Results of Operations

Financial Summary

Following is a summary of our financial performance for the quarter ended March 31, 2009 compared with the quarter ended March 31, 2008. In the first quarter 2009, we changed the manner in which we assess the performance of our operating segments by excluding defined benefit pension expense from the calculation of operating segment pre-tax operating income. We believe that the revised pre-tax operating income measures provide a more transparent indicator of our operating segment performance and the cost of our defined benefit pension plans. We have retrospectively restated all prior period segment financial information to be consistent with the 2009 presentation.

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º Sales for the first quarter were $682.1 million compared with $759.2 million in the prior year quarter, a 10.2% decrease (4.0% before the effects of currency translation). The sales decrease was attributable primarily to lower volumes and unfavorable currency translation, partially offset by higher selling prices in both operating segments. Sales were down 5.3% in North America and 23.8% in Europe, and up 11.1% in Latin America and 8.0% in Asia Pacific.

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º Net loss for the first quarter was $38.9 million, or $0.54 per diluted share, compared with net income of $17.7 million, or $0.24 per diluted share, in the prior year quarter. Results in both the 2009 and 2008 quarters were negatively affected by Chapter 11 expenses, litigation and other matters not related to core operations. Excluding Chapter 11 expenses, the loss on noncore activities, and the tax effects of such expenses and loss, the net loss would have been $8.7 million for the first quarter compared with net income of $35.2 million calculated on the same basis for the prior year quarter.

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º Pre-tax loss from core operations was $3.4 million in the first quarter compared with income of $68.2 million in the prior year quarter. As previously reported, Grace expected a pre-tax loss from core operations in the first quarter 2009 due to the unfavorable effects of lower sales volumes, higher costs of goods sold, and the restructuring charge discussed below. Cost of goods sold in the first quarter 2009 reflects approximately $40 million of high raw materials and energy costs incurred in the fourth quarter 2008. Raw materials and energy costs in the first quarter 2009 were below their fourth quarter 2008 peak, though such costs remained above their first quarter 2008 levels.

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º We recorded a pre-tax charge of $19.1 million in the first quarter related to cost reduction and restructuring actions in both operations and administrative functions. We expect these actions to improve our earnings and cash flow beginning in the second quarter and we expect these actions to save approximately $22 million in operating costs in the current year. We expect these actions, together with cost reduction and restructuring actions that we completed in 2008, to produce over $40 million of annualized cost savings by 2010. The restructuring programs initiated in the first quarter are expected to reduce total employment by approximately 300 employees by year-end 2009. Together with cost reduction and restructuring programs implemented in 2008, these actions will reduce total employment by approximately 500 employees by year-end 2009. We remain cautious in our outlook for customer demand in 2009, and we are continuing to focus on reducing operating costs and working capital requirements. We expect to record additional restructuring expenses in 2009 as additional cost reduction programs are implemented.

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º Pre-tax loss from noncore activities was $39.9 million in the first quarter compared with a loss of $0.2 million in the prior year quarter. The increase in the noncore loss is primarily

attributable to higher legal spending and a net difference between the effects of foreign currency fluctuations on the value of intercompany loans and the value of associated hedge contracts.

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º Operating free cash flow was $77.8 million in the first quarter compared to a use of $10.8 million in the prior year quarter. The improvement was attributable primarily to reduced working capital and capital expenditures, partially offset by lower pre-tax income from core operations. Net cash provided by operating activities was $54.7 million in the first quarter compared to net cash used for operating activities of $47.7 million in the prior year quarter.

Summary Description of Core Business

We are engaged in specialty chemicals and specialty materials businesses on a worldwide basis through two operating segments.

Grace Davison includes specialty catalysts and materials used in a wide range of industrial applications that we manage through the following product groups:

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º Refining Technologies includes fluid catalytic cracking, or FCC, and hydroprocessing catalysts and chemical additives used by petroleum refineries;

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º Materials Technologies includes engineered materials, coatings and sealants used in numerous industrial, consumer and packaging applications; and

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º Specialty Technologies includes highly specialized catalysts and materials used in unique or proprietary applications and markets.

