Grace Reports Second Quarter 2012 Adjusted EPS Of $1.14 And Affirms 2012 Earnings Outlook

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 2011 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.

Chart 1
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Operations (unaudited)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
In millions, except per share amounts		2012				2011				2012				2011
Net sales		$	826.7			$	826.4			$	1,581.1			$	1,522.1
Cost of goods sold			522.6				521.8				999.9				965.1
Gross profit			304.1				304.6				581.2				557.0
Selling, general and administrative expenses			133.8				145.9				270.4				275.8
Restructuring expenses and related asset impairments			2.3				0.7				5.3				0.9
Research and development expenses			16.0				16.7				32.5				32.3
Defined benefit pension expense			16.8				15.1				35.6				31.6
Interest expense and related financing costs			11.3				11.0				22.6				21.4
Provision for environmental remediation			0.6				0.3				1.2				0.5
Chapter 11 expenses, net of interest income			3.7				6.7				8.2				12.5
Libby medical program settlement			19.5				-				19.5				-
Equity in earnings of unconsolidated affiliates			(3.2	)			(4.2	)			(8.9	)			(7.7	)
Other (income) expense, net			(2.2	)			0.3				(2.8	)			(1.9	)
Total costs and expenses			198.6				192.5				383.6				365.4
Income before income taxes			105.5				112.1				197.6				191.6
Provision for income taxes			(35.8	)			(36.6	)			(66.6	)			(62.1	)
Net income			69.7				75.5				131.0				129.5
Less: Net loss (income) attributable to noncontrolling interests			(0.4	)			0.3				(0.8	)			0.5
Net income attributable to W. R. Grace & Co. shareholders		$	69.3			$	75.8			$	130.2			$	130.0
Basic earnings per share:
Net income attributable to W. R. Grace & Co. shareholders		$	0.93			$	1.03			$	1.75			$	1.77
Weighted average number of basic shares			74.7				73.4				74.5				73.3
Diluted earnings per share:
Net income attributable to W. R. Grace & Co. shareholders		$	0.90			$	1.00			$	1.70			$	1.72
Weighted average number of diluted shares			76.6				75.6				76.5				75.4
The Notes to the Financial Information are included as part of the Earnings Release.

Chart 2
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited)
		Three Months Ended June 30,												Six Months Ended June 30,
In millions, except per share amounts		2012				2011				% Change				2012				2011				% Change
Net sales:
Catalysts Technologies		$	328.6			$	334.9			(1.9	)	%		$	640.9			$	610.6			5.0	%
Materials Technologies			224.3				233.7			(4.0	)	%			438.1				446.1			(1.8	)%
Construction Products			273.8				257.8			6.2		%			502.1				465.4			7.9	%
Total Grace net sales		$	826.7			$	826.4			-		%		$	1,581.1			$	1,522.1			3.9	%
Net sales by region:
North America		$	262.3			$	273.1			(4.0	)	%		$	485.9			$	498.3			(2.5	)%
Europe Middle East Africa			309.8				325.5			(4.8	)	%			602.8				597.7			0.9	%
Asia Pacific			167.3				150.5			11.2		%			329.8				280.8			17.5	%
Latin America			87.3				77.3			12.9		%			162.6				145.3			11.9	%
Total net sales by region		$	826.7			$	826.4			-		%		$	1,581.1			$	1,522.1			3.9	%
Profitability performance measures: (A)(B)(C)
Adjusted EBIT
Catalysts Technologies segment operating income		$	100.3			$	101.9			(1.6	)	%		$	199.2			$	179.8			10.8	%
Materials Technologies segment operating income			46.4				43.8			5.9		%			82.5				84.2			(2.0	)%
Construction Products segment operating income			35.5				29.6			19.9		%			56.0				45.9			22.0	%
Corporate support functions (including performance based compensation)			(15.1	)			(21.2	)		28.8		%			(34.8	)			(38.0	)		8.4	%
Other corporate costs (including non-asbestos environmental remediation)			(6.7	)			(6.2	)		(8.1	)	%			(12.4	)			(11.8	)		(5.1	)%
Defined benefit pension expense (C)			(16.8	)			(15.1	)		(11.3	)	%			(35.6	)			(31.6	)		(12.7	)%
Adjusted EBIT			143.6				132.8			8.1		%			254.9				228.5			11.6	%
Chapter 11- and asbestos-related costs, net			(25.2	)			(9.0	)		(180.0	)	%			(30.4	)			(14.7	)		(106.8	)%
Restructuring expenses and related asset impairments			(2.3	)			(0.7	)		NM					(5.3	)			(0.9	)		NM
Divestment expenses			-				-			NM					(0.2	)			-			NM
Interest expense and related financing costs			(11.3	)			(11.0	)		(2.7	)	%			(22.6	)			(21.4	)		(5.6	)%
Interest income of non-Debtor subsidiaries			0.3				0.3			-		%			0.4				0.6			(33.3	)%
Provision for income taxes			(35.8	)			(36.6	)		2.2		%			(66.6	)			(62.1	)		(7.2	)%
Net income attributable to W. R. Grace & Co. shareholders		$	69.3			$	75.8			(8.6	)	%		$	130.2			$	130.0			0.2	%
Diluted EPS (GAAP)		$	0.90			$	1.00			(10.0	)	%		$	1.70			$	1.72			(1.2	)%
Adjusted EPS (non-GAAP)		$	1.14			$	1.11			2.7		%		$	2.02			$	1.88			7.4	%
Chapter 11- and asbestos-related costs, net:
Chapter 11 expenses, net of filing entity interest income		$	3.7			$	6.7			(44.8	)	%		$	8.2			$	12.5			(34.4	)%
Libby medical program settlement			19.5				-			NM					19.5				-			NM
Asbestos administration costs			2.1				1.2			75.0		%			3.3				2.3			43.5	%
Provision for environmental remediation related to asbestos			0.2				0.2			-		%			0.2				0.4			(50.0	)%
D&O insurance cost related to Chapter 11			-				0.4			(100.0	)	%			0.1				0.8			(87.5	)%
Chapter 11 financing related (D):
Translation effects - intercompany loans			17.1				(7.6	)		NM					7.5				(27.3	)		127.5	%
Value of currency forward contracts - intercompany loans			(16.8	)			7.8			NM					(8.7	)			24.3			(135.8	)%
Certain other currency translation costs, net			(0.6	)			0.3			NM					0.3				1.7			(82.4	)%
Chapter 11- and asbestos-related costs, net		$	25.2			$	9.0			180.0		%		$	30.4			$	14.7			106.8	%
The Notes to the Financial Information are included as part of the Earnings Release.

