.

On January 31, 2011, the Bankruptcy Court issued an order confirming Grace’s
Joint Plan. On January 31, 2012, the United States District Court issued an
order affirming the Joint Plan, which was reaffirmed on June 11, 2012
following a motion for reconsideration. Five parties have appeals pending
before the Third Circuit Court of Appeals.

The timing of Grace’s emergence from Chapter 11 will depend on the
satisfaction or waiver of the remaining conditions set forth in the Joint
Plan. The Joint Plan sets forth how all pre-petition claims and demands
against Grace will be resolved. See Grace’s most recent periodic reports filed
with the SEC for a detailed description of the Joint Plan.

Investor Call

Grace will discuss these results during an investor conference call and
webcast today starting at 11:00 a.m. ET. To access the call and webcast,
interested participants should go to the Investor Information – Investor
Presentations portion of the company’s web site, www.grace.com, and click on
the webcast link.

Those without access to the Internet can listen to the investor call by
dialing +1.800.901.5226 (international callers dial +1.617.786.4513) and
entering conference ID 22134034. Investors are advised to access the call at
least ten minutes early in order to register. An audio replay will be
available at 1:00 p.m. ET on February 6 and will be accessible by dialing
+1.888.286.8010 (international callers dial +1.617.801.6888) and entering
conference call ID 73622027. The replay will be available for one week.

About Grace

Grace is a leading global supplier of catalysts; engineered and packaging
materials; and, specialty construction chemicals and building materials. The
company’s three industry-leading business segments—Grace Catalysts
Technologies, Grace Materials Technologies and Grace Construction
Products—provide innovative products, technologies and services that enhance
the quality of life. Grace employs approximately 6,000 people in over 40
countries and had 2012 net sales of $3.2 billion. More information about Grace
is available at www.grace.com.

This announcement contains 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, all statements
regarding Grace’s Chapter 11 case; expected financial positions; results of
operations; cash flows; financing plans; business strategy; budgets; capital
and other expenditures; competitive positions; growth opportunities for
existing products; benefits from new technology and cost reduction
initiatives, plans and objectives; and markets for securities. For these
statements, Grace claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Like other businesses, Grace is subject to risks and uncertainties that could
cause its actual results to differ materially from its projections or that
could cause other forward-looking statements to prove incorrect. Factors that
could cause actual results to materially differ from those contained in the
forward-looking statements include, without limitation: developments affecting
Grace’s bankruptcy, proposed plan of reorganization and settlements with
certain creditors, the cost and availability of raw materials (including rare
earth) and energy, developments affecting Grace’s underfunded and unfunded
pension obligations, risks related to foreign operations, especially in
emerging regions, acquisitions and divestitures of assets and gains and losses
from dispositions or impairments, the effectiveness of its research and
development and growth investments, its legal and environmental proceedings,
costs of compliance with environmental regulation and those factors set forth
in Grace’s most recent Annual Report on Form 10-K, quarterly report on Form
10-Q and current reports on Form 8-K, which have been filed with the
Securities and Exchange Commission and are readily available on the Internet
at www.sec.gov. Reported results should not be considered as an indication of
future performance. Readers are cautioned not to place undue reliance on
Grace’s projections and forward-looking statements, which speak only as of the
date thereof. Grace undertakes no obligation to publicly release any revision
to the projections and forward-looking statements contained in this
announcement, or to update them to reflect events or circumstances occurring
after the date of this announcement.