Key external factors for our Refining Technologies product group are the economics of the petroleum refining industry, specifically the impacts of demand for transportation fuels and petrochemical products, and crude oil supply. FCC catalysts and some hydroprocessing catalysts are consumed at a relatively steady rate and replaced regularly, while other hydroprocessing catalysts are consumed over a period of years and replaced in an irregular pattern. Sales of our Materials Technologies and Specialty Technologies product groups are affected by global economic conditions, including the underlying growth rate of targeted end-use applications.

Grace Construction Products includes specialty construction chemicals and specialty building materials used in commercial, infrastructure and residential construction that we manage by geographic region as follows:

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º GCP Americas includes products sold to customers in North, Central and South America;

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º GCP Europe includes products sold to customers in Eastern and Western Europe, the Middle East, Africa and India; and

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º GCP Asia Pacific includes products sold to customers in Asia (excluding India), Australia and New Zealand.

Grace Construction Products sales are heavily influenced by global non-residential construction activity and U.S. residential construction activity.

Global scope

We operate our business on a global scale with approximately 65% of our sales outside the United States. We conduct business in over 40 countries and in more than 20 currencies. We manage our operating segments on a global basis, to serve global markets. Currency fluctuations in relation to the U.S. dollar affect our reported earnings, net assets and cash flows.

Summary of Financial Information and Metrics

Set forth below are our key operating statistics with dollar and percentage changes for the quarters ended March 31, 2009 and 2008. Please refer to this Analysis of Continuing Operations when reading Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the Analysis of Continuing Operations, as well as in the financial information presented throughout Management's Discussion and Analysis of Financial Condition and Results of Operations, we present our financial results in the same manner as results are reviewed internally. We review our results of operations by operating segment and separate "core operations" from "noncore activities." Core operations include the financial results of Grace Davison, Grace Construction Products, and the costs of corporate activities that directly or indirectly support our business operations. In contrast, noncore activities include all other events and transactions not directly related to the generation of operating revenue or the support of our core operations and generally relate to our former operations and products. See "Pre-tax Loss from Noncore Activities" for more information about noncore activities. We use pre-tax income from core operations as the profitability factor in all significant business decisions and as a performance factor in determining certain incentive compensation.

Pre-tax income from core operations, pre-tax loss from noncore activities, pre-tax income from core operations as a percentage of sales, and pre-tax income from core operations before depreciation and amortization do not purport to represent income or cash flow measures as defined under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), and you should not consider them an alternative to such measures as an indicator of our performance. We provide these measures so you can distinguish the operating results of our current business base from the income and expenses of our past businesses, discontinued products, and corporate legacies, and the effect of our Chapter 11 proceedings, and to ensure that you understand the key data that management uses to evaluate our results of operations.

Pre-tax income from core operations has material limitations as an operating performance measure because it excludes income and expenses that comprise our noncore activities, which include, among other things, provisions for asbestos-related litigation and environmental remediation, income from insurance settlements, and legal costs, which have been material components of our net income. Pre-tax income from core operations before depreciation and amortization also has material limitations as an operating performance measure since it excludes the impact of depreciation and amortization expense. Our business is substantially dependent on the successful deployment of our capital assets; therefore, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue. We compensate 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. You should evaluate pre-tax income from

core operations and pre-tax income from core operations before depreciation and amortization in conjunction with net income for a more complete analysis of our financial results.

