GRA-2013.03.31-10Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2013
 
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13953
W. R. GRACE & CO.
Delaware
(State of Incorporation)
 
65-0773649
(I.R.S. Employer Identification No.)
7500 Grace Drive
Columbia, Maryland 21044
(410) 531-4000
(Address and phone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
 
Outstanding at April 30, 2013
Common Stock, $0.01 par value per share
 
75,936,053 shares
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________________________
Unless the context otherwise indicates, in this Report the terms "Grace," "we," "us," "our" or "the company" mean W. R. Grace & Co. and/or its consolidated subsidiaries and affiliates. Unless otherwise indicated, the contents of websites mentioned in this report are not incorporated by reference or otherwise made a part of this Report. GRACE®, the GRACE® logo and, except as otherwise indicated, the other product names used in the text of this report are trademarks, service marks, and/or trade names of operating units of W. R. Grace & Co. or its affiliates and/or subsidiaries.


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PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
Review by Independent Registered Public Accounting Firm
With respect to the interim consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, PricewaterhouseCoopers LLP, the company's independent registered public accounting firm, has applied limited procedures in accordance with professional standards for a review of such information. Their report on the interim consolidated financial statements, which follows, states that they did not audit and they do not express an opinion on the unaudited interim financial statements. Accordingly, the degree of reliance on their report on the unaudited interim financial statements should be restricted in light of the limited nature of the review procedures applied. This report is not considered a "report" within the meaning of Sections 7 and 11 of the Securities Act of 1933, and, therefore, the independent accountants' liability under Section 11 does not extend to it.

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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of W. R. Grace & Co.:
We have reviewed the accompanying consolidated balance sheet of W.R. Grace & Co. and its subsidiaries as of March 31, 2013, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for the three-month periods ended March 31, 2013 and 2012. These interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

The accompanying interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 2 to the consolidated interim financial statements, on April 2, 2001, the Company and substantially all of its domestic subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code, which raises substantial doubt about the Company's ability to continue as a going concern in its present form. Management's intentions with respect to this matter are also described in Notes 1 and 2. The accompanying consolidated interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2012 and the related consolidated statements of operations, comprehensive income, equity (deficit), and of cash flows for the year then ended (not presented herein), and in our report dated February 27, 2013, we expressed an unqualified opinion on those consolidated financial statements with an explanatory paragraph relating to the Company's ability to continue as a going concern. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2012, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
McLean, Virginia
May 3, 2013


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W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Operations (unaudited)
 
Three Months Ended
March 31,
(In millions, except per share amounts)
2013
 
2012
Net sales
$
709.9

 
$
754.4

Cost of goods sold
446.1

 
477.3

Gross profit
263.8

 
277.1

Selling, general and administrative expenses
128.9

 
136.6

Restructuring expenses and related asset impairments
0.8

 
3.0

Research and development expenses
16.9

 
16.5

Defined benefit pension expense
18.6

 
18.8

Interest expense and related financing costs
10.5

 
11.3

Provision for environmental remediation
1.0

 
0.6

Chapter 11 expenses, net of interest income
4.8

 
4.5

Equity in earnings of unconsolidated affiliate
(5.1
)
 
(5.7
)
Other (income) expense, net
6.1

 
(0.6
)
Total costs and expenses
182.5

 
185.0

Income before income taxes
81.3

 
92.1

Provision for income taxes
(28.1
)

(30.8
)
Net income
53.2

 
61.3

Less: Net income attributable to noncontrolling interests
(0.3
)
 
(0.4
)
Net income attributable to W. R. Grace & Co. shareholders
$
52.9

 
$
60.9

Earnings Per Share Attributable to W. R. Grace & Co. Shareholders
 
 
 
Basic earnings per share:
 
 
 
Net income attributable to W. R. Grace & Co. shareholders
$
0.70

 
$
0.82

Weighted average number of basic shares
75.7


74.3

Diluted earnings per share:
 
 
 
Net income attributable to W. R. Grace & Co. shareholders
$
0.69

 
$
0.80

Weighted average number of diluted shares
77.2

 
76.4


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

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W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Comprehensive Income (unaudited)
 
Three Months Ended
March 31,
(In millions)
2013
 
2012
Net income
$
53.2

 
$
61.3

Other comprehensive income (loss):
 
 
 
Defined benefit pension and other postretirement plans, net of income taxes
36.2

 
10.1

Currency translation adjustments
(6.5
)
 
6.2

Gain (loss) from hedging activities, net of income taxes
0.4

 
(0.1
)
Total other comprehensive income attributable to noncontrolling interests
0.2

 
0.1

Total other comprehensive income
30.3

 
16.3

Comprehensive income
83.5

 
77.6

Less: comprehensive income attributable to noncontrolling interests
(0.5
)
 
(0.5
)
Comprehensive income attributable to W. R. Grace & Co. shareholders
$
83.0

 
$
77.1


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

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W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
 
Three Months Ended
March 31,
(In millions)
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net income
$
53.2

 
$
61.3

Reconciliation to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
31.1

 
29.4

Equity in earnings of unconsolidated affiliate
(5.1
)
 
(5.7
)
Dividend received from unconsolidated affiliate
2.8

 
5.2

Chapter 11 expenses, net of interest income
4.8

 
4.5

Chapter 11 expenses paid
(3.2
)
 
(3.2
)
Provision for income taxes
28.1

 
30.8

Income taxes paid, net of refunds
(11.6
)
 
(8.0
)
Interest accrued on pre-petition liabilities subject to compromise
9.0

 
9.9

Restructuring expenses and related asset impairments
0.8

 
3.0

Payments for restructuring expenses
(1.2
)
 
(2.2
)
Defined benefit pension expense
18.6

 
18.8

Payments under defined benefit pension arrangements
(53.9
)
 
(113.7
)
Provision for environmental remediation
1.0

 
0.6

Expenditures for environmental remediation
(2.6
)
 
(4.4
)
Changes in assets and liabilities, excluding effect of currency translation:
 
 
 
Trade accounts receivable
39.6

 
11.1

Inventories
(42.8
)
 
(26.1
)
Accounts payable
48.3

 
11.1

All other items, net
(66.8
)
 
(41.8
)
Net cash provided by (used for) operating activities
50.1

 
(19.4
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(38.3
)
 
(37.3
)
Transfer to restricted cash and cash equivalents
(4.0
)
 
(3.0
)
Net cash used for investing activities
(42.3
)
 
(40.3
)
FINANCING ACTIVITIES
 
 
 
Net (repayments) borrowings under credit arrangements
(17.7
)
 
0.9

Proceeds from exercise of stock options
6.3

 
12.0

Other financing activities
0.8

 
1.7

Net cash (used for) provided by financing activities
(10.6
)
 
14.6

Effect of currency exchange rate changes on cash and cash equivalents
(14.3
)
 
5.0

Decrease in cash and cash equivalents
(17.1
)
 
(40.1
)
Cash and cash equivalents, beginning of period
1,336.9

 
1,048.3

Cash and cash equivalents, end of period
$
1,319.8

 
$
1,008.2


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

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Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheets (unaudited)
(In millions, except par value and shares)
March 31,
2013
 
December 31,
2012
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,319.8

 
$
1,336.9

Restricted cash and cash equivalents
201.6

 
197.6

Trade accounts receivable, less allowance of $5.0 (2012—$5.2)
429.6

 
474.8

Accounts receivable—unconsolidated affiliate
13.8

 
15.6

Inventories
317.8

 
278.6

Deferred income taxes
52.6

 
58.3

Other current assets
94.4

 
78.4

Total Current Assets
2,429.6

 
2,440.2

Properties and equipment, net of accumulated depreciation and amortization of $1,783.7 (2012—$1,785.1)
762.5

 
770.5

Goodwill
194.3

 
196.7

Patents, licenses and other intangible assets, net
78.9

 
82.7

Deferred income taxes
927.2

 
956.3

Asbestos-related insurance
500.0

 
500.0

Overfunded defined benefit pension plans
36.5

 
33.8

Investment in unconsolidated affiliate
90.5

 
85.5

Other assets
29.9

 
24.5

Total Assets
$
5,049.4

 
$
5,090.2

LIABILITIES AND EQUITY
 
 
 
Liabilities Not Subject to Compromise
 
 
 
Current Liabilities
 
 
 
Debt payable within one year
$
67.5

 
$
83.4

Debt payable—unconsolidated affiliate
4.5

 
3.6

Accounts payable
284.8

 
249.4

Accounts payable—unconsolidated affiliate
1.4

 
2.6

Other current liabilities
238.9

 
307.3

Total Current Liabilities
597.1

 
646.3

Debt payable after one year
11.7

 
13.4

Debt payable—unconsolidated affiliate
21.7

 
22.4

Deferred income taxes
26.9

 
27.1

Underfunded and unfunded defined benefit pension plans
309.1

 
400.6

Other liabilities
45.1

 
45.0

Total Liabilities Not Subject to Compromise
1,011.6

 
1,154.8

Liabilities Subject to Compromise—Note 2
 
 
 
Debt plus accrued interest
981.1

 
973.3

Income tax contingencies
90.4

 
87.6

Asbestos-related contingencies
2,065.0

 
2,065.0

Environmental contingencies
139.3

 
140.5

Postretirement benefits
185.1

 
188.1

Other liabilities and accrued interest
165.3

 
162.6

Total Liabilities Subject to Compromise
3,626.2

 
3,617.1

Total Liabilities
4,637.8

 
4,771.9

Commitments and Contingencies—Note 10

 

Equity
 
 
 
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 75,871,645 (2012—75,565,409)
0.8

 
0.8

Paid-in capital
542.7

 
536.5

Retained earnings
448.1

 
395.2

Treasury stock, at cost: shares: 1,108,115 (2012—1,414,351)
(13.2
)
 
(16.8
)
Accumulated other comprehensive loss
(577.2
)
 
(607.3
)
Total W. R. Grace & Co. Shareholders' Equity
401.2

 
308.4

Noncontrolling interests
10.4

 
9.9

Total Equity
411.6

 
318.3

Total Liabilities and Equity
$
5,049.4

 
$
5,090.2


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

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Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Equity (unaudited)
(In millions)
Common
Stock
and
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
Equity
Balance, December 31, 2011
$
473.6

 
$
301.1

 
$
(36.8
)
 
$
(578.5
)
 
$
8.1

 
$
167.5

Net income

 
60.9

 

 

 
0.4

 
61.3

Stock plan activity
6.2

 

 
8.1

 

 

 
14.3

Other comprehensive income

 

 

 
16.2

 
0.1

 
16.3

Balance, March 31, 2012
$
479.8

 
$
362.0

 
$
(28.7
)
 
$
(562.3
)
 
$
8.6

 
$
259.4

Balance, December 31, 2012
$
537.3

 
$
395.2

 
$
(16.8
)
 
$
(607.3
)
 
$
9.9

 
$
318.3

Net income

 
52.9

 

 

 
0.3

 
53.2

Stock plan activity
6.2

 

 
3.6

 

 

 
9.8

Other comprehensive income

 

 

 
30.1

 
0.2

 
30.3

Balance, March 31, 2013
$
543.5

 
$
448.1

 
$
(13.2
)
 
$
(577.2
)
 