                                                  
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Operations (unaudited)
                                                     
                            Three Months Ended       Twelve Months Ended
                            December 31,             December 31,
(In millions, except per    2012        2011        2012         2011
share amounts)
Net sales                   $ 797.8      $ 825.6     $ 3,155.5     $ 3,211.9
Cost of goods sold          497.5       537.7      1,989.2      2,050.6   
Gross profit                300.3        287.9       1,166.3       1,161.3
Selling, general and        136.2        144.4       537.5         568.4
administrative expenses
Restructuring expenses
and related asset           0.5          5.9         6.9           6.9
impairments
Research and development    16.6         19.4        64.5          68.5
expenses
Defined benefit pension     18.0         15.9        71.2          63.4
expense
Interest expense and        12.4         10.8        46.5          43.3
related financing costs
Provision for               1.8          16.2        3.6           17.8
environmental remediation
Chapter 11 expenses, net    4.0          3.1         16.6          20.0
of interest income
Libby medical program       —            —           19.6          —
settlement
Provision for
asbestos-related            365.0        —           365.0         —
contingencies
Equity in earnings of       (4.7     )   (2.0    )   (18.5     )   (15.2     )
unconsolidated affiliate
Other (income) expense,     1.6         3.9        (4.4      )   4.7       
net
Total costs and expenses    551.4       217.6      1,108.5      777.8     
Income (loss) before        (251.1   )   70.3        57.8          383.5
income taxes
Benefit from (provision     139.3       (12.2   )   37.3         (114.7    )
for) income taxes
Net income (loss)           (111.8   )   58.1        95.1          268.8
Less: Net loss (income)
attributable to             0.2         —          (1.0      )   0.6       
noncontrolling interests
Net income (loss)
attributable to W. R.       $ (111.6 )   $ 58.1     $ 94.1       $ 269.4   
Grace & Co. shareholders
Earnings Per Share
Attributable to W. R.
Grace & Co. Shareholders
Basic earnings per share:
Net income (loss)
attributable to W. R.       $ (1.48  )   $ 0.79      $ 1.26        $ 3.66
Grace & Co. shareholders
Weighted average number     75.4         73.8        74.9          73.6
of basic shares
Diluted earnings per
share:
Net income (loss)
attributable to W. R.       $ (1.48  )   $ 0.77      $ 1.23        $ 3.57
Grace & Co. shareholders
Weighted average number     75.4         75.7        76.3          75.5
of diluted shares

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

                                                           
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited)
                                                                                                 
                         Three Months Ended                   Twelve Months Ended
                         December 31,                         December 31,
(In millions, except     2012        2011       % Change    2012         2011         % Change
per share amounts)
Net sales:
Catalysts Technologies   $ 328.3      $ 367.5     (10.7  )%   $ 1,268.1     $ 1,347.3     (5.9   )%
Materials Technologies   210.1        204.5       2.7    %    862.6         872.6         (1.1   )%
Construction Products    259.4       253.6      2.3    %    1,024.8      992.0        3.3    %
Total Grace net sales    $ 797.8     $ 825.6    (3.4   )%   $ 3,155.5    $ 3,211.9    (1.8   )%
Net sales by region:
North America            $ 235.9      $ 253.6     (7.0   )%   $ 967.6       $ 1,041.8     (7.1   )%
Europe Middle East       295.8        325.8       (9.2   )%   1,175.6       1,260.4       (6.7   )%
Africa
Asia Pacific             170.2        163.4       4.2    %    660.3         599.3         10.2   %
Latin America            95.9        82.8       15.8   %    352.0        310.4        13.4   %
Total net sales by       $ 797.8     $ 825.6    (3.4   )%   $ 3,155.5    $ 3,211.9    (1.8   )%
region
Profitability
performance measures:
Adjusted
EBIT(A)(B)(C):
Catalysts Technologies
segment operating        $ 102.6      $ 96.9      5.9    %    $ 393.8       $ 388.8       1.3    %
income
Materials Technologies
segment operating        39.7         33.0        20.3   %    162.0         158.7         2.1    %
income
Construction Products
segment operating        32.5         21.2        53.3   %    125.2         97.3          28.7   %
income
Corporate support
functions (including     (15.5    )   (18.5   )   16.2   %    (66.3     )   (74.8     )   11.4   %
performance based
compensation)
Other corporate costs
(including
non-asbestos             (7.9     )   (8.5    )   7.1    %    (26.1     )   (28.0     )   6.8    %
environmental
remediation)
Defined benefit          (18.0    )   (15.9   )   (13.2  )%   (71.2     )   (63.4     )   (12.3  )%
pension expense(C)
Adjusted EBIT            133.4        108.2       23.3   %    517.4         478.6         8.1    %
Chapter 11- and
asbestos-related         (371.7   )   (20.7   )   NM          (407.8    )   (44.7     )   NM
costs, net
Restructuring expenses
and related asset        (0.5     )   (5.9    )   91.5   %    (6.9      )   (6.9      )   —
impairments
Loss on sale of          —            (0.4    )   100.0  %    (0.2      )   (0.4      )   50.0   %
product line
Divestment expenses      —            (0.4    )   100.0  %    (0.2      )   (0.4      )   50.0   %
Interest expense and
related financing        (12.4    )   (10.8   )   (14.8  )%   (46.5     )   (43.3     )   (7.4   )%
costs
Interest income of
non-Debtor               0.3          0.3         —           1.0           1.2           (16.7  )%
subsidiaries
Benefit from
(provision for) income   139.3       (12.2   )   NM         37.3         (114.7    )   132.5  %
taxes
Net income (loss)
attributable to W. R.    $ (111.6 )   $ 58.1     NM         $ 94.1       $ 269.4      (65.1  )%
Grace & Co.
shareholders
Diluted EPS (GAAP)       $ (1.48  )   $ 0.77     NM         $ 1.23       $ 3.57       (65.5  )%
Adjusted EPS             $ 1.11      $ 0.89     24.7   %    $ 4.17       $ 3.94       5.8    %
(non-GAAP)
                                                                                                 
