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W. R. Grace & Co., through its subsidiaries, is engaged in the production and sale of specialty chemicals and specialty materials on a global basis through two reportable business segments: Grace Catalysts Technologies, which includes catalysts and related products and technologies used in petrochemical, refining, and other chemical manufacturing applications; and Grace Materials Technologies, which includes specialty materials, including silica-based and silica-alumina-based materials, used in consumer/pharma, coatings, and chemical process applications.

W. R. Grace & Co. conducts all of its business through a single wholly owned subsidiary, W. R. Grace & Co.–Conn. (“Grace–Conn.”). Grace–Conn. owns all of the assets, properties and rights of W. R. Grace & Co. on a consolidated basis, either directly or through subsidiaries.

Basis of Presentation    The interim Consolidated Financial Statements presented herein are unaudited and should be read in conjunction with the Consolidated Financial Statements presented in the Company’s 2019 Annual Report on Form 10-K. Such interim Consolidated Financial Statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented; all such adjustments are of a normal recurring nature except for the impacts of adopting new accounting standards as discussed below. All significant intercompany accounts and transactions have been eliminated.

The results of operations for the three-month interim period ended March 31, 2020, are not necessarily indicative of the results of operations to be attained for the year ending December 31, 2020.

Use of Estimates    The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual amounts could differ from those estimates, and the differences could be material. Changes in estimates are recorded in the period identified. Grace’s accounting measurements that are most affected by management’s estimates of future events are:

•	The effective tax rate and realization values of net deferred tax assets, which depend on projections of future taxable income;

•	Pension and postretirement liabilities, which depend on assumptions regarding participant life spans, future inflation, discount rates and total returns on invested funds (see Note 6);

•	Carrying values of goodwill and other intangible assets, which depend on assumptions of future earnings and cash flows; and

•	Contingent liabilities, which depend on an assessment of the probability of loss and an estimate of ultimate obligation, such as litigation, environmental remediation, and other legacy liabilities (see Note 8).

Reclassifications    Certain amounts in prior years’ Consolidated Financial Statements have been reclassified to conform to the current year presentation. Such reclassifications have not materially affected previously reported amounts in the Consolidated Financial Statements.

Recently Issued Accounting Standards    In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This update clarifies and amends existing guidance, including removing certain exceptions to the general principles in Topic 740, and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740. This update is effective for Grace on January 1, 2021, with early adoption permitted. Grace is currently evaluating the effect and timing of adoption.

Recently Adopted Accounting Standards    In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This update is intended to ease the potential burden in accounting for and recognizing the effects of reference rate reform. It provides optional practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. This update

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became effective on March 12, 2020, and is available for use through December 31, 2022. Grace expects to utilize the practical expedients provided by this update in accounting for contract modifications and/or hedging transactions during the effective period. Grace expects the update to significantly reduce the effects of reference rate reform on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20).” This update revises disclosure requirements related to defined benefit pension and other postretirement plans. Grace adopted this update in the 2020 first quarter, and it did not have a material effect on the Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.” This update requires companies to implement an impairment model based on expected credit losses, rather than probable incurred losses. Grace adopted this update in the 2020 first quarter, and it did not have a material effect on the Consolidated Financial Statements.

Inventories are stated at the lower of cost or net realizable value, and cost is determined using FIFO. Inventories consisted of the following at March 31, 2020, and December 31, 2019:

(In millions)	March 31, 2020				December 31, 2019
Raw materials	$	64.8			$	64.2
In process	60.8				55.7
Finished products	177.6				154.4
Other	35.9				35.6
Total inventory	$	339.1			$	309.9

Components of Debt

(In millions)	March 31, 2020				December 31, 2019
2018 U.S. dollar term loan, net of unamortized debt issuance costs of $6.9 (2019—$7.2)	$	928.8			$	930.9
Senior notes due 2021, net of unamortized debt issuance costs of $2.3 (2019—$2.7)	697.7				697.3
Senior notes due 2024, net of unamortized debt issuance costs of $2.3 (2019—$2.4)	297.7				297.6
Debt payable to unconsolidated affiliate	47.0				47.4
Other borrowings	7.1				7.2
Total debt	1,978.3				1,980.4
Less debt payable within one year	23.5				23.1
Debt payable after one year	$	1,954.8			$	1,957.3
Weighted average interest rates on total debt	3.7		%		3.8		%

See Note 4 for a discussion of the fair value of Grace’s debt.

Grace also maintains a $400 million revolving credit facility. As of March 31, 2020, the available credit under this facility was reduced to $381.3 million by outstanding letters of credit.

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The principal maturities of debt outstanding at March 31, 2020, were as follows:

	(In millions)
2020	$	18.6
2021	717.3
2022	18.7
2023	17.8
2024	313.3
Thereafter	892.6
Total debt	$	1,978.3

Certain of Grace’s assets and liabilities are reported at fair value on a gross basis. ASC 820 “Fair Value Measurements and Disclosures” defines fair value as the value that would be received at the measurement date in the principal or “most advantageous” market. Grace uses principal market data, whenever available, to value assets and liabilities that are required to be reported at fair value.

Grace has identified the following financial assets and liabilities that are subject to the fair value analysis required by ASC 820:     

Fair Value of Debt and Other Financial Instruments    Debt payable is recorded at carrying value. Fair value is determined based on Level 2 inputs, including expected future cash flows (discounted at market interest rates), estimated current market prices and quotes from financial institutions.

At March 31, 2020, and December 31, 2019, the carrying amounts and fair values of Grace’s debt were as follows:

	March 31, 2020								December 31, 2019
(In millions)	Carrying Amount				Fair Value				Carrying Amount				Fair Value
2018 U.S. dollar term loan(1)	$	928.8			$	789.5			$	930.9			$	938.1
Senior notes due 2021(2)	697.7				706.0				697.3				727.1
Senior notes due 2024(2)	297.7				297.7				297.6				329.2
Other borrowings	54.1				54.1				54.6				54.6
Total debt	$	1,978.3			$	1,847.3			$	1,980.4			$	2,049.0

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(1)	Carrying amounts are net of unamortized debt issuance costs and discounts of $6.9 million and $7.2 million as of March 31, 2020, and December 31, 2019, respectively.

(2)	Carrying amounts are net of unamortized debt issuance costs of $2.3 million and $2.3 million as of March 31, 2020, and $2.7 million and $2.4 million as of December 31, 2019, related to the senior notes due 2021 and senior notes due 2024, respectively.

At March 31, 2020, the recorded values of other financial instruments such as cash equivalents and trade receivables and payables approximated their fair values, based on the short-term maturities and floating rate characteristics of these instruments.

