2017 2016 2015
(In millions) Sales % of Grace Revenue Sales % of Grace Revenue Sales % of Grace Revenue
Refining catalysts $ 758.1
44.2 % $ 724.9
45.3 % $ 764.5
47.0 %
Polyolefin and chemical catalysts 518.4
30.2 % 438.8
27.5 % 397.6
24.4 %
Total Catalysts Technologies Revenue $ 1,276.5
74.4 % $ 1,163.7
72.8 % $ 1,162.1
71.4 %

~~The following table sets forth~~A description of our Catalysts Technologies ~~sales by region~~products and services and their applications follows:

Products and Services

Overview/Use

Key Brands

Polyolefin and Chemical Catalysts (also referred to as Specialty Catalysts)

Polyethylene Catalysts/Polypropylene Catalysts/Catalyst Supports

Used in 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 and cleaner, clearer PP products; includes catalysts that allow for the lightweighting of automobiles by replacing steel parts with PP while meeting demanding performance standards of automakers

PE Brands -

MAGNAPORE® • SYLOPOL® • LYNX®
PP Brands -

CONSISTA® • SHAC® • LYNX® • POLYTRAK® • HYAMPP®

Gas-Phase Polypropylene Process Technology Licensing

Provides 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

UNIPOL® Polypropylene Process Technology • UNIPOL UNIPPAC® Process Control Software

Chemical Catalysts

Include hydrogenation and dehydrogenation catalyst products used in a variety of petrochemical chain conversions and fine chemical production

RANEY® • DAVICAT®

Refining Technologies

FCC Catalysts

Crack the hydrocarbon chains in distilled crude oil to produce transportation fuels, such as gasoline and diesel fuels, and feeds for production of petrochemicals

MIDAS® • IMPACT® • NEKTOR™ • GENESIS® • ACHIEVE® • FUSION® •VIP‑R™•RIVE TECHNOLOGY® • MOLECULAR HIGHWAY®

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

D-PRISM® • GSR® • SURCA® • ZAVANTI™ • OLEFINSULTRA® • DESOX® • DENOX® • CP® • OXYBURN®

Hydroprocessing Catalysts (HPC)

Marketed through the ART joint venture with Chevron (discussed below), these catalysts 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; our catalysts and solutions allow our customers to improve their profitability in the production of cleaner petroleum-based fuels to meet regulatory and fuel quality standards

ICR® • HOP® • SmART Catalyst System® • APART® • LS™Catalyst Platform • HSLS®Catalyst Platform • HCRC™Catalyst Platform • DCS™Catalyst Platform • ECAD™Catalyst Platform • GR® • ENRICH®

Polyolefin and Chemical Catalysts (also referred to as ~~a percentage of Catalysts Technologies total revenue.~~

2017 2016 2015
(In millions) Sales % of Catalysts Technologies Revenue Sales % of Catalysts Technologies Revenue Sales % of Catalysts Technologies Revenue
North America $ 386.9
30.3 % $ 386.2
33.2 % $ 375.9
32.4 %
Europe Middle East Africa 454.5
35.6 % 438.8
37.7 % 402.5
34.6 %
Asia Pacific 365.7
28.7 % 261.1
22.4 % 293.0
25.2 %
Latin America 69.4
5.4 % 77.6
6.7 % 90.7
7.8 %
Total Catalysts Technologies Revenue $ 1,276.5
100.0 % $ 1,163.7
100.0 % $ 1,162.1
100.0 %
Specialty Catalysts)

Grace Specialty Catalysts ~~Technologies—~~provides process technology for polypropylene and a broad range of high-performance catalysts and supports for specialized processes in the chemical value chain, from plastics to petrochemicals.

We are the only fully integrated supplier of polyolefin catalyst solutions across all process and catalyst technologies. Our strong strategic position is particularly evident in our worldwide polyolefin catalysts and process technology licensing business. After investing $1.2 billion in accretive, synergistic acquisitions over the past seven years, including five new plants on three continents, we offer customers the broadest and most technically advanced portfolio of polyolefin catalysts technologies that enable the production of high performance and differentiated resins. Polyolefin catalysts are used to produce plastics including HDPE (high density polyethylene), LLDPE (linear low density polyethylene) and PP (polypropylene). Applications include packaging, consumer/housewares, food packaging, construction, and automotive segments providing recyclable, lightweight, durable and versatile materials.

The business comprises four major segments, including UNIPOL® PP Process Licensing, PP Catalysts, PE Catalysts, and Chemical Catalysts.

Table of Contents

TOC—Financial Statements

The UNIPOL® PP Process Licensing provides plant design and operational technology to polymer producers. We are the largest independent technology licensor, offering the advantages of a gas-phase process with low capital cost, mechanical simplicity, energy efficiency, and the demonstrated capability to produce differentiated resins. The UNIPOL® Polypropylene Process Technology provides polypropylene producers with the capability to innovate and succeed faster, as their business evolves to meet more sophisticated market needs. UNIPOL® PP licensees also have access to our tailored services, experienced technical team, and our Advanced Process Control software to improve their overall plant lifetime performance.

Our PP Catalysts serve multiple process technologies, including UNIPOL® PP, with optimized sizes, shapes, and composition tailored for each process requirement. We also offer unique external donor technologies that are combined with our catalysts, providing customers with resin product differentiation and production operability advantages.

Our PE Catalysts portfolio, with supporting R&D and technical service, offers existing producers the best choice of resin properties, operability and economics utilizing the three main types of Metallocene, Chromium, and Ziegler catalysts. Products include catalyst components and finished catalysts across all three systems and are offered as merchant products or custom developments.

Chemical Catalysts has two product lines: RANEY® and DAVICAT®. RANEY® catalyst products are used in a broad range of niche hydrogenation applications such as butanediol, sorbitol, and amines. DAVICAT® catalysts and catalyst carriers extend Grace-wide material science expertise in silicas, aluminas, and zeolites into a number of petrochemicals and fine chemicals applications.

Refining ~~Catalysts~~Technologies

FCC Catalysts and Additives

We are a global leader in developing and manufacturing fluid catalytic cracking, or FCC, catalysts and additives that are designed to enable petroleum refiners to increase profits by improving product yields, value and quality. Our FCC products also enable refiners to reduce emissions from their FCC units and reduce sulfur content in the transportation fuels they produce. Oil refining is a highly specialized discipline, and FCC catalysts must be tailored to meet local variations in crude oil feedstocks and a ~~refinery's~~refinery’s desired product mix. We work regularly with our customers to identify the most appropriate catalyst and additive formulations for their changing needs.

~~Since our customers~~FCC units are ~~refiners, our business is highly dependent~~designed to produce a broad spectrum of refined product yields, including gasoline, middle distillates, and liquefied petroleum gas, or LPG. Traditionally, many FCC operators have focused on ~~the economics~~maximizing yields of ~~the petroleum refining industry. In particular,~~transportation fuels. However, as demand for ~~our~~petrochemicals increases, a growing segment of refiners have transitioned their FCC ~~products is affected by refinery throughput,~~operations with the ~~type and quality~~primary objective of ~~refinery~~maximizing yields of petrochemical feedstocks, ~~and the demand for transportation fuels and other refinery products, for example petrochemical feeds~~ such as propylene.

In general, as a refinery utilizes more of its FCC unit capacity, it needs a greater amount of FCC catalyst. Refinery throughput, or the extent to which refiners utilize their available FCC capacity, is generally determined by demand for transportation fuels We maintain multiple industry leading technologies, including ZAVANTI™ and petrochemical products and the availability of crude oil supply. In recent years, global economic growth, especially in emerging regions, has increased global demand for transportation fuels and petrochemical products. Retail gasoline and diesel fuel prices and the level of economic activity has also directly influenced transportation fuel demand. Improvements in vehicular fuel economy, as well as consumer trends and government policiesVIP-R™, that ~~increase the use of non-petroleum-based fuels and/or decrease the use of petroleum-based fuels also will affect transportation fuel demand over time.~~

Refinery crude oil feedstocks vary in quality from light and sweet to heavy and sour. Light and sweet feedstocks are typically more expensive than heavy and sour feedstocks and yield a greater proportion of high-value petroleum products. They also yield a lower proportion of residual oil, or "resid," which is generally the lowest value component contained in crude oil. Although heavy and sour feedstocks with high resid content are typically less expensive than higher quality feedstocks, the processing of high-resid feedstocks is more difficult because these feedstocks have more impurities and higher boiling points. Heavy and sour crude oil has a relatively high level of metals, nitrogen and sulfur contamination. Our customers generally determine the feedstocks to be used in their refineries based on relative pricing and availability of various quality feedstocks. Refinery configuration and complexity also plays a role in feedstock selection; more complex refineries tend to process a higher proportion of heavy and sour feedstocks. In general, as a refinery uses more heavy and sour feedstocks, it uses a greater amount of FCC catalyst. In addition, refiners use special high value-added formulations of FCC catalysts for efficient refining of heavy and sour feedstocks. We have designed our MIDAS^® ~~catalyst, IMPACT~~^® ~~catalyst, NEKTOR™ catalyst, and GENESIS~~^® ~~catalyst product portfolios to enable~~allow our customers to ~~increase the efficiency and yield of high-resid~~capture unique value from petrochemical feedstock ~~refining.~~driven operations.

Many countries and regions, including the U.S., European Union, Japan, Russia, India and China have imposed regulatory limitations on the sulfur content of gasoline and diesel fuel. We have developed a portfolio of products designed to assist refiners in meeting their gasoline sulfur-reduction targets, including our D-PRISM^® and GSR^® additives and our SURCA^® catalyst family.

~~Table of Contents~~

Within certain limits, refiners have the ability to adjust their relative output of transportation fuels versus petrochemical feeds. Global economic growth, especially in emerging regions, has increased the demand for plastics at a faster rate than growth of transportation fuels. As a result, some of our refinery customers have sought increased profits from petrochemicals by increasing the yield of petrochemical feeds such as propylene from their FCC units. Our ZSM-5-based technologies, including our OLEFINSULTRA^® ~~additive products, are designed to maximize the propylene and butylene output of FCC units.~~

~~Many~~Also, many U.S. petroleum refiners have entered into consent decrees with the U.S. Environmental Protection Agency (the ~~"EPA"~~“EPA”) under which the refiners have agreed to reduce emissions of nitrogen oxides and sulfur oxides. The European Union has also imposed requirements on refineries with respect to nitrogen oxides and sulfur oxides emissions. ~~FCC units are generally the largest emitters of these pollutants in a refinery.~~ Our additives are designed to assist refineries in meeting their obligations to reduce these pollutants. Our Super DESOX^® additive reduces sulfur oxides emissions from commercial FCC units. Our DENOX^® additives are designed to achieve reductions in nitrogen oxides emissions comparable to those obtained from capital intensive alternatives available to a refinery, while our non-platinum-based combustion ~~promoters XNOX~~^{promoter CP®} ~~and CP~~^®P ~~are~~is designed to enable refiners to control carbon monoxide emissions without increasing nitrogen oxides.

~~Competition~~ Our newly developed OXYBURN® additives are used in the reduction of oxygenates which are often a problem when co-processing renewable feedstocks in FCC catalysts and additives is based on value delivered to refiners, which is derived from differentiated technology, catalyst performance, technical and customer service and price. Our principal global FCC catalyst competitors are Albemarle, BASF, and SINOPEC. Our principal global competitors in FCC additives are Johnson Matthey, Albemarle, and BASF. We also have multiple regional competitors for FCC catalysts and additives.units.

~~An emerging market is developing for the conversion~~

Table of methanol, either derived from coal gasification or from natural gas, into petrochemical feeds such as ethylene and propylene. This technology, known as Methanol-to-Olefins, or MTO, has created the need for an FCC-like catalyst for use in this processing unit. A number of MTO units have been constructed and are operating in China, with additional units in the planning and construction phases. Our MTO catalyst, GCQ™, was introduced in 2016 and has been used successfully in a number of customer MTO units. Competition is based on catalyst performance, technical service and price. Our primary competitors are UOP and Chia Tai.Contents

TOC—Financial Statements

Hydroprocessing Catalysts

We market most of our hydroprocessing catalysts ~~primarily~~ through ~~ART,~~ our Advanced Refining Technologies LLC (“ART”) joint venture with ~~Chevron.~~Chevron Products Company (“Chevron”). 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. We established ART to combine our technology with that of Chevron and to develop, market, and sell hydroprocessing catalysts to customers in the petroleum refining industry worldwide.

We are a leading supplier of hydroprocessing catalysts designed for processing high resid content feedstocks. We offer products for fixed-bed resid hydrotreating, on-stream catalyst replacement, and ebullating-bed resid hydrocracking processes.

We also offer a full line of catalysts, customized for individual refiners, used in distillate hydrotreating to produce ultra-low sulfur content gasoline and diesel fuel, including our ~~SMART~~SmART CATALYST SYSTEM^® and APART^® ~~catalyst systems.~~Catalyst Systems. As discussed above, regulatory limitations on the sulfur content of gasoline and diesel fuel are becoming more common. These products are designed to help refiners to reduce the sulfur content of their products.

Our ENRICH® catalysts, which are marketed by Grace rather than ART, enable the coprocessing of bio-based feedstocks at refineries.

We have rights to sell hydrocracking and lubes hydroprocessing catalysts to licensees of Chevron Lummus Global ~~(CLG)~~(“CLG”) and other petroleum refiners for unit refills. These rights allow us to streamline hydroprocessing catalyst supply and improve technical service for refining customers by establishing ART as their single point of contact for all their hydroprocessing catalyst needs.

Competition in the hydroprocessing catalyst industry is based on value delivered to refiners, which is based on differentiated technology, catalyst performance, technical and customer service and price. Criterion, Albemarle, Haldor Topsoe, UOP and Axens are our leading global competitors in hydroprocessing catalysts. We also have multiple regional competitors.

~~Table of Contents~~

~~Grace Catalysts Technologies—Polyolefin Catalysts, Catalyst Supports and Polypropylene Process Technology~~

We are a leading provider of catalyst systems and catalyst supports to the polyolefins industry for a variety of polyethylene and polypropylene process technologies. These types of catalysts are used for the manufacture of polyethylene and polypropylene thermoplastic resins used in differentiated products such as plastic film, high-performance plastic pipe, automobile parts, household appliances, household containers, medical instruments, and many other end uses.

We use a combination of proprietary catalyst and support technology and technology licensed from third parties to provide unique catalyst-based solutions to our customers and to provide a broad technology portfolio for enhancing collaboration opportunities with technology leaders.

~~Our MAGNAPORE~~^® ~~polymerization catalyst is used to produce high performance polyethylene in the slurry loop process for pipe and film applications. We offer our LYNX~~^® catalysts systems for the production of high-density polyethylene resins, such as bimodal film and pipe, as well as commercial use for the production of polypropylene in all major process technologies including slurry, bulk loop, stirred gas, fluid gas, and stirred bulk. Our CONSISTA^® ~~6th generation, non-phthalate catalysts are used to produce polypropylene resins that exhibit enhanced clarity, stiffness, and impact strength. Our POLYTRAK~~^® ~~polymerization catalyst is designed to achieve improved polypropylene performance, particularly for impact resistant applications such as automobile bumpers and household appliances.~~

~~Our standard and customized DAVICAT~~^® catalysts offer a wide range of chemical and physical properties based on our material science technology for supported catalysts, polystyrene, herbicide, nutraceuticals and on-purpose olefins. Our RANEY^® nickel, cobalt and copper hydrogenation and dehydrogenation catalysts are used for the synthesis of organic compounds for the fibers, polyurethanes, engineered plastics, pharmaceuticals, sweeteners and petroleum industries.

The polyolefin catalyst and supports industry is technology-intensive, and suppliers must provide products formulated to meet customer specifications. There are many manufacturers of polyolefin catalysts and supports including Univation, LyondellBasell, Albemarle and PQ, and most sell their products worldwide.

~~We are also a leading licensor of gas-phase polypropylene process technology to polypropylene manufacturers. Our UNIPOL~~^® polypropylene technology is designed to have fewer moving parts and require less equipment than other competing technologies in order to reduce operating costs. This technology provides our licensees with a flexible and reliable capability to manufacture products for a broad array of end-use applications. The polypropylene process licensing industry is technology-intensive, and licensors must adapt the technology and the related licenses to meet individual customer needs. The major competing polypropylene process licensors are LyondellBasell and Lummus Novolen Technology.

~~Grace Catalysts Technologies—~~Manufacturing, Marketing and Raw Materials

Our Catalysts Technologies products are manufactured by a network of globally coordinated plants. Our integrated ~~planning~~supply chain organization is responsible for the effective utilization of our manufacturing capabilities. For a discussion of our manufacturing plants for Catalysts Technologies, see Item 2, “Properties,” below.

We use a global organization of direct sales professionals to market our polyolefin catalysts, polypropylene process technology, and chemical catalysts, that seeks to maintain close working relationships with our customers. Our global direct sales force is complemented by a network of distributors and agents in Asia Pacific and, to a lesser extent, the Americas and Middle East. These relationships enable us to cooperate with major polymer and chemical producers to develop catalyst technologies that complement their process or application developments. We have geographically distributed our sales and technical service professionals to make them responsive to the needs of our geographically diverse customers. We typically operate under long-term contracts with our customers.

We use a global organization of technical professionals, including a direct sales force, with extensive experience in refining processes, catalyst development, and catalyst applications to market our refining catalysts and additives. These professionals work to tailor our technology to the needs of each specific customer. We generally negotiate prices for our refining catalysts because our formulations are specific to the needs of each customer and each customer receives individual attention and technical service. We sell a significant portion of our hydroprocessing catalysts through multiple-year supply agreements with our geographically diverse customer base.

The principal raw materials for Catalysts Technologies products include molybdenum oxide, specialty inorganics, caustic soda, alumina and derivatives, sodium silicate, nickel, rare earths, solvents, and titanium tetrachloride. Multiple suppliers are generally available for each of these materials; however, some of our raw materials may be provided by single sources of supply. We ~~use a global direct sales force~~seek to mitigate the risk of using single source suppliers by identifying and qualifying alternative suppliers or, for unique materials, by using alternative formulations from other suppliers. In some instances, we produce our own raw materials and intermediates.

Prices for many of our raw materials, including metals, and energy can be volatile. In response to increases in raw materials and energy costs, we generally take actions to mitigate the effects of higher costs including developing alternative formulations for our ~~polyolefin catalysts, supports~~products, increasing productivity, hedging purchases of certain raw materials, and ~~technologies~~increasing prices.

Table of Contents

TOC—Financial Statements

As in many chemical businesses, we consume significant quantities of natural gas in the production of Catalysts Technologies products. World events and ~~chemical catalysts that seeks to maintain close working relationships with~~other economic factors cause volatility in the price of natural gas. Increases or decreases in the cost of natural gas and raw materials can have a significant impact on our ~~customers. These relationships enable us to cooperate with major polymer and chemical producers to develop catalyst technologies that complement their process or application developments.~~operating margins. We have ~~geographically distributed our sales and technical service professionals~~implemented a risk management program under which we hedge natural gas in a way that is designed to ~~make them responsive to~~mitigate the ~~needs~~effects of ~~our geographically diverse customers. We typically operate under long-term contracts with our customers.~~price volatility.

Seasonality

Seasonality does not have a significant overall effect on our Catalysts Technologies reportable segment. However, under traditional patterns, sales of FCC catalysts ~~tend~~have tended to be lower in the first calendar quarter due to maintenance outages taken

~~Table of Contents~~

prior to the shift in production by refineries from home heating oil for the winter season to gasoline production for the summer season. FCC catalysts and ebullating-bed hydroprocessing catalysts are consumed at a relatively steady rate and are replaced regularly. Fixed-bed hydroprocessing catalysts are consumed over a period of years and are replaced in bulk in an irregular pattern. Since our customers periodically shut down their refining processes to replace fixed-bed hydroprocessing catalysts in bulk, our hydroprocessing catalyst sales to any customer can vary substantially over the course of a year and between years based on that ~~customer's~~customer’s catalyst replacement schedule.

Backlog of Orders; Working Capital

While at any given time there may be some backlog of orders, this backlog is not material in respect to our total annual sales for Catalysts Technologies, nor are the changes, from time to time, significant. Our working capital consists of inventory, accounts receivable, accounts payable, and deferred revenue. We closely manage these working capital accounts. We value inventory balances under the first-in, first-out (“FIFO”) method. Inventories have turned regularly, but balances typically increase during the first half of the year before declining as a result of increased sales in the second half. Accounts receivable and accounts payable are also affected by this business cycle, typically requiring us to have greater working capital needs during the second and third quarters.

Competition

Competition in the polyolefin catalyst, catalyst supports, and polypropylene process licensing industry is technology-intensive. Our competition in this industry includes Univation, LyondellBasell, PQ, and Lummus Novolen Technology. Most competitors sell their products and/or license their technology worldwide.

Competition in FCC catalysts and additives and hydroprocessing catalysts is based on value delivered to refiners, which is based on differentiated technology, catalyst performance, technical and customer service, and price. Our principal global FCC catalyst competitors are Albemarle, BASF, and SINOPEC. Our principal global competitors in FCC additives are Johnson Matthey, Albemarle, and BASF. Our principal global competitors in hydroprocessing catalysts are Shell Catalysts (formerly Criterion), Albemarle, Haldor Topsoe, UOP, and Axens. We also have multiple regional competitors.

GRACE MATERIALS TECHNOLOGIES

Materials Technologies uses our significant specialty silica, zeolite and fine chemical knowledge and applications expertise to design and manufacture products to create significant value for our customers. Our customers include pharmaceutical companies, consumer products manufacturers, coatings manufacturers, emission control system manufacturers, petrochemical and natural gas processors, and plastics manufacturers. We believe that our technological expertise and broad technology platform provide a competitive advantage, allowing us to tailor our products to specific customer requirements and help them create value in their operations and end markets.

Table of Contents

TOC—Financial Statements

The following table sets forth Materials Technologies sales of similar products as a percentage of Grace total revenue.


	Year Ended December 31,
	2020				2019				2018
(In millions)	Sales		% of Grace Revenue		Sales		% of Grace Revenue		Sales		% of Grace Revenue
Pharma/Consumer	$	162.5	9.4	%	$	144.6	7.4	%	$	132.6	6.9	%
Coatings	137.5		8.0	%	139.8		7.1	%	155.4		8.1	%
Chemical process	140.6		8.1	%	156.1		8.0	%	157.3		8.1	%
Other	17.8		1.0	%	20.9		1.1	%	23.3		1.2	%
Total	$	458.4	26.5	%	$	461.4	23.6	%	$	468.6	24.3	%

A description of our Materials Technologies products and services and their applications follows:

Products and Services

Overview/Use

Key Brands

Pharma/Consumer

Specialty materials used as additives, intermediates, and purification aids for pharmaceuticals, nutraceuticals, toothpaste, beer, food, and cosmetic segments, including:

Pharmaceutical and nutraceutical excipients, carrier for oily APIs, and drug delivery

SYLOID® • LUDOX® • SYLOID® XDP • SILSOL®

Fine chemicals, including regulatory starting materials and intermediates, especially peptide building blocks, specialty amino acids, chiral boronic acids, and esters

Toothpaste abrasives and thickening agents

SYLODENT® • SYLOBLANC® • SIDENT®

Free-flow agents; anticaking agents; heating agents;
tableting aids; cosmetic additives and carriers for flavor, fragrance, or other active ingredients; and desiccants for food and pharma packaging

PERKASIL® • SYLOID® • SYLOSIV®

Edible oil and biofuel refining agents, stabilizers and clarification aids for beer, juices and other beverages

TRISYL® • DARACLAR®

Chromatography purification products

DAVISIL® • VYDAC® • VYKING™

Coatings

Functional additives for wood, coil, general industrial, and architectural coatings that provide surface effects and corrosion protection for metal substrates, including:

Matting agents, anticorrosion pigments, TiO2 extenders and moisture scavengers for paints and lacquers

SYLOID® • SHIELDEX® • SYLOSIV® • SYLOWHITE™

Additives for matte, semi-glossy and glossy ink receptive coatings on high performance ink jet papers, photo paper, and commercial wide-format print media

SYLOJET® • DURAFILL® • LUDOX®

Paper retention aids, functional fillers, paper frictionizers

DURAFILL® • LUDOX®

Defoamers actives

ZEOFLO® • ZEOFOAM™

Chemical Process

Functional materials for use in plastics, rubber, tire, and metal casting, and adsorbent products for petrochemical, natural gas, and more specialized applications, including:

Reinforcing agents for rubber and tires

PERKASIL®

Inorganic binders for precision investment casting and refractory applications and surface modification aids for metal and ceramic substrates

LUDOX®

Static adsorbents for dual pane windows and refrigerant applications, moisture scavengers, and package desiccants

PHONOSORB® • SYLOSIV® • CRYOSIV® • PROTEKSORB®

Chemical metal polishing aids and formulations for chemical mechanical planarization/electronics applications

POLIEDGE® • LUDOX®

Antiblocking additives for plastic films to prevent adhesion of layers in manufacturing

SYLOBLOC®

Process adsorbents used in petrochemical and natural gas processes for such applications as ethylene-cracked-gas-drying, natural gas drying and sulfur removal

SYLOBEAD®

Table of Contents

TOC—Financial Statements

Silica-based Products

We globally manufacture functional additives and process aids, such as silica gel, colloidal silica, zeolitic adsorbents, precipitated silica and silica-aluminas, for a wide variety of applications and end-use industries. We also custom manufacture fine chemical intermediates and regulatory starting materials used primarily in the pharmaceutical and nutritional supplements industries.

Our materials are integrated into our customers’ manufacturing processes and when combined with our technical support, can increase the efficiency and performance of their operations and their products. By working closely with our customers, we seek to help them respond quickly to changing consumer demands.

In addition, we focus on developing and manufacturing products that differentiate our customers’ products and help them meet evolving regulatory and environmental requirements. For example, our SYLOID® coatings additives are designed to be used in more sustainable water-based and VOC-compliant coatings, and our SHIELDEX® silicas allow our customers to reformulate their anti-corrosive coating products to eliminate heavy metals. Our pharmaceutical excipients help improve bioavailability, extend shelf-life, and/or make drug manufacturing more efficient. Our dental silicas are engineered to provide high cleaning with gentle abrasivity. Our DARACLAR® and TRISYL® silicas allow our customers to reduce their environmental footprint: our beer stabilization silicas offer greater productivity to breweries while allowing them to use water more efficiently, and our edible oil and biofuel refining aids enable the processing of waste materials in refineries, reducing feedstock losses and solid waste sent to landfills. Our custom manufacturing of advanced intermediates supports pharmaceutical drug development processes, enabling commercialization of life-saving therapies. Our LUDOX® colloidal silicas enable our customers to produce automotive catalytic converters for automakers to meet emissions control regulations.

In 2020 we deepened our collaboration with customers to align some of our Materials Technologies product capabilities to support customers in addressing the global COVID-19 pandemic. Our silica-based technology provides separation capabilities found in the PCR (polymerase chain reaction) test kits. Similarly, our silica-based materials are used in purifying lipids that are required to hold together mRNA used in two of the leading approved COVID-19 vaccines.

Manufacturing, Marketing and Raw Materials

Our Materials Technologiesproducts are manufactured by a network of globally integrated plants that are positioned to service our customers. Our integrated supply chain organization is responsible for the effective utilization of our manufacturing capabilities. Our global footprint allows us to partner effectively with both multinational and regional companies requiring multiple manufacturing facilities complemented by regional technical expertise in local languages. For a discussion of our manufacturing plants for Materials Technologies, see Item 2, “Properties,” below.

We use country-based direct sales forces and further support our customers with application-specific technical customer service teams to market our Materials Technologies products. Our sales force seeks to develop long-term relationships with our customers and focuses on consultative sales, technical support, and key account growth programs. To ensure full geographic coverage, our direct sales organization is further supplemented by a network of distributors.

The principal raw materials for ~~Catalysts~~Materials Technologiesproducts include ~~molybdenum oxide, zeolite, caustic soda, sodium aluminate,~~ sodium silicate, ~~aluminum sulfate, nickel, alumina hydrate, alumina, aluminum metal, rare earths,~~zeolite, sand, soda ash, sulfuric acid, and ~~tungsten salt.~~caustic soda. Multiple suppliers are generally available for each of these materials; however, some of our raw materials may be provided by single sources of supply. We seek to mitigate the risk of using single source suppliers by identifying and qualifying alternative suppliers or, for unique materials, by using alternative formulations from other ~~suppliers or by passing price increases on to customers.~~suppliers. In some instances, we produce our own raw materials and intermediates.

Prices for ~~many~~some of our raw materials ~~including metals,~~ and energy can be volatile. In response to increases in ~~raw material and energy~~input costs, we generally take actions intended to mitigate the ~~effect~~effects of higher costs including ~~increasing prices,~~ developing alternative formulations for our products, increasing productivity, and ~~hedging purchases of certain raw materials.~~increasing prices.

As in many chemical businesses, we consume significant quantities of natural gas in the production of ~~Catalysts~~Materials Technologies products. World events and other economic factors can cause volatility in the price of natural gas. Increases or decreases in the cost of natural gas and raw materials can have a significant impact on

Table of Contents

TOC—Financial Statements

our operating margins. We have implemented a risk management program under which we hedge natural gas in a way that is designed to ~~provide protection against~~mitigate the effects of price volatility.

~~Grace~~Backlog of Orders; Working Capital

While at any given time there may be some backlog of orders, this backlog is not material in respect to our total annual sales for Materials Technologies, ~~Reportable Segment~~nor are the changes, from time to time, significant. Our working capital consists of inventory, accounts receivable and accounts payable. We closely manage these working capital accounts. We value inventory balances under the FIFO method. Inventories have turned regularly.

Materials Technologies principally applies specialty silica, zeolite and fine chemical technologies in the design and manufacture of products to create significant value for our diverse customer base. Our customers include coatings manufacturers, consumer product manufacturers, plastics manufacturers, petrochemical and natural gas processors, and pharmaceutical companies. We believe that our technological expertise and broad technology platform provide a competitive advantage, allowing us to tailor our products to specific customer requirements and help them create value in their operations and end markets.Competition

~~The following table sets forth Materials Technologies sales of similar products as a percentage of Grace total revenue.~~

2017 2016 2015
(In millions) Sales % of Grace Revenue Sales % of Grace Revenue Sales % of Grace Revenue
Coatings $ 142.2
8.3 % $ 136.5
8.5 % $ 133.6
8.2 %
Consumer/Pharma 123.3
7.2 % 121.9
7.6 % 125.1
7.7 %
Chemical process 153.5
8.9 % 142.6
8.9 % 137.0
8.4 %
Other 21.0
1.2 % 33.9
2.2 % 70.4
4.3 %
Total Materials Technologies Revenue(1) $ 440.0
25.6 % $ 434.9
27.2 % $ 466.1
28.6 %


~~(1)~~	~~In 2016, we exited certain product lines that accounted for approximately $35 million of Materials Technologies sales in 2015.~~

~~Table of Contents~~

~~The following table sets forth Materials Technologies sales by region as a percentage of Materials Technologies total revenue.~~

2017 2016 2015
(In millions) Sales % of Materials Technologies Revenue Sales % of Materials Technologies Revenue Sales % of Materials Technologies Revenue
North America $ 99.1
22.5 % $ 104.5
24.0 % $ 114.1
24.5 %
Europe Middle East Africa 213.2
48.5 % 209.0
48.1 % 218.7
46.9 %
Asia Pacific 94.1
21.4 % 87.8
20.2 % 97.9
21.0 %
Latin America 33.6
7.6 % 33.6
7.7 % 35.4
7.6 %
Total Materials Technologies Revenue $ 440.0
100.0 %
$ 434.9
100.0 % $ 466.1
100.0 %

~~Grace Materials Technologies—Silica-based Products~~



~~Application~~	~~Use~~	~~Key Brands~~
~~Coatings~~	~~Matting agents, anticorrosion pigments, TiO~~₂ ~~extenders and moisture scavengers for paints and lacquers~~	~~SYLOID~~^®~~, SHIELDEX~~^®~~, SYLOSIV~~^®~~, SYLOWHITE™~~
	~~Additives for matte, semi-glossy and glossy ink receptive coatings on high performance ink jet papers, photo paper, and commercial wide-format print media~~	~~SYLOJET~~^®~~, DURAFILL~~^®~~, LUDOX~~^®
	~~Paper retention aids, functional fillers, paper frictionizers~~	~~DURAFILL~~^®~~, LUDOX~~^®
	~~Defoamers~~	~~ZEOFLO~~^®~~, ZEOFOAM~~^®
~~Consumer/~~ ~~Pharma~~	~~Toothpaste abrasives and thickening agents~~	~~SYLODENT~~^®~~, SYLOBLANC~~^®_,~~SIDENT~~^®
	~~Free-flow agents, anticaking agents, heating agents,~~ ~~tabletting aids, cosmetic additives and flavor carriers~~	~~PERKASIL~~^®~~, SYLOID~~^®~~, SYLOSIV~~^®~~, ZEOFLO~~^®~~, ZEOFOAM~~^®
	~~Edible oil refining agents, stabilizers and clarification aids for beer, juices and other beverages~~	~~TRISYL~~^®~~, DARACLAR~~^®
	~~Pharmaceutical excipients and drug delivery~~	~~SYLOID~~^® ~~FP, SYLOID~~^® ~~XDP, SILSOL~~^®
	~~Fine chemical intermediates and regulatory starting materials~~	~~SYNTHETECH™~~
	~~Chromatography purification media~~	~~DAVISIL~~^®~~, VYDAC~~^®
~~Chemical Process~~	~~Reinforcing agents for rubber and tires~~	~~PERKASIL~~^®
	~~Inorganic binders and surface smoothening aids for precision investment casting and refractory applications~~	~~LUDOX~~^®
	~~Static adsorbents for dual pane windows and refrigerant applications, moisture scavengers, and package desiccants~~	~~PHONOSORB~~^®~~, SYLOSIV~~^®~~, CRYOSIV~~^®~~, PROTEKSORB~~^®
	~~Chemical metal polishing aids and formulations for chemical mechanical planarization/electronics applications~~	~~POLIEDGE~~^®
	~~Antiblocking additives for plastic films to prevent adhesion of layers in manufacturing~~	~~SYLOBLOC~~^®
	~~Process adsorbents used in petrochemical and natural gas processes for such applications as ethylene-cracked-gas-drying, natural gas drying and sulfur removal~~	~~SYLOBEAD~~^®

Our materials are integrated into our customers' manufacturing processes and when combined with our technical support, can increase the efficiency and performance of their operations and their products. By working closely with our customers, we seek to help them respond quickly to changing consumer demands. In addition, we focus on developing and manufacturing products that differentiate our customers' products and help them

~~Table of Contents~~

meet evolving regulatory and environmental requirements. For example, our coatings additives are designed to be used in more sustainable water-based and VOC-compliant coatings. Our pharmaceutical excipients help improve bioavailability, extend shelf-life, and/or make drug manufacturing more efficient. Our dental silicas are engineered to provide high cleaning with gentle abrasivity. Our beer stabilization silicas offer greater productivity to breweries while reducing solid waste and water usage. Our custom manufacturing of advanced intermediates supports pharmaceutical drug development processes, enabling commercialization of life-saving therapies.

Our products are used in a wide range of industries, including paint and coatings, pharmaceutical, food and beverage, personal care, plastics and rubber, and petrochemical and biofuels. We can modify the base silica and surface chemistry for our customers in order to enhance our product performance for their unique applications.

Our global footprint allows us to partner effectively with both multinational and regional companies requiring multiple manufacturing facilities complemented by regional technical expertise in local languages. There are many manufacturers of engineered materials that market their products on a global basis including Evonik, PQ, and ~~UOP.~~Nalco. Competition is generally based on product performance, technical service, quality and reliability, price, and other differentiated product features to address the needs of customers, end-users, and brand owners. Our products compete on the basis of distinct technology, product quality, and customer support. Competition for these products is highly fragmented, with a large number of companies that sell their products on a global or regional basis.

~~Grace Materials Technologies—Manufacturing, Marketing and Raw Materials~~

~~Our Materials Technologies~~products are manufactured by a network of globally integrated plants that are positioned to service our customers regionally. Our integrated planning organization is responsible for the effective utilization of our manufacturing capabilities.

We use country-based direct sales forces that are dedicated to each product line and backed by application-specific technical customer service teams to market our Materials Technologies products. Our sales force seeks to develop long-term relationships with our customers and focuses on consultative sales, technical support and key account growth programs. To ensure full geographic coverage, our direct sales organization is further supplemented by a network of distributors and agents.

~~Seasonality does not have a significant overall effect on our Materials Technologies~~reportable segment; however, our adsorbents for dual frame windows are affected by seasonal and weather-related factors and the level of construction activity, and our edible oil refining agents, stabilizers and clarification aids for beer, juices and other beverages are affected by the level of consumption of beverages. These impacts are mitigated by the global scope of our business.

~~The principal raw materials for Materials Technologies~~products include sodium silicate, zeolite, soda ash, sulfuric acid, and caustic soda. Multiple suppliers are generally available for each of these materials; however, some of our raw materials may be provided by single sources of supply. We seek to mitigate the risk of using single source suppliers by identifying and qualifying alternative suppliers or, for unique materials, by using alternative formulations from other suppliers or by passing price increases on to customers. In some instances, we produce our own raw materials and intermediates.

Prices for many of our raw materials and energy can be volatile. In response to increases in raw material and energy costs, we generally take actions intended to mitigate the effect of higher costs including increasing prices, developing alternative formulations for our products, and increasing productivity.

As in many chemical businesses, we consume significant quantities of natural gas in the production of Materials Technologies products. World events and other economic factors can cause volatility in the price of natural gas. Increases or decreases in the cost of natural gas and raw materials can have a significant impact on our operating margins. We have implemented a risk management program under which we hedge natural gas in a way that is intended to provide protection against price volatility.

~~FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS~~

Disclosure of financial information about industry segments and geographic areas for 2017, 2016 and 2015 is provided in this Report in Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 17 (Segment Information) to the Consolidated Financial Statements, which disclosure is incorporated

~~Table of Contents~~

~~herein by reference. Disclosure of risks attendant to our foreign operations is provided in this Report in Item 1A (Risk Factors), which disclosure is incorporated herein by reference.~~

~~BACKLOG OF ORDERS~~

~~While at any given time there may be some backlog of orders, this backlog is not material in respect to our total annual sales, nor are the changes, from time to time, significant.~~

INTELLECTUAL PROPERTY; RESEARCH ACTIVITIES

Competition in the specialty chemicals and specialty materials industry is often based on technological superiority and innovation. Our ability to maintain our margins and effectively compete with other suppliers depends on our ability to introduce new products based on innovative technology, as well as our ability to obtain patent or other intellectual property protection. Our research and development programs emphasize development of new products and processes, improvement of existing products and processes, and application of existing products and processes to new industries and uses. ~~Most~~We conduct most of our research activity ~~is conducted~~ in North America and Europe.

We file patents in order to protect our investments in innovation arising from research and product development in all our businesses, and as a result, numerous patents and patent applications protect our products, formulations, manufacturing processes, equipment, and improvements. For example, we selectively file and obtain patents in our Refining Technologies business, as well as in our chemical catalysts product line in our Specialty Catalysts business, for strategic new products or for significant business opportunities. We routinely file and obtain patents in a number of countries around the world that are significant to our ~~businesses~~polyolefin catalysts product line in ~~order~~our Specialty Catalysts business.

In our Materials Technologies business, we focus our research on the development and use of specialty materials products and formulations for diverse applications. We file patents and trademarks in various countries to protect our ~~investments~~unique products, processes and expertise in ~~innovation, research,~~strategic areas of our business, and to cover key product ~~development. Numerous patents and patent applications protect our products, formulations, manufacturing processes, equipment, and improvements.~~ innovations in adjacent market segments.

We also benefit from the use of trade secret information, including know-how and other proprietary information relating to many of our products and processing ~~technologies. There~~technologies in all of our businesses, including, but not limited to, our business in licensing UNIPOL® Polypropylene Process Technology.

While we seek legal protection for our innovations, there can be no assurance, however, that our patents, patent applications and precautions to protect trade secrets and know-how will provide sufficient protection for our intellectual property. In addition, other companies may independently develop technology that could replicate, and thus diminish the advantage provided by, our trade secrets. Other companies may also develop alternative technology or design-arounds that could circumvent our patents or may acquire patent rights applicable to our business which might interpose a limitation on expansion of our business in the future.

~~Research and development expenses were approximately~~ ~~$54 million~~, $49 million, and $47 million in 2017, 2016, and 2015, respectively. These amounts include depreciation and amortization expenses related to research and development assets and expenses incurred in funding external research projects. The amount of research and development expenses relating to government- and customer-sponsored projects (rather than projects that we sponsor) was not material during these periods. Grace also conducts research and development activities with our ART joint venture, which are not included in the amounts above.

ENVIRONMENT, HEALTH, SAFETY, AND ~~SAFETY~~SECURITY (or “EHSS”) MATTERS AND GOVERNMENTAL REGULATIONS

We are subject, along with other manufacturers of specialty chemicals, to stringent regulations under numerous regional, national, provincial, state and local ~~environment, health and safety~~EHSS laws and regulations relating to the manufacture, storage, handling, transportation, disposal and stewardship of chemicals and other materials. In addition to those laws and regulations, as we operate and/or sell to customers in over 60 countries, we must comply with important government regulations around the globe with respect to wide-ranging matters, including business and operating

Table of Contents

TOC—Financial Statements

licenses, reporting requirements, registrations of intellectual property rights, human capital management, mine safety, and customs and taxes, among others. Cumulatively, the expenses of compliance with government regulations have a material effect on our earnings; however, as other manufacturers of specialty chemicals face similar regulations (provided they operate under similar regulatory frameworks), we do not see our compliance as creating a material competitive disadvantage to date, and our conscientious adherence to safety and other regulations has positive effects on our overall position as a global company. Nevertheless, changes in, or additions to, governmental regulations may lead to additional expenditures and negative effects on our operations.

Environmental laws require that certain responsible parties, as defined in the relevant statute, fund remediation actions regardless of legality of original disposal or ownership of a disposal site. We are involved in various response actions to address the presence of chemical substances as required by applicable laws.

We have expended substantial funds to comply with environmental laws and regulations and expect to continue to do so in the future. The following table sets forth our expenditures in the past three years, and our estimated expenditures in ~~2018~~2021 and ~~2019,~~2022, for (i) the operation and maintenance of manufacturing facilities and the disposal of wastes; (ii) capital expenditures for environmental control facilities; and (iii) site remediation:


(In millions)	Operation of Facilities and Waste Disposal		Capital Expenditures		Site Remediation
2018	$	56	$	8	$	18
2019	54		7		14
2020	56		13		8
2021(1)	56		13		18
2022(1)	58		23		10

___________________________________________________________________________________________________________________

~~Table~~(1)Amounts are based on environmental response matters for which sufficient information is available to estimate costs. We do not have sufficient information to estimate all of ~~Contents~~

our possible future environmental response costs. As we receive new information, our estimate of such costs may change materially.

(In millions)
Operation of
Facilities and
Waste Disposal

Capital
Expenditures

Site
Remediation
2015 $ 47
$ 15
$ 12
2016 62
10
18
2017 51
7
20
2018(1) 53
19
24
2019(1) 55
18
13


~~(1)~~	Amounts are based on environmental response matters for which sufficient information is available to estimate costs. We do not have sufficient information to estimate all of Grace's possible future environmental response costs. As we receive new information, our estimate of such costs may change materially.

The table above does not include estimated expenditures related to the replacement of the dam spillway on the Libby, Montana, mine site. We are legally obligated to operate the dam and construct a new spillway in accordance with the conditions of the latest permit issued by the Montana Department of Natural Resources and Conservation. We have estimated the total cost of the project to be $95.0 million, with the timing of disbursements subject to a number of variables. Construction will begin in 2021 and is expected to take three to four years. Additional information about this matter and our environmental remediation activities is provided in this Report in Item 8 ~~(Financial~~“Financial Statements and Supplementary ~~Data) in the Financial Supplement~~Data” under Note 10, ~~(Commitments~~“Commitments and Contingent ~~Liabilities)~~Liabilities,” to the Consolidated Financial Statements, which information is incorporated herein by reference.

EHSS Programs

We continuously seek to improve our ~~environment,~~environmental, health, safety, and ~~safety~~security performance. To the extent applicable, we extend the basic elements of the American Chemistry ~~Council's~~Council’s RESPONSIBLE CARE^® program to all our locations worldwide. Our Environment, Health, Safety, and Security Policy and RESPONSIBLE CARE MANAGEMENT SYSTEM® guide the company, our operating segments, and our facilities worldwide ~~embracing specific performance objectives~~in systematically managing the environmental, health, safety, process safety, product safety, security, and sustainability aspects of our operations.

Sustainability

Overview

We succeed when we deliver value to our customers, and that success is increasingly based on how we help them meet their sustainability goals. Many of our products and technical services improve the efficiency of our customers’ products and processes, reduce energy or water use, cut harmful emissions, conserve material inputs, and/or reduce waste. Several of our technologies enable our customers to make products that meet the toughest environmental standards or to reformulate products to address rising consumer and regulatory expectations for sustainability, human health, and safety. As a leading manufacturer of process catalysts, we have become an active participant in the ~~key areas~~circular economy, with increasing business in assisting our customers with the recycling or

Table of Contents

TOC—Financial Statements

reprocessing of spent catalysts. As part of our commitment to RESPONSIBLE CARE®, we systematically track safety and environmental performance through a comprehensive, global EHSS management ~~systems, product stewardship, employee~~system covering the environmental, health, ~~and~~ safety ~~community awareness and emergency response, distribution,~~(including process safety and ~~pollution prevention.~~ product safety) and security aspects of our operations, and track progress through pertinent metrics.

In 2019, we began reporting to the Carbon Disclosure Project (“CDP”). This year, we made our CDP Climate and CDP Water disclosures public for the first time. We also published sustainability disclosures aligned with the Sustainability Accounting Standards Board (“SASB”) standard for the chemical industry. In addition, we strengthened the governance of our sustainability and environmental, social, and governance (“ESG”) related activities by naming a Chief Sustainability Officer (“CSO”) reporting directly to the CEO, and established a Sustainability Leadership Council composed of the CSO and leadership from Grace businesses and integrated supply chain. We also established targets to reduce scope 1 and scope 2 greenhouse gas (“GHG”) emissions by 22% from a baseline of 2019 by 2029, as well as 10-year reduction targets for water consumption and waste generation.

Product Portfolio

As part of a strategic review of our product portfolio, in 2019 we identified the products that directly contribute to our customers’ sustainability objectives, including:

•Products designed for use-phase efficiency — defined by the SASB as products that “through their use—can be shown to improve energy efficiency, eliminate or lower GHG emissions, reduce raw materials consumption, increase product longevity, and/or reduce water consumption,” either through:

◦Improved products — by increasing the efficiency of a product during its use phase, or

◦Improved processes — by increasing the efficiency of the manufacturing processes used to make products;

•Meeting the strictest environmental standards — products that directly enable customers to meet environmental regulatory/legal requirements applicable to their products or manufacturing processes; and

•Cleaner, safer products to meet consumer demands — products that enable customers to reformulate their products to avoid or reduce to de minimis levels substances of concern to their customers.

This year, we reviewed the requested disclosures from SASB and CDP as well as other ESG ratings organizations and expanded our product categories to include products that make a significant contribution to the move toward a more circular economy through:

•Enabling material recycling and bio-feeds – products that are tailored to enable customers to replace petroleum inputs with bio-based and recycled materials, and FCC catalyst sales (not counted above) where we take back spent FCC catalyst for recycling, or otherwise enable the reuse or recycling of spent catalysts.

Together, the products in our portfolio, including those of our ART joint venture, that address these sustainability endpoints accounted for approximately $1.1 billion, or 49% of our total revenue in 2020. Looking to the future, we estimate that 62% of our R&D projects are linked to at least one of these customer sustainability objectives. We expect to see further opportunities as we continue to develop technologies for advanced plastics recycling and renewable fuels.

ESG Rankings

For 2020, we again earned a Gold Rating from EcoVadis, this year placing us in the 95th percentile of all companies ranked by EcoVadis on their sustainability performance. EcoVadis is a leading third-party entity that evaluates suppliers on a complex scale of sustainability and ESG factors. CDP increased our 2020 Climate Disclosure score to a B-, above the average achieved by our chemical industry peers and above the North American average. Also in 2020, the ESG Risk Rating† from Sustainalytics placed us in the top quintile of both chemical and specialty companies. †Source Sustainalytics.