Chapter 11- and
asbestos-related
costs, net:
Chapter 11 expenses,     $ 4.0        $ 3.1       29.0   %    $ 16.6        $ 20.0        (17.0  )%
net of interest income
Provision for
asbestos-related         365.0        —           NM          365.0         —             NM
contingencies
Libby medical program    —            —           —           19.6          —             NM
settlement
Asbestos                 1.7          1.1         54.5   %    6.3           4.5           40.0   %
administration costs
Provision for
environmental            0.5          16.0        (96.9  )%   1.3           16.3          (92.0  )%
remediation related to
asbestos, net
D&O insurance costs      0.1          (0.9    )   111.1  %    0.3           0.3           —
related to Chapter 11
Chapter 11 financing
related (D):
Translation
effects—intercompany     (7.9     )   11.7        (167.5 )%   (5.6      )   11.7          (147.9 )%
loans
Value of currency
forward                  7.7          (10.0   )   177.0  %    3.7           (9.3      )   139.8  %
contracts—intercompany
loans
Certain other currency   0.6         (0.3    )   NM         0.6          1.2          (50.0  )%
translation costs, net
Chapter 11- and
asbestos-related         $ 371.7     $ 20.7     NM         $ 407.8      $ 44.7       NM     
costs, net
                                                                                                 
The Notes to the Financial Statements are included as part of the Earnings Release.

                                                
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited) (continued)
                                                                                