Currency Derivatives    Because Grace operates and/or sells to customers in over 60 countries and in over 30 currencies, its results are exposed to fluctuations in currency exchange rates. Grace seeks to minimize exposure to these fluctuations by matching sales with expenditures in the same currencies, but it is not always possible to do so. From time to time, Grace uses financial instruments such as currency forward contracts, options, swaps, or combinations thereof to reduce the risk of certain specific transactions. However, Grace does

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not have a policy of hedging all exposures, because management does not believe that such a level of hedging would be cost-effective. Forward contracts with maturities of not more than 36 months are used and designated as cash flow hedges of forecasted repayments of intercompany loans. The effective portion of gains and losses on these currency hedges is recorded in “accumulated other comprehensive income (loss)” and reclassified into “other (income) expense, net” to offset the remeasurement of the underlying hedged loans. Forward points are excluded from the assessment of effectiveness and amortized to income on a systematic basis.

Grace also enters into foreign currency forward contracts and swaps to hedge a portion of its net outstanding monetary assets and liabilities. These forward contracts and swaps are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in their fair value are recorded in “other (income) expense, net,” in the Consolidated Statements of Operations. These forward contracts and swaps are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities.

The valuation of Grace’s currency exchange rate forward contracts and swaps is determined using an income approach. Inputs used to value currency exchange rate forward contracts and swaps consist of: (1) spot rates, which are quoted by various financial institutions; (2) forward points, which are primarily affected by changes in interest rates; and (3) discount rates used to present value future cash flows, which are based on the London Interbank Offered Rate (LIBOR) curve or overnight indexed swap rates. Total notional amounts for forward contracts and swaps outstanding as of March 31, 2020, were $155.5 million.

Cross-Currency Swap Agreements    Grace uses cross-currency swaps designated as cash flow hedges to manage fluctuations in currency exchange rates and interest rates on variable rate debt. Gains and losses on these cash flow hedges are recorded in “accumulated other comprehensive income (loss)” and reclassified into “other (income) expense, net” and “interest expense and related financing costs” during the hedged period.

In connection with the 2018 U.S. dollar term loan, Grace entered into cross-currency swaps beginning on November 5, 2018, and maturing on March 31, 2023, to synthetically convert $600.0 million of U.S. dollar-denominated floating rate debt into €525.9 million of euro-denominated debt fixed at 1.785%. The valuation of these cross-currency swaps is determined using an income approach, using LIBOR and EURIBOR (Euro Interbank Offered Rate) swap curves, currency basis spreads, and euro/U.S. dollar exchange rates.

Debt and Interest Rate Swap Agreements    Grace uses interest rate swaps designated as cash flow hedges to manage fluctuations in interest rates on variable rate debt. The effective portion of gains and losses on these interest rate cash flow hedges is recorded in “accumulated other comprehensive income (loss)” and reclassified into “interest expense and related financing costs” during the hedged interest period.

In connection with the 2018 U.S. dollar term loan, Grace entered into interest rate swaps beginning on April 3, 2018, and maturing on March 31, 2023, fixing the LIBOR component of the interest on $100.0 million of term debt at 2.775%. The valuation of these interest rate swaps is determined using an income approach, using prevailing market interest rates and discount rates to present value future cash flows based on the forward LIBOR yield curves. Credit risk is also incorporated into derivative valuations.

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The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020, and December 31, 2019:

	Fair Value Measurements at March 31, 2020, Using
(In millions)	Total				Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Currency derivatives	$	14.6			$	—			$	14.6			$	—
Variable-to-fixed cross-currency swaps	11.5				—				11.5				—
Total Assets	$	26.1			$	—			$	26.1			$	—
Liabilities
Currency derivatives	$	1.2			$	—			$	1.2			$	—
Interest rate derivatives	6.3				—				6.3				—
Total Liabilities	$	7.5			$	—			$	7.5			$	—

	Fair Value Measurements at December 31, 2019, Using
(In millions)	Total				Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Currency derivatives	$	6.1			$	—			$	6.1			$	—
Variable-to-fixed cross-currency derivatives	3.4				—				3.4				—
Total Assets	$	9.5			$	—			$	9.5			$	—
Liabilities
Currency derivatives	$	0.9			$	—			$	0.9			$	—
Interest rate derivatives	3.4				—				3.4				—
Total Liabilities	$	4.3			$	—			$	4.3			$	—

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The following tables present the location and fair values of derivative instruments included in the Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019:

March 31, 2020 (In millions)	Asset Derivatives						Liability Derivatives
	Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments under ASC 815:
Currency contracts	Other current assets		$	6.2			Other current liabilities		$	—
Currency contracts	Other assets		8.4				Other liabilities		—
Interest rate contracts	Other current assets		—				Other current liabilities		2.1
Interest rate contracts	Other assets		—				Other liabilities		4.2
Variable-to-fixed cross-currency swaps	Other current assets		4.2				Other current liabilities		—
Variable-to-fixed cross-currency swaps	Other assets		7.3				Other liabilities		—
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts	Other current assets		—				Other current assets		(0.5		)
Currency contracts	Other current assets		—				Other current liabilities		1.7
Total derivatives			$	26.1					$	7.5

December 31, 2019 (In millions)	Asset Derivatives						Liability Derivatives
	Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments under ASC 815:
Currency contracts	Other current assets		$	2.1			Other current assets		$	(3.1	)
Currency contracts	Other assets		4.0				Other liabilities		4.0
Interest rate contracts	Other current assets		—				Other current liabilities		1.0
Interest rate contracts	Other assets		—				Other liabilities		2.4
Variable-to-fixed cross-currency swaps	Other current assets		10.2				Other current liabilities		—
Variable-to-fixed cross-currency swaps	Other liabilities		(6.8		)		Other liabilities		—
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts	Other current assets		—				Other current assets		(0.2		)
Currency contracts	Other current assets		—				Other current liabilities		0.2
Total derivatives			$	9.5					$	4.3

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The following tables present the location and amount of gains and losses on derivative instruments included in the Consolidated Statements of Operations or, when applicable, gains and losses initially recognized in other comprehensive income (loss) (“OCI”) for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31, 2020 (In millions)	Amount of Gain (Loss) Recognized in OCI on Derivatives				Location of Gain (Loss) Reclassified from Accumulated OCI into Income		Amount of Gain (Loss) Reclassified from OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
Interest rate contracts	$	(3.1	)		Interest expense		$	(0.2	)
Currency contracts(1)	2.4				Other expense		1.4
Variable-to-fixed cross-currency swaps	3.4				Interest expense		2.5
Variable-to-fixed cross-currency swaps	7.6				Other expense		7.6
Total derivatives	$	10.3					$	11.3
					Location of Gain (Loss) Recognized in Income on Derivatives		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts					Other expense		$	(1.9	)

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(1)	Amount of gain (loss) recognized in OCI includes $1.1 million excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.

