Financial Summary for September 30, 2008

Following is a summary of key financial measures of our performance for the three months and nine months ended September 30, 2008 compared with the respective prior year periods. Our reportable operating segments reflect the transfer of our packaging technologies product line to our Grace Davison operating segment, which we completed in the fourth quarter of 2007. We have renamed our previous Grace Performance Chemicals operating segment as "Grace Construction Products" as a result of the transfer. We have retrospectively restated all segment information contained herein to reflect this realignment. Net results for each period have been primarily affected by: the performance of our businesses-which we categorize as "core operations;" and the impact of legal contingencies and other nonoperating liabilities-which we categorize as "noncore activities."

º •
º Sales increased 13.6% and 10.3% for the three months and nine months ended September 30, 2008 over the prior year periods. Grace Davison sales increased 17.9% and 12.0% and Grace Construction Products sales increased 6.2% and 7.1% for the three-month and nine-month periods over the prior year periods. Price increases totaled approximately $50 million in the third quarter, increasing sales approximately 6.4% when compared with the prior year quarter. Price increases totaled approximately $100 million in the nine months ended September 30, 2008, increasing sales approximately 4.3% when compared with the comparable prior year period. Sales were up: 13.4% and 8.3% in North America; 4.4% and 8.0% in Europe Africa; 36.1% and 19.0% in Asia Pacific; and 18.8% and 13.3% in Latin America, for the three-month and nine-month periods, respectively.

º •
º Net income was $28.3 million in the three months ended September 30, 2008 compared with $19.1 million in the prior year period. Net income was $78.1 million for the nine months ended September 30, 2008 compared with $51.6 million for the prior year period. The results for the 2008 and 2007 three-month and nine-month periods were negatively affected by Chapter 11 expenses, litigation, and other matters not related to core operations.

º •
º Pre-tax income from core operations was $82.4 million in the three months ended September 30, 2008 compared with $78.0 million in the prior year period, a 5.6% increase. Pre-tax income from core operations was $252.3 million and $242.3 million for the nine months ended September 30, 2008 and September 30, 2007, a 4.1% increase. Inflation on raw materials and energy costs totaled approximately $50 million in the third quarter, increasing costs approximately 18% when compared with the prior year quarter. Inflation on raw materials and energy costs totaled approximately $110 million in the nine months ended September 30, 2008, increasing costs approximately 13% when compared with the comparable prior year period. Pre-tax operating income of the Grace Davison operating segment increased 2.1% and 5.4% for the three months and nine months ended September 30, 2008, as compared with the prior year periods. Pre-tax operating income of Grace Construction Products increased 1.4% and decreased 2.5% for the three months and nine months ended September 30, 2008 as compared with the prior year periods.

º •
º Pre-tax loss from noncore activities was $33.9 million in the three months ended September 30, 2008 compared with $13.3 million in the prior year period and $47.2 million in the nine months ended September 30, 2008 compared with $39.5 million in the prior year period. The higher year-to-date loss is principally due to changes in foreign currency translation on intercompany loans net of hedge contract gains as well as higher legal costs related to the noncore matters.

º •
º Net cash used for operating activities for the nine months ended September 30, 2008 was $182.0 million compared with net cash provided by operating activities of $65.8 million for the

º •
º During the third quarter of 2008, Grace changed its accounting policy for inventories in the U.S. from LIFO to FIFO in order to provide a consistent, global inventory accounting standard. Grace has applied the change retrospectively and restated all periods presented in this document.

See the Analysis of Continuing Operations table, "Results of Operations" and "Operating Segment Overview" sections below for analyses of our operating results on a consolidated basis, as well as by operating segment. See "Analysis of Cash Flows" below for further discussion of cash flows.

We are attempting to resolve noncore liabilities and contingencies through our Chapter 11 proceeding. Our noncore liabilities include asbestos-related litigation, environmental remediation, tax disputes and business litigation. Our operating statements include periodic adjustments to account for changes in estimates of such liabilities and developments in our Chapter 11 case. These liabilities and contingencies may result in continued volatility in net income in the future.

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:

º •
º Refining Technologies products, including:

º •
º Fluid catalytic cracking, or FCC, catalysts, that help to "crack" the hydrocarbon chain in distilled crude oil to produce transportation fuels, such as gasoline and diesel fuels, and other petroleum-based products; and FCC additives used to reduce sulfur in gasoline, maximize propylene production from refinery FCC units, and reduce emissions of sulfur oxides, nitrogen oxides and carbon monoxide from refinery FCC units, and

º •
º Hydroprocessing catalysts that are used in process reactors to upgrade heavy oils into lighter, more useful products by removing impurities such as nitrogen, sulfur and heavy metals, allowing less expensive feedstocks to be used in the petroleum refining process;

º •
º Materials Technologies products, including:

º •
º Silica-based and silica-alumina-based engineered materials used in:

º •
º Industrial applications, such as rubber and tires, plastics, precision investment casting, refractory, insulating glass windows, drying applications, fulfilling various functions such as reinforcement, high temperature binding and moisture scavenging,

º •
º Consumer applications, as a free-flow, carrier or processing aid in food and personal care products; as a toothpaste abrasive; and for the processing and stabilization of edible oils and beverages, and

º •
º Coatings and print media applications consisting of functional additives that: provide matting effects and corrosion protection for industrial coatings; enable enhanced media and paper quality in ink jet coatings; and act as a functional filler and retention aid in paper, and

º •
º Sealants and coatings used in rigid food and beverage packaging, including can and closure sealants used to seal and enhance the shelf life of can and bottle contents, and coatings for cans and closures that prevent metal corrosion, protect package contents from the influence

º •
º Specialty Technologies products, including:

º •
º Polyolefin catalysts and catalyst supports that are essential components in the manufacture of polyethylene and polypropylene resins, and other chemical catalysts used in a variety of industrial, environmental and consumer applications, and

º •
º Silica-based materials and chromatography columns, instruments, consumables and accessories used in analytical chemistry applications and life sciences.

Hydroprocessing catalysts are sold through Advanced Refining Technologies, LLC, ART, our joint venture with Chevron Products Company. We report 100% of the revenues of the ART joint venture, but only receive 55% of the income after minority interest is allocated to Chevron.

Key external factors affecting 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 chemicals and building materials, including concrete admixtures and fibers used to improve the durability and working properties of concrete, additives used in cement processing to improve energy efficiency, enhance the characteristics of finished cement and improve ease of use, building materials used in commercial, infrastructure and residential construction and renovation to protect buildings from water, vapor and air penetration, and fire protection materials used to protect buildings in the event of fire.

Construction Products sales are primarily impacted by global non-residential construction activity and U.S. residential construction activity.

We manage the Construction Products operating segment by geographic region as follows:

º •
º Americas-includes North, Central, and South America.

º •
º Europe-includes Eastern and Western Europe, the Middle East, Africa, and India.

º •
º Asia-includes Asia (excluding India), the Pacific Rim Countries, Australia, and New Zealand.

Global scope-We operate our business on a global scale with approximately 68% of our revenue (see following table) and over 50% of our operating properties outside the United States. We conduct business in 41 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.

                                         Three Months Ended       Nine Months Ended
                                           September 30,            September 30,
     Percentage of Total Grace Sales
     (In millions)                        2008         2007        2008        2007
     Grace Davison                           65.2 %      62.8 %       65.2 %     64.2 %
     Grace Construction Products             34.8 %      37.2 %       34.8 %     35.8 %

     Total                                  100.0 %     100.0 %      100.0 %    100.0 %

     Grace U.S.                              32.9 %      33.1 %       32.0 %     32.8 %
     Grace non-U.S.                          67.1 %      66.9 %       68.0 %     67.2 %

     Total                                  100.0 %     100.0 %      100.0 %    100.0 %

Chapter 11 Case

As described under "Voluntary Bankruptcy Filing" in Notes 1 and 2 to the Consolidated Financial Statements, Grace and our principal U.S. operating subsidiary are debtors-in-possession under Chapter 11 of the U.S. Bankruptcy Code under the supervision of the United States Bankruptcy Court for the District of Delaware. Our non-U.S. subsidiaries, although not part of the Chapter 11 filing, are owned directly or indirectly by our principal operating subsidiary or other filing entities. Under Chapter 11, we have continued to operate our businesses as debtors-in-possession under court protection from creditors and claimants, while using the Chapter 11 process to develop and implement a plan for addressing the asbestos-related claims. Since the Chapter 11 filing, the Bankruptcy Court has approved all motions necessary to conduct normal business activities.

Critical Accounting Estimates

See the "Critical Accounting Estimates" heading in Item 7 of our Form 10-K for the year ended December 31, 2007 for a discussion of our critical accounting estimates.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect on us.

Summary Financial Information and Metrics

Set forth below is a chart that lists our key operating statistics, and dollar and percentage changes for the three-month and nine-month periods ended September 30, 2008 and 2007. Please refer to this Analysis of Continuing Operations chart when reading Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the Analysis of Continuing Operations chart, 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 break out our results of operations by operating segment and between "core operations" and "noncore activities." Core operations comprise 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 comprise 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 Income
(Loss) from Noncore Activities" for more information about noncore activities. We use pre-tax income from core operations as the performance factor in

determining certain incentive compensation and as the profitability factor in all significant business decisions.

Pre-tax income from core operations, pre-tax income (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, 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 defense costs, all of which have been material components of our net income (loss). 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 (loss) as measured under U.S. generally accepted accounting principles 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 (loss) for a more complete analysis of our financial results.