                Three Months Ended                 Twelve Months Ended
                December 31,                       December 31,
(In millions)   2012       2011       % Change   2012       2011       %
                                                                           Change
Profitability
performance
measures
(A)(B)(C):
Gross margin:
Catalysts       41.0    %   38.0    %   3.0 pts    41.0    %   39.8    %   1.2 pts
Technologies
Materials       34.3    %   31.9    %   2.4 pts    33.1    %   33.2    %   (0.1)
Technologies                                                               pts
Construction    36.1    %   32.7    %   3.4 pts    35.2    %   33.8    %   1.4 pts
Products
Total Grace     37.6    %   34.9    %   2.7 pts    37.0    %   36.2    %   0.8 pts
Operating
margin:
Catalysts       31.3    %   26.4    %   4.9 pts    31.1    %   28.9    %   2.2 pts
Technologies
Materials       18.9    %   16.1    %   2.8 pts    18.8    %   18.2    %   0.6 pts
Technologies
Construction    12.5    %   8.4     %   4.1 pts    12.2    %   9.8     %   2.4 pts
Products
Total Grace     16.7    %   13.1    %   3.6 pts    16.4    %   14.9    %   1.5 pts
Adjusted
EBITDA:
Adjusted
EBIT:
Catalysts       $ 102.6     $ 96.9      5.9   %    $ 393.8     $ 388.8     1.3  %
Technologies
Materials       39.7        33.0        20.3  %    162.0       158.7       2.1  %
Technologies
Construction    32.5        21.2        53.3  %    125.2       97.3        28.7 %
Products
Corporate       (41.4   )   (42.9   )   3.5   %    (163.6  )   (166.2  )   1.6  %
Total Grace     133.4       108.2       23.3  %    517.4       478.6       8.1  %
Depreciation
and
amortization:
Catalysts       $ 13.5      $ 13.4      0.7   %    $ 54.0      $ 52.5      2.9  %
Technologies
Materials       7.4         7.3         1.4   %    29.5        30.9        (4.5 )%
Technologies
Construction    8.7         8.5         2.4   %    32.9        34.0        (3.2 )%
Products
Corporate       0.5         0.9         (44.4 )%   2.6         2.6         —
Total Grace     30.1        30.1        —          119.0       120.0       (0.8 )%
Adjusted
EBITDA:
Catalysts       $ 116.1     $ 110.3     5.3   %    $ 447.8     $ 441.3     1.5  %
Technologies
Materials       47.1        40.3        16.9  %    191.5       189.6       1.0  %
Technologies
Construction    41.2        29.7        38.7  %    158.1       131.3       20.4 %
Products
Corporate       (40.9   )   (42.0   )   2.6   %    (161.0  )   (163.6  )   1.6  %
Total Grace     163.5       138.3       18.2  %    636.4       598.6       6.3  %
Adjusted
EBITDA
margin:
Catalysts       35.4    %   30.0    %   5.4 pts    35.3    %   32.8    %   2.5 pts
Technologies
Materials       22.4    %   19.7    %   2.7 pts    22.2    %   21.7    %   0.5 pts
Technologies
Construction    15.9    %   11.7    %   4.2 pts    15.4    %   13.2    %   2.2 pts
Products
Total Grace     20.5    %   16.8    %   3.7 pts    20.2    %   18.6    %   1.6 pts
                                                                           
The Notes to the Financial Statements are included as part of the Earnings
Release.

                                            
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited) (continued)
                                                                            
                                              Twelve Months Ended
                                              December 31,
(In millions)                                 2012       2011       % Change
Cash flow measure (A):
Net cash provided by operating activities     $ 453.6     $ 219.4     106.7 %
Capital expenditures                          (138.5  )   (144.0  )   3.8   %
Free Cash Flow                                315.1       75.4        NM
Chapter 11 expenses paid                      15.5        20.6        (24.8 )%
Accelerated defined benefit pension plan      83.4        180.0       (53.7 )%
contributions
Expenditures for asbestos-related             7.2        2.4        NM    
environmental remediation
Adjusted Free Cash Flow                       $ 421.2    $ 278.4    51.3  %

                                                   
                                                     Four Quarters Ended
                                                     December 31,
(In millions)                                        2012         2011
Calculation of Adjusted EBIT Return On Invested
Capital (trailing four quarters):
Adjusted EBIT                                        $ 517.4       $ 478.6
Invested Capital:
Trade accounts receivable                            490.4         473.0
Inventories                                          278.6         329.1
Accounts payable                                     (252.0    )   (257.6    )
                                                     517.0         544.5
Other current assets (excluding income taxes)        62.4          82.6
Properties and equipment, net                        770.5         723.5
Goodwill                                             196.7         148.2
Investment in unconsolidated affiliate               85.5          70.8
Other assets                                         107.2         103.3
Other current liabilities (excluding income taxes    (258.9    )   (259.5    )
and restructuring)
Other liabilities (including non-asbestos            (56.5     )   (60.9     )
environmental remediation)
Total invested capital                               $ 1,423.9    $ 1,352.5 
Adjusted EBIT Return On Invested Capital             36.3      %   35.4      %
                                                                             
The Notes to the Financial Statements are included as part of the Earnings
Release.