Three Months Ended March 31, 2019 (In millions)	Amount of Gain (Loss) Recognized in OCI on Derivatives				Location of Gain (Loss) Reclassified from Accumulated OCI into Income		Amount of Gain (Loss) Reclassified from OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
Interest rate contracts	$	(1.1	)		Interest expense		$	—
Currency contracts(1)	1.6				Other expense		1.3
Variable-to-fixed cross-currency swaps	0.1				Interest expense		3.6
Variable-to-fixed cross-currency swaps	8.4				Other expense		8.4
Total derivatives	$	9.0					$	13.3
					Location of Gain (Loss) Recognized in Income on Derivatives		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts					Other expense		$	(0.1	)

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(1)	Amount of gain (loss) recognized in OCI includes $0.0 million excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.

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The following table presents the total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are reported.

	Three Months Ended March 31,
	2020								2019
(In millions)	Interest expense				Other income (expense)				Interest expense				Other income (expense)
Total amounts of income and expense line items in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	(18.3	)		$	8.8			$	(20.0	)		$	2.2
Gain (loss) on cash flow hedging relationships in ASC 815
Interest rate contracts
Gain (loss) reclassified from accumulated OCI into income	$	(0.2	)		$	—			$	—			$	—
Variable-to-fixed cross-currency swaps
Gain (loss) reclassified from accumulated OCI into income	2.5				7.6				3.6				8.4
Currency contracts
Gain (loss) reclassified from accumulated OCI into income	—				1.4				—				1.3
Amount excluded from effectiveness testing recognized in earnings based on amortization approach (included in above)	—				0.7				—				0.7

Net Investment Hedges    Grace uses cross-currency swaps as derivative hedging instruments in certain net investment hedges of its non-U.S. subsidiaries. The gains and losses attributable to these net investment hedges, adjusted for the impact of excluded components, are recorded net of tax to “currency translation adjustments” within “accumulated other comprehensive income (loss)” to offset the change in the carrying value of the net investment being hedged. Recognition in earnings of amounts previously recorded to “currency translation adjustments” is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. Changes in the fair value of the hedging instrument related to time value, which are excluded from the assessment of hedge effectiveness, are recorded directly to interest expense on a systematic basis. These gains were $0.9 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, the notional amount of €170.0 million of Grace’s cross-currency swaps was designated as a hedging instrument of its net investment in its European subsidiaries.

The following table presents the amount of gains and losses on derivative instruments designated as net investment hedges, recorded to “currency translation adjustments” within “accumulated other comprehensive income (loss)” for the three months ended March 31, 2020 and 2019. There were no reclassifications of the effective portion of net investment hedges out of OCI and into earnings for the periods presented.

	Three Months Ended March 31,
(In millions)	2020				2019
Derivatives in ASC 815 net investment hedging relationships:
Cross-currency swap	$	6.1			$	3.8

Credit Risk    Grace is exposed to credit risk in its trade accounts receivable. Grace’s credit evaluation policies mitigate credit risk exposures, and it has a history of minimal credit losses. Grace does not generally require collateral for its trade accounts receivable, but may require a bank letter of credit in certain instances, particularly when selling to customers in cash-restricted countries.

Grace may also be exposed to credit risk in its derivatives contracts. Grace monitors counterparty credit risk and currently does not anticipate nonperformance by counterparties to its derivatives. Grace’s derivative contracts are with internationally recognized commercial financial institutions.

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Grace’s effective tax rates for the three months ended March 31, 2020 and 2019, were 27.2% and 30.7%, respectively. For both periods, Grace’s effective tax rate was higher than the U.S. federal statutory rate primarily due to income taxed in jurisdictions with higher statutory tax rates than the U.S.

As of March 31, 2020, Grace had $302.0 million in federal tax credit carryforwards before unrecognized tax benefits.

Pension Plans    The following table presents the funded status of Grace’s pension plans:

(In millions)	March 31, 2020				December 31, 2019
Overfunded defined benefit pension plans	$	8.9			$	8.5
Underfunded defined benefit pension plans	(84.5		)		(85.2		)
Unfunded defined benefit pension plans	(430.3		)		(434.6		)
Total underfunded and unfunded defined benefit pension plans	(514.8		)		(519.8		)
Pension liabilities included in other current liabilities	(14.7		)		(14.8		)
Net funded status	$	(520.6	)		$	(526.1	)

Fully-funded plans include several advance-funded plans where the fair value of the plan assets exceeds the projected benefit obligation (“PBO”). Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded.

The following table presents the components of net periodic benefit cost (income).

	Three Months Ended March 31,
	2020								2019
(In millions)	U.S.				Non-U.S.				U.S.				Non-U.S.
Service cost	$	4.7			$	2.7			$	3.9			$	2.2
Interest cost	7.6				1.0				9.6				1.3
Expected return on plan assets	(12.0		)		(0.3		)		(12.0		)		(0.2		)
Amortization of prior service credit	(0.2		)		—				(0.2		)		—
Net periodic benefit cost (income)	$	0.1			$	3.4			$	1.3			$	3.3

Plan Contributions and Funding    Grace intends to satisfy its funding obligations under the U.S. qualified pension plans and to comply with all of the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). For ERISA purposes, funded status is calculated on a different basis than under U.S. GAAP.

Grace intends to fund non-U.S. pension plans based on applicable legal requirements and actuarial recommendations.

Defined Contribution Retirement Plans    Grace sponsors a defined contribution retirement plan for its employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, Grace contributes an amount equal to 100% of employee contributions, up to 6% of an individual employee’s salary or wages. Grace’s cost related to this benefit plan for the three months ended March 31, 2020 and 2019, was $3.3 million.

U.S. salaried employees and certain U.S. hourly employees hired on or after January 1, 2017, and employees in Germany hired on or after January 1, 2016, participate in enhanced defined contribution plans instead of defined benefit pension plans. For the U.S. plan, Grace contributes 4% of an individual employee’s

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salary or wages. For the German plan, contributions vary based on the individual employee’s contributions and other factors. Grace’s cost related to these enhanced defined contribution plans established in the United States and Germany for the three months ended March 31, 2020, was $1.2 million compared with $0.8 million for the prior-year quarter.