Table of Contents

TOC—Financial Statements

Further Information

Shareholders and other interested persons can visit our website for additional sustainability information at www.grace.com/sustainability/en-us. That further information is not incorporated herein by reference and is not a part of this Annual Report on Form 10-K.

Security

We have implemented the RESPONSIBLE CARE^® Security Code through a company-wide security program focused on the security of our people, processes, and systems. We have reviewed existing security (including cybersecurity) vulnerability and taken actions to enhance security systems where deemed necessary. In addition, we are complying with the Department of Homeland Security’s Chemical Facility Anti-Terrorism Standards, including identifying facilities subject to the standards, conducting security vulnerability assessments and developing and executing site security plans, as necessary.

~~EMPLOYEE RELATIONS~~

As of December 31, 2017, we employed approximately 3,700 persons, of whom approximately 1,900 were employed in the United States and approximately 1,000 were employed in Germany. Of our total employees, approximately 2,200 were salaried and 1,500 were hourly.

Approximately 640 of our manufacturing employees in the United States are represented by unions. We have operated without a labor work stoppage for more than 10 years. We have works councils representing the majority of our European sites serving approximately 1,100 employees.

OTHER INFORMATION, WEBSITE, AND AVAILABILITY OF REPORTS AND OTHER DOCUMENTS

Our principal executive offices are located at: W. R. Grace & Co., 7500 Grace Drive, Columbia, Maryland 21044. We maintain ~~an Internet~~a website at www.grace.com. Our telephone number at our principal executive offices is +1 410.531.4000.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission, or SEC. These reports may be accessed through our ~~website's~~website’s investor information ~~page.~~page at http://investor.grace.com/. These reports as well as our proxy and information statements may also be accessed through the SEC’s website at www.sec.gov.

In addition, the charters for the Audit, Compensation, Nominating and Governance, and Corporate Responsibility Committees of our Board of Directors, our corporate governance principles and code of ethics are available, free of charge, on our website at www.grace.com/en-us/corporate-leadership/pages/governance.aspx. Printed copies of the charters, governance principles and code of ethics may be obtained free of charge by contacting Grace Shareholder Services at ~~410-531-4167.~~+1 410.531.4167.

The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.

Our ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial Officer have submitted certifications to the SEC pursuant to the Sarbanes Oxley Act of 2002 as exhibits to this Report.

Important information can be found throughout this Form 10-K and shareholders and potential investors are encouraged in particular to review Item 1A, “Risk Factors.”

~~Table of Contents~~

EXECUTIVE OFFICERS

See ~~"Executive Officers of the Registrant"~~“Information about our Executive Officers” following Part I, Item 4 of this Report for information about our Executive Officers.

Item 1A. RISK FACTORS

This Report, including the Financial Supplement, contains, and our other public communications may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding: expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities, are forward looking. Such statements generally include the words "believes," "plans," "intends," "targets," "will," "expects," "suggests," "anticipates," "outlook," "continues" or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. We are subject to risks and uncertainties that could cause our actual results to differ materially from our projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual events to differ materially from those contained in the forward-looking statements include those factors set forth below and elsewhere in this Annual Report on Form 10-K. Our reported results should not be considered as an indication of our future performance. Readers are cautioned not to place undue reliance on our projections and forward-looking statements, which speak only as of the date those projections and statements are made. We undertake no obligation to publicly release any revisions to the projections and forward-looking statements contained in this document, or to update them to reflect events or circumstances occurring after the date of this document. In addition to general economic, business and market conditions, we are subject to other risks and uncertainties, including, without limitation, the ~~following:~~risks set forth below. For reference, we have divided the various significant risks to our business, financial condition, and results of operations into the following three categories: (i) key business risks; (ii) risks related to legacy matters; and (iii) risks related to financial matters, as set forth below.

Table of Contents

TOC—Financial Statements

Key Business Risks ~~Related~~

The global COVID-19 pandemic has had a significant negative effect on certain industries into which we supply products and services, and on our financial results. The pandemic is expected to continue to negatively impact our operations and businesses until successfully controlled.

The COVID-19 pandemic caused an economic slowdown that led to a global recession. If resulting recessionary trends again turn negative or exacerbate, or if there is a resurgence of COVID-19, including variants thereof, such events could have a negative effect on our business, financial condition, and future results. Resulting recessions may impact our share price, as well as our ability to access the ~~Business~~capital markets and sources of liquidity on reasonable terms, or at all.

The COVID-19 pandemic has led to significantly lower transportation fuel demand and a reduction in refining activity, which has negatively affected demand for our refining catalysts. Manufacturing activity reduced as a result of the pandemic. Demand for certain manufactured products, including polyolefin resins and products made with our specialty silicas, declined and negatively affected demand for our polyolefin catalysts and specialty silicas.The pandemic continues to present us with significant uncertainty.

The COVID-19 pandemic has also heightened risks associated with our internal operations. An outbreak among our employee population could have a material adverse effect on our overall business and financial condition. Additionally, a large number of our employees are working remotely as a result of restrictions imposed to control the spread of the virus. This could result in increased cybersecurity risk, which could have a material adverse effect on our overall business and financial condition.

The global scope of our operations subjects us to the risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations.

We operate our business on a global scale with approximately ~~75%~~73% of our ~~2017~~2020 consolidated sales outside the United States. We operate and/or sell to customers in over 60 countries and in over 30 currencies. We currently have many production facilities, research and development facilities, and administrative and sales offices located outside North America, including facilities and offices located in EMEA (Europe Middle East Africa), Asia Pacific and Latin America. We expect non-U.S. sales to continue to represent a substantial majority of our revenue. Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent in non-U.S. operations include the following:

•commercial agreements may be more difficult to enforce and receivables more difficult to collect;

•intellectual property rights may be more difficult to enforce;

•increased shipping costs, disruptions in shipping or reduced availability of freight transportation;

~~we may have~~ •difficulty transferring our profits or capital from foreign operations to other countries where such funds could be more profitably deployed;

~~we may experience~~ •unexpected adverse changes in export duties, quotas and tariffs, and difficulties in obtaining export licenses;

~~some foreign countries have adopted, and others may impose,~~ •differing regulatory responses to the COVID-19 pandemic in the jurisdictions in which we operate;

•additional withholding and other taxes or ~~adopt other~~ restrictions on foreign trade or investment, including import, currency exchange and capital controls, charges and limitations;

•foreign governments may nationalize private enterprises;

~~our business and profitability in a particular country could be affected by~~ •political or economic repercussions on a domestic, country-specific or global level from terrorist activities and the response to such activities;

~~we may be affected by~~ •unexpected adverse changes in foreign laws or regulatory requirements;

~~we may have to pay~~ •the impact of the United Kingdom’s exit from the European Union on January 31, 2020, and the provisional application of the EU-UK Trade and Cooperation Agreement on January 1, 2021;

•increased cash taxes in the event of a change in tax laws, regulations or interpretations in one or more foreign jurisdictions, ~~and~~could adversely affect our business, financial condition, or results of operations, or ~~liquidity could be adversely affected;~~liquidity; and

~~Table of Contents~~

~~we are exposed to~~ •geopolitical risk, where unexpected changes in global, regional, or local political or social conditions could adversely affect our foreign operations.

Table of Contents

TOC—Financial Statements

Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we do business.

In addition to the risks and uncertainties that we discussed above, recent world events have increased the risks posed by international trade disputes, tariffs, and sanctions. We procure a wide spectrum of commodities globally to support our production. For materials sourced from nations that could be impacted by trade disputes, tariffs or sanctions, we could potentially face increased costs, supply disruptions and/or costs associated with securing alternative materials. Additionally, such disputes, tariffs, and sanctions could potentially lead to a reduction in our sales of products, technology, and services. We view geopolitical risk along with other potential supply chain and sales risks, and work actively to diversify and mitigate these potential impacts; however, such events could adversely affect our business, financial condition and results of operations.

As we operate worldwide in a competitive environment, global economic and financial market conditions may adversely affect our business, financial condition and results of operations.

We compete by selling value-added products, technologies and services. Increased levels and numbers of competitors, globally or regionally, could negatively impact our results of operations. Economic conditions around the world can have a direct impact on our revenues. A global or regional economic downturn or market uncertainty could reduce the demand for our products, technologies and services, which could negatively impact our results of operations. Since many of our customers are refiners, our fluid catalytic cracking (FCC) and hydroprocessing catalyst (HPC) businesses are highly dependent on the economics of the petroleum refining industry. Demand for our FCC and HPC products is affected by refinery throughput, the type and quality of refinery feedstocks, and the demand for transportation fuels and other refinery products, such as propylene. Also, disruptions in the financial markets could have an adverse effect on our ability to finance our operations and growth plans, and could negatively impact our suppliers and customers in similar manners.

We are exposed to currency exchange rate changes that impact our profitability.

We are exposed to currency exchange rate risk through our U.S. and non-U.S. operations. Changes in currency exchange rates may materially affect our operating results. For example, changes in currency exchange rates may affect the relative prices at which we and our competitors sell products in the same region and the cost of materials used in our operations. A substantial portion of our net sales and assets are denominated in currencies other than the U.S. dollar, particularly the euro. When the U.S. dollar strengthens against other currencies, at a constant level of business, our reported sales, earnings, assets and liabilities are reduced because the non-U.S. currencies translate into fewer U.S. dollars.

We incur a currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a currency different from the operating ~~subsidiary's~~subsidiary’s functional currency. Given the volatility of exchange rates, we may not be able to manage our currency transaction risks effectively, or volatility in currency exchange rates may expose our financial condition or results of operations to a significant additional risk.

Prices for certain raw materials and energy are volatile and can have a significant effect on our manufacturing and supply chain strategies as we seek to maximize our profitability. If we are unable to successfully adjust our strategies in response to volatile raw materials and energy prices, such volatility could have a negative effect on our earnings in future periods.

We use ~~petroleum-based materials,~~ metals, natural gas, petroleum-based materials, and other materials in the manufacture of our products. We consume substantial amounts of energy in our manufacturing processes. Prices for these materials and energy are volatile and can have a significant effect on our pricing, sales, manufacturing and supply chain strategies as we seek to maximize our profitability. Our ability to ~~successfully~~ adjust strategies successfully in response to volatile raw material and energy prices is a significant factor in maintaining or improving our profitability. If we are unable to successfully adjust our strategies in response to volatile prices, such volatility could have a negative effect on our sales and earnings in future periods.

Table of Contents

TOC—Financial Statements

A substantial portion of our raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change.

We attempt to manage exposure to price volatility of major commodities through:

•long-term supply contracts;

•contracts with customers that permit adjustments for changes in prices of commodity-based materials and energy;

•forward buying programs that layer in our expected requirements systematically over time; and

•limited use of financial instruments.

Although we regularly assess our exposure to raw material price volatility, we cannot always predict the prospects of volatility and we cannot always cover the risk in a cost effective manner.

~~We have a policy of maintaining, when available, multiple sources of supply for raw materials. However, certain~~Certain of our raw materials may be provided by single sources of supply. We may not be able to obtain sufficient raw materials due to unforeseen developments that would cause an interruption in supply. Even if we have multiple sources of supply for raw materials, these sources may not make up for the loss of a major supplier.

If we are not able to continue our technological innovation and successful introduction of new products, our customers may turn to other suppliers to meet their requirements.

The specialty chemicals ~~industry~~and specialty materials industries and the end-use markets into which we sell our products experience ongoing technological change and product improvements. A key element of our business strategy is to invest in research and development activities with the goal of introducing new high-performance, ~~technically differentiated~~

~~Table of Contents~~

technically-differentiated products. We may not be successful in developing new technology and products that effectively compete with products introduced by our competitors, and our customers may not accept, or may have lower demand for, our new products. If we fail to keep pace with evolving technological innovations or fail to improve our products in response to our customers’ needs, then our business, financial condition and results of operations could be adversely affected as a result of reduced sales of our products.

~~We spend large amounts of money for environmental compliance in connection with our current and former operations.~~

As a manufacturer of specialty chemicals and specialty materials, we are subject to stringent regulations under numerous U.S. federal, state, local and foreign environmental, health and safety laws and regulations relating to the generation, storage, handling, discharge, disposition and stewardship of chemicals and other materials. We have expended substantial funds to comply with such laws and regulations and have established a policy to minimize our emissions to the environment. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential laws and regulations pertaining to climate change) make it difficult for us to project future spending for these purposes, and if there is an acceleration in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance.

~~We are subject to environmental clean-up costs, fines, penalties and damage claims that have been and continue to be costly.~~

In the U.S., we are subject to lawsuits and regulatory actions, in connection with current and former operations (including some divested businesses and off-site disposal facilities), that seek clean-up or other remedies. We are also subject to similar risks outside of the U.S.

We operated a vermiculite mine in Libby, Montana, until 1990. Some of the vermiculite ore that was mined at the Libby mine contained naturally occurring asbestos. We are cooperating with the U.S. Environmental Protection Agency and other federal, state and local governmental agencies in a remedial investigation and feasibility study ("RI/FS") of the Libby mine and the surrounding area to determine the location, scope and extent of required remediation. The EPA is also investigating or remediating formerly owned or operated sites that processed Libby vermiculite into finished products. We are cooperating with the EPA on these investigation and remediation activities, and have recorded a liability to the extent that our review has indicated that a probable liability has been incurred and the cost is estimable.

We have recorded liabilities for all environmental matters for which a loss is considered to be probable and sufficient information is available to reasonably estimate the loss. These liabilities do not include the cost to remediate the Libby vermiculite mine and surrounding area or costs related to any additional EPA claims, whether resulting from the EPA's investigation of vermiculite facilities or otherwise, which may be material but are not currently estimable. Due to these vermiculite-related matters, it is probable that our ultimate liability for environmental matters will exceed our current estimates by material amounts.

~~Our indebtedness may materially affect our business, including our ability to fulfill our obligations, react to changes in our business and incur additional debt to fund future needs.~~

We have a substantial amount of debt. As of December 31, 2017, we had $1,033.1 million of unsecured indebtedness outstanding and $510.8 million of secured indebtedness outstanding. Our indebtedness may have material effects on our business, including to:

require us to dedicate a substantial portion of our cash flow to debt payments, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development, distributions to stockholders, stock repurchase programs and other purposes;

~~restrict us from making strategic acquisitions or taking advantage of favorable business opportunities;~~

~~limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;~~

~~increase our vulnerability to adverse economic, credit and industry conditions, including recessions;~~

~~make it more difficult for us to satisfy our debt service and other obligations;~~

~~place us at a competitive disadvantage compared to our competitors that have relatively less debt; and~~

~~limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other purposes.~~

~~Table of Contents~~

~~If we incur additional debt, the risks related to our indebtedness may intensify. We expect to incur additional debt in connection with the announced polyolefin catalysts acquisition.~~

Restrictions imposed by agreements governing our indebtedness may limit our ability to operate our business, finance our future operations or capital needs, or engage in other business activities. If we fail to comply with certain restrictions under these agreements, our debt could be accelerated and we may not have sufficient cash to pay our accelerated debt.

~~The agreements governing our indebtedness contain various covenants that limit, among other things, our ability, and the ability of certain of our subsidiaries, to:~~

~~incur certain liens;~~

~~enter into sale and leaseback transactions; and~~

~~consolidate, merge or sell all or substantially all of our assets or the assets of our guarantors.~~

As a result of these covenants, we will be limited in the manner in which we can conduct our business, and may be unable to engage in favorable business activities or finance future operations or capital needs. Accordingly, these restrictions may limit our flexibility to operate our business. A failure to comply with the restrictions contained in these agreements, including maintaining the financial ratios required by our credit facilities, could lead to an event of default which could result in an acceleration of our indebtedness. We cannot assure you that our future operating results will be sufficient to enable us to comply with the covenants contained in the agreements governing our indebtedness or to remedy any such default. In addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments.

~~Our indebtedness exposes us to interest expense increases if interest rates increase.~~

As of December 31, 2017, $301.3 million, or approximately 20%, of our borrowings were at variable interest rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our net income would decrease. An increase of 100 basis points in the interest rates payable on our variable rate indebtedness would increase our annual estimated debt-service requirements by $3.0 million, assuming our consolidated variable interest rate indebtedness outstanding as of December 31, 2017, remains the same.

We have unfunded and underfunded pension plan liabilities. We will require future operating cash flow to fund these liabilities. We have no assurance that we will generate sufficient cash to satisfy these obligations.

We maintain U.S. and non-U.S. defined benefit pension plans covering current and former employees who meet or met age and service requirements. Our net pension liability and cost is materially affected by the discount rate used to measure pension obligations, the longevity and actuarial profile of our workforce, the level of plan assets available to fund those obligations and the actual and expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets or in a change in the expected rate of return on plan assets. Assets available to fund the pension benefit obligation of the U.S. advance-funded pension plans at December 31, 2017, were approximately $1,110 million, or approximately $107 million less than the measured pension benefit obligation on a U.S. GAAP basis. In addition, any changes in the discount rate could result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following years. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost in the following years.

~~Our obligation to make payments to the PD Trust in respect of asbestos PD Claims (other than ZAI PD Claims) is not cappedand we may be obligated to make additional payments.~~

Under the Joint Plan of reorganization that concluded Grace's status as a debtor under Chapter 11, as discussed above (the "Joint Plan"), an asbestos property damage trust has been established and funded under Section 524(g) of the Bankruptcy Code. The order of the Bankruptcy Court confirming the Joint Plan contains a channeling injunction which provides that all pending and future asbestos-related property damage claims and demands, PD Claims, can only be brought against the PD Trust. The PD Trust contains two accounts. One of these accounts, the PD Account, is funded solely in respect of PD Claims other than those PD Claims related to

~~Table of Contents~~

our former ZAI attic insulation product. Unresolved and future non-ZAI PD Claims are to be litigated pursuant to procedures approved by the Bankruptcy Court and, to the extent such PD claims are determined to be allowed claims, are to be paid in cash by the PD Trust. We are obligated to make a payment to the PD Trust every six months in the amount of any non-ZAI PD Claims allowed during the preceding six months plus interest (if any) and the amount of PD Trust expenses for the preceding six months (the "PD Obligation"). The aggregate amount we are required to pay under the PD Obligation is not capped so we may have to make additional payments to the PD Account in respect of the PD Obligation. We are also obligated to make up to 10 contingent deferred payments to the PD Trust of $8 million each during the 20-year period beginning February 3, 2019, in respect of ZAI PD Claims in the event the ZAI PD Account's assets fall below $10 million in the preceding year. We have accrued liabilities for probable PD Claims but have not accrued any liability for the contingent ZAI PD payments as we do not currently believe they are probable.

Our ability to use net operating losses and tax credits to reduce future tax payments may be limited if there is a change in ownership of Grace or if Grace does not generate sufficient U.S. taxable income or foreign source income. Our ability to use these attributes is also subject to time limitations. Changes in tax laws and regulations may reduce their value and availability.

Our ability to use future tax deductions and tax credits, including net operating losses ("NOLs"), is dependent on our ability to generate sufficient future taxable income in the U.S. and sufficient foreign source income. Under U.S. federal income tax law, a corporation is generally permitted to carry forward NOLs for a 20-year period (indefinitely in the case of NOLs occurring in taxable years after December 31, 2017) for deduction against future taxable income. Federal tax credits may be carried forward for 10 years. Also, our ability to use NOLs and tax credits and their value may be adversely affected by changes in tax laws and regulations.

In addition, our ability to utilize federal and state NOLs and U.S. federal tax credits may be limited by Section 382 of the Internal Revenue Code resulting from future changes in the ownership of outstanding Company common stock. Our Amended and Restated Certificate of Incorporation provides that under certain circumstances, our Board of Directors would have the authority to impose restrictions on the transfer of Company common stock with respect to certain 5% stockholders in order to preserve these future tax benefits.

We intend to pursue acquisitions, joint ventures and other transactions that complement or expand our businesses. We may not be able to complete proposed transactions and even if completed, the transactions may involve a number of risks that may materially and adversely affect our business, financial condition and results of operations.

We intend to continue to pursue opportunities to buy other businesses or technologies that could complement, enhance or expand our current businesses or product lines or that might otherwise offer us growth opportunities. We may have difficulty identifying appropriate opportunities or, if we do identify opportunities, we may not be successful in completing transactions for a number of reasons. Any transactions that we are able to identify and complete may involve a number of risks, including:

~~the diversion of management's attention from our existing businesses to integrate the operations and personnel of the acquired or combined business or joint venture;~~

~~possible adverse effects on our operating results during the integration process;~~

~~failure of the acquired business to achieve expected operational objectives; and~~

~~our possible inability to achieve the intended objectives of the transaction.~~

In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage any newly acquired operations or their employees. We may not be able to maintain uniform standards, controls, procedures and policies, which may lead to operational inefficiencies.

~~We work with dangerous materials that can injure our employees, damage our facilities, disrupt our operations, and contaminate the environment.~~

Some of our operations involve the handling of hazardous materials that may pose the risk of fire, explosion, or the release of hazardous substances. Such events could result from natural disasters, operational failures or terrorist attacks, and might cause injury or loss of life to our employees and others, environmental contamination, and property damage. These events might cause a temporary shutdown of an affected plant, or portion thereof, and we could be subject to penalties or claims as a result. A disruption of our operations caused by these or other events could have a material adverse effect on our results of operations.

~~Table of Contents~~

~~Some of our employees are unionized, represented by works councils or employed subject to local laws that are less favorable to employers than the laws in the United States.~~

As of December 31, 2017, we had approximately 3,700 global employees. Approximately 640 of our approximately 1,900 U.S. employees are unionized. In addition, a large number of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws in the United States. Such employment rights require us to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. For example, most of our employees in Europe are represented by works councils that have co-determination rights on any changes in conditions of employment, including certain salaries and benefits and staff changes, and may impede efforts to restructure our workforce. A strike, work stoppage or slowdown by our employees or significant dispute with our employees, whether or not related to these negotiations, could result in a significant disruption of our operations or higher ongoing labor costs.

We may be subject to claims of infringement of the intellectual property rights of others, which could hurt our business.

From time to time, we face infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technologies. Any claims that our products or processes infringe the intellectual property rights of others, regardless of the merit or resolution of the claims, could cause us to incur significant costs in responding to, defending and resolving the claims, and may divert the efforts and attention of our management and technical personnel from our business. If we are found to be infringing on the proprietary technology of others, we may be liable for damages, and we may be required to change our processes, redesign our products, pay others to use the technology, or stop using the technology or producing the infringing product. Even if we ultimately prevail, the existence of the lawsuit could prompt our customers to switch to products that are not the subject of infringement suits.

Some of our employees are unionized, represented by works councils or employed subject to local laws that are less favorable to employers than the laws in the United States.

As of December 31, 2020, we had approximately 4,000 global employees. Approximately 700 of our approximately 2,200 U.S. employees are unionized at 5 manufacturing sites, and approximately 1,400 of our employees outside the U.S. are represented by works councils and unions. In addition, a large number of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws in the United States. Such employment rights require us to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. For example, most of our employees in Europe are represented by works councils that have co-determination rights on any changes in conditions of employment, including certain salaries and benefits and staff changes, and may impede efforts to restructure our workforce. A strike, work stoppage or slowdown by our employees or significant dispute with our employees, whether or not related to these negotiations, could result in a significant disruption of our operations or higher ongoing labor costs.

Table of Contents

TOC—Financial Statements

•the diversion of management’s attention from our existing businesses to integrate the operations and personnel of the acquired or combined business or joint venture;

•possible adverse effects on our operating results during the integration process;

•failure of the acquired business to achieve expected financial, operational, and other objectives;

•possible assumption of unexpected liabilities; and

•inability to obtain indemnification from other parties to transactions.

We spend large amounts of money for environmental compliance in connection with our current and former operations.

As a manufacturer of specialty chemicals and specialty materials, we are subject to stringent regulations under numerous U.S. federal, state, local and foreign environmental, health and safety laws and regulations relating to the generation, storage, handling, discharge, disposition and stewardship of chemicals and other materials. We have expended substantial funds to comply with such laws and regulations and have established a policy to minimize our emissions to the environment. Legislative, regulatory and economic uncertainties (including existing and potential laws and regulations pertaining to climate change) make it difficult for us to project future spending for these purposes, and if there is an acceleration in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance, which may be material.

Evolving energy consumption patterns; investor sentiment regarding fossil fuels and related matters; and risks related to climate change, may negatively affect our business, financial condition, and results of operations, and our stock price.

We are engaged in the production and sale of specialty chemicals and specialty materials used in petrochemical, refining, and other chemical manufacturing applications. These industries are facing challenges from ESG concerns of investors; the economic impacts of climate change developments; and regulation of GHGs, such as carbon dioxide, methane, and nitrous oxide, among others. In addition, the increasing availability of electric vehicles offers an alternative that could lead to reduced demand for liquid transportation fuels. Resulting reductions in refining and related activities could have a negative effect on our revenues and business.

Recently, there have been intensifying efforts directed at various members of the investment community to promote the divestment of shares of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. As we provide products and services to energy companies, should these efforts be successful or expanded, there may be a negative impact on our revenues and business, and our stock price.

Potential effects of climate change include increased frequency, severity, and impact of weather-related events. Multiple Grace facilities globally are located in areas that may be at risk from hurricanes and other weather-related events that could cause production interruptions. Key suppliers and associated distribution routes for raw materials and finished goods are similarly at risk of interruptions from severe weather events. Multiple customers are likewise located in areas that could be impacted by extreme weather events. These circumstances present business continuity and related risks.

Table of Contents

TOC—Financial Statements

We work with dangerous materials that can injure our employees, damage our facilities, disrupt our operations, and contaminate the environment.

Some of our operations involve the handling of hazardous materials that may pose the risk of fire, explosion, or the release of hazardous substances. Such events could result from natural disasters, operational failures or terrorist attacks, and might cause injury or loss of life to our employees and others, environmental contamination, and property damage. These events might cause a temporary shutdown of an affected plant, or portion thereof, and we could be subject to penalties or claims as a result of any of these events. A disruption of our operations caused by these or other events could have a material adverse effect on our results of operations.

We are subject to business continuity risks that may adversely affect our business, financial condition and results of operations.

We are subject to significant risks from both natural disasters and accidents such as fires, storms, and ~~floods,~~floods; public health concerns, including pandemics and ~~other~~quarantines; and disruptive events, such as war, insurrection, and terrorist ~~actions.~~actions; and other force majeure events. These types of occurrences can negatively affect our manufacturing, supply chain, logistics, ~~transportation,~~information technology, and communications functions. Similarly, they can strike major suppliers and customers, thus restricting or delaying our supply of raw materials or energy as well as reducing or deferring demand for our products and services. In the event of a major disruption, we may not be able to replace this business in a timely manner or at similar margins. Also, we have centralized certain administrative functions, primarily in North America, Europe and Asia, to improve efficiency and reduce costs. To the extent that these central locations are disrupted or disabled, key business processes, such as invoicing, payments and general management operations, could be interrupted.

~~As we operate worldwide in a competitive environment, global economic and financial market conditions may adversely affect our business, financial condition and results of operations.~~

We compete by selling value-added products, technologies and services. Increased levels and numbers of competitors, globally or regionally, could negatively impact our results of operations. Economic conditions around the world can have a direct impact on our revenues. A global or regional economic downturn or market uncertainty could reduce the demand for our products, technologies and services, which could negatively impact our results of operations. Sinceinsure against many of ~~our customers are refiners, our fluid catalytic cracking (FCC) catalyst business is highly dependent on the economics of the petroleum refining industry. Demand for our FCC products is affected~~these risks by ~~refinery throughput, the type and quality of refinery feedstocks, and the demand for transportation fuels~~carrying property, general, liability, and other ~~refinery products, such~~coverages with highly rated global insurers. Given the current insurance market as ~~propylene. Also, disruptions in the financial markets could have an adverse effect on~~well as our ~~ability~~recent claims experience, we may experience increased costs to ~~finance our operations and growth plans, and could negatively impact our suppliers and customers in similar manners.~~

purchase insurance coverage going forward. Our ability to ~~operate our businesses and our financial condition could be significantly undermined by cybersecurity breaches.~~

Despite our implementation of security measures, our information technology ("IT") systems are subject to cyberattack and other similar disruptions. Breaches by hackers, the introduction of computer viruses and other cybersecurity incidents affecting our IT systems could result in disruptionsobtain certain coverage, including contingent time element business interruption insurance, for losses related to our ~~operations. Also, such incidents could include theft of our trade secrets and other intellectual property, as well as confidential customer and~~

~~Table of Contents~~

~~business information, which could be used by unauthorized parties and publicly disclosed. This could negatively affect our relationships with~~suppliers or customers ~~and our ability to compete effectively, and could ultimately harm our reputation, business, financial condition and results of operations. In addition, we~~ may be ~~required to incur significant costs to protect against damage caused by cybersecurity breaches~~limited or more costly in the future.

A failure of our information technology (“IT”) infrastructure could adversely impact our business and operations.

We increasingly rely upon the capacity, reliability and security of our IT infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business. Additionally, a large number of our employees are working remotely as a result of restrictions imposed to control the spread of the COVID-19 virus. If we experience a problem with the functioning of an important IT system, the resulting disruptions could have an adverse effect on our business. Our IT systems affect virtually every aspect of our business, including supply chain, manufacturing, logistics, finance and communications. We and certain of our third-party vendors receive and store personal information in connection with our human resources operations and other aspects of our business. Any IT system failure, natural disaster, accident, or intentional breach could result in disruptions to our operations.

Our ability to operate our businesses and our financial condition could be significantly undermined by cybersecurity breaches.

Our IT systems are subject to cyberattack and other similar disruptions. Breaches by hackers, the introduction of computer viruses, ransomware, and other cybersecurity incidents affecting our IT systems could result in disruptions to our operations. Also, such incidents could include theft of our trade secrets and other intellectual property, as well as confidential customer, employee and business information, which could be used by unauthorized parties and publicly disclosed. This could negatively affect our relationships with customers and our ability to compete effectively, and could ultimately harm our reputation, business, financial condition and results of operations. In addition, we may be required to incur significant costs to protect against damage caused by cybersecurity breaches in the future.

Table of Contents

TOC—Financial Statements

Risks Related to ~~the Separation~~Legacy Matters

We are subject to liabilities for Legacy Matters, which include (i) product, (ii) environmental, and (iii) other liabilities, relating to past activities of Grace.

In addition to the legacy product and legacy environmental liabilities discussed below in these Risk Factors, we are subject to other liabilities relating to past activities of Grace. Beginning in 1971, as part of implementing a wet milling process at the Libby, Montana, vermiculite mine, we constructed a dam at the mine property that now prevents vermiculite ore tailings from moving into nearby creeks and rivers. Ongoing operation of the dam is regulated by the Montana Department of Natural Resources and Conservation (“DNRC”). In April 2019, the DNRC renewed the permit necessary for operation of the dam. We are legally obligated to operate the dam and construct a new spillway in accordance with the latest permit conditions.

Construction of the new dam spillway at the former mine site is a key element of our overall remediation strategy. The project includes both an upper spillway and a lower spillway that are being managed as two separate projects with different engineering design and construction timelines. In 2019, we contracted a third-party engineering and consulting firm to develop an initial range of cost estimates for the total project. Based on this work, we recorded a liability of $68.0 million in 2019 for the estimated costs of the project. These costs were preliminary and subject to change as new information becomes available, including defining the final scope of the projects through the contract bidding process. During the three months ended September 30, 2020, we completed a review of contractor bids for the replacement of the upper spillway and increased our cost estimate for this portion of the project by $27.0 million, bringing the estimate for the total project to $95.0 million. Regarding the lower spillway, final engineering will be completed and submitted to the state of Montana for design approval in 2021, after which we will seek contract bids for this portion of the project. We believe it is reasonably possible that the ultimate costs of the two spillway projects could range between $80 million and $120 million. As we receive new information, our estimated liability may change materially. Construction will begin in 2021 and is expected to take three to four years.

We are subject to environmental clean-up costs, fines, penalties and damage claims that have been and continue to be costly.

We 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. We are engaged with the U.S. Environmental Protection Agency (or the “EPA”) and other federal, state and local governmental agencies in a remedial investigation and feasibility study (or the “RI/FS”) of the Libby mine and the surrounding area, known as Operable Unit 3 (or “OU3”). The RI/FS will ~~indemnify~~study the 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, we contracted an engineering and consulting firm to develop a range of possible remedial alternatives and associated cost estimates for OU3. Based on this work, we recorded a pre-tax charge of $70.0 million during the three months ended September 30, 2018, for the estimated costs of remediation of OU3. We believe 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. We are 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 (or “ROD”) that is currently expected to be issued by the EPA no earlier than 2024. Costs associated with the more active remedial alternatives would be expected to be incurred over a decade or more. We will reevaluate our 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 us to update our cost of remediation estimate. Depending on the remedial alternatives that the EPA selects in the ROD, the total cost of remediating OU3 may exceed our current estimate

Table of Contents

TOC—Financial Statements

by material amounts. The amounts set forth above do not include possible liability for natural resources damage. Based on ecological studies conducted by the EPA, we do not believe that natural resources damage has occurred. However, if a party were to be successful in asserting a natural resources damage claim, liability related to such obligation could be material.

We have cooperated with the EPA in investigating and remediating a number of formerly owned or operated sites that processed Libby vermiculite into finished products. We have recorded a liability for remaining expected response costs, including costs for EPA oversight and 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.

We have recorded liabilities for all environmental matters for which a loss is considered to be probable and sufficient information is available to reasonably estimate the loss. We also face legacy environmental liability for response costs at sites not related to our former vermiculite mining and processing activities. This liability relates to our former businesses or operations, including our share of liability at off-site disposal facilities. Our estimated liability is based upon regulatory requirements and environmental conditions at each site. As we receive new information, our estimated liability may increase materially.

We may be required to make one or more contingent deferred payments to the trust for asbestos property damage claims, which we refer to as the “PD Trust,” in respect of claims related to our former Zonolite attic insulation (“ZAI”) product (“ZAI PD Claims”); we may also be obligated to make additional payments to the PD Trust in respect of “Other PD Claims” (those being asbestos property damage claims other than ZAI PD Claims); and our obligations to make payments to the PD Trust in respect of Other PD Claims is not capped.

Grace emerged from bankruptcy effective February 3, 2014 (the “Effective Date”). Under the Joint Plan, the PD Trust was established and funded under Section 524(g) of the Bankruptcy Code. The order of the Bankruptcy Court confirming the Joint Plan contains a channeling injunction, which provides that all pending and future asbestos-related property damage claims and demands (or “PD Claims”) can only be brought against the PD Trust. The PD Trust contains two accounts. One of these accounts is the “ZAI PD Account,” which is funded in respect of claims related to ZAI. The other account is the “PD Account,” which is funded solely in respect of Other PD Claims.

Under the Joint Plan, all pending and future asbestos-related personal injury claims are channeled for resolution to a personal injury trust (the “PI Trust”). We have satisfied all of our financial obligations to the PI Trust. We have contingent financial obligations remaining to the PD Trust. With respect to ZAI PD Claims, the PD Trust was funded with $49.4 million (net of $15 million of attorneys’ fees) to pay claims and expenses. We are 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 February 3, 2019, with each such payment due only if the assets of the PD Trust fall below $10 million during the preceding year. As of December 31, 2020, the PD Trust has paid out approximately $38 million in ZAI PD Claims and expenses, leaving a balance of approximately $18 million, including the benefit of realized 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 us 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, we determined that contingent funding obligations beyond 2025 are not reasonably estimable. We estimate that the reasonable range of payments over the period of 2021 to 2025 is expected to be between $16 million and $24 million and project that the first payment could be due as early as 2022. In the 2019 fourth quarter, we recorded a $24.0 million liability related to probable future obligations to fund the PD Trust for ZAI PD Claims. Our maximum financial obligation over the next 18 years is $80 million, and no single year’s payment can exceed $8 million.

Table of Contents

TOC—Financial Statements

With respect to 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. We are 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”). We have 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 we may be obligated to make additional payments to the PD Trust in respect of the PD Obligation. We have accrued for those unresolved Other PD Claims that we believe are probable and estimable. We have not accrued for other unresolved or unasserted Other PD Claims as we do 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.

Risks Related to Financial Matters

Our indebtedness may materially affect our business, including our ability to fulfill our obligations, react to changes in our business and incur additional debt to fund future needs.

We have a substantial amount of debt. As of December 31, 2020, we had $1,063.6 million of unsecured indebtedness outstanding and $926.8 million of secured indebtedness outstanding. Our indebtedness may have material effects on our business, including to:

•require us to dedicate a substantial portion of our cash flow to principal and interest payments, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development, distributions to shareholders (which fall within the discretion of our Board of Directors taking into account financial, liquidity and other considerations), share repurchase programs and other purposes;

•restrict us from making strategic acquisitions or taking advantage of favorable business opportunities;

•limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

•increase our vulnerability to adverse economic, credit and industry conditions, including recessions;

•make it more difficult for us to satisfy our other obligations;

•place us at a competitive disadvantage compared to our competitors that have relatively less debt; and

•limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other purposes.

If we incur additional debt, the risks related to our indebtedness may intensify.

Restrictions imposed by agreements governing our indebtedness may limit our ability to operate our business, finance our future operations or capital needs, or engage in other business activities. If we fail to comply with certain restrictions under these agreements, our debt could be accelerated, and we may not have sufficient cash to pay our accelerated debt.

The agreements governing our indebtedness contain various covenants that limit, among other things, our ability, and the ability of certain of our subsidiaries, to:

•incur certain liens;

•enter into sale and leaseback transactions; and

•consolidate, merge or sell all or substantially all of our assets or the assets of our guarantors.

As a result of these covenants, we will ~~indemnify GCP for certain liabilities. There~~be limited in the manner in which we can conduct our business, and may be ~~no assurance~~unable to engage in favorable business activities or finance future operations or capital needs. Accordingly, these restrictions may limit our flexibility to operate our business. A failure to comply with the restrictions contained in these agreements, including maintaining the financial ratios required by our credit facilities, could lead to an event of default which could result in an acceleration of our indebtedness. We cannot guarantee that ~~the indemnities from GCP~~our future operating results will be sufficient to ~~insure~~enable us ~~against~~to comply with the ~~full amount of such liabilities, or that GCP’s ability to satisfy its indemnification obligation will not be impaired~~covenants contained in the ~~future.~~agreements governing our indebtedness or to remedy any such default. In addition, in the event of an

~~Pursuant~~

Table of Contents

TOC—Financial Statements

acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments. Additionally, in the ~~Separation~~event of a change in control, we will be required to offer to purchase our senior unsecured notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and ~~Distribution Agreement~~unpaid interest.

Our indebtedness exposes us to interest expense increases if interest rates increase.

As of December 31, 2020, approximately $268.9 million of our borrowings were at variable interest rates and ~~other agreements we entered into~~expose us to interest rate risk, excluding $586.5 million hedged by cross-currency swaps effective in November 2018, and $100.0 million hedged by interest rate swaps effective in April 2018. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our net income would decrease. An increase of 100 basis points in the interest rates payable on our variable rate indebtedness would increase our annual estimated debt-service requirements by $2.7 million, assuming our consolidated variable interest rate indebtedness outstanding as of December 31, 2020, remains the same.

The uncertainty regarding the potential phase-out of LIBOR may negatively impact our operating results.

We currently have term loan borrowings, a revolving credit facility and financial derivatives that rely on the London Interbank Offered Rate (“LIBOR”) as a benchmark rate. All of these financial instruments use a three-month U.S. dollar LIBOR for their benchmark rate. The Intercontinental Exchange (“ICE”) Benchmark Administration (“IBA”) announced that it intends to cease publication of three-month U.S. dollar LIBOR on June 30, 2023. No consensus exists as to what rate or rates will become accepted alternatives to LIBOR at this time, although the U.S. Federal Reserve, in connection with the ~~Separation, GCP agreed~~Alternative Reference Rates Committee (“ARRC”), a steering committee composed of large U.S. financial institutions, has identified the Secured Overnight Financing Rate (“SOFR”) as the rate that represents the best practice for replacement of the U.S. dollar LIBOR. SOFR is a more generic measure than LIBOR and considers the cost of borrowing cash overnight, collateralized by U.S. Treasury securities.

Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are uncertainties regarding a transition from LIBOR. These uncertainties include, but are not limited to, ~~indemnify us for~~the need to amend all contracts with LIBOR as the referenced rate and the impact on our cost of variable rate debt, including the use of certain ~~liabilities,~~financial derivatives. Based on guidance issued by the IBA and other regulatory bodies, we ~~agreed~~do not expect to ~~indemnify GCP for certain~~issue any contracts that reference U.S. dollar LIBOR after 2021. We will need to consider new contracts issued before the end of 2021 to determine if they should reference an alternative benchmark rate and/or include suggested fallback language, as published by the ARRC. The consequences of these developments with respect to LIBOR cannot be entirely predicted and span multiple future periods; however, they could result in a change in the cost of our variable rate debt or derivative financial instruments, which may be detrimental to our financial position or operating results.

We have unfunded and underfunded pension plan liabilities. ~~However, third parties might seek~~We will require future operating cash flow to ~~hold us responsible for liabilities that GCP agreed to assume or retain under~~fund these ~~agreements, and there can be~~liabilities. We have no assurance that ~~GCP~~we will ~~be able~~generate sufficient cash to ~~fully~~ satisfy ~~its indemnification~~these obligations.

~~A court could deem~~ the ~~Distribution~~longevity and actuarial profile of our workforce, the level of plan assets available to fund those obligations and the actual and expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the ~~Separation~~portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets or in a change in the expected rate of return on plan assets. Assets available to fund the pension benefit obligation of the U.S. advance-funded pension plans at December 31, 2020, were approximately $1,001 million, or approximately 90% of the measured pension projected benefit obligation on a U.S. GAAP basis. In addition, any changes in the discount rate, as well as actual returns on plan assets, could result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following years. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost in the following years.

Table of Contents

TOC—Financial Statements

Our ability to use tax credits and / or net operating losses to reduce future tax payments may be limited if there is a change in ownership of Grace or if Grace does not generate sufficient taxable income or foreign source income for U.S. tax purposes. Our ability to use these attributes is also subject to time limitations. Changes in tax laws and regulations may reduce their value and availability.

Our ability to utilize tax attributes including tax credits, future tax deductions, and net operating losses (“NOLs”), is dependent on our ability to generate sufficient taxable income and foreign source income for U.S. tax purposes. Under U.S. income tax law, federal tax credits may be carried forward for 10 years, and research and development tax credits may be carried forward for 20 years. State NOL carryforwards are generally available for deduction against future taxable income for up to 20 years, subject to state-specific regulations. Also, our ability to realize the benefits of these tax credits and/or NOLs and their value may be adversely affected by changes in tax laws and regulations. In addition, our ability to utilize U.S. federal tax credits as well as U.S. federal and state NOLs may be limited in the event of future changes in the ownership of outstanding Company common stock.

Our business and stock price could be negatively impacted as a result of actions by activist shareholders or others.

We value constructive input from investors and regularly engage in dialogue with our shareholders regarding strategy and performance. Our Board of Directors and management team are committed to acting in the best interests of all of our shareholders. Activist shareholders may from time to time engage in proxy solicitations, advance shareholder proposals, or otherwise attempt to effect changes or acquire control of Grace. Recently, we received a revised proposal from a shareholder to acquire Grace. Our Board of Directors responded that we are willing to discuss a sale of Grace in the context of our ongoing review of strategic alternatives and that any transaction would need to be at a ~~fraudulent conveyance~~price level that reflects the full value of Grace for its shareholders.

Actions of activist shareholders could affect our business because responding to such actions can be costly and ~~void~~time-consuming and disruptive to our operations, and may divert the ~~transaction or impose substantial liabilities upon us.~~

~~If the transaction is challenged by a third party, notwithstanding the fact that we received an opinion from a nationally recognized financial firm that we were solvent~~attention of our Board of Directors, management and ~~had adequate surplus~~employees. Moreover, such actions may create perceived uncertainties among current and potential customers, suppliers, employees and other constituencies as to make the Distribution, a court could deem the distribution of GCP common stock or certain internal restructuring transactions undertaken by us in connection with the Separation to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current orour future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court could void the transactions or impose substantial liabilities upon us,direction, which could ~~adversely affect~~result in lost sales and the loss of business opportunities and make it more difficult to attract and retain qualified directors, personnel, and business partners. In addition, actual or perceived actions of activist shareholders may cause significant fluctuations in our ~~financial condition~~stock price that do not necessarily reflect the underlying fundamentals and value of our results of operations. Among other things, the court could require our stockholders to return to us some or all of the shares of GCP common stock issued in the Distribution or require us to fund liabilities of other companies involved in the Separation for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.business.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

~~Table of Contents~~

Item 2. PROPERTIES

We operate manufacturing plants and other facilities (including offices, warehouses, labs and other service facilities) throughout the world. Some of these plants and facilities are shared by our reportable segments. We consider our ~~major~~ operating properties generally to be in good operating condition and suitable for their current use. We believe that the productive capacity of our plants and other facilities, supplemented by tolling arrangements, is

Table of Contents

TOC—Financial Statements

generally adequate for current operations. The table below summarizes our ~~principal~~ manufacturing plants by reportable segment and region as of December 31, ~~2017:~~2020:


	Number of Facilities(1)						Number of Facilities(1)
	North America	Europe Middle East Africa (EMEA)	Asia Pacific	Latin America	Total		North America	Europe Middle East Africa (EMEA)	Asia Pacific	Latin America	Total
Catalysts Technologies	10	4	1	—	15	Catalysts Technologies	10	3	1	—	14
Owned						Owned	8	1	1	—	10
Leased	2	3	—	—	5	Leased	2	2	—	—	4
Materials Technologies						Materials Technologies	4	2	1	1	8
Owned	8	1	1	—	10	Owned	3	1	1	1	6
Materials Technologies	4	2	1	1	8
Leased	2	1	—	1	4	Leased	1	1	—	—	2
Owned	2	1	1	—	4

The Notes to Consolidated Financial Statements are an integral part of these statements.

~~F-7~~63

Table of Contents

TOC—Financial Statements

W. R. Grace & Co. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)


	Year Ended December 31,
(In millions)	2020		2019		2018
Net income (loss)	$	(1.7)	$	126.7	$	166.8
Other comprehensive income (loss), net of income taxes:
Defined benefit pension and other postretirement plans	(0.4)		(0.7)		(0.9)
Currency translation adjustments	(49.9)		16.5		32.4
Gain (loss) from hedging activities	0.8		(4.9)		(5.7)

Total other comprehensive income (loss), net of income taxes	(49.5)		10.9		25.8
Comprehensive income (loss)	(51.2)		137.6		192.6
Less: comprehensive (income) loss attributable to noncontrolling interests	(0.1)		(0.4)		0.8
Comprehensive income (loss) attributable to W. R. Grace & Co. shareholders	$	(51.3)	$	137.2	$	193.4

Year Ended December 31,
(In millions) 2017 2016 2015
Net income (loss) $ 10.4
$ 94.1
$ 144.1
Other comprehensive income (loss), net of income taxes:
Defined benefit pension and other postretirement plans (1.3 ) (0.6 ) (1.0 )
Currency translation adjustments (26.0 ) (1.8 ) (43.3 )
Gain (loss) from hedging activities 0.8
0.3
1.3
Total other comprehensive income (loss) attributable to noncontrolling interests —
2.6
0.2
Total other comprehensive income (loss), net of income taxes (26.5 ) 0.5
(42.8 )
Comprehensive income (loss) (16.1 ) 94.6
101.3
Less: comprehensive (income) loss attributable to noncontrolling interests 0.8
(2.6 ) (0.1 )
Comprehensive income (loss) attributable to W. R. Grace & Co. shareholders $ (15.3 ) $ 92.0
$ 101.2

The Notes to Consolidated Financial Statements are an integral part of these statements.

