W R Grace : Grace Reports First Quarter 2021 Results; Delivers Strong Start to the Year

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, Grace’s 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			Change
Net sales	$	456.7		$	421.5		8.4 %
Net sales, constant currency1							5.8 %
Net income		68.4			42.0		62.9 %
Net income margin		15.0 %			10.0 %		5.0 pts
Adjusted EBIT1		85.2			82.3		3.5 %
Adjusted EBIT margin1		18.7 %			19.5 %		(0.8) pts
Diluted EPS	$	1.03		$	0.63		63.5 %
Adjusted EPS1	$	0.73		$	0.71		2.8 %
Dividends per share	$	0.33		$	0.30		10.0 %
	YTD 2021			YTD 2020			Change
Net cash provided by operating activities		69.0			54.6		26.4 %
Adjusted Free Cash Flow1		24.2			9.3		160.2 %
	TTM 1Q21			TTM 1Q20			Change
Return on Equity		8.0 %			37.4 %		(29.4) pts
Adjusted EBIT ROIC1		13.7 %			18.6 %		(4.9) pts
1 See Analysis of Operations and Notes for information on Non-GAAP financial measures.

• 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 $8.0 million, 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 $69.0 million increased $14.4 million, and Adjusted Free Cash Flow of $24.2 million increased $14.9 million.

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			Change
Net sales	$	329.6		$	308.0		7.0 %
Net sales, constant currency1							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 financial measures.

• 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 $6.2 million, 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 $8.0 million 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			Change
Net sales	$	127.1		$	113.5		12.0 %
Net sales, constant currency1							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 financial measures.

• 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 $7.8 million, 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 $25.6 million 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 $13.7 million 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 $39.3 million 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 company’s two industry-leading business segments—Catalysts Technologies and Materials Technologies—provide 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 Grace’s 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 Grace’s research and development and growth investments; acquisitions and divestitures of assets and businesses; developments affecting Grace’s outstanding indebtedness; developments affecting Grace’s 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 management’s 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 Grace’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2020 and Grace’s other filings with the SEC, which are available at http://www.sec.gov and on Grace’s 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 Subsidiaries
Consolidated Statements of Operations (unaudited)

	Three Months Ended March 31,
(In millions, except per share amounts)	2021				2020
Net 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 interests	(0.2		)		(0.1		)
Net income (loss) attributable to W. R. Grace & Co. shareholders	$	68.4			$	42.0
Earnings Per Share Attributable to W. R. Grace & Co. Shareholders
Basic 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 Subsidiaries
Consolidated Statements of Cash Flows (unaudited)

	Three Months Ended March 31,
(In millions)	2021				2020
OPERATING 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 equivalents, and restricted cash	(4.1		)		(3.1		)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(13.7		)		(89.2		)
Cash, cash equivalents, and restricted cash, beginning of period	306.2				282.9
Cash, 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 Subsidiaries
Consolidated Balance Sheets (unaudited)

(In millions, except par value and shares)	March 31, 2021				December 31, 2020
ASSETS
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 (2020—$2.2)	267.1				264.1
Inventories	273.6				253.8
Other current assets	53.2				51.2
Total Current Assets	886.4				875.3
Properties and equipment, net of accumulated depreciation and amortization of $1,554.6 (2020—$1,550.1)	1,193.1				1,208.8
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; 300,000,000 shares authorized; outstanding: 66,248,119 (2020—66,190,410)	0.7				0.7
Paid-in capital	467.7				473.2
Retained earnings	695.4				648.8
Treasury stock, at cost: shares: 11,208,514 (2020—11,266,223)	(915.1		)		(920.6		)
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 Subsidiaries
Analysis of Operations (unaudited)

	Three Months Ended March 31,
(In millions, except per share amounts)	2021				2020				% Change
Net 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 income	$	75.8			$	82.0			(7.6	)%
Materials Technologies segment operating income	26.8				19.0				41.1	%
Corporate 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 plan	25.6				—
Pension MTM adjustment and other related costs, net	13.7				—
Restructuring 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 earnings of unconsolidated affiliate	(0.2		)		—
Interest 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 & Co. shareholders	$	68.4			$	42.0			62.9	%
Diluted 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 Subsidiaries
Analysis of Operations (unaudited) (continued)

	Three Months Ended March 31,
(In millions)	2021				2020				% Change
Adjusted profitability performance measures(A)(B)(C):
Gross Margin:
Catalysts Technologies	40.2		%		40.7		%		(50) bps
Materials Technologies	36.8		%		33.0		%		380 bps
Adjusted Gross Margin	39.3		%		38.7		%		60 bps
Weather-related impacts in cost of goods sold	(1.2		)%		—		%		(120) bps
Pension costs in cost of goods sold	(0.9		)%		(0.8		)%		(10) bps
Total Grace	37.2		%		37.9		%		(70) bps
Adjusted 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 amortization	$	22.2			$	20.7			7.2	%
Depreciation and amortization included in equity in earnings of unconsolidated affiliate	1.1				0.4				175.0	%
Catalysts 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 in equity in earnings of unconsolidated affiliate	(1.1		)		(0.4		)		(175.0	)%
Depreciation 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) bps
Materials Technologies	21.1		%		16.7		%		440 bps
Total Grace	18.7		%		19.5		%		(80) bps
Net income margin	15.0		%		10.0		%		500 bps
Adjusted EBITDA margin:
Catalysts Technologies	30.1		%		33.5		%		(340) bps
Materials Technologies	25.1		%		19.9		%		520 bps
Total 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 Subsidiaries
Analysis of Operations (unaudited) (continued)

	Three Months Ended March 31,
(In millions)	2021				2020
Cash flow measure(A):
Net cash provided by (used for) operating activities	$	69.0			$	54.6
Cash 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				2020
Calculation of Adjusted EBIT Return on Invested Capital (trailing four quarters)(A):
Net income (loss) attributable to W. R. Grace & Co. shareholders	$	24.6			$	143.6
Adjusted 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 plans	592.8				514.8
Liabilities 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 Subsidiaries
Analysis of Operations (unaudited)

	Three Months Ended March 31,
	2021																2020
(In millions, except per share amounts)	Pre-Tax				Tax Effect				After-Tax				Per Share				Pre-Tax				Tax Effect				After-Tax				Per Share
Diluted EPS													$	1.03															$	0.63
Gain on curtailment of U.S. salaried pension plan	$	(25.6	)		$	(8.1	)		$	(17.5	)		(0.26		)		$	—			$	—			$	—			—
Pension MTM adjustment and other related costs, net	(13.7		)		(4.2		)		(9.5		)		(0.14		)		—				—				—				—
Restructuring and repositioning expenses	12.8				4.0				8.8				0.13				2.7				0.6				2.1				0.03
Costs related to legacy matters	4.6				1.4				3.2				0.05				2.7				0.6				2.1				0.03
Third-party acquisition-related costs	1.3				0.4				0.9				0.01				1.5				0.3				1.2				0.02
Discrete 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 Subsidiaries
Notes 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 Grace’s performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of Grace’s 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 Grace’s net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. Grace’s 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 Grace’s 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 Caitlin Leopold +1 410.531.8870 [e-mail]

Investor Relations Jason Hershiser +1 410.531.8835 [e-mail]

 

Source: W. R. Grace & Co.

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