(In millions)	March 31, 2020				December 31, 2019
Other Current Assets
Plant under construction—unconsolidated affiliate (see Note 15)	$	184.7			$	173.9
Non-trade accounts receivable	21.6				24.1
Fair value of currency, interest rate, and commodity contracts (see Note 4)	10.9				15.6
Income taxes receivable	9.5				4.2
Other current assets	18.4				17.3
	$	245.1			$	235.1

(In millions)	March 31, 2020				December 31, 2019
Other Current Liabilities
Liability to unconsolidated affiliate for plant under construction (see Note 15)	$	184.7			$	173.9
Accrued compensation	35.3				53.6
Deferred revenue (see Note 13)	34.8				35.0
Accrued interest (see Note 3)	26.4				13.3
Environmental contingencies (see Note 8)	18.7				17.8
Pension liabilities (see Note 6)	14.7				14.8
Income taxes payable (see Note 5)	11.5				8.6
Operating lease liabilities	8.9				9.3
Liability for dam spillway replacement (see Note 8)	4.4				4.7
Other accrued liabilities	75.2				88.7
	$	414.6			$	419.7

Accrued compensation includes salaries and wages as well as estimated current amounts due under the annual and long-term incentive programs.

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(In millions)	March 31, 2020				December 31, 2019
Other Liabilities
Environmental contingencies (see Note 8)	$	94.1			$	97.5
Liability for dam spillway replacement (see Note 8)	61.0				61.7
Deferred revenue (see Note 13)	30.0				29.5
Operating lease liabilities	25.4				26.2
Legacy product liability (see Note 8)	24.0				24.0
Retained obligations of divested businesses	11.9				12.7
Asset retirement obligation	9.5				9.4
Deferred income taxes	7.5				7.5
Fair value of currency and interest rate contracts (see Note 4)	4.2				13.2
Unrecognized tax benefits	4.0				4.1
Other noncurrent liabilities	22.2				22.4
	$	293.8			$	308.2

Legacy Matters

Over the years, Grace operated numerous types of businesses that are no longer part of its ongoing operations. As Grace divested or otherwise ceased operating these businesses, it retained certain liabilities and obligations, which Grace refers to as legacy liabilities. These liabilities include product, environmental and other liabilities. Although the outcome of each of the matters discussed below cannot be predicted with certainty, Grace has assessed its risk and has recorded estimated liabilities as required under U.S. GAAP.

Legacy Product Liabilities    Grace emerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014 (the “Effective Date”). Under its plan of reorganization, all pending and future asbestos-related claims are channeled for resolution to either a personal injury trust (the “PI Trust”) or a property damage trust (the “PD Trust”). The trusts are the sole recourse for holders of asbestos-related claims. The channeling injunctions issued by the bankruptcy court prohibit holders of asbestos-related claims from asserting such claims directly against Grace.

Grace has satisfied all of its financial obligations to the PI Trust. Grace has contingent financial obligations remaining to the PD Trust. With respect to property damage claims related to Grace’s former Zonolite attic insulation product (“ZAI PD Claims”), the PD Trust was funded with $49.4 million (net of $15 million of attorneys’ fees) to pay claims and expenses. Grace is also obligated to make up to 10 contingent deferred payments of $8 million per year to the PD Trust during the 20-year period beginning on the fifth anniversary of the Effective Date, with each such payment due only if the assets of the PD Trust in respect of ZAI PD Claims fall below $10 million during the preceding year. As of March 31, 2020, the PD Trust has paid out approximately $32 million in ZAI PD Claims and expenses, leaving a balance of approximately $20 million, including the benefit of net investment gains.

Due to the limited claims history, the unique nature of this product, and the uncertainty of future claims patterns, an actuarial analysis was completed to estimate the range of possible future payments. The analysis was conducted by a third-party actuarial firm directed by Grace and using historical claims data provided by the ZAI trustee. Certain key assumptions employed in the analysis were (1) projections of the future number of filed claims, assuming a percentage increase in claims during earlier years and annual decreases in later years; (2) application of historical percentages of claims closed with indemnity payment compared to total closed claims, applied on a regional basis; and (3) application of the average claim payout, which reflects the average indemnity cost per claim closing with payment. As a result of the analysis and taking into account the relative uncertainty of future claims activity, Grace determined that contingent funding obligations beyond the next five years are not

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reasonably estimable. Grace estimates that the reasonable range of payments over the next five years is expected to be between $16 million and $24 million and projects that the first payment could be due in 2022. In the 2019 fourth quarter, Grace recorded a reserve in the amount of $24.0 million related to probable future obligations to fund the PD Trust for ZAI PD Claims. Grace’s maximum financial obligation over the next 19 years is $80.0 million, and no single year’s obligation can exceed $8.0 million.

With respect to other asbestos property damage claims (“Other PD Claims”), claims unresolved as of the Effective Date are to be litigated in the bankruptcy court and any future claims are to be litigated in a federal district court, in each case pursuant to procedures approved by the bankruptcy court. To the extent any such Other PD Claims are determined to be allowed claims, they are to be paid in cash by the PD Trust. Grace is obligated to make a payment to the PD Trust every six months in the amount of any Other PD Claims allowed during the preceding six months plus interest (if applicable) and the amount of PD Trust expenses for the preceding six months (the “PD Obligation”). Grace has not paid any Other PD Claims since emergence. Annual expenses have been approximately $0.2 million per year. The aggregate amount to be paid under the PD Obligation is not capped, and Grace may be obligated to make additional payments to the PD Trust in respect of the PD Obligation. Grace has accrued for those unresolved Other PD Claims that it believes are probable and estimable. Grace has not accrued for other unresolved or unasserted Other PD Claims as it does not believe that payment is probable.

All payments to the PD Trust required after the Effective Date are secured by the Company’s obligation to issue 77,372,257 shares of Company common stock to the PD Trust in the event of default, subject to customary anti-dilution provisions.

This summary of the commitments and contingencies related to the Chapter 11 proceeding does not purport to be complete and is qualified in its entirety by reference to the plan of reorganization and the exhibits and documents related thereto, which have been filed with the Securities and Exchange Commission (the “SEC”) and are readily available on the internet at www.sec.gov.

Legacy Environmental Liabilities    Grace is subject to loss contingencies resulting from extensive and evolving federal, state, local and foreign environmental laws and regulations relating to its manufacturing operations. Grace has procedures in place to minimize such contingencies; nevertheless, it has liabilities associated with past operations and additional claims may arise in the future, which may be material. To address its legacy liabilities, Grace accrues for anticipated costs of response efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably estimated. These accruals do not take into account any discounting for the time value of money.

Grace’s environmental liabilities are reassessed regularly and adjusted when circumstances become better defined or response efforts and their costs can be better estimated, typically as a matter moves through the life-cycle of environmental investigation and remediation. These liabilities are evaluated based on currently available information relating to the nature and extent of contamination, risk assessments, feasibility of response actions, and apportionment amongst other potentially responsible parties, all evaluated in light of prior experience.

