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Investor Alert

Aug. 2, 2021, 4:52 p.m. EDT

10-Q: W R GRACE & CO

(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS References We generally refer to the quarter ended June 30, 2021, as the "second quarter," the quarter ended June 30, 2020, as the "prior-year quarter," the quarter ended March 31, 2021, as the "2021 first quarter," the six months ended June 30, 2021, as the "six months," and the six months ended June 30, 2020, as the "prior-year period." Our references to "advanced economies" and "emerging regions" refer to classifications established by the International Monetary Fund. See Analysis of Operations for a discussion of our non-GAAP performance measures. Results of Operations Second Quarter Performance Summary Following is a summary of our financial performance for the second quarter compared with the prior-year quarter. Net sales increased 22.5% to $512.9 million. Net income attributable to Grace shareholders was $45.4 million. Adjusted EBIT1 increased 70.0% to $109.0 million. Diluted earnings per share was $0.68 per diluted share. Adjusted EPS1 increased 106.1% to $1.01 per diluted share. 1 Non-GAAP performance measures further discussed below. Recent Developments Merger Agreement with affiliates of Standard Industries On April 26, 2021, Grace announced that it had entered into a definitive agreement (the "Merger Agreement") providing for the acquisition of the Company by an affiliate of Standard Industries Holdings Inc. ("Standard Industries"), subject to the terms and conditions contained therein (the "Merger"). Under the terms of the Merger Agreement, Standard Industries, through its affiliates, would acquire all of the outstanding shares of Grace common stock for $70.00 per share in cash. Grace also announced that Standard Industries' related investment platform, 40 North Latitude Master Fund Ltd. ("40 North"), which owns approximately 14.9% of the Company's outstanding common stock, has entered into a voting agreement pursuant to which 40 North has agreed to vote its shares of Grace common stock in favor of the Merger. Summary Description of Business We are engaged in specialty chemicals and specialty materials businesses on a worldwide basis through our two reportable segments. Grace Catalysts Technologies produces and sells catalysts and related products and technologies used in petrochemical, refining, and other chemical manufacturing applications, as follows: 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. High-activity, non-phthalate catalysts allow customers to produce phthalate-free PP products and cleaner, clearer PP products. Our catalysts also improve resin properties 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 cost-effective, flexible, and reliable capability to manufacture polypropylene products having a wide spectrum of performance attributes, enabling customers to manufacture products for a broad array of end-use applications. This capability, coupled with a complete family of catalysts and donors with a suite of

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        Analysis of Operations                                   Three Months Ended June 30,                                    Six Months Ended June 30,
        (In millions, except per share amounts)          2021                2020              % Change                2021                2020             % Change
        Net sales:
        Catalysts Technologies                     $       373.3          $ 309.0                   20.8  %       $      702.9          $ 617.0                  13.9  %
        Materials Technologies                             139.6            109.7                   27.3  %              266.7            223.2                  19.5  %
        Total Grace net sales                      $       512.9          $ 418.7                   22.5  %       $      969.6          $ 840.2                  15.4  %
        Net sales by region:
        North America                              $       157.5          $ 130.2                   21.0  %       $      283.9          $ 250.4                  13.4  %
        Europe Middle East Africa                          205.7            157.1                   30.9  %              389.1            338.7                  14.9  %
        Asia Pacific                                       125.2            112.7                   11.1  %              248.4            213.0                  16.6  %
        Latin America                                       24.5             18.7                   31.0  %               48.2             38.1                  26.5  %
        Total net sales by region                  $       512.9          $ 418.7                   22.5  %       $      969.6          $ 840.2                  15.4  %
        Performance measures:
        Adjusted EBIT(A):
        Catalysts Technologies segment operating
        income                                     $       102.4          $  71.7                   42.8  %       $      178.2          $ 153.7                  15.9  %
        Materials Technologies segment operating
        income                                              26.3             12.6                  108.7  %               53.1             31.6                  68.0  %
        Corporate costs                                    (17.5)           (16.7)                  (4.8) %              (32.9)           (32.3)                 (1.9) %
        Certain pension costs(B)                            (2.2)            (3.5)                  37.1  %               (4.2)            (6.6)                 36.4  %
        Adjusted EBIT                                      109.0             64.1                   70.0  %              194.2            146.4                  32.7  %
        Gain on curtailment of U.S. salaried
        pension plan                                           -                -                                         25.6                -
        Restructuring and repositioning expenses           (11.8)           (21.4)                                       (24.6)           (24.1)
        Pension MTM adjustment and other related
        costs, net                                             -                -                                         13.7                -
        Costs related to legacy matters                     (4.6)            (2.8)                                        (9.2)            (5.5)
        Third-party acquisition-related costs               (6.7)            (2.0)                                        (8.0)            (3.5)
        Amortization of acquired inventory fair
        value adjustment                                    (2.2)               -                                         (2.2)               -
        Taxes and interest included in equity in
        earnings of unconsolidated affiliate                (0.3)            (0.2)                                        (0.5)            (0.2)
        Inventory write-offs                                (0.1)           (19.7)                                        (0.1)           (19.7)
        Interest expense, net                              (19.7)           (18.9)                  (4.2) %              (38.6)           (36.6)                 (5.5) %
        (Provision for) benefit from income taxes          (18.2)            (6.4)                (184.4) %              (36.5)           (22.1)                (65.2) %
        Net income (loss) attributable to W. R.
        Grace & Co. shareholders                   $        45.4          $  (7.3)                       NM       $      113.8          $  34.7                       NM
        Diluted EPS                                $        0.68          $ (0.11)                       NM       $       1.71          $  0.52                       NM
        Adjusted EPS                               $        1.01          $  0.49                  106.1  %       $       1.74          $  1.20                  45.0  %
        