$
10.4

 
$
411.6


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

9

Table of Contents

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 specialty chemicals and specialty materials businesses on a global basis through three operating segments: Grace Catalysts Technologies, which includes catalysts and related products used in refining, petrochemical and other chemical manufacturing applications; Grace Materials Technologies, which includes packaging technologies and engineered materials used in consumer, industrial, coatings, and pharmaceutical applications; and Grace Construction Products, which includes specialty construction chemicals and specialty building materials used in commercial, infrastructure and residential construction.
W. R. Grace & Co. conducts substantially all of its business through a direct, wholly owned subsidiary, W. R. Grace & Co.-Conn. ("Grace-Conn."). Grace-Conn. owns substantially 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" refers to W. R. Grace & Co. The term "Grace" refers to the Company and/or one or more of its subsidiaries and, in certain cases, their respective predecessors.
Voluntary Bankruptcy Filing    During 2000 and the first quarter of 2001, Grace experienced several adverse developments in its asbestos-related litigation, including: a significant increase in personal injury claims, higher than expected costs to resolve personal injury and certain property damage claims, and class action lawsuits alleging damages from ZONOLITE® Attic Insulation ("ZAI"), a former Grace attic insulation product.
After a thorough review of these developments, Grace's Board of Directors concluded that a federal court-supervised bankruptcy process provided the best forum available to achieve fairness in resolving these claims and on April 2, 2001 (the "Filing Date"), Grace and 61 of its United States subsidiaries and affiliates, (collectively, the "Debtors"), filed voluntary petitions for reorganization (the "Filing") under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The cases were consolidated and are being jointly administered under case number 01-01139 (the "Chapter 11 Cases"). Grace's non-U.S. subsidiaries and certain of its U.S. subsidiaries were not included in the Filing.
Under Chapter 11, the Debtors have continued to operate their businesses as debtors-in-possession under court protection from creditors and claimants, while using the Chapter 11 process to develop and implement a plan for addressing the asbestos-related claims. Since the Filing, all motions necessary to conduct normal business activities have been approved by the Bankruptcy Court. (See Note 2 for Chapter 11 Information.)
Basis of Presentation    The interim Consolidated Financial Statements presented herein are unaudited and should be read in conjunction with the Consolidated Financial Statements presented in the Company's 2012 Annual Report on Form 10-K. Such interim Consolidated Financial Statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented; all such adjustments are of a normal recurring nature except for the impacts of adopting new accounting standards as discussed below. All significant intercompany accounts and transactions have been eliminated.
The results of operations for the three-month interim period ended March 31, 2013, are not necessarily indicative of the results of operations for the year ending December 31, 2013.
Reclassifications and Revisions    Certain amounts in prior years' Consolidated Financial Statements have been reclassified to conform to the current year presentation. Such reclassifications have not materially affected previously reported amounts in the Consolidated Financial Statements.
Certain prior period amounts have been revised to correct the previous classification. Cash payments associated with capital expenditures of $12.3 million for the period ended March 31, 2012, previously classified as operating activities in the Statements of Cash Flows have been revised to investing activities. In addition, cash payments associated with capital expenditures of $4.6 million and $9.6 million for the periods ended June 30, 2012, and September 30, 2012, respectively, previously classified as operating activities in the Statements of Cash Flows will be revised to investing activities.
Grace concluded that these revisions were not material to the prior-year Consolidated Financial Statements.
Use of Estimates    The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

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

reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual amounts could differ from those estimates, and the differences could be material. Changes in estimates are recorded in the period identified. Grace's accounting measurements that are most affected by management's estimates of future events are:
Contingent liabilities, which depend on an assessment of the probability of loss and an estimate of ultimate resolution cost, such as asbestos-related matters and litigation (see Notes 2 and 3), income taxes (see Note 7), and environmental remediation (see Note 10);
Pension and postretirement liabilities that depend on assumptions regarding participant life spans, future inflation, discount rates and total returns on invested funds (see Note 8);
Realization values of net deferred tax assets and insurance receivables, which depend on projections of future income and cash flows and assessments of insurance coverage and insurer solvency; and
Recoverability of goodwill, which depends on assumptions used to value reporting units, such as observable market inputs, projections of future cash flows and weighted average cost of capital. The Grace Construction Products (GCP) Europe reporting unit continues to operate in a challenging environment. While the fair value of this reporting unit exceeded the carrying value at its last testing date and management does not believe that impairment is probable, the business must continue to improve its performance in future periods, consistent with expectations, to sustain the goodwill carrying value.
The accuracy of management's estimates may be materially affected by the uncertainties arising under Grace's Chapter 11 proceeding.
Currency Translation    On February 8, 2013, the Venezuelan government announced that, effective February 13, 2013, the official exchange rate of the bolivar to U.S. dollar would devalue from 4.3 to 6.3. As a result of this currency devaluation, Grace incurred a charge to net income of $8.5 million in the 2013 first quarter. Of this amount, $1.6 million is included in segment operating income.
Effect of New Accounting Standards    In June 2011, the FASB issued ASU 2011-05 "Presentation of Comprehensive Income". This update is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new disclosure requirements are effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years, with early adoption permitted. In December 2011, the FASB issued ASU 2011-12 "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05". This update defers certain paragraphs of ASU 2011-05 pertaining to reclassification adjustments out of accumulated other comprehensive income. This deferral is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years, with early adoption permitted. Grace continues to report its Consolidated Statement of Other Comprehensive Income as a separate financial statement, immediately following the Consolidated Statement of Operations to comply with the updates that have not been deferred. In February 2013, the FASB issued ASU 2013-02 "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income", which further clarifies these disclosure requirements. This update is effective for fiscal years beginning after December 15, 2012, and for interim periods within those fiscal years, with early adoption permitted. Grace adopted this update in the 2013 first quarter and it did not have a material effect on the Consolidated Financial Statements.
In December 2011, the FASB issued ASU 2011-11 "Disclosures about Offsetting Assets and Liabilities". This update is intended to improve the comparability of statements of financial position prepared in accordance with U.S. GAAP and IFRS, requiring both gross and net information about offsetting assets and liabilities. The new requirements are effective for fiscal years beginning on or after January 1, 2013, and for interim periods within those fiscal years. In January 2013, the FASB issued ASU 2013-01 "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities", which clarifies these disclosure requirements. These standards are effective for fiscal years beginning on or after January 1, 2013, and for interim periods within those fiscal years. Grace adopted these standards for the 2013 first quarter and they did not have a material effect on the Consolidated Financial Statements.

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information

Official Parties to Grace's Chapter 11 Cases    The Bankruptcy Court has appointed four official committees. The Official Committee of Asbestos Personal Injury Claimants (the "PI Committee") and the Official Committee of Asbestos Property Damage Claimants (the "PD Committee") respectively represent two different asbestos claimant constituencies. The other two committees are the Official Committee of Unsecured Creditors (the "Creditors' Committee"), which represents general unsecured creditors, and the Official Committee of Equity Security Holders (the "Equity Committee"), which represents equity security holders. These committees, along with a legal representative of future asbestos personal injury claimants (the "PI FCR") and a legal representative of future asbestos property damage claimants (the "PD FCR"), have the right to be heard on all matters that come before the Bankruptcy Court and have important roles in the Chapter 11 Cases. The Debtors are required to bear certain costs and expenses of the committees and the representatives of future asbestos claimants, including those of their counsel and financial advisors.
As discussed below, the Debtors, the Equity Committee, the PI Committee and the PI FCR have filed a joint plan of reorganization, subsequently amended, with the Bankruptcy Court that is designed to address all pending and future asbestos-related claims and all other pre-petition claims as outlined therein (as amended to date, the "Joint Plan"). The Creditors' Committee, the PD Committee and the PD FCR are not co-proponents of the Joint Plan. On January 31, 2011, the Bankruptcy Court issued an order confirming the Joint Plan. On January 31, 2012, the United States District Court for the District of Delaware (the "District Court") issued an order affirming the Bankruptcy Court's confirmation order, denying all appeals from the confirmation order and confirming the Joint Plan in its entirety. Appeals have been filed challenging the District Court order confirming the Joint Plan. The resolution of any such appeals could have a material effect on the terms and timing of Grace's emergence from Chapter 11. In order for the Joint Plan to become effective, all conditions to the effective date set forth in the Joint Plan must be satisfied or waived.
Plans of Reorganization    Prior to 2008, competing plans of reorganization were filed by Grace and jointly by the PI Committee and the PI FCR. Grace filed its first proposed plan with the Bankruptcy Court in November 2004 and amended it in January 2005 (the "Prior Plan"). However, in April 2008, the Debtors reached an agreement in principle with the PI Committee, the PI FCR, and the Equity Committee designed to resolve all present and future asbestos-related personal injury claims (the "PI Settlement"). A trial for estimating liability for such claims began in January 2008 but was suspended in April 2008 as a result of the PI Settlement.
As contemplated by the PI Settlement, in September 2008, the Debtors, supported by the Equity Committee, the PI Committee and the PI FCR, as co-proponents, filed the Joint Plan to reflect the terms of the PI Settlement. The Joint Plan supersedes the Prior Plan and all other previously filed plans.
In November 2008, the Debtors reached an agreement in principle (the "ZAI PD Term Sheet") with the Putative Class Counsel to the U.S. ZAI claimants, the PD FCR, and the Equity Committee designed to resolve all present and future U.S. ZAI property damage claims and demands.
In January 2011, the Company, Grace Canada, Inc. and legal representatives of Canadian ZAI property damage claimants became parties to an agreement that would settle all Canadian ZAI property damage claims and demands (the "Canadian ZAI Settlement"). Under that agreement, all Canadian ZAI property damage claims and demands would be paid through a separate Canadian ZAI property damage claims fund of CDN$8.6 million. The Canadian ZAI Settlement is subject to the effectiveness of the Joint Plan.
The Joint Plan is designed to address all pending and future asbestos-related claims and all other pre-petition claims as outlined therein. Under the Joint Plan, two asbestos trusts would be established under Section 524(g) of the Bankruptcy Code. All asbestos-related personal injury claims would be channeled for resolution to one asbestos trust (the "PI Trust") and all asbestos-related property damage claims, including U.S. and Canadian ZAI property damage claims, would be channeled to a separate asbestos trust (the "PD Trust"). Amendments and technical modifications to the Joint Plan and several associated documents were filed by the Debtors and co-proponents on nine occasions from December 2008 through December 2010 to, among other things, reflect the agreements described above.
The Joint Plan assumes that Cryovac, Inc. ("Cryovac"), a wholly owned subsidiary of Sealed Air Corporation ("Sealed Air"), will fund the PI Trust and the PD Trust with an aggregate of: (i) $512.5 million in cash (plus interest at 5.5% compounded annually from December 21, 2002); and (ii) 18 million shares (reflecting a two-for-one stock split) of common stock of Sealed Air, pursuant to the terms of a settlement agreement resolving asbestos-related,