At March 31, 2020, Grace’s estimated liability for legacy environmental response costs totaled $112.8 million, compared with $115.3 million at December 31, 2019, and was included in “other current liabilities” and “other liabilities” in the Consolidated Balance Sheets. These amounts are based on agreements in place or on Grace’s estimate of costs where no formal remediation plan exists, yet there is sufficient information to estimate response costs.

Vermiculite-Related Matters

Grace purchased a vermiculite mine in Libby, Montana, in 1963 and operated it until 1990. Vermiculite concentrate from the Libby mine was used in the manufacture of attic insulation and other products. Some of the vermiculite ore contained naturally occurring asbestos.

Grace is engaged with the U.S. Environmental Protection Agency (the “EPA”) and other federal, state, and local governmental agencies in a remedial investigation and feasibility study (“RI/FS”) of the Libby mine and the

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surrounding area, known as Operable Unit 3 (“OU3”). The RI/FS will determine the specific areas within OU3 requiring remediation and will identify possible remedial action alternatives. Possible remedial actions within OU3 are wide-ranging, from institutional controls such as land use restrictions, to more active measures involving soil removal, containment projects, or other protective measures.

As part of the RI/FS process, Grace contracted an engineering and consulting firm to develop a range of possible remedial alternatives and associated cost estimates for OU3. Based on this work, Grace recorded a pre-tax charge of $70.0 million in the 2018 third quarter for the estimated costs of remediation of OU3. Grace believes that this amount should provide for a protective remedy meeting the statutory requirements of the Comprehensive Environmental Response, Compensation, and Liability Act.

The estimated costs of remediation are preliminary and consist of several components, each of which may vary significantly as the remedial alternatives are further developed. It is reasonably possible that the ultimate costs of remediation could range between $30 million and $170 million. Grace is working closely with the EPA, and the ultimate remedy will be determined by the EPA after the RI/FS is finalized. Such remedy will be set forth in a Record of Decision (“ROD”) that is currently expected to be issued by the EPA no earlier than 2022. Costs associated with the more active remedial alternatives would be expected to be incurred over a decade or more. Grace will reevaluate its estimated liability as remedial alternatives evolve based on further work by the engineering and consulting firm and discussions with the EPA as the RI/FS process moves toward a ROD. Technical memoranda expected prior to the issuance of the ROD may provide insight into the likely remedial alternatives ultimately selected, allowing Grace to update its cost of remediation estimate. Depending on the remedial alternatives that the EPA selects in the ROD, the total cost of remediating OU3 may exceed Grace’s current estimate by material amounts.

Grace has cooperated with the EPA in investigating and remediating a number of formerly owned or operated sites that processed Libby vermiculite into finished products. Grace has recorded a liability for remaining expected EPA response and oversight costs, and for potential future site remediation, where a review has indicated that liability is probable and the cost is estimable. The EPA may commence additional investigations in the future at other sites that processed Libby vermiculite. Liability for unaccrued additional investigation and remediation costs is probable but not yet estimable, and could be material.

Grace’s estimated liability for response costs that are currently estimable for OU3 and vermiculite processing sites outside of Libby at March 31, 2020, and December 31, 2019, totaled $73.9 million and $76.0 million, respectively. It is possible that Grace’s ultimate liability for these vermiculite-related matters will exceed current estimates by material amounts.

Non-Vermiculite-Related Environmental Matters

At March 31, 2020, and December 31, 2019, Grace’s estimated legacy environmental liability for response costs at sites not related to its former vermiculite mining and processing activities totaled $38.9 million and $39.3 million, respectively. This liability relates to Grace’s former businesses or operations, including its share of liability at off-site disposal facilities. Grace’s estimated liability is based upon regulatory requirements and environmental conditions at each site. As Grace receives new information, its estimated liability may change materially.

Other Legacy Liabilities    In April 2019, the Montana Department of Natural Resources and Conservation issued a five-year operating permit for a dam at the Libby mine site. Grace constructed the dam in 1971 to prevent vermiculite ore tailings from moving into nearby creeks and rivers. The permit requires Grace to complete construction of a new spillway before the permit is further renewed in five years. Grace contracted a third-party engineering and consulting firm to develop a range of cost estimates for the project. Based on this work, Grace recorded pre-tax charges of $68.0 million in 2019 for the estimated costs of the project. These costs are preliminary and may vary significantly as the project progresses. Based on the consultants’ estimates, Grace believes it is reasonably possible that the ultimate costs of this project could range between $50 million and $100 million. Construction of the new spillway is expected to take three to four years.

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Commercial and Financial Commitments and Contingencies

Purchase Commitments    Grace uses purchase commitments to ensure supply and to minimize the volatility of major components of direct manufacturing costs including natural gas, certain metals, rare earths, and other materials. Such commitments are for quantities that Grace fully expects to use in its normal operations.

Guarantees and Indemnification Obligations    Grace is a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of:

•	Product warranties with respect to certain products sold to customers in the ordinary course of business. These warranties typically provide that products will conform to specifications. Grace accrues a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale.

•	Performance guarantees offered to customers under certain licensing arrangements. Grace has not established a liability for these arrangements based on past performance.

•	Licenses of intellectual property by Grace to third parties in which Grace has agreed to indemnify the licensee against third party infringement claims.

•	Contracts providing for the sale or spin-off of a former business unit or product line in which Grace has agreed to indemnify the buyer or resulting entity against certain liabilities related to activities prior to the closing of the transaction, including environmental, tax, and employee liabilities.

•	Indemnification obligations of Grace as a tenant of real property leases; and guarantees of real property lease obligations of third parties, typically arising out of (a) leases entered into by former subsidiaries of Grace, or (b) the assignment or sublease of a lease by Grace to a third party.

Financial Assurances    Financial assurances have been established for a variety of purposes, including insurance and environmental matters, trade-related commitments and other matters. As of March 31, 2020, Grace had gross financial assurances issued and outstanding of $138.1 million, composed of $68.9 million of surety bonds issued by various insurance companies and $69.2 million of standby letters of credit and other financial assurances issued by various banks.

Restructuring Expenses    Restructuring costs in in the three months ended March 31, 2020 and 2019, primarily related to severance costs pertaining to sales force reorganization. These costs are included in “restructuring and repositioning expenses” in the Consolidated Statements of Operations, and are not included in segment operating income.

The following table presents restructuring expenses by reportable segment for the three months ended March 31, 2020 and 2019.