~~F-8~~64

Table of Contents

TOC—Financial Statements

W. R. Grace & Co. and Subsidiaries

Consolidated Statements of Cash Flows


	Year Ended December 31,
(In millions)	2020		2019		2018
OPERATING ACTIVITIES
Net income (loss)	$	(1.7)	$	126.7	$	166.8


Reconciliation to net cash provided by (used for) operating activities:
Depreciation and amortization	105.0		100.3		100.8
Equity in earnings of unconsolidated affiliate	(13.5)		(27.8)		(31.8)
Dividends received from unconsolidated affiliate	20.0		0		0
Costs related to legacy product, environmental, and other claims	39.4		103.5		82.3
Cash paid for legacy product, environmental, and other claims	(21.0)		(19.3)		(22.9)
Provision for (benefit from) income taxes	2.2		56.8		78.1
Cash paid for income taxes	(56.0)		(52.8)		(54.0)
Income tax refunds received	9.6		10.5		0.7
Defined benefit pension expense (income)	109.0		104.3		0.7
Cash paid under defined benefit pension arrangements	(17.2)		(15.8)		(66.5)
Stock compensation expense	10.7		14.6		18.6
Loss on early extinguishment of debt	39.4		0		4.8
Loss on disposal of assets	23.2		4.2		13.2
Changes in assets and liabilities, excluding effect of currency translation and acquisitions:
Trade accounts receivable	59.7		(18.7)		2.5
Inventories	62.0		(30.1)		(26.1)
Accounts payable	(9.3)		28.0		24.2
Deferred revenue	(7.4)		(5.3)		35.6
All other items, net	(4.5)		13.0		15.0
Net cash provided by (used for) operating activities	349.6		392.1		342.0
INVESTING ACTIVITIES
Capital expenditures	(155.5)		(194.1)		(216.3)
Business acquired, net of cash acquired	(2.0)		(22.8)		(418.0)

Other investing activities	(18.3)		6.8		15.8
Net cash provided by (used for) investing activities	(175.8)		(210.1)		(618.5)
FINANCING ACTIVITIES
Borrowings under credit arrangements	15.9		13.0		1,024.0
Repayments under credit arrangements	(49.9)		(24.2)		(587.8)
Proceeds from issuance of notes	750.0		0		0
Repayment of notes	(700.0)		0		0
Cash paid related to early extinguishment of debt	(37.9)		0		0
Cash paid for debt financing costs	(7.9)		0		(11.8)
Cash paid for repurchases of common stock	(40.4)		(29.8)		(80.0)
Proceeds from exercise of stock options	0		19.1		6.7
Dividends paid to shareholders	(80.1)		(72.6)		(64.6)

Cash received from hedge settlement	0		0		33.1
Other financing activities	(7.6)		(4.9)		(3.1)
Net cash provided by (used for) financing activities	(157.9)		(99.4)		316.5
Effect of currency exchange rate changes on cash and cash equivalents	7.4		(0.7)		(2.5)







Net increase (decrease) in cash, cash equivalents, and restricted cash	23.3		81.9		37.5

Cash, cash equivalents, and restricted cash, beginning of period	282.9		201.0		163.5
Cash, cash equivalents, and restricted cash, end of period	$	306.2	$	282.9	$	201.0

Supplemental disclosure of cash flow information
Cash paid for interest, net of amounts capitalized	$	74.2	$	67.7	$	75.2
Capital expenditures included in accounts payable	51.9		49.8		31.0
Expenditures for other investing activities included in accounts payable	0.4		16.2		16.9
Net share settled stock option exercises	0		9.7		8.2

Year Ended December 31,
(In millions) 2017 2016 2015
OPERATING ACTIVITIES
Net income (loss) $ 10.4
$ 94.1
$ 144.1
Less: loss (income) from discontinued operations —
12.9
(20.2 )
Income (loss) from continuing operations 10.4
107.0

123.9
Reconciliation to net cash provided by (used for) operating activities from continuing operations:
Depreciation and amortization 111.5
100.3
99.2
Equity in earnings of unconsolidated affiliate (25.9 ) (29.8 ) (20.4 )
Dividends received from unconsolidated affiliate 19.0
31.0
11.8
Costs related to legacy product, environmental, and other claims 30.8
35.4
6.1
Cash paid for legacy product, environmental, and other claims (54.5 ) (24.6 ) (507.4 )
Provision for (benefit from) income taxes 200.5
59.0
69.8
Cash paid for income taxes (61.8 ) (96.6 ) (40.7 )
Income tax refunds received 34.2
11.4
5.9
Interest expense and related financing costs 79.5
81.5
99.4
Cash paid for interest (70.2 ) (75.7 ) (89.5 )
Loss on early extinguishment of debt —
11.1
—
Defined benefit pension expense (income) 64.1
72.6
50.9
Cash paid under defined benefit pension arrangements (17.8 ) (15.9 ) (15.4 )
Accounts receivable reserve—Venezuela 10.0
—
—
Changes in assets and liabilities, excluding effect of currency translation and acquisitions:
Trade accounts receivable (4.9 ) (15.7 ) (18.0 )
Inventories 4.4
(0.6 ) 3.8
Accounts payable (2.5 ) 32.0
7.3
All other items, net (7.6 ) (14.9 ) 23.5
Net cash provided by (used for) operating activities from continuing operations 319.2
267.5
(189.8 )
INVESTING ACTIVITIES
Capital expenditures (125.2 ) (116.9 ) (118.8 )
Business acquired (3.5 ) (246.5 ) —
Proceeds from sale of assets 0.6
13.7
—
Other investing activities (1.8 ) 4.7
6.8
Net cash provided by (used for) investing activities from continuing operations (129.9 ) (345.0 ) (112.0 )
FINANCING ACTIVITIES
Borrowings under credit arrangements 114.4
39.4
292.4
Repayments under credit arrangements (143.9 ) (633.0 ) (50.0 )
Cash paid for repurchases of common stock (65.0 ) (195.1 ) (301.5 )
Proceeds from exercise of stock options 16.4
17.0
26.9
Dividends paid (57.3 ) (36.0 ) —
Distribution from GCP —
750.0
—
Other financing activities 0.6
(2.5 ) (8.3 )
Net cash provided by (used for) financing activities from continuing operations (134.8 ) (60.2 ) (40.5 )
Effect of currency exchange rate changes on cash and cash equivalents 7.7
(3.0 ) (1.7 )
Increase (decrease) in cash and cash equivalents from continuing operations 62.2
(140.7 ) (344.0 )
Cash flows from discontinued operations
Net cash provided by (used for) operating activities —
23.9
202.5
Net cash provided by (used for) investing activities —
(9.5 ) (32.4 )
Net cash provided by (used for) financing activities —
31.4
2.9
Effect of currency exchange rate changes on cash and cash equivalents —
(1.0 ) (56.6 )
Increase (decrease) in cash and cash equivalents from discontinued operations —
44.8
116.4
Net increase (decrease) in cash and cash equivalents 62.2
(95.9 )
(227.6 )
Less: cash and cash equivalents of discontinued operations —
(143.4 ) —
Cash and cash equivalents, beginning of period 90.6
329.9
557.5
Cash and cash equivalents, end of period $ 152.8
$ 90.6

$ 329.9

Supplemental disclosure of cash flow information
Capital expenditures in accounts payable $ 41.4
$ 23.8
$ 29.4
Net share settled stock option exercises 1.2
10.5
—

The Notes to Consolidated Financial Statements are an integral part of these statements.

~~F-9~~65

Table of Contents

TOC—Financial Statements

W. R. Grace & Co. and Subsidiaries

Consolidated Balance Sheets


	December 31,
(In millions, except par value and shares)	2020		2019
ASSETS
Current Assets
Cash and cash equivalents	$	304.5	$	282.5
Restricted cash and cash equivalents	1.7		0.4
Trade accounts receivable, less allowance of $2.2 (2019—$13.3)	264.1		307.0
Inventories	253.8		309.9
Other current assets	51.2		235.1

Total Current Assets	875.3		1,134.9
Properties and equipment, net of accumulated depreciation and amortization of $1,550.1 (2019—$1,497.0)	1,208.8		1,143.8
Goodwill	562.7		556.9
Technology and other intangible assets, net	320.8		342.8
Deferred income taxes	567.1		517.6

Investment in unconsolidated affiliate	175.5		181.9
Other assets	55.3		54.7

Total Assets	$	3,765.5	$	3,932.6
LIABILITIES AND EQUITY
Current Liabilities
Debt payable within one year	$	15.3	$	23.1
Accounts payable	262.1		302.3
Other current liabilities	281.9		419.7

Total Current Liabilities	559.3		745.1
Debt payable after one year	1,975.1		1,957.3
Unfunded defined benefit pension plans	520.7		434.6
Underfunded defined benefit pension plans	128.3		85.2
Other liabilities	347.6		308.2

Total Liabilities	3,531.0		3,530.4
Commitments and Contingencies—Note 10	0		0
Equity
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 66,190,410 (2019—66,735,913)	0.7		0.7
Paid-in capital	473.2		477.9
Retained earnings	648.8		730.5
Treasury stock, at cost: shares: 11,266,223 (2019—10,720,720)	(920.6)		(892.2)
Accumulated other comprehensive income (loss)	29.3		78.8
Total W. R. Grace & Co. Shareholders’ Equity	231.4		395.7
Noncontrolling interests	3.1		6.5
Total Equity	234.5		402.2
Total Liabilities and Equity	$	3,765.5	$	3,932.6

December 31,
(In millions, except par value and shares) 2017 2016
ASSETS
Current Assets
Cash and cash equivalents $ 152.8
$ 90.6
Restricted cash and cash equivalents 10.7
10.0
Trade accounts receivable, less allowance of $11.7 (2016—$2.2) 285.2
273.9
Inventories 230.9
228.0
Other current assets 49.0
52.3
Total Current Assets 728.6

654.8
Properties and equipment, net of accumulated depreciation and amortization of $1,463.4 (2016—$1,327.5) 799.1
729.6
Goodwill 402.4
394.2
Technology and other intangible assets, net 255.4
269.1
Deferred income taxes 556.5
709.4
Investment in unconsolidated affiliate 125.9
117.6
Other assets 39.1
37.1
Total Assets $ 2,907.0
$ 2,911.8
LIABILITIES AND EQUITY
Current Liabilities
Debt payable within one year $ 20.1

$ 76.5
Accounts payable 210.3
195.4
Other current liabilities 217.8
208.9
Total Current Liabilities 448.2
480.8
Debt payable after one year 1,523.8

1,507.6
Underfunded and unfunded defined benefit pension plans 502.4
424.3
Other liabilities 169.3
126.7
Total Liabilities 2,643.7
2,539.4
Commitments and Contingencies—Note 10

Equity
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 67,780,410 (2016—68,309,431) 0.7
0.7
Paid-in capital 474.8
487.3
Retained earnings 573.1
619.3
Treasury stock, at cost: shares: 9,676,217 (2016—9,147,196) (832.1 ) (804.9 )
Accumulated other comprehensive income (loss) 39.9
66.4
Total W. R. Grace & Co. Shareholders' Equity 256.4
368.8
Noncontrolling interests 6.9
3.6
Total Equity 263.3
372.4
Total Liabilities and Equity $ 2,907.0
$ 2,911.8

The Notes to Consolidated Financial Statements are an integral part of these statements.

~~F-10~~66

Table of Contents

TOC—Financial Statements

W. R. Grace & Co. and Subsidiaries

Consolidated Statements of Equity


(In millions)	Common Stock and Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interests		Total Equity
Balance, December 31, 2017	$	475.5	$	573.1	$	(832.1)	$	39.9	$	6.9	$	263.3
Net income (loss)	—		167.6		—		—		(0.8)		166.8
Repurchase of common stock	—		—		(80.0)		—		—		(80.0)
Stock-based compensation	18.6		—		—		—		—		18.6
Exercise of stock options	(4.2)		—		10.6		—		—		6.4

Payments in consideration of employee tax obligations related to stock-based compensation	(2.9)		—		—		—		—		(2.9)
Shares issued	(5.2)		—		6.0		—		—		0.8
Dividends declared	—		(64.3)		—		—		—		(64.3)

Other comprehensive income (loss)	—		—		—		25.8		0		25.8
Effect of adopting ASC 606	—		2.5		—		—		—		2.5
Effect of adopting ASU 2018-02	—		(2.2)		—		2.2		—		0
Balance, December 31, 2018	481.8		676.7		(895.5)		67.9		6.1		337.0
Net income (loss)	—		126.3		—		—		0.4		126.7
Repurchase of common stock	—		—		(29.8)		—		—		(29.8)
Stock-based compensation	14.6		—		—		—		—		14.6
Exercise of stock options	(5.0)		—		24.1		—		—		19.1

Payments in consideration of employee tax obligations related to stock-based compensation	(4.9)		—		—		—		—		(4.9)
Shares issued	(7.9)		—		9.0		—		—		1.1
Dividends declared	—		(72.5)		—		—		—		(72.5)

Other comprehensive income (loss)	—		—		—		10.9		0		10.9


Balance, December 31, 2019	478.6		730.5		(892.2)		78.8		6.5		402.2
Net income (loss)	—		(1.8)		—		—		0.1		(1.7)
Repurchase of common stock	—		—		(40.4)		—		—		(40.4)
Stock-based compensation	10.5		—		—		—		—		10.5



Payments in consideration of employee tax obligations related to stock-based compensation	(4.0)		—		—		—		—		(4.0)
Shares issued	(11.2)		—		12.0		—		—		0.8
Dividends declared	—		(79.9)		—		—		—		(79.9)
Distribution to joint venture partner	—		—		—		—		(3.5)		(3.5)
Other comprehensive income (loss)	—		—		—		(49.5)		0		(49.5)


Balance, December 31, 2020	$	473.9	$	648.8	$	(920.6)	$	29.3	$	3.1	$	234.5

(In millions)
Common
Stock and
Paid-in
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
(Loss) Income

Noncontrolling
Interests

Total
Equity
Balance, December 31, 2014 $ 526.8
$ 292.1
$ (429.2 ) $ (23.8 ) $ 3.1
$ 369.0
Net income (loss) —
144.2
—
—
0.7
144.9
Repurchase of common stock —
—
(301.5 ) —
—
(301.5 )
Stock-based compensation 13.0
—
—
—
—
13.0
Exercise of stock options (45.4 ) —
72.3
—
—
26.9
Purchase of noncontrolling interest (0.7 ) —
—
—
0.7
—
Tax benefit related to stock plans 1.9
—
—
—
—
1.9
Shares issued 1.1
—
—
—
—
1.1
Other comprehensive income (loss) —
—
—
(43.0 ) 0.2
(42.8 )
Balance, December 31, 2015 496.7
436.3
(658.4 ) (66.8 ) 4.7
212.5
Net income (loss) —
94.1
—
—
—
94.1
Repurchase of common stock —
—
(195.1 ) —
—
(195.1 )
Stock-based compensation 11.6
—
—
—
—
11.6
Exercise of stock options (21.1 ) —
48.6
—
—
27.5
Tax benefit related to stock plans —
70.4
—
—
—
70.4
Shares issued 0.8
—
—
—
—
0.8
Dividends declared —
(36.0 ) —
—
—
(36.0 )
Other comprehensive income (loss) —
—
—
(2.1 ) 2.6
0.5
Distribution of GCP —
54.5
—
135.3
(3.7 ) 186.1
Balance, December 31, 2016 488.0
619.3
(804.9 ) 66.4
3.6
372.4
Net income (loss) —
11.2
—
—
(0.8 ) 10.4
Repurchase of common stock —
—
(65.0 ) —
—
(65.0 )
Stock-based compensation 11.0
—
—
—
—
11.0
Exercise of stock options (18.9 ) —
35.0
—
—
16.1
Payments to taxing authorities in consideration of employee tax obligations related to stock-based compensation arrangements (2.5 ) —
—
—
—
(2.5 )
Shares issued (2.1 ) —
2.8
—
—
0.7
Dividends declared —
(57.4 ) —
—
—
(57.4 )
Contribution from joint venture partner —
—
—
—
4.1
4.1
Other comprehensive income (loss) —
—
—
(26.5 ) —
(26.5 )
Balance, December 31, 2017 $ 475.5
$ 573.1
$ (832.1 ) $ 39.9
$ 6.9
$ 263.3

The Notes to Consolidated Financial Statements are an integral part of these statements.

~~F-11~~67

Table of Contents

TOC—Financial Statements

W. R. Grace & Co. and Subsidiaries

Notes to Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies

W. R. Grace & Co., through its subsidiaries, is engaged in the production and sale of specialty chemicals and specialty materials ~~businesses~~ on a global basis through ~~two~~2 reportable segments: Grace Catalysts Technologies, which includes catalysts and related products and technologies used in petrochemical, refining, ~~petrochemical~~ and other chemical manufacturing applications; and Grace Materials Technologies, which includes specialty materials, including silica-based and silica-alumina-based materials, used in pharma/consumer, coatings, ~~consumer, industrial,~~ and ~~pharmaceutical~~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.

As used in these notes, the term ~~"Company"~~“Company” refers to W. R. Grace & Co. The term ~~"Grace"~~“Grace” refers to the Company and/or one or more of its subsidiaries and, in certain cases, their respective predecessors.

~~Separation Transaction~~ On January 27, 2016, Grace entered into a separation agreement with GCP Applied Technologies Inc., then a wholly-owned subsidiary of Grace ("GCP"), pursuant to which Grace agreed to transfer its Grace Construction Products operating segment and the packaging technologies business of its Grace Materials Technologies operating segment to GCP (the "Separation"). Grace and GCP completed the Separation on February 3, 2016 (the "Distribution Date"), by means of a pro rata distribution to the Company's stockholders of all of the outstanding shares of GCP common stock (the "Distribution"), with one share of GCP common stock distributed for each share of Company common stock held as of the close of business on January 27, 2016. As a result of the Distribution, GCP became an independent public company. GCP’s historical financial results through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations.

Principles of Consolidation The Consolidated Financial Statements include the accounts of Grace and entities as to which Grace maintains a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies in which Grace can significantly influence operating and financial policies, but does not have a controlling financial interest, are accounted for under the equity method.

Grace conducts ~~certain~~a portion of its business through joint ventures with unaffiliated third parties. For joint ventures in which Grace has a controlling financial interest, Grace consolidates the results of such joint ventures in the Consolidated Financial Statements. Grace recognizes a liability for cumulative amounts due to the third parties based on the financial results of the joint ventures, and deducts the amount of income attributable to noncontrolling interests in the measurement of its consolidated net income.

Reportable Segments Grace reports financial results of each of its reportable segments that engage in business activities that generate revenues and expenses and whose operating results are regularly reviewed by ~~Grace's~~Grace’s Chief Executive ~~Officer and Chief Operating~~ Officer.

Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("(“U.S. ~~GAAP"~~GAAP”) requires management to make estimates and assumptions that affect the reported ~~amount~~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~~Grace’s accounting measurements that are most affected by ~~management's~~management’s estimates of future events are:

~~Realization~~•The effective tax rate and realization values of net deferred tax assets, which depend on projections of future taxable income (see Note 7);

•Pension and postretirement liabilities, which depend on assumptions regarding participant life spans, future inflation, discount rates and total returns on invested funds (see Note 8);

•Carrying values of goodwill and other intangible assets, which depend on assumptions of future earnings and cash flows (see Note 4 and Note ~~19)~~20); and

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)~~

•Contingent liabilities, which depend on an assessment of the probability of loss and an estimate of ultimate obligation, such as litigation ~~(see Note 10), income taxes (see Note 7),~~ and arbitration; and product, environmental, ~~remediation~~and other legacy liabilities (see Note 10).

Revenue Recognition Grace ~~recognizes~~generates revenues predominantly from sales of manufactured products to customers and in part from licensing of technology. Under ASC 606, revenue from customer arrangements is recognized when ~~all~~control is transferred to the customer.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

Product Sales

Based on the promises made to customers in product sales arrangements, Grace has a performance obligation to manufacture and deliver products to its customers. Grace makes certain other promises in its customer arrangements that are immaterial in the context of the ~~following criteria are satisfied: risk of loss and title transfer~~contracts. Revenue is recognized at amounts based on agreed-upon prices in sales contracts and/or purchase orders. Grace offers various incentives to ~~the customer;~~its product sales customers that result in variable consideration, including but not limited to volume discounts, which reward bulk purchases by lowering the price for future purchases, and volume rebates, which encourage customers to purchase volume levels that would reduce their current prices. These incentives are immaterial in the context of the contracts.

For product sales, control is ~~fixed and determinable; persuasive evidence of a sales arrangement exists; and collectability is reasonably assured. The~~transferred at the point in time at which risk of loss and title ~~transfers~~have transferred to athe customer, which is determined based on shipping terms and contract terms, respectively. Terms of delivery and terms ~~which~~of payment are generally included in customer contracts of sale, order confirmation documents, and invoices. Payment is generally due within 30 to 60 days of invoicing. Grace defers revenue recognition until no other significant Grace performance obligations remain. Grace’s customer arrangements do not contain significant acceptance provisions.

Taxes that Grace collects that are assessed by a governmental authority, and that are both imposed on and concurrent with any of its revenue-producing activities, are excluded from revenue. Grace considers shipping and handling activities that it performs as activities to fulfill the sales of its products. Amounts billed for shipping and handling are included in “net sales,” while costs incurred for shipping and handling are included in “cost of goods sold.”

Technology Licensing

For Grace’s technology licensing business, customer arrangements typically contain multiple deliverables to enable licensees to realize the full benefit of the technology. These deliverables include licensing the technology itself; developing engineering design packages; and providing training, consulting, and technical services. Under these arrangements, the license grant is not a distinct performance obligation, as the licensee only can benefit from the license in conjunction with other integral services such as development of the engineering design package, training, consulting, or technical services provided over the contract period. Therefore, Grace accounts for the license grant and integral services as a single performance obligation. Certain deliverables and services not included in the core bundled deliverables are accounted for as separate performance obligations.

The transaction price is specified in the technology licensing agreements and is substantially fixed. Some services are priced on a per-diem basis, but these are not material in the context of the contracts. Grace invoices its technology licensing customers as certain project milestones are achieved. Payment terms are similar to those of Grace’s product sales.

Revenue for each performance obligation is recognized when control is transferred to the customer, which is typically over a period of time. As a result, Grace generally recognizes revenue for each performance obligation ratably over the period of the contract, which is up to eight years, depending on the scope of the licensee’s project. Based on the timing of payments, Grace records deferred revenue related to these agreements. See Note 17.

Cash Equivalents Cash equivalents consist of liquid instruments and investments with maturities of three months or less when purchased. The recorded amounts approximate fair value.

Inventories Inventories are stated at the lower of cost or ~~market.~~net realizable value. The method used to determine cost is first-in/first-out, or ~~"FIFO."~~“FIFO.” Market values for raw materials are based on current cost and, for other inventory classifications, net realizable value. Inventories are evaluated regularly for salability, and slow moving and/or obsolete items are adjusted to expected salable value. Inventory values include direct and certain indirect costs of materials and production. Abnormal costs of production are expensed as incurred.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

Long Lived Assets Properties and equipment are stated at cost. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful life of the asset. Estimated useful lives range from 20 to 30 years for buildings, 3 to 7 years for information technology equipment, 35 to 1025 years for operating machinery and equipment, and 5 to 10 years for furniture and fixtures. Interest is capitalized in connection with major project expenditures. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to earnings. Obligations for costs associated with asset retirements, such as requirements to restore a site to its original condition, are accrued at net present value and amortized along with the related asset.

Grace is currently in the process of conducting a depreciation study to review the useful lives of machinery and equipment, including an evaluation of historical retirement data as well as industry review and analysis. This evaluation will be completed by the end of the 2018 first quarter. Grace expects this review to result in increased useful lives (and lower depreciation expense) and will apply the change to new and existing assets on a prospective basis as a change in accounting estimate effective January 1, 2018.

Intangible assets with finite lives consist of technology, customer lists, trademarks, and other intangibles and are amortized over their estimated useful lives, ranging from 1 to 30 years.

Grace reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were no0 impairment charges recorded in any of the periods presented.

Leases Grace leases certain real estate, office space, vehicles, railcars, and plant and office equipment, substantially all of which are accounted for as operating leases. Finance lease costs and sublease income are not material. Many of Grace’s leases contain renewal options, which are exercisable at Grace’s discretion and may be included in lease terms when they are reasonably certain to be exercised. Grace’s lease agreements do not contain material restrictive covenants or material residual value guarantees. Grace has elected not to recognize in the Consolidated Balance Sheets short-term leases, which are those with an initial term of 12 months or less. Grace has also elected not to separate lease and non-lease components. These elections apply to all asset classes. Where available, Grace uses the interest rate implicit in the lease to calculate the estimated present value of lease payment obligations. Where such a rate is not available, Grace uses an incremental borrowing rate based on credit-adjusted and term-specific discount rates, using a third-party yield curve.

Goodwill Goodwill arises from business combinations, and it is reviewed for impairment on an annual basis at October 31 and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Recoverability is assessed at the reporting unit level most directly associated with the business combination that generated the goodwill. For the purpose of measuring impairment, Grace has identified its operating segments as reporting units. Grace has evaluated its goodwill annually with no0 impairment charge required in any of the periods presented.

Financial Instruments Grace uses commodity forward, swap and/or option contracts; currency forward, swap, and/or option contracts; and interest rate swap contracts to manage exposure to fluctuations in commodity prices, currency exchange rates, and interest rates. Grace does not hold or issue derivative financial instruments for trading purposes. Derivative instruments are recorded at fair value in the Consolidated Balance Sheets as either assets or liabilities. For derivative instruments designated as fair value hedges, changes in the fair values of the

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)~~

derivative instruments closely offset changes in the fair values of the hedged items in ~~"other~~“other (income) expense, ~~net"~~net” in the Consolidated Statements of Operations. For derivative instruments designated as cash flow hedges, the gain or loss on the hedge is reported in ~~"accumulated~~“accumulated other comprehensive income (loss)"” in the Consolidated Balance Sheets until it is cleared to earnings during the same period in which the hedged item affects earnings. Forward points are excluded from the assessment of effectiveness and are amortized to income on a systematic basis. For derivative instruments designated as net investment hedges, the gains and losses on the hedge, 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. 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. The changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. Cash flows from derivative instruments are reported in the same category as the cash flows from the items being hedged.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

Income Taxes Deferred tax assets and liabilities are recognized with respect to the expected future tax consequences of events that have been recorded in the Consolidated Financial Statements. Grace reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly.

In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, Grace gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative ~~losses,~~losses; forecasts of future ~~profitability,~~profitability; domestic and foreign source ~~income,~~income; the duration of statutory carryforward ~~periods,~~periods; and ~~Grace's~~Grace’s experience with operating loss and tax credit carryforward expirations.

Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. Tax benefits recognized in the Consolidated Financial Statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Grace evaluates such likelihood based on relevant facts and tax law. Grace adjusts its recorded liability for income tax matters due to changes in circumstances or new uncertainties, such as amendments to existing tax law. ~~Grace's~~Grace’s ultimate tax liability depends upon many factors, including negotiations with taxing authorities in the jurisdictions in which it operates, outcomes of tax litigation, and resolution of disputes arising from federal, state, and foreign tax audits. Due to the varying tax laws in each jurisdiction management, with the assistance of local tax advisors as necessary, assesses individual matters in each jurisdiction on a case-by-case basis. Grace researches and evaluates its income tax positions, including why it believes they are compliant with income tax regulations, and these positions are documented as appropriate.

The U.S. Tax Cuts and Jobs Act of 2017 (“TCJA”) subjects a U.S. entity to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. An entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Grace has elected to account for GILTI as a period expense in the year the tax is incurred. Grace has also adopted the tax law ordering approach for evaluating the impact of GILTI on the assessment of the realizability of US deferred tax assets.

Pension Benefits ~~Grace's~~ Grace’s method of accounting for actuarial gains and losses relating to its global defined benefit pension plans is referred to as ~~"mark-to-market~~“mark-to-market accounting."” Under mark-to-market accounting, ~~Grace's~~Grace’s pension costs consist of two elements: 1)(1) ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2)(2) mark-to-market gains and losses recognized annually in the fourth quarter resulting from changes in actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan assets. Should a significant event occur, ~~Grace's~~Grace’s pension obligation and plan assets are remeasured at an interim period, and the gains or losses on remeasurement are recognized in that period.

Stock-Based Compensation The Company recognizes expenses related to stock-based compensation payment transactions in which it receives employee services in exchange for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of equity instruments. Stock-based compensation cost for restricted stock units ~~(RSUs)~~(“RSUs”) and share settled ~~performance based~~performance-based units ~~(PBUs)~~(“PBUs”) are measured based on the high/low average of the Company’s common stock on the date of grant. ~~Cash settled performance based units (CSPBU)~~Cash-settled RSUs are remeasured at the end of each reporting period based on the closing fair market value of the Company’s common stock. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair value as calculated by the Black-Scholes option pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

Currency Translation Assets and liabilities of foreign subsidiaries (other than those located in countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, while revenues, costs and expenses are translated at average exchange rates during each reporting period. The resulting translation adjustments are included in ~~"accumulated~~“accumulated other comprehensive income (loss)"” in the Consolidated Balance Sheets. The financial statements of any subsidiaries located in countries with highly inflationary economies are remeasured as if the functional currency were the U.S. dollar; the remeasurement creates translation adjustments that are reflected in net income in the Consolidated Statements of Operations.

Reclassifications Certain amounts in prior ~~years'~~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 ~~May 2014,~~December 2019, the FASB issued ASU ~~2014-09 "Revenue from Contracts with Customers."~~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. Grace will adopt this update on January 1, 2021, when it becomes effective.

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 ~~remove inconsistencies~~ease the potential burden in accounting for and ~~weaknesses~~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 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 ~~revenue requirements; provide a more robust framework~~accounting for ~~addressing revenue issues; improve comparability~~contract modifications and/or hedging transactions during the effective period. Grace expects the update to significantly reduce the effects of revenue recognition practices across entities, industries, jurisdictions and capital markets; provide more useful information to users of financial statements through improved disclosure requirements; and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The standard allows for two methods of adoption: (a) full retrospective adoption, meaning the standard is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance. Grace has assessed specific areas of the standard and its impactreference rate reform on the Consolidated Financial Statements. ~~Grace will adopt this standard in the 2018 first quarter under the modified retrospective approach and does not expect it to have a material effect on the Consolidated Financial Statements.~~

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02 "Leases (Topic 842)~~2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)."” This update ~~is intended~~revises disclosure requirements related to ~~increase transparency~~defined benefit pension and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognizeother postretirement plans. Grace adopted this update in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term, including optional payments where they are reasonably certain to occur. Currently, as a lessee, Grace is a party to a number of leases which, under existing guidance, are classified as operating leases and not recorded on the balance sheet but are expensed as incurred. Under the new standard, many of these leases will be recorded on the Consolidated Balance Sheets. Grace will adopt the standard in the 20192020 first quarter, and ~~at this time cannot reasonably estimate the effect of adoption.~~

In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Grace will adopt the update in the 2018 first quarter and doesit did not expect it to have a material effect on the Consolidated Financial Statements. As of December 31, 2017 and 2016, restricted cash included in the Consolidated Balance Sheets was $10.7 million and $10.0 million, respectively.

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805)," which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in this update also narrow the definition of the term "output" so that the term is consistent with how outputs are described in Topic 606. Public

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)~~

business entities are required to apply the amendments in this update to annual periods beginning after December 15, 2017, including interim periods within those periods, with early application permitted. Grace will adopt the update when it becomes effective and does not expect it to have a material effect on the Consolidated Financial Statements.

In ~~January 2017,~~June 2016, the FASB issued ASU ~~2017-04 "Intangibles—Goodwill and Other~~2016-13 “Financial Instruments—Credit Losses (Topic ~~350)."~~326) Measurement of Credit Losses on Financial Instruments.” This update ~~modifies the concept of~~requires companies to implement an impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination ("Step 2"). Because these amendments eliminate Step 2 from the goodwill impairment test, they should reduce the cost and complexity of evaluating goodwill for impairment.model based on expected credit losses, rather than probable incurred losses. Grace ~~is required to adopt the amendments in~~adopted this update ~~for annual or any interim goodwill impairment tests~~ in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Grace is currently evaluating the ~~timing of adoption~~2020 first quarter, and ~~does~~it did not ~~expect the update to~~ have a material effect on the Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07 "Compensation—Retirement Benefits (Topic 715)." This update requires that the service cost component of net benefit cost be presented with other compensation costs arising from services rendered. The remaining net benefit cost is either presented as a line item in the statement of operations outside of a subtotal for income from operations, if presented, or disclosed separately. Only the service cost component of net benefit expense can be capitalized. The update will affect the classification of defined benefit pension expense within the Consolidated Statements of Operations, with changes to amounts included in "cost of goods sold," "selling, general and administrative expenses," "research and development expenses," and "other (income) expense, net." Grace will adopt the update in the 2018 first quarter.

In May 2017, the FASB issued ASU 2017-09 "Compensation—Stock Compensation (Topic 718)." This update clarifies the existing definition of the term "modification," which is currently defined as "a change in any of the terms or conditions of a share-based payment award." The update requires entities to account for modifications of share-based payment awards unless the (1) fair value, (2) vesting conditions, and (3) classification as an equity instrument or a liability instrument of the modified award are the same as of the original award before modification. Grace is required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. Grace does not currently have any modifications of share-based awards and will adopt the update when it becomes effective.

In January 2018, the FASB issued ASU 2018-01 "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842." This update provides an optional transition practical expedient that allows an entity to elect not to evaluate under Topic 842 existing or expired land easements not previously accounted for as leases. All land easements entered into or modified after the adoption of Topic 842 must be evaluated under Topic 842. Grace, which typically does not account for easements under current lease accounting, will use the transition practical expedient when adopting Topic 842 in the 2019 first quarter and at this time cannot reasonably estimate the effect of adoption.

In February 2018, the FASB issued ASU 2018-02 "Income Statement—Reporting Comprehensive Income (Topic 220)." This update addresses the revaluation of deferred tax assets and liabilities due to the Tax Cuts and Jobs Act of 2017 impacting income from continuing operations, even if the initial income tax effects were recognized in other comprehensive income. The update allows entities to reclassify the tax effects that were originally in other comprehensive income from accumulated other comprehensive income to retained earnings. The update requires entities to disclose whether the election was made and a description of the income tax effects. The update can be: (a) applied to the period of adoption, or (b) applied retrospectively to each period in which the Tax Cuts and Jobs Act of 2017 is in effect. Grace is required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. Grace is currently evaluating the timing and effect of adoption.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

~~1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)~~

~~U.S. Tax Reform~~ On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law, making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. Grace has estimated its provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result has recorded $143.0 million as additional income tax expense in the 2017 fourth quarter, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $120.1 million. The provisional amounts related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the state and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million respectively. Additionally, Grace provisionally released valuation allowances on a portion of its state net operating losses and federal tax credits of $2.0 million and $17.4 million.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, Grace has determined that the $120.1 million of deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $37.4 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, as well as the state and foreign taxes on unremitted earnings and the release of the valuation allowances, were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary for a more detailed analysis of Grace's deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the 2018 quarter during which the analysis is completed, which is expected to be during the second half of 2018.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Act. Grace has not completed its analysis in order to make a policy decision on accounting for GILTI.

~~See Note 7 for more information related to income taxes and U.S. tax reform.~~

2. Inventories

Inventories are stated at the lower of cost or net realizable value, and cost is determined using FIFO. Inventories consisted of the following at December 31, ~~2017~~2020 and ~~2016~~:2019:


	December 31,
(In millions)	2020		2019
Raw materials	$	57.0	$	64.2
In process	38.2		55.7
Finished products	126.6		154.4
Other	32.0		35.6
	$	253.8	$	309.9

December 31,
(In millions) 2017 2016
Raw materials $ 48.8
$ 57.7
In process 33.0
33.4
Finished products 124.7
115.8
Other 24.4
21.1
$ 230.9
$ 228.0

During the three months ended June 30, 2020, Grace implemented changes to its Refining Technologies manufacturing operations to improve capital and operating efficiencies. This included key organizational changes and optimization of plant and manufacturing processes at Grace’s 3 hydroprocessing catalyst manufacturing sites. As a result of these changes, Grace recorded a pre-tax charge of $19.7 million related to a write-off of inventory now deemed obsolete based on the process changes.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

3. Properties and Equipment,

and Leases


	December 31,							December 31,
(In millions)	2017			2016			(In millions)	2020		2019
Land	$	14.2		$	10.0		Land	$	26.5	$	29.5
Buildings	404.5			375.4			Buildings	476.6		438.9
Information technology and equipment	136.6			125.3			Information technology and equipment	124.1		131.3
Machinery, equipment and other	1,571.8			1,445.8			Machinery, equipment and other	1,956.0		1,754.5
Projects under construction	135.4			100.6			Projects under construction	175.7		286.6
Properties and equipment, gross	2,262.5			2,057.1			Properties and equipment, gross	2,758.9		2,640.8
Accumulated depreciation and amortization	(1,463.4		)	(1,327.5		)	Accumulated depreciation and amortization	(1,550.1)		(1,497.0)
Properties and equipment, net	$	799.1		$	729.6		Properties and equipment, net	$	1,208.8	$	1,143.8

Capitalized interest costs amounted to ~~$1.5~~$7.0 million, ~~$1.3~~$7.5 million, and ~~$1.0~~$3.2 million in ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively. Depreciation and finance lease amortization expense relating to properties and equipment was ~~$96.1~~$82.9 million, ~~$85.7~~$78.4 million, and ~~$81.8~~$80.9 million in ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively. ~~Grace's~~

The following table presents Grace’s lease right-of-use assets, net of accumulated amortization, and operating lease liabilities as of December 31, 2020 and 2019.


	December 31,
(in millions)	2020		2019		Balance Sheet Location
Operating lease right of use asset	$	35.1	$	34.9	Other assets
Operating lease liability—current	10.1		9.3		Other current liabilities
Operating lease liability—noncurrent	25.8		26.2		Other liabilities

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

3. Properties and Equipment, and Leases (Continued)

The following table presents Grace’s costs and cash flow information related to operating leases for the year ended December 31, 2020.


	Year Ended December 31,
(In millions)	2020		2019
Operating lease cost	$	13.3	$	12.1
Short-term and variable lease cost	21.1		17.9
Total lease cost	$	34.4	$	30.0

Cash payments related to operating leases	$	13.2	$	12.0
Right-of-use assets obtained in exchange for new operating lease liabilities	10.8		17.0

Grace’s expense for operating leases was ~~$11.3 million, $10.0 million, and $10.6~~$13.5 million in ~~2017, 2016,~~2018.

The following table presents the weighted average discount rate and ~~2015, respectively.~~weighted average remaining lease term related to Grace’s operating leases.


	December 31, 2020
Weighted average discount rate	6.2	%
Weighted average remaining lease term	7.7

The following maturity analysis presents minimum expected operating lease payments at December 31, ~~2017, minimum future non-cancelable payments for operating leases are:~~2020.


	(In millions)
2021	$	11.8
2022	8.7
2023	5.2
2024	3.4
2025	2.2
Thereafter	15.3
Total undiscounted lease payments	46.6
Less: imputed interest	10.7
Present value of lease liabilities	$	35.9

(In millions)
2018 $ 10.4
2019 7.3
2020 5.5
2021 3.0
2022 2.8
Thereafter 39.3
$ 68.3

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

4. Goodwill and Other Intangible Assets

The carrying amount of goodwill attributable to each reportable segment and the changes in those balances during the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, are as follows:


(In millions)	Catalysts Technologies		Materials Technologies		Total Grace
Balance, December 31, 2018	$	496.3	$	44.1	$	540.4
Goodwill acquired during the year	17.8		0		17.8
Foreign currency translation	(1.0)		(0.3)		(1.3)


Balance, December 31, 2019	513.1		43.8		556.9

Foreign currency translation	4.4		1.4		5.8


Balance, December 31, 2020	$	517.5	$	45.2	$	562.7

(In millions) Catalysts Technologies Materials Technologies Total Grace
Balance, December 31, 2015 $ 292.7
$ 43.8
$ 336.5
Goodwill acquired during the year 63.8
—
63.8
Foreign currency translation (3.0 ) (0.6 ) (3.6 )
Write-off related to exited product lines —
(2.5 ) (2.5 )
Balance, December 31, 2016 353.5
40.7
394.2
Goodwill acquired during the year —
2.4
2.4
Foreign currency translation 4.2
1.6
5.8
Balance, December 31, 2017 $ 357.7
$ 44.7
$ 402.4

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~4. Goodwill and Other Intangible Assets (Continued)~~

~~Grace's~~Grace’s net book value of other intangible assets at December 31, ~~2017~~2020 and ~~2016,~~2019, was ~~$255.4~~$320.8 million and ~~$269.1~~$342.8 million, respectively, detailed as follows:


	December 31, 2020				December 31, 2019
(In millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Technology	$	231.6	$	74.1	$	232.5	$	63.6
Customer lists	159.7		30.5		161.2		23.9
Trademarks	31.8		7.0		31.7		5.5
Other	15.7		6.4		16.1		5.7
Total	$	438.8	$	118.0	$	441.5	$	98.7

December 31, 2017 December 31, 2016
(In millions)
Gross Carrying
Amount

Accumulated
Amortization
Gross Carrying
Amount Accumulated
Amortization
Technology $ 214.7
$ 41.5
$ 222.3
$ 38.9
Customer lists 55.8
8.8
69.6
20.3
Trademarks 25.5
2.6
25.3
1.5
Other 16.0
3.7
15.7
3.1
Total $ 312.0
$ 56.6
$ 332.9
$ 63.8

Amortization expense related to intangible assets was ~~$15.4~~$22.1 million,, ~~$13.9~~ $21.9 million,, and ~~$16.2~~$19.9 million in ~~2017~~, ~~2016~~,2020, 2019, and ~~2015~~,2018, respectively.

At December 31, ~~2017~~,2020, estimated future annual amortization expense for intangible assets is:


	(In millions)
2021	$	21.8
2022	21.7
2023	21.7
2024	21.7
2025	21.7
Thereafter	212.2
	$	320.8

(In millions)
2018 $ 15.4
2019 15.4
2020 15.1
2021 14.9
2022 14.8
Thereafter 179.8
$ 255.4

~~5. Debt~~

~~Components of Debt~~

December 31,
(In millions) 2017 2016
5.125% senior notes due 2021, net of unamortized debt issuance costs of $5.8 at December 31, 2017 (2016—$7.3) $ 694.2
$ 692.7
U.S. dollar term loan, net of unamortized debt issuance costs and discounts of $4.3 at December 31, 2017 (2016—$5.7) 404.1
402.7
5.625% senior notes due 2024, net of unamortized debt issuance costs of $3.5 at December 31, 2017 (2016—$4.0) 296.5
296.0
Euro term loan, net of unamortized debt issuance costs and discounts of $1.0 at December 31, 2017 (2016—$1.3) 94.0
82.5
Debt payable to unconsolidated affiliate 42.4
39.5
Deferred payment obligation —
30.0
Other borrowings(1) 12.7
40.7
Total debt 1,543.9
1,584.1
Less debt payable within one year 20.1
76.5
Debt payable after one year $ 1,523.8
$ 1,507.6
Weighted average interest rates on total debt 4.7 % 4.6 %


~~(1)~~	~~Represents borrowings under various lines of credit and other borrowings, primarily by non-U.S. subsidiaries.~~

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

5. Debt ~~(Continued)~~

Components of Debt


	December 31,
(In millions)	2020			2019
2018 U.S. dollar term loan, net of unamortized debt issuance costs of $6.0 at December 31, 2020 (2019—$7.2)	$	922.6		$	930.9
4.875% senior notes due 2027, net of unamortized debt issuance costs of $10.1 at December 31, 2020	739.9			0
5.625% senior notes due 2024, net of unamortized debt issuance costs of $1.9 at December 31, 2020 (2019—$2.4)	298.1			297.6
5.125% senior notes due 2021, net of unamortized debt issuance costs (2019—$2.7)	0			697.3
Debt payable to unconsolidated affiliate	25.6			47.4
Other borrowings(1)	4.2			7.2
Total debt	1,990.4			$	1,980.4
Less debt payable within one year	15.3			$	23.1
Debt payable after one year	$	1,975.1		$	1,957.3
Weighted average interest rates on total debt	3.5		%	3.8		%

(1)Represents borrowings under various lines of credit and other borrowings, primarily by non-U.S. subsidiaries.

See Note 6 for a discussion of the fair value of ~~Grace's~~Grace’s debt.

The principal maturities of debt outstanding at December 31, ~~2017,~~2020, were as follows:


	(In millions)
2021	$	15.3
2022	14.2
2023	13.7
2024	311.4
2025	888.2
Thereafter	747.6
Total debt	$	1,990.4

Senior Notes due 2027

On June 26, 2020, Grace–Conn. (the “Issuer”) and certain of the Company’s existing domestic subsidiaries (together with the Company, the “Guarantors”), completed the sale of $750 million aggregate principal amount of 4.875% Notes due 2027 (the “Senior Notes due 2027”) for net proceeds of $741.6 million. The Senior Notes due 2027 were priced at 100% of par and were offered and sold pursuant to exemptions from registration under the Securities Act of 1933, as amended (the "Securities Act"). The Senior Notes due 2027 were issued pursuant to an indenture, dated as of September 16, 2014 (the “Base Indenture”), as supplemented by that certain third supplemental indenture, dated as of June 26, 2020 (the “Third Supplemental Indenture”), by and among the Issuer, the Guarantors and the trustee thereunder (the “Trustee”). The Base Indenture, together with the Third Supplemental Indenture, are referred to below as the “Indenture.”

On July 13, 2020, Grace used the net proceeds, together with cash on hand, to redeem the $700.0 million Senior Notes due 2021 for $748.0 million, including $10.1 million of interest accrued through the date of redemption and a $37.9 million make-whole premium. During the three months ended September 30, 2020, Grace recognized a charge related to the debt refinancing of $39.4 million, including the make-whole premium.

(In millions)
2018 $ 20.1
2019 8.7
2020 7.4
2021 1,198.2
2022 5.0
Thereafter 304.5
Total debt $ 1,543.9

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

5. Debt (Continued)

Interest is payable on the Senior Notes due 2027 on each June 15 and December 15, commencing December 15, 2020.

Grace may redeem all or a portion of the Senior Notes due 2027 at any time prior to June 15, 2023, at a price equal to 100% of the principal amount of the Senior Notes due 2027 redeemed plus accrued and unpaid interest, if any, to but excluding the redemption date plus a make-whole premium. At any time on or after June 15, 2023, Grace may redeem the Senior Notes due 2027, in whole or in part, at the redemption prices set forth in the Third Supplemental Indenture, in each case plus accrued and unpaid interest, if any, to but excluding the redemption date. The Senior Notes due 2027 will mature on June 15, 2027.

If a change of control of the Company occurs while the Senior Notes due 2027 are rated below investment grade, or is followed by a below investment grade rating, subject to certain exceptions, each holder shall have the right to require that the Issuer repurchase all or a portion of such holder’s Senior Notes due 2027 at a purchase price of 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, on the Senior Notes due 2027 repurchased, to but excluding, the date of repurchase.

The Senior Notes due 2027 and guarantees are senior unsecured obligations of the Issuer and the Guarantors, respectively, and will rank equally with all of the existing and future unsubordinated obligations of the Issuer and the Guarantors, respectively. The Senior Notes due 2027 and the guarantees are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to the debt and other liabilities of the Company’s non-guarantor subsidiaries.

The Senior Notes due 2027 were issued subject to covenants that limit the ability of the Company, the Issuer, and certain of the Company’s subsidiaries to: (i) incur liens on assets; (ii) enter into sale and leaseback transactions larger than the greater of $100 million or 2.5% of total assets; and (iii) merge or consolidate with another company; subject to certain exceptions and qualifications. Grace is in compliance with those covenants.

The Senior Notes due 2027 were issued subject to customary events of default, which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; breach of other agreements in the Indenture; failure to pay certain other indebtedness; failure to discharge a final judgment for payment of the greater of (i) $100 million and (ii) 2.5% of Total Assets (as defined in the Indenture) or more (excluding any amounts covered by insurance or indemnities) rendered against the Issuer or any of its significant subsidiaries; and certain events of bankruptcy or insolvency. Generally, if any event of default occurs, the Trustee or the holders of at least 30% in aggregate principal amount of the then outstanding series of Senior Notes due 2027 may declare all the Senior Notes due 2027 of such series to be due and payable immediately.

The foregoing is a summary of the Senior Notes due 2027 and the related indentures, does not purport to be complete, and is qualified in its entirety by reference to the full texts thereof. Grace has filed the full text of such documents with the SEC, which are readily available on the internet at www.sec.gov.

Credit Agreement

On ~~February~~April 3, ~~2014,~~2018, Grace entered into a Credit Agreement (the ~~"Credit Agreement"~~“Credit Agreement”), which provides for new senior secured credit facilities, consisting of:

(a)a $950 million term loan due in ~~connection~~2025, with ~~its exit financing.~~ interest at LIBOR +175 basis points, and

(b)a $400 million revolving credit facility due in 2023, with interest at LIBOR +175 basis points.