                                                   
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
                                                     
                                                     Twelve Months Ended
                                                     December 31,
(In millions)                                       2012         2011
OPERATING ACTIVITIES
Net income                                           $ 95.1        $ 268.8
Reconciliation to net cash provided by operating
activities:
Depreciation and amortization                        119.0         120.0
Equity in earnings of unconsolidated affiliate       (18.5     )   (15.2     )
Dividends received from unconsolidated affiliate     6.3           10.9
Chapter 11 expenses, net of interest income          16.6          20.0
Chapter 11 expenses paid                             (15.5     )   (20.6     )
Libby medical program settlement                     19.6          —
Libby medical program settlement paid                (19.6     )   —
Provision for asbestos-related contingencies         365.0         —
(Benefit from)/provision for income taxes            (37.3     )   114.7
Income taxes paid, net of refunds                    (82.6     )   (44.7     )
Tax benefits from stock-based compensation           (36.8     )   —
Interest accrued on pre-petition liabilities         40.4          39.0
subject to compromise
Restructuring expenses and related asset             6.9           6.9
impairments
Payments for restructuring expenses and related      (8.4      )   (7.2      )
asset impairments
Defined benefit pension expense                      71.2          63.4
Payments under defined benefit pension               (126.8    )   (265.1    )
arrangements
Provision for environmental remediation              3.6           17.8
Expenditures for environmental remediation           (13.0     )   (11.8     )
Changes in assets and liabilities, excluding
effect of currency translation:
Trade accounts receivable                            (3.0      )   (80.6     )
Inventories                                          53.9          (66.9     )
Accounts payable                                     (11.7     )   52.6
All other items, net                                 29.2         17.4      
Net cash provided by operating activities            453.6        219.4     
INVESTING ACTIVITIES
Capital expenditures                                 (138.5    )   (144.0    )
Businesses acquired, net of cash acquired            (80.0     )   (55.8     )
Transfer to restricted cash and cash equivalents     (61.1     )   (38.8     )
Proceeds from sales of product lines                 —             10.0
Other investing activities                           (0.7      )   7.7       
Net cash used for investing activities               (280.3    )   (220.9    )
FINANCING ACTIVITIES
Net borrowings under credit arrangements             35.9          21.6
Proceeds from exercise of stock options              32.2          12.1
Tax benefits from stock-based compensation           36.8          —
Other financing activities                           5.4          6.0       
Net cash provided by financing activities            110.3        39.7      
Effect of currency exchange rate changes on cash     5.0          (5.6      )
and cash equivalents
Increase in cash and cash equivalents                288.6         32.6
Cash and cash equivalents, beginning of period       1,048.3      1,015.7   
Cash and cash equivalents, end of period             $ 1,336.9    $ 1,048.3 
                                                                             
The Notes to the Financial Statements are included as part of the Earnings
Release.

                                                               
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheets (unaudited)
                                                                  