Chart 2 (continued)
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited)
		Three Months Ended June 30,												Six Months Ended June 30,
In millions		2012				2011				% Change				2012				2011				% Change
Profitability performance measures:
Gross margin:
Catalysts Technologies			40.4	%			41.2	%		(0.8	)	pts			41.2	%			40.7	%		0.5		pts
Materials Technologies			33.5	%			33.6	%		(0.1	)	pts			32.6	%			33.7	%		(1.1	)	pts
Construction Products			35.1	%			34.1	%		1.0		pts			34.7	%			33.9	%		0.8		pts
Total Grace			36.8	%			36.9	%		(0.1	)	pts			36.8	%			36.6	%		0.2		pts
Operating margin: (A)(B)
Catalysts Technologies			30.5	%			30.4	%		0.1		pts			31.1	%			29.4	%		1.7		pts
Materials Technologies			20.7	%			18.7	%		2.0		pts			18.8	%			18.9	%		(0.1	)	pts
Construction Products			13.0	%			11.5	%		1.5		pts			11.2	%			9.9	%		1.3		pts
Total Grace			17.4	%			16.1	%		1.3		pts			16.1	%			15.0	%		1.1		pts
Adjusted EBITDA:
Adjusted EBIT:
Catalysts Technologies		$	100.3			$	101.9			(1.6	)	%		$	199.2			$	179.8			10.8		%
Materials Technologies			46.4				43.8			5.9		%			82.5				84.2			(2.0	)	%
Construction Products			35.5				29.6			19.9		%			56.0				45.9			22.0		%
Corporate			(38.6	)			(42.5	)		9.2		%			(82.8	)			(81.4	)		(1.7	)	%
Total Grace			143.6				132.8			8.1		%			254.9				228.5			11.6		%
Depreciation and amortization:
Catalysts Technologies		$	13.6			$	12.9			5.4		%		$	27.2			$	25.5			6.7		%
Materials Technologies			7.4				8.0			(7.5	)	%			14.8				15.9			(6.9	)	%
Construction Products			8.1				8.4			(3.6	)	%			15.6				16.7			(6.6	)	%
Corporate			0.7				0.4			75.0		%			1.6				0.8			100.0		%
Total Grace			29.8				29.7			0.3		%			59.2				58.9			0.5		%
Adjusted EBITDA:
Catalysts Technologies		$	113.9			$	114.8			(0.8	)	%		$	226.4			$	205.3			10.3		%
Materials Technologies			53.8				51.8			3.9		%			97.3				100.1			(2.8	)	%
Construction Products			43.6				38.0			14.7		%			71.6				62.6			14.4		%
Corporate			(37.9	)			(42.1	)		10.0		%			(81.2	)			(80.6	)		(0.7	)	%
Total Grace			173.4				162.5			6.7		%			314.1				287.4			9.3		%
Adjusted EBITDA margin: (A)(B)
Catalysts Technologies			34.7	%			34.3	%		0.4		pts			35.3	%			33.6	%		1.7		pts
Materials Technologies			24.0	%			22.2	%		1.8		pts			22.2	%			22.4	%		(0.2	)	pts
Construction Products			15.9	%			14.7	%		1.2		pts			14.3	%			13.5	%		0.8		pts
Total Grace			21.0	%			19.7	%		1.3		pts			19.9	%			18.9	%		1.0		pts
The Notes to the Financial Information are included as part of the Earnings Release.