12

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Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

successor liability and fraudulent transfer claims against Sealed Air and Cryovac (the "Sealed Air Settlement"). The value of the Sealed Air Settlement changes daily with the accrual of interest and the trading value of Sealed Air common stock. The Joint Plan also assumes that Fresenius AG ("Fresenius") will fund the PI Trust and the PD Trust with an aggregate of $115.0 million pursuant to the terms of a settlement agreement resolving asbestos-related, successor liability and fraudulent transfer claims against Fresenius (the "Fresenius Settlement"). The Sealed Air Settlement and the Fresenius Settlement have been approved by the Bankruptcy Court but remain subject to the fulfillment of specified conditions.
Any plan of reorganization, including the Joint Plan and any plan of reorganization that may be filed in the future by a party-in-interest, will become effective only after a vote of eligible creditors and with the approval of the Bankruptcy Court and the District Court.
All classes of creditors entitled to vote accepted the Joint Plan in May 2009. The class of general unsecured creditors, who voted on a provisional basis pending a determination as to whether the class is impaired and therefore entitled to a vote, voted to reject the Joint Plan. In January 2011, the Bankruptcy Court issued an order confirming the Joint Plan and overruling all objections. In January 2012, the District Court issued an order affirming the Bankruptcy Court's confirmation order, denying all appeals from the confirmation order and confirming the Joint Plan in its entirety. On June 11, 2012, the District Court reaffirmed the confirmation order and the denial of all appeals after motions for reconsideration.
Eight parties filed notices of appeal with the United States Court of Appeals for the Third Circuit (the "Third Circuit") on or before the July 11, 2012, deadline for appeals, of which five remain pending. The appeals generally relate to demands for interest at rates higher than provided for in the Joint Plan, the validity of the asbestos channeling injunctions, and the classification and treatment of claims under the Joint Plan.
On June 5, 2012, the Bankruptcy Court approved agreements among Grace, co-proponents of the Joint Plan, BNSF, and the representatives of Libby, Montana, asbestos personal injury claimants to settle certain objections to the Joint Plan. Those agreements became effective on September 21, 2012, resulting in the withdrawal of the appeals to the Joint Plan by the Libby claimants, BNSF and an insurance company. In addition, in accordance with the agreements, Grace transferred responsibility for the former Grace-operated Libby Medical Program to a locally administered trust and funded the trust with a one-time payment of $19.6 million. Payments to Libby claimants under the Joint Plan are not affected by the Grace-Libby agreement.
The timing of the effectiveness of the Joint Plan and Grace's subsequent emergence will depend on a favorable ruling by the Third Circuit and the satisfaction or waiver by Grace, Grace's co-proponents under the Joint Plan, and Sealed Air and Fresenius of the remaining conditions to effectiveness set forth in the Joint Plan, including the availability of any required exit financing and the final resolution of all appeals.
If any of the appeals are resolved adversely to Grace and the other Joint Plan proponents, the Joint Plan may be amended to address the deficiencies identified by the Third Circuit or the Joint Plan may be terminated and a new plan proposed. If the Joint Plan cannot be amended to address all deficiencies identified by the Third Circuit in a manner satisfactory to Grace and the other Joint Plan proponents and Grace cannot reach an agreement with its asbestos creditors on the terms of a new plan of reorganization, Grace would expect to resume the estimation trial, which was suspended in April 2008 due to the PI Settlement, to determine the amount of the asbestos-related liabilities. Whether the Joint Plan is amended or a different plan of reorganization is ultimately confirmed, the value of the interests of holders of Company common stock could be materially different than under the current Joint Plan and the Company common stock could be substantially diluted or canceled.
Joint Plan of Reorganization    Under the terms of the Joint Plan, claims under the Chapter 11 Cases would be satisfied as follows:
Asbestos-Related Personal Injury Claims
All pending and future asbestos-related personal injury claims and demands ("PI Claims") would be channeled to the PI Trust for resolution. The PI Trust would use specified trust distribution procedures to satisfy allowed PI Claims.

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Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

The PI Trust would be funded with:
$250 million in cash plus interest thereon from January 1, 2009, to the effective date of the Joint Plan to be paid by Grace;
Cash in the amount of the PD Initial Payment (as described below) and the ZAI Initial Payment (as described below) to be paid by Grace;
A warrant to acquire 10 million shares of Company common stock at an exercise price of $17.00 per share, expiring one year from the effective date of the Joint Plan. This obligation will be settled in cash with the PI Trust as discussed below;
Rights to all proceeds under all of the Debtors' insurance policies that are available for payment of PI Claims;
Cash in the amount of $512.5 million plus interest thereon from December 21, 2002, to the effective date of the Joint Plan at a rate of 5.5% per annum to be paid by Cryovac reduced by the amount of Cryovac's contribution to the PD Initial Payment and the ZAI Initial Payment (as described below) and 18 million shares of Sealed Air common stock to be paid by Cryovac pursuant to the Sealed Air Settlement;
Cash in the amount of $115 million to be paid by Fresenius pursuant to the Fresenius Settlement reduced by the amount of Fresenius' contribution to the PD Initial Payment and the ZAI Initial Payment (as described below); and
Deferred payments by Grace of $110 million per year for 5 years beginning in 2019, and $100 million per year for 10 years beginning in 2024, that would be subordinate to any bank debt or bonds outstanding, guaranteed by the Company and secured by the Company's obligation to issue 50.1% of its outstanding common stock (measured as of the effective date of the Joint Plan) to the PI Trust in the event of default.
Asbestos-Related Property Damage Claims
All pending and future asbestos-related property damage claims and demands ("PD Claims") would be channeled to the PD Trust for resolution. The PD Trust would contribute CDN$8.6 million to a separate Canadian ZAI PD Claims fund through which Canadian ZAI PD Claims would be resolved. The PD Trust would generally resolve U.S. ZAI PD Claims that qualify for payment by paying 55% of the claimed amount, but in no event would the PD Trust pay more per claim than 55% of $7,500 (as adjusted for inflation each year after the fifth anniversary of the effective date of the Joint Plan). The PD Trust would satisfy other allowed PD Claims pursuant to specified trust distribution procedures with cash payments in the allowed settlement amount. Unresolved PD Claims and future PD claims would be litigated pursuant to procedures to be approved by the Bankruptcy Court and, to the extent such claims were determined to be allowed claims, would be paid in cash by the PD Trust in the amount determined by the Bankruptcy Court.
The PD Trust would contain two accounts, the PD account and the ZAI PD account. U.S. ZAI PD Claims would be paid from the ZAI PD account and other PD Claims would be paid from the PD account. The separate Canadian ZAI PD Claims would be paid by a separate fund established in Canada. Each account would have a separate trustee and the assets of the accounts would not be commingled. The two accounts would be funded as follows:
The PD account would be funded with:
Approximately $152 million in cash plus cash in the amount of the estimated first six months of PD Trust expenses, to be paid by Cryovac and Fresenius (the "PD Initial Payment"), and CDN$8.6 million in cash to be paid by Grace pursuant to the Canadian ZAI Settlement.
A Grace obligation (the "PD Obligation") providing for a payment to the PD Trust every six months in the amount of the non-ZAI PD Claims allowed during the preceding six months plus interest and, except for the first six months, the amount of PD Trust expenses for the preceding six months. The aggregate amount to be paid under the PD Obligation would not be capped.

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

The ZAI PD account would be funded as follows (the "ZAI Assets"):
$30 million in cash plus interest from April 1, 2009, to the effective date of the Joint Plan, to be paid by Cryovac and Fresenius (the "ZAI Initial Payment").
$30 million in cash on the third anniversary of the effective date of the Joint Plan, to be paid by Grace.
A Grace obligation providing for the payment of up to 10 contingent deferred payments of $8 million per year during the 20-year period beginning on the fifth anniversary of the effective date of the Joint Plan, with each such payment due only if the ZAI Assets fall below $10 million during the preceding year.
All payments to the PD Trust that were not to be paid on the effective date of the Joint Plan would be secured by the Company's obligation to issue 50.1% of its outstanding common stock (measured as of the effective date of the Joint Plan) to the PD Trust in the event of default. Grace would have the right to conduct annual audits of the books, records and claim processing procedures of the PD Trust.
Other Claims
All allowed administrative claims would be paid in cash and all allowed priority claims would be paid in cash with interest. Secured claims would be paid in cash with interest or by reinstatement. Allowed general unsecured claims would be paid in cash, including any post-petition interest as follows: (i) for holders of pre-petition bank credit facilities, post-petition interest at the rate of 6.09% from the Filing Date through December 31, 2005, and thereafter at floating prime, in each case compounded quarterly; and (ii) for all other unsecured claims that are not subject to a settlement agreement providing otherwise, interest at 4.19% from the Filing Date, compounded annually, or if pursuant to an existing contract, interest at the non-default contract rate. The general unsecured creditors that hold pre-petition bank debt have argued that they are entitled to post-petition interest at the default rate specified under the terms of the underlying credit agreements, which they asserted was approximately an additional $185 million as of December 31, 2012, and growing (Grace believes that if default interest was ultimately determined to be payable, the additional amount of accrued interest would be substantially less than that asserted by the pre-petition bank debt holders). The Bankruptcy Court and the District Court have overruled this assertion and the pre-petition bank debt holders have appealed these rulings to the Third Circuit. Unsecured employee-related claims such as pension, retirement medical obligations and workers compensation claims would be reinstated.
Effect on Company Common Stock
The Joint Plan provides that Company common stock will remain outstanding at the effective date of the Joint Plan, but that the interests of existing shareholders would be subject to dilution in the event of default with respect to the deferred payment obligations to the PI Trust or the PD Trust under the Company's security obligation.
In order to preserve significant tax benefits which are subject to elimination or limitation in the event of a change in control (as defined by the Internal Revenue Code) of Grace, the Joint Plan provides that under certain circumstances, the Board of Directors would have the authority to impose restrictions on the transfer of Grace common stock with respect to certain 5% shareholders. These restrictions will generally not limit the ability of a person that holds less than 5% of Grace common stock after emergence to either buy or sell stock on the open market. In addition, the Bankruptcy Court has approved trading restrictions on Grace common stock until the effective date of a plan of reorganization. These restrictions prohibit (without the consent of the Company) a person from acquiring more than 4.75% of the outstanding Grace common stock or, for any person already holding more than 4.75%, from increasing such person's holdings. This summary of the stock transfer restrictions does not purport to be complete and is qualified in its entirety by reference to the order of the Bankruptcy Court, which has been filed with the SEC.
On October 25, 2012, Grace reached agreement with the PI Committee, the PI FCR and the Equity Committee to settle the warrant in cash during the one-year period after the effective date of the Joint Plan. Under the terms of the agreement, Grace will repurchase the warrant issued to the PI Trust for a price equal to the average of the daily closing prices of Grace common stock during the period commencing one day after the effective date of the Joint Plan and ending on the day prior to the date the PI Trust elects to sell the warrant back to Grace, multiplied by 10 million (the number of shares issuable under the warrant), less $170 million (the aggregate exercise price of the warrant), provided that if the average of the daily closing prices is less than $54.50 per share, then the repurchase price would be $375 million, and if the average of the daily closing prices exceeds $66.00 per

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Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

share, then the repurchase price would be $490 million. The agreement is terminable by the PI Trust in the event a tender offer, or other proposed transaction that would result in a change in control of the Company, is announced during the one year period after the effective date of the Joint Plan. In such event, the warrant would be settled in stock. The agreement was approved by the Bankruptcy Court on December 11, 2012.
Claims Filings    The Bankruptcy Court established a claims bar date of March 31, 2003, for claims of general unsecured creditors, PD Claims (other than ZAI PD Claims) and medical monitoring claims related to asbestos. The March 31, 2003, claims bar date did not apply to PI Claims or claims related to ZAI PD Claims.
Approximately 14,900 proofs of claim were filed by the March 31, 2003, claims bar date. Of these claims, approximately 9,500 were non-asbestos-related, approximately 4,400 were PD Claims, and approximately 1,000 were for medical monitoring. Under the Joint Plan, the medical monitoring claims would be channeled to the PI Trust for resolution. In addition, approximately 800 proofs of claim were filed after the claims bar date.
Approximately 6,940 non-asbestos-related claims were filed by employees or former employees (the "Employee Claims") for benefits arising from Grace's employee benefit plans. As of March 31, 2013, approximately 170 of these claims remain pending and are to be addressed through the claim objection process and the dispute resolution procedures approved by the Bankruptcy Court.
The remaining non-asbestos, non-employee-related claims include claims for amounts due under pre-petition credit facilities, leases and other contracts, environmental remediation, taxes, and non-asbestos-related personal injury. As of March 31, 2013, of the approximately 3,300 of these claims filed, approximately 115 claims remain pending and are to be addressed through the claim objection process and the dispute resolution procedures approved by the Bankruptcy Court. As of March 31, 2013, of the approximately 4,335 non-ZAI PD Claims filed, approximately 20 claims remain pending and are to be addressed through the property damage case management order approved by the Bankruptcy Court and/or the Joint Plan or another plan of reorganization.
Additionally, by order dated June 17, 2008, the Bankruptcy Court established October 31, 2008, as the claims bar date for ZAI PD Claims related to property located in the U.S. Approximately 17,960 U.S. ZAI PD Claims were filed prior to the October 31, 2008, claims bar date and, as of March 31, 2013, an additional 1,310 U.S. ZAI PD Claims were filed. Under the Canadian ZAI Settlement, all Canadian ZAI PD Claimants who filed a proof of claim by December 31, 2009, would be entitled to seek compensation from the Canadian ZAI PD Claims Fund. Approximately 14,100 Canadian ZAI PD Claims were filed by December 31, 2009. The Joint Plan provides for the channeling of U.S. ZAI PD Claims and Canadian ZAI PD Claims to the PD Trust created under the Joint Plan, and the subsequent transfer of Canadian ZAI PD Claims to a separate Canadian fund. No claims bar date has been set for personal injury claims related to ZAI. The Joint Plan provides that ZAI PI Claims would be channeled to the PI Trust created under the Joint Plan.
Grace is continuing to analyze and review unresolved claims in relation to the Joint Plan. Grace believes that its recorded liabilities for claims subject to the March 31, 2003, claims bar date represent a reasonable estimate of the ultimate allowable amount for claims that are not in dispute or have been submitted with sufficient information to both evaluate the merit and estimate the value of the claim. The PD Claims are considered as part of Grace's overall asbestos liability and are being accounted for as described in Note 3.
Debt Capital    All of the Debtors' pre-petition debt is in default due to the Filing. The accompanying Consolidated Balance Sheets reflect the classification of the Debtors' pre-petition debt within "liabilities subject to compromise."
Grace maintains a $100 million cash-collateralized letter of credit facility with a commercial bank to support existing and new financial assurances.
Accounting Impact    The accompanying Consolidated Financial Statements have been prepared in accordance with ASC 852 "Reorganizations". ASC 852 requires that financial statements of debtors-in-possession be prepared on a going concern basis, which contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Filing, the realization of certain of the Debtors' assets and the liquidation of certain of the Debtors' liabilities are subject to significant uncertainty. While operating as debtors-in-possession, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Consolidated Financial Statements. Further, the