                                                    Three Months Ended March 31,
                                                                  $ Change    % Change
   Analysis of Continuing Operations                                 Fav         Fav
   (In millions)                               2009      2008      (Unfav)     (Unfav)
   Net sales:
   Grace Davison                              $ 477.8   $ 497.1   $   (19.3 )      (3.9 )%

           Refining Technologies                276.7     236.9        39.8        16.8 %
           Materials Technologies               134.0     170.3       (36.3 )     (21.3 )%
           Specialty Technologies                67.1      89.9       (22.8 )     (25.4 )%

   Grace Construction Products                  204.3     262.1       (57.8 )     (22.1 )%

           Americas                             111.8     132.5       (20.7 )     (15.6 )%
           Europe                                62.9      97.6       (34.7 )     (35.6 )%
           Asia                                  29.6      32.0        (2.4 )      (7.5 )%

   Total Grace net sales                      $ 682.1   $ 759.2   $   (77.1 )     (10.2 )%

   Net Sales by Region:
           North America                      $ 259.0   $ 273.6   $   (14.6 )      (5.3 )%
           Europe Africa                        247.0     324.0       (77.0 )     (23.8 )%
           Asia Pacific                         121.2     112.2         9.0         8.0 %
           Latin America                         54.9      49.4         5.5        11.1 %

   Total                                      $ 682.1   $ 759.2   $   (77.1 )     (10.2 )%

   Pre-tax operating income:
   Grace Davison(b)                           $  40.0   $  74.3   $   (34.3 )     (46.2 )%
   Grace Construction Products(c)                12.3      26.3       (14.0 )     (53.2 )%
   Corporate costs                              (19.5 )   (20.8 )       1.3         6.2 %
   Restructuring costs(g)                       (18.1 )       -       (18.1 )        NM
   Defined benefit pension expense(d)           (18.1 )   (11.6 )      (6.5 )     (56.0 )%

   Pre-tax income (loss) from core
   operations(a)                                 (3.4 )    68.2       (71.6 )    (105.0 )%
   Pre-tax income (loss) from noncore
   activities(a)(g)                             (39.9 )    (0.2 )     (39.7 )        NM
   Interest expense, net                         (9.0 )   (14.0 )       5.0        35.7 %

   Income (loss) before Chapter 11 expenses
   and income taxes                             (52.3 )    54.0      (106.3 )    (196.9 )%
           Chapter 11 expenses, net of
           interest income                      (10.0 )   (18.4 )       8.4        45.7 %
           Benefit from (provision for)
           income taxes                          23.4     (17.9 )      41.3          NM

   Net income (loss) attributable to W. R.
   Grace & Co. shareholders                   $ (38.9 ) $  17.7   $   (56.6 )        NM

   Reconciliation of pre-tax income (loss)
   from core operations to income (loss)
   before income taxes:
           Pre-tax income (loss) from core
           operations                         $  (3.4 ) $  68.2   $   (71.6 )    (105.0 )%
           Noncontrolling interests               0.1       2.9        (2.8 )     (96.6 )%
           Interest expense, net                 (9.0 )   (14.0 )       5.0        35.7 %
           Chapter 11 expenses                  (10.0 )   (18.4 )       8.4        45.7 %
           Pre-tax income (loss) from
           noncore activities                   (39.9 )    (0.2 )     (39.7 )        NM

   Income (loss) before income taxes          $ (62.2 ) $  38.5   $  (100.7 )        NM

                                                  Three Months Ended March 31,
                                                                $ Change     % Change
 Analysis of Continuing Operations                                Fav          Fav
 (In millions)                              2009       2008     (Unfav)      (Unfav)
 Key Financial Measures:
 Pre-tax income from core operations as
 a percentage of sales:
     Grace Davison                             8.4 %    14.9 %         NM         (6.5 ) pts
     Grace Construction Products               6.0 %    10.0 %         NM         (4.0 ) pts
     Total Core Operations                    (0.5 )%    9.0 %         NM         (9.5 ) pts
     Total Core Operations adjusted for
     profit sharing of joint
     ventures(e)                              (0.5 )%    9.4 %         NM         (9.9 ) pts
 Pre-tax income from core operations
 before depreciation and amortization     $   24.1    $ 98.4   $    (74.3 )      (75.5 )%
     As a percentage of sales                  3.5 %    13.0 %         NM         (9.5 ) pts
 Depreciation and amortization            $   27.5    $ 30.2   $      2.7          8.9 %
 Gross profit percentage (sales less
 cost of goods sold as a percent of
 sales)(f):
     Grace Davison                            22.4 %    30.8 %         NM         (8.4 ) pts
     Grace Construction Products              31.1 %    33.5 %         NM         (2.4 ) pts
     Total Grace                              24.7 %    31.5 %         NM         (6.8 ) pts