                                                   December 31,   December 31,
(In millions, except par value and shares)         2012           2011
ASSETS
Current Assets
Cash and cash equivalents                          $  1,336.9     $  1,048.3
Restricted cash and cash equivalents               197.6          136.5
Trade accounts receivable, less allowance of       474.8          461.8
$5.2 (2011—$8.1)
Accounts receivable—unconsolidated affiliate       15.6           11.2
Inventories                                        278.6          329.1
Deferred income taxes                              58.3           66.5
Other current assets                               78.4          93.0       
Total Current Assets                               2,440.2        2,146.4
Properties and equipment, net of accumulated
depreciation and amortization of $1,785.1          770.5          723.5
(2011—$1,722.7)
Goodwill                                           196.7          148.2
Patents, licenses and other intangible assets,     82.7           70.6
net
Deferred income taxes                              993.9          759.4
Asbestos-related insurance                         500.0          500.0
Overfunded defined benefit pension plans           33.8           37.1
Investment in unconsolidated affiliate             85.5           70.8
Other assets                                       24.5          38.0       
Total Assets                                       $  5,127.8    $  4,494.0 
LIABILITIES AND EQUITY
Liabilities Not Subject to Compromise
Current Liabilities
Debt payable within one year                       $  83.4        $  57.9
Debt payable—unconsolidated affiliate              3.6            3.4
Accounts payable                                   249.4          257.1
Accounts payable—unconsolidated affiliate          2.6            0.5
Other current liabilities                          344.9         314.0      
Total Current Liabilities                          683.9          632.9
Debt payable after one year                        13.4           3.3
Debt payable—unconsolidated affiliate              22.4           18.3
Deferred income taxes                              27.1           19.8
Underfunded and unfunded defined benefit pension   400.6          407.4
plans
Other liabilities                                  45.0          49.1       
Total Liabilities Not Subject to Compromise        1,192.4        1,130.8
Liabilities Subject to Compromise
Debt plus accrued interest                         973.3          941.8
Income tax contingencies                           87.6           69.3
Asbestos-related contingencies                     2,065.0        1,700.0
Environmental contingencies                        140.5          149.9
Postretirement benefits                            188.1          185.2
Other liabilities and accrued interest             162.6         149.5      
Total Liabilities Subject to Compromise            3,617.1       3,195.7    
Total Liabilities                                  4,809.5       4,326.5    
                                                                  
Equity
Common stock issued, par value $0.01;
300,000,000 shares authorized; outstanding:        0.8            0.7
75,565,409 (2011—73,886,050)
Paid-in capital                                    536.5          472.9
Retained earnings                                  395.2          301.1
Treasury stock, at cost: shares: 1,414,351         (16.8      )   (36.8      )
(2011—3,093,710)
Accumulated other comprehensive loss               (607.3     )   (578.5     )
Total W. R. Grace & Co. Shareholders' Equity       308.4          159.4
Noncontrolling interests                           9.9           8.1        
Total Equity                                       318.3         167.5      
Total Liabilities and Equity                       $  5,127.8    $  4,494.0 
                                                                             
The Notes to the Financial Statements are included as part of the Earnings
Release.

                 
W. R. Grace & Co. and Subsidiaries
Adjusted Earnings Per Share (unaudited)
                   
                   Three Months Ended December 31,
                   2012                                    2011
                           Tax at                                Tax at          
                   Pre-     Actual    After-    Per         Pre-     Actual   After-    Per
(In millions,
except per share   Tax      Rate      Tax       Share       Tax      Rate     Tax       Share
amounts)
Diluted Earnings                                $ (1.48 )                               $ 0.77
Per Share (GAAP)
Anti-dilutive
effect of fourth                                (0.02   )                               —
quarter net loss
Restructuring
expenses and       $ 0.5    $ 0.1     $ 0.4     —           $ 5.9    $ 1.6    $ 4.3     0.06
related asset
impairments
Chapter 11- and
asbestos-related   6.7      2.1       4.6       0.06        20.7     7.1      13.6      0.18
costs, net
Asbestos-related   365.0    135.3     229.7     3.05        —        —        —         —
contingencies
Loss on sale of
product line and   —        —         —         —           0.8      0.3      0.5       0.01
divestment
expenses
Discrete tax
items:
Release of
valuation                   44.0      (44.0 )   (0.58   )            —        —         —
allowances
Discrete tax
items, including
adjustments to              (5.8  )   5.8       0.08                10.4     (10.4 )   (0.13  )
uncertain tax
positions
Adjusted EPS                                    $ 1.11                                 $ 0.89 
(non-GAAP)