16

Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

ultimate plan of reorganization could materially change the amounts and classifications reported in the Consolidated Financial Statements.
Pursuant to ASC 852, Grace's pre-petition and future liabilities that are subject to compromise are required to be reported separately on the balance sheet at an estimate of the amount that will ultimately be allowed by the Bankruptcy Court. As of March 31, 2013, such pre-petition liabilities include fixed obligations (such as debt and contractual commitments), as well as estimates of costs related to contingent liabilities (such as asbestos-related litigation, environmental remediation and other claims). Obligations of Grace subsidiaries not covered by the Filing continue to be classified on the Consolidated Balance Sheets based upon maturity dates or the expected dates of payment. ASC 852 also requires separate reporting of certain expenses, realized gains and losses, and provisions for losses related to the Filing as reorganization items. Grace presents reorganization items as "Chapter 11 expenses, net of interest income," a separate caption in its Consolidated Statements of Operations.
Grace has not recorded the benefit of any assets that may be available to fund asbestos-related and other liabilities under the Fresenius Settlement and the Sealed Air Settlement, as under the Joint Plan, these assets will be transferred to the PI Trust and the PD Trust. The estimated fair value available under the Fresenius Settlement and the Sealed Air Settlement as measured at March 31, 2013, was $1,438 million, composed of $115 million in cash from Fresenius and $1,323 million in cash and stock from Cryovac under the Joint Plan. Payments under the Sealed Air Settlement will be made directly to the PI Trust and the PD Trust by Cryovac.
Grace's Consolidated Balance Sheets separately identify the liabilities that are "subject to compromise" as a result of the Chapter 11 proceedings. In Grace's case, "liabilities subject to compromise" represent both pre-petition and future liabilities as determined under U.S. GAAP. Changes to pre-petition liabilities subsequent to the Filing Date reflect: (1) cash payments under approved court orders; (2) the terms of the Joint Plan, as discussed above and in Note 3, including the accrual of interest on pre-petition debt and other fixed obligations; (3) accruals for employee-related programs; and (4) changes in estimates related to other pre-petition contingent liabilities. The accounting for the asbestos-related liability component of "liabilities subject to compromise" is described in Note 3.
Components of liabilities subject to compromise are as follows:
(In millions)
March 31,
2013
 
December 31,
2012
Asbestos-related contingencies
$
2,065.0

 
$
2,065.0

Pre-petition bank debt plus accrued interest
944.6

 
937.2

Environmental contingencies
139.3

 
140.5

Unfunded special pension arrangements
131.8

 
134.3

Income tax contingencies
90.4

 
87.6

Postretirement benefits other than pension
63.7

 
63.9

Drawn letters of credit plus accrued interest
36.5

 
36.1

Accounts payable
31.3

 
31.3

Retained obligations of divested businesses
28.4

 
29.0

Other accrued liabilities
105.6

 
102.3

Reclassification to current liabilities(1)
(10.4
)
 
(10.1
)
Total Liabilities Subject to Compromise
$
3,626.2

 
$
3,617.1

_______________________________________________________________________________
(1)
As of March 31, 2013, and December 31, 2012, approximately $10.4 million and $10.1 million, respectively, of certain pension and postretirement benefit obligations subject to compromise have been presented in "other current liabilities" in the Consolidated Balance Sheets in accordance with ASC 715 "Compensation—Retirement Benefits".
Note that the unfunded special pension arrangements reflected above exclude non-U.S. pension plans and qualified U.S. pension plans that became underfunded subsequent to the Filing. Contributions to qualified U.S. pension plans are subject to Bankruptcy Court approval.

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

Change in Liabilities Subject to Compromise
The following table is a reconciliation of the changes in pre-filing date liability balances for the period from the Filing Date through March 31, 2013.
(In millions) (Unaudited)
Cumulative
Since Filing
Balance, Filing Date April 2, 2001
$
2,366.0

Cash disbursements and/or reclassifications under Bankruptcy Court orders:
 
Payment of environmental settlement liability
(252.0
)
Freight and distribution order
(5.7
)
Trade accounts payable order
(9.1
)
Resolution of contingencies subject to Chapter 11
(130.0
)
Other court orders for payments of certain operating expenses
(383.1
)
Expense (income) items:
 
Interest on pre-petition liabilities
559.0

Employee-related accruals
129.0

Provision for asbestos-related contingencies
1,109.8

Provision for environmental contingencies
356.1

Release of income tax contingencies
(77.7
)
Balance sheet reclassifications
(36.1
)
Balance, end of period
$
3,626.2

Additional liabilities subject to compromise may arise due to the rejection of executory contracts or unexpired leases, or as a result of the Bankruptcy Court's allowance of contingent or disputed claims.
For the holders of pre-petition bank credit facilities, beginning January 1, 2006, Grace agreed to pay interest on pre-petition bank debt at the prime rate, adjusted for periodic changes, and compounded quarterly. The effective rate for the three months ended March 31, 2013 and 2012, was 3.25%. From the Filing Date through December 31, 2005, Grace accrued interest on pre-petition bank debt at a negotiated fixed annual rate of 6.09%, compounded quarterly. The pre-petition bank debt holders have argued that they are entitled to post-petition interest at the default rate specified under the terms of the underlying credit agreements, which they asserted was approximately an additional $185 million as of December 31, 2012, and growing (Grace believes that if default interest was ultimately determined to be payable, the additional amount of accrued interest would be substantially less than that asserted by the pre-petition bank debt holders). The Bankruptcy Court and the District Court have overruled this assertion and the pre-petition bank debt holders have appealed these rulings to the Third Circuit.
For the holders of claims who, but for the Filing, would be entitled under a contract or otherwise to accrue or be paid interest on such claim in a non-default (or non-overdue payment) situation under applicable non-bankruptcy law, Grace accrues interest at the rate provided in the contract between the Grace entity and the claimant or such rate as may otherwise apply under applicable non-bankruptcy law.
For all other holders of allowed general unsecured claims, Grace accrues interest at a rate of 4.19% per annum, compounded annually, unless otherwise negotiated during the claim settlement process.

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

Chapter 11 Expenses
 
Three Months Ended
March 31,
(In millions)
2013
 
2012
Legal and financial advisory fees
$
5.0

 
$
4.7

Interest income
(0.2
)
 
(0.2
)
Chapter 11 expenses, net of interest income
$
4.8

 
$
4.5

Pursuant to ASC 852, interest income earned on the Debtors' cash balances must be offset against Chapter 11 expenses.
Condensed Financial Information of the Debtors
W. R. Grace & Co.—Chapter 11 Filing Entities
Debtor-in-Possession Statements of Operations
 
Three Months Ended
March 31,
(In millions) (Unaudited)
2013
 
2012
Net sales, including intercompany
$
347.1

 
$
364.3

Cost of goods sold, including intercompany, exclusive of depreciation and amortization shown separately below
219.8

 
226.0

Selling, general and administrative expenses
57.5

 
67.5

Defined benefit pension expense
12.2

 
13.5

Depreciation and amortization
17.3

 
16.5

Chapter 11 expenses, net of interest income
4.8

 
4.5

Research and development expenses
9.5

 
9.3

Interest expense and related financing costs
9.2

 
10.3

Restructuring expenses
0.4

 
2.4

Provision for environmental remediation
1.0

 
0.4

Other income, net
(13.6
)
 
(12.6
)
 
318.1

 
337.8

Income before income taxes and equity in net income of non-filing entities
29.0

 
26.5

Provision for income taxes
(11.8
)
 
(10.0
)
Income before equity in net income of non-filing entities
17.2

 
16.5

Equity in net income of non-filing entities
35.7

 
44.4

Net income attributable to W. R. Grace & Co. shareholders
$
52.9

 
$
60.9



19

Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

W. R. Grace & Co.—Chapter 11 Filing Entities
Debtor-in-Possession Statements of Cash Flows
 
Three Months Ended
March 31,
(In millions) (Unaudited)
2013
 
2012
Operating Activities
 
 
 
Net income attributable to W. R. Grace & Co. shareholders
$
52.9

 
$
60.9

Reconciliation to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
17.3

 
16.5

Equity in net income of non-filing entities
(35.7
)
 
(44.4
)
Provision for income taxes
11.8

 
10.0

Income taxes paid, net of refunds
(1.0
)
 
(0.2
)
Defined benefit pension expense
12.2

 
13.5

Payments under defined benefit pension arrangements
(51.4
)
 
(110.7
)
Changes in assets and liabilities, excluding the effect of foreign currency translation:
 
 
 
Trade accounts receivable
11.3

 
6.3

Inventories
(10.0
)
 
11.5

Accounts payable
23.9

 
(17.1
)
All other items, net
(22.6
)
 
(23.0
)
Net cash provided by (used for) operating activities
8.7

 
(76.7
)
Investing Activities
 
 
 
Capital expenditures
(19.4
)
 
(22.5
)
Transfer to restricted cash and cash equivalents
(1.6
)
 
(6.9
)
Net cash used for investing activities
(21.0
)
 
(29.4
)
Financing Activities
 
 
 
Net borrowings under credit arrangements
0.2

 
0.9

Proceeds from exercise of stock options
6.3

 
12.0

Net cash provided by financing activities
6.5

 
12.9

Net decrease in cash and cash equivalents
(5.8
)
 
(93.2
)
Cash and cash equivalents, beginning of period
1,064.2

 
788.6

Cash and cash equivalents, end of period
$
1,058.4

 
$
695.4



20

Table of Contents
Notes to Consolidated Financial Statements (Continued)

2. Chapter 11 Information (Continued)

W. R. Grace & Co.—Chapter 11 Filing Entities
Debtor-in-Possession Balance Sheets
(In millions) (Unaudited)
March 31,
2013
 