The ~~Credit Agreement, as amended~~term loan amortizes in ~~connection with the Separation, provides for:~~equal quarterly installments in aggregate annual amounts of $9.5 million.


~~(a)~~	~~a $700 million term loan due in 2021, with interest at LIBOR +200 bps with a 75 bps floor;~~


~~(b)~~	~~a €150 million term loan due in 2021, with interest at EURIBOR +225 bps with a 75 bps floor; and~~


~~(c)~~	~~a $300 million revolving credit facility due in 2020, with interest at LIBOR +175 bps.~~

The Credit Agreement contains customary affirmative covenants, including, but not limited toto: (i) maintenance of ~~legal~~ existence, and compliance with ~~laws and regulations;~~laws; (ii) delivery of consolidated financial statements and other information; (iii) payment of taxes; (iv) delivery of notices of defaults and certain other material events; and (v) maintenance of adequate insurance. The Credit Agreement also contains customary negative covenants, including but not limited to restrictions onon: (i) dividends on, and redemptions of, equity interests and other restricted payments; (ii) liens; (iii) loans and investments; (iv) the sale, transfer or disposition of assets and businesses; ~~(vi)~~(v) transactions with affiliates; and ~~(vii)~~(vi) a maximum ~~total~~first lien leverage ratio. ~~Grace is in compliance with these covenants. The Credit Agreement contains conditions that would require mandatory principal payments in advance~~

Table of ~~the term loan maturity date; none of these conditions had been triggered as of December 31, 2017.~~Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

5. Debt (Continued)

Events of default under the Credit Agreement include, but are not limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Agreement when due, taking into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Agreement subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v) bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security interests.

To secure its obligations under the Credit Agreement, ~~the Company has~~Grace and certain of its U.S. subsidiaries have granted security interests in ~~the shares of its~~substantially all equity and debt interests in Grace–Conn. or any other Grace subsidiary owned by them and ~~Alltech Associates, Inc. subsidiaries,~~in substantially all ~~of its U.S.~~their non-real estate assets and ~~property, and certain~~property.

Grace used a portion of the proceeds to repay in full the borrowings outstanding under its 2014 credit agreement, which was terminated, as well as to make a voluntary $50.0 million accelerated contribution to its U.S. ~~real estate.~~

~~On January 30, 2015,~~qualified pension plans. In connection with the repayment of debt, Grace ~~borrowed~~recorded a $4.8 million loss on ~~its $250 million delayed draw term loan facility then provided for under~~early extinguishment of debt, which is included in “other (income) expense” in the Credit Agreement and used the funds, together with cash on hand, to repurchase the warrant issued to the asbestos personal injury trust (the "PI Trust") for $490 million. (See Note 10 for Chapter 11 information.)Consolidated Statement of Operations.

Grace had no0 outstanding draws on its revolving credit facility as of December 31, ~~2017;~~2020; however, the available credit under ~~that~~the facility was reduced to ~~$262.8~~$391.8 million by outstanding letters of credit.

During the 2016 first quarter, in connection with the Separation, GCP distributed $750 million to Grace. Grace used $600 million of those funds to repay $526.9 million of its U.S. dollar term loan, including the $250 million borrowed under the delayed draw facility,Senior Notes due 2021 and ~~€67.3 million of its euro term loan. As a result, Grace~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~5. Debt (Continued)~~

recorded a loss on early extinguishment of $11.1 million, which is included in "other (income) expense" in the Consolidated Statements of Operations. See Note 20 for information related to the Separation.

~~Senior Notes~~2024

On September 16, 2014, Grace–Conn. (the ~~"Issuer"~~“Issuer”) issued $1,000.0 million of senior unsecured notes (the ~~"Notes"~~“Notes”) in two tranches:


~~(a)~~	~~$700 million in aggregate principal amount of Notes due 2021 at a coupon rate of 5.125%, and~~


~~(b)~~	~~$300 million in aggregate principal amount of Notes due 2024 at a coupon rate of 5.625%.~~

(a)$700 million in aggregate principal amount of Notes due 2021 at a coupon rate of 5.125%, and

(b)$300 million in aggregate principal amount of Notes due 2024 at a coupon rate of 5.625%.

The Notes were priced at 100% of par and were offered and sold pursuant to exemptions from registration under the Securities Act of 1933, as amended, (the ~~"Securities Act"~~“Securities Act”). The net proceeds received from issuance were $985.5 million, a portion of which was used to terminate Grace's obligations under the deferred payment agreement with the PI Trust for $632.0 million and to repay amounts outstanding under Grace's revolving credit facility. The remaining proceeds from the Notes were used to partially fund the settlement of the warrant issued to the PI Trust (as defined in Note 10) and for other general corporate purposes. Interest is payable on the Notes on each April 1 and October 1.

Grace may redeem some or all of the Notes at any time at a price equal to the greater of (i) 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest and (ii) the sum, as determined by an independent investment banker, of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 50 basis points, in each case, plus accrued and unpaid interest. In the event of a change in control, Grace will be required to offer to purchase the Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest. On July 13, 2020, Grace redeemed the $700.0 million Senior Notes due 2021.

The Notes are jointly and severally guaranteed on a full and unconditional senior unsecured basis by the Company and Alltech Associates, Inc., a wholly-owned subsidiary of the Issuer (the ~~"Guarantors"~~“Guarantors”). The Notes and guarantees are senior obligations of the Issuer and the Guarantors, respectively, and will rank equally with all of the existing and future unsubordinated obligations of the Issuer and the Guarantors, respectively. The Notes are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to the debt and other liabilities of Grace’s non-guarantor subsidiaries.

The Notes were issued subject to covenants that limit the Issuer’s and certain of its subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) create or incur liens on assets, (ii) enter into any sale and leaseback transaction and (iii) in the case of the Issuer, merge or consolidate with another company. Grace is in compliance with these covenants.

The Notes were also issued subject to customary events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; breach of other agreements in the Indenture; failure to pay certain other indebtedness; failure to discharge a final judgment for the payment of $75 million or more (excluding any amounts covered by insurance or indemnities) rendered against

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

5. Debt (Continued)

the Issuer or any of its significant subsidiaries; and certain events of bankruptcy or insolvency. Generally, if any event of default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding series of Notes may declare all the Notes of such series to be due and payable immediately.

~~This~~The foregoing is a summary of ~~the Credit Agreement, the amendment to~~ the Credit Agreement, the indentures, and the ~~Notes does not purport to be complete and is qualified in its entirety by reference to~~Notes. Grace has filed the full text of such agreements ~~copies of which have been filed~~ with the ~~SEC.~~SEC, which are readily available on the Internet at www.sec.gov.

6. Fair Value Measurements and Risk

Certain of ~~Grace's~~Grace’s assets and liabilities are reported at fair value on a gross basis. ASC 820 ~~"Fair~~“Fair Value Measurements and ~~Disclosures"~~Disclosures” defines fair value as the value that would be received at the measurement date

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~6. Fair Value Measurements and Risk (Continued)~~

in the principal or ~~"most advantageous"~~“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 InstrumentsDebt 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 December 31, ~~2017,~~2020, the carrying amounts, net of unamortized debt issuance costs and discounts (see Note 5), and fair values of ~~Grace's~~Grace’s debt were as follows:


	December 31, 2020				December 31, 2019
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
2018 U.S. dollar term loan	$	922.6	$	904.1	$	930.9	$	938.1
4.875% senior notes due 2027	739.9		784.7		0		0
5.625% senior notes due 2024	298.1		322.4		297.6		329.2
5.125% senior notes due 2021	0		0		697.3		727.1
Other borrowings	29.8		29.8		54.6		54.6
Total debt	$	1,990.4	$	2,041.0	$	1,980.4	$	2,049.0

December 31, 2017 December 31, 2016
(In millions) Carrying Amount Fair Value Carrying Amount Fair Value
5.125% senior notes due 2021(1) $ 694.2
$ 728.7
$ 692.7
$ 721.3
U.S. dollar term loan(2) 404.1
409.7
402.7
408.2
5.625% senior notes due 2024(1) 296.5
321.3
296.0
311.5
Euro term loan(2) 94.0
93.7
82.5
82.0
Other borrowings 55.1
55.1
110.2
110.2
Total debt $ 1,543.9
$ 1,608.5
$ 1,584.1
$ 1,633.2


~~(1)~~	Carrying amounts are net of unamortized debt issuance costs of $5.8 million and $3.5 million at December 31, 2017, and $7.3 million and $4.0 million as of December 31, 2016, related to the 5.125% senior notes due 2021 and 5.625% senior notes due 2024, respectively.


~~(2)~~	Carrying amounts are net of unamortized debt issuance costs and discounts of $4.3 million and $1.0 million at December 31, 2017, and $5.7 million and $1.3 million as of December 31, 2016, related to the U.S. dollar term loan and euro term loan, respectively.

At December 31, ~~2017,~~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 DerivativesBecause 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 ~~in volatile currencies~~ 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 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~~“accumulated other comprehensive income (loss)"” and reclassified into ~~"other~~“other (income) expense, ~~net"~~net” to offset the remeasurement of the underlying hedged loans. ~~Excluded components (forward points) on these hedges~~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 ~~the~~their fair value ~~of the forward contracts~~ are recorded in ~~"other~~“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.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

The valuation of ~~Grace's~~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

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~6. Fair Value Measurements and Risk (Continued)~~

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 at December 31, ~~2017,~~2020, were ~~$230.2~~$419.2 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 Credit Agreement (see Note 5), Grace entered into new cross-currency swaps beginning on April 3, 2018, and maturing on March 31, 2023, to synthetically convert $600.0 million of U.S. dollar-denominated floating rate debt into €490.1 million of euro-denominated debt fixed at 2.0231%. These cross-currency swaps were de-designated and terminated on November 5, 2018, and replaced with new, at-market 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%. Grace received $33.1 million in cash proceeds from the swap settlement. 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 AgreementsGrace 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~~“accumulated other comprehensive income (loss)"” and reclassified into ~~"interest~~“interest expense and related financing ~~costs"~~costs” during the hedged interest period.

In connection with ~~its emergence financing,~~the Credit Agreement, Grace entered into interest rate swaps beginning on ~~February~~April 3, ~~2015,~~2018, and maturing on ~~February 3, 2020,~~March 31, 2023, fixing the LIBOR component of the interest on ~~$250~~$100.0 million of ~~Grace's~~ term debt at ~~a rate of 2.393%~~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.

The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, ~~2017~~2020 and ~~2016:~~2019:


	Fair Value Measurements at December 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	$	1.6	$	—	$	1.6	$	—



Total Assets	$	1.6	$	—	$	1.6	$	—
Liabilities
Currency derivatives	$	17.8	$	—	$	17.8	$	—
Variable-to-fixed cross-currency derivatives	51.0		—		51.0		—
Interest rate derivatives	5.5		—		5.5		—
Total Liabilities	$	74.3	$	—	$	74.3	$	—

Fair Value Measurements at December 31, 2017, 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 $ 3.1
$ —
$ 3.1
$ —
Total Assets $ 3.1
$ —
$ 3.1
$ —
Liabilities
Currency derivatives $ 23.8
$ —
$ 23.8
$ —
Interest rate derivatives 1.8
—
1.8
—
Total Liabilities $ 25.6
$ —
$ 25.6
$ —

Fair Value Measurements at December 31, 2016, 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 $ 8.8
$ —
$ 8.8
$ —
Total Assets $ 8.8
$ —
$ 8.8
$ —
Liabilities
Interest rate derivatives $ 6.0
$ —
$ 6.0
$ —
Currency derivatives 0.9
—
0.9
—
Total Liabilities $ 6.9
$ —
$ 6.9
$ —

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)


	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	$	—

The following tables present the location and fair values of derivative instruments included in the Consolidated Balance Sheets as of December 31, ~~2017~~2020 and ~~2016:~~2019:

Asset Derivatives

Liability Derivatives

December 31, 2020
(In millions)

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Derivatives designated as hedging instruments under ASC 815:

Currency contracts

Other current assets

Other current liabilities

17.7

Currency contracts

Other assets

Other liabilities

0.1

Interest rate contracts

Other current assets

Other current liabilities

2.5

Interest rate contracts

Other assets

Other liabilities

3.0

Variable-to-fixed cross-currency swaps

Other current assets

Other current liabilities

0.2

Variable-to-fixed cross-currency swaps

Other liabilities

50.8

Derivatives not designated as hedging instruments under ASC 815:

Currency contracts

Other current assets

1.9

Other current assets

Currency contracts

Other current liabilities

(0.3)

Other current liabilities

Total derivatives

1.6

74.3

Asset Derivatives

Liability Derivatives

December 31, 2019
(In millions)

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

(0.2)

Currency contracts

Other current assets

Other current liabilities

0.2

Total derivatives

9.5

4.3

Asset Derivatives Liability Derivatives
December 31, 2017
(In millions)
Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value
Derivatives designated as hedging instruments under ASC 815:
Currency contracts Other current assets $ 2.7
Other current liabilities $ 1.4
Interest rate contracts Other current assets —
Other current liabilities 1.3
Currency contracts Other assets —
Other liabilities 22.2
Interest rate contracts Other assets —
Other liabilities 0.5
Derivatives not designated as hedging instruments under ASC 815:

Currency contracts Other current assets 0.4
Other current liabilities 0.2
Total derivatives $ 3.1
$ 25.6

Asset Derivatives Liability Derivatives
December 31, 2016
(In millions)
Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value
Derivatives designated as hedging instruments under ASC 815:
Currency contracts Other current assets $ 4.0
Other current liabilities $ —
Interest rate contracts Other current assets —
Other current liabilities 2.8
Currency contracts Other assets 4.0
Other liabilities —
Interest rate contracts Other assets —
Other liabilities 3.2
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts Other current assets 0.8
Other current liabilities 0.9
Total derivatives $ 8.8
$ 6.9

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

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~~“other comprehensive income (loss)~~" ("OCI"~~” (“OCI”) for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015:~~2018:


Year Ended December 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 Accumulated OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
Interest rate contracts	$	(4.0)	Interest expense	$	(1.8)
Currency contracts(1)	1.8		Other expense	2.3
Variable-to-fixed cross-currency swaps	7.2		Interest expense	4.0
Variable-to-fixed cross-currency swaps	(55.4)		Other expense	(55.4)


Total derivatives	$	(50.4)		$	(50.9)

			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	$	4.9

(1)Amount of gain (loss) recognized in OCI includes $(0.7) million excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.


Year Ended December 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 Accumulated OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
Interest rate contracts	$	(2.9)	Interest expense	$	(0.3)
Currency contracts(1)	2.4		Other expense	1.4
Variable-to-fixed cross-currency swaps	9.1		Interest expense	13.2
Variable-to-fixed cross-currency swaps	12.5		Other expense	12.5

Total derivatives	$	21.1		$	26.8

			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	$	(0.4)

(1)Amount of gain (loss) recognized in OCI includes $0.6 million excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.

Year Ended December 31, 2017
(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 $ 0.9
Interest expense $ (2.7 )
Currency contracts(1) (3.6 ) Other expense (2.9 )
Total derivatives $ (2.7 ) $ (5.6 )


~~(1)~~	Amount of gain (loss) recognized in OCI includes ($0.6 million) excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)


Year Ended December 31, 2018 (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 Accumulated OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
Interest rate contracts	$	0.4	Interest expense	$	(0.6)
Currency contracts(1)	6.3		Other expense	6.3
Variable-to-fixed cross-currency swaps	(0.6)		Interest expense	9.7
Variable-to-fixed cross-currency swaps	40.5		Other expense	40.5

Total derivatives	$	46.6		$	55.9

			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	$	(4.0)

Year Ended December 31, 2016
(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 $ (2.2 ) Interest expense $ (4.1 )
Currency contracts (0.1 ) Other expense 0.8
Total derivatives $ (2.3 ) $ (3.3 )

Year Ended December 31, 2015
(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 $ (5.6 ) Interest expense $ (3.8 )
Currency contracts 1.4
Other expense 0.7
Total derivatives $ (4.2 ) $ (3.1 )
(1)Amount of gain (loss) recognized in OCI includes $(0.4) million excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.

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.


	Year Ended December 31,
	2020				2019				2018
(In millions)	Interest expense		Other income (expense)		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	$	(76.0)	$	(89.0)	$	(76.7)	$	(80.6)	$	(80.2)	$	23.2
Gain (loss) on cash flow hedging relationships in ASC 815
Interest rate contracts
Gain (loss) reclassified from accumulated OCI into income	$	(1.8)	$	—	$	(0.3)	$	—	$	(0.6)	$	—
Variable-to-fixed cross-currency swaps
Gain (loss) reclassified from accumulated OCI into income	4.0		(55.4)		13.2		12.5		9.7		40.5




Currency contracts
Gain (loss) reclassified from accumulated OCI into income	—		2.3		—		1.4		—		6.3
Amount excluded from effectiveness testing recognized in earnings based on amortization approach (included in above)	—		1.2		—		2.8		—		3.0

Year Ended December 31,
2017 2016 2015
(In millions) Interest expense Other income (expense) 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 $ 79.5
$ (8.4 ) $ 81.5
$ 13.3
$ 99.4
$ (13.8 )
Gain (loss) on cash flow hedging relationships in ASC 815
Interest rate contracts
Amount of gain or (loss) reclassified from accumulated OCI into income $ (2.7 ) $ —
$ (4.1 ) $ —
$ (3.8 ) $ —
Currency contracts
Amount of gain or (loss) reclassified from accumulated OCI into income —
(2.9 ) —
0.8
—
0.7
Amount excluded from effectiveness testing recognized in earnings based on amortization approach (included in above) —
0.6
—
—
—
—

Net Investment HedgesGrace uses cross-currency swaps as derivative hedging instruments in certain net investment hedges of its non-U.S. subsidiaries. The ~~effective portion of~~ gains and losses attributable to these net investment hedges, isadjusted for the impact of excluded components, are recorded net of tax to ~~"currency~~“currency translation ~~adjustments"~~adjustments” within ~~"accumulated~~“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~~“currency translation ~~adjustments"~~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 $3.0 million, $3.3 million and $2.3 million for the years ended December 31, 2020, 2019, and 2018, respectively. At December 31, ~~2017,~~2020, the notional amount of €170.0 million

Table of ~~Grace's~~Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

of Grace’s cross-currency swaps was designated as a hedging instrument of its net investment in its European subsidiaries.

Grace has also ~~uses~~used foreign ~~currency denominated~~currency-denominated debt and deferred intercompany royalties as non-derivative hedging instruments in certain net investment hedges. The effective portion of gains and losses attributable to these net investment hedges is recorded to "currency translation adjustments" within "accumulated other comprehensive income (loss)." 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. At December 31, ~~2017, €80.1 million of Grace's term loan principal~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~6. Fair Value Measurements~~2020, Grace’s deferred intercompany royalties have been fully amortized and ~~Risk (Continued)~~

~~was designated~~de-designated as a hedging instrument of its net investment in its European subsidiaries. ~~At December 31, 2017, €33.7 million of Grace's deferred intercompany royalties was~~In April 2018, in connection with the Credit Agreement, Grace de-designated and repaid its euro-denominated term loan principal that had been designated as a ~~hedging instrument~~hedge of its net investment in its European subsidiaries.

The following ~~tables present~~table presents the ~~location and~~ amount of gains and losses on derivative and non-derivative instruments designated as net investment hedges recorded to “currency translation adjustments” within “accumulated other comprehensive income (loss)” for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015.~~2018. There were no0 reclassifications of the effective portion of net investment hedges out of OCI and into earnings for the periods ~~presented in the tables below.~~presented.


	Year Ended December 31,
(In millions)	2020		2019		2018
Derivatives in ASC 815 net investment hedging relationships:
Cross-currency swap	$	(15.9)	$	9.1	$	6.0
Non-derivatives in ASC 815 net investment hedging relationships:
Foreign currency denominated debt	$	0	$	0	$	(4.4)
Foreign currency denominated deferred intercompany royalties	0		0.1		0.5
	$	0	$	0.1	$	(3.9)

Year Ended December 31, 2017
(In millions) Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments
Derivatives in ASC 815 net investment hedging relationships:
Cross-currency swap $ (21.9 )
Non-derivatives in ASC 815 net investment hedging relationships:
Foreign currency denominated debt $ (11.2 )
Foreign currency denominated deferred intercompany royalties (6.5 )
$ (17.7 )

Year Ended December 31, 2016
(In millions) Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments
Derivatives in ASC 815 net investment hedging relationships:
Cross-currency swap $ 5.6
Non-derivatives in ASC 815 net investment hedging relationships:
Foreign currency denominated debt $ 4.6
Foreign currency denominated deferred intercompany royalties 2.5
$ 7.1

Year Ended December 31, 2015
(In millions) Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments
Non-derivatives in ASC 815 net investment hedging relationships:
Foreign currency denominated debt $ 18.3

Credit RiskGrace is exposed to credit risk in its trade accounts receivable. ~~Customers in the petroleum refining industry represent the greatest exposure. Grace's~~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~~Grace’s derivative contracts are with internationally recognized commercial financial institutions.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

7. Income Taxes

Provision for Income Taxes The components of income from continuing operations before income taxes and the related provision for income taxes for ~~2017, 2016,~~2020, 2019, and ~~2015~~2018 are as follows:


(In millions)	2017			2016			2015			(In millions)	2020		2019		2018
Income from continuing operations before income taxes:										Income from continuing operations before income taxes:
Domestic	$	28.3		$	72.7		$	97.1		Domestic	$	(76.1)	$	79.2	$	82.2
Foreign	182.6			93.3			96.6			Foreign	76.6		104.3		162.7
Total	$	210.9		$	166.0		$	193.7		Total	$	0.5	$	183.5	$	244.9
Benefit from (provision for) income taxes:										Benefit from (provision for) income taxes:
Federal—current										Federal—current	$	(0.3)	$	(6.3)	$	(4.9)
Federal—deferred	$	(144.6	)	$	(11.8	)	$	(35.4	)	Federal—deferred	24.8		(19.8)		(29.3)
State and local—current	0.2			(0.7		)	4.1			State and local—current	0		(0.5)		1.6
State and local—deferred	(1.7		)	(17.7		)	(6.4		)	State and local—deferred	(7.2)		(5.8)		(3.5)
Foreign—current	(50.8		)	(36.6		)	(23.5		)	Foreign—current	(35.1)		(42.4)		(49.9)
Foreign—deferred	(3.6		)	7.8			(8.6		)	Foreign—deferred	15.6		18.0		7.9
Total	$	(200.5	)	$	(59.0	)	$	(69.8	)	Total	$	(2.2)	$	(56.8)	$	(78.1)

The difference between the benefit from (provision for) income taxes on continuing operations at the U.S. federal income tax rate of ~~35%~~21% and ~~Grace's~~Grace’s overall income tax provision is summarized as follows:


(In millions)	2020		2019		2018
Tax provision at U.S. federal income tax rate	$	(0.1)	$	(38.5)	$	(51.4)
Change in benefit (provision) resulting from:
GILTI high-tax exclusion amended return	25.2		0		0
Decrease (increase) in valuation allowance	(13.5)		(4.2)		(6.3)
Nontaxable income/non-deductible expenses	(4.6)		(2.5)		(1.6)
U.S. taxes on foreign earnings	(3.9)		(16.7)		(30.9)
State and local income taxes, net	(3.4)		(3.4)		(1.9)
Research and development credit	3.3		3.4		9.4
Unrecognized tax benefit (accruals) releases	(3.1)		2.3		5.7
Effect of tax rate differential in foreign jurisdictions	(2.0)		(2.9)		(11.3)
Compensation-related adjustments	(1.8)		(1.7)		(3.4)
Provision to return adjustments	(0.3)		3.0		(0.7)
Benefits (charges) related to U.S. tax reform	0		0		17.1
Other	2.0		4.4		(2.8)
Benefit from (provision for) income taxes	$	(2.2)	$	(56.8)	$	(78.1)

(In millions) 2017 2016 2015
Tax provision at U.S. federal income tax rate $ (73.8 ) $ (58.1 ) $ (67.8 )
Change in benefit (provision) resulting from:
Provisional charge related to U.S. tax reform (143.0 ) —
—
Effect of tax rates in foreign jurisdictions 13.3
6.8
3.0
Research and development credit 5.1
—
—
Stock option exercises 2.8
6.7
—
Nontaxable income/non-deductible expenses (2.6 ) (2.5 ) (0.9 )
State and local income taxes, net (1.8 ) (4.7 ) (2.9 )
U.S. tax on foreign earnings (1.2 ) (0.9 ) (1.7 )
Decrease (increase) in valuation allowance (0.3 ) (2.5 ) 1.6
Other 1.0
(3.8 ) (1.1 )
Benefit from (provision for) income taxes $ (200.5 ) $ (59.0 ) $ (69.8 )
Our 2020 effective tax rate was significantly higher than the 21% U.S. statutory rate primarily due to proportionally lower pre-tax income and to an increase to the valuation allowance on U.S. federal tax credits and the higher statutory rates in effect for our foreign subsidiaries, partially offset by the benefit from the Global Intangible Low-Taxed Income (“GILTI”) high-tax exclusion (“HTE”) tax benefit elected for tax years 2018 through 2020.

~~Grace has estimated its provision for income taxes in accordance with~~On July 20, 2020, the Tax Cuts and Jobs Act of 2017 (the "Act") and guidance available as of the date of this filing and as a result has recorded a provisional income tax expense of $143.0 million in the 2017 fourth quarter, the period in which the legislation was enacted. The provisional amountU.S. Treasury Department released final regulations related to the ~~remeasurement~~GILTI HTE. Grace has recognized a benefit associated with the GILTI HTE regulations that resulted in a tax benefit related to 2018 and 2019 of $25.2 million resulting from the election and the re-establishment of certain ~~deferred tax assets~~U.S. federal net operating loss carryforwards, research and liabilities, based on the rates at which they are expected to reverse in the future, was $120.1 million. The provisional amounts related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the statedevelopment credit carryforwards, and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million, respectively. Grace is no longer indefinitely reinvested with respect to its historical unremitted earnings of its foreign subsidiaries. Additionally, Grace provisionally released valuation allowances on a portion of its state net operating losses and federal tax ~~credits of $2.0 million and $17.4 million, respectively.~~

The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act and significant estimates in calculations, and the preparation and analysis of informationcredit carryforwards.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

7. Income Taxes (Continued)

not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from Grace's interpretation as of the date of this filing. As Grace completes its analysis of the Act, collects and prepares necessary data including finalizing total post-1986 earnings and profits of its foreign subsidiaries, and interprets any additional guidance, Grace may make adjustments to the provisional amounts that have been recorded that may materially impact its provision for income taxes in the period in which the adjustments are made. Grace expects to complete its analysis of the provisional items during the second half of 2018.

Deferred Tax Assets and Liabilities As of December 31, ~~2017~~2020 and ~~2016,~~2019, the tax attributes giving rise to deferred tax assets and liabilities consisted of the following items.

December 31,
(In millions) 2017 2016
Deferred tax assets:
Federal tax credit carryforwards $ 269.6
$ 183.2
Pension liabilities 104.8
120.1
U.S. net operating loss carryforwards 89.5
293.6
State net operating loss carryforwards 58.2
50.9
Research and development 22.8
35.4
Prepaid royalties 21.4
20.8
Liability for environmental remediation 16.4
24.6
Reserves and allowances 15.2
31.1
Foreign net operating loss carryforwards 6.6
5.9
Liability for asbestos-related litigation —
11.1
Other 14.5
29.0
Total deferred tax assets $ 619.0
$ 805.7
Deferred tax liabilities:
Properties and equipment $ (32.0 ) $ (38.5 )
Intangible assets (15.1 ) (18.4 )
Pension assets —
(6.1 )
Other (11.3 ) (4.7 )
Total deferred tax liabilities $ (58.4 ) $ (67.7 )
Valuation allowance:
Federal tax credit carryforwards $ (0.3 ) $ (17.7 )
State net operating loss carryforwards (9.2 ) (11.2 )
Foreign net operating loss carryforwards (2.8 ) (2.5 )
Total valuation allowance (12.3 ) (31.4 )
Net deferred tax assets $ 548.3
$ 706.6

~~Grace's deferred tax assets decreased by $158.3 million from December 31, 2016, to December 31, 2017, largely as a result of the Act.~~


	December 31,
(In millions)	2020		2019
Deferred tax assets:
Tax credit carryforwards	$	309.2	$	294.7
Pension liabilities	139.2		107.7
Net operating loss carryforwards	65.2		60.3
Environmental remediation liabilities	50.3		47.0
Research and development	32.9		26.6
Unrealized currency gains and losses	30.7		12.1
Reserves and allowances	29.6		14.8
Operating lease liabilities	7.4		8.1
Compensation-related	4.0		5.4
Prepaid royalties	1.1		6.3
Other	6.8		6.9
Total deferred tax assets	$	676.4	$	589.9
Deferred tax liabilities:
Intangible assets	$	(36.5)	$	(27.7)
Properties and equipment	(20.5)		(18.6)

Operating lease assets	(7.4)		(8.0)
Other	(16.6)		(1.4)
Total deferred tax liabilities	$	(81.0)	$	(55.7)

Valuation allowances	(38.7)		(24.1)
Net deferred tax assets	$	556.7	$	510.1

Grace reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized (see Note 1). Based on all available evidence considered, Grace believes it is more likely than not that some portion of the U.S federal foreign tax credit carryforwards recorded will not ultimately be realized. ~~See Note 1. The~~As of December 31, 2020, a valuation allowance ~~decreased by $19.1~~of $11.5 million ~~from December 31, 2016, to December 31, 2017, due to a decrease of $19.4 million related to~~was recorded against the ~~impact of the Act offset by an increase of $0.3 million for~~more-likely-than-not U.S. federal foreign ~~deferred~~ tax ~~assets.~~credit carryforwards expiring in 2021.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~7. Income Taxes (Continued)~~

~~U.S. Federal~~Tax Attributes—Tax Credit and ~~State~~ Net Operating ~~Losses and Credit~~Loss Carryforwards Grace has ~~$269.6~~$317.4 million in federal tax credit ~~carryforwards.~~carryforwards and $13.1 million in federal net operating loss carryforwards before valuation allowances and unrecognized tax benefits. In order to fully utilize the credits before they expire ~~from~~(from 2021 to ~~2027~~2040), Grace ~~will~~would need to generate ~~domestic and foreign source~~ income of approximately ~~$1.2 billion and approximately $200 million, respectively.~~$1.6 billion.

Grace has ~~U.S. federal and~~ state net operating ~~losses. The deferred~~loss carryforwards of $47.4 million and state tax ~~asset related to federal NOLs is $89.5 million. In order to fully utilize the NOLs before they expire in 2035, Grace will need to generate approximately $440~~credits of $1.6 million ~~in U.S. taxable income. The deferred tax asset, net of federal benefit,~~ before valuation ~~allowance related to state NOLs is $58.2 million.~~allowances and unrecognized tax benefits. In order to fully utilize the state ~~NOLs~~tax attributes before they expire (from ~~2018~~2021 to ~~2035)~~2036), Grace would need to generate approximately ~~$1.5~~$3.1 billion in state taxable income.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

7. Income Taxes (Continued)

The following table presents Grace’s tax effected net operating loss carryforwards and the related valuation allowances.


	December 31,
(In millions)	2020		2019
Net operating loss carryforwards
U.S. state net operating losses	$	45.4	$	49.5
U.S. federal net operating losses	10.2		1.2
Foreign net operating losses	9.6		9.6
Net operating loss carryforwards	$	65.2	$	60.3

Net operating loss—valuation allowances
U.S. state—NOL valuation allowances	$	(13.9)	$	(10.1)
Foreign—NOL valuation allowances	(6.5)		(8.0)
Net operating loss—valuation allowances	$	(20.4)	$	(18.1)

Unrecognized Tax Benefits The balance of unrecognized tax benefits at December 31, ~~2017,~~2020, was ~~$17.7~~$18.6 million compared with ~~$18.7~~$15.4 million at December 31, ~~2016.~~2019. A rollforward of the balance of unrecognized tax benefits for the three years ended December 31, ~~2017,~~2020, follows.


	December 31,
(In millions)	2020		2019		2018
Balance at beginning of year	$	15.4	$	14.1	$	17.7
Increase (decrease) in positions taken in prior periods	0.2		2.6		1.2
Positions taken in the current period	3.4		2.9		0.9
Decrease due to settlements with tax authorities	(0.4)		(4.2)		(5.7)

Balance at end of year	$	18.6	$	15.4	$	14.1

(In millions)
Unrecognized
Tax Benefits
Balance, December 31, 2014 $ 26.5
Additions for current year tax positions 0.1
Additions for prior year tax positions 0.8
Reductions for prior year tax positions and reclassifications (1.6 )
Reductions for expirations of statute of limitations (1.5 )
Settlements (1.2 )
Balance, December 31, 2015 23.1
Additions for current year tax positions 6.8
Additions for prior year tax positions 0.2
Reductions for prior year tax positions and reclassifications (0.2 )
Settlements (3.3 )
Transferred to GCP upon Separation (7.9 )
Balance, December 31, 2016 18.7
Additions for current year tax positions 0.8
Additions for prior year tax positions 0.7
Reductions for prior year tax positions and reclassifications (2.5 )
Balance, December 31, 2017 $ 17.7

~~The entire~~If the balance of unrecognized tax benefits as of December 31, ~~2017,~~2020, of ~~$17.7~~$18.6 million ifis ultimately recognized, it would reduce the effective tax rate. ~~The~~A portion of this balance ~~of unrecognized~~relates to tax ~~benefits~~positions that impact Grace’s deferred tax assets as of December 31, ~~2017, includes $17.7 million for tax positions with an indirect tax benefit that results in a corresponding deferred tax asset as of December 31, 2017.~~2020. Grace accrues potential interest and any associated penalties related to unrecognized tax benefits in ~~"benefit~~“benefit from (provision for) income ~~taxes"~~taxes” in the Consolidated Statements of Operations. ~~There were no~~Grace accrued $0.2 million of interest and penalties ~~accrued on~~associated with these unrecognized tax benefits asin 2020. Grace believes that the amount of ~~December 31, 2017 and 2016.~~the liability for unrecognized tax benefits will not change materially in the next 12 months.

Grace ~~files~~is subject to taxation in the U.S. ~~federal income tax returns as well as income tax returns in~~and various state and foreign ~~jurisdictions. Grace's unrecognized~~jurisdictions and is under continual audit by various tax ~~benefits are related to income tax returns for~~authorities. As of December 31, 2020, tax years ~~that remain~~2017 through 2019 are subject to examination by the ~~relevant taxing~~U.S. tax authorities. ~~The following table summarizes these open~~In the significant non-U.S. jurisdiction, tax years 2017 through 2019 are subject to examination by ~~major jurisdiction:~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~7. Income Taxes (Continued)~~



~~Tax Jurisdiction(1)~~	~~Examination in Progress~~	~~Examination Not Initiated~~
~~United States—Federal~~	~~2007, 2009~~	~~2010-2016~~
~~United States—States~~	~~2010-2014~~	~~2015-2016~~
~~Germany~~	~~2014-2016~~	~~None~~
~~Sweden~~	~~None~~	~~2013-2016~~


~~(1)~~	~~Includes federal, state, provincial or local jurisdictions, as applicable.~~

the German tax authorities. Grace ~~notes that there are~~has tax attributes generated in prior years that are otherwise closed by statute and were carried forward into years that are open to examination. Those attributes may still be subject to adjustment to the extent utilized in open years.

~~As a multinational taxpayer, Grace is under continual audit by various tax authorities. Grace believes that the amount~~

Table of ~~the liability for unrecognized tax benefits will be unchanged in the next 12 months.~~Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other ~~Postretirement Benefit~~Retirement Plans

Pension Plans The following table presents the funded status of ~~Grace's underfunded and unfunded~~Grace’s pension plans:


	December 31,
(In millions)	2020		2019
Overfunded defined benefit pension plans	$	11.4	$	8.5
Underfunded defined benefit pension plans	(128.3)		(85.2)
Unfunded defined benefit pension plans	(520.7)		(434.6)
Total underfunded and unfunded defined benefit pension plans	(649.0)		(519.8)
Pension liabilities included in other current liabilities	(15.7)		(14.8)
Net funded status	$	(653.3)	$	(526.1)

December 31,
(In millions) 2017 2016
Underfunded defined benefit pension plans $ (110.5 ) $ (83.1 )
Unfunded defined benefit pension plans (391.9 ) (341.2 )
Total underfunded and unfunded defined benefit pension plans (502.4 ) (424.3 )
Pension liabilities included in other current liabilities (15.0 ) (14.4 )
Net funded status $ (517.4 ) $ (438.7 )

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 ~~projected benefit obligation ("PBO")~~PBO basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded.

Grace maintains defined benefit pension plans covering current and former employees of certain business units and divested business units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. qualified pension plans ("(“U.S. qualified pension ~~plans"~~plans”) in accordance with U.S. federal laws and regulations. Non-U.S. pension plans ("(“non-U.S. pension ~~plans"~~plans”) are funded under a variety of methods, as required under local laws and customs. The U.S. salaried plan iswas closed to new entrants after January 1, 2017. In the 2021 first quarter, Grace announced to employees that the U.S. salaried ~~employees and certain U.S. hourly employees hired on or after~~plan will be frozen effective January 1, ~~2017, and employees in Germany hired on or after January 1, 2016, will participate in defined contribution plans instead of defined benefit pension plans.~~2025.

Grace also provides, through nonqualified plans, supplemental pension benefits in excess of U.S. qualified pension plan limits imposed by federal tax law. These plans cover officers and higher-level employees and serve to increase the combined pension amount to the level that they otherwise would have received under the U.S. qualified pension plans in the absence of such limits. The nonqualified plans are unfunded and Grace pays the costs of benefits as they are due to the participants.

At the December 31, ~~2017,~~2020, measurement date for ~~Grace's~~Grace’s defined benefit pension plans, the PBO was ~~$1,648.7~~$1,682.7 million as measured under U.S. GAAP compared with ~~$1,543.3~~$1,507.0 million as of December 31, ~~2016.~~2019. The PBO ~~basis~~ reflects the present value (using a ~~3.57%~~2.41% weighted average discount rate for U.S. plans and a ~~1.84%~~0.84% weighted average discount rate for non-U.S. plans as of December 31, ~~2017)~~2020) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~8. Pension Plans and Other Postretirement Benefit Plans (Continued)~~

On an annual basis a full remeasurement of pension assets and pension liabilities is performed based on ~~Grace's~~Grace’s estimates and actuarial valuations. These valuations reflect the terms of ~~the~~each pension plan and use participant-specific information as well as certain key assumptions provided by management.

Defined Contribution Retirement ~~Plan~~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~~employee’s salary or wages. ~~Grace's~~Grace’s cost related to this benefit plan was ~~$11.5~~$14.3 million,, ~~$11.1~~ $13.9 million,, and ~~$10.4~~$12.6 million for the years ended December 31, ~~2017~~, ~~2016~~,2020, 2019, and ~~2015~~,2018, respectively.

U.S. salaried employees and certain U.S. hourly employees hired on or after January 1, 2017, participate in an enhanced defined contribution plan instead of a defined benefit pension plan. Grace contributes 4% of an individual employee’s salary or wages to this plan. Grace’s cost related to this enhanced defined contribution plan established in the U.S. was $3.5 million, $2.9 million, and $1.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Retirement Plans (Continued)

Analysis of Plan Accounting and Funded Status The following table summarizes the changes in benefit obligations and fair values of retirement plan assets during ~~2017~~2020 and ~~2016~~:2019:


	Defined Benefit Pension Plans
	U.S.				Non-U.S.				Total
(In millions)	2020		2019		2020		2019		2020		2019
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year	$	1,137.8	$	1,027.1	$	369.2	$	305.6	$	1,507.0	$	1,332.7
Service cost	18.9		15.7		11.1		8.6		30.0		24.3
Interest cost	30.2		38.3		4.1		5.4		34.3		43.7




Actuarial (gain) loss—change in discount rates	106.0		144.1		52.7		58.2		158.7		202.3
Actuarial (gain) loss—other changes	8.9		(10.7)		(3.7)		4.1		5.2		(6.6)
Benefits paid	(79.1)		(76.7)		(8.4)		(8.4)		(87.5)		(85.1)

Currency exchange translation adjustments	—		—		35.0		(4.3)		35.0		(4.3)

Benefit obligation at end of year	$	1,222.7	$	1,137.8	$	460.0	$	369.2	$	1,682.7	$	1,507.0
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	955.7��	$	871.1	$	25.2	$	19.5	$	980.9	$	890.6
Actual return on plan assets	115.7		154.6		2.3		4.1		118.0		158.7
Employer contributions	8.4		6.7		8.8		9.1		17.2		15.8



Benefits paid	(79.1)		(76.7)		(8.4)		(8.4)		(87.5)		(85.1)
Currency exchange translation adjustments	—		—		0.8		0.9		0.8		0.9

Fair value of plan assets at end of year	$	1,000.7	$	955.7	$	28.7	$	25.2	$	1,029.4	$	980.9
Funded status at end of year (PBO basis)	$	(222.0)	$	(182.1)	$	(431.3)	$	(344.0)	$	(653.3)	$	(526.1)
Amounts recognized in the Consolidated Balance Sheets consist of:
Noncurrent assets	$	11.4	$	8.5	$	0	$	0	$	11.4	$	8.5
Current liabilities	(7.2)		(7.3)		(8.5)		(7.5)		(15.7)		(14.8)
Noncurrent liabilities	(226.2)		(183.3)		(422.8)		(336.5)		(649.0)		(519.8)
Net amount recognized	$	(222.0)	$	(182.1)	$	(431.3)	$	(344.0)	$	(653.3)	$	(526.1)
Amounts recognized in Accumulated Other Comprehensive (Income) Loss consist of:

Prior service credit	$	(2.0)	$	(2.6)	$	(0.1)	$	(0.1)	$	(2.1)	$	(2.7)
Net amount recognized	$	(2.0)	$	(2.6)	$	(0.1)	$	(0.1)	$	(2.1)	$	(2.7)


	Defined Benefit Pension Plans
	U.S.				Non-U.S.
	2020		2019		2020		2019
Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31:
Discount rate	2.41	%	3.13	%	0.84	%	1.41	%
Rate of compensation increase	4.50	%	4.50	%	2.58	%	2.59	%
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31:
Discount rate for determining service cost	3.40	%	4.46	%	1.61	%	2.42	%
Discount rate for determining interest cost	2.75	%	3.86	%	1.12	%	1.84	%
Expected return on plan assets	5.25	%	5.75	%	4.17	%	4.43	%
Rate of compensation increase	4.50	%	4.10	%	2.59	%	2.59	%

Defined Benefit Pension Plans

(In millions)
U.S. Non-U.S. Total
2017 2016 2017 2016 2017 2016
Change in Projected Benefit Obligation (PBO):
Benefit obligation at beginning of year $ 1,274.2
$ 1,238.8
$ 269.1
$ 238.8
$ 1,543.3
$ 1,477.6
Service cost 17.1
17.8
8.4
6.8
25.5
24.6
Interest cost 42.0
40.5
4.4
5.1
46.4
45.6
Amendments —
(1.3 ) —
—
—
(1.3 )
Settlements/curtailments —
—
—
(2.3 ) —
(2.3 )
Acquisitions —
—
0.4
—
0.4
—
Actuarial (gain) loss 88.3
62.3
13.4
39.9
101.7
102.2
Benefits paid (91.2 ) (83.9 ) (7.8 ) (7.5 ) (99.0 ) (91.4 )
Currency exchange translation adjustments —
—
35.2
(11.7 ) 35.2
(11.7 )
Other (4.8 ) —
—
—
(4.8 ) —
Benefit obligation at end of year $ 1,325.6
$ 1,274.2
$ 323.1
$ 269.1
$ 1,648.7
$ 1,543.3
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 1,086.4
$ 1,067.2
$ 18.2
$ 18.7
$ 1,104.6
$ 1,085.9
Actual return on plan assets 112.7
95.6
1.6
(0.5 ) 114.3
95.1
Employer contributions 9.6
7.5
8.2
8.4
17.8
15.9
Settlements —
—
—
(1.3 ) —
(1.3 )
Benefits paid (91.2 ) (83.9 ) (7.8 ) (7.5 ) (99.0 ) (91.4 )
Currency exchange translation adjustments —
—
1.3
0.4
1.3
0.4
Other (7.7 ) —
—
—
(7.7 ) —
Fair value of plan assets at end of year $ 1,109.8
$ 1,086.4
$ 21.5
$ 18.2
$ 1,131.3
$ 1,104.6
Funded status at end of year (PBO basis) $ (215.8 ) $ (187.8 ) $ (301.6 ) $ (250.9 ) $ (517.4 ) $ (438.7 )
Amounts recognized in the Consolidated Balance Sheets consist of:
Current liabilities $ (7.0 ) $ (7.4 ) $ (8.0 ) $ (7.0 ) $ (15.0 ) $ (14.4 )
Noncurrent liabilities (208.8 ) (180.4 ) (293.6 ) (243.9 ) (502.4 ) (424.3 )
Net amount recognized $ (215.8 ) $ (187.8 ) $ (301.6 ) $ (250.9 ) $ (517.4 ) $ (438.7 )
Amounts recognized in Accumulated Other Comprehensive (Income) Loss consist of:
Prior service credit $ (3.9 ) $ (4.3 ) $ (0.1 ) $ (0.1 ) $ (4.0 ) $ (4.4 )
Net amount recognized $ (3.9 ) $ (4.3 ) $ (0.1 ) $ (0.1 ) $ (4.0 ) $ (4.4 )

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other ~~Postretirement Benefit~~Retirement Plans (Continued)

Defined Benefit Pension Plans

(In millions)
U.S. Non-U.S.
2017 2016 2017 2016
Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31:
Discount rate 3.57 % 4.06 % 1.84 % 1.91 %
Rate of compensation increase 4.10 % 4.10 % 2.64 % 3.09 %
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31:
Discount rate for determining service cost 4.41 % 4.68 % 2.09 % 2.90 %
Discount rate for determining interest cost 3.42 % 3.38 % 1.69 % 2.26 %
Expected return on plan assets 5.50 % 5.50 % 4.69 % 5.08 %
Rate of compensation increase 4.10 % 4.10 % 3.09 % 3.09 %

The following table presents the components of net periodic benefit cost (income) and other amounts recognized in ~~"other~~“other comprehensive (income) loss."”


(In millions)	2020				2019				2018
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Net Periodic Benefit Cost (Income)
Service cost	$	18.9	$	11.1	$	15.7	$	8.6	$	19.2	$	9.5
Interest cost	30.2		4.1		38.3		5.4		40.9		5.0
Expected return on plan assets	(48.3)		(1.0)		(48.2)		(0.9)		(57.2)		(1.0)
Amortization of prior service cost (credit)	(0.6)		0		(0.6)		0		(0.6)		0

Annual mark-to-market adjustment (gain) loss	47.5		47.1		26.8		59.1		(3.4)		(9.2)

Net curtailment and settlement gain	0		0		0		0		(2.3)		0
Net periodic benefit cost (income)	$	47.7	$	61.3	$	32.0	$	72.2	$	(3.4)	$	4.3


Other Changes in Plan Assets and Benefit Obligations Recognized in OCI


Amortization of prior service cost (credit)	$	0.6	$	0	$	0.6	$	0	$	0.6	$	0


Total recognized in OCI	0.6		0		0.6		0		0.6		0
Total recognized in net periodic benefit cost (income) and OCI	$	48.3	$	61.3	$	32.6	$	72.2	$	(2.8)	$	4.3

2017 2016 2015
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
Net Periodic Benefit Cost (Income)
Service cost $ 17.1
$ 8.4
$ 17.8
$ 6.8
$ 25.7
$ 11.7
Interest cost 42.0
4.4
40.5
5.1
55.1
16.1
Expected return on plan assets (57.5 ) (0.9 ) (56.7 ) (1.0 ) (70.4 ) (13.0 )
Amortization of prior service cost (credit) (0.4 ) —
(0.2 ) —
0.3
—
Annual mark-to-market adjustment 36.0
13.2
23.3
40.1
42.0
(0.1 )
Net curtailment and settlement gain —
—
—
(1.0 ) —
—
Net periodic benefit cost (income) 37.2
25.1
24.7
50.0
52.7
14.7
Less: discontinued operations —
—
—
—
(4.0 ) (16.8 )
Net periodic benefit cost (income) from continuing operations $ 37.2
$ 25.1
$ 24.7
$ 50.0
$ 48.7
$ (2.1 )
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI
Net prior service credit $ —
$ —
$ (1.3 ) $ —
$ (3.6 ) $ —
Amortization of prior service cost (credit) 0.4
—
0.2
—
(0.3 ) —
Total recognized in OCI 0.4
—
(1.1 ) —
(3.9 ) —
Total recognized in net periodic benefit cost (income) and OCI $ 37.6
$ 25.1
$ 23.6
$ 50.0
$ 44.8
$ (2.1 )

~~The estimated~~During 2020 the pension plans experienced a loss on liability mainly due to the decrease in discount rates from the prior ~~service credit~~year. A change in the mortality assumption for the ~~defined benefit~~U.S. pension plans ~~that will~~to better reflect anticipated future experience also contributed to the loss. The loss was partially offset due to return on assets greater than expected and salary increases during the year less than expected.