	Three Months Ended March 31,
(In millions)	2020				2019
Catalysts Technologies	$	—			$	0.2
Materials Technologies	0.2				1.0
Corporate	—				(0.1		)
Total restructuring expenses	$	0.2			$	1.1

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The following table presents components of the change in the restructuring liability from December 31, 2019, to March 31, 2020.

	(In millions)
Balance, December 31, 2019	$	3.8
Accruals for severance and other costs	0.2
Payments	(1.0		)
Balance, March 31, 2020	$	3.0

Substantially all costs related to the restructuring programs are expected to be paid by December 31, 2021, but could be paid earlier subject to negotiations around certain plant exit costs.

Repositioning Expenses    Repositioning expenses for the three months ended March 31, 2020 and 2019, were $2.5 million and $1.2 million, respectively. These expenses primarily related to a multi-year program to transform manufacturing and business processes to extend Grace’s competitive advantages and improve its cost position. Substantially all of these expenses have been or are expected to be settled in cash.

Components of other (income) expense, net are as follows:

	Three Months Ended March 31,
(In millions)	2020				2019
Business interruption insurance recoveries	$	(8.0	)		$	—
Defined benefit pension (income) expense other than service cost	(3.9		)		(1.5		)
Third-party acquisition-related costs	1.5				0.3
Currency transaction effects	(0.9		)		(0.2		)
Net (gain) loss on sales of investments and disposals of assets	0.5				0.5
Other miscellaneous (income) expense	2.0				(1.3		)
Total other (income) expense, net	$	(8.8	)		$	(2.2	)

In July 2019, a North American FCC catalysts customer filed for bankruptcy protection after announcing it would not resume refinery operations following a fire in its refinery. Grace received $8.0 million in 2020, as well as $8.0 million in the 2019 fourth quarter, from its third-party insurer under its business interruption insurance policy for lost profits.

The following tables present the pre-tax, tax, and after-tax components of Grace’s other comprehensive income (loss) for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31, 2020 (In millions)	Pre-Tax Amount				Tax Benefit/ (Expense)				After-Tax Amount
Amortization of net prior service credit included in net periodic benefit cost and other costs (credits), net	$	(0.1	)		$	—			$	(0.1	)
Currency translation adjustments	3.9				(1.4		)		2.5
Gain (loss) from hedging activities	(1.4		)		0.4				(1.0		)
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders	$	2.4			$	(1.0	)		$	1.4

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Three Months Ended March 31, 2019 (In millions)	Pre-Tax Amount				Tax Benefit/ (Expense)				After-Tax Amount
Amortization of net prior service credit included in net periodic benefit cost and other costs (credits), net	$	(0.1	)		$	—			$	(0.1	)
Currency translation adjustments	12.9				(1.2		)		11.7
Gain (loss) from hedging activities	(4.3		)		1.3				(3.0		)
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders	$	8.5			$	0.1			$	8.6

The following tables present the changes in accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31, 2020 (In millions)	Defined Benefit Pension and Other Postretirement Plans				Currency Translation Adjustments				Gain (Loss) from Hedging Activities				Total
Beginning balance	$	(0.5	)		$	92.7			$	(13.4	)		$	78.8
Other comprehensive income (loss) before reclassifications	—				2.5				7.2				9.7
Amounts reclassified from accumulated other comprehensive income (loss)	(0.1		)		—				(8.2		)		(8.3		)
Net current-period other comprehensive income (loss)	(0.1		)		2.5				(1.0		)		1.4
Ending balance	$	(0.6	)		$	95.2			$	(14.4	)		$	80.2

Three Months Ended March 31, 2019 (In millions)	Defined Benefit Pension and Other Postretirement Plans				Currency Translation Adjustments				Gain (Loss) from Hedging Activities				Total
Beginning balance	$	0.2			$	76.2			$	(8.5	)		$	67.9
Other comprehensive income (loss) before reclassifications	—				11.7				6.6				18.3
Amounts reclassified from accumulated other comprehensive income (loss)	(0.1		)		—				(9.6		)		(9.7		)
Net current-period other comprehensive income (loss)	(0.1		)		11.7				(3.0		)		8.6
Ending balance	$	0.1			$	87.9			$	(11.5	)		$	76.5

Grace is a global enterprise operating in many countries with local currency generally deemed to be the functional currency for accounting purposes. The currency translation amount represents the adjustments necessary to translate the balance sheets valued in local currencies to the U.S. dollar as of the end of each period presented, and to translate revenues and expenses at average exchange rates for each period presented.

See Note 4 for a discussion of hedging activities. See Note 6 for a discussion of pension plans.

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The following table shows a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share.

	Three Months Ended March 31,
(In millions, except per share amounts)	2020				2019
Numerators
Net income (loss) attributable to W. R. Grace & Co. shareholders	$	42.0			$	24.7
Denominators
Weighted average common shares—basic calculation	66.5				66.8
Dilutive effect of employee stock options	—				0.1
Weighted average common shares—diluted calculation	66.5				66.9
Basic earnings per share	$	0.63			$	0.37
Diluted earnings per share	$	0.63			$	0.37

There were 1.7 million anti-dilutive options outstanding for the three months ended March 31, 2020, compared with 0.9 million for the prior-year quarter.

On February 8, 2017, the Company announced that its Board of Directors authorized a share repurchase program of up to $250 million. On February 28, 2020, Grace announced that its Board of Directors had increased its share repurchase authorization to $250 million, including approximately $83 million remaining under the previously announced program. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the Company’s shares, strategic priorities for the deployment of capital, and general market and economic conditions. During the three months ended March 31, 2020 and 2019, the Company repurchased 673,807 shares and 69,860 shares of Company common stock for $40.4 million and $4.8 million, respectively, pursuant to the terms of the share repurchase program. As of March 31, 2020, $235.0 million remained under the current authorization. Grace temporarily suspended its share repurchase program in early March in light of the COVID-19 pandemic.

Grace generates revenues from customer arrangements primarily by manufacturing and delivering specialty chemicals and specialty materials, and by licensing technology through its two reportable segments. See Note 14 for additional information about Grace’s reportable segments.

Disaggregation of Revenue    The following tables present Grace's revenues by geography and product group, within its respective reportable segments, for the three months ended March 31, 2020 and 2019.