December 31, 2012
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,058.4

 
$
1,064.2

Restricted cash and cash equivalents
119.9

 
118.3

Trade accounts receivable, net
121.3

 
132.6

Accounts receivable—unconsolidated affiliate
12.9

 
14.1

Receivables from non-filing entities, net
147.5

 
160.5

Inventories
116.3

 
106.3

Other current assets
52.0

 
58.5

Total Current Assets
1,628.3

 
1,654.5

Properties and equipment, net
432.3

 
433.5

Deferred income taxes
907.1

 
935.5

Asbestos-related insurance
500.0

 
500.0

Loans receivable from non-filing entities, net
281.1

 
282.1

Investment in non-filing entities
480.7

 
449.5

Investment in unconsolidated affiliate
90.5

 
85.5

Other assets
50.9

 
47.2

Total Assets
$
4,370.9

 
$
4,387.8

LIABILITIES AND EQUITY
 
 
 
Liabilities Not Subject to Compromise
 
 
 
Current liabilities (including $5.9 due to unconsolidated affiliate) (2012—$6.0)
$
212.3

 
$
244.7

Underfunded defined benefit pension plans
75.3

 
161.0

Other liabilities (including $21.7 due to unconsolidated affiliate) (2012—$22.4)
55.8

 
56.5

Total Liabilities Not Subject to Compromise
343.4

 
462.2

Liabilities Subject to Compromise
3,626.2

 
3,617.1

Total Liabilities
3,969.6

 
4,079.3

Total W. R. Grace & Co. Shareholders' Equity
401.2

 
308.4

Noncontrolling interests in Chapter 11 filing entities
0.1

 
0.1

Total Equity
401.3

 
308.5

Total Liabilities and Equity
$
4,370.9

 
$
4,387.8

In addition to Grace's financial reporting obligations as prescribed by the SEC, the Debtors are also required, under the rules and regulations of the Bankruptcy Code, to periodically file certain statements and schedules with the Bankruptcy Court. This information is available to the public through the Bankruptcy Court. This information is prepared in a format that may not be comparable to information in Grace's quarterly and annual financial statements as filed with the SEC. These statements and schedules are not audited and do not purport to represent the financial position or results of operations of Grace on a consolidated basis.
3. Asbestos-Related Litigation
Grace is a defendant in property damage and personal injury lawsuits relating to previously sold asbestos-containing products. As of the Filing Date, Grace was a defendant in 65,656 asbestos-related lawsuits, 17 involving claims for property damage (one of which has since been dismissed), and the remainder involving 129,191 claims

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Notes to Consolidated Financial Statements (Continued)

3. Asbestos-Related Litigation (Continued)

for personal injury. Due to the Filing, holders of asbestos-related claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. Grace's obligations with respect to present and future asbestos claims will be determined through the Chapter 11 process.
Property Damage Litigation    The plaintiffs in asbestos property damage lawsuits generally seek to have the defendants pay for the cost of removing, containing or repairing the asbestos-containing materials in the affected buildings. Various factors can affect the merit and value of PD Claims, including legal defenses, product identification, the amount and type of product involved, the age, type, size and use of the building, the legal status of the claimant, the jurisdictional history of prior cases, the court in which the case is pending, and the difficulty of asbestos abatement, if necessary.
Out of 380 asbestos property damage cases (which involved thousands of buildings) filed prior to the Filing Date, 16 remain unresolved. Eight cases relate to ZAI and eight relate to a number of former asbestos-containing products (two of which also are alleged to involve ZAI).
Approximately 4,400 additional PD claims were filed prior to the March 31, 2003, claims bar date established by the Bankruptcy Court. (The March 31, 2003, claims bar date did not apply to ZAI claims.) Grace objected to virtually all PD claims on a number of legal and factual bases. As of March 31, 2013, approximately 430 PD Claims subject to the March 31, 2003, claims bar date remain outstanding. The Bankruptcy Court has approved settlement agreements covering approximately 410 of such claims for an aggregate allowed amount of $151.7 million.
Eight of the ZAI cases were filed as purported class action lawsuits in 2000 and 2001. In addition, 10 lawsuits were filed as purported class actions in 2004 and 2005 with respect to persons and homes in Canada. These cases seek damages and equitable relief, including the removal, replacement and/or disposal of all such insulation. The plaintiffs assert that this product is in millions of homes and that the cost of removal could be several thousand dollars per home. As a result of the Filing, all of these cases have been stayed.
Based on Grace's investigation of the claims described in these lawsuits, and testing and analysis of this product by Grace and others, Grace believes that ZAI was and continues to be safe for its intended purpose and poses little or no threat to human health. The plaintiffs in the ZAI lawsuits dispute Grace's position on the safety of ZAI. In December 2006, the Bankruptcy Court issued an opinion and order holding that, although ZAI is contaminated with asbestos and can release asbestos fibers when disturbed, there is no unreasonable risk of harm from ZAI. In the event the Joint Plan does not become effective, the ZAI claimants have reserved their right to appeal such opinion and order if and when it becomes a final order.
At the Debtors' request, in July 2008, the Bankruptcy Court established a claims bar date for U.S. ZAI PD Claims and approved a related notice program that required any person with a U.S. ZAI PD Claim to submit an individual proof of claim no later than October 31, 2008. Approximately 17,960 U.S. ZAI PD Claims were filed prior to the October 31, 2008, claims bar date, and as of March 31, 2013, an additional 1,310 U.S. ZAI PD Claims were filed. As described above, under the Canadian ZAI Settlement, all Canadian ZAI PD Claims filed before December 31, 2009, would be eligible to seek compensation from the Canadian ZAI property damage claims fund. Approximately 13,100 Canadian ZAI PD Claims were filed by December 31, 2009.
As described in Note 2, in November 2008, the Debtors, the Putative Class Counsel to the U.S. ZAI property damage claimants, the PD FCR, and the Equity Committee reached an agreement designed to resolve all present and future U.S. ZAI PD Claims. The terms of the U.S. and Canadian ZAI agreements in principle have been incorporated into the terms of the Joint Plan and related documents.
Upon the occurrence of the effective date under the Joint Plan, all pending and future PD Claims would be channeled for resolution to the PD Trust. PD Claims other than U.S. and Canadian ZAI PD Claims would be litigated in the Bankruptcy Court or a U.S. District Court, including all claims and defenses that would have been available to the parties prior to the filing of the Chapter 11 Cases as well as any defenses based on the March 31, 2003, claims bar date. Any claims determined to be allowed claims would be paid in cash by the PD Trust. Grace would be obligated to fund the PD Trust every six months in an amount sufficient to enable the PD Trust to pay all such allowed claims and Trust-related expenses.
All allowed U.S. ZAI PD Claims would be paid by the PD Trust from the ZAI PD account and all allowed Canadian ZAI PD Claims would be paid by the Canadian ZAI property damage claims fund. Grace would have no

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Notes to Consolidated Financial Statements (Continued)

3. Asbestos-Related Litigation (Continued)

liability or obligation for asbestos-related ZAI PD claims, except for its obligations to fund the PD Trust's ZAI PD account as described in Note 2.
Personal Injury Litigation    Asbestos personal injury claimants allege adverse health effects from exposure to asbestos-containing products formerly manufactured by Grace. Historically, Grace's cost to resolve such claims has been influenced by numerous variables, including the nature of the disease alleged, product identification, proof of exposure to a Grace product, negotiation factors, the solvency of other former producers of asbestos-containing products, cross-claims by co-defendants, the rate at which new claims are filed, the jurisdiction in which the claims are filed, and the defense and disposition costs associated with these claims.
As of the Filing Date, 129,191 PI Claims were pending against Grace. Grace believes that a substantial number of additional PI Claims would have been received between the Filing Date and March 31, 2013, had such PI Claims not been stayed by the Bankruptcy Court.
The Bankruptcy Court entered a case management order for estimating liability for pending and future PI Claims. A trial for estimating liability for PI Claims began in January 2008 but was suspended in April 2008 as a result of the PI Settlement.
Upon the occurrence of the effective date under the Joint Plan, all pending and future asbestos-related personal injury claims would be channeled for resolution to the PI Trust and Grace would have no liability or obligation for asbestos-related personal injury claims, except for its obligations to fund the PI Trust as described in Note 2.
Asbestos-Related Liability    The recorded asbestos-related liability as of March 31, 2013, and December 31, 2012, was $2,065.0 million and is included in "liabilities subject to compromise" in the accompanying Consolidated Balance Sheets. Grace increased its asbestos-related liability by $365.0 million in the 2012 fourth quarter to reflect an updated estimate of the value of the consideration payable to the PI Trust and the PD Trust (the "Trusts") under the Joint Plan, assuming emergence from bankruptcy at the end of 2013. As discussed in Note 2, Grace reached an agreement in October 2012 to cash settle the warrant to be issued to the PI Trust at emergence.
The components of the consideration payable to the Trusts under the Joint Plan are as follows:
The warrant to acquire 10 million shares of the Company's common stock for $17.00 per share, which will be recorded at fair value on the effective date of the Joint Plan. Under the agreement to cash settle the warrant, the warrant will have a value between $375 million and $490 million. Based on the current trading range of Company common stock and other valuation factors, Grace estimates the value of the warrant at emergence will be the maximum value of $490 million.
The deferred payment obligation of $110 million per year for five years beginning January 2, 2019, and of $100 million per year for ten years beginning January 2, 2024, which will be recorded at fair value on the effective date of the Joint Plan. Grace estimates the fair value of the deferred payment obligation to be $547 million at emergence. The value of the deferred payment obligation is affected by (i) interest rates; (ii) the Company's credit standing and the payment period of the deferred payments; (iii) restrictive covenants and terms of the Company's other credit facilities; (iv) assessment of the risk of a default, which if default were to occur would require Grace to issue shares of Company common stock; and (v) the subordination provisions of the deferred payment agreement.
The cash payable by Grace to fund the PI and PD Trusts as discussed in Note 2, which will be recorded at fair value on the effective date of the Joint Plan. Grace estimates the fair value of these payments to be $528 million at emergence.
As discussed in Note 2, proceeds with respect to all of Grace's insurance policies that provide coverage for asbestos-related claims would be transferred to the PI Trust under the Joint Plan. The recorded asbestos-related insurance receivable and related liability of $500.0 million at March 31, 2013, is within the reasonable range of possible valuations of these policies at emergence.
Grace periodically evaluates the recorded amount of its asbestos-related liability and may further adjust the liability prior to the effective date of the Joint Plan if it determines that the currently recorded amount no longer represents a reasonable estimate of the value of the consideration payable to the Trusts under the Joint Plan. The

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Notes to Consolidated Financial Statements (Continued)