                 
                   Twelve Months Ended December 31,
                   2012                                   2011
                           Tax at                               Tax at          
                   Pre-     Actual    After-    Per        Pre-     Actual   After-    Per
(In millions,
except per share   Tax      Rate      Tax       Share      Tax      Rate     Tax       Share
amounts)
Diluted Earnings                                $ 1.23                                 $ 3.57
Per Share (GAAP)
Restructuring
expenses and       $ 6.9    $ 2.0     $ 4.9     0.06       $ 6.9    $ 1.9    $ 5.0     0.07
related asset
impairments
Chapter 11- and
asbestos-related   42.8     13.9      28.9      0.38       44.7     13.9     30.8      0.41
costs, net
Asbestos-related   365.0    135.3     229.7     3.01       —        —        —         —
contingencies
Loss on sale of
product line and   —        —         —         —          0.8      0.3      0.5       0.01
divestment
expenses
Discrete tax
items:
Release of
valuation                   44.0      (44.0 )   (0.58  )            —        —         —
allowances
Discrete tax
items, including
adjustments to              (5.3  )   5.3       0.07               9.5      (9.5  )   (0.12  )
uncertain tax
positions
Adjusted EPS                                    $ 4.17                                $ 3.94 
(non-GAAP)
                                                                                              
The Notes to the Financial Statements are included as part of the Earnings Release.


                      W. R. Grace&Co. and Subsidiaries

                      Notes to the Financial Information

(A): In the above charts, Grace presents its results of operations by
operating segment and for adjusted operations. Adjusted EBIT means net income
adjusted for interest income and expense, income taxes, Chapter 11- and
asbestos-related costs, net, divestment expenses, restructuring expenses and
related asset impairments and gains and losses on sales of product lines and
other investments. Adjusted EBITDA means Adjusted EBIT adjusted for
depreciation and amortization. Grace uses Adjusted EBIT as a performance
measure in significant business decisions. Adjusted Free Cash Flow means net
cash provided by or used for operating activities minus capital expenditures
plus the net cash flow from Chapter 11 expenses paid, cash paid to resolve
contingencies subject to Chapter 11, accelerated payments under defined
benefit pension arrangements, and expenditures for asbestos-related
environmental remediation. 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
cash to shareholders. Adjusted EPS means Diluted EPS adjusted for
restructuring expenses and related asset impairments, Chapter 11- and
asbestos-related costs, net, gains or losses on sales of product lines and
related divestment expenses, and certain discrete tax items. Adjusted EBIT
Return On Invested Capital means Adjusted EBIT divided by the sum of net
working capital, properties and equipment and certain other assets and
liabilities. Adjusted EBIT, Adjusted EPS, Adjusted EBITDA, Adjusted Free Cash
Flow, and Adjusted EBIT Return On Invested Capital do not purport to represent
income measures as defined under United States generally accepted accounting
principles, and should not be considered as alternatives to such measures as
an indicator of Grace's performance. These measures are provided to
distinguish the operating results of Grace's current business base from the
income and expenses of items related to asbestos and Chapter 11.

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

(C): Defined benefit pension expense includes all defined benefit pension
expense of Grace. Catalysts Technologies, Materials Technologies, and
Construction Products segment operating income and corporate costs do not
include amounts for defined benefit pension expense.

(D): Due to its bankruptcy, Grace has had significant intercompany loans
between its non-U.S. subsidiaries and its U.S. debtor subsidiaries that are
not related to its operating activities. In addition, Grace has accumulated
significant cash during its bankruptcy. The intercompany loans are expected to
be paid when Grace emerges from bankruptcy, and excess cash balances are
expected to be used to fund a significant portion of Grace's emergence from
bankruptcy. Accordingly, income and expense items related to the intercompany
loans and the cash balances are categorized as Chapter 11- and
asbestos-related costs, net.

NM - Not Meaningful

Contact:

W. R. Grace & Co.
Media Relations
Rich Badmington, +1 410-531-4370
rich.badmington@grace.com
or
Investor Relations
Mark Sutherland, +1 410-531-4590
mark.sutherland@grace.com
 
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