The tables below present the funded status of U.S. and non-U.S. pension plans.


Funded Status of U.S. Pension Plans	Fully-Funded U.S. Qualified Pension Plans(1)				Underfunded U.S. Qualified Pension Plans(1)				Unfunded Pay-As-You-Go U.S. Nonqualified Plans(2)
(In millions)	2020		2019		2020		2019		2020		2019
Projected benefit obligation	$	36.5	$	35.6	$	1,076.3	$	993.8	$	109.9	$	108.3
Fair value of plan assets	47.9		44.1		952.8		911.5		—		—
Funded status (PBO basis)	$	11.4	$	8.5	$	(123.5)	$	(82.3)	$	(109.9)	$	(108.3)


Funded Status of Non-U.S. Pension Plans	Underfunded Non-U.S. Pension Plans(1)			Unfunded Pay-As-You-Go Non-U.S. Pension Plans(2)
(In millions)		2020		2019		2020		2019
Projected benefit obligation		$	33.5	$	29.0	$	426.5	$	340.2
Fair value of plan assets		28.7		25.2		—		—
Funded status (PBO basis)		$	(4.8)	$	(3.8)	$	(426.5)	$	(340.2)

(1)Plans intended to be ~~amortized from "accumulated~~advance-funded.

(2)Plans intended to be pay-as-you-go. The U.S. unfunded plans are Grace’s supplemental executive retirement plan and other ~~comprehensive (income) loss" into net periodic benefit cost (income) over~~supplemental executive pension arrangements, and the ~~next fiscal year is~~ ~~$0.6 million~~. The estimated net deferred actuarial loss and prior service credit for the other postretirement plan that will be amortized from "accumulated other comprehensive (income) loss" into net periodic benefit cost (income) over the next fiscal year are ~~$0.4 million~~ ~~and $1.0 million, respectively.~~non-U.S. plans primarily relate to an unfunded German pension plan.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~8. Pension Plans and Other Postretirement Benefit Plans (Continued)~~

Funded Status of U.S. Pension Plans
(In millions)
Underfunded U.S.
Qualified Pension Plans(1)

Unfunded Pay-As-You-Go
U.S. Nonqualified Plans(2)
2017
2016
2017
2016
Projected benefit obligation $ 1,217.1
$ 1,167.9
$ 108.5
$ 106.3
Fair value of plan assets 1,109.8
1,086.4
—
—
Funded status (PBO basis) $ (107.3 ) $ (81.5 ) $ (108.5 ) $ (106.3 )

Funded Status of Non-U.S. Pension Plans
(In millions)
Underfunded Non-U.S.
Pension Plans(1)

Unfunded Pay-As-You-Go
Non-U.S. Pension Plans(2)
2017 2016 2017 2016
Projected benefit obligation $ 24.7
$ 19.8
$ 298.4
$ 249.3
Fair value of plan assets 21.5
18.2
—
—
Funded status (PBO basis) $ (3.2 ) $ (1.6 ) $ (298.4 ) $ (249.3 )


~~(1)~~	~~Plans intended to be advance-funded.~~


~~(2)~~	~~Plans intended to be pay-as-you-go.~~

The accumulated benefit obligation for all defined benefit pension plans was approximately ~~$1,570~~$1,590 million and ~~$1,478~~$1,423 million as of December 31, ~~2017~~2020 and ~~2016~~,2019, respectively.

The following table presents the funded status of defined benefit pension plans that are underfunded or unfunded on an accumulated benefit obligation basis.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Retirement Plans (Continued)


Pension Plans with Underfunded or Unfunded Accumulated Benefit Obligation (In millions)	U.S.				Non-U.S.				Total
	2017		2016		2017		2016		2017		2016
(In millions)													(In millions)	U.S.				Non-U.S.				Total
														2020		2019		2020		2019		2020		2019
Projected benefit obligation	$	1,325.6	$	1,274.2	$	298.4	$	249.3	$	1,624.0	$	1,523.5	Projected benefit obligation	$	1,186.2	$	1,102.1	$	429.4	$	342.1	$	1,615.6	$	1,444.2
Accumulated benefit obligation	1,286.0		1,238.8		263.6		222.6		1,549.6		1,461.4		Accumulated benefit obligation	1,144.2		1,058.6		384.0		306.7		1,528.2		1,365.3
Fair value of plan assets	1,109.8		1,086.4		—		—		1,109.8		1,086.4		Fair value of plan assets	952.8		911.6		1.3		0.8		954.1		912.4

Estimated Expected Future Benefit Payments Reflecting Future Service for the Fiscal Years Ending
(In millions)
Pension Plans
Total
Payments
U.S. Non-U.S.(1)
Benefit
Payments

Benefit
Payments

2018 $ 82.9
$ 8.9
$ 91.8
2019 83.1
8.4
91.5
2020 83.3
8.6
91.9
2021 83.4
8.9
92.3
2022 83.7
9.1
92.8
2023 - 2027 413.2
49.0
462.2


Estimated Expected Future Benefit Payments Including Future Service for the Fiscal Years Ending (In millions)	Pension Plans				Total Payments
	U.S.		Non-U.S.(1)
	Benefit Payments		Benefit Payments
2021	$	84.5	$	9.7	$	94.2
2022	77.5		9.4		86.9
2023	76.4		9.6		86.0
2024	76.0		10.1		86.1
2025	74.2		10.2		84.4
2026 - 2030	348.6		60.5		409.1


~~(1)~~	~~Non-U.S. estimated benefit payments for 2018 and future periods have been translated at the applicable December 31, 2017, exchange rates.~~

(1)Non-U.S. estimated benefit payments for 2021 and future periods have been translated at the applicable December 31, 2020, exchange rates.

Discount Rate Assumption The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. qualified pension plans, the assumed weighted average discount rate of ~~3.57%~~2.41% as of December 31, ~~2017~~,2020, was selected by Grace, in consultation with its independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan.

As of December 31, ~~2017~~2020 and ~~2016~~,2019, the German pension plans represented approximately ~~91%~~92% and ~~92%~~91%, respectively, of the benefit obligation of the non-U.S. pension plans. The assumed weighted average discount rate as of December 31, ~~2017~~,2020, for Germany (~~1.73%~~)of 0.70% was selected by Grace, in consultation with its independent

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~8. Pension Plans and Other Postretirement Benefit Plans (Continued)~~

actuaries, based on a yield curve constructed from a portfolio of euro-denominated high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plans. The assumed discount rates for the remaining non-U.S. pension plans were determined based on the nature of the liabilities, local economic environments and available bond indices.

As of December 31, 2015, Grace changed the approach used to determine the service and interest cost components of defined benefit pension expense. Previously, Grace estimated service and interest costs using a single weighted average discount rate derived from the same yield curve used to measure the projected benefit obligation. For 2016 and 2017, Grace elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. Grace believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change did not affect the measurement of the projected benefit obligation as of December 31, 2015. Grace considers this a change in accounting estimate, which is being accounted for prospectively as of January 1, 2016.

Investment Guidelines for Advance-Funded Pension Plans The investment goal for the U.S. qualified pension plans subject to advance funding is to earn a long-term rate of return consistent with the related cash flow profile of the underlying benefit obligation. The plans are pursuing a well-defined risk management strategy designed to reduce investment risks as their funded status improves.

The U.S. qualified pension plans have adopted a diversified set of portfolio management strategies to optimize the risk reward profile of the plans:

•Liability hedging portfolio: primarily invested in intermediate-term and long-term investment grade corporate bonds in actively managed strategies.

~~Growth~~•Return-seeking portfolio: invested in a diversified set of assets designed to deliver performance in excess of the underlying liabilities with controls regarding the level of risk.

~~U.S. equity securities:~~◦Global public equities: the portfolio contains both domestic U.S. and non-U.S. equities that are both passively ~~managed to the~~and actively managed. Benchmarks for individual managers include S&P 500 and Russell 2000 benchmarks ~~and an allocation to an active portfolio benchmarked to the Russell Mid-Cap and Russell 2000 indices.~~

~~Non-U.S. equity securities: the portfolio contains non-U.S. equities in an actively managed strategy benchmarked to the~~as well as MSCI ACWI ex US index. ~~Currency futures~~

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and ~~forward contracts may be held for the sole purpose of hedging existing currency risk in the portfolio.~~Other Retirement Plans (Continued)

◦Other investments: may include ~~(a)~~ high yield bonds: fixed income portfolio of securities below investment grade including ~~up to~~ ~~30%~~ ~~of the portfolio in~~ non-U.S. ~~issuers; and (b) global real estate securities: portfolio of diversified REIT and other liquid real estate related securities.~~issuers. These portfolios combine income generation and capital appreciation opportunities ~~from developed markets~~ globally.

•Liquidity portfolio: invested in short-term assets intended to pay periodic plan benefits and expenses.

For ~~2017~~,2020, the expected long-term rate of return on assets for the U.S. qualified pension plans was ~~5.50%~~5.25%. Average annual returns over one-, three-, five-, and ten-year periods were approximately ~~11%~~13%, 6%9%, 6%10%, and 5%8%, respectively.

The expected return on plan assets for the U.S. qualified pension plans for ~~2017~~2020 was selected by Grace, in consultation with its independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~8. Pension Plans and Other Postretirement Benefit Plans (Continued)~~

The target allocation of investment assets at December 31, ~~2017~~,2020, and the actual allocation at December 31, ~~2017~~2020 and ~~2016~~,2019, for ~~Grace's~~Grace’s U.S. qualified pension plans are as follows:

Target
Allocation

Percentage of Plan Assets
December 31,
U.S. Qualified Pension Plans Asset Category 2017 2017 2016
U.S. equity securities 10 % 11 % 8 %
Non-U.S. equity securities 5 % 5 % 6 %
Short-term debt securities 10 % 10 % 4 %
Intermediate-term debt securities 32 % 32 % 32 %
Long-term debt securities 41 % 40 % 48 %
Other investments 2 % 2 % 2 %
Total 100 % 100 % 100 %


	Target Allocation		Percentage of Plan Assets December 31,
U.S. Qualified Pension Plans Asset Category	2020		2020		2019
Global equities	22	%	23	%	22	%
Multi-asset credit	3	%	3	%	3	%
Liability-hedging assets	75	%	74	%	75	%



Total	100	%	100	%	100	%

The following tables present the fair value hierarchy for the U.S. qualified pension plan assets measured at fair value as of December 31, ~~2017~~2020 and ~~2016.~~2019.


	Fair Value Measurements at December 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)





Common/collective trust funds	$	8.1	$	—	$	8.1	$	—
Annuity and immediate participation contracts	21.1		—		21.1		—
	$	29.2	$	—	$	29.2	$	—
Investments measured at net asset value(1)	971.5
Total Assets at Fair Value	$	1,000.7

(1)In accordance with ASC 820-10, certain investments that are measured at net asset value (“NAV”) per share (or its equivalent) have not been classified in the fair value hierarchy. NAV is provided by the investment account manager as a practical expedient to estimate fair value. Fair values presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.

Fair Value Measurements at December 31, 2017, 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)
U.S. equity group trust funds $ 118.8
$ —
$ 118.8
$ —
Non-U.S. equity group trust funds 56.8
—
56.8
—
Corporate and government bond group trust funds—intermediate-term 353.6
—
353.6
—
Corporate and government bond group trust funds—long-term 443.4
—
443.4
—
Other fixed income group trust funds 25.3
—
25.3
—
Common/collective trust funds 92.9
—
92.9
—
Annuity and immediate participation contracts 19.0
—
19.0
—
Total Assets $ 1,109.8
$ —
$ 1,109.8
$ —

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other ~~Postretirement Benefit~~Retirement Plans (Continued)


	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)






Common/collective trust funds	$	8.0	$	—	$	8.0	$	—
Annuity and immediate participation contracts	20.5		—		20.5		—
	$	28.5	$	—	$	28.5	$	—
Investments measured at net asset value(1)	927.2
Total Assets at Fair Value	$	955.7

(1)In accordance with ASC 820-10, certain investments that are measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. NAV is provided by the investment account manager as a practical expedient to estimate fair value. Fair values presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.

Fair Value Measurements at December 31, 2016, 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)
U.S. equity group trust funds $ 91.5
$ —
$ 91.5
$ —
Non-U.S. equity group trust funds 62.6
—
62.6
—
Corporate bond group trust funds—intermediate-term 342.6
—
342.6
—
Corporate bond group trust funds—long-term 521.5
—
521.5
—
Other fixed income group trust funds 22.4
—
22.4
—
Common/collective trust funds 27.4
—
27.4
—
Annuity and immediate participation contracts 18.4
—
18.4
—
Total Assets $ 1,086.4
$ —
$ 1,086.4
$ —

Non-U.S. pension plans accounted for approximately 2%3% of total global pension assets at December 31, ~~2017~~2020 and ~~2016~~.2019. Each of these plans, where applicable, follows local requirements and regulations. Some of the local requirements include the establishment of a local pension committee, a formal statement of investment policy and procedures, and routine valuations by plan actuaries.

The target allocation of investment assets for non-U.S. pension plans varies depending on the investment goals of the individual plans. The plan assets of the Canadian pension plan represent approximately ~~97%~~95% and 96% of the total non-U.S. pension plan assets at December 31, ~~2017~~2020 and ~~2016~~.2019, respectively The expected long-term rate of return on assets for the Canadian pension plan was ~~4.75%~~4.25% for ~~2017~~.2020.

The target allocation of investment assets at December 31, ~~2017~~,2020, and the actual allocation at December 31, ~~2017~~2020 and ~~2016~~,2019, for the Canadian pension plan are as follows:


	Target Allocation		Percentage of Plan Assets December 31,					Target Allocation		Percentage of Plan Assets December 31,
Canadian Pension Plan Asset Category	2017		2017		2016		Canadian Pension Plan Asset Category	2020		2020		2019
Equity securities	28	%	28	%	28	%	Equity securities	23	%	25	%	25	%
Bonds	58	%	58	%	57	%	Bonds	65	%	63	%	62	%
Other investments	14	%	14	%	15	%	Other investments	12	%	12	%	13	%
Total	100	%	100	%	100	%	Total	100	%	100	%	100	%

The plan assets of the other country plans represent approximately 3%5% and 4% in the aggregate of total non-U.S. pension plan assets at December 31, ~~2017~~2020 and ~~2016.~~2019, respectively.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other ~~Postretirement Benefit~~Retirement Plans (Continued)

The following ~~table presents~~tables present the fair value hierarchy for the non-U.S. pension plan assets measured at fair value as of December 31, ~~2017~~2020 and ~~2016.~~2019.


	Fair Value Measurements at December 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)


Corporate bonds	$	0.5	$	—	$	0.5	$	—
Insurance contracts and other investments	0.5		—		0.5		—
Cash	0.2		0.2		—		—
	$	1.2	$	0.2	$	1.0	$	—
Investments measured at net asset value(1)	27.5
Total Assets at Fair Value	$	28.7


	Fair Value Measurements at December 31, 2017, Using									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)		(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)
Common/collective trust funds	$	20.7	$	—	$	20.7	$	—

Corporate bonds	0.4		—		0.4		—		Corporate bonds	$	0.4	$	—	$	0.4	$	—
Insurance contracts and other investments	0.4		—		0.4		—		Insurance contracts and other investments	0.5		—		0.5		—
Total Assets	$	21.5	$	—	$	21.5	$	—
Cash									Cash	0.1		0.1		—		—
										$	1.0	$	0.1	$	0.9	$	—
Investments measured at net asset value(1)									Investments measured at net asset value(1)	24.2
Total Assets at Fair Value									Total Assets at Fair Value	$	25.2

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"~~(“ERISA”). For ERISA purposes, funded status is calculated on a different basis than under U.S. GAAP. Based on the U.S. qualified pension ~~plans'~~plans’ status as of December 31, ~~2017,~~2020, there ~~are no~~is a $0.5 million minimum required ~~payments~~payment under ERISA for ~~2018.~~2021.

Grace intends to fund non-U.S. pension plans based on applicable legal requirements and actuarial and trustee recommendations. Grace expects to ~~contribute~~make contributions of approximately $9$10 million related to its non-U.S. pension plans in ~~2018.~~2021.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

9. Other Balance Sheet Accounts


	December 31,
(In millions)	2020		2019
Other Current Assets
Non-trade accounts receivable	$	23.1	$	24.1
Income taxes receivable (see Note 7)	7.6		4.2
Fair value of currency, interest rate, and commodity contracts (see Note 6)	2.2		15.6
Plant under construction—unconsolidated affiliate (see Note 19)	0		173.9
Other current assets	18.3		17.3
	$	51.2	$	235.1

December 31,
(In millions) 2017 2016
Other Current Liabilities
Accrued compensation $ 60.7
$ 49.6
Environmental contingencies 23.5
32.5
Deferred revenue 19.5
27.2
Accrued interest 16.5
16.2
Pension liabilities 15.0
14.4
Income taxes payable 12.2
5.7
Other accrued liabilities 70.4
63.3
$ 217.8
$ 208.9


	December 31,
(In millions)	2020		2019
Other Current Liabilities
Accrued compensation	$	60.6	$	53.6
Deferred revenue (see Note 17)	33.8		35.0
Fair value of currency, interest rate, and commodity contracts (see Note 6)	21.6		2.6
Liability for dam spillway replacement (see Note 10)	20.3		4.7
Pension liabilities (see Note 8)	15.7		14.8
Environmental contingencies (see Note 10)	13.8		17.8
Operating lease liabilities (see Note 3)	10.1		9.3
Accrued interest (see Note 5)	5.8		13.3
Income taxes payable (see Note 7)	5.1		8.6
Liability to unconsolidated affiliate for plant under construction (see Note 19)	0		173.9
Other accrued liabilities	95.1		86.1
	$	281.9	$	419.7

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


	December 31,
(In millions)	2020		2019
Other Liabilities
Environmental contingencies (see Note 10)	$	95.4	$	97.5
Liability for dam spillway replacement (see Note 10)	69.3		61.7
Fair value of currency and interest rate contracts (see Note 6)	53.9		13.2
Operating lease liabilities (see Note 3)	25.8		26.2
Legacy product liability (see Note 10)	24.0		24.0
Deferred revenue (see Note 17)	23.4		29.5
Retained obligations of divested businesses	12.2		12.7
Deferred income taxes (see Note 7)	10.4		7.5
Asset retirement obligation	9.6		9.4
Unrecognized tax benefits (see Note 7)	3.9		4.1
Other noncurrent liabilities	19.7		22.4
	$	347.6	$	308.2

December 31,
(In millions) 2017 2016
Other Liabilities
Environmental contingencies $ 46.8
$ 33.8
Liability to unconsolidated affiliate 32.7
27.0
Fair value of currency and interest rate contracts 22.7
3.2
Deferred revenue 14.9
2.3
Asset retirement obligation 10.4
10.2
Deferred income taxes 8.2
2.8
Postemployment liability 5.2
7.2
Other noncurrent liabilities 28.4
40.2
$ 169.3
$ 126.7

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities

Legacy Matters

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

~~Legacy Product and Environmental Liabilities~~

Legacy Product Liabilities Grace emerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014 (the ~~"Effective Date"~~“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"~~“PI Trust”) or a property damage trust (the ~~"PD Trust"~~“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 ~~installed in the U.S. ("~~(“ZAI PD ~~Claims"~~Claims”), the PD Trust was funded with ~~$34.4~~$49.4 million ~~on the Effective Date~~(net of $15 million of attorneys’ fees) to pay claims and ~~$30.0 million on February 3, 2017.~~expenses. Grace is also obligated to make up to 10 contingent

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~10. Commitments and Contingent Liabilities (Continued)~~

deferred payments of $8 million per year to the PD Trust ~~in respect of ZAI PD Claims~~ during the 20-year period beginning on ~~the fifth anniversary of the Effective Date,~~February 3, 2019, 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. ~~Grace has not accrued for the 10 additional payments as Grace does not currently believe they are probable. Grace is not obligated to make additional payments to~~As of December 31, 2020, the PD Trust has paid out approximately $38 million in ~~respect of~~ ZAI PD Claims and expenses, leaving a balance of approximately $18 million, including the benefit of realized 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 2025 are not reasonably estimable. Grace estimates that the reasonable range of payments ~~described above.~~over the period of 2021 to 2025 is expected to be between $16 million and $24 million and projects that the first payment could be due as early as 2022. In the 2019 fourth quarter, Grace ~~has satisfied all of its financial~~recorded a $24.0 million liability related to probable future obligations ~~with respect~~ to ~~Canadian~~fund the PD Trust for ZAI PD Claims. Grace’s maximum financial obligation over the next 18 years is $80.0 million, and no single year’s payment can exceed $8.0 million.

With respect to other asbestos property damage claims ("(“Other PD ~~Claims"~~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"~~“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~~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.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

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 ~~SEC.~~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.~~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~~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 December 31, ~~2017, Grace's~~2020, Grace’s estimated liability for legacy environmental response costs totaled ~~$70.3~~$109.2 million, compared with ~~$66.3~~$115.3 million at December 31, ~~2016,~~2019, and was included in ~~"other~~“other current ~~liabilities"~~liabilities” and ~~"other liabilities"~~“other liabilities” in the Consolidated Balance Sheets. These amounts are based on agreements in place or on ~~Grace's~~Grace’s estimate of costs where no formal remediation plan or agreement to pay exists, yet there is sufficient information to estimate response costs.

Grace recorded pre-tax charges of ~~$24.4~~$1.6 million, ~~$29.2~~$1.7 million, and ~~$6.4~~$73.8 million for legacy environmental matters in ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively, which is included in ~~"provision for environmental remediation"~~“costs related to legacy matters” in the Consolidated Statements of Operations.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~10. Commitments and Contingent Liabilities (Continued)~~

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"~~“EPA”) and other federal, state and local governmental agencies in a remedial investigation and feasibility study ("(“RI/~~FS"~~FS”) of the Libby mine and the surrounding ~~area. In its 2017 Annual Project Update for the Libby Asbestos Superfund Site, the EPA announced a narrowing of its focus from the former "OU3 Study Area" to a smaller~~area, known as Operable Unit 3 ~~("OU3"~~(“OU3”). ~~Within this revised area, the~~The RI/FS will ~~determine~~study 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 ~~communications from regulatory agencies,~~this work, Grace ~~expects~~recorded a pre-tax charge of $70.0 million during the three months ended September 30, 2018, 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 ~~and~~is finalized. Such remedy will be set forth in a ~~record~~Record of ~~decision~~Decision (“ROD”) that is currently expected to be ~~completed~~issued by the ~~end of 2019. When meaningful new information becomes available,~~EPA no earlier than 2024. 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 ~~for~~as remedial alternatives evolve based on further work by the ~~costs for remediation~~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 ~~mine~~ROD may provide insight into the likely remedial

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

10. Commitments and ~~surrounding area~~Contingent Liabilities (Continued)

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. The amounts set forth above do not include possible liability for natural resources damage. Based on ecological studies conducted by the EPA, Grace does not believe that natural resources damage has occurred. However, if a party were to be successful in asserting a natural resources damage claim, liability related to such obligation could be material.

Grace has cooperated with the EPA in investigating and ~~adjust its reserves accordingly.~~

~~The EPA is also investigating or~~ remediating a number of formerly owned or operated sites that processed Libby vermiculite into finished products. Grace ~~is cooperating with the EPA on these investigation and remediation activities and~~ has recorded a liability ~~to the extent that its~~for remaining expected response costs, including costs for EPA oversight and potential future site remediation, where a review has indicated that aliability is probable ~~liability has been incurred~~ and the cost is estimable. These liabilities cover the estimated cost of investigations and, to the extent an assessment has indicated that remediation is necessary, the estimated cost of response actions. Response actions typically involve soil excavation and removal, and replacement with clean fill. The EPA may commence additional investigations in the future at other sites that processed Libby ~~vermiculite,~~vermiculite. Liability for unaccrued additional investigation and remediation costs is probable but not yet estimable, and could be material.

Grace ~~does not believe, based on its knowledge~~recorded pre-tax charges of ~~prior and current operations and site conditions, that liability for remediation at such other sites is probable.~~

~~Grace accrued $9.5~~$0.1 million, ~~$24.8~~$0.0 million, and ~~$6.0~~$70.2 million in ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively, for future costs related to vermiculite-related matters. ~~More than half of the 2016 amount was for the completion of the RI/FS of the Libby mine and surrounding area, which is expected to be spent over the next two years. Grace's total~~Grace’s estimated liability for response costs that are currently estimable for ~~the Libby mine~~OU3 and ~~surrounding area, and at~~ vermiculite processing sites outside of Libby at December 31, ~~2017~~2020 and ~~2016, was~~ ~~$25.8~~2019, totaled $71.2 million and ~~$31.2~~$76.0 million,, respectively. It is ~~probable~~possible that ~~Grace's~~Grace’s ultimate liability for these vermiculite-related matters will exceed current estimates by material amounts.

Non-Vermiculite-Related Environmental Matters

~~During 2017,~~ Grace ~~accrued $14.9~~recorded pre-tax charges of $1.5 million, $1.7 million, and $3.6 million to increase ~~non-vermiculite~~non-vermiculite-related environmental reserves. This included a $5.9 million increase to an existing reserve based on refinement of a scope of work for remediation of materials related to a legacy business located at a current manufacturing site, as well as $7.2 million to increase the liability for remediation at a former manufacturing site to maintain ten years of operationreserves in 2020, 2019, and ~~maintenance expenses.~~2018, respectively. At December 31, ~~2017 and 2016, Grace's~~2020, Grace’s estimated legacy environmental liability for response costs at sites not related to its former vermiculite mining and processing activities ~~was $44.5~~totaled $38.0 million, ~~and $35.1~~compared with $39.3 million ~~respectively.~~at December 31, 2019. This liability relates to ~~Grace's~~Grace’s former businesses or operations, including its share of liability at off-site disposal facilities. ~~Grace's~~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 Beginning in 1971, as part of implementing a wet milling process at the Libby, Montana, vermiculite mine, Grace constructed a dam at the mine property that now prevents vermiculite ore tailings from moving into nearby creeks and rivers. Ongoing operation of the dam is regulated by the Montana Department of Natural Resources and Conservation (“DNRC”). In April 2019, the DNRC renewed the permit necessary for operation of the dam. Grace is legally obligated to operate the dam and construct a new spillway in accordance with the latest permit conditions.

Construction of the new dam spillway at the former mine site is a key element of Grace’s overall remediation strategy. The project includes both an upper spillway and a lower spillway that are being managed as two separate projects with different engineering design and construction timelines. In 2019, Grace contracted a third-party engineering and consulting firm to develop an initial range of cost estimates for the total project. Based on this work, Grace recorded a liability of $68.0 million in 2019 for the estimated costs of the project. These costs were preliminary and subject to change as new information becomes available, including defining the final scope of the projects through the contract bidding process. During the three months ended September 30, 2020, Grace completed a review of contractor bids for the replacement of the upper spillway and increased its cost estimate for this portion of the project by $27.0 million, bringing the estimate for the total project to $95.0 million. Regarding the lower spillway, final engineering will be completed and submitted to the state of Montana for design approval in 2021, after which Grace will seek contract bids for this portion of the project. Grace believes it is reasonably possible that the ultimate costs of the two spillway projects could range between $80 million and $120 million. As Grace receives new information, its estimated liability may change materially. Construction will begin in 2021 and is expected to take three to four years.

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.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

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.

~~Contracts related to the Separation in which~~•Indemnification obligations of Grace ~~has agreed to indemnify GCP against liabilities related to activities prior to the closing~~as a tenant of ~~the transaction, including tax, employee,~~real property leases; and ~~environmental liabilities.~~

~~Guarantees~~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. At December 31, ~~2017~~,2020, Grace had gross financial assurances issued and outstanding of ~~$124.6~~$141.1 million,, composed of ~~$39.5~~$77.8 million of surety bonds issued by various insurance companies and ~~$85.1~~$63.3 million of standby letters of credit and other financial assurances issued by various banks. ~~In November 2017, an additional $28.3 million in performance and warranty bonds were issued. These bonds were not released to the beneficiary until 2018 and are not included above.~~

11. Restructuring Expenses and Repositioning Expenses

Restructuring Expenses ~~In 2017, 2016, and 2015, Grace incurred~~ Restructuring costs ~~from restructuring actions,~~in 2020 primarily related to ~~workforce reductions~~an increase in estimated contractual costs related to a 2018 plant exit. Costs in 2019 primarily related to severance costs pertaining to the idling of our methanol-to-olefins (“MTO”) manufacturing facility, which were substantially paid in 2019. Costs in 2018 primarily related to the closure of 2 small manufacturing plants, the activities from which were moved to larger, more cost-effective plants as ~~a result~~part of ~~changes in the business environment and its business structure, which~~Grace’s strategy to capture synergies from catalysts acquisitions. These costs are included in ~~"restructuring~~“restructuring and repositioning ~~expenses"~~expenses” in the Consolidated Statements of ~~Operations. Restructuring costs~~Operations, and are not included in 2017 primarily related to workforce reduction programs in Manufacturing, Supply Chain, Finance and IT. Costs in 2016 primarily related to the exit of certain non-strategic product lines in the Materials Technologies reportable segment ~~in the 2016 first half. Costs in 2015 were in part due to the Separation.~~operating income.

The following table presents restructuring expenses by reportable segment for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015.~~2018.


	Year Ended December 31,
(In millions)	2020		2019		2018
Catalysts Technologies	$	1.8	$	1.6	$	13.7
Materials Technologies	0.1		1.0		0.5
Corporate	0		0		(0.2)
Total restructuring expenses	$	1.9	$	2.6	$	14.0

Year Ended December 31,
(In millions) 2017 2016 2015
Catalysts Technologies $ 3.7
$ 3.4
$ 4.8
Materials Technologies (0.1 ) 15.1
0.8
Corporate 7.9
5.8
5.7
Total restructuring expenses $ 11.5
$ 24.3
$ 11.3

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~11. Restructuring Expenses and Repositioning Expenses (Continued)~~

~~These costs are not included in segment operating income.~~ Substantially all costs related to the restructuring programs are expected to be paid by ~~December 31, 2018.~~June 30, 2023, but could be paid earlier subject to negotiations around certain plant exit costs.

The following table presents components of the change in the restructuring liability for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~:2018:

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

11. Restructuring Expenses and Repositioning Expenses (Continued)

(In millions) Total
Balance, December 31, 2014 $ 2.1
Accruals for severance and other costs 11.3
Payments (5.6 )
Currency translation adjustments and other (0.2 )
Balance, December 31, 2015 $ 7.6
Accruals for severance and other costs 17.8
Payments (16.0 )
Currency translation adjustments and other 0.2
Balance, December 31, 2016 $ 9.6
Accruals for severance and other costs 11.4
Payments (14.4 )
Currency translation adjustments and other 0.1
Balance, December 31, 2017 $ 6.7


(In millions)	Total
Balance, December 31, 2017	$	6.7
Accruals for severance and other costs	10.1
Payments	(6.1)

Balance, December 31, 2018	$	10.7
Accruals for severance and other costs	2.6
Payments	(10.2)
Currency translation adjustments and other	0.7
Balance, December 31, 2019	$	3.8
Accruals for severance and other costs	3.2
Payments	(3.1)

Balance, December 31, 2020	$	3.9

Repositioning Expenses Repositioning expenses ~~primarily include third party costs related to transformative productivity programs and costs incurred to complete the Separation. Pretax repositioning expenses included in continuing operations~~ for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018 were ~~$15.2~~$35.0 million, ~~$14.3~~$11.1 million, and ~~$9.1~~$32.4 million respectively. ~~Expenses incurred~~

During 2020, Grace implemented changes to its Refining Technologies manufacturing operations and global footprint to drive capital and operating efficiencies and to support global growth. Grace, in ~~2017 primarily related~~agreement with its local joint venture partner, discontinued the previously announced project to ~~third-party costs associated with productivity~~build a full-scale fluid catalytic cracking catalysts plant in the Middle East. As a result, repositioning expenses in 2020 included a charge of $19.7 million to write off engineering and ~~transformation initiatives, as well as~~site costs. Repositioning expenses in 2020 also included $7.2 million in costs related to ~~the Separation. Expenses~~our review of strategic alternatives.

In 2020, 2019, and 2018, Grace incurred ~~in 2016 and 2015 primarily~~expenses related to a multi-year program to transform manufacturing and business processes to extend Grace’s competitive advantages and improve its cost position. Expenses in 2018 also included $11.7 million of severance and stock compensation costs related to employee separations and write-offs of $8.5 million of previously capitalized plant engineering costs as a result of terminating a manufacturing plant expansion project no longer necessary due to the ~~Separation. Substantially~~polyolefin catalysts acquisition (see Note 20). Excluding asset write-offs and stock compensation costs, substantially all of these costs have been or are expected to be settled in cash.

In 2017, Grace initiated a multi-year program to transform its manufacturing and business processes to extend its competitive advantages and improve its cost position. Grace expects to significantly improve its manufacturing performance, reduce its manufacturing costs, and improve its demand and supply planning capabilities. Grace also expects to invest significant capital in its manufacturing plants to accelerate growth and improve performance.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

12. Other (Income) Expense, net

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


	Year Ended December 31,
(In millions)	2020		2019		2018
Defined benefit pension (income) expense other than service cost	$	79.5	$	79.9	$	(27.8)
Business interruption insurance recoveries	(16.3)		(10.7)		0
Hurricane-related costs	13.2		0		0
Net (gain) loss on sales of investments and disposals of assets	5.9		4.5		4.9
Third-party acquisition-related costs	5.2		3.6		7.3
Currency transaction effects	(0.1)		(0.8)		(3.6)

Other miscellaneous (income) expense	1.6		4.1		(4.0)
Total other (income) expense, net	$	89.0	$	80.6	$	(23.2)

During 2020, Hurricane Laura caused severe and widespread damage to Lake Charles, Louisiana, and surrounding communities, including catastrophic damage to the regional power grid. The hurricane-related costs were primarily due to on-site power generation, incremental operations and logistics costs to supply customers during the outage, temporary housing and employee assistance, and property damage and clean-up. In addition

100

Year Ended December 31,
(In millions) 2017 2016 2015
Business interruption insurance recoveries $ (26.6 ) $ —
$ —
Accounts receivable reserve—Venezuela 10.0
—
—
Currency transaction effects 5.0
(1.0 ) (1.5 )
Third-party acquisition-related costs 2.9
2.5
—
Net (gain) loss on sales of investments and disposals of assets 1.6
(1.4 ) (10.6 )
Chapter 11 expenses, net 1.4
3.4
5.1
Loss on early extinguishment of debt —
11.1
—
Other miscellaneous expense (income) (2.7 ) (1.3 ) (6.8 )
Total other (income) expense, net $ (8.4 ) $ 13.3
$ (13.8 )

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

12. Other (Income) Expense, net (Continued)

to the amount shown above, Grace’s equity in earnings from unconsolidated affiliate was reduced by $1.9 million due to hurricane-related costs incurred by the joint venture.

In ~~January 2017,~~July 2019, a ~~Catalysts Technologies~~North American FCC catalysts customer ~~experienced an explosion and~~filed for bankruptcy protection after announcing it would not resume refinery operations following a fire ~~resulting~~ in ~~an extended outage.~~its refinery. Grace received ~~$25.0~~$16.3 million ~~in payments from its third-party insurer in 2017,~~during the six months ended June 30, 2020, under its business interruption insurance ~~policy for a portion~~policy. Including the $8.0 million received in the 2019 fourth quarter, Grace received $24.3 million of ~~profits lost as a result~~insurance recoveries related to this event, reflecting approximately 8 quarters of the ~~outage. The policy had a $25 million limit for this event.~~impact of the incident on earnings. This claim has been fully resolved.

During the 2017 third quarter, Grace recorded a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions.

~~See Note 5 for more information related to Grace's 2016 early extinguishment of debt.~~

13. Other Comprehensive Income (Loss)

The following tables present the pre-tax, tax, and after-tax components of ~~Grace's~~Grace’s other comprehensive income (loss) for the years ended December 31, ~~2017~~, ~~2016~~,2020, 2019, and ~~2015~~:2018:


Year Ended December 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	$	(0.5)	$	0.1	$	(0.4)
Currency translation adjustments	(53.6)		3.7		(49.9)
Gain (loss) from hedging activities	1.6		(0.8)		0.8
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders	$	(52.5)	$	3.0	$	(49.5)


Year Ended December 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	$	(0.9)	$	0.2	$	(0.7)
Currency translation adjustments	18.5		(2.0)		16.5
Gain (loss) from hedging activities	(7.0)		2.1		(4.9)
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders	$	10.6	$	0.3	$	10.9


Year Ended December 31, 2018 (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	$	(1.2)	$	0.3	$	(0.9)
Currency translation adjustments	34.6		(2.2)		32.4
Gain (loss) from hedging activities	(10.0)		4.3		(5.7)
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders	$	23.4	$	2.4	$	25.8

101

Year Ended December 31, 2017
(In millions) Pre-Tax Amount Tax Benefit/ (Expense) After-Tax Amount
Defined benefit pension and other postretirement plans:
Amortization of net prior service credit included in net periodic benefit cost $ (2.3 ) $ 0.8
$ (1.5 )
Amortization of net deferred actuarial loss included in net periodic benefit cost 0.4
(0.1 ) 0.3
Net deferred actuarial gain (loss) arising during period (0.1 ) —
(0.1 )
Benefit plans, net (2.0 ) 0.7
(1.3 )
Currency translation adjustments(1) (23.1 ) (2.9 ) (26.0 )
Gain (loss) from hedging activities 2.9
(2.1 ) 0.8
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders $ (22.2 ) $ (4.3 ) $ (26.5 )

~~(1)~~

In the 2017 third quarter, Grace recorded an out-of-period adjustment to recognize the accumulated deferred tax liability for its euro loan net investment hedge (see Note 6). The correction resulted in a reduction in deferred tax assets and a charge to "other comprehensive income (loss)" of $16.9 million. Grace has assessed the impact of this error and concluded that it was not material to any prior-period and the impact of correcting the error in 2017 is not material.

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

13. Other Comprehensive Income (Loss) (Continued)

Year Ended December 31, 2016
(In millions) Pre-Tax Amount Tax Benefit/ (Expense) After-Tax Amount
Defined benefit pension and other postretirement plans:
Amortization of net prior service credit included in net periodic benefit cost $ (2.4 ) $ 0.9
$ (1.5 )
Amortization of net deferred actuarial loss included in net periodic benefit cost 0.5
(0.2 ) 0.3
Net prior service credit arising during period 1.4
(0.5 ) 0.9
Loss on curtailment of postretirement plans (0.5 ) 0.2
(0.3 )
Benefit plans, net (1.0 ) 0.4
(0.6 )
Currency translation adjustments (1.8 ) —
(1.8 )
Gain (loss) from hedging activities 0.6
(0.3 ) 0.3
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders $ (2.2 ) $ 0.1
$ (2.1 )

Year Ended December 31, 2015
(In millions) Pre-Tax Amount Tax Benefit/ (Expense) After-Tax Amount
Defined benefit pension and other postretirement plans:
Amortization of net prior service credit included in net periodic benefit cost $ (3.1 ) $ 1.0
$ (2.1 )
Amortization of net deferred actuarial loss included in net periodic benefit cost 0.7
(0.2 ) 0.5
Net prior service credit arising during period 5.7
(1.9 ) 3.8
Net deferred actuarial gain (loss) arising during period (0.4 ) 0.1
(0.3 )
Loss on curtailment of postretirement plans (4.5 ) 1.6
(2.9 )
Benefit plans, net (1.6 ) 0.6
(1.0 )
Currency translation adjustments (43.3 ) —
(43.3 )
Gain (loss) from hedging activities 2.1
(0.8 ) 1.3
Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders $ (42.8 ) $ (0.2 ) $ (43.0 )

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~13. Other Comprehensive Income (Loss) (Continued)~~

The following table presents the changes in accumulated other comprehensive income (loss), net of tax, for the years ended December 31, ~~2017~~, ~~2016~~,2020, 2019, and ~~2015~~:2018:

Defined Benefit Pension and Other Postretirement Plans Currency Translation Adjustments Gain (Loss) from Hedging Activities Total
Balance, December 31, 2014 $ 4.0
$ (22.8 ) $ (5.0 ) $ (23.8 )
Other comprehensive income (loss) before reclassifications 3.5
(43.3 ) 0.6
(39.2 )
Amounts reclassified from accumulated other comprehensive income (loss) (4.5 ) —
0.7
(3.8 )
Net current-period other comprehensive income (loss) (1.0 ) (43.3 ) 1.3
(43.0 )
Balance, December 31, 2015 $ 3.0
$ (66.1 ) $ (3.7 ) $ (66.8 )
Other comprehensive income (loss) before reclassifications 0.9
(1.8 ) (1.8 ) (2.7 )
Amounts reclassified from accumulated other comprehensive income (loss) (1.5 ) —
2.1
0.6
Net current-period other comprehensive income (loss) (0.6 ) (1.8 ) 0.3
(2.1 )
Distribution of GCP (0.2 ) 135.5
—
135.3
Balance, December 31, 2016 $ 2.2
$ 67.6
$ (3.4 ) $ 66.4
Other comprehensive income (loss) before reclassifications (0.1 ) (26.0 ) (2.7 ) (28.8 )
Amounts reclassified from accumulated other comprehensive income (loss) (1.2 ) —
3.5
2.3
Net current-period other comprehensive income (loss) (1.3 ) (26.0 ) 0.8
(26.5 )
Balance, December 31, 2017 $ 0.9
$ 41.6
$ (2.6 ) $ 39.9


	Defined Benefit Pension and Other Postretirement Plans		Currency Translation Adjustments		Gain (Loss) from Hedging Activities		Total
Balance, December 31, 2017	$	0.9	$	41.6	$	(2.6)	$	39.9
OCI before reclassifications	0		32.4		11.1		43.5
Amounts reclassified from accumulated OCI	(0.9)		0		(16.8)		(17.7)
Net current-period other comprehensive income (loss)	(0.9)		32.4		(5.7)		25.8
Effect of adopting ASU 2018-02	0.2		2.2		(0.2)		2.2
Balance, December 31, 2018	$	0.2	$	76.2	$	(8.5)	$	67.9
OCI before reclassifications	0		16.5		14.0		30.5
Amounts reclassified from accumulated OCI	(0.7)		0		(18.9)		(19.6)
Net current-period other comprehensive income (loss)	(0.7)		16.5		(4.9)		10.9

Balance, December 31, 2019	$	(0.5)	$	92.7	$	(13.4)	$	78.8
OCI before reclassifications	0		(49.9)		(33.7)		(83.6)
Amounts reclassified from accumulated OCI	(0.4)		0		34.5		34.1
Net current-period other comprehensive income (loss)	(0.4)		(49.9)		0.8		(49.5)
Balance, December 31, 2020	$	(0.9)	$	42.8	$	(12.6)	$	29.3

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.~~

presented, as well as amounts related to net investment hedges. See Note 6 for a discussion of hedging activities. See Note 8 for a discussion of pension ~~plans and other postretirement benefit~~ plans.

14. ~~Shareholders'~~Shareholders’ Equity

Under its Amended and Restated Certificate of Incorporation, the Company is authorized to issue 300,000,000 shares of common stock, ~~$0.01~~$0.01 par value per share. As of December 31, ~~2017~~,2020, the W. R. Grace & Co. ~~2014~~2018 Stock Incentive Plan (together with the ~~2011 Stock Incentive Plan and the Amended and Restated 2011~~2014 Stock Incentive Plan, collectively, the ~~"Stock~~“Stock Incentive ~~Plans"~~Plans”) had ~~2,219,234~~6,474,722 shares of unissued stock reserved for issuance in the event of the exercise of stock options or the issuance or settlement of stock-based compensation or awards. Shares issuable upon the exercise of stock options or the issuance or settlement of ~~stock based~~stock-based compensation or awards are covered by reissuing treasury stock, to the extent available; otherwise they are covered through newly issued shares. For the years ended December 31, 2017, 2016, and 2015, 386,300, 745,938, and 728,408 stock options were exercised for aggregate proceeds of $16.4 million, $17.0 million, and $26.9 million, respectively. Additionally in 2017, 10,507In 2020, 15,960 common shares were issued to members of the Board of Directors, in partial payment of their annual ~~retainer; 8,215 shares were issued through net share settlement; 24,432~~retainer, and 112,344 shares were issued to settle ~~the 2014 Restricted Stock Units (RSUs);~~vested PBUs and ~~6,743 shares were issued to settle tranche 1~~vested tranches of ~~the 2016~~ RSUs.

102

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

14. ~~Shareholders'~~Shareholders’ Equity (Continued)

The following table sets forth information relating to common stock activity for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015:~~2018:


(In millions, except shares)	Number of Shares	Aggregate Proceeds
Balance of outstanding shares, December 31, 2017	67,780,410
Stock options exercised	243,502	$	6.7
Shares issued	72,590
Shares forfeited through net share exercise	(132,393)
Shares repurchased	(1,171,141)
Balance of outstanding shares, December 31, 2018	66,792,968
Stock options exercised	388,174	$	19.1
Shares issued	94,796
Shares forfeited through net share exercise	(130,256)
Shares repurchased	(409,769)
Balance of outstanding shares, December 31, 2019	66,735,913
Stock options exercised	—	$	0
Shares issued	128,304

Shares repurchased	(673,807)
Balance of outstanding shares, December 31, 2020	66,190,410



~~Balance of outstanding shares, December 31, 2014~~	~~72,922,565~~
~~Stock options exercised~~	~~728,408~~
~~Shares issued~~	~~9,378~~
~~Shares forfeited~~	~~(3,120~~	)
~~Shares repurchased~~	~~(3,123,716~~	)
~~Balance of outstanding shares, December 31, 2015~~	~~70,533,515~~
~~Stock options exercised~~	~~745,938~~
~~Shares issued~~	~~110,953~~
~~Shares forfeited~~	~~(305,678~~	)
~~Shares repurchased~~	~~(2,775,297~~	)
~~Balance of outstanding shares, December 31, 2016~~	~~68,309,431~~
~~Stock options exercised~~	~~386,300~~
~~Shares issued~~	~~49,897~~
~~Shares forfeited through net share exercise~~	~~(29,783~~	)
~~Shares repurchased~~	~~(935,435~~	)
~~Balance of outstanding shares, December 31, 2017~~	~~67,780,410~~

15. Stock Incentive Plans

The Stock Incentive Plans are administered by the Compensation Committee of the Board of Directors. Pursuant to the Stock Incentive Plans, the Company maintains Long-term Incentive Plans (the “LTIP”) under which it issues RSUs, PBUs, and stock options.

The Company has granted nonstatutory stock options to certain key employees under the Stock Incentive Plans. ~~The Stock Incentive Plans are administered by the Compensation Committee of the Board of Directors.~~ Stock options are generally non-qualified and are at exercise prices not less than 100% of the average per share fair market value on the date of grant. Stock-based compensation awards granted under the ~~Company's~~Company’s stock incentive plans are generally subject to a vesting period from the date of the grant ranging from 1 - 3 years. Currently outstanding options expire on various dates through ~~August 2022.~~May 2030.