3. Asbestos-Related Litigation (Continued)

recorded amount of the asbestos-related liabilities represents a reasonable estimate of the value of the consideration payable to the PI Trust and the PD Trust based on the range of reasonable valuations for the warrant, deferred payment obligations and other consideration payable to the PI Trust and the PD Trust under the Joint Plan as of March 31, 2013, and December 31, 2012.
The ultimate cost of settling the asbestos-related liability will be based on the value of the consideration transferred to the Trusts at emergence and will vary from the current estimate.
Appeals have been filed in the Third Circuit challenging the District Court order confirming the Joint Plan. If any such appeals are resolved adversely to Grace and the other Joint Plan proponents, and if the Joint Plan cannot be amended to address any deficiencies identified by the Third Circuit in a manner satisfactory to Grace and the other Joint Plan proponents, the Debtors would expect to resume the estimation trial, which was suspended in April 2008 due to the PI Settlement, to determine the amount of its asbestos-related liabilities. Through the PI Claim estimation process and the continued adjudication of PD Claims, Grace would seek to demonstrate that most claims have no value because they fail to establish any significant property damage, health impairment or occupational exposure to asbestos from Grace's operations or products. If the Bankruptcy Court agreed with Grace's position on the number of, and the amounts to be paid in respect of, allowed PI Claims and PD Claims, then Grace believes that the value of its asbestos-related liability could be lower than the recorded amount. However, this outcome would be highly uncertain and would depend on a number of Bankruptcy Court rulings favorable to Grace's position. Conversely, the PI and PD Committees and the PI FCR have asserted that Grace's asbestos-related liabilities are substantially higher than the recorded amount, and in fact are in excess of Grace's business value. If the Bankruptcy Court accepted the position of the PI and PD Committees and the PI FCR, then any plan of reorganization likely would result in the loss of all or substantially all equity value by current shareholders.
Insurance Rights    Grace holds insurance policies that provide coverage for 1962 to 1985 with respect to asbestos-related lawsuits and claims. For the most part, coverage for years 1962 through 1972 has been exhausted, leaving coverage for years 1973 through 1985 available for pending and future asbestos claims. Since 1985, insurance coverage for asbestos-related liabilities has not been commercially available to Grace. As discussed in Note 2, pursuant to the Joint Plan, proceeds with respect to all of Grace's insurance policies that provide coverage for asbestos-related claims would be transferred to the PI Trust.
For each insurance year, Grace's coverage consists of both primary and excess coverage. With one exception, coverage disputes regarding Grace's primary insurance policies have been settled, and those settlement amounts have been paid in full.
Grace has entered into settlement agreements, which are dependent upon the effectiveness of the Joint Plan, with underwriters of a portion of Grace's insurance coverage, which includes the unsettled primary coverage referenced in the preceding paragraph. Under most of these agreements, the insurers have agreed, subject to certain conditions, to pay to the PI Trust (directly or through an escrow arrangement) an aggregate of $395.2 million in respect of coverage under the affected policies. Under the remaining agreements, the insurers have agreed to reimburse the PI Trust, subject to certain conditions, which will result in a partial reimbursement of the claims actually paid by the PI Trust.
Prior to filing the Chapter 11 Cases, Grace entered into settlement agreements with various excess insurance carriers that are not dependent upon the effectiveness of the Joint Plan. The unpaid maximum aggregate amount available under these settlement agreements is approximately $487 million. Grace had no agreements in place with insurers with respect to approximately $483 million of excess coverage, which are at layers of coverage that have not yet been triggered. Settlement amounts are generally payable on a percentage of the claims actually paid, which is based on a number of factors including the years over which a claimant was exposed to an asbestos-containing product. Grace estimates that eligible claims would have to exceed $4.0 billion to access the total $970 million of coverage. In the event the Joint Plan becomes effective, some of this settled and unsettled coverage will be superseded by the settlement agreements that are dependent upon the effectiveness of the Joint Plan.
Grace has excess coverage with insolvent or non-paying insurance carriers. Non-paying carriers are those that, although technically solvent, are not currently meeting their obligations to pay claims. Grace has filed and continues to file claims in the insolvency proceedings of these carriers, and Grace periodically receives distributions from some of these insolvent carriers.

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Notes to Consolidated Financial Statements (Continued)

3. Asbestos-Related Litigation (Continued)

The amount of insurance recovered on claims by the PI Trust will depend on the aggregate amount of insurance settlements on the effective date of the Joint Plan and a number of factors that will be determined at the time claims are paid including: the nature of the claim, the relevant exposure years, the timing of payment, the solvency of insurers and the legal status of policy rights. Grace estimates that the recorded amount of $500.0 million is within the reasonable range of possible valuations of these policies at emergence.
4. Inventories
Inventories are stated at the lower of cost or market, and cost is determined using FIFO. Inventories consisted of the following at March 31, 2013, and December 31, 2012:
(In millions)
March 31,
2013
 
December 31, 2012
Raw materials
$
84.2

 
$
66.5

In process
48.6

 
46.1

Finished products
151.2

 
133.8

Other
33.8

 
32.2

 
$
317.8

 
$
278.6

5. Debt
Components of Debt
(In millions)
March 31,
2013
 
December 31, 2012
Debt payable within one year
$
67.5

 
$
83.4

Debt payable after one year
$
11.7

 
$
13.4

Debt Subject to Compromise
 
 
 
Bank borrowings
$
500.0

 
$
500.0

Accrued interest on bank borrowings
444.6

 
437.2

Drawn letters of credit
26.5

 
26.5

Accrued interest on drawn letters of credit
10.0

 
9.6

 
$
981.1

 
$
973.3

Weighted average interest rates on total debt
3.5
%
 
3.5
%
At March 31, 2013, the fair value of Grace's debt payable within one year not subject to compromise approximated the recorded value of $67.5 million. Fair value is determined based on expected future cash flows (discounted at market interest rates), quotes from financial institutions and other appropriate valuation methodologies. At March 31, 2013, the carrying value of Grace's bank debt subject to compromise plus interest was $981.1 million. The estimated fair value of the bank debt approximates the carrying value and is estimated using Level 2 inputs; however, because such debt is subject to compromise in Grace's Chapter 11 proceeding, neither carrying values nor market values may reflect ultimate liquidation value.
6. Fair Value Measurements and Risk
Certain of Grace's assets and liabilities are reported at fair value on a gross basis. ASC 820 "Fair Value Measurements and Disclosures" defines fair value as the value that would be received at the measurement date in the principal or "most advantageous" market. Grace uses principal market data, whenever available, to value assets and liabilities that are required to be reported at fair value.
Grace has identified the following financial assets and liabilities that are subject to the fair value analysis required by ASC 820:

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Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

Fair Value of Debt and Other Financial Instruments
See Note 5 for a discussion of the fair value of Grace's debt. At March 31, 2013, the recorded values of other financial instruments such as cash equivalents, short-term investments, and trade receivables and payables approximated their fair values, based on the short-term maturities and floating rate characteristics of these instruments.
Derivatives
From time to time, Grace enters into commodity derivatives such as fixed-rate swaps with financial institutions to mitigate the risk of volatility of prices of natural gas or other commodities. Under fixed-rate swaps, Grace locks in a fixed rate with a financial institution for future purchases, purchases its commodity from a supplier at the prevailing market rate, and then settles with the bank for any difference in the rates, thereby "swapping" a variable rate for a fixed rate.
The valuation of Grace's fixed-rate natural gas swaps was determined using a market approach, based on natural gas futures trading prices quoted on the New York Mercantile Exchange. Commodity fixed-rate swaps with maturities of not more than 12 months are used and designated as cash flow hedges of forecasted purchases of natural gas. Current open contracts hedge forecasted transactions until March 2014. The effective portion of the gain or loss on the commodity contracts is recorded in "accumulated other comprehensive loss" and reclassified into income in the same period or periods that the underlying commodity purchase affects income. At March 31, 2013, the contract volume, or notional amount, of the commodity contracts was 2.8 million MMBtu (million British thermal units) with a total contract value of $10.8 million.
The valuation of Grace's fixed-rate aluminum swaps was determined using a market approach, based on aluminum futures trading prices quoted on the London Metal Exchange. Commodity fixed-rate swaps with maturities of not more than 12 months are used and designated as cash flow hedges of forecasted purchases of aluminum. Current open contracts hedge forecasted transactions until March 2014. The effective portion of the gain or loss on the commodity contracts is recorded in "accumulated other comprehensive loss" and reclassified into income in the same period or periods that the underlying commodity purchase affects income. At March 31, 2013, the contract volume, or notional amount, of the commodity contracts was 3.0 million pounds with a total contract value of $2.8 million.
Because Grace does business in over 40 countries, 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 will use financial instruments such as currency forward contracts, options, or combinations of the two 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.
From time to time, Grace enters into currency exchange rate forward and/or option contracts to mitigate the effects of exchange rate fluctuations. The valuation of Grace's currency exchange rate forward contracts is determined using both a market approach and an income approach. Inputs used to value currency exchange rate forward contracts consist of: (1) spot rates, which are quoted by various financial institutions; (2) forward points, which are primarily affected by changes in interest rates; and (3) discount rates used to present value future cash flows, which are based on the London Interbank Offered Rate (LIBOR) curve or overnight indexed swap rates.
In November 2007, Grace purchased currency forward contracts to mitigate the effect of currency risk with respect to intercompany loans between its principal U.S. subsidiary and a German subsidiary. As of March 31, 2013, the total notional amount related to the remaining outstanding currency forward contracts was €194.5 million. These derivatives are not designated as hedging instruments under ASC 815 "Derivatives and Hedging".

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013, and December 31, 2012:
 
Fair Value Measurements at
March 31, 2013 Using
Items Measured at Fair Value on a Recurring Basis
(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
$
3.6

 
$

 
$
3.6

 
$

Commodity derivatives
0.9

 

 
0.9

 

Total Assets
$
4.5

 
$

 
$
4.5

 
$

Liabilities
 
 
 
 
 
 
 
Currency derivatives
$
0.4

 
$

 
$
0.4

 
$

Commodity derivatives
0.2

 

 
0.2

 

Total Liabilities
$
0.6

 
$

 
$
0.6

 
$


 
Fair Value Measurements at
December 31, 2012 Using
Items Measured at Fair Value on a Recurring Basis
(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
$
1.2

 
$

 
$
1.2

 
$

Commodity derivatives
0.2

 

 
0.2

 

Total Assets
$
1.4

 
$

 
$
1.4

 
$

Liabilities
 
 
 
 
 
 
 
Currency derivatives
$
5.1

 
$

 
$
5.1

 
$

Commodity derivatives
0.4

 

 
0.4

 

Total Liabilities
$
5.5

 
$

 
$
5.5

 
$

The following tables present the location and fair values of derivative instruments included in the Consolidated Balance Sheets as of March 31, 2013, and December 31, 2012:
 
Asset Derivatives
 
Liability Derivatives
Fair Values of Derivative Instruments at March 31, 2013
(In millions)
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
$
0.9

 
Other current liabilities
 
$
0.2

Currency contracts
Other current assets
 
0.8

 
Other current liabilities
 
0.4

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Currency contracts
Other current assets
 
2.8

 
Other current liabilities
 

Total derivatives
 
 
$
4.5

 
 
 
$
0.6



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Table of Contents
Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

 
Asset Derivatives
 
Liability Derivatives
Fair Values of Derivative Instruments at December 31, 2012
(In millions)
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
$
0.2

 
Other current liabilities
 
$
0.4

Currency contracts
Other current assets
 
1.2

 
Other current liabilities
 
0.2

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Currency contracts
Other current assets
 

 
Other current liabilities
 
4.9

Total derivatives
 
 
$
1.4

 
 
 
$
5.5


The following tables present the location and amount of gains and losses on derivative instruments included in the Consolidated Statements of Operations or, when applicable, gains and losses initially recognized in other comprehensive income (loss) ("OCI") for the three months ended March 31, 2013 and 2012:
The Effect of Derivative Instruments on the Consolidated Statement of Operations for the Three Months Ended March 31, 2013
(In millions)
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
(Effective Portion)
Derivatives in ASC 815 cash flow hedging relationships:
 
 
 
 
 
Currency contracts
$
(0.3
)
 
Other income (expense)
 
$
(0.2
)
Currency contracts
(0.2
)
 
Cost of goods sold
 
0.1

Commodity contracts
0.7

 
Cost of goods sold
 
(0.3
)
Total derivatives
$
0.2

 
 
 
$
(0.4
)
 
 
 
 
 
 
 
 
Location of Gain or (Loss) Recognized in Income on Derivatives
 
Amount of Gain or (Loss) Recognized in Income on Derivatives
Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
Currency contracts
 
Other income (expense)
 
$
7.7


The Effect of Derivative Instruments on the Consolidated Statement of Operations for the Three Months Ended March 31, 2012
(In millions)
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
(Effective Portion)
Derivatives in ASC 815 cash flow hedging relationships:
 
 
 
 
 
Currency contracts
$
0.2

 
Cost of goods sold
 
$
(0.2
)
Commodity contracts
(2.8
)
 
Cost of goods sold
 
(2.2
)
Total derivatives
$
(2.6
)
 
 
 
$
(2.4
)
 
 
 
 
 
 
 
 
Location of Gain or (Loss) Recognized in Income on Derivatives
 
Amount of Gain or (Loss) Recognized in Income on Derivatives
Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
Currency contracts
 
Other income (expense)
 
$
(8.9
)
Debt and Interest Rate Swap Agreements
Grace was not a party to any debt or interest rate swaps at March 31, 2013, and December 31, 2012.