Three Months Ended March 31, 2020 (In millions)	North America				Europe Middle East Africa (EMEA)				Asia Pacific				Latin America				Total
Refining Catalysts	$	55.7			$	75.9			$	31.5			$	5.5			$	168.6
Polyolefin and Chemical Catalysts	35.3				52.7				46.6				4.8				139.4
Total Catalysts Technologies	91.0				128.6				78.1				10.3				308.0
Consumer/Pharma	10.3				13.6				4.8				4.8				33.5
Coatings	7.2				18.4				8.6				2.4				36.6
Chemical process	8.2				19.0				8.7				1.9				37.8
Other	1.4				4.1				0.1				—				5.6
Total Materials Technologies	27.1				55.1				22.2				9.1				113.5
Total Grace	$	118.1			$	183.7			$	100.3			$	19.4			$	421.5

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Three Months Ended March 31, 2019 (In millions)	North America				EMEA				Asia Pacific				Latin America				Total
Refining Catalysts	$	72.2			$	66.6			$	35.7			$	7.3			$	181.8
Polyolefin and Chemical Catalysts	45.8				64.9				52.4				4.8				167.9
Total Catalysts Technologies	118.0				131.5				88.1				12.1				349.7
Consumer/Pharma	9.3				19.0				4.0				4.7				37.0
Coatings	7.0				19.7				9.4				2.1				38.2
Chemical process	9.0				19.9				7.7				2.3				38.9
Other	1.2				4.5				—				—				5.7
Total Materials Technologies	26.5				63.1				21.1				9.1				119.8
Total Grace	$	144.5			$	194.6			$	109.2			$	21.2			$	469.5

Contract Balances    Grace invoices customers for product sales once performance obligations have been satisfied, generally at the point of delivery, at which point payment becomes unconditional. Accordingly, Grace's product sales contracts generally do not give rise to material contract assets or liabilities under ASC 606; however, from time to time certain customers may pay in advance, which results in a contract liability. In the technology licensing business, Grace invoices licensees based on milestones achieved but has obligations to provide services in future periods, which results in contract liabilities.

The following table presents Grace’s deferred revenue balances as of March 31, 2020, and December 31, 2019:

(In millions)	March 31, 2020				December 31, 2019
Current	$	34.8			$	35.0
Noncurrent	30.0				29.5
Total	$	64.8			$	64.5

Grace records deferred revenues when cash payments are received or due in advance of performance. The change in deferred revenue reflects cash payments from customers received or due in advance of satisfying performance obligations, offset by $8.4 million of revenue recognized for the three months ended March 31, 2020, that was included in the deferred revenue balance as of December 31, 2019.

The noncurrent portion of deferred revenue will be recognized as performance obligations under the technology licensing agreements are satisfied, which is expected to be over the next five years.

Remaining performance obligations represent the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied). The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $128 million as of March 31, 2020, and includes certain amounts reported as deferred revenue above. In accordance with the available practical expedient, Grace does not disclose information about remaining performance obligations that have original expected durations of one year or less, which generally relate to customer prepayments on product sales and are generally satisfied in less than one year. Grace expects to recognize revenue related to remaining performance obligations over several years, as follows:

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Year		Approximate percentage of revenue related to remaining performance obligations recognized
2020		20	%
2021		29	%
2022		22	%
2023		15	%
Thereafter through 2027		14	%

For the three months ended March 31, 2020 and 2019, revenue recognized from performance obligations related to prior periods was not material. Grace has not capitalized any costs to obtain or fulfill contracts with customers under ASC 606. No material impairment losses have been recognized on any receivables or contract assets arising from contracts with customers.

Grace is a global producer of specialty chemicals and specialty materials. Grace’s two reportable business segments are Grace Catalysts Technologies and Grace Materials Technologies. Grace Catalysts Technologies includes catalysts and related products and technologies used in petrochemical, refining, and other chemical manufacturing applications. Advanced Refining Technologies LLC (“ART”), Grace’s joint venture with Chevron Products Company (“Chevron”), a division of Chevron U.S.A. Inc., is managed in this segment. (See Note 15.) Grace Catalysts Technologies comprises two operating segments, Grace Refining Technologies and Grace Specialty Catalysts, which are aggregated into one reportable segment based upon similar economic characteristics, the nature of the products and production processes, type and class of customer, and channels of distribution. Grace Materials Technologies includes specialty materials, including silica-based and silica-alumina-based materials, used in consumer/pharma, coatings, and chemical process applications. The table below presents information related to Grace’s reportable segments. Only those corporate expenses directly related to the reportable segments are allocated for reporting purposes. All remaining corporate items are reported separately and labeled as such.

Grace excludes defined benefit pension expense from the calculation of segment operating income. Grace believes that the exclusion of defined benefit pension expense provides a better indicator of its reportable segment performance as defined benefit pension expense is not managed at a reportable segment level.

Grace defines Adjusted EBIT to be 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 or exits of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; the effects of these items on equity in earnings of unconsolidated affiliate; and certain other items that are not representative of underlying trends.

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Reportable Segment Data

	Three Months Ended March 31,
(In millions)	2020				2019
Net Sales
Catalysts Technologies	$	308.0			$	349.7
Materials Technologies	113.5				119.8
Total	$	421.5			$	469.5
Adjusted EBIT
Catalysts Technologies segment operating income	$	82.0			$	101.7
Materials Technologies segment operating income	19.0				24.0
Corporate costs	(15.6		)		(16.2		)
Certain pension costs	(3.1		)		(4.8		)
Total	$	82.3			$	104.7

Corporate costs include functional costs and other costs such as professional fees, incentive compensation, and insurance premiums. 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.

Reconciliation of Reportable Segment Data to Financial Statements    Grace Adjusted EBIT for the three months ended March 31, 2020 and 2019, is reconciled below to “income (loss) before income taxes” presented in the accompanying Consolidated Statements of Operations.

	Three Months Ended March 31,
(In millions)	2020				2019
Grace Adjusted EBIT	$	82.3			$	104.7
Costs related to legacy matters	(2.7		)		(46.9		)
Restructuring and repositioning expenses	(2.7		)		(2.3		)
Third-party acquisition-related costs	(1.5		)		(0.3		)
Taxes and interest included in equity in earnings of unconsolidated affiliate	—				(0.3		)
Interest expense, net	(17.7		)		(19.3		)
Net income (loss) attributable to noncontrolling interests	0.1				(0.1		)
Income (loss) before income taxes	$	57.8			$	35.5

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Geographic Area Data    The table below presents information related to the geographic areas in which Grace operates. Sales are attributed to geographic areas based on the location to which the product is transported.

	Three Months Ended March 31,
(In millions)	2020				2019
Net Sales
United States	$	106.7			$	131.6
Canada	11.4				12.9
Total North America	118.1				144.5
Europe Middle East Africa	183.7				194.6
Asia Pacific	100.3				109.2
Latin America	19.4				21.2
Total	$	421.5			$	469.5

Unconsolidated Affiliate    Grace accounts for its 50% ownership interest in ART, its joint venture with Chevron, using the equity method of accounting. Grace’s investment in ART amounted to $182.6 million and $181.9 million as of March 31, 2020, and December 31, 2019, respectively. ART is a private, limited liability company, taxed as a partnership, and accordingly does not have a quoted market price available.