Note (b): Grace Davison pre-tax operating income includes noncontrolling
interests primarily related to the Advanced Refining Technologies joint venture.

Note (c): Grace Construction Products pre-tax operating income includes
noncontrolling interests related to consolidated joint ventures.

Note (d): Pension expense includes all defined benefit pension expense of core
operations for all periods presented. These amounts were previously allocated to the operating segments and corporate.

Note (e): Reflects the add-back of noncontrolling interests expense.

Note (f): Includes depreciation and amortization related to manufacturing of
products.

Note (g): Restructuring costs included in pre-tax income from core operations
above have been reflected by operating segment in Note 16 as follows: Grace Davison $11.7 million, Grace Construction Products $4.7 million, and Corporate $1.7 million. An additional $1.0 million, reflected in pre-tax income (loss) from noncore activities above, is also reflected in Corporate in Note 16.

NM-Not Meaningful

Grace Overview

Following is an overview of our financial performance for the quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008.

Net Sales

                                Grace Net Sales
                                ($ in millions)

                           [[Image Removed: GRAPHIC]]

    The following table identifies the year-over-year increase or decrease in
sales attributable to changes in product volume, product price and/or mix,
metals volumes and prices, and the impact of foreign currency translation.

                                               Three Months Ended March 31, 2009
                                            as a Percentage Increase (Decrease) from
                                               Three Months Ended March 31, 2008
                                                               Currency
Net Sales Variance Analysis      Volume        Price/Mix      Translation     Metals      Total
Grace Davison                        (5.3 )%           8.1 %          (5.6 )%    (1.1 )%    (3.9 )%
Grace Construction Products         (19.4 )%           4.4 %          (7.1 )%     N/A      (22.1 )%
Net sales                           (10.2 )%           6.9 %          (6.1 )%    (0.8 )%   (10.2 )%
By Region:
North America                       (12.7 )%           9.6 %          (0.9 )%    (1.3 )%    (5.3 )%
Europe Africa                       (16.2 )%           2.5 %         (10.0 )%    (0.1 )%   (23.8 )%
Asia Pacific                          3.8 %            9.5 %          (3.5 )%    (1.8 )%     8.0 %
Latin America                        12.3 %           14.4 %         (16.0 )%     0.4 %     11.1 %

Volume declines and unfavorable foreign currency translation were only partially offset by higher selling prices for our products in the first quarter of 2009 as compared with the prior year quarter. Volumes in Europe were down sharply in both operating segments. North American volumes were also down, particularly in Grace Construction Products. Volumes in Latin America and Asia Pacific were up, but did not offset overall declines in both operating segments. Pricing actions taken in 2008 continued to have a favorable effect on sales in all product groups and in all regions in the first quarter of 2009. A stronger dollar, particularly as compared to the euro, the UK pound and Latin American currencies, had a negative effect on sales in the first quarter of 2009.

Pre-tax Income from Core Operations

Operating profit decreased in the first quarter, primarily due to three factors: higher cost of goods sold, lower volumes, and restructuring costs incurred in the quarter, which more than offset the favorable impact of higher prices and cost containment actions in the operating segments and the corporate functions. Much of the inventory sold in the first quarter of 2009 was manufactured in the fourth quarter of 2008, when raw material costs peaked and operating rates in our factories were lower, resulting in high cost of goods sold. Operating margin was negative 0.5%, compared with 9.0% in the prior year quarter.