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                                                Three Months Ended September 30,                     Nine Months Ended September 30,
                                                                  $ Change    % Change                                $ Change     % Change
Analysis of Continuing Operations                                   Fav          Fav                                    Fav          Fav
(In millions)                              2008         2007      (Unfav)      (Unfav)         2008        2007       (Unfav)      (Unfav)
Net sales:
Grace Davison                            $   579.7    $  491.5    $    88.2        17.9 %    $ 1,661.6   $ 1,483.3    $   178.3         12.0 %

      Refining Technologies                  305.3       228.9         76.4        33.4 %        828.0       705.0        123.0         17.4 %
      Materials Technologies                 183.4       169.6         13.8         8.1 %        548.3       499.3         49.0          9.8 %
      Specialty Technologies                  91.0        93.0         (2.0 )      (2.2 )%       285.3       279.0          6.3          2.3 %

Grace Construction Products                  309.7       291.6         18.1         6.2 %        887.0       828.2         58.8          7.1 %

      Americas                               164.4       154.9          9.5         6.1 %        460.3       442.4         17.9          4.0 %
      Europe                                 106.1        99.2          6.9         7.0 %        317.1       283.6         33.5         11.8 %
      Asia                                    39.2        37.5          1.7         4.5 %        109.6       102.2          7.4          7.2 %

Total Grace net sales                    $   889.4    $  783.1    $   106.3        13.6 %    $ 2,548.6   $ 2,311.5    $   237.1         10.3 %

Pre-tax operating income:
Grace Davison(1)                         $    62.2    $   60.9    $     1.3         2.1 %    $   209.8   $   199.0    $    10.8          5.4 %
Grace Construction Products(2)                44.9        44.3          0.6         1.4 %        114.9       117.8         (2.9 )       (2.5 )%
Corporate costs:
      Support functions                      (11.3 )     (11.8 )        0.5         4.2 %        (35.0 )     (35.2 )        0.2          0.6 %
      Pension, performance-related
      compensation, and other                (13.4 )     (15.4 )        2.0        13.0 %        (37.4 )     (39.3 )        1.9          4.8 %

Total Corporate costs                        (24.7 )     (27.2 )        2.5         9.2 %        (72.4 )     (74.5 )        2.1          2.8 %

Pre-tax income from core operations           82.4        78.0          4.4         5.6 %        252.3       242.3         10.0          4.1 %
Pre-tax loss from noncore activities         (33.9 )     (13.3 )      (20.6 )    (154.9 )%       (47.2 )     (39.5 )       (7.7 )      (19.5 )%
Interest expense                             (13.1 )     (17.3 )        4.2        24.3 %        (42.8 )     (57.1 )       14.3         25.0 %
Interest income                                0.7         1.6         (0.9 )     (56.3 )%         3.1         5.3         (2.2 )      (41.5 )%

Income before Chapter 11 expenses and
income taxes                                  36.1        49.0        (12.9 )     (26.3 )%       165.4       151.0         14.4          9.5 %
Chapter 11 expenses, net of interest
income                                       (12.0 )     (21.3 )        9.3        43.7 %        (48.4 )     (62.7 )       14.3         22.8 %
Benefit from (provision for) income
taxes                                          4.2        (8.6 )       12.8       148.8 %        (38.9 )     (36.7 )       (2.2 )       (6.0 )%

Net income                               $    28.3    $   19.1    $     9.2        48.2 %    $    78.1   $    51.6    $    26.5         51.4 %

Key Financial Measures:
Pre-tax income from core operations as
a percentage of sales:
Grace Davison                                 10.7 %      12.4 %         NM        (1.7 )pts      12.6 %      13.4 %         NM         (0.8 )pts
Grace Construction Products                   14.5 %      15.2 %         NM        (0.7 )pts      13.0 %      14.2 %         NM         (1.2 )pts
Total Core Operations                          9.3 %      10.0 %         NM        (0.7 )pts       9.9 %      10.5 %         NM         (0.6 )pts
Total Core Operations adjusted for
profit sharing of joint ventures(3)            9.7 %      10.6 %         NM        (0.9 )pts      10.3 %      11.3 %         NM         (1.0 )pts
Pre-tax income from core operations
before depreciation and amortization     $   112.3    $  106.3    $     6.0         5.6 %    $   343.1   $   325.8    $    17.3          5.3 %
As a percentage of sales                      12.6 %      13.6 %         NM        (1.0 )pts      13.5 %      14.1 %         NM         (0.6 )pts
Depreciation and amortization            $    29.9    $   28.3    $    (1.6 )      (5.7 )%   $    90.8   $    83.5    $    (7.3 )       (8.7 )%
Gross profit percentage (sales less
cost of goods sold as a percent of
sales)(4):
Grace Davison                                 25.5 %      29.0 %         NM        (3.5 )pts      28.0 %      29.9 %         NM         (1.9 )pts
Grace Construction Products                   35.1 %      37.7 %         NM        (2.6 )pts      35.1 %      37.0 %         NM         (2.0 )pts
Total Grace                                   28.8 %      32.0 %         NM        (3.2 )pts      30.3 %      32.3 %         NM         (2.0 )pts
Net Consolidated Sales by Region:
North America                            $   321.5    $  283.6    $    37.9        13.4 %    $   895.8   $   827.1    $    68.7          8.3 %
Europe Africa                                338.1       324.0         14.1         4.4 %      1,029.2       953.4         75.8          8.0 %
Asia Pacific                                 167.8       123.3         44.5        36.1 %        455.1       382.3         72.8         19.0 %
Latin America                                 62.0        52.2          9.8        18.8 %        168.5       148.7         19.8         13.3 %