The table below presents the components of Grace’s “equity in earnings of unconsolidated affiliate” in the Consolidated Statements of Operations.

	Three Months Ended March 31,
(In millions)	2020				2019
Operating income	$	1.6			$	3.9
Depreciation and amortization	(0.4		)		(0.1		)
Interest expense and income taxes	—				0.3
Equity in earnings of unconsolidated affiliate	$	1.2			$	4.1

The table below presents summary financial data related to ART’s balance sheet and results of operations.

(In millions)	March 31, 2020				December 31, 2019
Summary Balance Sheet information:
Current assets	$	281.8			$	300.7
Noncurrent assets	249.5				237.8
Total assets	$	531.3			$	538.5
Current liabilities	$	168.5			$	177.1
Noncurrent liabilities	0.3				0.3
Total liabilities	$	168.8			$	177.4

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	Three Months Ended March 31,
(In millions)	2020				2019
Summary Statement of Operations information:
Net sales	$	75.3			$	111.5
Costs and expenses applicable to net sales	68.0				97.3
Income before income taxes	2.9				9.7
Net income	2.5				9.2

Grace and ART transact business on a regular basis and maintain several agreements in order to operate the joint venture. These agreements and the resulting transactions are treated as related party activities with an unconsolidated affiliate. Product manufactured by Grace for ART is accounted for on a net basis, with a mark-up, which reduces “cost of goods sold” in the Consolidated Statements of Operations. Grace also receives reimbursement from ART for fixed costs; research and development; selling, general and administrative services; and depreciation. Grace records reimbursements against the respective line items on Grace’s Consolidated Statements of Operations. The table below presents summary financial data related to transactions between Grace and ART.

	Three Months Ended March 31,
(In millions)	2020				2019
Product manufactured for ART	$	71.1			$	66.8
Mark-up on product manufactured for ART included as a reduction of Grace’s cost of goods sold	1.4				1.3
Charges for fixed costs; research and development; selling, general and administrative services; and depreciation to ART	14.1				12.8

The table below presents balances in Grace’s Consolidated Financial Statements related to ART.

(in millions)	March 31, 2020				December 31, 2019
Accounts receivable	$	19.5			$	17.5
Current asset	184.7				173.9
Accounts payable	27.5				37.7
Debt payable within one year	9.8				9.9
Debt payable after one year	37.2				37.5
Current liability	184.7				173.9

The current asset and current liability in the table above represent spending to date related to a residue hydroprocessing catalyst production plant that is under construction in Lake Charles, Louisiana. Grace manages the design and construction of the plant, and the asset will continue to be included in “other current assets” in Grace’s Consolidated Balance Sheets until construction is completed. Grace has likewise recorded a liability for the transfer of the asset to ART upon completion, included in “other current liabilities” in the Consolidated Balance Sheets.

Grace and ART maintain an agreement whereby ART loans Grace funds for maintenance capital expenditures at manufacturing facilities used to produce catalysts for ART. Grace makes principal and interest payments on the loans on a monthly basis. These unsecured loans have repayment terms of up to eight years, unless earlier repayment is demanded by ART. The loans bear interest at the three-month LIBOR plus 1.25%.

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Grace and Chevron provide lines of credit in the amount of $15.0 million each at a commitment fee of 0.1% of the credit amount. These agreements have been approved by the ART Executive Committee for renewal until February 2021. No amounts were outstanding at March 31, 2020, or December 31, 2019.

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•	Net sales decreased 10.2% to $421.5 million, including an estimated 4%, or $20 million, impact related to COVID-19.

•	Net income attributable to Grace shareholders increased 70.0% to $42.0 million.

•	Adjusted EBIT1 decreased 21.4% to $82.3 million.

•	Diluted earnings per share increased 70.3% to $0.63 per diluted share.

•	Adjusted EPS1 decreased 23.7% to $0.71 per diluted share, down $0.22, including an estimated $0.10 net impact related to COVID-19.

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Fluid catalytic cracking catalysts, also called FCC catalysts, that help to “crack” the hydrocarbon chains in distilled crude oil to produce transportation fuels, such as gasoline and diesel fuels, and feeds for production of petrochemicals; 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.

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Hydroprocessing catalysts (HPC), most of which are marketed through our Advanced Refining Technologies LLC (“ART”) joint venture with Chevron Products Company (“Chevron”), a division of Chevron U.S.A. Inc., that are used in process reactors to upgrade heavy oils into lighter, more useful products, enabling less expensive feedstock usage in the petroleum refining process, and to produce products that meet more stringent environmental regulations. These catalysts and solutions allow customers to improve their profitability in the production of cleaner petroleum-based fuels to meet regulatory and fuel quality standards. (We hold a 50% economic interest in ART, which is not consolidated in our financial statements so ART’s sales are excluded from our sales.)

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Polyolefin catalysts and catalyst supports, also called specialty catalysts (SC), for the production of polyethylene (PE) and polypropylene (PP) thermoplastic resins, which can be customized to enhance the performance of a wide range of industrial and consumer end-use applications including high pressure pipe, geomembranes, food packaging, automotive parts, medical devices, and textiles. Non-phthalate catalysts allow customers to produce phthalate-free PP products. Products also include catalysts that allow for the lightweighting of automobiles by replacing steel parts with PP while meeting demanding performance standards of automakers.

•	Gas-phase polypropylene process technology, which provides our licensees with a proven, cost-effective, flexible, and reliable capability to manufacture polypropylene products having a wide

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•	Chemical catalysts, which include hydrogenation and dehydrogenation catalyst products. These catalysts can be customized for use in a variety of petrochemical chain conversions as well as fine chemical production.

•	Consumer/Pharma, specialized materials used as additives and intermediates for pharmaceuticals, nutraceuticals, beer, toothpaste, food and cosmetic segments.

•	Coatings, functional additives for wood and architectural coatings that provide surface effects and corrosion protection for metal substrates.

•	Chemical process, functional materials for use in plastics, rubber, tire, and metal casting, and adsorbent products for petrochemical and natural gas applications.

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(A)	Grace’s segment operating income includes only Grace’s share of income of consolidated and unconsolidated joint ventures.

(B)

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 (MTM) 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.

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•	Are not statements of fact, but rather are used to allocate risk to one of the parties if the statements prove to be inaccurate;

•	May have been qualified by disclosures that were made to the other parties in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•	May apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•	Were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and do not reflect more recent developments.

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*	Management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report.

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