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

Credit Risk
Grace is exposed to credit risk in its trade accounts receivable. Customers in the petroleum refining and construction industries represent the greatest exposure. Grace's credit evaluation policies, relatively short collection terms and history of minimal credit losses mitigate credit risk exposures. 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 its derivatives counterparties. Grace's derivatives contracts are with internationally recognized commercial financial institutions.
7. Income Taxes
The income tax provision on 2013 forecasted annual income is estimated to be 34.5% as of March 31, 2013, compared with a benefit of 64.6% for the year ended December 31, 2012. The 2012 benefit was primarily due to the $365.0 million charge to increase the asbestos-related liability, the release of the state valuation allowance, and the utilization of domestic production activity incentives.
Grace generally has not had to pay U.S. Federal income taxes in cash in recent years since available tax deductions and credits have fully offset U.S. taxable income.
Grace files U.S. federal income tax returns as well as income tax returns in various state and foreign jurisdictions. In many cases, Grace's uncertain tax positions are related to income tax returns for tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by major jurisdiction:
Tax Jurisdiction(1)
Examination
in Progress
 
Examination Not
Yet Initiated
United States—Federal
2007 - 2009
 
2010 - 2012
United States—State
2007 - 2011
 
2009 - 2012
Germany
2006 - 2008
 
2009 - 2012
France
2009 - 2011
 
2012
United Kingdom
None
 
2008 - 2012
Italy
None
 
2008 - 2012
Canada
None
 
2006 - 2012
_______________________________________________________________________________
(1)
Includes federal, state, provincial or local jurisdictions, as applicable.
Grace notes that there are 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 large taxpayer, Grace is under continual audit by the various tax authorities on open-year tax positions. Based on the status of current examinations in various taxing jurisdictions and applicable judicial decisions applied to Grace's fact pattern, Grace believes it is reasonably possible that in the next 12 months, the amount of the liability for unrecognized tax benefits could increase by as much as $84 million, along with accelerated recognition of a deferred charge of $3.1 million, or decrease by as much as $78 million.
Grace accrues potential interest and any associated penalties related to uncertain tax positions in "provision for income taxes" in the Consolidated Statements of Operations. The total amount of interest and penalties accrued on uncertain tax positions included in the Consolidated Balance Sheets was $9.0 million ($6.3 million net of applicable tax benefits) and $8.3 million ($5.5 million net of applicable tax benefits) as of March 31, 2013, and December 31, 2012, respectively.

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Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans

Pension Plans    The following table presents the funded status of Grace's fully-funded, underfunded, and unfunded pension plans:
(In millions)
March 31,
2013
 
December 31, 2012
Overfunded defined benefit pension plans
$
36.5

 
$
33.8

Underfunded defined benefit pension plans
(95.2
)
 
(179.7
)
Unfunded defined benefit pension plans
(213.9
)
 
(220.9
)
Total underfunded and unfunded defined benefit pension plans
(309.1
)
 
(400.6
)
Unfunded defined benefit pension plans included in liabilities subject to compromise
(126.0
)
 
(128.5
)
Pension liabilities included in other current liabilities
(13.8
)
 
(14.0
)
Net funded status
$
(412.4
)
 
$
(509.3
)
Fully-funded plans include several advance-funded plans where the fair value of the plan assets exceeds the projected benefit obligation ("PBO"). This group of plans was overfunded by $36.5 million as of March 31, 2013, and the overfunded status is reflected as "overfunded defined benefit pension plans" in the Consolidated Balance Sheets. Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded. The combined balance of the underfunded and unfunded plans was $448.9 million as of March 31, 2013.
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") in accordance with U.S. federal laws and regulations. Non-U.S. pension plans ("non-U.S. pension plans") are funded under a variety of methods, as required under local laws and customs.
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, 2012, measurement date for Grace's defined benefit pension plans, the PBO was approximately $1,955 million as measured under U.S. GAAP. The PBO basis reflects the present value (using a 3.75% discount rate for U.S. plans and a 4.06% weighted average discount rate for non-U.S. plans as of December 31, 2012) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees.
On a quarterly basis, Grace analyzes pension assets and pension liabilities along with the resulting funded status and updates its estimate of these measures. Funded status is adjusted for contributions, benefit payments, actual return on assets, current discount rates, and other identifiable and material actuarial changes. A full remeasurement is performed annually.
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 the overall market interest rates. For the U.S. qualified pension plans, the assumed discount rate of 3.75% as of December 31, 2012, 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. Based on review of an updated yield curve analysis as of March 31, 2013, Grace increased the discount rate for the U.S. qualified pension plans from 3.75% at December 31, 2012, to 4.00% at March 31, 2013, based on market rates at that time. Grace also evaluated the current discount rates for the pension plans in the United Kingdom, Germany and Canada, which combined represented approximately 90% of the benefit obligation of the non-U.S. pension plans as of December 31, 2012. Based on review of the yield curve analyses for these plans as of March 31, 2013, Grace changed the discount rate for Canada from 4.50% at December 31, 2012, to 4.25% at March 31, 2013. Grace did not change the discount rates in effect at December 31, 2012, for the United Kingdom (4.25%) and Germany

30

Table of Contents
Notes to Consolidated Financial Statements (Continued)

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

(3.50%). The funded status as of March 31, 2013, reflects a decrease in total liabilities of approximately $36 million as compared with December 31, 2012, resulting from the change in discount rates.
Postretirement Benefits Other Than Pensions    Grace provides postretirement health care and life insurance benefits for retired employees of certain U.S. business units and certain divested business units. The postretirement medical plan provides various levels of benefits to employees hired before 1993 who retire from Grace after age 55 with at least 10 years of service. These plans are unfunded and Grace pays a portion of the costs of benefits under these plans as they are incurred. Grace applies ASC 715 to these plans, which requires that the future costs of postretirement health care and life insurance benefits be accrued over the employees' years of service.
Retirees and beneficiaries covered by the postretirement medical plan are required to contribute a minimum of 40% of the calculated premium for that coverage. During 2002, per capita costs under the retiree medical plans exceeded caps on the amount Grace was required to contribute under a 1993 amendment to the plan. As a result, for 2003 and future years, retirees will bear 100% of any increase in premium costs.
For 2013 measurement purposes, per capita costs, before retiree contributions, were assumed to initially increase at a rate of 8.25%. The rate of increase is assumed to decrease gradually to 5% through 2020 and remain at that level thereafter. A one percentage point increase or decrease in assumed health care medical cost trend rates would not materially change Grace's postretirement benefit obligations (impact of less than $1 million) and would have a negligible impact on the aggregate of the service and interest cost components of net periodic benefit cost.
Components of Net Periodic Benefit Cost
 
Three Months Ended March 31,
 
2013
 
2012
 
Pension
 
Other Post
Retirement
 
Pension
 
Other Post
Retirement
(In millions)
U.S.
 
Non-U.S.
 
 
U.S.
 
Non-U.S.
 
Service cost
$
6.4

 
$
2.8

 
$
0.1

 
$
5.5

 
$
2.3

 
$
0.1

Interest cost
13.0

 
5.1

 
0.5

 
14.2

 
5.5

 
0.6

Expected return on plan assets
(17.0
)
 
(3.5
)
 

 
(15.0
)
 
(3.7
)
 

Amortization of prior service cost
0.2

 

 

 
0.2

 

 

Amortization of net deferred actuarial loss
9.6

 
2.0

 
0.1

 
8.6

 
1.2

 
0.2

Net periodic benefit cost
$
12.2

 
$
6.4

 
$
0.7

 
$
13.5

 
$
5.3

 
$
0.9

Plan Contributions and Funding    Subject to any required approval of the Bankruptcy Court, Grace intends to satisfy its funding obligations under the U.S. qualified pension plans and to comply with all of the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). For ERISA purposes, funded status is calculated on a different basis than under U.S. GAAP. On March 11, 2013, Grace obtained Bankruptcy Court approval to make an accelerated contribution to the U.S. qualified pension plans of up to $50 million in 2013. In that regard, Grace contributed approximately $50 million in the first quarter of 2013 to the trusts that hold assets of the U.S. qualified pension plans. While Grace intends to continue to fund all minimum required payments under the U.S. qualified pension plans, there can be no assurance that the Bankruptcy Court will continue to approve these payments.
Contributions to non-U.S. pension plans are not subject to Bankruptcy Court approval and Grace intends to fund such plans based on applicable legal requirements and actuarial and trustee recommendations.
Grace plans to pay benefits as they become due under virtually all pay-as-you-go plans and to maintain compliance with federal funding laws for its U.S. qualified pension plans.
Defined Contribution Retirement Plan    Grace sponsors a defined contribution retirement plan for its employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, Grace contributes an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Grace's cost related to this benefit plan for the three months ended March 31, 2013, was $3.3 million compared with $3.4 million for the prior-year period.

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Table of Contents
Notes to Consolidated Financial Statements (Continued)

9. Other Balance Sheet Accounts
(In millions)
March 31,
2013
 
December 31,
2012
Other Current Liabilities
 
 
 
Accrued compensation
$
56.6

 
$
84.5

Income tax payable
41.3

 
44.8

Customer volume rebates
22.8

 
32.5

Pension liabilities
13.8

 
14.0

Accrued Chapter 11 reorganization expenses
8.2

 
6.6

Accrued commissions
5.6

 
12.9

Restructuring liability
2.4

 
3.0

Fair value of currency forward and commodity contracts
0.6

 
5.5

Deferred tax liability
0.6

 
0.6

Other accrued liabilities
87.0

 
102.9

 
$
238.9

 
$
307.3

Accrued compensation in the table above includes salaries and wages as well as estimated current amounts due under the annual and long-term incentive programs.
10. Commitments and Contingent Liabilities
See Note 3 to the Consolidated Financial Statements for a discussion of Grace's asbestos-related liability.
Environmental Remediation    Grace is subject to loss contingencies resulting from extensive and evolving federal, state, local and foreign environmental laws and regulations relating to the generation, storage, handling, discharge, disposition and stewardship of hazardous wastes and other materials. Grace accrues for anticipated costs associated with investigative and remediation efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably estimated. These accruals do not take into account any discounting for the time value of money.
Grace's environmental liabilities are reassessed whenever circumstances become better defined or remediation efforts and their costs can be better estimated. These liabilities are evaluated based on currently available information, including the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, existing technology, prior experience in contaminated site remediation and the apportionment of costs among potentially responsible parties.
Estimated Investigation and Remediation Costs
At March 31, 2013, Grace's estimated liability for environmental investigation and remediation costs (non-asbestos and asbestos-related) totaled $139.9 million, compared with $141.5 million at December 31, 2012. These amounts are based on funding and/or remediation agreements in place, including the Multi-Site Agreement described below, and Grace's estimate of costs for sites not subject to a formal remediation plan for which sufficient information is available to estimate investigation and remediation costs. These amounts do not include the cost to remediate the Libby vermiculite mine or costs related to any additional EPA claims, whether resulting from EPA's reinvestigation of vermiculite facilities or otherwise, which may be material but are not currently estimable. Due to these vermiculite-related matters, it is probable that Grace's actual investigation and remediation costs will exceed Grace's current estimates by material amounts. Net cash expenditures charged against previously established reserves for the three months ended March 31, 2013 and 2012, were $2.6 million and $4.4 million, respectively.
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 that was mined at the Libby mine contained naturally occurring asbestos. The U.S. Environmental Protection Agency (EPA) has investigated sites, including some owned by Grace, which used, stored or processed