~~Previously outstanding~~On May 9, 2018, the Company’s stockholders approved the W. R. Grace & Co. 2018 Stock Incentive Plan. Under this new plan, stock options have a 10-year life. The Company began issuing stock-based compensation awards ~~granted under equity compensation programs~~from this plan in the second half of 2018. The Company’s prior ~~to the Separation and held by certain executives and employees~~grants were adjusted in 2016 to reflect the impact of the Separation on these awards. To preserve the aggregate intrinsic value of awards held prior to the Separation, as measured immediately before and immediately after the Separation, each holder of stock-based compensation awards generally received an adjusted award consisting of either (i) both a stock-based compensation award denominated in Company equity as it existed subsequent to the Separation and a stock-based compensation award denominated in GCP equity or (ii) solely a stock-based compensation award denominated in Company equity. In the Separation, the determination as to which type of adjustment applied to a holder’s previously outstanding award was based upon the date on which the award was originally grantedissued under the ~~equity compensation programs prior to the Separation. The adjustment of the original awards resulted~~previous plan in ~~$0.6 million of incremental compensation cost in 2016.~~which options have a 5-year life.

103

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

15. Stock Incentive Plans (Continued)

The following table sets forth information relating to such options during ~~2017~~, ~~2016~~,2020, 2019, and ~~2015~~.2018.


								Number of Shares	Average Exercise Price		Weighted- Average Grant Date Fair Value
Stock Option Activity	Number Of Shares		Average Exercise Price		Weighted- Average Grant Date Fair Value
Balance, December 31, 2014	2,523,790		$	55.77
Balance, December 31, 2017							Balance, December 31, 2017	1,813,450	$	72.04
Options exercised	(728,408	)	36.85				Options exercised	(243,502)	61.92
Options forfeited	(25,000	)	92.57				Options forfeited	(90,862)	69.82
Options terminated	(500	)	100.29				Options terminated	(33,481)	75.07
Options granted	550,805		77.31		$	19.28	Options granted	428,190	67.36		$	12.30
Balance, December 31, 2015	2,320,687		71.01
Balance, December 31, 2018							Balance, December 31, 2018	1,873,795	72.34
Options exercised	(745,938	)	36.97				Options exercised	(388,174)	74.33
Options forfeited	(9,458	)	73.40				Options forfeited	(35,216)	71.21
Options terminated	(2,426	)	67.06				Options terminated	(74,583)	77.30
Options granted	377,920		68.32		12.90		Options granted	189,787	78.11		$	17.94
Balance, December 31, 2016	1,940,785		66.83
Balance, December 31, 2019							Balance, December 31, 2019	1,565,609	72.30
Options exercised	(386,300	)	45.21				Options exercised	—	—
Options forfeited	(34,545	)	72.97				Options forfeited	(26,696)	60.26
Options terminated	(23,320	)	75.60				Options terminated	(473,582)	76.67
Options granted	316,830		71.37		13.00		Options granted	348,005	55.34		$	9.64
Balance, December 31, 2017	1,813,450
Balance, December 31, 2020							Balance, December 31, 2020	1,413,336	66.89

The following is a summary of nonvested option activity for the year ended December 31, ~~2017.~~2020.


	Number Of Shares	Weighted- Average Grant Date Fair Value
Nonvested options outstanding at beginning of year	506,593	$	14.81
Granted	348,005	9.64
Vested	(269,148)	13.93
Forfeited	(20,787)	9.90
Nonvested options outstanding at end of year	564,663	12.16

Stock Option Activity
Number Of
Shares

Weighted-
Average
Grant Date
Fair Value
Nonvested options outstanding at beginning of year 878,031
$ 17.76
Granted 316,830
13.00
Vested (417,969 ) 18.78
Forfeited (57,865 ) 18.09
Nonvested options outstanding at end of year 719,027

As of December 31, ~~2017,~~2020, the intrinsic value (the difference between the exercise price and the market price) for options outstanding was ~~$2.8 million~~immaterial and for options exercisable was ~~$2.3 million~~.0. The total intrinsic value of all options exercised during the years ended December 31, ~~2017~~, ~~2016~~2019 and ~~2015~~2018 was ~~$10.3~~$0.8 million, ~~$25.9~~ and $1.6 million, ~~and~~ ~~$46.1 million~~, respectively. No options were exercised in 2020. A summary of our stock options outstanding and exercisable at December 31, ~~2017~~,2020, follows:


Exercise Price Range	Number Outstanding	Number Exercisable	Outstanding Weighted- Average Remaining Contractual Life (Years)	Exercisable Weighted- Average Exercise Price


$40 - $50	1,802	0	9.35	$	0
$50 - $60	326,051	0	9.17	0
$60 - $70	640,777	522,178	1.31	67.92
$70 - $80	444,706	326,495	3.90	72.65



	1,413,336	848,673

104

Exercise Price Range
Number
Outstanding

Number
Exercisable

Outstanding Weighted-
Average
Remaining
Contractual
Life (Years)

Exercisable
Weighted-
Average
Exercise
Price
$60 - $70 586,054
350,469
2.02 63.90
$70 - $80 1,200,806
724,000
2.48 75.97
$80 - $90 26,590
19,954
1.16 80.76
1,813,450
1,094,423

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

15. Stock Incentive Plans (Continued)

At December 31, ~~2017~~,2020, the weighted-average remaining contractual term of all options outstanding and exercisable was ~~2.31~~3.95 years.

Options Granted~~The Company granted approximately~~ ~~0.3 million~~, ~~0.4 million, and~~ ~~0.6 million~~ ~~nonstatutory stock options in~~ ~~2017~~, ~~2016, and~~ ~~2015, respectively, under the Stock Incentive Plans.~~

For the years ended December 31, ~~2017~~, ~~2016~~2020, 2019, and ~~2015~~,2018, the Company recognized non-cash stock-based compensation expense with respect to stock option grants of ~~$4.3~~$2.8 million,, ~~$6.0~~ $3.1 million, and ~~$9.9~~$5.8 million,, respectively, which is included in ~~"selling,~~“selling, general and administrative ~~expenses"~~expenses” in the Consolidated Statements of Operations. The actual tax benefit realized from stock ~~options exercised~~option arrangements totaled ~~$7.4~~$0.6 million, ~~$11.2~~$1.9 million, and ~~$3.3~~$2.2 million for the ~~year~~years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

The Company values options using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of traded options. The risk-free rate is based on the U.S. Treasury yield curve published as of the grant date, with maturities approximating the expected term of the options. The expected term of the options is estimated using the simplified method as allowed by ASC 718-20, whereby the average between the vesting period and contractual term is used. The expected volatility was estimated using ~~both~~ actual Company stock ~~volatility and the volatility of an industry peer group. The Company believes its actual stock volatility was not representative of future volatility during the time it was in Chapter 11.~~volatility. The following summarizes the weighted average assumptions used for estimating the fair value of stock options granted during ~~2017~~, ~~2016~~2020, 2019, and ~~2015~~,2018, respectively.


	2020	2019	2018
Expected volatility	22.7% - 29.4%	22.7% - 23.1%	22.9% - 24.4%
Weighted average expected volatility	22.9%	23.0%	23.7%
Expected term	5.5 - 6.5 years	5.5 - 6.5 years	3.0 - 6.5 years
Risk-free rate	1.18%	2.58%	2.55%
Dividend yield	2.2%	1.4%	1.4%

2017 2016 2015
Expected volatility 24.7% - 25.1% 26.2% - 27.5% 23.0% - 27.2%
Weighted average expected volatility 24.9% 26.6% 24.5%
Expected term 3.00 - 4.00 years 3.00 - 4.00 years 3.00 - 4.00 years
Risk-free rate 1.66% 1.01% 1.30%
Dividend yield 1.2% 1.0% —%

Total unrecognized stock-based compensation expense at December 31, ~~2017~~,2020, was ~~$2.9~~$2.1 million, and the weighted-average period over which this expense will be recognized is ~~0.9~~0.8 of a year.

Restricted Stock and Performance Based Units ~~During 2017~~ In 2019, the Company ~~granted 57,600~~modified a majority of its 2017 and 2018 cash-settled LTIP awards to be stock-settled. The following is a summary of RSUs and ~~115,158 Performance Based Units (PBUs)~~PBUs awarded under the ~~Company's Long-term Incentive Plan (LTIP). During 2016 the Company granted 77,358 RSUs and 124,952 PBUs under the~~ LTIP. ~~During 2015 the Company granted 123,846 RSUs and 1,864 PBUs under the LTIP. During 2017, 2016, and 2015, awards covering 16,395, 15,197, and 10,641 shares were forfeited, respectively.~~


	2020		2019		2018
PBUs granted under the LTIP	120,161		88,174		93,216
RSUs granted under the LTIP	68,658		57,900		86,698
Shares covered by awards forfeited under the LTIP	17,250		17,323		44,279
Weighted average grant date fair value of PBUs	$55.33		$78.11		$67.39
Weighted average grant date fair value of RSUs	$55.05		$76.91		$67.54
Approximate percentage of awards expected to settle in common stock(1)	96	%	96	%	94	%
Approximate percentage of awards expected to settle in cash(1)	4	%	4	%	6	%

(1) Assumes full vesting.

The PBUs cliff vest after the completion of the performance periods ending December 31, ~~2019~~2022, 2021, and ~~2018, and have a weighted average grant date fair value of $71.37 and $68.50, respectively.~~2020. The RSUs ~~granted in 2017 and 2016~~ vest in three equal annual installments and have a weighted average grant date fair value of $71.37 and $68.90, respectively. The RSUs granted in 2015 cliff vest in May 2018 and have a weighted average grant date fair value of $67.95.installments. Vesting for all awards is subject to continued employment through the payment date (subject to certain exceptions for retirement, death or disability, change in control scenarios, and in the discretion of the Compensation Committee).

The Company anticipates that approximately 65% of the awards granted in 2017 will be settled in common stock and approximately 35% will be settled in cash, assuming full vesting. The Company anticipates that approximately 67% of the awards granted in 2016 will be settled in common stock and approximately 33% will be settled in cash, assuming full vesting. The Company anticipates that approximately 53% of the PBUs granted in 2015 will be settled in common stock and approximately 47% will be settled in cash, assuming full vesting.

PBUs and RSUs are recorded at fair value at the date of grant. The common stock settled portion is considered an equity award with the payout being valued based on the Company’s stock price on the grant date. The cash settled portion of the award is considered a liability award with payout being remeasured each reporting period based on the Company’s current stock price. PBU equity ~~and cash~~ awards are remeasured each reporting period based on the expected payout of the award, which may range from 0% to 200% of the targets for such

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~15. Stock Incentive Plans (Continued)~~

awards; therefore, these portions of the awards are subject to volatility until the payout is finally determined at the end of

105

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

15. Stock Incentive Plans (Continued)

the performance period. During ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, the Company recognized ~~$10.3~~$8.0 million, ~~$8.6~~$9.2 million, and ~~$5.8~~$13.2 million in compensation expense for these awards. As of December 31, ~~2017, $14.1~~2020, $11.0 million of total unrecognized compensation expense related to the awards is expected to be recognized over the remaining weighted-average service period of ~~1.3~~0.9 years.

16. Earnings Per Share

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


	Year Ended December 31,
(In millions, except per share amounts)	2020		2019		2018
Numerators


Net income (loss) attributable to W. R. Grace & Co. shareholders	$	(1.8)	$	126.3	$	167.6
Denominators
Weighted average common shares—basic calculation	66.3		66.8		67.2
Dilutive effect of employee stock options	0		0.1		0.1
Weighted average common shares—diluted calculation	66.3		66.9		67.3



Basic earnings per share	$	(0.03)	$	1.89	$	2.49



Diluted earnings per share	$	(0.03)	$	1.89	$	2.49

(In millions, except per share amounts) 2017 2016 2015
Numerators
Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders $ 11.2
$ 107.0
$ 124.0
Income (loss) from discontinued operations, net of income taxes —
(12.9 ) 20.2
Net income (loss) attributable to W. R. Grace & Co. shareholders $ 11.2
$ 94.1
$ 144.2
Denominators
Weighted average common shares—basic calculation 68.1
70.1
72.0
Dilutive effect of employee stock options 0.1
0.4
0.6
Weighted average common shares—diluted calculation 68.2
70.5
72.6
Basic earnings per share attributable to W. R. Grace & Co. shareholders
Income (loss) from continuing operations $ 0.16
$ 1.53
$ 1.72
Income (loss) from discontinued operations, net of income taxes —
(0.19 ) 0.28
Net income (loss) $ 0.16
$ 1.34
$ 2.00
Diluted earnings per share attributable to W. R. Grace & Co. shareholders
Income (loss) from continuing operations $ 0.16
$ 1.52
$ 1.71
Income (loss) from discontinued operations, net of income taxes —
(0.19 ) 0.28
Net income (loss) $ 0.16
$ 1.33
$ 1.99

There were approximately ~~1.5~~1.6 million,, ~~1.3~~ 1.0 million and ~~0.4~~1.7 million anti-dilutive options outstanding for the years ended December 31, ~~2017~~, ~~2016~~2020, 2019, and ~~2015~~,2018, respectively.

On February 4, 2014, the Company announced that its Board of Directors authorized a share repurchase program of up to $500 million, which it completed on January 15, 2015. On February 5, 2015, the Company announced that its Board of Directors had authorized an additional share repurchase program of up to $500 million, which it completed on July 10, 2017. On February 8, 2017, the Company announced that its Board of Directors had authorized a ~~new~~ 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, ~~expected to be completed over 24 to 36 months at~~including approximately $83 million remaining under the ~~discretion of management.~~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~~Company’s shares, strategic priorities for the ~~strategic~~ deployment of capital, and general market and economic conditions. During ~~2017, 2016~~2020, 2019, and ~~2015,~~2018, the Company repurchased ~~935,435, 2,775,297,~~673,807; 409,769; and ~~3,123,716~~1,171,141 shares of Company common stock for ~~$65.0~~$40.4 million, ~~$195.1~~$29.8 million, and ~~$301.5~~$80.0 million, respectively, pursuant to the terms of the share repurchase ~~programs.~~program. As of December 31, ~~2017, $218.9~~2020, $235.0 million remained under the current authorization.

17. Revenues

Grace generates revenues from customer arrangements primarily by manufacturing and delivering specialty chemicals and specialty materials, and by licensing technology, through its 2 reportable segments. See Note 18 for additional information about Grace’s reportable segments.

106

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

17. Revenues (Continued)

Disaggregation of Revenue The following tables present Grace’s revenues by geography and product group, within its respective reportable segments, for the years ended December 31, 2020, 2019, and 2018.


Year Ended December 31, 2020 (In millions)	North America		Europe Middle East Africa (EMEA)		Asia Pacific		Latin America		Total

Polyolefin and Chemical Catalysts	$	172.3	$	231.7	$	201.1	$	16.5	$	621.6
Refining Catalysts	216.6		279.1		120.4		33.7		649.8
Total Catalysts Technologies	$	388.9	$	510.8	$	321.5	$	50.2	$	1,271.4

Pharma/Consumer	$	61.5	$	60.9	$	19.8	$	20.3	$	162.5
Coatings	25.4		66.6		35.8		9.7		137.5
Chemical process	28.5		69.4		36.1		6.6		140.6
Other	4.1		13.3		0.3		0.1		17.8
Total Materials Technologies	$	119.5	$	210.2	$	92.0	$	36.7	$	458.4
Total Grace	$	508.4	$	721.0	$	413.5	$	86.9	$	1,729.8


Year Ended December 31, 2019 (In millions)	North America		EMEA		Asia Pacific		Latin America		Total

Polyolefin and Chemical Catalysts	$	191.4	$	283.0	$	213.7	$	17.2	$	705.3
Refining Catalysts	291.4		288.4		171.7		39.9		791.4
Total Catalysts Technologies	$	482.8	$	571.4	$	385.4	$	57.1	$	1,496.7

Pharma/Consumer	$	45.2	$	59.1	$	20.1	$	20.2	$	144.6
Coatings	25.9		67.8		36.9		9.2		139.8
Chemical process	38.1		79.1		32.3		6.6		156.1
Other	5.8		14.2		0.7		0.2		20.9
Total Materials Technologies	$	115.0	$	220.2	$	90.0	$	36.2	$	461.4
Total Grace	$	597.8	$	791.6	$	475.4	$	93.3	$	1,958.1


Year Ended December 31, 2018 (In millions)	North America		EMEA		Asia Pacific		Latin America		Total

Polyolefin and Chemical Catalysts	$	192.6	$	255.4	$	193.2	$	20.3	$	661.5
Refining Catalysts	282.8		266.0		193.4		59.8		802.0
Total Catalysts Technologies	$	475.4	$	521.4	$	386.6	$	80.1	$	1,463.5

Pharma/Consumer	$	36.2	$	58.0	$	19.0	$	19.4	$	132.6
Coatings	28.1		75.3		43.3		8.7		155.4
Chemical process	35.2		81.6		32.2		8.3		157.3
Other	6.8		15.9		0.4		0.2		23.3
Total Materials Technologies	$	106.3	$	230.8	$	94.9	$	36.6	$	468.6
Total Grace	$	581.7	$	752.2	$	481.5	$	116.7	$	1,932.1

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 typically invoices licensees at the time that contractual milestones are achieved. However, in respect of the milestone billings, Grace is frequently obligated to provide services in future periods, and this results in recording contract liabilities.

107

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

17. Revenues (Continued)

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


	December 31,
(In millions)	2020		2019
Current	$	33.8	$	35.0
Noncurrent	23.4		29.5
Total	$	57.2	$	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 $31.0 million of revenue recognized 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 four 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 $148 million as of December 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:


Year	Approximate percentage of revenue related to remaining performance obligations recognized
2021	27	%
2022	19	%
2023	17	%
2024	16	%
Thereafter through 2030	21	%

For the years ended December 31, 2020, 2019, and 2018, 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.

18. Segment Information

Grace is a global producer of specialty chemicals and specialty materials. ~~Grace's two~~Grace’s 2 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, ~~petrochemical~~ and other chemical

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~17. Segment Information (Continued)~~

manufacturing applications. Advanced Refining Technologies ~~("ART"~~(“ART”), ~~Grace's~~Grace’s joint venture with Chevron ~~Products Company, a division of Chevron~~ U.S.A. Inc. ~~("Chevron"~~(“Chevron”), is managed in this segment. (See Note ~~18.~~19.) Grace Catalysts Technologies comprises ~~two~~2 operating segments, Grace ~~Refining Technologies~~Specialty Catalysts and Grace ~~Specialty Catalysts,~~Refining Technologies, 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 pharma/consumer, coatings, ~~consumer, industrial,~~ and ~~pharmaceutical~~chemical process applications. The table below presents information related to ~~Grace's~~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.

108

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

18. Segment Information (Continued)

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 ~~from continuing operations~~ attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacy ~~product, environmental and other claims;~~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; ~~income and expense items related to divested businesses, product lines, and certain other investments;~~ 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; gains and losses on modification or extinguishment of debt; the effects of these items on equity in earnings of unconsolidated affiliate; and certain other items that are not representative of underlying trends.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~17. Segment Information (Continued)~~

Reportable Segment Data

Year Ended December 31,
(In millions) 2017 2016 2015
Net Sales
Catalysts Technologies $ 1,276.5
$ 1,163.7
$ 1,162.1
Materials Technologies 440.0
434.9
466.1
Total $ 1,716.5
$ 1,598.6
$ 1,628.2
Adjusted EBIT
Catalysts Technologies segment operating income $ 395.4
$ 367.8
$ 347.3
Materials Technologies segment operating income 100.6
104.0
96.9
Corporate costs (69.0 ) (59.4 ) (79.9 )
Gain on termination and curtailment of postretirement plans related to current businesses —
0.2
1.9
Certain pension costs (13.0 ) (12.3 ) (20.4 )
Total $ 414.0
$ 400.3
$ 345.8
Depreciation and Amortization
Catalysts Technologies $ 87.1
$ 77.4
$ 68.1
Materials Technologies 19.6
19.5
23.2
Corporate 4.8
3.4
7.9
Total $ 111.5
$ 100.3
$ 99.2
Capital Expenditures
Catalysts Technologies $ 100.9
$ 84.9
$ 66.3
Materials Technologies 20.9
24.0
24.6
Corporate 3.4
8.0
27.9
Total $ 125.2
$ 116.9
$ 118.8
Total Assets
Catalysts Technologies $ 1,757.1
$ 1,675.1
$ 1,390.8
Materials Technologies 326.8
313.1
333.4
Corporate 823.1
923.6
1,051.0
Assets of discontinued operations —

—
870.5
Total $ 2,907.0
$ 2,911.8
$ 3,645.7


	Year Ended December 31,
(In millions)	2020		2019		2018
Net Sales
Catalysts Technologies	$	1,271.4	$	1,496.7	$	1,463.5
Materials Technologies	458.4		461.4		468.6
Total	$	1,729.8	$	1,958.1	$	1,932.1
Adjusted EBIT
Catalysts Technologies segment operating income	$	309.6	$	466.4	$	440.9
Materials Technologies segment operating income	85.0		97.8		105.6
Corporate costs	(68.0)		(72.7)		(73.5)

Certain pension costs	(14.4)		(18.4)		(15.9)
Total	$	312.2	$	473.1	$	457.1
Depreciation and Amortization
Catalysts Technologies	$	85.3	$	81.9	$	81.7
Materials Technologies	15.0		14.2		15.5
Corporate	4.7		4.2		3.6
Total	$	105.0	$	100.3	$	100.8
Capital Expenditures
Catalysts Technologies	$	107.8	$	114.6	$	150.3
Materials Technologies	36.2		68.8		56.1
Corporate	13.6		10.7		9.9
Total	$	157.6	$	194.1	$	216.3
Total Assets
Catalysts Technologies	$	2,294.9	$	2,556.1	$	2,326.6
Materials Technologies	448.2		430.3		375.9
Corporate	1,022.4		946.2		862.8
Total	$	3,765.5	$	3,932.6	$	3,565.3

Corporate costs include ~~corporate support function~~functional costs and other ~~corporate~~ 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.

See Note 17 for sales of similar products within each reportable segment.

109

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

~~17.~~18. Segment Information (Continued)

Reconciliation of Reportable Segment Data to Financial Statements

Grace Adjusted EBIT for the years ended December 31, ~~2017, 2016~~2020, 2019, and ~~2015~~2018 is reconciled below to income ~~from continuing operations~~(loss) before income taxes presented in the accompanying Consolidated Statements of Operations.


	Year Ended December 31,
(In millions)	2020		2019		2018
Grace Adjusted EBIT	$	312.2	$	473.1	$	457.1
Pension MTM adjustment and other related costs, net	(94.6)		(85.9)		15.2
Loss on early extinguishment of debt	(39.4)		0		(4.8)
Costs related to legacy product, environmental and other claims	(39.4)		(103.5)		(82.3)
Restructuring and repositioning expenses	(36.9)		(13.7)		(46.4)
Inventory write-offs and disposal costs(1)	(20.7)		(3.6)		0
Third-party acquisition-related costs	(5.2)		(3.6)		(7.3)
Taxes and interest included in equity in earnings of unconsolidated affiliate	(0.7)		0.1		(0.4)

Benefit plan adjustment	0		(5.0)		0
Amortization of acquired inventory fair value adjustment	0		0		(6.9)

Interest expense, net	(74.9)		(74.8)		(78.5)
Net income (loss) attributable to noncontrolling interests	0.1		0.4		(0.8)
Income (loss) before income taxes	$	0.5	$	183.5	$	244.9

(1)Inventory write-off in 2020 related to the changes in hydroprocessing catalysts manufacturing operations (see Note 2). Inventory write-off in 2019 related to the idling of Grace’s MTO manufacturing facility.

110

Year Ended December 31,
(In millions) 2017 2016 2015
Grace Adjusted EBIT $ 414.0
$ 400.3
$ 345.8
Pension MTM adjustment and other related costs, net (51.1 ) (60.3 ) (30.5 )
Costs related to legacy product, environmental and other claims (30.8 ) (35.4 ) (6.1 )
Restructuring and repositioning expenses (26.7 ) (38.6 ) (20.4 )
Accounts receivable reserve—Venezuela (10.0 ) —
—
Third-party acquisition-related costs (2.9 ) (2.5 ) —
Income and expense items related to divested businesses (2.3 ) 0.1
1.5
Loss on early extinguishment of debt —
(11.1 ) —
Amortization of acquired inventory fair value adjustment —
(8.0 ) —
Gain (loss) on sale of product line —
1.7
—
Gain on termination and curtailment of postretirement plans related to divested businesses —
0.3
2.6
Interest expense, net (78.5 ) (80.5 ) (99.1 )
Net income (loss) attributable to noncontrolling interests (0.8 ) —
(0.1 )
Income (loss) from continuing operations before income taxes $ 210.9
$ 166.0
$ 193.7

~~The table below presents sales of similar products within each reportable segment.~~

Year Ended December 31,
(In millions) 2017 2016 2015
Catalysts Technologies:
Refining catalysts $ 758.1
$ 724.9
$ 764.5
Polyolefin and chemical catalysts 518.4
438.8
397.6
Total $ 1,276.5
$ 1,163.7
$ 1,162.1
Materials Technologies:
Coatings $ 142.2
$ 136.5
$ 133.6
Consumer/Pharma 123.3
121.9
125.1
Chemical process 153.5
142.6
137.0
Other 21.0
33.9
70.4
Total $ 440.0
$ 434.9
$ 466.1

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

~~17.~~18. Segment Information (Continued)

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 ~~customer location.~~the location to which the product is transported.


	Year Ended December 31,							Year Ended December 31,
(In millions)	2017		2016		2015		(In millions)	2020		2019		2018
Net Sales							Net Sales
United States	$	437.3	$	446.2	$	444.7	United States	$	459.8	$	540.2	$	533.8
Canada	48.7		44.5		45.3		Canada	48.6		57.6		47.9
Total North America	486.0		490.7		490.0		Total North America	508.4		597.8		581.7
Europe Middle East Africa	667.7		647.8		621.2		Europe Middle East Africa	721.0		791.6		752.2
Asia Pacific	459.8		348.9		390.9		Asia Pacific	413.5		475.4		481.5
Latin America	103.0		111.2		126.1		Latin America	86.9		93.3		116.7
Total	$	1,716.5	$	1,598.6	$	1,628.2	Total	$	1,729.8	$	1,958.1	$	1,932.1
Long-Lived Assets(1)							Long-Lived Assets(1)
United States	$	599.8	$	564.5	$	464.1	United States	$	799.1	$	937.9	$	793.0
Canada	15.5		13.9		13.0		Canada	23.2		18.9		16.5
Total North America	615.3		578.4		477.1		Total North America	822.3		956.8		809.5
Germany	142.2		109.7		110.9		Germany	267.4		228.2		172.5
Rest of Europe Middle East Africa	45.3		39.5		17.4		Rest of Europe Middle East Africa	41.0		45.2		48.9
Total Europe Middle East Africa	187.5		149.2		128.3		Total Europe Middle East Africa	308.4		273.4		221.4
Asia Pacific	21.1		21.5		25.9		Asia Pacific	72.2		80.3		72.9
Latin America	7.9		7.5		5.5		Latin America	5.9		7.2		6.7
Total	$	831.8	$	756.6	$	636.8	Total	$	1,208.8	$	1,317.7	$	1,110.5


~~(1)~~	~~Long-lived assets include properties and equipment and the noncurrent asset related to a planned hydroprocessing catalyst plant to be transferred to ART upon completion. (See Note 18.)~~

(1)Long-lived assets as of December 31, 2019 and 2018, include properties and equipment and the current asset related to a hydroprocessing catalyst plant to be transferred to ART upon completion. (See Note 19.)

~~18.~~

19. Related Party Transactions

Unconsolidated Affiliate

Grace accounts for its 50% ownership interest in ART, its joint venture with Chevron, using the equity method of accounting. ~~Grace's~~Grace’s investment in ART amounted to ~~$125.9~~$175.5 million and ~~$117.6~~$181.9 million as of December 31, ~~2017~~2020 and ~~2016, respectively, and the amount included in "equity in earnings of unconsolidated affiliate" in the accompanying Consolidated Statements of Operations totaled~~ ~~$25.9 million~~, ~~$29.8 million~~ ~~and~~ ~~$20.4 million~~ ~~for the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015~~,2019, respectively. ART is a private, limited liability company, taxed as a partnership, and accordingly does not have a quoted market price available.

~~The following summary presents ART's assets, liabilities and results~~ During 2020, Grace received dividends of ~~operations.~~$20.0 million from ART.

111

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

~~18. Unconsolidated Affiliate~~19. Related Party Transactions (Continued)

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


	Year Ended December 31,
(In millions)	2020		2019		2018

Operating income	$	17.5	$	28.2	$	32.7
Depreciation and amortization	(3.3)		(0.5)		(0.5)
Interest expense and income taxes	(0.7)		0.1		(0.4)
Equity in earnings of unconsolidated affiliate	13.5		27.8		31.8

December 31,
(In millions) 2017 2016
Summary Balance Sheet information:
Current assets $ 239.8
$ 249.2
Noncurrent assets 91.5
84.8
Total assets $ 331.3
$ 334.0

Current liabilities $ 82.4
$ 102.0
Noncurrent liabilities 0.3
0.3
Total liabilities $ 82.7
$ 102.3
The table below presents summary financial data related to ART’s balance sheet and results of operations.


	December 31,
(In millions)	2020		2019
Summary Balance Sheet information:
Current assets	$	286.4	$	300.7
Noncurrent assets	235.8		237.8
Total assets	$	522.2	$	538.5

Current liabilities	$	173.0	$	177.1
Noncurrent liabilities	0.3		0.3
Total liabilities	$	173.3	$	177.4


	Year Ended December 31,							Year Ended December 31,
(In millions)	2017		2016		2015		(In millions)	2020		2019		2018
Summary Statement of Operations information:							Summary Statement of Operations information:
Net sales	$	447.3	$	388.9	$	415.3	Net sales	$	481.9	$	527.5	$	487.5
Costs and expenses applicable to net sales	379.8		322.1		366.6		Costs and expenses applicable to net sales	431.4		453.4		410.6
Income before income taxes	53.6		60.8		42.8		Income before income taxes	28.2		59.0		65.5
Net income	52.1		59.3		41.1		Net income	27.0		56.5		64.2

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 ~~manufacturing~~manufactured by Grace for ART is accounted for on a net basis, with a mark-up, ~~in "cost~~which reduces “cost of goods ~~sold"~~sold” in the Consolidated Statements of Operations. Grace also receives reimbursement from ART for fixed ~~costs,~~costs; research and ~~development,~~development; selling, general and administrative ~~services,~~services; and depreciation. Grace records reimbursements against the respective line items ~~on Grace's~~in Grace’s Consolidated ~~Statement~~Statements of Operations. The table below presents summary financial data related to transactions between Grace and ART.


	Year Ended December 31,
(In millions)	2020		2019		2018
Product manufactured for ART	$	261.1	$	260.8	$	229.1
Mark-up on product manufactured for ART included as a reduction of Grace’s cost of goods sold	5.1		5.1		4.5
Charges for fixed costs; research and development; selling, general and administrative services; and depreciation to ART	54.3		51.1		41.8

112

Year Ended December 31,
(In millions) 2017 2016 2015
Product manufactured for ART $ 213.8
$ 210.4
$ 258.9
Mark-up on product manufactured for ART included as a reduction of Grace's cost of goods sold 4.2
4.2
5.1
Charges for fixed costs; research and development; selling, general and administrative services; and depreciation to ART 41.7
33.8
31.6

~~The table below lists Grace balances related to ART.~~

December 31,
(in millions) 2017 2016
Accounts receivable $ 20.1
$ 14.9
Noncurrent asset 32.7
27.0
Accounts payable 22.3
28.7
Debt payable within one year 8.6
7.6
Debt payable after one year 33.8
31.9
Noncurrent liability 32.7
27.0

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

~~18. Unconsolidated Affiliate~~19. Related Party Transactions (Continued)

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


	December 31,
(in millions)	2020		2019
Trade accounts receivable	$	28.3	$	17.5
Other current assets	0		173.9

Accounts payable	19.8		37.7
Debt payable within one year	3.5		9.9
Debt payable after one year	22.1		37.5
Other current liabilities	0		173.9

The ~~noncurrent~~current asset and ~~noncurrent~~current liability as of December 31, 2019, in the table above ~~represent~~represented spending ~~to date~~ related to a ~~planned~~ residue hydroprocessing catalyst production plant that has been constructed in Lake Charles, Louisiana. Grace ~~manages~~managed the design and construction of the plant, and the asset ~~will be~~was included in ~~"other assets"~~“other current assets” in ~~Grace's~~Grace’s Consolidated Balance Sheets until ~~construction is~~commissioning and start-up activities were completed. Grace ~~has~~had likewise recorded a liability for the transfer of the asset to ART upon completion, included in ~~"other liabilities"~~“other current liabilities” in the Consolidated Balance Sheets. Grace transferred the asset to ART in the 2020 third quarter.

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 8 years, unless earlier repayment is demanded by ART. The loans bear interest at the three-month LIBOR plus 1.25%.

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 ~~2019. No~~2022. NaN amounts were outstanding at December 31, ~~2017~~2020 and ~~2016~~.2019.

Joint Venture Arrangement In 2018, Grace formed a joint venture in a developing country in Asia. The purpose of the joint venture is to establish a logistics facility and catalyst testing laboratory and to be the exclusive FCC catalysts and additives supplier to certain customers in the country. Grace’s joint venture partner is the parent company of the customers. Grace has an 87.5% ownership interest in the joint venture and consolidates the activities of the entity. Grace’s Consolidated Balance Sheets as of December 31, 2020 and 2019, include trade accounts receivable of $2.2 million and $3.6 million, respectively, from these customers. Grace’s Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018, include $11.3 million, $11.8 million, and $14.0 million, respectively, of revenues from these customers.

~~19.~~

20. Acquisitions

Rive Technology, Inc. On ~~December 14, 2017,~~June 17, 2019, Grace ~~signed~~completed the acquisition of the business and assets of Rive Technology, Inc. for $22.8 million, with an additional $2.0 million holdback payment remitted in the three months ended September 30, 2020. The business is included in the Refining Technologies operating segment of the Catalysts Technologies reportable segment. The acquisition included Rive’s MOLECULAR HIGHWAY® zeolite technology for catalytic processes, which allows Grace to offer a ~~definitive agreement~~broader spectrum of products for converting crude oil to ~~acquire~~petrochemical feedstocks.

Polyolefin catalysts business of Albemarle CorporationOn April 3, 2018, using cash on hand and borrowings under the Credit Agreement, Grace acquired the assets of the polyolefin catalysts business of Albemarle Corporation for $416 million, subject to regulatory approvals and other customary closing conditions. This acquisition would be complementary to Grace's specialty catalysts business and would strengthen Grace's catalysts technology portfolio, commercial relationships, and manufacturing network.

~~On June 30, 2016,~~Corporation. Grace acquired the ~~assets of BASF's polyolefin catalysts~~ business for ~~total consideration~~$418.0 million, net of ~~$250.6 million,~~cash acquired and including ~~an estimated $3.3 million holdback liability, which was paid during the 2017 second quarter.~~customary post-closing adjustments. The business is included in the Specialty Catalysts operating segment of the Catalysts Technologies reportable segment. The acquisition ~~purchase price was allocated~~is complementary to the tangible and identifiable intangible assets acquired based on their estimated fair values at the acquisition date in accordance with ASC 805 "Business Combinations." The excess of the purchase price over the fair value of the tangible and intangible assets acquired was recorded as goodwill. The goodwill recognized is attributable to the expected growth and operating synergies that Grace expects to realize from this acquisition. Approximately $43 million of goodwill generated from the acquisition will be deductible for U.S. income tax purposes over a period of 15 years.

(In millions)
Inventories $ 30.2
Properties and equipment 95.0
Goodwill 63.8
Intangible assets 61.6
Net assets acquired $ 250.6

~~The table below presents the intangible assets acquired as part of the acquisition of the assets of BASF's polyolefin~~Grace’s existing specialty catalysts business and ~~the periods over which they will be amortized.~~strengthens Grace’s commercial relationships, catalysts technology portfolio, and manufacturing network.

113

Amount
(In millions)

Weighted Average Amortization Period
(in years)
Customer Lists $ 39.9
20.0
Trademarks 13.4
20.0
Technology 8.3
20.0
Total $ 61.6
20.0

~~20. Discontinued Operations~~

As a result of the Separation and Distribution, GCP is now an independent public company and its common stock is listed under the symbol “GCP” on the New York Stock Exchange. Grace does not beneficially own any shares of GCP common stock and will not consolidate the financial results of GCP in its future financial reporting, as GCP is no longer a related party to Grace subsequent to the Separation. GCP’s historical financial results

Table of Contents

TOC—Financial Statements

Notes to Consolidated Financial Statements (Continued)

~~20. Discontinued Operations (Continued)~~

~~through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations.~~

~~Separation and Distribution Agreement~~ Prior to the completion of the Separation and the Distribution, W. R. Grace & Co., Grace–Conn. and GCP entered into a Separation and Distribution Agreement and certain related agreements that govern the post-Separation relationship between Grace and GCP. The Separation and Distribution Agreement identifies the transfer of Grace's assets and liabilities that are specifically identifiable or otherwise allocable to GCP, the elimination of Grace’s equity interest in GCP, the removal of certain non-recurring separation costs directly related to the Separation and Distribution, the cash distribution from GCP to Grace, the reduction in Grace's debt using the cash received from GCP, and it provides for when and how these transfers, assumptions and assignments have occurred or will occur.

~~Tax Sharing Agreement~~ W. R. Grace & Co., Grace–Conn. and GCP entered into a Tax Sharing Agreement that generally governs the parties’ respective rights, responsibilities and obligations after the Distribution with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Distribution and certain related transactions to qualify under Sections 355 and certain other relevant provisions of the Internal Revenue Code (the “Code”)), tax attributes, the preparation and filing of tax returns, tax elections, tax contests, and certain other tax matters.

In addition, the Tax Sharing Agreement imposes certain restrictions on GCP and its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the qualification of the Distribution and certain related transactions under Sections 355 and certain other relevant provisions of the Code. The Tax Sharing Agreement provides special rules that allocate tax liabilities in the event the Distribution, together with certain related transactions, does not so qualify. In general, under the Tax Sharing Agreement, each party is expected to be responsible for any taxes imposed on, and certain related amounts payable by, GCP or Grace that arise from the failure of the Distribution and certain related transactions, to qualify under Sections 355 and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the Tax Sharing Agreement.

The foregoing is a summary of the Separation and Distribution Agreement and the Tax Sharing Agreement. Grace has filed the full texts of the Separation and Distribution Agreement and the Tax Sharing Agreement with the SEC, which are readily available on the Internet at www.sec.gov.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~20. Discontinued Operations (Continued)~~

~~GCP’s historical financial results through the Distribution Date and other effects of the Separation are presented as discontinued operations as summarized below:~~

Year Ended December 31,
(In millions) 2016 2015
Net sales $ 99.6
$ 1,423.3
Cost of goods sold 62.6
907.5
Gross profit 37.0
515.8
Selling, general and administrative expenses 21.6
251.2
Research and development expenses 1.7
22.5
Loss in Venezuela —
59.6
Repositioning expenses 22.0
55.1
Interest expense and related financing costs 0.7
1.5
Other expense, net 3.9
9.9
Total costs and expenses 49.9
399.8
(Loss) Income from discontinued operations before income taxes (12.9 ) 116.0
Benefit from (provision for) income taxes 0.1
(95.0 )
(Loss) Income from discontinued operations after income taxes (12.8 ) 21.0
Less: Net income attributable to noncontrolling interests (0.1 ) (0.8 )
Net (loss) income from discontinued operations $ (12.9 ) $ 20.2

In January 2016, GCP completed the sale of $525.0 million aggregate principal amount of 9.500% Senior Notes due in 2023. GCP used a portion of these proceeds to fund a $500.0 million distribution to Grace in connection with the Separation and the Distribution.

In February 2016, GCP entered into a credit agreement that provides for new senior secured credit facilities in an aggregate principal amount of $525.0 million, consisting of term loans in an aggregate principal amount of $275.0 million maturing in 2022 and of revolving loans in an aggregate principal amount of $250.0 million maturing in 2021, which were undrawn at closing. GCP used a portion of these proceeds to fund a $250.0 million distribution to Grace in connection with the Separation and the Distribution.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (Continued)~~

21. Quarterly ~~Summary and Statistical~~Financial Information (Unaudited)


(In millions, except per share amounts)	March 31		June 30		September 30		December 31(3)			(In millions, except per share amounts)	March 31		June 30		September 30(2)		December 31(3)
2017
2020										2020
Net sales	$	398.0	$	429.5	$	429.5	$	459.5		Net sales	$	421.5	$	418.7	$	419.4	$	470.2
Gross profit	153.2		169.3		173.3		167.5			Gross profit	159.6		119.3		156.4		181.2
Net income (loss)	42.9		43.5		47.1		(123.1		)	Net income (loss)	42.1		(9.6)		6.7		(40.9)
Net income (loss) attributable to W. R. Grace & Co. shareholders	42.9		43.9		47.4		(123.0		)	Net income (loss) attributable to W. R. Grace & Co. shareholders	42.0		(7.3)		7.0		(43.5)
Net income (loss) per share:(1)										Net income (loss) per share:(1)
Basic earnings (loss) per share:										Basic earnings (loss) per share:	$	0.63	$	(0.11)	$	0.11	$	(0.66)
Net income (loss)	$	0.63	$	0.64	$	0.70	$	(1.81	)
Diluted earnings (loss) per share:										Diluted earnings (loss) per share:	0.63		(0.11)		0.11		(0.66)
Net income (loss)	0.63		0.64		0.70		(1.81		)
Dividends declared per share	0.21		0.21		0.21		0.21			Dividends declared per share	0.30		0.30		0.30		0.30
Market price of common stock:(2)
High	$	74.63	$	72.72	$	73.77	$	77.37
Low	67.54		67.12		65.84		69.37
Close	69.71		72.01		72.15		70.13


~~(1)~~	(1)Per share results ~~for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented.~~


~~(2)~~	~~Principal market: New York Stock Exchange.~~


~~(3)~~	Fourth quarter "gross profit," "net income (loss)," and "net income (loss) attributable to W. R. Grace & Co. shareholders" include the effects of the annual pension mark-to-market adjustment, as well as adjustments related to the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017.

(In millions, except per share amounts) March 31 June 30 September 30 December 31(5)
2016
Net sales $ 362.8
$ 390.5
$ 404.5
$ 440.8
Gross profit 152.7
173.2
168.2
161.8
Net income (loss) 0.3
38.5
39.7
15.6
Net income (loss) attributable to W. R. Grace & Co. shareholders 0.5
38.7
39.6
15.3
Net income (loss) per share:(1)
Basic earnings (loss) per share:
Net income (loss) $ 0.01
$ 0.55
$ 0.56
$ 0.22
Diluted earnings (loss) per share:
Net income (loss) 0.01
0.55
0.56
0.22
Dividends declared per share —
0.17
0.17
0.17
Market price of common stock:(2)(3)
High $ 98.15
(4) $ 80.39
$ 80.56
$ 74.38
Low 63.84
70.59
71.47
63.37
Close 71.18
73.21
73.80
67.64


~~(1)~~	~~Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented.~~


~~(2)~~	~~Principal market: New York Stock Exchange.~~


~~(3)~~	~~Share prices subsequent to February 3, 2016, reflect the Separation and exclude separate trading of GCP common stock.~~


~~(4)~~	~~Price is a pre-Separation market price of common stock.~~


~~(5)~~	~~Fourth quarter "gross profit," "net income (loss)," and "net income (loss) attributable to W. R. Grace & Co. shareholders" include the effects of the annual pension mark-to-market adjustment.~~

~~Table of Contents~~

~~SELECTED FINANCIAL DATA~~

(In millions, except per share amounts) 2017 2016 2015 2014 2013
Statement of Operations
Net sales $ 1,716.5
$ 1,598.6
$ 1,628.2
$ 1,757.3
$ 1,609.5
Income (loss) from continuing operations(1)(2) 10.4
107.0
123.9
116.9
120.5
Financial Position
Total assets 2,907.0
2,911.8
3,645.7
4,057.1
5,390.1
Debt payable after one year(3) 1,523.8
1,507.6
2,111.5
1,882.5
25.1
Liabilities subject to compromise (a subset of total liabilities) —
—
—
—
3,776.1
Shareholders' equity 263.3
372.4
212.5
369.0
571.2
Data Per Common Share
Income (loss) from continuing operations - basic $ 0.16
$ 1.53
$ 1.72
$ 1.55
$ 1.58
Income (loss) from continuing operations - diluted 0.16
1.52
1.71
1.54
1.55
Cash dividends declared 0.84
0.51
—
—
—
Other Statistics
Common shareholders of record 4,646
4,895
5,142
5,839
7,077


~~(1)~~	Adjustments related to our legacy liabilities, Chapter 11, and pension mark-to-market accounting are included in and affect the period-to-period comparability of "income (loss) from continuing operations" and the related data per common share. See Note 17 to the Consolidated Financial Statements for a detail of these items.


~~(2)~~	~~For 2017, iIncome (loss) from continuing operations" includes a charge of $143.0 million related to the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017.~~


~~(3)~~	Amount for 2013 excludes amounts classified within "liabilities subject to compromise." In connection with its emergence from bankruptcy in 2014, Grace entered into a Credit Agreement. Grace also issued $1,000 million of senior unsecured notes in 2014. (See Note 5.)

~~Table of Contents~~

~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~

See "Analysis of Operations" for a discussion of our non-GAAP performance measures. Our references to "advanced economies" and "emerging regions" refer to classifications established by the International Monetary Fund.

~~Results of Operations~~

~~2017~~ ~~Performance Summary~~

~~Following is a summary of our financial performance~~ for the ~~year ended~~ ~~December 31, 2017, compared with the prior year.~~

~~Net sales increased 7.4% to $1,716.5 million.~~

~~Income~~four quarters may differ from ~~continuing operations attributable to Grace decreased to $11.2 million, due to the $143.0 million provisional charge to reflect the estimated effects of U.S. tax reform.~~

~~Diluted earnings~~full-year per share ~~from continuing operations decreased to $0.16 per diluted share.~~

~~Adjusted EPS increased 9.7% to $3.40 per diluted share.~~

~~Adjusted EBIT increased 3.4% to $414.0 million.~~

~~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 and Grace Materials Technologies. See Item 1 (Business—Business Overview) of this Report for a summary description of our core business.

~~Analysis of Operations~~

~~We have set forth in the table below our key operating statistics with percentage changes for the years ended~~ ~~December 31, 2017~~, ~~2016, and~~ ~~2015~~. Please refer to this Analysis of Operations when reviewing this Management's Discussion and Analysis of Financial Condition and Results of Operations. In the table we present financial information in accordance with U.S. GAAP, as well as the non-GAAP financial information described below. We believe that the non-GAAP financial information provides useful supplemental information about the performance of our businesses, improves period-to-period comparability and provides clarity on the information our management uses to evaluate the performance of our businesses. In the table, we have provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should not be consideredresults, as a ~~substitute~~separate computation of the weighted average number of shares outstanding is made for ~~financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully.~~each quarter presented.

~~We define Adjusted EBIT (a non-GAAP financial measure) to be~~(2)Third quarter “net income ~~from continuing operations~~(loss),” “net income (loss) attributable to W. R. Grace & Co. shareholders, adjusted for interest income and expense; income taxes; costs related to legacy product, environmental and other claims; 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; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs” and the ~~amortization of acquired inventory fair value adjustment; and certain other items that are not representative of underlying trends.~~

~~We define Adjusted EBITDA (a non-GAAP financial measure) to be Adjusted EBIT adjusted for depreciation and amortization.~~

We define Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure) to be Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities.

~~Table of Contents~~

We define Adjusted Gross Margin (a non-GAAP financial measure) to be gross margin adjusted for pension-related costs included in cost of goods sold and the amortization of acquired inventory fair value adjustment.

~~We define Adjusted Earnings Per Share (EPS) (a non-GAAP financial measure) to be diluted EPS from continuing operations adjusted for costs~~ related to legacy product, environmental and other claims; 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; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; certain other items that are not representative of underlying trends; and certain discrete tax items.

We use Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. We use Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measures the ongoing earnings results of our strategic and operating decisions by excluding the earnings effects of our legacy product, environmental, and other claims; restructuring and repositioning activities; divested businesses;per share data include the effects of ~~acquisitions; and certain other items that are not representative~~a pre-tax charge of ~~underlying trends.~~

We use Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use these measures in determining certain incentive compensation. We use Adjusted EBIT Return On Invested Capital in making operating and investment decisions and in balancing the growth and profitability of our operations.

Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS do not purport to represent income measures as defined under U.S. GAAP, and should not be used as alternatives to such measures as an indicator of our performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of our financial results, and to ensure that investors understand the information we use to evaluate the performance of our businesses. They distinguish the operating results of Grace's current business base from the costs of Grace's legacy product, environmental and other claims; restructuring and repositioning activities; divested businesses; and certain other items. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directly comparable measures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated in accordance with U.S. GAAP.

Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to legacy product, environmental and other claims, and may exclude income and expenses from restructuring and repositioning activities and divested businesses, which historically have been material components of our net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. Our business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of our costs. We compensate for the limitations of these measurements by using these indicators together with net income as measured under U.S. GAAP to present a complete analysis of our results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income attributable to Grace shareholders, measured under U.S. GAAP, for a complete understanding of our results of operations.

~~Table of Contents~~

Analysis of Operations
(In millions, except per share amounts)
2017 2016 % Change 2015 % Change
Net sales:
Catalysts Technologies $ 1,276.5
$ 1,163.7
9.7 % $ 1,162.1
0.1 %
Materials Technologies 440.0
434.9
1.2 % 466.1
(6.7 )%
Total Grace net sales $ 1,716.5
$ 1,598.6
7.4 % $ 1,628.2
(1.8 )%
Net sales by region:
North America $ 486.0
$ 490.7
(1.0 )% $ 490.0
0.1 %
Europe Middle East Africa 667.7
647.8
3.1 % 621.2
4.3 %
Asia Pacific 459.8
348.9
31.8 % 390.9
(10.7 )%
Latin America 103.0
111.2
(7.4 )% 126.1
(11.8 )%
Total net sales by region $ 1,716.5
$ 1,598.6
7.4 % $ 1,628.2
(1.8 )%
Performance measures:
Adjusted EBIT(A):
Catalysts Technologies segment operating income $ 395.4
$ 367.8
7.5 % $ 347.3
5.9 %
Materials Technologies segment operating income 100.6
104.0
(3.3 )% 96.9
7.3 %
Corporate costs (69.0 ) (59.4 ) (16.2 )% (79.9 ) 25.7 %
Gain on termination and curtailment of postretirement plans related to current businesses —
0.2
NM
1.9
NM
Certain pension costs(B) (13.0 ) (12.3 ) (5.7 )% (20.4 ) 39.7 %
Adjusted EBIT 414.0
400.3
3.4 % 345.8
15.8 %
Pension MTM adjustment and other related costs, net (51.1 ) (60.3 ) (30.5 )
Costs related to legacy product, environmental and other claims, net (30.8 ) (35.4 ) (6.1 )
Restructuring and repositioning expenses (26.7 ) (38.6 ) (20.4 )
Accounts receivable reserve—Venezuela (10.0 ) —
—

Third-party acquisition-related costs (2.9 ) (2.5 ) —

Income and expense items related to divested businesses (2.3 ) 0.1
1.5

Loss on early extinguishment of debt —
(11.1 ) —

Amortization of acquired inventory fair value adjustment —
(8.0 ) —

Gain (loss) on sale of product line —
1.7
—

Gain on termination and curtailment of postretirement plans related to divested businesses —
0.3
2.6

Interest expense, net (78.5 ) (80.5 ) 2.5 % (99.1 ) 18.8 %
(Provision for) benefit from income taxes (200.5 ) (59.0 ) NM
(69.8 ) 15.5 %
Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders $ 11.2
$ 107.0
(89.5 )% $ 124.0
(13.7 )%
Diluted EPS from continuing operations $ 0.16
$ 1.52
(89.5 )% $ 1.71
(11.1 )%
Adjusted EPS $ 3.40
$ 3.10
9.7 % $ 2.18
42.2 %

~~Table of Contents~~

Analysis of Operations
(In millions)
2017 2016 % Change 2015 % Change
Adjusted performance measures:
Gross Margin:
Catalysts Technologies 40.8 % 44.4 % (3.6) pts
42.2 % 2.2 pts
Materials Technologies 37.9 % 39.6 % (1.7) pts
38.8 % 0.8 pts
Adjusted Gross Margin 40.1 % 43.1 % (3.0) pts
41.2 % 1.9 pts
Amortization of acquired inventory fair value adjustment — % (0.5 )% NM
— % NM
Pension costs in cost of goods sold (1.5 )% (1.6 )% 0.1 pts
(1.2 )% (0.4) pts
Total Grace 38.6 % 41.0 % (2.4) pts
40.0 % 1.0 pts
Adjusted EBIT:
Catalysts Technologies $ 395.4
$ 367.8
7.5 % $ 347.3
5.9 %
Materials Technologies 100.6
104.0
(3.3 )% 96.9
7.3 %
Corporate, pension, and other (82.0 ) (71.5 ) (14.7 )% (98.4 ) 27.3 %
Total Grace 414.0
400.3
3.4 % 345.8
15.8 %
Depreciation and amortization:
Catalysts Technologies $ 87.1
$ 77.4
12.5 % $ 68.1
13.7 %
Materials Technologies 19.6
19.5
0.5 % 23.2
(15.9 )%
Corporate 4.8
3.4
41.2 % 7.9
(57.0 )%
Total Grace 111.5
100.3
11.2 % 99.2
1.1 %
Adjusted EBITDA:
Catalysts Technologies $ 482.5
$ 445.2
8.4 % $ 415.4
7.2 %
Materials Technologies 120.2
123.5
(2.7 )% 120.1
2.8 %
Corporate, pension, and other (77.2 ) (68.1 ) (13.4 )% (90.5 ) 24.8 %
Total Grace 525.5
500.6
5.0 % 445.0
12.5 %
Adjusted EBIT margin:
Catalysts Technologies 31.0 % 31.6 % (0.6) pts
29.9 % 1.7 pts
Materials Technologies 22.9 % 23.9 % (1.0) pts
20.8 % 3.1 pts
Total Grace 24.1 % 25.0 % (0.9) pts
21.2 % 3.8 pts
Adjusted EBITDA margin:
Catalysts Technologies 37.8 % 38.3 % (0.5) pts
35.7 % 2.6 pts
Materials Technologies 27.3 % 28.4 % (1.1) pts
25.8 % 2.6 pts
Total Grace 30.6 % 31.3 % (0.7) pts
27.3 % 4.0 pts

~~Table of Contents~~

Analysis of Operations
(In millions)
2017 2016 2015
Calculation of Adjusted EBIT Return On Invested Capital (trailing four quarters):
Adjusted EBIT $ 414.0
$ 400.3
$ 345.8
Invested Capital:
Trade accounts receivable 285.2
273.9
254.5
Inventories 230.9
228.0
198.8
Accounts payable (210.3 ) (195.4 ) (157.8 )
305.8
306.5
295.5
Other current assets (excluding income taxes) 42.1
32.0
43.2
Properties and equipment, net 799.1
729.6
621.7
Goodwill 402.4
394.2
336.5
Technology and other intangible assets, net 255.4
269.1
227.5
Investment in unconsolidated affiliate 125.9
117.6
103.2
Other assets (excluding capitalized financing fees) 37.4
34.9
31.8
Other current liabilities (excluding income taxes, legacy environmental matters, accrued interest, and restructuring) (158.6 ) (144.4 ) (158.5 )
Other liabilities (excluding income taxes and legacy environmental matters) (113.7 ) (89.3 ) (81.4 )
Total invested capital $ 1,695.8
$ 1,650.2
$ 1,419.5
Adjusted EBIT Return On Invested Capital 24.4 % 24.3 % 24.4 %

~~Amounts may not add due to rounding.~~


~~(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 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.

~~NM—Not Meaningful~~

~~Table of Contents~~

~~Grace Overview~~

~~Following is an overview of our financial performance for the years ended December 31, 2017, 2016, and 2015.~~

~~Net Sales and Gross Margin~~

~~Sales were~~ ~~$1,716.5 million~~, ~~$1,598.6 million, and~~ ~~$1,628.2 million~~ ~~for the years ended~~ ~~December 31, 2017, 2016, and 2015.~~ ~~Gross margin was38.6%, 41.0%, and 40.0% for the years ended~~ ~~December 31, 2017, 2016, and 2015.~~ ~~Adjusted Gross Margin was40.1%, 43.1%, and 41.2% for the years ended~~ ~~December 31, 2017, 2016, and 2015.~~

~~The following tables identify the year-over-year increase or decrease in sales attributable to changes in sales volume and/or mix, product price, and the impact of currency translation.~~

2017 as a Percentage Increase (Decrease) from 2016
Net Sales Variance Analysis Volume Price
Currency
Translation
Total
Catalysts Technologies 9.7 % (0.3 )% 0.3 % 9.7 %
Materials Technologies 0.3 % (0.2 )% 1.1 % 1.2 %
Net sales 7.2 % (0.3 )% 0.5 % 7.4 %
By Region:
North America (0.5 )% (0.5 )% — % (1.0 )%
Europe Middle East Africa 2.6 % (0.6 )% 1.1 % 3.1 %
Asia Pacific 31.3 % 0.6 % (0.1 )% 31.8 %
Latin America (7.9 )% (0.2 )% 0.7 % (7.4 )%

Sales for 2017 increased 7.4% overall compared with the prior year. Catalysts sales volumes increased primarily due to higher demand in Asia and the full-year benefit of the 2016 polyolefin catalysts acquisition, partially offset by lower demand in Latin America. Lower pricing in Catalysts Technologies was primarily due to customer mix. Sales in Materials Technologies increased, primarily driven by higher sales volumes and favorable currency translation. Higher sales volumes in the silicas business, primarily in Asia, were partially offset by the impact related to the exit of certain products lines in the 2016 first half and lower pharmaceutical fine chemicals sales in North America.

Gross margin decreased 240 basis points to 38.6% from 41.0% for the prior year. Adjusted Gross Margin decreased 300 basis points to 40.1% from 43.1% for the prior year. The decreases were primarily due to higher manufacturing costs, including 110 basis points related to higher raw materials costs, and product and regional mix.

~~Table of Contents~~

2016 as a Percentage Increase (Decrease) from 2015
Net Sales Variance Analysis Volume Price
Currency
Translation
Total
Catalysts Technologies 1.6 % (1.2 )% (0.3 )% 0.1 %
Materials Technologies (5.6 )% 0.1 % (1.2 )% (6.7 )%
Net sales (0.5 )% (0.8 )% (0.5 )% (1.8 )%
By Region:
North America 2.5 % (2.4 )% — % 0.1 %
Europe Middle East Africa 4.9 % 0.2 % (0.8 )% 4.3 %
Asia Pacific (9.4 )% (1.1 )% (0.2 )% (10.7 )%
Latin America (10.6 )% 1.4 % (2.6 )% (11.8 )%

Sales for 2016 decreased 1.8% overall compared with the prior year. Weaker demand in Asia Pacific unfavorably impacted sales volumes for both businesses compared with the prior-year period. In addition, Catalysts Technologies sales volumes benefited from the polyolefin catalysts acquisition, and Materials Technologies sales volumes decreased due to the exit of certain product lines earlier in the year. Lower sales volumes in Latin America were primarily due to order timing in Catalysts Technologies during the fourth quarter. Currency translation negatively impacted both reportable segments.

Gross margin increased 100 basis points to 41.0% from 40.0% for the prior year. Adjusted Gross Margin increased 190 basis points to 43.1% from 41.2% for the prior year. The increases were primarily due to lower manufacturing costs, including 200 basis points related to lower raw materials costs, and improved productivity.

~~Grace Income From Continuing Operations~~

~~Income from continuing operations was $11.2~~$27.0 million for ~~2017 compared with $107.0~~estimated costs to construct a new dam spillway at the former vermiculite mine site in Libby, Montana, as well as a $39.4 million for the prior year. The decrease was primarily due to a higher provision for income taxes due to a $143.0 million provisional charge for the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017 (see Note 7 to the Consolidated Financial Statements) and an accounts receivable reserve for a customer in Venezuela, partially offset by higher segment operating income, lower restructuring and repositioning expenses, and a lower pension mark-to-market adjustment.

Income from continuing operations was $107.0 million for 2016, a decrease of 13.7% compared with $124.0 million for the prior year. The decrease was primarily due to a higher pension mark-to-market adjustment, a higher provision for environmental remediation primarily related to vermiculite-related matters, higher restructuring and repositioning expenses, and a loss on early extinguishment of ~~debt due~~debt.

(3)Fourth quarter “net income (loss),” “net income (loss) attributable to W. R. Grace & Co. shareholders,” and the ~~accelerated amortization~~related earnings per share data include the effects of ~~capitalized financing costs associated with~~ the pay down of $600 million of debt in the 2016 first quarter, partially offset by lower corporate costs, higher segment operating income, and lower net interest expenses resulting from the pay-down of debt. Income in the prior year included a $9.0 million gain reflecting the final resolution of certain bankruptcy liabilities,annual pension mark-to-market adjustment, as well as charges related to legacy items (see Note 10).


(In millions, except per share amounts)	March 31(2)		June 30		September 30		December 31(3)
2019
Net sales	$	469.5	$	513.6	$	470.5	$	504.5
Gross profit	188.6		209.4		191.0		204.7
Net income (loss)	24.6		76.4		53.8		(28.1)
Net income (loss) attributable to W. R. Grace & Co. shareholders	24.7		76.2		53.7		(28.3)
Net income (loss) per share:(1)
Basic earnings (loss) per share:	$	0.37	$	1.14	$	0.81	$	(0.42)
Diluted earnings (loss) per share:	0.37		1.14		0.80		(0.42)
Dividends declared per share	0.27		0.27		0.27		0.27

(1)Per share results for the four quarters may differ from full-year per share results, as a ~~gain on~~separate computation of the ~~sale~~weighted average number of ~~an operating asset.~~shares outstanding is made for each quarter presented.

~~We are currently~~(2)First quarter “net income (loss),” “net income (loss) attributable to W. R. Grace & Co. shareholders,” and the related earnings per share data include the effects of a pre-tax charge of $45.0 million for estimated costs to construct a new dam spillway at the former vermiculite mine site in Libby, Montana.

(3)Fourth quarter “net income (loss),” “net income (loss) attributable to W. R. Grace & Co. shareholders,” and the ~~process~~related earnings per share data include the effects of ~~conducting a depreciation study to review~~ the ~~useful lives of machinery and equipment, including an evaluation of historical retirement data~~annual pension mark-to-market adjustment, as well as ~~industry review and analysis. This~~

~~Table of Contents~~

evaluation will be completed by the end of the 2018 first quarter. We expect this review to result in increased useful lives (and lower depreciation expense) and will apply the change to new and existing assets on a prospective basis as a change in accounting estimate effective January 1, 2018.

~~Adjusted EBIT~~

Adjusted EBIT was $414.0 million for 2017, an increase of 3.4% compared with the prior year primarily due to higher sales volumes and business interruption insurance recoveries for lost profits as a result of a customer outage. The increase was partially offset by higher manufacturing costs, unfavorable product and regional mix, and higher operating expenses.

Adjusted EBIT was $400.3 million for 2016, an increase of 15.8% compared with the prior year primarily due to higher Adjusted Gross Margin, lower operating expenses including lower corporate costs, and increased income from our ART joint venture, partially offset by the effect of lower sales volumes, lower pricing and unfavorable currency translation. The prior year, prepared on a discontinued operations basis, includes certain costs which were either assumed by GCP at the time of the Separation or eliminated through restructuring or other cost reduction actions.

~~Adjusted EPS~~

~~The following table reconciles our Diluted EPS (GAAP) to our Adjusted EPS (non-GAAP):~~

2017
(In millions, except per share amounts) Pre-Tax Tax Effect After-Tax Per Share
Diluted Earnings Per Share (GAAP) $ 0.16
Pension MTM adjustment and other related costs, net $ 51.1
$ 17.4
$ 33.7
0.49
Costs related to legacy product, environmental and other claims, net 30.8
11.4
19.4
0.28
Restructuring and repositioning expenses 26.7
8.9
17.8
0.26
Accounts receivable reserve—Venezuela 10.0
3.5
6.5
0.10
Third-party acquisition-related costs 2.9
1.1
1.8
0.03
Income and expense items related to divested businesses 2.3
0.8
1.5
0.02
Discrete tax items:
Provisional charge related to the U.S. Tax Cuts and Jobs Act of 2017 (143.0 ) 143.0
2.10
Discrete tax items, including adjustments to uncertain tax positions 2.7
(2.7 ) (0.04 )
Adjusted EPS (non-GAAP) $ 3.40

~~Table of Contents~~

2016
(In millions, except per share amounts) Pre-Tax Tax Effect After-Tax Per Share
Diluted Earnings Per Share (GAAP) $ 1.52
Pension MTM adjustment and other related costs, net $ 60.3
$ 19.8
$ 40.5
0.57
Restructuring and repositioning expenses 38.6
11.6
27.0
0.38
Costs related to legacy product, environmental and other claims, net 35.4
13.2
22.2
0.31
Amortization of acquired inventory fair value adjustment 8.0
3.0
5.0
0.07
Third-party acquisition-related costs 2.5
0.7
1.8
0.03
(Gain) loss on sale of product line (1.7 ) (0.6 ) (1.1 ) (0.02 )
Gain on termination and curtailment of postretirement plans related to divested businesses (0.3 ) (0.1 ) (0.2 ) —
Income and expense items related to divested businesses (0.1 ) —
(0.1 ) —
Loss on early extinguishment of debt 11.1
4.1
7.0
0.10
Discrete tax items:
Discrete tax items, including adjustments to uncertain tax positions (9.8 ) 9.8
0.14
Adjusted EPS (non-GAAP) $ 3.10

2015
(In millions, except per share amounts) Pre-Tax Tax Effect After-Tax Per Share
Diluted Earnings Per Share (GAAP) $ 1.71
Pension MTM adjustment and other related costs, net $ 30.5
$ 12.1
$ 18.4
0.25
Restructuring and repositioning expenses 20.4
7.2
13.2
0.18
Costs related to legacy product, environmental and other claims, net 6.1
2.2
3.9
0.05
Gain on termination and curtailment of postretirement plans related to divested businesses (2.6 ) (1.0 ) (1.6 ) (0.02 )
Income and expense items related to divested businesses (1.5 ) (0.6 ) (0.9 ) (0.01 )
Discrete tax items:
Discrete tax items, including adjustments to uncertain tax positions (1.3 ) 1.3
0.02
Adjusted EPS (non-GAAP) $ 2.18

~~Adjusted EBIT Return On Invested Capital~~

Adjusted EBIT Return On Invested Capital for 2017 was 24.4% on a trailing four quarters basis, essentially flat compared with 2016 and 2015 on the same basis. We manage our operations with the objective of maximizing sales, earnings and cash flow over time. Doing so requires that we successfully balance our growth, profitability and working capital and other investments to support sustainable, long-term financial performance. We use Adjusted EBIT Return On Invested Capital as a performance measure in evaluating operating results, in making operating and investment decisions and in balancing the growth and profitability of our operations.

~~Table of Contents~~

~~Segment Overview—Grace Catalysts Technologies~~

~~Following is an overview of the financial performance of Catalysts Technologies for the years ended~~ ~~December 31, 2017~~, ~~2016, and~~ ~~2015~~.

~~Net Sales—Grace Catalysts Technologies~~

Sales were $1,276.5 million for 2017, an increase of 9.7% compared with the prior year. The increase was due to higher sales volumes (+9.7%) and favorable currency translation (+0.3%), partially offset by lower pricing (-0.3%). Higher sales volumes were driven by higher demand, primarily in Asia, and the full-year benefit of the 2016 polyolefin catalysts acquisition. Specialty Catalysts sales volumes increased due to the acquisition and organic growth in the existing businesses driven by higher demand in all markets. Refining Catalysts sales volumes increased primarily in Asia, due to demand for new products, bid business, and new customer acquisition. Sales volumes in Latin America decreased primarily due to a delay in contract renewals in the region and lower sales into Venezuela. Lower pricing was primarily due to customer mix. Favorable currency translation affected both product groups as the U.S. dollar weakened against multiple currencies, especially the euro, compared with the prior year.

~~Sales were~~ ~~$1,163.7 million~~ ~~for~~ ~~2016~~, an increase of 0.1% compared with the prior year. The increase was due to higher sales volumes (+1.6%), partially offset by lower pricing (-1.2%) and unfavorable currency translation (-0.3%). Specialty Catalysts sales volumes increased in all regions except Latin America, with the majority of the increase coming from Europe. Sales volumes were higher in Asia despite declines in China as customers reduced inventories to align with lower projected growth rates and decreased demand for chemical catalysts. The higher Specialty Catalyst sales volumes reflected a favorable impact related to the polyolefin catalysts acquisition. In January 2016, we reduced our least efficient production capacity by 10,000 tons at our Curtis Bay plant, which contributed to a decline in Refining Catalysts sales volumes. Reductions in customer trials and higher refinery turnarounds also impacted sales volumes of Refining Catalysts. Unfavorable currency translation primarily affected Refining Catalysts.

~~Table of Contents~~

~~Segment Operating Income (SOI) and Margin—Grace Catalysts Technologies~~

Gross profit was $521.2 million for 2017, an increase of 0.9% compared with the prior year. Gross margin was 40.8% compared with 44.4% for the prior year. The decrease in gross margin was primarily due to higher manufacturing costs, including 130 basis points related to higher raw materials costs, and product and regional mix, including the full-year effect of the 2016 polyolefin catalysts acquisition.

Segment operating income was $395.4 million for 2017, an increase of 7.5% compared with the prior year, primarily due to higher sales volumes and business interruption insurance recoveries, partially offset by higher manufacturing costs and product and regional mix. The ART joint venture contributed $25.9 million to operating income, a decrease of $3.9 million from the prior-year period, primarily due to a change in costs included in the service level agreements with ART. Segment operating margin for 2017 decreased to 31.0%, a decline of 60 basis points compared with the prior year.

In January 2017, a Catalysts Technologies customer experienced an explosion and fire resulting in an extended outage. We recognized a benefit of and received $25.0 million in payments from our third-party insurer during 2017, under our business interruption insurance policy for a portion of profits lost as a result of the outage. The policy had a $25.0 million limit for this event.

In the 2017 third quarter, we recorded a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions. This charge has been excluded from Adjusted EBIT due to the nature of the situation.

Gross profit was $516.8 million for 2016, an increase of 5.4% compared with the prior year. Gross margin was 44.4% compared with 42.2% for the prior year. Gross margin increased as lower manufacturing costs, including 250 basis points related to lower raw materials costs, and improved productivity more than offset the effect of the polyolefin catalysts acquisition.

Segment operating income was $367.8 million for 2016, an increase of 5.9% compared with the prior year, primarily due to improved gross margins, higher ART income, and the polyolefin catalysts acquisition, partially offset by higher operating expenses. The ART joint venture contributed $29.8 million to operating income, an increase of $9.4 million from the prior-year period. Segment operating margin for 2016 increased to 31.6%, an improvement of 170 basis points compared with the prior year.

~~Table of Contents~~

~~Segment Overview—Grace Materials Technologies~~

~~Following is an overview of the financial performance of Materials Technologies for the years ended~~ ~~December 31, 2017~~, ~~2016, and~~ ~~2015~~.

~~Net Sales—Grace Materials Technologies~~

~~Sales were~~ ~~$440.0 million~~ ~~for~~ ~~2017, an increase of~~ ~~1.2%~~ ~~compared with the prior year. The increase was due to favorable currency translation (+1.1%) and higher sales volumes (+0.3%), partially offset by lower pricing (-0.2%~~). Higher sales volumes in the silicas business, primarily in Asia, were partially offset by the impact related to the exit of certain products lines in the 2016 first half and lower pharmaceutical fine chemicals sales in North America. Favorable currency translation was due to the U.S. dollar weakening against multiple currencies, especially the euro, compared with the prior year.

Sales were $434.9 million for 2016, a decrease of 6.7% compared with the prior year. The decrease was due to lower sales volumes (-5.6%) and unfavorable currency translation (-1.2%), partially offset by improved pricing (+0.1%). Sales volumes declined in all regions, including a 4.8% impact related to the exit of certain product lines. Lower sales volumes in North America were also impacted by lower demand compared with the prior year, and Asia sales volumes declined as customers reduced inventory levels in the 2016 first quarter.

~~Segment Operating Income (SOI) and Margin—Grace Materials Technologies~~

Gross profit was $166.9 million for 2017, a decrease of 3.2% compared with the prior year, primarily due to product lines exited and higher manufacturing costs. Gross margin was 37.9% compared with 39.6% for the prior

~~Table of Contents~~

~~year. The decrease in gross margin was primarily due to higher manufacturing costs, including 60 basis points related to higher raw materials costs.~~

~~Segment operating income was~~ ~~$100.6 million~~ ~~for~~ ~~2017, a decrease of~~ ~~3.3%~~ compared with the prior year, primarily due to higher manufacturing costs and higher operating expenses, partially offset by higher sales volumes and favorable currency translation. Segment operating margin for ~~2017~~ ~~decreased to~~ ~~22.9%, a decline of 100 basis points compared with the prior year.~~

Gross profit was $172.4 million for 2016, a decrease of 4.7% compared with the prior year, primarily due to the exited product lines. Gross margin was 39.6% compared with 38.8% for the prior year. The increase in gross margin was primarily due to lower manufacturing costs including improved productivity, and improved pricing.

Segment operating income was $104.0 million for 2016, an increase of 7.3% compared with the prior year, primarily due to lower operating expenses, partially offset by lower gross profit related to the exited product lines. Segment operating margin for 2016 increased to 23.9%, an improvement of 310 basis points compared with the prior year, primarily due to lower operating expenses and the effect of exiting lower margin product lines.

~~Corporate Overview~~

~~Corporate costs include corporate functional costs and other corporate costs such as professional fees and insurance premiums. Corporate costs for~~ ~~2017~~ ~~increased 16.2% compared with the prior year, primarily due to a favorable settlement of a claim in 2016 and higher incentive compensation in 2017.~~

~~Corporate costs for~~ ~~2016~~ decreased 25.7% compared with the prior year. Certain costs included in the prior years were either assumed by GCP at the time of the Separation or were eliminated through restructuring or other cost reduction actions.

~~Restructuring and Repositioning Expenses~~

During 2017, we incurred $11.5 million of restructuring expenses primarily related to workforce reduction programs in Manufacturing, Supply Chain, Finance and IT, compared with $24.3 million in 2016 that was related to workforce reductions and the exit of certain non-strategic product lines in Materials Technologies. Restructuring costs of $11.3 million in 2015 were in part due to the Separation.

We incurred $15.2 million of repositioning expenses in 2017 primarily for third-party costs related to business and functional productivity and transformation projects, as well as costs related to the Separation. We incurred $14.3 million and $9.1 million of repositioning costs, primarily related to the Separation, in 2016 and 2015, respectively.

In 2017, we initiated a multi-year program to transform our manufacturing and business processes to extend our competitive advantages and improve our cost position. We expect to significantly improve our manufacturing performance, reduce our manufacturing costs, and improve our demand and supply planning capabilities. We also expect to invest significant capital in our manufacturing plants to accelerate growth and improve performance.

~~Table of Contents~~

~~Defined Benefit Pension Expense~~

Defined benefit pension expense includes costs under U.S. and non-U.S. defined benefit pension plans that provide benefits to business segment and corporate employees, as well as retirees and former employees of divested businesses where we retained these obligations.

Under mark-to-market accounting, our pension costs consist of two elements: 1) "certain pension costs"—ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2) "pension mark-to-market adjustment and other related costs, net"—mark-to-market gains and losses recognized annually in the fourth quarter, or at an interim period should a significant event occur, resulting from changes in actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan assets.

Certain pension costs were $13.0 million, $12.3 million and $20.4 million for 2017, 2016 and 2015, respectively. As of December 31, 2015, we changed the approach used to determine the service and interest cost components of defined benefit pension expense. Previously, we estimated service and interest costs using a single weighted average discount rate derived from the same yield curve used to measure the projected benefit obligation. For 2016 and 2017, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.

Pension mark-to-market adjustment and other related costs, net were $51.1 million, $60.3 million and $30.5 million for 2017, 2016 and 2015, respectively. These costs are reported in "cost of goods sold" and in "selling, general and administrative expenses” in our Consolidated Financial Statements based upon the functions of the employees to which the pension costs relate. The 2017 mark-to-market pension expense of $51.1 million was primarily due to the decrease in discount rates used to value the projected benefit obligations of our plans from year-end 2016 to year-end 2017, partially offset by higher than expected return on assets in the U.S. The 2016 mark-to-market pension expense of $60.3 million was primarily due to the decrease in discount rates used to value the projected benefit obligations of our plans from year-end 2015 to year-end 2016, partially offset by higher than expected return on assets in the U.S. The 2015 mark-to-market pension expense of $30.5 million was primarily due to lower than expected return on assets in the U.S., partially offset by the increase in discount rates from year-end 2014 to year-end 2015.

~~Interest and Financing Expenses~~

Net interest and financing expenses were $78.5 million for 2017, a decrease of 2.5% compared with 2016, primarily due to voluntary prepayments of our term loans in February and March 2016, partially offset by higher interest expense due to borrowings on our floating rate term loans and revolving credit facility. Interest and financing expenses were $80.5 million for 2016, a decrease of 18.8% compared with 2015, primarily due to the 2016 prepayments on our term loans.

~~Income Taxes~~

Income tax expense (benefit) for 2017, 2016 and 2015 was $200.5 million, $59.0 million and $69.8 million, respectively, on income from continuing operations before income taxes of $210.9 million, $166.0 million and $193.7 million in 2017, 2016 and 2015, respectively.

~~Our 2017 effective tax rate includes $143.0 million in~~ charges related to ~~U.S. Tax Cuts and Jobs Act of 2017 (the "Act")~~legacy items (see Note 10). ~~The effective tax rate without the impact of the Act was 27.3%, lower than the 35% U.S. statutory rate, primarily due to geographic mix of income and the R&D credit.~~

Our 2016 effective tax rate of was 35.5% was slightly higher than the 35% U.S. statutory rate. The benefit from the geographic mix of income and stock compensation windfall was nearly fully offset by state income taxes and other permanent items.

~~Our 2015 effective tax rate was 36% was slightly higher than the 35% U.S. statutory rate.~~

~~See Note 7 to the Consolidated Financial Statements for additional information regarding income taxes.~~

~~Table of Contents~~

~~Financial Condition, Liquidity, and Capital Resources~~

~~Following is an analysis of our financial condition, liquidity and capital resources at~~ ~~December 31, 2017~~.

Our principal uses of cash are generally capital investments and acquisitions; working capital investments; compensation paid to employees, including contributions to our defined benefit pension plans and defined contribution plans; the repayment of debt and interest payments thereon; and the return of cash to shareholders through repurchase of shares and dividends.22. Subsequent Event

On February 5, 2015, we announced that the Board of Directors had authorized a share repurchase program of up to $500 million, which we completed on July 10, 2017. On February 8, 2017, we announced that the Board of Directors had authorized a new share repurchase program of up to $250 million. Under these programs, during 2017 we repurchased 935,435 shares of Company common stock for $65.0 million. As of December 31, 2017, $218.9 million remained under this authorization.

In the 2016 second quarter, we began to pay a quarterly cash dividend, at an annual rate of $0.68 per share of Company common stock. On February 8, 2017, we announced that the Board of Directors had approved an increase in the annual dividend rate, to $0.84 per share of Company common stock. On February 8, 2018, we announced that the Board of Directors had approved another increase in the annual dividend rate, to $0.96 per share of Company common stock. We paid cash dividends of $57.3 million during 2017.

We believe that the cash we expect to generate during 2018 and thereafter, together with other available liquidity and capital resources, are sufficient to finance our operations, growth strategy, share repurchase program and expected dividend payments, and meet our debt and pension obligations.

~~On December 14, 2017, we signed~~25, 2021, Grace entered into a definitive agreement to acquire the ~~polyolefin catalysts~~Fine Chemistry Services business of Albemarle Corporation (“Albemarle”) for ~~$416~~approximately $570 million, ~~which we expect~~including $300 million to ~~finance with~~be paid in cash at closing and $270 million to be funded through the issuance to Albemarle of non-participating preferred equity of a newly created wholly owned Grace subsidiary. The cash portion of the transaction is expected to be funded through a combination of debt and ~~cash. We expect~~cash on hand. This acquisition would strengthen and expand Grace’s existing pharma portfolio, within the Materials Technologies segment. The transaction ~~to close in the 2018 first quarter,~~is subject to ~~regulatory approvals and other~~ customary closing ~~conditions.~~

~~Cash Resources and Available Credit Facilities~~

At ~~December 31, 2017, we had available liquidity~~conditions, including receipt of ~~$445.0 million, consisting of~~ ~~$152.8 million~~ ~~in cash and cash equivalents ($64.0 million in the U.S.), $262.8 million available under our revolving credit facility, and~~ ~~$29.4 million~~ ~~of available liquidity under various non-U.S. credit facilities. The $300 million revolving credit facility includes a $150 million sublimit for letters of credit.~~

Our non-U.S. credit facilities are extended to various subsidiaries that use them primarily to issue bank guarantees supporting trade activity and to provide working capital during occasional cash shortfalls. We generally renew these credit facilities as they expire. In December 2017, we repaid and terminated the credit facility we had maintained in Germany.

~~The following table summarizes our non-U.S. credit facilities as of~~ ~~December 31, 2017~~:certain regulatory approvals.

114

(In millions)
Maximum
Borrowing
Amount

Available
Liquidity
Expiration Date
China $ 23.1
$ 12.2
Various through 2020
Other countries 28.4
17.2
Various through 2020
Total $ 51.5
$ 29.4

Table of Contents

~~Analysis of Cash Flows~~

~~The following table summarizes our cash flows for the years ended~~ ~~December 31, 2017~~, ~~2016, and~~ ~~2015~~:

Year Ended December 31,
(In millions) 2017 2016 2015
Net cash provided by (used for) operating activities from continuing operations $ 319.2
$ 267.5
$ (189.8 )
Net cash provided by (used for) investing activities from continuing operations (129.9 ) (345.0 ) (112.0 )
Net cash provided by (used for) financing activities from continuing operations (134.8 ) (60.2 ) (40.5 )
Effect of currency exchange rate changes on cash and cash equivalents 7.7
(3.0 ) (1.7 )
Increase (decrease) in cash and cash equivalents from continuing operations 62.2
(140.7 ) (344.0 )
Increase (decrease) in cash and cash equivalents from discontinued operations —
44.8
116.4
Net increase (decrease) in cash and cash equivalents 62.2
(95.9 ) (227.6 )
Less: cash and cash equivalents of discontinued operations —
(143.4 ) —
Cash and cash equivalents, beginning of period 90.6
329.9
557.5
Cash and cash equivalents, end of period $ 152.8
$ 90.6
$ 329.9

~~Net cash provided by operating activities in~~ ~~2017~~ ~~was~~ ~~$319.2 million~~ ~~compared with~~ ~~$267.5 million~~ in the prior year. The year-over-year change in cash flow was primarily due to higher income from continuing operations before income taxes and lower net cash paid for income taxes, partially offset by a 2017 payment of $30 million to satisfy a deferred payment obligation to the asbestos property damage trust required under the joint plan of reorganization.

Net cash provided by operating activities in 2016 was $267.5 million compared with net cash used for operating activities of $189.8 million in the prior year. The year-over-year change in cash flow was primarily due to the 2015 first quarter payment of $490 million to repurchase a warrant issued to the asbestos personal injury trust at emergence, partially offset by higher net cash paid for income taxes in 2016.

Net cash used for investing activities in 2017 was $129.9 million compared with $345.0 million in the prior year. Net cash used for investing activities primarily includes the net cash paid for capital expenditures, businesses acquired, and transfers in/out of restricted cash. Our capital expenditures include investments in new capacity, improved productivity, information technology, and maintenance of our manufacturing and office facilities. We expect to fund our capital expenditures from net cash provided by operating activities. Net cash used for investing activities in 2016 was ~~$345.0 million~~ ~~compared with $112.0 million in the prior year.~~

~~In 2016, we completed the polyolefin catalysts acquisition for $246.5 million in cash, which was partially offset by $11.3 million in proceeds from the sale of assets.~~

~~Net cash used for financing activities in~~ ~~2017~~ ~~was~~ ~~$134.8 million~~ compared with $60.2 million in the prior year. In 2016, we received a $750 million distribution of cash from GCP, of which we used $600 million to pay down our euro and U.S. dollar term loans in the first quarter. Cash paid for repurchases of common stock in 2017 was $65.0 million compared with $195.1 million in 2016. In 2017, we also paid cash dividends of $57.3 million, compared with $36.0 million in the prior year.

Net cash used for financing activities in 2016 was $60.2 million compared with net cash provided by financing activities of $40.5 million in the prior year. The change in cash provided by financing activities is primarily due to the $750 million distribution from GCP received in 2016 and lower 2016 payments to repurchase common stock, partially offset by the prepayment of debt and cash dividends paid in 2016.

Included in net cash provided by (used for) operating activities from continuing operations are legacy product, environmental and other claims paid of $54.5 million, $24.6 million and $507.4 million; restructuring expenses paid of $13.8 million, $16.0 million, and $5.6 million; and repositioning expenses paid of $11.0 million, $35.5 million and $38.6 million for 2017, 2016 and 2015, respectively; cash paid for third-party acquisition-related costs of $0.7 million and $2.3 million for 2017 and 2016, respectively; and cash paid for taxes related to repositioning of $5.0 million and $6.1 million for 2016 and 2015, respectively. Included in capital expenditures are $2.0 million and $7.5 million related to repositioning for 2016 and 2015, respectively. These cash flows totaled

~~Table of Contents~~

~~$80.0 million~~, ~~$85.4 million~~ ~~and~~ ~~$565.2 million~~ ~~for~~ ~~2017~~, ~~2016~~ ~~and~~ ~~2015, respectively. We do not include these cash flows when evaluating the performance of our businesses.~~

~~Debt and Other Contractual Obligations~~

~~Total debt outstanding at~~ ~~December 31, 2017, was $1,543.9 million. Set forth below are our contractual obligations as of~~ ~~December 31, 2017~~:

Payments Due by Period
(In millions) Total
Less than
1 Year

2-3
Years

4-5
Years
More Than 5 Years
Debt $ 1,543.9
$ 20.1
$ 16.1
$ 1,203.2
$ 304.5
Expected interest payments on debt(1) 320.3
70.5
141.2
74.6
34.0
Operating lease obligations 68.3
10.4
12.8
5.8
39.3
Operating commitments(2) 127.4
110.4
17.0
—
—
Pension funding requirements per ERISA(3) 17.4
—
7.4
10.0
—
Pension funding requirements for non-U.S. pension plans(4) 46.1
9.0
18.0
19.1
—
Total Contractual Obligations $ 2,123.4
$ 220.4
$ 212.5
$ 1,312.7
$ 377.8


~~(1)~~	~~Amounts are based on current interest rates as of December 31, 2017, for principal debt outstanding as of December 31, 2017.~~


~~(2)~~	~~Amounts do not include open purchase commitments, which are routine in nature and normally settle within 90 days, or obligations to employees under annual or long-term incentive programs.~~


~~(3)~~	Based on the U.S. qualified pension plans' status as of December 31, 2017, minimum funding requirements under ERISA have been estimated for the next five years. Amounts in subsequent years or additional payments have not yet been determined.


~~(4)~~	~~Based on the non-U.S. pension plans' status as of December 31, 2017, funding requirements have been estimated for the next five years. Amounts in subsequent years have not yet been determined.~~

~~See Note 10 to the Consolidated~~ TOC—Financial Statements ~~for a discussion of Financial Assurances.~~

~~Employee Benefit Plans~~

~~See Note 8 to the Consolidated Financial Statements for further discussion of Pension Plans and Other Postretirement Benefit Plans.~~

~~Defined Contribution Retirement Plan~~

We sponsor a defined contribution retirement plan for our employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, we contribute an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Our costs related to this benefit plan were ~~$11.5 million~~, ~~$11.1 million~~ ~~and~~ ~~$10.4 million~~ ~~for the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015, respectively.~~

~~Defined Benefit Pension Plans~~

We sponsor defined benefit pension plans for our employees in the U.S., Canada, Germany, and a number of other countries, and fund government-sponsored programs in other countries where we operate. Certain of our defined benefit pension plans are advance-funded and others are pay-as-you-go. The advance-funded plans are administered by trustees who direct the management of plan assets and arrange to have obligations paid when due. Our most significant advance-funded plans cover current and former salaried employees in the U.S. and employees covered by collective bargaining agreements at certain of our U.S. facilities. Our U.S. advance-funded plans are qualified under the U.S. tax code.

~~Table of Contents~~

~~The following table presents the funded status of our underfunded and unfunded pension plans:~~

Underfunded
Pension Plans(1)

Unfunded
Pension Plans(2)
(In millions) 2017 2016 2017 2016
Projected benefit obligation $ 1,241.8
$ 1,187.7
$ 406.9
$ 355.6
Fair value of plan assets 1,131.3
1,104.6
—
—
Funded status (PBO basis) $ (110.5 ) $ (83.1 ) $ (406.9 ) $ (355.6 )


~~(1)~~	~~Plans intended to be advance-funded.~~


~~(2)~~	~~Plans intended to be pay-as-you-go.~~

~~Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis by a total of~~ ~~$110.5 million~~ ~~as of~~ ~~December 31, 2017. Additionally, we have several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO of~~ ~~$406.9 million~~ at ~~December 31, 2017, is unfunded. The combined balance of the underfunded and unfunded plans was~~ ~~$517.4 million~~ ~~as of~~ ~~December 31, 2017, and is presented as a liability on the Consolidated Balance Sheets as follows:~~ ~~$15.0 million~~ ~~in "other current liabilities" and~~ ~~$502.4 million~~ ~~included in "underfunded and unfunded defined benefit pension plans."~~

~~At the~~ ~~December 31, 2017, measurement date for the U.S. advance-funded plans, the PBO was approximately $1,217~~ ~~million as measured under U.S. GAAP. The PBO is measured as the present value (using a~~ ~~3.57% weighted average discount rate as of~~ ~~December 31, 2017~~) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees. Of the participants in the U.S. advance-funded plans, approximately 88~~% are retired or former employees or employees of our former businesses, which shortens the duration of the PBO. Assets available to fund the PBO for the U.S. advance-funded plans at~~ ~~December 31, 2017, were approximately~~ ~~$1,110 million, or approximately~~ ~~$107 million~~ ~~less than the measured obligation.~~

~~The following table presents the components of cash contributions for the advance-funded and pay-as-you-go plans:~~

(In millions) 2017 2016 2015
U.S. advance-funded plans $ 2.1
$ —
$ —
U.S. pay-as-you-go plans 7.5
7.5
7.3
Non-U.S. advance-funded plans 1.1
1.3
1.5
Non-U.S. pay-as-you-go plans 7.1
7.1
6.6
Total Cash Contributions $ 17.8
$ 15.9
$ 15.4

~~Based on the U.S. advance-funded plans' status as of December 31, 2017, there are no minimum required payments under ERISA for 2018.~~

~~We intend to fund non-U.S. pension plans based upon applicable legal requirements and actuarial and trustee recommendations. We contributed~~ ~~$8.2 million~~ ~~to these plans in~~ ~~2017~~.

~~Other Contingencies~~

~~See Note 10 to the Consolidated Financial Statements for a discussion of our other contingent matters.~~

~~Inflation~~

We recognize that inflationary pressures may have an adverse effect on us through higher asset replacement costs and higher raw materials and other operating costs. We experienced raw materials cost inflation during the 2017 second half and expect to see continued inflation in 2018. We try to minimize these impacts through effective control of operating expenses and productivity improvements as well as price increases to customers.

~~Table of Contents~~

We estimate that the cost of replacing our property and equipment today is greater than its historical cost. Accordingly, our depreciation expense over the life of the asset would be greater if the expense were stated on a current cost basis.

~~Critical Accounting Estimates~~

The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions affecting the assets and liabilities reported at the date of the Consolidated Financial Statements, and the revenues and expenses reported for the periods presented. We believe that our accounting estimates are appropriate and the related balances are reasonable; however, actual amounts could differ from the original estimates, requiring adjustments in future periods. Changes in estimates are recorded in the period in which the change is identified. Our accounting policies are described in Note 1 to the Consolidated Financial Statements. Critical accounting estimates are described in this section.

An accounting estimate is considered critical if the estimate requires management to make assumptions and judgments about matters that were highly uncertain at the time the estimate was made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur from period to period that could have a material impact on our financial condition or results of operations. As part of our quarterly disclosure controls and procedures, management has discussed the development, selection and disclosure of the critical accounting estimates with the Audit Committee of the Board of Directors.

~~Contingent Liabilities~~

We have recorded a liability for the resolution of contingencies related to asbestos property damage, environmental remediation, income taxes and litigation. We record a liability if we have determined that a loss is probable and we are able to reasonably estimate the amount of the loss or have another reasonable basis for recording a liability. We have determined that each of the contingencies discussed below involves an accounting judgment that is material to our Consolidated Financial Statements.

~~Legacy Product Liabilities~~

We emerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014, as discussed in Note 10 to the Consolidated Financial Statements. Under the plan of reorganization, all pending and future asbestos-related claims are channeled for resolution to either the PI Trust or 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 us.

We have satisfied all of our financial obligations to the PI Trust. We have contingent financial obligations remaining to the PD Trust. With respect to property damage claims related to ZAI PD Claims, the PD Trust was funded with $34.4 million on the Effective Date and $30 million on February 3, 2017. We are also obligated to make up to 10 contingent deferred payments of $8 million per year to the PD Trust in respect of ZAI PD Claims 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. We have not accrued for the 10 additional payments as we do not currently believe they are probable. We are not obligated to make additional payments to the PD Trust in respect of ZAI PD Claims beyond the payments described above. We have satisfied all of our financial obligations with respect to Canadian ZAI PD Claims.

With respect to 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. We are 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. We have 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 we may be obligated to make additional payments to the PD Trust in respect of the PD Obligation. We have accrued for those unresolved Other PD Claims that we believe are probable and estimable. We have not accrued for other unresolved or unasserted Other PD Claims as we do not believe that payment is probable.

~~Table of Contents~~

All payments to the PD Trust required after the Effective Date are secured by our 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.

~~Environmental Remediation~~

We are obligated under applicable law to remediate certain properties related to our business or former businesses. At some sites we outsource all or a portion of the remediation to third parties, and at others we perform the required remediation ourselves. Our environmental remediation obligation has a significant impact on our Consolidated Financial Statements. See disclosure in this Report in Item 1 (Business—Environment, Health and Safety Matters) and in Note 10 to the Consolidated Financial Statements for a discussion of our environmental remediation liabilities.

At sites where third parties conduct remediation, we estimate our obligations from information available to us through such third parties, including actual costs incurred, expected future costs and time to completion. At sites where we conduct remediation, we use available information, work with regulatory authorities to define compliance requirements, and then estimate the cost required to meet those requirements. We base our estimates on our historical knowledge and engineering assessments specific to conditions at each site, and we update our estimates as necessary.

Our estimates can fluctuate significantly due to the extended duration of some remediation projects. The accuracy of our estimates is dependent on the validity of assumptions regarding regulatory approaches and such matters as labor rates, indirect costs and capital costs, which are each difficult to forecast over extended periods. It is not practicable to estimate the impact on our Consolidated Financial Statements of using other reasonably possible assumptions. Future changes in estimates, if required, will more than likely lead to material adjustments to our Consolidated Financial Statements, and we expect the ultimate resolution of these obligations to have a material impact on our liquidity and capital resources.

We 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. We are engaged with the EPA and other federal, state and local governmental agencies in a remedial investigation and feasibility study of the Libby mine and the surrounding area. In its 2017 Annual Project Update for the Libby Asbestos Superfund Site, the EPA announced a narrowing of its focus from the former "OU3 Study Area" to a smaller Operable Unit 3 ("OU3"). Within this revised area, the RI/FS will determine the specific areas 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. Based on communications from regulatory agencies, we expect the RI/FS and a record of decision to be completed by the end of 2019. When meaningful new information becomes available, we will reevaluate estimated liability for the costs for remediation of the mine and surrounding area and adjust our reserves accordingly.

The EPA is also investigating or remediating formerly owned or operated sites that processed Libby vermiculite into finished products. We are cooperating with the EPA on these investigation and remediation activities and have recorded a liability to the extent that our review has indicated that a probable liability has been incurred and the cost is estimable. These liabilities cover the estimated cost of investigations and, to the extent an assessment has indicated that remediation is necessary, the estimable cost of response actions. Response actions typically involve soil excavation and removal, and replacement with clean fill. The EPA may commence additional investigations in the future at other sites that processed Libby vermiculite, but we do not believe, based on our knowledge of prior and current operations and site conditions, that liability for remediation at such other sites is probable.