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        Analysis of Operations                                    Three Months Ended June 30,                                     Six Months Ended June 30,
        (In millions)                                    2021                2020              % Change                 2021                2020              % Change
        Adjusted performance measures:
        Gross Margin:
        Catalysts Technologies                              42.7   %         36.6  %                 610 bps              41.5   %          38.7  %                280 bps
        Materials Technologies                              35.1   %         26.9  %                 820 bps              35.9   %          30.0  %                590 bps
        Adjusted Gross Margin                               40.6   %         34.1  %                 650 bps              40.0   %          36.4  %                360 bps
        Weather-related impacts in cost of goods
        sold                                                (1.4)  %            -  %               (140) bps              (1.3)  %             -  %              (130) bps
        Pension costs in cost of goods sold                 (0.8)  %         (0.9) %                  10 bps              (0.9)  %          (0.9) %                  - bps
        Amortization of acquired inventory fair
        value adjustment                                    (0.4)  %            -  %                (40) bps              (0.2)  %             -  %               (20) bps
        Inventory write-offs                                   -   %         (4.7) %                 470 bps                 -   %          (2.3) %                230 bps
        Total Grace                                         38.0   %         28.5  %                 950 bps              37.6   %          33.2  %                440 bps
        Adjusted EBIT:
        Catalysts Technologies                     $       102.4           $ 71.7                    42.8  %       $     178.2           $ 153.7                   15.9  %
        Materials Technologies                              26.3             12.6                   108.7  %              53.1              31.6                   68.0  %
        Corporate, pension, and other                      (19.7)           (20.2)                    2.5  %             (37.1)            (38.9)                   4.6  %
        Total Grace                                $       109.0           $ 64.1                    70.0  %       $     194.2           $ 146.4                   32.7  %
        Depreciation and amortization:
        Catalysts Technologies depreciation and
        amortization                               $        21.8           $ 20.6                     5.8  %       $      44.0           $  41.3                    6.5  %
        Depreciation and amortization included in
        equity in earnings of unconsolidated
        affiliate                                            1.8              0.4                         NM               2.9               0.8                        NM
        Catalysts Technologies                              23.6             21.0                    12.4  %              46.9              42.1                   11.4  %
        Materials Technologies                               6.3              3.5                    80.0  %              11.4               7.0                   62.9  %
        Corporate                                            1.2              1.2                       -  %               2.0               2.6                  (23.1) %
        Adjusted Depreciation and Amortization              31.1             25.7                    21.0  %              60.3              51.7                   16.6  %
        Depreciation and amortization included in
        equity in earnings of unconsolidated
        affiliate                                           (1.8)            (0.4)                        NM              (2.9)             (0.8)                       NM
        Total Grace                                $        29.3           $ 25.3                    15.8  %       $      57.4           $  50.9                   12.8  %
        Adjusted EBITDA:
        Catalysts Technologies                     $       126.0           $ 92.7                    35.9  %       $     225.1           $ 195.8                   15.0  %
        Materials Technologies                              32.6             16.1                   102.5  %              64.5              38.6                   67.1  %
        Corporate, pension, and other                      (18.5)           (19.0)                    2.6  %             (35.1)            (36.3)                   3.3  %
        Total Grace                                $       140.1           $ 89.8                    56.0  %       $     254.5           $ 198.1                   28.5  %
        Adjusted EBIT margin:
        Catalysts Technologies                              27.4   %         23.2  %                 420 bps              25.4   %          24.9  %                 50 bps
        Materials Technologies                              18.8   %         11.5  %                 730 bps              19.9   %          14.2  %                570 bps
        Total Grace                                         21.3   %         15.3  %                 600 bps              20.0   %          17.4  %                260 bps
        Net income margin                                    8.9   %         (1.7) %                1060 bps              11.7   %           4.1  %                760 bps
        Adjusted EBITDA margin:
        Catalysts Technologies                              33.8   %         30.0  %                 380 bps              32.0   %          31.7  %                 30 bps
        Materials Technologies                              23.4   %         14.7  %                 870 bps              24.2   %          17.3  %                690 bps
        Total Grace                                         27.3   %         21.4  %                 590 bps              26.2   %          23.6  %                260 bps
        


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Aug 02, 2021

COMTEX_390809593/2041/2021-08-02T16:52:26

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