Operating Segment Overview-Grace Davison

Following is an overview of the financial performance of Grace Davison for the quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008.

Net Sales

Grace Davison operating segment sales are reported in the following product groups:

                                              Three Months Ended March 31,
                                                            $ Change     % Change
                                                              Fav          Fav
        (In millions)                   2009      2008      (Unfav)      (Unfav)
        Refining Technologies          $ 276.7   $ 236.9    $    39.8         16.8 %
        Materials Technologies           134.0     170.3        (36.3 )      (21.3 )%
        Specialty Technologies            67.1      89.9        (22.8 )      (25.4 )%

        Total Grace Davison Revenue   $  477.8   $ 497.1    $   (19.3 )       (3.9 )%

First quarter sales of Grace Davison were unfavorably affected by the global economic slowdown which resulted in reduced sales volumes in most product groups and by foreign currency translation, partly offset by higher selling prices in all product groups. Foreign currency translation had an unfavorable effect on sales in the first quarter for all product groups as compared to the prior year quarter. As the global economy grew in 2007 and through most of 2008, costs for raw materials and energy used to produce our products increased significantly, especially in the first two quarters of 2008. We raised prices to offset these increased costs and to reflect our upgrade of product technologies.

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º Refining Technologies-The increase in first quarter sales was primarily a result of higher sales volume of hydroprocessing catalysts. Some hydroprocessing catalysts are consumed over a period of years and replacement orders occur in an irregular pattern. The increase in sales volume of hydroprocessing catalysts in the first quarter of 2009 when compared to the prior year quarter is a result of significant replacement orders filled during the quarter. Based on the expected order pattern in the second quarter of 2009, we expect sales of hydroprocessing catalysts to decrease by approximately $50 million when compared to the first quarter of 2009.

Higher sales volume of hydroprocessing catalysts was partially offset by lower molybdenum prices. Molybdenum is a key raw material in our hydroprocessing catalysts and we generally pass the cost of molybdenum through to our customers. Molybdenum cost in the first quarter was approximately one-third its cost in the first quarter 2008, resulting in a decrease in pass-through sales of approximately $30 million.

The increased sales volume of hydroprocessing catalysts was partially offset by decreased sales volume of FCC catalysts and additives. The slowdown in the global economy resulted in reduced demand for petroleum products during the first quarter. Many of our FCC catalysts and additives customers adjusted their petroleum production in response to reduced demand by extending annual refinery maintenance downtime and/or by operating refineries under conditions that consume less FCC catalysts and additives. The extended downtime and adjusted operating conditions reduced demand for our FCC catalysts and additives. First quarter sales were favorably affected by price increases, mostly in FCC catalysts and additives, implemented in 2008 to reflect our increased costs and our sales emphasis on upgraded products designed to improve refinery yields.

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º Materials Technologies-The slowdown in the global economy has reduced demand for our customers' products and, due to ongoing economic uncertainty, our customers have reduced their inventory levels. As a result of the reduced demand for our customers' products and their inventory actions, our customers have reduced their demand for our products. The first quarter sales decline was primarily caused by a greater than 20% decline in sales volume that resulted from this reduction in demand. Sales volume was down in all product lines. The slowdown in automotive and furniture sales, residential and commercial construction, and

home renovations lowered the sales of our silica gel, molecular sieves, precipitated silica and colloidal silica into end-uses such as lacquers, coatings, automotive tires, food and personal care, and dual pane windows. The effect of the first quarter sales volume decline on sales was partially offset by price increases implemented to reflect our increased costs and our sales emphasis on higher value applications.

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º Specialty Technologies-Many of our customers produce polyolefin resin used in the manufacture of plastic materials, including high performance pipes, plastic films and household containers. The contraction in home and commercial construction, automotive demand and . . .