Chart 2 (continued)
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited)
		Six Months Ended June 30,
In millions		2012					2011				% Change
Cash flow measure: (A)
Net cash provided by (used for) operating activities		$	115.1				$	(72.3	)		NM
Capital expenditures			(61.8	)				(57.7	)		(7.1	)%
Free Cash Flow			53.3					(130.0	)		141.0	%
Chapter 11 expenses paid			6.5					8.6			(24.4	)%
Accelerated defined benefit pension plan contributions			83.4					180.0			(53.7	)%
Expenditures for asbestos-related environmental remediation			3.4					1.0			NM
Adjusted Free Cash Flow		$	146.6				$	59.6			146.0	%
Calculation of Adjusted EBIT Return On Invested Capital (trailing four quarters): (A)
Adjusted EBIT		$	505.0				$	399.5
Invested Capital:
Trade accounts receivable			510.5					501.0
Inventories			317.0					313.2
Accounts payable			(259.9	)				(262.9	)
			567.6					551.3
Other current assets (excluding income taxes)			78.6					65.4
Properties and equipment, net			720.3					719.7
Goodwill			145.4					130.2
Investment in unconsolidated affiliate			76.8					63.6
Other assets			98.3					85.6
Other current liabilities (excluding income taxes and restructuring)			(240.8	)				(240.0	)
Other liabilities (including non-asbestos environmental remediation)			(55.6	)				(55.1	)
Total Invested Capital		$	1,390.6				$	1,320.7
Adjusted EBIT Return On Invested Capital			36.3		%			30.2		%
Amounts may not add due to rounding.
The Notes to the Financial Information are included as part of the Earnings Release.

Chart 3
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
		Six Months Ended
		June 30,
In millions		2012				2011
Operating Activities
Net income		$	131.0			$	129.5
Reconciliation to net cash provided by (used for) operating activities:
Depreciation and amortization			59.2				58.9
Equity in earnings of unconsolidated affiliate			(8.9	)			(7.7	)
Chapter 11 expenses, net of interest income			8.2				12.5
Chapter 11 expenses paid			(6.5	)			(8.6	)
Libby medical program settlement			19.5				-
Provision for income taxes			66.6				62.1
Income taxes paid, net of refunds			(30.4	)			(34.2	)
Interest accrued on pre-petition liabilities subject to compromise			19.7				19.1
Restructuring expenses and related asset impairments			5.3				0.9
Payments for restructuring expenses and related asset impairments			(4.9	)			(4.9	)
Defined benefit pension expense			35.6				31.6
Payments under defined benefit pension arrangements			(118.2	)			(212.1	)
Provision for environmental remediation			1.2				0.5
Expenditures for environmental remediation			(6.6	)			(5.4	)
Changes in assets and liabilities, excluding effect of foreign currency translation:
Trade accounts receivable			(42.6	)			(93.4	)
Inventories			6.5				(46.7	)
Accounts payable			6.7				46.6
All other items, net			(26.3	)			(21.0	)
Net cash provided by (used for) operating activities			115.1				(72.3	)
Investing Activities
Capital expenditures			(61.8	)			(57.7	)
Transfer to restricted cash and cash equivalents			(3.7	)			(14.4	)
Other investing activities			0.2				5.9
Net cash used for investing activities			(65.3	)			(66.2	)
Financing Activities
Net repayments under credit arrangements			(1.0	)			(1.1	)
Proceeds from exercise of stock options			17.8				5.4
Other financing activities			3.8				2.9
Net cash provided by financing activities			20.6				7.2
Effect of currency exchange rate changes on cash and cash equivalents			(7.3	)			10.3
Increase (decrease) in cash and cash equivalents			63.1				(121.0	)
Cash and cash equivalents, beginning of period			1,048.3				1,015.7
Cash and cash equivalents, end of period		$	1,111.4			$	894.7
The Notes to the Financial Information are included as part of the Earnings Release.