32

Table of Contents
Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

vermiculite concentrate from the Libby mine. EPA, Grace and/or other potentially responsible parties have conducted investigations and/or remedial actions at those sites identified by EPA as requiring remedial action.
During 2010, EPA began reinvestigating up to 105 facilities where vermiculite concentrate from the Libby mine was processed. Grace is cooperating with EPA on this reinvestigation. EPA has requested that Grace perform remediation at eight of these facilities. It is probable that EPA will request additional remediation at other facilities. Grace does not have sufficient information to identify either the sites that might require additional remediation or the cost of any additional remediation. Grace will continue to monitor EPA's reinvestigation of the remaining sites and assess any information received from EPA. A liability will be recorded in the future should Grace determine that an obligation is probable and reasonably estimable.
Grace's total estimated liability for asbestos remediation studies and other estimable matters related to its former vermiculite operations in Libby, as well as the cost of remediation at vermiculite processing sites outside of Libby, at March 31, 2013, and December 31, 2012, was $60.3 million and $60.8 million, respectively, excluding interest where applicable. It is probable that Grace's ultimate liability will exceed current estimates by material amounts. Grace's current recorded liability will be adjusted as Grace receives new information and amounts become reasonably estimable.
Non-Vermiculite-Related Matters
At March 31, 2013, and December 31, 2012, Grace's estimated liability for remediation of sites not related to its former vermiculite mining and processing activities was $79.6 million and $80.7 million, respectively. This liability relates to Grace's current and former operations, including its share of liability for off-site disposal at facilities where it has been identified as a potentially responsible party. Grace's estimated liability is based upon an evaluation of claims for which sufficient information is available. As Grace receives new information and continues its claims evaluation process, its estimated liability may change materially.
Multi-Site Settlement
EPA filed proofs of claim with respect to potential contamination at 38 sites, including vermiculite-related claims and non-vermiculite-related claims. In June 2008, Grace entered into a multi-site settlement agreement (the "Multi-Site Agreement") with the U.S. Government, on behalf of EPA and other federal agencies. Under the Multi-Site Agreement, Grace agreed to pay approximately $44 million, which is included in the liabilities described above, to the U.S. Government and other parties in settlement of 35 of these outstanding claims and the U.S. Government has agreed not to take action against Grace under the Comprehensive Environmental Response, Compensation, and Liability Act with respect to these sites. Grace is implementing remediation at two of the remaining sites. With respect to the third remaining site, Libby, Montana, EPA's claims have been resolved except for claims related to the Grace-owned Libby vermiculite mine and the surrounding bodies of water and forest lands. Grace is cooperating with EPA to investigate these areas and determine a final remedy. The settlement amount under the Multi-Site Agreement is payable upon Grace's emergence from Chapter 11.
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, asphalt, amines and other materials. Such commitments are for quantities that Grace fully expects to use in its normal operations.
Guarantees and Indemnification Obligations    Grace is a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of:
Product warranties with respect to certain products sold to customers in the ordinary course of business. These warranties typically provide that products will conform to specifications. Grace generally does not establish a liability for product warranty based on a percentage of sales or other formula. Grace accrues a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale. Both the liability and annual expense related to product warranties are immaterial to the Consolidated Financial Statements.
Licenses of intellectual property by Grace to third parties in which Grace has agreed to indemnify the licensee against third party infringement claims.

33

Table of Contents
Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

Contracts providing for the sale of a former business unit or product line in which Grace has agreed to indemnify the buyer against liabilities arising prior to the closing of the transaction, including environmental liabilities.
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, asbestos settlements and appeals, trade-related commitments and other matters. At March 31, 2013, Grace had gross financial assurances issued and outstanding of $262.4 million, composed of $108.4 million of surety bonds issued by various insurance companies and $154.0 million of standby letters of credit and other financial assurances issued by various banks; $88.5 million of these financial assurances have been issued under the letter of credit facility.
Accounting for Contingencies    Although the outcome of each of the matters discussed above cannot be predicted with certainty, Grace has assessed its risk and has made accounting estimates as required under U.S. GAAP. As a result of the Filing, claims related to certain of the items discussed above will be addressed as part of Grace's Chapter 11 proceedings. Accruals recorded for such contingencies have been included in "liabilities subject to compromise" in the accompanying Consolidated Balance Sheets. The amounts of these liabilities as ultimately determined through the Chapter 11 proceedings could be materially different from amounts recorded at March 31, 2013.
11. Restructuring Expenses and Related Asset Impairments
In the first quarter of 2013, Grace continued to incur cost from restructuring actions as a result of the realignment of the businesses and corporate structure. Grace incurred $0.8 million ($0.4 million in Catalysts Technologies, $0.1 million in Materials Technologies, and $0.3 million in Construction Products) of restructuring expenses and related asset impairments during the first quarter of 2013, compared with $3.0 million during the first quarter of 2012. Substantially all costs related to the restructuring programs are expected to be paid by December 31, 2013.
Restructuring Expenses and Related Asset Impairments
(In millions)
Three Months Ended
March 31,
2013
 
2012
Severance and other employee related costs
$
0.6

 
$
2.9

Asset impairments and other restructuring costs
0.2

 
0.1

Total restructuring expenses and related asset impairments
$
0.8

 
$
3.0


Restructuring Liability
(In millions)
Total
Balance, December 31, 2012
$
3.0

Accruals for severance and other employee related costs
0.6

Payments
(1.2
)
Balance, March 31, 2013
$
2.4


34

Table of Contents
Notes to Consolidated Financial Statements (Continued)

12. Other (Income) Expense, net
Components of other (income) expense, net are as follows:
 
Three Months Ended
March 31,
(In millions)
2013
 
2012
Translation effects—intercompany loans
$
7.4

 
$
(9.6
)
Value of currency forward contracts—intercompany loans
(7.7
)
 
8.1

Currency transaction loss in Venezuela
8.5

 

Other currency transaction effects
(0.1
)
 
1.1

Interest income of non-Debtor subsidiaries
(0.2
)
 
(0.1
)
Net loss on sales of investments and disposals of assets
0.1

 
0.2

Other miscellaneous income
(1.9
)
 
(0.3
)
Total other (income) expense, net
$
6.1

 
$
(0.6
)
13. Other Comprehensive Income
The following tables present the pre-tax, tax, and after-tax components of Grace's other comprehensive income for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31, 2013
(In millions)
Pre-Tax
Amount
 
Tax Benefit/
(Expense)
 
After-Tax
Amount
Defined benefit pension and other postretirement plans:
 
 
 
 
 
Amortization of net prior service cost included in net periodic benefit cost
$
0.2

 
$
(0.1
)
 
$
0.1

Amortization of net deferred actuarial loss included in net periodic benefit cost
11.7

 
(4.0
)
 
7.7

Other changes in funded status
42.9

 
(14.5
)
 
28.4

Benefit plans, net
54.8

 
(18.6
)
 
36.2

Currency translation adjustments
(6.5
)
 

 
(6.5
)
Gain from hedging activities
0.6

 
(0.2
)
 
0.4

Other comprehensive income attributable to W. R. Grace & Co. shareholders
$
48.9

 
$
(18.8
)
 
$
30.1


Three Months Ended March 31, 2012
(In millions)
Pre-Tax
Amount
 
Tax Benefit/
(Expense)
 
After-Tax
Amount
Defined benefit pension and other postretirement plans:
 
 
 
 
 
Amortization of net prior service cost included in net periodic benefit cost
$
0.2

 
$
(0.1
)
 
$
0.1

Amortization of net deferred actuarial loss included in net periodic benefit cost
10.0

 
(3.4
)
 
6.6

Other changes in funded status
7.5

 
(4.1
)
 
3.4

Benefit plans, net
17.7

 
(7.6
)
 
10.1

Currency translation adjustments
6.2

 

 
6.2

Loss from hedging activities
(0.2
)
 
0.1

 
(0.1
)
Other comprehensive income attributable to W. R. Grace & Co. shareholders
$
23.7

 
$
(7.5
)
 
$
16.2



35

Table of Contents
Notes to Consolidated Financial Statements (Continued)

13. Other Comprehensive Income (Continued)

The following tables present the changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31, 2013
(In millions)
 
Defined Benefit Pension and Other Postretirement Plans
 
Currency Translation Adjustments
 
Gains and Losses from Hedging Activities
 
Unrealized Loss on Investment
 
Total
Beginning balance
 
$
(641.8
)
 
$
35.6

 
$
(0.3
)
 
$
(0.8
)
 
$
(607.3
)
Other comprehensive income (loss) before reclassifications
 
28.4

 
(6.5
)
 
0.1

 

 
22.0

Amounts reclassified from accumulated other comprehensive loss
 
7.8

 

 
0.3

 

 
8.1

Net current-period other comprehensive income (loss)
 
36.2

 
(6.5
)
 
0.4

 

 
30.1

Ending balance
 
$
(605.6
)
 
$
29.1

 
$
0.1

 
$
(0.8
)
 
$
(577.2
)

Three Months Ended March 31, 2012
(In millions)
 
Defined Benefit Pension and Other Postretirement Plans
 
Currency Translation Adjustments
 
Gains and Losses from Hedging Activities
 
Unrealized Loss on Investment
 
Total
Beginning balance
 
$
(605.2
)
 
$
30.2

 
$
(2.7
)
 
$
(0.8
)
 
$
(578.5
)
Other comprehensive income (loss) before reclassifications
 
3.4

 
6.2

 
(1.7
)
 

 
7.9

Amounts reclassified from accumulated other comprehensive loss
 
6.7

 

 
1.6

 

 
8.3

Net current-period other comprehensive income (loss)
 
10.1

 
6.2

 
(0.1
)
 

 
16.2

Ending balance
 
$
(595.1
)
 
$
36.4

 
$
(2.8
)
 
$
(0.8
)
 
$
(562.3
)


36

Table of Contents
Notes to Consolidated Financial Statements (Continued)

13. Other Comprehensive Income (Continued)

The following tables present the amounts reclassified out of accumulated other comprehensive loss for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31, 2013
(In millions)
 
Amount of Gain or (Loss) Reclassified From Accumulated OCI
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
Defined benefit pension and other postretirement plans:
 
 
 
 
Amortization of net prior service cost
 
$
(0.2
)
 
Defined benefit pension expense
Amortization of net deferred actuarial loss
 
(11.7
)
 
Defined benefit pension expense
Total before tax
 
(11.9
)
 
 
Tax (expense) benefit
 
4.1

 
 
Net of tax
 
$
(7.8
)
 
 
 
 
 
 
 
Gain (loss) from hedging activities
 
 
 
 
Currency contracts
 
$
(0.2
)
 
Other income (expense)
Currency contracts
 
0.1

 
Cost of goods sold
Commodity contracts
 
(0.3
)
 
Cost of goods sold
Total before tax
 
(0.4
)
 
 
Tax (expense) benefit
 
0.1

 
 
Net of tax
 
(0.3
)
 
 
Total reclassifications for the period, net of tax
 
$
(8.1
)
 
 

Three Months Ended March 31, 2012
(In millions)
 
Amount of Gain or (Loss) Reclassified From Accumulated OCI
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
Defined benefit pension and other postretirement plans:
 
 
 
 
Amortization of net prior service cost
 
$
(0.2
)
 
Defined benefit pension expense
Amortization of net deferred actuarial loss
 
(10.0
)
 
Defined benefit pension expense
Total before tax
 
(10.2
)
 
 
Tax (expense) benefit
 
3.5

 
 
Net of tax