Our current estimates of our environmental remediation obligations do not include the cost to remediate the Libby vermiculite mine and surrounding area or costs related to any additional EPA claims, whether resulting from the EPA's investigation of former vermiculite processing sites or otherwise, which may be material but are not currently estimable. It is probable that our ultimate liability for environmental remediation will exceed our current estimates by material amounts.

~~Table of Contents~~

~~Litigation~~

We are subject to legal proceedings and claims arising out of the normal course of business. To estimate the cost to resolve our legal obligations, we review the facts of each matter to determine the merits of the case and the corresponding probability of a loss. If we determine that a loss is probable, we determine if there is sufficient information to make a reasonable estimate of the loss amount. Our estimates regarding the outcome of our legal proceedings and claims involve substantial uncertainties that could cause our actual losses to differ materially from our estimates. In estimating the likely outcome of a legal proceeding, we consider the nature of the specific claim (or unasserted claim), our experience with similar claims, the jurisdiction in which the proceeding is filed, court rulings, the status of any settlement negotiations, the likelihood of resolution through settlement or alternative dispute resolution, the proceeding's current status and other relevant information and events. We adjust our recorded liability for litigation contingencies as necessary to reflect our current evaluation of these and other factors.

~~Goodwill~~

We review our goodwill for impairment on an annual basis at October 31 and whenever events or a change in circumstances indicate that the carrying amount may not be fully recoverable. We have identified our operating segments as reporting units for goodwill impairment testing. Our Catalysts Technologies reportable segment has two reporting units for goodwill impairment testing, which are our Refining Technologies and Specialty Catalysts operating segments. Our Materials Technologies operating segment represents a single reporting unit for goodwill impairment testing.

~~We performed a quantitative analysis as of October 31, 2017, and concluded that the estimated fair value of all of our reporting units substantially exceeded their carrying values.~~

~~Pension Expenses and Liabilities~~

We sponsor defined benefit pension plans for our employees in the United States and a number of other countries, including Canada and Germany, and fund government-sponsored programs in other countries where we operate. See Note 8 to the Consolidated Financial Statements for a detailed discussion of our pension plans and other postretirement benefit plans.

In order to estimate our pension expenses and liabilities we evaluate the range of possible assumptions to be used in the calculation of pension expenses and liabilities. We select the assumptions that we believe to be most indicative of factors such as participant demographics, past experiences and market indices, and provide the assumptions to independent actuaries. These assumptions are updated annually and primarily include factors such as discount rates, expected return on plan assets, mortality rates, retirement rates, and rate of compensation increase. The independent actuaries review our assumptions for reasonableness, and use the assumptions to calculate our estimated liability and future pension expense. We review the actuarial reports for reasonableness and adjust our expenses, assets and liabilities to reflect the amounts calculated in the actuarial reports.

The two key assumptions used in determining our pension benefit obligations and pension expense are the discount rate and expected return on plan assets. Our most significant pension assets and pension liabilities relate to U.S. pension plans.

The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. pension plans, the assumed weighted average discount rate was selected in consultation with our independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan.

We selected the expected return on plan assets for the U.S. qualified pension plans for 2017 in consultation with our independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results.

~~Table of Contents~~

The following table reflects the sensitivity of 2018 pre-tax expense (excluding the effects of the annual mark-to-market adjustment) and our year-end projected benefit obligation, or PBO, to a change in the discount rate and expected rate of return on plan assets assumptions for the U.S. pension plans:

Change in Assumption
(In millions)
Effect on 2018
Pre-Tax Pension
Expense
Effect on December 31, 2017 PBO
25 basis point decrease in discount rate $ (1 ) $ 38
25 basis point increase in discount rate 1
(36 )
25 basis point decrease in expected return on plan assets 3
—
25 basis point increase in expected return on plan assets (3 ) —

~~Income Taxes~~

Our effective tax rate is primarily determined based on our pre-tax income and the statutory income tax rates in the jurisdictions in which we operate. The effective tax rate also reflects the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred income tax assets and liabilities. Deferred income tax assets are also recorded for NOL and federal tax credit carryforwards.

Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income ("FSI"), the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

As further described in Note 7 to the Consolidated Financial Statements, our Consolidated Balance Sheet as of December 31, 2017, includes net deferred income tax assets of $548.3 million. Included in this amount are deferred U.S. federal income tax assets representing federal tax credit carryforwards of $269.6 million, federal NOL carryforwards of $89.5 million, state NOL deferred income tax assets of $58.2 million, and foreign NOL deferred tax assets of $6.6 million. We have established valuation allowances in the amount of $12.3 million, consisting of $9.2 million for state net operating loss carryforwards, $2.8 million for foreign deferred tax assets, primarily foreign operating loss carryforwards, and $0.3 million for federal tax credits.

In order to fully utilize our U.S. federal tax credits before they expire from 2021 to 2027, we will need to generate domestic and foreign source income of approximately $1.2 billion and approximately $200 million, respectively. We estimate that we will need to generate future U.S. taxable income of approximately $440 million before 2035 to fully utilize the federal net operating losses. We will need to generate approximately $1.5 billion for state income tax purposes during the respective realization periods (ranging from 2018 to 2035) in order to fully realize the net deferred income tax assets.

Inherent in determining our effective tax rate are judgments regarding business plans and expectations about future operations. These judgments include the amount and geographic mix of future taxable income, the amount of FSI, limitations on the usage of NOL carryforwards, the impact of ongoing or potential tax audits, and other future tax consequences.

The federal tax credit carryforwards arose primarily as a result of the payment of intercompany dividends from our foreign affiliates, from the mandatory repatriation under the Act, and from research and development credits. The federal and state NOLs arose primarily as a result of the amounts paid as a result of our bankruptcy proceedings.

~~Table of Contents~~

Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation or insufficient future taxable income or FSI prior to expiration of certain deferred tax assets.

We recognize the tax benefits of an uncertain tax position if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

~~Recent Accounting Pronouncements~~

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

~~Table of Contents~~

W. R. GRACE & CO. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS ~~AND RESERVES~~

~~(In millions)~~

For the Year Ended December 31, ~~2017~~

2020

Description Balance at beginning of period Additions charged to costs and expenses Deductions
Other,
net(1)
Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable(2) $ 2.8
$ 10.6
$ (1.3 ) $ (0.1 ) $ 12.0
Valuation allowance for deferred tax assets(3) 31.4
0.3
(19.7 ) —
12.0
Reserves:
Reserves for environmental remediation 66.3
24.4
(20.4 ) —
70.3
Reserves for retained obligations of divested businesses 11.7
1.5
(0.4 ) —
12.8


(In millions)	Balance at beginning of period		Additions charged to costs and expenses		Deductions		Other, net(1)		Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable	$	13.7	$	0.6	$	(12.1)	$	0.1	$	2.3
Valuation allowance for deferred tax assets(2)	24.1		15.5		(0.9)		0		38.7

For the Year Ended December 31, ~~2016~~

2019

Description Balance at beginning of period Additions charged to costs and expenses Deductions
Other,
net(1)
Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable $ 1.4
$ 2.4
$ (1.1 ) $ 0.1
$ 2.8
Valuation allowance for deferred tax assets(4) 8.4
11.6
(9.1 ) 20.5
31.4
Reserves:
Reserves for environmental remediation 55.2
29.2
(18.1 ) —
66.3
Reserves for retained obligations of divested businesses 13.5
—
(1.8 ) —
11.7


(In millions)	Balance at beginning of period		Additions charged to costs and expenses		Deductions		Other, net(1)		Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable	$	12.0	$	3.2	$	(1.5)	$	0	$	13.7
Valuation allowance for deferred tax assets(3)	19.9		9.2		(5.0)		0		24.1

For the Year Ended December 31, ~~2015~~2018


(In millions)	Balance at beginning of period		Additions charged to costs and expenses		Deductions		Other, net(1)		Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable	$	12.0	$	0	$	0	$	0	$	12.0
Valuation allowance for deferred tax assets(4)	12.0		10.7		(2.8)		0		19.9

(1)Effects of currency translation.

(2)The valuation allowance increased $14.6 million from December 31, 2019, to December 31, 2020. The increase was primarily due to projected consolidated taxable income, causing the expiration of foreign tax credits in 2021.

(3)The valuation allowance increased $4.2 million from December 31, 2018, to December 31, 2019. The increase was primarily due to the projected taxable income in certain foreign jurisdictions.

(4)The valuation allowance increased $7.9 million from December 31, 2017, to December 31, 2018. The increase was primarily due to changes in expected foreign tax credit utilization.

115

Description Balance at beginning of period Additions charged to costs and expenses Deductions
Other,
net(1)
Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable $ 1.0
$ 0.5
$ (0.1 ) $ —
$ 1.4
Valuation allowance for deferred tax assets(5) 10.7
0.4
(2.6 ) (0.1 ) 8.4
Reserves:
Reserves for environmental remediation 61.1
6.4
(12.3 ) —
55.2
Reserves for retained obligations of divested businesses 13.5
—
—
—
13.5

Table of Contents

TOC—Financial Statements

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Except as provided below, the disclosure required by this Item appears in Item 8 under the headings “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm,” which disclosure is incorporated herein by reference.

There was no change in Grace’s internal control over financial reporting during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, Grace’s internal control over financial reporting.

Item 9B. OTHER INFORMATION

None.

116

Table of Contents

TOC—Financial Statements

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item regarding Grace’s executive officers appears at Part I after Item 4 of this report. The other information required by this Item is incorporated by reference to the definitive proxy statement that Grace will file with the SEC no later than 120 days after December 31, 2020 (the “2021 Proxy Statement”).

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the 2021 Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference to the 2021 Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference to the 2021 Proxy Statement.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is Incorporated by reference to the 2021 Proxy Statement.

117

Table of Contents

TOC—Financial Statements

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements and Schedules. The required information is set forth in Item 8, which is incorporated herein by reference.

Exhibits. The exhibits to this Report are listed below. Other than exhibits that are filed herewith, all exhibits listed below are incorporated by reference.

In reviewing the agreements included as exhibits to this and other Reports filed by Grace with the Securities and Exchange Commission, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Grace or other parties to the agreements. The agreements generally contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement. These representations and warranties:

•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.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Grace may be found elsewhere in this report and Grace’s other public filings, which are available without charge through the Securities and Exchange Commission’s website at http://www.sec.gov.

~~(1)~~Exhibit No.

~~Effects of currency translation and the Separation.~~

			Exhibit						Location
~~(2)~~2.1			The allowance for accounts receivable increased primarily due to a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions.


~~(3)~~	~~The valuation allowance decreased $19.4 million from December 31, 2016, to December 31, 2017. The decrease was primarily due to the effects~~ Joint Plan of ~~U.S. tax reform.~~


~~(4)~~	The valuation allowance increased $23.0 million from December 31, 2015, to December 31, 2016. The increase was primarily due to the adoption of ASU 2016-09 as well as the ability to utilize NOL carryforwards as a result of the Separation.


~~(5)~~	~~The valuation allowance decreased $2.3 million from December 31, 2014, to December 31, 2015. The decrease was primarily due to a reduction in the valuation allowance on state NOL carryforwards.~~

~~Table of Contents~~

~~EXHIBIT 12~~

~~W. R. GRACE & CO. AND SUBSIDIARIES~~

~~COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND~~

~~COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(1)~~

~~(In millions, except ratios)~~

~~(Unaudited)~~

Year Ended December 31,
2017 2016 2015 2014 2013
Net income attributable to W. R. Grace & Co. shareholders $ 11.2
$ 94.1
$ 144.2
$ 276.3
$ 256.1
Provision for (benefit from) income taxes 200.5
59.0
69.8
(12.4 ) 29.2
Equity in earnings of unconsolidated affiliate (25.9 ) (29.8 ) (20.4 ) (19.7 ) (22.9 )
Distributed income of earnings of unconsolidated affiliate 19.0
31.0
11.8
11.2
2.8
Interest expense and related financing costs, including amortization of capitalized interest, less interest capitalized 79.6
92.1
99.8
123.5
40.7
Estimated amount of rental expense deemed to represent the interest factor 7.5
8.0
7.9
8.2
7.6
Income as adjusted $ 291.9
$ 254.4
$ 313.1
$ 387.1
$ 313.5
Combined fixed charges and preferred stock dividends:
Interest expense and related financing costs, including capitalized interest $ 81.0
$ 93.2
$ 100.5
$ 124.8
$ 41.8
Estimated amount of rental expense deemed to represent the interest factor 7.5
8.0
7.9
8.2
7.6
Fixed charges 88.5
101.2
108.4
133.0
49.4
Combined fixed charges and preferred stock dividends $ 88.5
$ 101.2
$ 108.4
$ 133.0
$ 49.4
Ratio of earnings to fixed charges 3.30
2.51
2.89
2.91
6.35
Ratio of earnings to fixed charges and preferred stock dividends 3.30
2.51
2.89
2.91
6.35


~~(1)~~	~~Grace did not have preferred stock from 2013 through 2017.~~

~~Table of Contents~~

~~EXHIBIT 31.(i).1~~

~~CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF~~

~~THE SARBANES-OXLEY ACT OF 2002~~

~~I, A. E. Festa, certify that:~~


1.	~~I have reviewed this annual report on Form 10-K~~Reorganization of W. R. Grace & Co.; and its Debtor Subsidiaries.

			Exhibit 2.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
2.2.2			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

			Order Confirming Joint Plan of Reorganization.						Exhibit 2.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
3.2.3			~~Based on my knowledge, the financial statements,~~			Separation and ~~other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant~~Distribution Agreement, dated as of January 27, 2016, by and ~~for, the periods presented in this report;~~among W. R. Grace & Co., W. R. Grace & Co.–Conn. and GCP Applied Technologies Inc.

			Exhibit 2.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953
4.2.4			The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

			Amended and Restated Sale and Purchase Agreement, dated as of February 21, 2018, by and between Albemarle Corporation and W. R. Grace & Co.–Conn.						Exhibit 2.4 to Form 10-K (filed 2/22/18) SEC File No.: 001-13953
~~(a)~~2.5			designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

			Sale, Purchase and Contribution Agreement, dated as of February 25, 2021, by and among Albemarle Corporation, W. R. Grace & Co.–Conn., and Fine Chemical Manufacturing Services LLC.						Filed herewith.
~~(b)~~3.1			designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Amended and Restated Certificate of Incorporation.

Exhibit 3.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

~~(c)~~3.2

~~evaluated the effectiveness of the registrant's disclosure controls~~

Amended and ~~procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,~~Restated By-laws.

Exhibit 3.01 to Form 8-K (filed 1/23/15) SEC File No.: 001-13953

4.1

Credit Agreement, dated as of ~~the end~~February 3, 2014, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., Grace GmbH & Co. KG, a Federal Republic of ~~the period covered by this report based on such evaluation;~~Germany limited partnership, each lender from time to time party thereto, and Goldman Sachs Bank USA, as Administrative Agent.

Exhibit 4.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953


~~(d)~~	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


~~(a)~~	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


~~(b)~~	~~any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.~~

~~Date:~~ ~~February 22, 2018~~

118

Table of Contents

TOC—Financial Statements

Exhibit No.

~~/s/ A. E. FESTA~~Exhibit

Location

4.2

~~A. E. Festa~~

~~Chief Executive Officer~~First Amendment and Consent to Credit Agreement and First Amendment to Security Agreement, dated as of November 25, 2015, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., Grace GmbH & Co. KG, Alltech Associates, Inc., each lender from time to time party thereto, and Goldman Sachs Bank USA, as Administrative Agent and lender.

~~Table of Contents~~

~~EXHIBIT 31.(i).2~~

~~CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF~~

~~THE SARBANES-OXLEY ACT OF 2002~~

~~I, Thomas E. Blaser, certify that:~~

Exhibit 10.1 to Form 8-K (filed 11/25/15) SEC File No.: 001-13953

1.4.3

~~I have reviewed this annual report on~~

Deferred Payment Agreement (PD), dated as of February 3, 2014, by and between W. R. Grace & Co.–Conn. and the WRG Asbestos PD Trust.

Exhibit 4.04 to Form ~~10-K~~8-K (filed 2/07/14) SEC File No.: 001-13953

4.4

Guarantee Agreement (PD), dated as of February 3, 2014, by and between W. R. Grace & Co. and the WRG Asbestos PD Trust.

Exhibit 4.05 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.5

Deferred Payment Agreement (PD-ZAI), dated as of February 3, 2014, by and between W. R. Grace & Co.–Conn. and the WRG Asbestos PD Trust.

Exhibit 4.06 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.6

Guarantee Agreement (PD-ZAI), dated as of February 3, 2014, by and between W. R. Grace & Co. and the WRG Asbestos PD Trust.

Exhibit 4.07 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.7

Share Issuance Agreement, dated as of February 3, 2014, by and among W. R. Grace & Co., the WRG Asbestos PD Trust and the WRG Asbestos PI Trust.

Exhibit 4.08 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953

4.8

Indenture, dated as of September 16, 2014, by and among W. R. Grace & Co.–Conn., the guarantors party there to and Wilmington Trust, National Association, as trustee.

Exhibit 4.1 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.9

First Supplemental Indenture, dated as of September 16, 2014, by and among W. R. Grace & Co.–Conn., the guarantors party thereto and Wilmington Trust, National Association, as trustee.

Exhibit 4.2 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.10

Form of 5.125% Note due 2021 (included as Exhibit A-1 to Exhibit 4.9).

Exhibit 4.3 (included as Exhibit A-1 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.11

Form of 5.625% Note due 2024 (included as Exhibit A-2 to Exhibit 4.9).

Exhibit 4.4 (included as Exhibit A-2 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953

4.12

Credit Agreement, dated as of April 3, 2018, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn., certain subsidiaries thereof, Goldman Sachs Bank USA, as Administrative Agent and Collateral Agent, and the other lenders from time to time party thereto.

Exhibit 4.1 to Form 8-K (filed 4/03/18) SEC File No.: 001-13953

4.13

Second Supplemental Indenture, dated as of April 3, 2018, by and among W. R. Grace & Co.–Conn., the guarantors party thereto and Wilmington Trust, National Association, as trustee.

Exhibit 4.2 to Form 10-Q (filed 5/09/18) SEC File No.: 001-13953

4.14

Description of W. R. Grace & Co.; Securities.

Exhibit 4.14 to Form 10-K (filed 2/27/20) SEC File No.: 001-13953

2.4.15

~~Based on my knowledge, this report does not contain any untrue statement~~

Third Supplemental Indenture, dated as of ~~a material fact or omit~~June 26, 2020, by and among W. R. Grace & Co.–Conn., the guarantors party thereto and Wilmington Trust, National Association, as trustee.

Exhibit 4.2 to ~~state a material fact necessary~~Form 8-K (filed 6/26/20) SEC File No.: 001-13953

4.16

Form of 4.875% Note due 2027 (included as Exhibit A to ~~make~~Exhibit 4.15 ).

Exhibit 4.3 (included as Exhibit A to Exhibit 4.2) to Form 8-K (filed 6/26/20) SEC File No.: 001-13953

10.1

WRG Asbestos Property Damage Settlement Trust Agreement, dated as of February 3, 2014, by and between W. R. Grace & Co., the ~~statements made, in light~~Asbestos PD Future Claimants’ Representative, the Official Committee of Asbestos Property Damage Claimants, the Asbestos PD Trustees, Wilmington Trust Company, and the members of the ~~circumstances under which such statements were made, not misleading with respect~~Zonolite Attic Insulation Trust Advisory Committee.

Exhibit 10.02 to ~~the period covered by this report;~~

	Form 8-K (filed 2/07/14) SEC File No.: 001-13953
3.10.2			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

			W. R. Grace & Co. 2014 Stock Incentive Plan.						Exhibit 10.03 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953*
4.10.3			The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Form of Performance-based Unit Agreement (2016).

Exhibit 10.2 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*

~~(a)~~10.4

~~designed such disclosure controls and procedures, or caused such disclosure controls and procedures~~

Form of Stock Option Award Agreement (2016).

Exhibit 10.1 to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;Form 8-K (filed 2/09/16) SEC File No.: 001-13953*


~~(b)~~	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


~~(c)~~	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


~~(d)~~	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


~~(a)~~	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


~~(b)~~	~~any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.~~

~~Date:~~ ~~February 22, 2018~~

119

Table of Contents

TOC—Financial Statements

Exhibit No.

~~/s/ THOMAS E. BLASER~~Exhibit

Location

10.5

Form of Restricted Stock Award Agreement (2016).

Exhibit 10.3 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*

10.6

W. R. Grace & Co. Supplemental Executive Retirement Plan, as amended.

Exhibit 10.7 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953*

10.7

W. R. Grace & Co. Executive Salary Protection Plan, as amended.

Exhibit 10.8 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953*

10.8

Form of Executive Change in Control Severance Agreement between Grace and certain officers.

Exhibit 10.17 to Form 10-K (filed 3/13/03) SEC File No.: 001-13953*

10.9

Severance Plan for Leadership Team Officers of W. R. Grace & Co.

Exhibit 10.2 to Form 8-K (filed 2/04/16) SEC File No.: 001-13953*

10.10

2015 Executive Annual Incentive Compensation Plan.

Exhibit 10.1 to Form 8-K (filed 5/12/15) SEC File No.: 001-13953*

10.11

Tax Sharing Agreement, dated as of January 27, 2016, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn. and GCP Applied Technologies Inc.

Exhibit 10.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953

10.12

Letter Agreement dated February 28, 2008, between Fred Festa, on behalf of Grace, and Hudson La Force III (includes indemnification provision).

Exhibit 10.1 to Form 8-K (filed 3/07/08) SEC File No.: 001-13953*

10.13

Letter Agreement dated November 13, 2013, between Fred Festa, on behalf of Grace, and Keith N. Cole (includes indemnification provision).

Exhibit 10.20 to Form 10-K (filed 2/25/15) SEC File No.: 001-13953*

10.14

Letter Agreement dated December 3, 2014, between Fred Festa, on behalf of Grace, and Elizabeth C. Brown (includes indemnification provision).

Exhibit 10.1 to Form 10-Q (filed 5/07/15) SEC File No.: 001-13953*

10.15

Restricted Stock Unit Award Agreement, dated February 22, 2018, between W. R. Grace & Co. and Fred Festa, in connection with transition to Non-executive Chairman.

Exhibit 10.1 to Form 10-Q (filed 5/09/18) SEC File No.: 001-13953*

10.16

Stock Option Award Agreement, dated February 22, 2018, between W. R. Grace & Co. and Fred Festa, in connection with transition to Non-Executive Chairman.

Exhibit 10.2 to Form 10-Q (filed 5/09/18) SEC File No.: 001-13953*

10.17

W. R. Grace & Co. 2018 Stock Incentive Plan.

Exhibit 10.1 to Form 8-K (filed 5/14/18) SEC File No.: 001-13953*

10.18

Form of W. R. Grace & Co. Performance-Based Units (“PBUs”) Grant Agreement (2018).

Exhibit 10.2 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.19

Form of W. R. Grace & Co. Restricted Share Units (“RSUs”) Grant Agreement (2018).

Exhibit 10.3 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.20

Form of W. R. Grace & Co. Nonstatutory Stock Option (“NSOs”) Grant Agreement (2018).

Exhibit 10.4 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.21

Separation Agreement and General Release, dated as of May 31, 2018, by and between W. R. Grace & Co.–Conn., et al., and Thomas E. ~~Blaser~~Blaser.

Exhibit 10.5 to Form 10-Q (filed 8/08/18) SEC File No.: 001-13953*

10.22

~~Senior Vice President~~Letter Agreement, dated as of February 20, 2019, by and among W. R. Grace & Co., 40 North Management LLC, 40 North GP III LLC, 40 North Latitude Master Fund Ltd. and 40 North Latitude Fund LP.

Exhibit 99.1 to Form 8-K (filed 2/20/19) SEC File No.: 001-13953*

10.23

Letter Agreement dated November 13, 2020, between Elizabeth C. Brown, on behalf of Grace, and Cherée H. Johnson (includes indemnification provision).

Filed herewith*

List of Subsidiaries of W. R. Grace & Co.

Filed herewith

Consent of Independent Registered Public Accounting Firm.

Filed herewith

Powers of Attorney.

Filed herewith

31(i).1

Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

31(i).2

Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

Furnished herewith

Mine Safety Disclosure Exhibit.

Filed herewith

120

Table of Contents

TOC—Financial Statements

Exhibit No.

Exhibit

Location

101.INS

Inline XBRL Instance Document

The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

Filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Filed herewith

104

Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)

Filed herewith

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

~~EXHIBIT 32~~

~~CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002~~Item 16. FORM 10-K SUMMARY

None.

121

Table of Contents

TOC—Financial Statements

SIGNATURES

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned certifies that (1) this Annual Report of W. R. Grace & Co. (the "Company") on Form 10-K for the period ended ~~December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with~~ the requirements of ~~Sections 13(a)~~Section 13 or 15(d) of the Securities Exchange Act of 1934, ~~as amended, and (2)~~ the ~~information contained in~~registrant has duly caused this Report ~~fairly presents, in all material respects,~~to be signed on its behalf by the ~~financial condition and results of operations of the Company.~~

undersigned, thereunto duly authorized.



~~/s/ A. E. FESTA~~				W. R. GRACE & CO.
		By:	/s/ HUDSON LA FORCE
			~~A. E. Festa~~ Hudson La Force President and Chief Executive Officer		(Principal Executive Officer)
		By:	/s/ WILLIAM C. DOCKMAN
~~/s/ THOMAS E. BLASER~~
~~Thomas E. Blaser~~ William C. Dockman Senior Vice President and Chief Financial Officer
~~Date: 2/22/2018~~	(Principal Financial Officer and Principal Accounting Officer)

~~A signed original~~Dated: February 25, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this ~~written statement required by Section 906~~Report has been ~~provided to the Company and will be retained~~signed below by the ~~Company~~following persons on behalf of the registrant and ~~furnished~~in the capacities indicated on February 25, 2021.

Signature

Title

R. F. Cummings, Jr.*

}

D. H. Gulyas*

}

J. Fasone Holder*

}

H. R. Slack*

}

Directors

C. J. Steffen*

}

M. E. Tomkins*

}

S. Yanai*

}


/s/ HUDSON LA FORCE						President and Chief Executive Officer and Director (Principal Executive Officer)
Hudson La Force
/s/ WILLIAM C. DOCKMAN						Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
William C. Dockman

*By signing her name hereto, Cherée H. Johnson is signing this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange ~~Commission or its staff upon request.~~Commission.


			By:			/s/ CHERÉE H. JOHNSON
						Cherée H. Johnson (Attorney-in-Fact)

122



Delaware						65-0773649
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


PART I
Item 1.	Business	1
Item 1A.	Risk Factors	1214
Item 1B.	Unresolved Staff Comments	1824
Item 2.	Properties	1924
Item 3.	Legal Proceedings	2025
Item 4.	Mine Safety Disclosures	2026
	Information about our Executive Officers ~~of the Registrant~~	2127
PART II
Item 5.	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	2228
Item 6.	Selected Financial Data	2430
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2531
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	2556
Item 8.	Financial Statements and Supplementary Data	2658
Item 9.	Changes in and Disagreements ~~with~~With Accountants on Accounting and Financial Disclosure	26116
Item 9A.	Controls and Procedures	26116
Item 9B.	Other Information	26116
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	27117
Item 11.	Executive Compensation	27117
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27117
Item 13.	Certain Relationships and Related Transactions, and Director Independence	27117
Item 14.	Principal Accountant Fees and Services	27117
PART IV
Item 15.	Exhibits, ~~and~~ Financial Statement Schedules	28118
Item 16.	Form 10-K Summary	30121
SIGNATURES		31122



Catalysts Technologies			Materials Technologies
Aiken, South Carolina			Dueren, Germany*
Baton Rouge, Louisiana*			East Chicago, Indiana*
Chattanooga, Tennessee			Hesperia, California*California
Chicago, Illinois			Dueren, Germany*Kuantan, Malaysia
Edison, New Jersey*		~~Kuantan, Malaysia~~
Lake Charles, Louisiana		Sorocaba, Brazil*Brazil
Norco, Louisiana*
~~Pasadena, Texas~~
~~Valleyfield, Quebec, Canada~~
Porvoo, Finland*	~~Shared~~
Stenungsund, Sweden*	~~Albany, Oregon~~
Tarragona, Spain*	~~Curtis Bay, Maryland~~
~~Qingdao, China~~	~~Worms, Germany~~


*Pasadena, Texas	~~Denotes leased site.~~
Stenungsund, Sweden*		Shared
Tarragona, Spain*		Albany, Oregon
Valleyfield, Quebec, Canada		Curtis Bay, Maryland
Yeosu, South Korea		Worms, Germany


(In millions)	2021
Payable—interest and principal in euro	€	174.4
Receivable—interest and principal in U.S. dollars	$	197.6


~~(1)~~	Shared facilities are counted in both reportable segments. The total number of facilities included in the above table, without regard to sharing between reportable segments, is 20, of which we owned 11 and leased 9.



	2012		2013		2014		2015		2016		2017
W. R. Grace & Co.	$	100	$	147	$	142	$	148	$	126	$	132
S&P 500 Index	100		132		150		153		171		208
S&P 1500 Specialty Chemicals	100		132		156		153		172		215
S&P 1500 Diversified Chemicals	100		143		153		155		181		233


(In millions, except per share amounts and shareholders)	2020		2019		2018		2017		2016
Statement of Operations
Net sales	$	1,729.8	$	1,958.1	$	1,932.1	$	1,716.5	$	1,598.6
Income (loss) from continuing operations(1)(2)	(1.7)		126.7		166.8		10.4		107.0
Financial Position
Total assets	3,765.5		3,932.6		3,565.3		2,907.0		2,911.8
Debt payable after one year	1,975.1		1,957.3		1,961.0		1,523.8		1,507.6
Shareholders’ equity	234.5		402.2		337.0		263.3		372.4
Data Per Common Share
Income (loss) from continuing operations—basic	$	(0.03)	$	1.89	$	2.49	$	0.16	$	1.53
Income (loss) from continuing operations—diluted	(0.03)		1.89		2.49		0.16		1.52
Dividends declared	1.20		1.08		0.96		0.84		0.51
Other Statistics
Common shareholders of record	3,423		3,749		4,369		4,646		4,895


Analysis of Operations (In millions)	Year Ended December 31,
	2020			2019			% Change		2018			% Change
Adjusted performance measures:
Gross Margin:
Catalysts Technologies	39.2		%	42.8		%	(3.6) pts		41.7		%	1.1 pts
Materials Technologies	33.6		%	36.5		%	(2.9) pts		37.8		%	(1.3) pts
Adjusted Gross Margin	37.7		%	41.4		%	(3.7) pts		40.7		%	0.7 pts
Inventory write-offs(D)	(1.2)		%	(0.2)		%	(1.0) pts		—		%	(0.2) pts
Pension in cost of goods sold	(0.9)		%	(0.7)		%	(0.2) pts		(0.7)		%	— pts
Amortization of acquired inventory fair value adjustment	—		%	—		%	— pts		(0.3)		%	0.3 pts
Total Grace	35.6		%	40.5		%	(4.9) pts		39.7		%	0.8 pts
Adjusted EBIT:
Catalysts Technologies	$	309.6		$	466.4		(33.6)	%	$	440.9		5.8	%
Materials Technologies	85.0			97.8			(13.1)	%	105.6			(7.4)	%
Corporate, pension, and other	(82.4)			(91.1)			9.5	%	(89.4)			(1.9)	%
Total Grace	$	312.2		$	473.1		(34.0)	%	$	457.1		3.5	%
Depreciation and amortization:
Catalysts Technologies depreciation and amortization	$	85.3		$	81.9		4.2	%	$	81.7		0.2	%
Depreciation and amortization included in equity in earnings of unconsolidated affiliate	3.3			0.5			NM		0.5			—	%
Catalysts Technologies	88.6			82.4			7.5	%	82.2			0.2	%
Materials Technologies	15.0			14.2			5.6	%	15.5			(8.4)	%
Corporate	4.7			4.2			11.9	%	3.6			16.7	%
Adjusted Depreciation and Amortization	108.3			100.8			7.4	%	101.3			(0.5)	%
Depreciation and amortization included in equity in earnings of unconsolidated affiliate	(3.3)			(0.5)			NM		(0.5)			—	%
Total Grace	$	105.0		$	100.3		4.7	%	$	100.8		(0.5)	%
Adjusted EBITDA:
Catalysts Technologies	$	398.2		$	548.8		(27.4)	%	$	523.1		4.9	%
Materials Technologies	100.0			112.0			(10.7)	%	121.1			(7.5)	%
Corporate, pension, and other	(77.7)			(86.9)			10.6	%	(85.8)			(1.3)	%
Total Grace	$	420.5		$	573.9		(26.7)	%	$	558.4		2.8	%
Adjusted EBIT margin:
Catalysts Technologies	24.4		%	31.2		%	(6.8) pts		30.1		%	1.1 pts
Materials Technologies	18.5		%	21.2		%	(2.7) pts		22.5		%	(1.3) pts
Total Grace	18.0		%	24.2		%	(6.2) pts		23.7		%	0.5 pts
Net income margin	(0.1)		%	6.5		%	(6.6) pts		8.7		%	(2.2) pts
Adjusted EBITDA margin:
Catalysts Technologies	31.3		%	36.7		%	(5.4) pts		35.7		%	1.0 pts
Materials Technologies	21.8		%	24.3		%	(2.5) pts		25.8		%	(1.5) pts
Total Grace	24.3		%	29.3		%	(5.0) pts		28.9		%	0.4 pts


	2020 as a Percentage Increase (Decrease) from 2019
Net Sales Variance Analysis	Volume		Price		Currency Translation		Total
Catalysts Technologies	(15.5)	%	0.3	%	0.1	%	(15.1)	%
Materials Technologies	(0.6)	%	0.3	%	(0.4)	%	(0.7)	%
Net sales	(12.0)	%	0.3	%	—	%	(11.7)	%
By Region:
North America	(15.1)	%	0.1	%	—	%	(15.0)	%
Europe Middle East Africa	(10.7)	%	1.3	%	0.5	%	(8.9)	%
Asia Pacific	(12.4)	%	(0.6)	%	—	%	(13.0)	%
Latin America	(1.6)	%	(1.1)	%	(4.2)	%	(6.9)	%


	2019 as a Percentage Increase (Decrease) from 2018
Net Sales Variance Analysis	Volume		Price		Currency Translation		Total
Catalysts Technologies	0.9	%	2.5	%	(1.1)	%	2.3	%
Materials Technologies	0.3	%	1.9	%	(3.7)	%	(1.5)	%
Net sales	0.6	%	2.4	%	(1.7)	%	1.3	%
By Region:
North America	0.2	%	2.6	%	—	%	2.8	%
Europe Middle East Africa	6.0	%	3.0	%	(3.8)	%	5.2	%
Asia Pacific	(1.8)	%	0.7	%	(0.2)	%	(1.3)	%
Latin America	(20.7)	%	4.4	%	(3.8)	%	(20.1)	%


	2020
(In millions, except per share amounts)	Pre-Tax		Tax Effect		After-Tax		Per Share
Diluted Earnings Per Share							$	(0.03)
Pension MTM adjustment and other related costs, net	$	94.6	$	22.6	$	72.0	1.09
Loss on early extinguishment of debt	39.4		9.5		29.9		0.45
Costs related to legacy matters	39.4		9.5		29.9		0.45
Restructuring and repositioning expenses	36.9		8.7		28.2		0.43

Inventory write-offs and disposal costs	20.7		5.0		15.7		0.24
Third-party acquisition-related costs	5.2		1.3		3.9		0.06




Discrete tax items			3.1		(3.1)		(0.05)
Adjusted EPS							$	2.64


(In millions)	Maximum Borrowing Amount		Available Liquidity		Expiration Date
China	$	12.1	$	12.1	April 3, 2023
Singapore	18.0		8.2		April 3, 2023
Malaysia	7.0		5.3		April 3, 2023
Other countries	15.3		14.6		various, as well as open-ended
Total	$	52.4	$	40.2


	Payments Due by Period
(In millions)	Total		1 Year or Less		2-3 Years		4-5 Years		More Than 5 Years
Debt	$	1,990.4	$	15.3	$	27.9	$	1,199.6	$	747.6
Expected interest payments on debt(1)	402.3		78.8		155.4		114.6		53.5
Operating lease obligations	46.6		11.8		13.9		5.6		15.3
Operating commitments(2)	127.6		111.5		14.2		1.9		—

Pension funding requirements per ERISA(3)	7.4		0.5		1.1		5.8		—
Funding requirements for non-U.S. retirement plans(4)	52.7		10.2		20.6		21.9		—
Total Contractual Obligations	$	2,627.0	$	228.1	$	233.1	$	1,349.4	$	816.4


	Fully-Funded Pension Plans(1)				Underfunded Pension Plans(1)				Unfunded Pension Plans(2)
(In millions)	2020		2019		2020		2019		2020		2019
Projected benefit obligation	$	36.5	$	35.6	$	1,109.8	$	1,022.8	$	536.4	$	448.5
Fair value of plan assets	47.9		44.1		981.5		936.7		—		—
Funded status (PBO basis)	$	11.4	$	8.5	$	(128.3)	$	(86.1)	$	(536.4)	$	(448.5)


Change in Assumption (In millions)	Effect on 2021 Pre-Tax Pension Expense		Effect on December 31, 2020 PBO
25 basis point decrease in discount rate	$	(1)	$	39
25 basis point increase in discount rate	1		(37)
25 basis point decrease in expected return on plan assets	2		—
25 basis point increase in expected return on plan assets	(2)		—



(In millions)	December 31, 2017
Current asset	$	2.7
Noncurrent liability	(20.2		)
Net fair value	$	(17.5	)



~~Exhibit No.~~	~~Exhibit~~	~~Location~~
~~2.1~~	~~Joint Plan of Reorganization of W. R. Grace & Co. and its Debtor Subsidiaries.~~	~~Exhibit 2.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953~~
~~2.2~~	~~Order Confirming Joint Plan of Reorganization.~~	~~Exhibit 2.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953~~
~~2.3~~	~~Separation and Distribution Agreement, dated as of January 27, 2016, by and among W. R. Grace & Co., W. R. Grace & Co.–Conn. and GCP Applied Technologies Inc.~~	~~Exhibit 2.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953~~
~~2.4~~	~~Amended and Restated Sale and Purchase Agreement, dated as of February 21, 2018, by and between Albemarle Corporation and W. R. Grace & Co.–Conn.~~	~~Filed herewith~~
~~3.1~~	~~Amended and Restated Certificate of Incorporation.~~	~~Exhibit 3.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953~~
~~3.2~~	~~Amended and Restated By-laws.~~	~~Exhibit 3.01 to Form 8-K (filed 1/23/15) SEC File No.: 001-13953~~
~~4.1~~	~~Amended and Restated Rights Agreement, dated as of March 25, 2008, between W. R. Grace & Co. and Mellon Investor Services LLC, as Rights Agent.~~	~~Exhibit 4.1 to Form 10-12B/A (filed 3/25/08) SEC File No.: 001-13953~~
~~4.2~~	~~Receivables Purchase Agreement, dated as of January 23, 2007, between Grace GmbH & Co. KG and Coface Finanz GmbH.~~	~~Exhibit 4.10 to Form 10-K (filed 3/02/07) SEC File No.: 001-13953~~


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



	~~W. R. GRACE & CO.~~
	~~By:~~	~~/s/ A. E. FESTA~~
		~~A. E. Festa~~ ~~(Chairman and Chief Executive Officer)~~
	~~By:~~	~~/s/ THOMAS E. BLASER~~
		~~Thomas E. Blaser~~ ~~(Senior Vice President and Chief Financial Officer)~~
	~~By:~~	~~/s/ WILLIAM C. DOCKMAN~~
		~~William C. Dockman~~ ~~(Vice President and Controller)~~



~~Signature~~		~~Title~~
H. F. Baldwin*	}
R. F. Cummings, Jr.*	}
J. Fasone Holder*	}
D. H. Gulyas*	}	~~Directors~~
H. La Force*	}
J. N. Quinn*	}
C. J. Steffen*	}
M. E. Tomkins*	}



~~/s/ A. E. FESTA~~		~~Chairman, Chief Executive Officer and Director (Principal Executive Officer)~~
~~(A. E. Festa)~~
~~/s/ THOMAS E. BLASER~~		~~Senior Vice President and Chief Financial Officer~~ ~~(Principal Financial Officer)~~
~~(Thomas E. Blaser)~~
~~/s/ WILLIAM C. DOCKMAN~~		~~Vice President and Controller~~ ~~(Principal Accounting Officer)~~
~~(William C. Dockman)~~


*	By signing his name hereto, Mark A. Shelnitz is signing this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.



	~~By:~~	~~/s/ MARK A. SHELNITZ~~
		~~Mark A. Shelnitz~~ ~~(Attorney-in-Fact)~~



~~Management's Report on Financial Information and Internal Controls~~		~~F-3~~
~~Report of Independent Registered Public Accounting Firm~~		~~F-4~~
~~Consent of Independent Registered Public Accounting Firm~~		~~F-6~~
~~Consolidated Statements of Operations~~		~~F-7~~
~~Consolidated Statements of Comprehensive Income~~		~~F-8~~
~~Consolidated Statements of Cash Flows~~		~~F-9~~
~~Consolidated Balance Sheets~~		~~F-10~~
~~Consolidated Statements of Equity~~		~~F-11~~
~~Notes to Consolidated Financial Statements~~		~~F-12~~
1.	~~Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies~~	~~F-12~~
2.	~~Inventories~~	~~F-17~~
3.	~~Properties and Equipment~~	~~F-18~~
4.	~~Goodwill and Other Intangible Assets~~	~~F-18~~
5.	~~Debt~~	~~F-19~~
6.	~~Fair Value Measurements and Risk~~	~~F-21~~
7.	~~Income Taxes~~	~~F-27~~
8.	~~Pension Plans and Other Postretirement Benefit Plans~~	~~F-30~~
9.	~~Other Balance Sheet Accounts~~	~~F-38~~
~~10.~~	~~Commitments and Contingent Liabilities~~	~~F-38~~
~~11.~~	~~Restructuring Expenses and Repositioning Expenses~~	~~F-41~~
~~12.~~	~~Other (Income) Expense, net~~	~~F-43~~
~~13.~~	~~Other Comprehensive Income (Loss)~~	~~F-43~~
~~14.~~	~~Shareholders' Equity~~	~~F-45~~
~~15.~~	~~Stock Incentive Plans~~	~~F-46~~
~~16.~~	~~Earnings Per Share~~	~~F-49~~
~~17.~~	~~Segment Information~~	~~F-49~~
~~18.~~	~~Unconsolidated Affiliate~~	~~F-53~~
~~19.~~	~~Acquisitions~~	~~F-55~~
~~20.~~	~~Discontinued Operations~~	~~F-55~~
~~21.~~	~~Quarterly Summary and Statistical Information (Unaudited)~~	~~F-58~~
~~Selected Financial Data~~		~~F-59~~
~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~		~~F-60~~
~~Financial Statement Schedule II—Valuation and Qualifying Accounts and Reserves~~		~~F-83~~
~~Exhibit 12~~
~~SIGNATURES~~


Management’s Report on Internal Control Over Financial Reporting		59
Report of Independent Registered Public Accounting Firm		60
Consent of Independent Registered Public Accounting Firm		62
Consolidated Statements of Operations		63
Consolidated Statements of Comprehensive Income (Loss)		64
Consolidated Statements of Cash Flows		65
Consolidated Balance Sheets		66
Consolidated Statements of Equity		67
Notes to Consolidated Financial Statements		68
1.	Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies	68
2.	Inventories	73
3.	Properties and Equipment, and Leases	73
4.	Goodwill and Other Intangible Assets	75
5.	Debt	76
6.	Fair Value Measurements and Risk	79
7.	Income Taxes	85
8.	Pension Plans and Other Retirement Plans	88
9.	Other Balance Sheet Accounts	95
10.	Commitments and Contingent Liabilities	96
11.	Restructuring Expenses and Repositioning Expenses	99
12.	Other (Income) Expense, net	100
13.	Other Comprehensive Income (Loss)	101
14.	Shareholders' Equity	102
15.	Stock Incentive Plans	103
16.	Earnings Per Share	106
17.	Revenues	106
18.	Segment Information	108
19.	Related Party Transactions	111
20.	Acquisitions	113
21.	Quarterly Financial Information (Unaudited)	114
22.	Subsequent Event	114
Financial Statement Schedule II—Valuation and Qualifying Accounts		115



/s/ ~~A. E. FESTA~~HUDSON LA FORCE						/s/ ~~THOMAS E. BLASER~~WILLIAM C. DOCKMAN
~~A. E. Festa~~Hudson La Force President and Chief Executive Officer (Principal Executive Officer)						~~Thomas E. Blaser~~ William C. Dockman Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Date: February ~~22, 2018~~25, 2021



	December 31, 2017				December 31, 2016
(In millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Technology	$	214.7	$	41.5	$	222.3	$	38.9
Customer lists	55.8		8.8		69.6		20.3
Trademarks	25.5		2.6		25.3		1.5
Other	16.0		3.7		15.7		3.1
Total	$	312.0	$	56.6	$	332.9	$	63.8



	Asset Derivatives			Liability Derivatives
December 31, 2017 (In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under ASC 815:
Currency contracts	Other current assets	$	2.7	Other current liabilities	$	1.4
Interest rate contracts	Other current assets	—		Other current liabilities	1.3
Currency contracts	Other assets	—		Other liabilities	22.2
Interest rate contracts	Other assets	—		Other liabilities	0.5
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts	Other current assets	0.4		Other current liabilities	0.2
Total derivatives		$	3.1		$	25.6



	Asset Derivatives			Liability Derivatives
December 31, 2016 (In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under ASC 815:
Currency contracts	Other current assets	$	4.0	Other current liabilities	$	—
Interest rate contracts	Other current assets	—		Other current liabilities	2.8
Currency contracts	Other assets	4.0		Other liabilities	—
Interest rate contracts	Other assets	—		Other liabilities	3.2
Derivatives not designated as hedging instruments under ASC 815:
Currency contracts	Other current assets	0.8		Other current liabilities	0.9
Total derivatives		$	8.8		$	6.9



(In millions)	Unrecognized Tax Benefits
Balance, December 31, 2014	$	26.5
Additions for current year tax positions	0.1
Additions for prior year tax positions	0.8
Reductions for prior year tax positions and reclassifications	(1.6		)
Reductions for expirations of statute of limitations	(1.5		)
Settlements	(1.2		)
Balance, December 31, 2015	23.1
Additions for current year tax positions	6.8
Additions for prior year tax positions	0.2
Reductions for prior year tax positions and reclassifications	(0.2		)
Settlements	(3.3		)
Transferred to GCP upon Separation	(7.9		)
Balance, December 31, 2016	18.7
Additions for current year tax positions	0.8
Additions for prior year tax positions	0.7
Reductions for prior year tax positions and reclassifications	(2.5		)
Balance, December 31, 2017	$	17.7



Exercise Price Range	Number Outstanding	Number Exercisable	Outstanding Weighted- Average Remaining Contractual Life (Years)	Exercisable Weighted- Average Exercise Price
$60 - $70	586,054	350,469	2.02	63.90
$70 - $80	1,200,806	724,000	2.48	75.97
$80 - $90	26,590	19,954	1.16	80.76
	1,813,450	1,094,423



	Amount (In millions)		Weighted Average Amortization Period (in years)
Customer Lists	$	39.9	20.0
Trademarks	13.4		20.0
Technology	8.3		20.0
Total	$	61.6	20.0



Change in Assumption (In millions)	Effect on 2018 Pre-Tax Pension Expense			Effect on December 31, 2017 PBO
25 basis point decrease in discount rate	$	(1	)	$	38
25 basis point increase in discount rate	1			(36		)
25 basis point decrease in expected return on plan assets	3			—
25 basis point increase in expected return on plan assets	(3		)	—



Description	Balance at beginning of period		Additions charged to costs and expenses		Deductions			Other, net(1)			Balance at end of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable(2)	$	2.8	$	10.6	$	(1.3	)	$	(0.1	)	$	12.0
Valuation allowance for deferred tax assets(3)	31.4		0.3		(19.7		)	—			12.0
Reserves:
Reserves for environmental remediation	66.3		24.4		(20.4		)	—			70.3
Reserves for retained obligations of divested businesses	11.7		1.5		(0.4		)	—			12.8