Chart 4
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheets (unaudited)
		June 30,				December 31,
In millions		2012				2011
ASSETS
Current Assets
Cash and cash equivalents		$	1,111.4			$	1,048.3
Restricted cash and cash equivalents			140.2				136.5
Trade accounts receivable, less allowance of $5.6 (2011- $8.1)			497.7				461.8
Accounts receivable - unconsolidated affiliate			12.8				11.2
Inventories			317.0				329.1
Deferred income taxes			61.3				66.5
Other current assets			94.3				93.0
Total Current Assets			2,234.7				2,146.4
Properties and equipment, net			720.3				723.5
Goodwill			145.4				148.2
Patents, licenses and other intangible assets, net			64.7				70.6
Deferred income taxes			738.8				759.4
Asbestos-related insurance			500.0				500.0
Overfunded defined benefit pension plans			35.5				37.1
Investment in unconsolidated affiliate			76.8				70.8
Other assets			39.0				38.0
Total Assets		$	4,555.2			$	4,494.0
LIABILITIES AND EQUITY
Liabilities Not Subject to Compromise
Current Liabilities
Debt payable within one year		$	57.6			$	57.9
Debt payable - unconsolidated affiliate			3.5				3.4
Accounts payable			259.8				257.1
Accounts payable - unconsolidated affiliate			0.1				0.5
Other current liabilities			297.0				314.0
Total Current Liabilities			618.0				632.9
Debt payable after one year			2.6				3.3
Debt payable - unconsolidated affiliate			20.9				18.3
Deferred income taxes			19.0				19.8
Underfunded and unfunded defined benefit pension plans			351.4				407.4
Other liabilities			44.0				49.1
Total Liabilities Not Subject to Compromise			1,055.9				1,130.8
Liabilities Subject to Compromise
Debt plus accrued interest			957.2				941.8
Income tax contingencies			69.4				69.3
Asbestos-related contingencies			1,700.0				1,700.0
Environmental contingencies			144.7				149.9
Postretirement benefits			185.7				185.2
Other liabilities and accrued interest			153.7				149.5
Total Liabilities Subject to Compromise			3,210.7				3,195.7
Total Liabilities			4,266.6				4,326.5
Equity
Common stock			0.7				0.7
Paid-in capital			486.5				472.9
Retained earnings			431.3				301.1
Treasury stock, at cost			(25.4	)			(36.8	)
Accumulated other comprehensive loss			(613.7	)			(578.5	)
Total W. R. Grace & Co. Shareholders' Equity			279.4				159.4
Noncontrolling interests			9.2				8.1
Total Equity			288.6				167.5
Total Liabilities and Equity		$	4,555.2			$	4,494.0
The Notes to the Financial Information are included as part of the Earnings Release.

Chart 5
W. R. Grace & Co. and Subsidiaries
Adjusted Earnings Per Share (unaudited)
In millions, except per share amounts		Three Months Ended June 30, 2012													Six Months Ended June 30, 2012
		Pre-Tax			Tax at Actual Rate				After-Tax			Per Share			Pre-Tax			Tax at Actual Rate				After-Tax			Per Share
Diluted Earnings Per Share (GAAP)												$	0.90												$	1.70
Restructuring charges and related asset impairments		$	2.3		$	0.6			$	1.7			0.02		$	5.3		$	1.6			$	3.7			0.05
Chapter 11- and asbestos-related costs, net			25.2			8.7				16.5			0.22			30.4			10.1				20.3			0.27
Discrete tax items:
Discrete tax items, including adjustments to uncertain tax positions						(0.1	)			0.1			-						(0.3	)			0.3			-
Adjusted EPS (non-GAAP) (A)												$	1.14												$	2.02
In millions, except per share amounts		Three Months Ended June 30, 2011													Six Months Ended June 30, 2011
		Pre-Tax			Tax at Actual Rate				After-Tax			Per Share			Pre-Tax			Tax at Actual Rate				After-Tax			Per Share
Diluted Earnings Per Share (GAAP)												$	1.00												$	1.72
Restructuring charges and related asset impairments		$	0.7		$	0.2			$	0.5			0.01		$	0.9		$	0.3			$	0.6			0.01
Chapter 11- and asbestos-related costs, net			9.0			2.4				6.6			0.09			14.7			3.8				10.9			0.14
Discrete tax items:
Discrete tax items, including adjustments to uncertain tax positions						(0.4	)			0.4			0.01						(0.4	)			0.4			0.01
Adjusted EPS (non-GAAP) (A)												$	1.11												$	1.88
The Notes to the Financial Information 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

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