Total                                    $   889.4    $  783.1    $   106.3        13.6 %    $ 2,548.6   $ 2,311.5    $   237.1         10.3 %

º (1)
º Grace Davison pre-tax operating income includes minority interest expense related to the Advanced Refining Technologies joint venture.

º (2)
º Grace Construction Products pre-tax operating income includes minority interest expense related to consolidated joint ventures.

º (3)
º Reflects the add-back of minority interest expense.

º (4)
º Includes depreciation and amortization related to manufacturing of products.

Results of Operations

    The following is an overview of our financial performance for the three
months and nine months ended September 30, 2008 compared with the prior year
periods.

     Net Sales-The following tables identify the period-over-period increase or
decrease in sales attributable to changes in product volume, product price
and/or mix, and the impact of foreign currency translation and metals.

                                               Three Months Ended September 30, 2008
                                             as a Percentage Increase (Decrease) from
                                               Three Months Ended September 30, 2007
                                                                  Currency
Net Sales Variance Analysis       Volume        Price/Mix       Translation      Metals     Total
Grace Davison                          2.9 %           5.4 %               5.1 %     4.5 %    17.9 %
Grace Construction Products           (2.5 )%          5.1 %               3.6 %     N/A       6.2 %
Net sales                              0.9 %           5.3 %               4.6 %     2.8 %    13.6 %
By Region:
North America                          1.9 %           7.2 %               0.2 %     4.1 %    13.4 %
Europe Africa                         (6.3 )%          3.9 %               8.9 %    (2.0 %)    4.4 %
Asia Pacific                          15.5 %           4.8 %               1.9 %    13.5 %    36.1 %
Latin America                          5.4 %           5.0 %               7.8 %     0.6 %    18.8 %

Grace Davison: Third quarter sales were $579.7 million, up 17.9% from the prior year quarter. Sales were positively affected by higher selling prices in all product groups and regions (which offset higher raw materials and energy costs), favorable foreign currency translation, and higher commodity metal costs. Volume growth was affected by slowing customer demand, particularly in Europe Africa, Hurricanes Gustav and Ike, which adversely affected sales in Refining Technologies and Specialty Technologies, and a 2007 product line divestiture in Specialty Technologies. Our contractual arrangements with certain customers provide for the pass through of certain commodity metals costs. The cost of these commodity metals can significantly fluctuate based on market factors and therefore can have a significant impact on sales.

Grace Construction Products: Third quarter sales were $309.7 million, up 6.2% from the prior year quarter. Sales were positively affected by higher selling prices in all major geographic regions and product groups and favorable foreign currency translation. Sales volumes were unfavorably impacted in North America and Western Europe by slowing customer demand for concrete admixtures in the commercial construction markets and by continuing weakness in residential construction. Higher sales of waterproofing protection products continue to partially offset lower volumes of other products.

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                                           Nine Months Ended September 30, 2008
                                         as a Percentage Increase (Decrease) from
                                           Nine Months Ended September 30, 2007
                                                             Currency
 Net Sales Variance Analysis    Volume       Price/Mix      Translation    Metals     Total
 Grace Davison                       0.9 %          4.6 %            5.6 %     0.9 %    12.0 %
 Grace Construction Products        (0.6 )%         3.1 %            4.6 %     N/A       7.1 %
 Net sales                           0.4 %          4.1 %            5.2 %     0.6 %    10.3 %
 By Region:
 North America                       0.4 %          4.9 %            0.4 %     2.6 %     8.3 %
 Europe Africa                      (2.7 )%         3.0 %           10.0 %    (2.2 %)    8.0 %
 Asia Pacific                        6.7 %          4.8 %            3.2 %     4.0 %    19.0 %
 Latin America                       4.3 %          4.5 %            6.1 %    (1.7 %)   13.3 %

Grace Davison: Sales for the nine months ended September 30, 2008 were $1,661.6 million, up 12.0% over the comparable prior year period. Sales were . . .